Real Estate Terms
ADDENDUM (plural: ADDENDA) something added, as an attachment to a contract.
ADJUSTABLE-RATE MORTGAGE (ARM) a mortgage loan that allows the interest rate to be changed at specific intervals over the maturity of the loan.
ADJUSTMENTS (IN APPRAISAL) dollar value or percentage amounts that, when added to or subtracted from the sales price of a comparable, provide an indication of the value of a subject property. Adjustments are necessary to compensate for variation in the features of the comparable relative to the subject.
AFFORDABLE HOUSING a general term applied to public- and private-sector efforts to help low- and moderate-income people purchase homes. Usually the programs offer lower cash down payments, eased loan-qualifying rules, and/or below-market interest rates.
AGENCY the legal relationship between a principal and his agent arising from a contract in which the principal engages the agent to perform certain acts on the principal’s behalf.
Example: Under the law of agency, agents must be loyal to their employers. Therefore
Broker Roberts submits to employer Davis all offers on the property.
AGENCY DISCLOSURE a written explanation, to be signed by a prospective buyer or seller, explaining to the client the role that the broker plays in the transaction. The purpose of disclosure is to explain whether the broker represents the buyer or seller or is a dual agent (representing both) or a subagent (an agent of the seller’s broker). This allows the customer to understand to which party the broker owes loyalty.
AGENT one who undertakes to transact some business to manage some affair for another, with the authority of the latter.
AMERICANS WITH DISABILITIES ACT (ADA) federal law that prohibits discrimination against individuals with physical handicaps, including hiring practices and design of buildings intended to serve the public.
AMORTIZATION a gradual paying off of a debt by periodic installments.
AMORTIZATION SCHEDULE a table that shows the periodic payment, interest and principal requirements, and unpaid loan balance for each period of the life of a loan.
AMORTIZATION TERM the time it takes to retire a debt through periodic payments. Also known as the full amortization term.
Example: Many mortgage loans have an amortization term of 15, 20, 25, or 30 years. Some have an amortization schedule as a 30-year loan, but require a balloon payment in 5, 10, or 15 years.
AMORTIZED LOAN any loan with at least some payments to principal.
Example: A loan of $10,000 at 10% interest requires annual payments of $1,200. Because the payments exceed the interest required, the loan balance will be reduced, so it is anamortized loan. Contrast with interest-only loan.
ANNUAL PERCENTAGE RATE the effective rate of interest for a loan per year, disclosure of which is required by the truth-in-lending Law. See yield to maturity, regulation z.
ANTITRUST LAWS federal and state acts to protect trade and commerce from monopolies and restrictions.
APPRAISAL REPORT a written explanation of a property’s value, including the data and reasoning used to derive that value. Nearly all appraisal reports are written; if a report is given orally, the appraiser needs to keep written accounts of the discussion and how he derived the value estimate.
APPRECIATION an increase in the value of property. Causes of appreciation for real estate may include inflation, demand pressures for land and buildings, a physical addition, modernization, removal of a negative factor from within or outside a property, and sweat equity.
ASBESTOS insulation material frequently used in older buildings as pipe wrap, boiler insulation, floor tile, and ceiling coating. Asbestos may become friable (brittle) with age. In that condition, it may crumble and release particles, which, like dust, become airborne. Breathing asbestos particles may cause several serious lung illnesses. Removal or encapsulation of asbestos in buildings is expensive but necessary to prevent illness. The discovery of asbestos in a building is likely to cause a significant value loss.
ASSESSED VALUATION the value established for property tax purposes.
1. The amount of tax or special payment due to a municipality or association.
2. An owner’s or lessee’s proportionate share of a common expense.
ASSESSOR an official who determines property tax assessments.
ASSIGN to transfer one’s property rights or contract rights to another. Contracts commonly assigned include leases, mortgages, and deeds of trust.
ATTORNEY-IN-FACT one who is authorized to act for another under a power of attorney, which may be general or limited in scope.
BALLOON MORTGAGE a mortgage with a balloon payment.
Example: The balloon mortgage called for payments of $500 per month for 5 years, followed by a balloon payment of $50,000.
BALLOON PAYMENT the final payment on a loan, when that payment is greater than the preceding installment payments and pays the loan in full.
BANKRUPTCY the financial inability to pay one’s debts when due. The debtor seeks relief through court action that may work out or erase debts.
BASIS (TAX) the point from which gains, losses, and depreciation deductions are computed. Generally the cost or purchase price of an asset.
BENCHMARK a permanently affixed mark that establishes the exact elevation of a place; used by surveyors in measuring site elevations, or as a starting point for surveys.
BIANNUAL occurring twice a year. Same as semiannual. Contrast with biennial.
BIENNIAL occurring every 2 years.
BILL OF SALE a written instrument given to pass title of personal property from a seller to a buyer. Used when furniture and portable appliances are sold.
BIWEEKLY LOAN a mortgage that requires principal and interest payments at two-week intervals. The payment is exactly half of what a monthly payment would be. Over a year’s time, the 26 payments are equivalent to 13 monthly payments on a comparable mortgage loan. As a result, the loan will be amortized much faster than loans with monthly payments.
