Glossary Of Real Estate Terms

“What do all these real estate terms mean?!”, you ask. Well, here is a glossary of commonly used real estate terms compiled from a variety of sources. If you run across a term that’s not on the list, just let me know and I’ll add it.

AVM: An automated method of valuing real property. Currently very inaccurate. For examples of AVMs and how they work, click here.

Acceptance: The date when both parties, seller and buyer, have agreed to the terms of an offer and/or addendum. NOT to be confused with ‘Ratification”.

Adjustable Rate Mortgage (ARM): A mortgage that permits the lender to adjust the mortgage’s interest rate periodically on the basis of changes in a specified index (i.e. Libor). Interest rates may move up or down as market conditions change.

Amortized Loan: A loan that is paid in equal installments during its’ term.

A.P.R. (Annual Percentage Rate): A term used in the Truth In Lending Act. It represents the relationship of the total finance charge (interest, discount points, origination fees, loan broker, commission, etc.) to the amount of the loan.

Appraisal: And estimate and opinion of real estate value usually issued to standards of FHA, VA and FHMA. Recent comparable sales in the neighborhood is the most important factor in determining value. This should be contrasted to the Home Inspection.

Appraiser: An individual who is licensed to perform an appraisal. Not to be confused with an AVM.

Appreciation: An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Assumable Mortgage: Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage. Not a common way of securing a property due to a common lenders’ clause stating that a sale of the property requires immediate payment of remaining balance by the borrower.

Bank-Owned Property (aka “REO” or “foreclosure property”): A property that is owned by a bank typically via foreclosure proceedings and via auction at the local courthouse steps

Bill Of Sale: Document used to transfer title (ownership) of PERSONAL property.

Broker Price Opinion (BPO): An agent’s/broker’s opinion of a property’s market value used by a bank when determining the market value of one (or more) of their foreclosure/bank-owned properties

Buyer’s Agent/Broker: A real estate agent who represents only the buyer in a real estate transaction.

Closing Costs: A general term used to describe the fees associate with the purchase of property such as lender and settlement agent fees, title insurance, the appraisal and survey fees, etc. Closing cost are typically 2 to 5% of the loan amount, but vary by region.

Closing Statement (HUD-1): A financial statement rendered to the buyer and seller at the time of transfer of ownership that gives an account of all funds received or expended.

Cloud On Title: Any condition that affects the clear title to real property.

Common Grounds: Those grounds owned by the Home Owner’s Association and/or by a small fraction by every home owner in the development.

Comparable Sales (Comps): Recent sales of similar properties typically within the same neighborhood used as a tool to establish market value or for appraisal purposes.

Condominium Association (Condo Association): The association which governs the condominium community usually comprised of owners within that community.

Contract: An agreement to do or not do a certain thing. In the case of real estate, when an offer for purchase and sale of property has been ratified and all contingencies have been removed.

Consideration: Anything of value to induce another to enter into a contract (i.e. money, services, a promise).

Contingency: A condition specified in a purchase contract, such as a satisfactory Home Inspection.

Counter Offer/Counter: An offer by a seller back to a buyer’s original offer with a different price and/or terms than the original offer made by the buyer.

Credit Score: Your credit report contains a history of how you’ve paid your bills, how much open credit you have, and anything else that would affect your creditworthiness. Your credit score boils down all of that information into a three-digit number. Scores vary from 300 to 900. Though there are several scoring systems, the one used most commonly used by lenders is known as a FICO (Fair Isaac and Company).

Deed: Written instrument, which when properly executed and delivered, convey title to real property.

Depreciation: A decrease in the value of a property due to changes in market conditions or other causes. The opposite of appreciation.

Direct Lender: A lender who approves and supplies funds for their loans directly from the bank or financial institution which they are a part of. They do not receive final approval or funding from a third party (i.e. another bank).

Discount Points: A loan fee charged by a lender to increase the yield on the investment (aka lower the interest rate to the consumer). One point equals one percent of the loan amount.

Dual Agency: A practice by which an agent represents both the seller and the buyer in a real estate transaction. Neither the seller’s nor the buyers’ best interests can be put before the others. The agent is merely a facilitator of the transaction.

