Glossary Of Real Estate Terms

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

Adjustable-Rate Mortgage (ARM): A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index.

Agency: The relationship between a principal and an agent, wherein the agent is authorized to represent the principal in certain transactions.

Agreement of Sale: An offer to purchase that has been accepted by the seller and has become a binding contract.

Amendment: A change to the existing content of a contract (i.e., if words or provisions are added to or deleted from the body of the contract). Must be initialed by all parties.

Amortized Loan: A loan in which the principal as well as the interest is payable in monthly or other periodic installations over the term of the loan.

Appraisal: An estimate of the quantity, quality, or value of something. The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.

B

Broker: One who buys and sells for another for a commission. In real estate, a broker must be properly licensed to perform certain activities specified in the real estate license laws and collect compensation.

Buyer Agency Agreement: A principal-agent relationship in which the broker is the agent for the buyer, with fiduciary responsibilities to the buyer. The broker represents the buyer under the law of agency.

C

Capitalization Rate: The rate of return a property will produce on the owner’s investment.

Certification of Occupancy: Permission by the municipal inspector to occupy a completed building structure after is has been inspected and complies with building codes.

Closing: An event where promises made in a sales contract are fulfilled and mortgage loan funds (if any) are distributed to the buyer.

Commission: Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.

Comparative Market Analysis (CMA): A written analysis, opinion, or conclusion by a contracted buyer’s agent, transaction licensee, or an actual or potential seller’s agent relating to the probable price of a specified piece of real estate. A CMA is a comparison of the prices of recently sold homes that are similar to a listing seller’s home in terms of location, style, and amenities. Also called a competitive market analysis.

Condominium: The absolute ownership of a unit in a multi-unit building based on a legal description of the airspace the unit actual occupies, plus and undivided interest in the ownership of the common elements, which are owned jointly with the other condominium unit owners.

Construction Loan: A short-term loan usually made during the construction phase of a building project (may be called interim financing).

Consumer Notice: A specific form adopted by the State Real Estate Commission in PA to disclose information about permitted business relationships and specific agency procedures in real estate transactions. The notice must be presented at an initial interview to any consumer of real estate services.

Contingency: Provisions in a contract that require a certain act to be done to a certain event to occur before the contract becomes binding.

Conventional Loan: A loan that is not insured or guaranteed by a government or private source.

Counteroffer: A new offer made as a reply to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror.

Covenants, Conditions, and Restrictions (CC&Rs): Private agreements that affect the land use. They may be enforced by an owner of real estate and included in the seller’s deed to the buyer.

Customer: A person who is a consumer of real estate services, who is not a client of the real estate licensee. A customer receives customer-level services rather than client-level services, which means the customer is not being represented by the licensee as the principal in an agency relationship.

D

Deed: A written instrument that, when executed and delivered, conveys title to or an interest in real estate.

Deed Restriction: A clause in a deed limiting the future use of the property. Deed restrictions may impose a vast variety of limitations and conditions—for example, they may limit the destiny of buildings, dictate the types of structures that can be erected, or prevent buildings from being used for specific purposes or even from being used at all.

Designated Agency: The process wherein one or more licensees are designated by the employing broker to act exclusively as agent(s) on behalf of the principal to the exclusion of all other licensees with the broker’s employ.

Developer: One who attempts to put land to its most profitable use through the construction of improvements.

Dual Agency: Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states.

E

Earnest Money: Money deposited by a buyer under the terms of a contract, to be forfeited of the buyer defaults but applied to the purchase price if the sale is closed; also known as hand money.

Easement: A right to use the land of another for a specific purpose, such as for a right-of-way or utilities; an incorporeal estate interest in land.

Elevation certificate: A form supplied by a licensed surveyor certifying building elevations and required to show compliance with community floodplain regulations and determine appropriate insurance rates.

Eminent Domain: The right of a governor or municipal quasi-public body to acquire property for public use through the legal process called condemnation.

Encroachment: A building or some portion of it—a wall or a fence, for instance—that extends beyond the land of the owner and illegally intrudes on some land of an adjoining owner or a street or alley.

Equity: The interest or value that an owner has in property over and above an indebtedness.

Exclusive-right-to-sell listing: A listing contract under which owners appoint a real estate broker as their exclusive agent for a designated period, to sell the property on the owners’ state terms, and agree to pay the broker a commission when the property is sold, whether by the broker, the owners, or another broker.

Executed Contract: A contract in which all parties have fulfilled their promises and thus performed the contract.

F

Fair Housing Act: The federal law that prohibits discrimination in housing based on race, color, religion, sex, disability, familial status, and national origin.

FHA Loan: A loan insured by the Federal Housing Administration and made by an approved lender in accordance with FHA’s regulations.