BLOCKBUSTING a racially discriminatory and illegal practice of coercing a party to sell a home to someone of a minority race or ethnic background, then using scare tactics to cause others in the neighborhood to sell at depressed prices.
BOARD OF EQUALIZATION a government entity whose purpose is to assure uniform property tax assessments.
BOARD OF REALTORS a local group of real estate licensees who are members of the state and national association of realtors .
BOILERPLATE standard language found in contracts. Preprinted material.
BREACH OF CONTRACT a violation of the terms of a legal agreement; default. Breach of contract allows the non-breaching party to rescind the contract, sue for damages, or sue for performance of the contract.
BRIDGE LOAN mortgage financing between the termination of one loan and the beginning of another.
1. The action to pay additional discount points to a lender in exchange for a reduced rate of I interest on a loan. The reduced rate may apply for all or a portion of the loan term.
2. A loan that has been bought down by the seller of the property for the benefit of the buyer.
BUYER’S BROKER an agent hired by a prospective purchaser to find an acceptable property for purchase. The broker then represents the buyer and negotiates with the seller in the purchaser’s best interest.
BUYER’S MARKET a situation where buyers have a wide choice of properties and may negotiate lower prices. Often caused by overbuilding, local population decreases, or economic slump.
CAPITALIZATION RATE a rate of return used to derive the capital value of an income stream. The formula is: annual income/ Value = capitalization rate
CAVEAT EMPTOR “let the buyer beware.” The buyer must examine the goods or property and buy at his own risk, except for latent defeats.
CAVEATS warnings, often written to a potential buyer, to be careful; often offered as a way for the seller or broker to minimize liability for what otherwise might be a deceptive trade practice.
CEASE AND DESIST order by a court or administrative agency prohibiting a person or business from continuing an activity. Used in real estate brokerage to prevent antitrust behavior among firms or in illegal discrimination.
CERTIFICATE OF ELIGIBILITY issued by the Veterans Administration to those who qualify for a VA loan.
CERTIFICATE OF OCCUPANCY a document issued by a local government to a developer permitting the structure to be occupied by members of the public. Issuance of the certificate generally indicates that the building is in compliance with public health and building codes.
CERTIFIED RESIDENTIAL SPECIALIST (CRS) a professional designation awarded by the residential sales council, based on education and experience in residential sales.
CHAIN OF TITLE a history of conveyances and encumbrances affecting a title from the time that the original patent was granted, or as far back as records are available.
CHATTEL personal property. Anything owned and tangible, other than real estate.
CLEAR TITLE a marketable title; one free of clouds and disputed interests.
CLIENT the one who engages a broker, lawyer, accountant, appraiser, etc.
1. The act of transferring ownership of a property from seller to buyer in accordance with a sales contract.
2. The time when a closing takes place.
CLOSING COSTS various fees and expenses payable by the seller and buyer at the time of real estate closing (also termed transaction costs). Example: The following are some closing costs:
- brokerage commissions
- lender discount points/other fees
- title insurance premium
- deed recording fees
- loan prepayment penalty
- inspection and appraisal fees
- attorney’s fees
CLOSING STATEMENT an accounting of funds from a real estate sale, made to both the seller and the buyer separately. Most states require the broker to furnish accurate closing statements to all parties to the transaction.
CLOUD ON THE TITLE an outstanding claim or encumbrance that, if valid, would affect or impair the owner’s title.
CODE OF ETHICS a statement of principles concerning the behavior of those who subscribe to the code.
Example: All Realtors are required to subscribe to a code of ethics that
defines proper professional behavior and practices that are considered
unbecoming a professional real estate agent.
COLLATERAL property pledged as security for a debt.
COMMINGLE to mingle or mix, such as the deposit of another’s money in a broker’s personal account.
1. An amount earned by a real estate broker for his services.
2. The official body that enforces real estate license laws.
COMMISSION SPLIT the arrangement of sharing commissions earned between a sales agent and sponsoring broker, or between the selling broker and listing broker.
COMMITMENT LETTER an official notification to a borrower from a lender indicating that the borrower’s loan application has been approved and stating the terms of the prospective loan.
COMMUNITY ASSOCIATION general name for any organization of property owners to oversee some common interest. In a condominium or planned unit development, the association has the responsibility of managing the common elements in the project. A homeowners’ association may be established in a subdivision to enforce deed covenants.
COMMUNITY PROPERTY property accumulated through joint efforts of husband and wife and owned by them in equal shares. This doctrine of ownership now exists in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington State.
CO-MORTGAGOR one who signs a mortgage contract with another party or parties and is thereby jointly obligated to repay the loan. Generally a co-mortgagor provides some assistance in meeting the requirements of the loan and receives a share of ownership in the encumbered property.
COMPARABLE properties that are similar to the one being sold or appraised. See market approach.