Earnest Money Deposit: A deposit or promissory note from the buyer held in escrow by an agreed upon party which illustrates the buyer’s commitment to purchase a property. In the event of default by the buyer(s), the earnest money deposit may be withheld by the seller as damages.

Easement: The right to use the land of another (i.e. utility company easement on your lot in order for them to run cable underground).

Encumbrance: Anything that burdens or limits the fee title to property, such as a lien, easement or restriction of any kind,

Equity: The value of real estate over and above liens against it. It is obtained by subtracting the total liens from the value of the property.

Escrow Payment: That portion of a mortgagor’s monthly payment held in trust by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due.

Fannie Mae: Nickname for the Federal National Mortgage Corporation (FNMA), a tax-paying corporation created by Congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional home mortgages.

Federal Housing Administration (FHA): An agency of the U.S. Department of Housing and Urban Development (HUD). Its’ main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting, but does not lend money or plan or construct housing.

FHA Insured Mortgage: A mortgage insured by the Federal Housing Administration according to its’ regulations.

Fixed Rate Mortgage: A loan that has a set interest rate at a prescribed rate for the entire duration of the loan.

Foreclosure: Procedure whereby property pledges as security for a debt and is sold in the event of a default. If you don’t pay the mortgage, the bank takes the property back via foreclosure.

Freddie Mac: Nickname for the Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market. It purchases and sells residential conventional home mortgages.

Graduate Payment Mortgage: Any loan where the borrower pays a portion of the interest due each month during the first few years of the loan. The payment increases gradually during the first few years to the amount necessary to fully amortize the loan during its’ life. NOT to be confused with an Adjustable Rate Mortgage (ARM).

Grantor’s Tax: A tax in Virginia paid by the seller at the time the property is sold (typically settlement date). The current tax rate is $1 per $1000 of the sales price or assessed value, whichever is higher.

Hazard Insurance: This provision of homeowners insurance covers damage by fire, wind or other disaster. It is required by all lenders before a loan is approved.

Home Inspection: An thorough inspection of a property by a qualified third party who is typically hired by the purchaser(s).

Home Owner’s Association (HOA): The association which governs the community of homes usually comprised of owners within that community.

Home Owner’s Insurance: The general term for insurance on real property.

Improvement: In real estate, typically refers to any permanent structures on the property. Also refers to changes to the overall property which affect value.

Investor: The holder of a mortgage of the permanent lender for whom the mortgage banker services the loan. Any person or institution that invest in mortgages. Also known as an individual or institution that purchases one or more properties for investment purposes, not as a primary residence.

Lease Option: A contract which gives one the right to least property at a certain sum with the option to purchase at a future date.

Lease Purchase Agreement: An agreement to the future purchase of a property with the right to lease the property for the interim.

Lender: An bank or financial institution which lends money.

Lender Letter: A letter from the lender stating that a buyer is approved for specified financing contingent upon a ratified contract, satisfactory appraisal, underwriting approval and/or other conditions. Unlike a pre-approval letter, the lender will have processed all the necessary paperwork and ran a credit check making a lender letter much stronger than a pre-approval letter.

Listing Agent/Broker: – An agent/broker who represents only the seller(s) in the sale or rental of real estate

Loan To Value (LTV): The ratio of the mortgage loan principal (amount borrowed) to the property’s appraised value (i.e. An appraised value of $100K and a mortgage loan principal of $80K equals an LTV of 80%).

Mechanic’s Lien: A lien filed by an individual or company that has made an improvement on the property, but has not been compensated to their satisfaction (i.e. payment dispute). Also known as Contractors Liens and Construction Liens.

Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Broker: A company that does not make final approval or fund the loan directly rather, sells the loan to a third party bank or lending institution. In essence, they are a “middle-man”.

Mortgagor: The borrower of money of the giver of the mortgage document.

Note: A written promise to pay a certain amount of money.

Offer/Purchase Offer: An offer of price and terms by a buyer to purchase property from a seller. The seller may accept, reject or counter the offer with a different price and/or terms.