Fiduciary Duties: The common-law duties that an agent owes a principal in a fiduciary relationship: care, obedience, accounting, loyalty, disclosure, and notice.

G

Good Faith Estimate (GFE): The form used to provide an estimate of all closing fees to a borrower within three days of the loan application as required by the Real Estate Settlement Procedures Act (RESPA).

I

Interest: A charge made by a lender for the use of money.

L

Latent Defect: A hidden structural defect that is not discovered by ordinary inspection and that threatens the property’s soundness or the safety of its inhabitants. Sellers and licensees have a duty to inspect for and disclose latent defects.

Legal Description: A description of a specific parcel of real estate complete enough for an independent surveyor to locate and identify it.

Listing Agreement: A contract between an owner (as principal) and real estate broker (as agent) by which the broker is employed as agent to find a buyer for the owner’s real estate on the owner’s terms, for which service the owner agrees to pay a commission.

Loan-to-value (LTV) ratio: The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

M

Marketable Title: A good or clear title, reasonably free from the risk of litigation over possible defects.

Market Value: The most probable price property would bring in an arms-length transaction under normal conditions on the open market.

Mechanic’s Lien: A statutory lien created in favor of contractors, laborers, and materialmen who have performed work or furnished material in the erection or repair of a building.

Megan’s law: federal legislation that promotes the establishment of state registration systems to maintain residential information on every person who kidnaps children, commits sexual crimes against children, or commits sexually violent crimes.

Mill: one-tenth of a cent. Some states use a mill rate to compute real estate taxes; for example a rate of 52 mills would be $0.052 tax for each dollar of assessed valuation of a property.

Mortgage: A conditional transfer or pledge of real estate as security for the payment of a debt; also, the document creating a mortgage lien.

Multiple Listing Service (MLS): A marketing organization composed of member brokers who agree to share their listing agreements with one another in hopes of procuring ready, willing, and able buyers for their properties more quickly than they could on their own.

N

Non-Conforming Use: A use of property that is permitted to continue after a zoning ordinance prohibiting is has been established for the area.

P

PITI: The basic costs of owning a home—mortgage principal and interest, real estate taxes, and hazards insurance.

Planned Unit Development (PUD): A planned combination of diverse land uses, such as housing, recreation, and shopping, in one contained development or subdivision.

Prepaid Items: on closing statement, items that have been paid in advance by sellers, such as insurance premiums and some real estate taxes, for which they must be reimbursed by the buyer.

Private Mortgage Insurance (PMI): insurance provided by a private carrier protecting a lender against a loss in the event of a foreclosure and deficiency.

R

Radon: A naturally occurring gas that is suspected of posing a health hazard, especially causing lung cancer.

Real Estate: Land; a portion of the earth’s surface extending downward to the center of the earth and upward indefinitely into space, including all the things permanently attached to it, whether naturally or artificially.

Real Estate Seller Disclosure Act: A PA state law that requires the seller of a residential property must disclose to a buyer all known material defects about the property being sold that are not readily observable; such disclosure is not a substitute for any inspections or warranties that a buyer may wish to obtain.

Recording: the act of entering or recording documents affecting or conveying interests in real estate in the recorder’s office established in each country. Until it is recorded. A deed or mortgage ordinarily is not effective against subsequent purchasers or mortgagers.

Right of First Refusal: A clause allowing the tenant the opportunity to buy the property before the owner accepts an offer from another party.

S

Short sale: The sale of a property in the marketplace that is in some stage of foreclosure. The term arises when the proceeds from the sale are “short” the amount needed to fully satisfy the balance of the mortgage loan.

Survey: The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions, and position of a house on a lot, including the determination of any existing encroachments or easements.

T

Time is of the Essence: A phrase in a contract that requires the performance of a certain act within a stated period.

Title: (1) The right to or ownership of land. (2) the evidence of ownership of land.

Title Insurance: A policy insuring the owner or the mortgagee against loss by reason of defects in the title to a parcel of real estate, other than encumbrances, defects, and matter specifically excluded by the policy.

Transfer Tax: Tax stamps required to be affixed to a deed by state and/or local law.

U

Underwriting: The process by which a lender analyzes the extent of risk in connection with a mortgage loan; considers the value of the collateral being pledged and the capacity and creditworthiness of the borrower.

Uniform Settlement Statement (HUD-1): A special HUD form that itemizes the all charges to be paid by a borrower and a seller in connection with the settlement; also called the HUD-1 form.

V

Variance: Permission obtained from zoning authorities to build a structure or conduct a use that is expressly prohibited by the current zoning laws; and exception from the zoning ordinances.

Z

Zoning Ordinances: An exercise of police power by a municipality to regulate and control the character and use of property.