Abstract of title -The condensed history of a title to a particular parcel of real estate, consisting of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property and a certification by the abstractor that the history is complete and accurate.
Acceleration clause - The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrow defaults on an installment payment or other covenant.
Accrued items -On a closing statement, items of expense that are incurred but not yet payable, such as interest on a mortgage loan or taxes on real property
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.
Affidavit of title - A written statement, made under oath by a seller or grantor of real property and acknowledge by a notary public, in which the grantor (1) identifies himself or herself and indicates marital status, (2) certifies that since the examination of the title on the date of the contracts no defects have occurred in the title and (3) certifies that he or she is in possession of the property (if applicable).
Agency - The relationship between a principle and an agent wherein the agent is authorized to represent the principal in certain transactions.
Agent -One who acts or has the power to act for another. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be his or her agent.
Alienation - The act of transferring property to another. Alienation may be voluntary, such as by gift or sale, or involuntary, such as by gift or sale, or involuntary, as though eminent domain or adverse possession.
Alienation clause -The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lender's option if the property is sold by the borrower. In effect this clause prevents the borrower from assigning the debt without the lender's approval.
Amortized loan - A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.
Annual percentage rate (APR) -The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth-in-Lending Act.
Anti-trust laws - Law designed to preserve the free enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition. Most violations of antitrust laws in the real estate business involve either price-fixing (brokers conspiring to set fixed compensation rates) or allocation of customers or markets (brokers agreeing to limit their areas of trade or dealing to certain areas or properties).
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.
Appreciation - An increase in the worth or value of a property due to economic or related clauses, which may prove to be either temporary or permanent; opposite of depreciation.
Assessment -The imposition of a tax, charge or levy, usually according to established rates.
Assumption of mortgage - Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.
Automatic extension - A clause in a listing agreement that states that the agreement will continue automatically for a certain period of time after its expiration date. In many states, use of this clause is discouraged or prohibited.
Balloon payment - A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.
Bargain and sale deed - A deed that carries with it no warranties against liens or other encumbrances but that does imply that the grantor has the right to convey title. The grantor may add warranties to the deed at his or her discretion.
Basis - The financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the dale of the asset. If a property was acquired by purchase, the owner's basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any deprecation allowable or actually taken. This new basis is called the adjusted basis.
Binder - An agreement that may accompany an earnest money deposit for the purchase of real property as evidence of the purchaser's good faith and intent to complete the transaction.
Blanket loan - A mortgage covering more than one parcel of real estate, providing for each parcel's partial release from the mortgage lien upon repayment of a definite portion of the debt.
Blockbusting - The illegal practice of inducing homeowners to sell their properties by making representations regarding the entry or prospective entry of persons of a particular race or national origin into the neighborhood.
Branch office - A secondary place of business apart from the principal or main office from which real estate business is conducted. A branch office usually must be run by a licensed real estate broker working on behalf of the broker.
Broker - One who acts as an intermediary on behalf of others for a fee or commission.
Brokerage - The bringing together of parties interested in making a real estate transaction.
Building code - An ordinance that specifies minimum standards of construction. alteration or demolition of an improvement, showing compliance with building codes and zoning ordinances.
Buydown - A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payment for a set time.
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.
Capital gain - Profit earned from the sale of an asset.
Capitalization - A mathematical process for estimating the value of a property using a proper rate of return on the investment and the annual net operating income expected to be produced by the property. The formula is expressed as PUT FORMULA HERE!!
Capitalization rate - The rate of return a property will produce on the owner's investment.
Certificate of title - A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.
Chain of title - The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title.
Closing statement -A detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made and all cash paid out in the transaction
Cloud on title -Any document, claim, unreleased lien or encumbrance that may impair the title to real property or make the title doubtful; usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title.
Code of ethics - A written system of standards for ethical conduct.
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.
Comparable -Properties used in an appraisal report that are substantially equivalent to the subject property.
Competitive market analysis (CMA) -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.
Conditional-use permit -Written governmental permission allowing a use inconsistent with zoning but necessary for the common good, such as locating an emergency medical facility in a predominantly residential area.
Contingency - A provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding.
Contract -A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.
Conventional loan -A loan that requires no insurance or guarantee.
Conveyance -A term used to refer to any document that transfers title to real property. The term is also used in describing the act of transferring.
Cost approach -The process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the reproduction or replacement cost of the building, less depreciation.
Counteroffer -A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror.