Origination Fee: A fee paid to the mortgagee (i.e. lender) for paying the mortgage before it becomes due. Also known as a prepayment penalty or reinvestment fee.

Paid-Out-Of-Closing (POC) Items: Any item paid for prior to or outside of settlement. Such items may included a Home Inspction, Radon Inspection and Appraisal.

Personal Property: Property other than the real property (i.e. furniture, TV, computer, appliances). Often called movable property which can be moved from one location to another.

Pre-Approval Letter: A letter from a lender that a buyer is potentially approved for specified financing, but an application nor paperwork has been submitted nor has anything been verified by the lender. Much weaker than a lender letter and may get rejected by a seller as an approval for financing.

Private Mortgage Insurance (PMI)/Mortgage Insurance Premium (MIP): The amount paid by a mortgagor (borrower) for mortgage insurance. This insurance protects the investor from possible loss in the event of a borrower’s default on a loan. It is typically charged is the Loan To Value (LTV) is higher than 80%.

Promissory Note: A written contract containing a promise to pay a definite amount of money at a definite future time.

Radon Inspection: A determination of whether the amount of radon gas is below, at or above the EPA’s acceptable level (currently at 4.0 ppl).

Ratification Date: The date of final acceptance in writing of all the terms of the Offer and delivery to all parties as agreed upon in the Offer.

Real Estate Agent: An individual who has a state license to represent a buyer or a seller in a real estate transaction in exchange for a commission. Most agents work for real estate brokers.

Real Estate Broker: A party who acts as an intermediary between sellers and buyers of real estate and attempts to find sellers who wish to sell and buyers who wish to buy. Also the name for an individual who has a state license to supervise one or more real estate agents working out of the same office as the broker.

Real Property: A legal term encompassing real estate and ownership interests in real estate (immovable property). It is a type of property differentiated from personal property.

Realtor: A member of the National Association Of Realtors (NAR). The NAR has many local chapters such as NVAR and DAAR.

Rent With Option: A contract which gives one the right to least property at a certain sum with the option to purchase at a future date.

Second Mortgage/Second Trust/Junior Mortgage/Junior Lien: An additional loan imposed on a property with a first (primary) mortgage. Generally, a higher interest rate and shorter term than a first mortgage. An alternative to obtaining financing above an 80% Loan To Value (LTV) and paying a Mortgage Insurance Premium (MIP or PMI).

Settlement: the process of exchanging the consideration (i.e. real estate) for financial instruments  (i.e. money) once a deal has been executed.

Settlement Agent: An individual or company which perform settlement duties for the purpose of sale and purchase of real property.

Short-Sale: A situation in which the proceeds from the sale of the property are less than what is owed to the lender(s)/creditor(s). If the seller can not come up with the difference, the lender(s) may be asked to forgive the difference or take a Promissory Note in lieu of immediate payment in which case the lender(s) must “approve the short-sale” in order for it to actually settle. Short-sale negotiations take an average of 90 days and there’s no guarantee that the creditor(s) will approve the short-sale.

Survey: The process by which a parcel of land is measured and its’ area ascertained.

Tax Assessment: The value set on taxable property.

Tax Assessor: An official who evaluates property for the purpose of taxing it.

Tenants In Common: Ownership by two or more persons who hold an undivided interest without the right of survivorship. In the event of a death of one owner, his/her share will pass to his/her heirs, NOT the other owner(s).

Tenants By The Entirety: Only possible when the joint owners are husband and wife. Tenants by the entirety provides for a common law right of survivorship. The property goes automatically to the surviving spouse. No Will, probate or other legal action is necessary. One spouse can not use a Will to leave an interest to someone else.

Title Company: A general term for a company which performs settlement duties for the purpose of sale and purchase of real property.

Title Insurance: An insurance policy which protects the insured (purchaser or lender) against a loss arising from defects in the title. Lender’s Title Insurance is mandatory for almost every lender while Owner’s Title Insurance is optional, but recommended.

Sources: Inmanwiki, Wikipedia, Merriam-Webster

Dislcaimer: These definitions may vary by jurisdiction, region, state and country. I am not a lawyer. These definitions are not intended to be legal definitions nor legal advice. Please double-check all information contained herein.