Covenant -A written agreement between two or more parties in which a party or parties pledge to perform or not perform specified acts with regard to property; usually found in such real estate documents as deeds, mortgages, leases and contracts for deed.
Deed -A written instrument that, when executed and delivered, conveys title to or an interest in real estate.
Deed in lieu of foreclosure -A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.
Deed in trust -An instrument that grants a trustee under a land trust full power to sell, mortgage and subdivide a parcel of real estate. The beneficiary controls the trustee's use of these powers under the provisions of the trust agreement.
Deed of trust -See trust deed.
Deed Restriction -Clauses in a deed limiting the future uses of the property. Deed restrictions may impose a vast variety of limitations and conditions - for example, they may limit the density 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.
Depreciation -(1) In an appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence and external obsolescence. (2) In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property.
Discount point -A unit of measurement used for carious loan charges; one point equals 1 percent of the amount of the loan.
Dual agency -Representing both the parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states.
Due-on-sale clause -A provision in the mortgage that states that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property.
Earnest money - A good faith deposit that upon acceptance of a buyer's Purchase Agreement by a seller, is held in a trust account until closing. At Closing it used as part payment for the purchase of the property.
Encroachment -A building or some portion of it - a wall or 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 any indebtedness.
Escrow -The closing of a transaction through a third party called an escrow agent, or escrowee, who receives certain funds and documents to be delivered upon the performance of certain conditions outlined in the escrow instructions.
Escrow account -The trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction.
Escrow instructions -A document that sets forth the duties of the escrow agent, as well as the requirements and obligations of the parties, when a transaction is closed through an escrow.
Exclusive agency listing -A listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time, to sell the property on the owner's stated terms, for a commission. The owner reserves the right to sell without paying anyone a commission if he or she sells to a prospect who has not been introduced or claimed by the broker.
Exclusive-right-to-sell listing -A listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time, to sell the property on the owner's stated terms, and agrees to pay the broker a commission when the property is sold, whether by the broker, the owner or another broker.
Fair Housing Act -The federal law that prohibits discrimination in housing based on race, color, religion, sex, handicap, familial status and national origin.
Fannie Mae -See Federal National Mortgage Association (FNMA).
Farmer's Home Administration (FmHA) -An agency of the federal government that provides credit assistance to farmers and other individuals who live in rural areas.
Federal Deposit Insurance Corporation (FDIC) -An independent federal agency that insures the deposits in commercial banks.
Federal Home Loan Mortgage Corporation (FHLMC) -A corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market.
Federal National Mortgage Association (FNMA) -A quasi-governmental agency established to purchase any kind of mortgage loans in the secondary mortgage market from the primary lenders.
Federal Reserve System -The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates.
FHA loan -A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA's regulations.
Fiduciary -One in whom trust and confidence is placed; a reference to a broker employed under the terms of a listing contract or buyer agency agreement.
Fiduciary relationship -A relationship of trust and confidence, as between trustee and beneficiary, attorney and client or principal and agent.
Foreclosure -A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.
General warranty deed -A deed in which the grantor fully warrants good clear title to the premises. Used in most real estate deed transfers, a general warranty deed offer the greatest protection of any deed.
Graduated-payment mortgage (GPM) - A loan in which the monthly principal and interest payments increase by a certain percentage each year for a certain number of years and then level off for the remaining loan term.
Grantee -A person who receives a conveyance of real property from a grantor.
Grantor - The person transferring title to or an interest in real property to a grantee.
Gross Lease - A lease of property according to which a landlord pays all property charges regularly incurred through ownership, such as repairs, taxes, insurance and operating expenses. Most residential leases are gross leases.
Growing-equity mortgage (GEM) -A loan in which the monthly payments increase annually, with the increased amount being used to reduce directly the principal balance outstanding and thus shorten the overall term of the loan.
Home equity loan -A loan (sometimes called a line of credit under which a property owner uses his or her residence as collateral and can then draw funds up to a prearranged amount against the property.
Homeowner's insurance policy -A standardized package insurance policy that covers a residential real estate owner against financial loss from fire, theft, public liability and other common risks.
Homestead -Land that is owned and occupies as the family home. In many states a portion of the area or value of this land is protected or exempt from judgements for debts.
Independent contractor -Someone who is retained to perform a certain act but who is subject to the control and direction of another only as to the end result and not as to the way in which the act is performed. Unlike an employee, and independent contractor pays for all expenses and social security and income taxes and receives no employee benefits. Most real estate salespeople are independent contractors.
Installment contract -A contract for the sale of real estate whereby the purchase price is paid in periodic installments by the purchaser, who is in possession of the property even though title is retained by the seller until a future date, which may be not until final payment. Also called a contract for deed or articles of agreement for warranty deed.
Installment Sale -A transaction in which the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer can postpone reporting such income until future years by paying sales tax each year only on the proceeds received that year.
Interim financing -A short-term loan usually made during the construction phase of a building project (in this case referred to as a construction loan.)
Involuntary lien -A lien placed on property without the consent of the property owner.
Joint tenancy -Ownership of real estate between tow or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the descendant's interest passes to the surviving joint tenant or tenants by the right of survivorship.
Land contract -See installment contract.
Lease option -A lease under which the tenant has the right to purchase the property either during the lease term or at its end.
Lease purchase -The purchase of real property, the consummation of which is preceded by a lease, usually long-term. Typically done for tax or financing purposes.
Liquidated damages -An amount predetermined by the parties to a contract as the total compensation to an injured party should the other party breach the contract.
Lis pendens -A recorded legal document giving constructive notice that an action affecting a particular property has been filed in either a state or a federal court.
Listing agreement -A contract between an owner (as principle) and a 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.
Listing broker -The broker in a multiple-listing situation from whose office a listing agreement is initiated, as opposed to the cooperating broker, from whose office negotiations leading up to a sale are initiated. The listing broker and the cooperating broker may be the same person.
Loan origination fee -A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.
Loan-to-value ratio -The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.
Marketable title -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 arm's-length transaction under normal conditions on the open market.
Mechanic's lien -A statutory lien created in favor of contractors, laborers and material men who have performed work or furnished materials in the erection or repair of a building.
Mortgage -A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien.
Mortgage banker -Mortgage loan companies that originate, service and sell loans to investors.
Mortgage broker -An agent of a lender who brings the lender and borrower together. The broker receives a fee for this service.
Mortgagee -A lender in a mortgage loan transaction.
Mortgage lien -A lien or charge on the property of a mortgagor that secures the underlying debt obligations.
Mortgagor -A borrower in a mortgage loan transaction.
Multiple-listing service (MLS) -A marketing organization composed of member brokers who agree to share their listing agreements with one another in the hopes of procuring a ready, willing and able buyers for their properties more quickly than they could on their own. Most multiple-listing services accept exclusive-right-to-sell or exclusive agency listings from their member brokers.
Net listing -A listing based on the net price the seller will receive if the property is sold. Under a net listing the broker can offer the property for sale at the highest price obtainable to increase the commission. This type of listing is illegal in many states.
Open-end loan -A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage.
Open listing -A listing contract under which the broker's commission is contingent on the broker's producing a ready, willing and able buyer before the property is sold by the seller or another broker.
Option listing -Listing with a provision that gives the listing broker the right to purchase the listed property.
Package loan -A real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a new home that includes carpeting, window coverings and major appliances.
Payment cap -The limit on the amount the monthly payment can be increased on an adjustable-rate mortgage when the interest rate is adjusted.
Percolation test -A test of the soil to determine if it will absorb and drain water adequately to use a septic system for sewage disposal.
Power of attorney -A written instrument authorizing a person, the attorney-in-fact, to act as agent for another person to the extent indicated in the instrument.
Pre-Approval - One step (or two) beyond the pre-qualification process, this is a powerful tool for any buyer to have when searching for property. It is a commitment, usually for a specific period of time and at a specific interest rate, for a loan amount a buyer will receive from that lender.
Pre-Qualification - The process by which a mortgage lender determines the amount of loan you are eligible to receive based on your income, monthly expenses, and other various items. To find out how much of a loan you may be qualified for, click here!
Prepayment penalty -A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.
Primary mortgage market -The mortgage market in which loans are originated and consisting of lenders such as commercial banks, savings and loan associations and mutual savings banks.
Private mortgage insurance (PMI) -Insurance provided by private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.
Procuring cause -The effort that brings about the desired result. Under an open listing the broker who is the procuring cause of the sale receives the commission.
Promissory note -A financing instrument that states the terms of the underlying obligation, is signed by its maker and is negotiable (transferable to a third party).
Prorations -Expenses, either prepaid or paid in arrears, that are divided or distributed between buyer and seller at the closing.
Quiet title -A court action to remove a cloud on the title.
Quitclaim deed -A conveyance by which the grantor transfers whatever interest he or she has in the real estate, without warranties or obligations.
Rate cap -The limit on the amount the interest rate can be increased at each adjustment period in an adjustable-rate loan. The cap may also set the maximum interest rate that can be charged during the life of the loan.
Real estate investment trust (REIT) -Trust ownership of real estate by a group of individuals who purchase certificates of ownership in the trust, which in turn invests the money in real property and distributes the profits back to the investors free of corporate income tax.
Real Estate Settlement Procedures Act (RESPA) -The federal law that requires certain disclosures to consumers about mortgage loan settlements. The law also prohibits the payment or receipt of kickbacks and certain kinds of referral fees.
REALTOR� -A registered trademark term reserved for the sole use of active members of local REALTOR boards affiliated with the National Association of REALTORS.
Recording -The act of entering or recording documents affecting or conveying interests in real estate in the recorder's office established in each county. Until it is recorded, a deed or mortgage ordinarily is not effective against subsequent purchasers mortgagees.
Regulation Z -Implements the Truth-in-Lending-Act requiring credit institutions to inform borrowers of the true cost of obtaining credit.
Restrictive covenants -A clause in a deed that limits the way the real estate ownership may be used. Otherwise known as "Protective Covenants".
Reverse-annuity mortgage (RAM) -A loan under which the homeowner receives monthly payments based on his or her accumulated equity rather than a lump sum. The loan must be repaid at a prearranged date or upon the death of the owner or the sale of the property.
Sales comparison approach -The process of estimating the value of a property by examining and comparing it against actual sales of comparable properties.
Salesperson -A person who performs real estate activities while employed by or associated with a licensed real estate broker. A salesperson may also hold a broker's license, but acts as a salesperson under the direction of a brokerage.
Satisfaction of mortgage -A document acknowledging the payment of a mortgage debt.
Secondary mortgage market -A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; also called secondary money market. Mortgages are first originated in the primary mortgage market.
Setback -The amount of space local zoning regulation requires between a lot line and a building line.
Severalty -Ownership of real property by one person only; also called sole ownership.
Severance -Changing an item or real estate to personal property by detaching it from the land; for example, cutting down a tree.
Shared-appreciation mortgage (SAM) -A mortgage loan in which the lender, in exchange for a loan with a favorable interest rate, participates in the profits (if any) the borrow receives when the property is eventually sold.
Special agent -One who is authorized by a principal to perform a single act or transaction; a real estate broker is usually a special agent authorized to find a ready, willing and able buyer for a particular property. For more information, see Agency Relations.
Special assessment -A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement like a street or sewer.
Specific performance -A legal action to compel a party to carry out the terms of a contract.
Square-foot method -The appraisal method of estimating building costs by multiplying the number of square feet in the improvements being appraised by the cost per square foot for recently constructed similar improvements.
Steering -The illegal practice of channeling home seekers to particular areas, either to maintain the homogeneity of an area or to change the character of an area, which limits their choices of where they can live.
Subagent -One who is employed by a person already acting as an agent. Typically a reference to a salesperson licensed under a broker (agent) who is employed under the terms of a listing agreement. For further explanation, see Agency Relations.
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.
Tax deed -An instrument, similar to a certificate of sale, given to a purchaser at a tax sale.
Tax lien -A charge against property, created by operation of law. Tax liens and assessments take priority over all other liens.
Tax sale -A court-ordered sale of real property to raise money to cover delinquent taxes.
Time is of the essence -A phrase in a contract that requires the performance of a certain act within a stated period of time.
Time-share -A form of ownership interest that may include an estate interest in property an which allows use of the property for a fixed or variable time period.
Title insurance -A policy insuring the owner or mortgagee against loss by reason of defects in the title to a parcel of real estate, other than encumbrances, defects and matters specifically excluded by the policy.
Title search -The examination of public records relating to real estate to determine the current state of the ownership.
Transfer tax -Tax stamps required to be affixed to a deed by state and/or local law.
Trust deed -An instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a deed of trust.
Trust deed lien -A lien on the property of a trustor that secures a deed of trust loan.
Trustee's deed -A deed executed by a trustee conveying land held in a trust.
Trustor -A borrower in a deed of trust loan transaction.
Unilateral contract -A one-sided contract wherein one party makes a promise so as to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise.
VA loan -A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs in order to limit the lender's possible loss. Click here for more information about VA loans.
Wraparound loan -A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender. In essence it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount without disturbing the existence of the first mortgage.
Zoning ordinance -An exercise of police power by a municipality to regulate and control the character and use of property.