COMPARATIVE MARKET ANALYSIS (CMA) an estimate of the value of property using only a few indicators taken from sales of comparable properties, such as price per square foot. These value estimates are not appraisals and do not meet the standards of appraisal as defined by USPAP.
COMPETENT PARTIES persons legally capable of entering a contract. Must be of legal age, not be insane or a drunkard.
CONCESSIONS benefits gained by a seller/lessor to induce a sale/lease.
CONDITIONS, COVENANTS, AND RESTRICTIONS (CCRs) often found in a condominium or a subdivision, these are rules, written into the deeds or bylaws, that define how property may be used. They prevent property owners from making changes to their individual properties that could result in an unattractive or inharmonious setting, which could adversely affect other owners.
CONDOMINIUM a system of ownership of individual units in a multi-unit structure, combined with joint ownership of commonly used property (sidewalks, hallways, stairs, etc.). See common elements.
CONFORMING LOAN a mortgage loan that is eligible for purchase by fnma or FHLMC.
CONSUMER PRICE INDEX the most widely known of many such measures of price levels and inflation that are reported to the U.S. government. It measures and compares, from month to month, the total cost of a statistically determined “typical market basket” of goods and services consumed by U.S. households.
CONTIGUOUS actually touching; contiguous properties have a common boundary.
CONTRACT an agreement between competent parties to do or not to do certain things for a consideration. Example: To have a valid contract for the sale of real estate there must be:
- an offer
- an acceptance
- competent parties
- legal purpose
- written documentation
- description of the property
- signatures by principals or their attorney-in-fact
CONVENTIONAL LOAN a mortgage loan other than one guaranteed by the Veterans Administration or insured by the federal housing administration. See va loan, fha loan.
CONVERTIBLE ARM an adjustable rate mortgage that offers the borrower the option to convert payments to a fixed-rate schedule at a specified period within the term of the loan. Conversion is made for a nominal fee, and the interest rate on the fixed-rate lone is determined by a rule specified in the ARM loan agreement.
CONVEYANCE the transfer of the title of real estate from one to another; the means of medium by which title of real estate is transferred.
Example: A warranty deed is most often used as a conveyance at the closing.
COOPERATING BROKER one who agrees to share the commission with another broker. See commission split.
COST APPROACH a method of appraising property based on the depreciated reproduction or replacement cost (new) of improvements, plus the market value of the site.
COST OF LIVING ADJUSTMENT a change in payments, such as the amount of rent, based on a change in an index that measures inflation.
COST OF LIVING INDEX an indicator of the current price level for goods and services related to some base year.
COUNTEROFFER rejection of an offer to buy or sell, with a simultaneous substitute offer.
COVENANT promise written into deeds and other instruments agreeing to performance or nonperformance of certain acts, or requiring or preventing certain uses of the property.
COVENANT RUNNING WITH THE LAND a covenant restricting or limiting property rights to land, or a deed restriction, in which it is specified that ownership of the land cannot be transferred unless the new owner agrees to continue to abide by the covenant.
CREDIT RATING (REPORT) an evaluation of a person’s capacity (or history) or debt repayment. Generally available for individuals from a local retail credit association; for businesses by companies such as Dunn & Bradstreet; and for publicly held bonds by Moody’s, Standard & Poors, and Fitch’s. Individuals have access to their own files.
CUL-DE-SAC a street with an intersection on one end and a closed turning area on the other. Often valued in the design of residential subdivisions for the privacy provided to homes on the street.
CUSTOM BUILDER one who builds unique houses; contrast with tract house or spec house.
DEBT an obligation to pay.
DEED a written document, properly signed and delivered, that conveys title to real property. See general warranty deed, quitclaim deed, special warranty deed.
DEED IN LIEU OF FORECLOSURE the act of giving property back to a lender without foreclosure.
DEED OF TRUST an instrument used in many states in lieu of a mortgage. Legal title to the property is vested in one or more trustees to secure the repayment of the loan.
DEFECT IN TITLE any recorded instrument that would prevent a grantor from giving a clear title.
DEFERRED MAINTENANCE in appraisal, a type of physical depreciation owing to lack of normal upkeep.
DEFICIENCY JUDGMENT a court order stating that the borrower still owes money when the security for a loan does not entirely satisfy a default debt.
DELAYED (TAX-FREE) EXCHANGE a transaction in which a property is traded for the promise to provide a replacement like-kind property in the near future. The Tax Reform Act of 1984 allows investment real estate or real property used in a trade or business to be sold with the tax on the gain deferred, provided replacement property is identified within 45 days and closed within 180 days. Other strict requirements must be observed.
DEMOGRAPHIC pertaining to characteristics of the population, such as race, sex,age, household size, and to the population growth and density.
DENSITY the intensity of a land use.
DEPRECIATION (APPRAISAL) a charge against the reproduction cost (new) of an asset for the estimated wear and obsolescence. Depreciation may be physical, functional, or economic.
DEVELOPER one who transforms raw land to improved property by use of labor, capital, and entrepreneur efforts.
DEVELOPMENT the process of adding improvements on or to a parcel of land. Such improvements may include drainage, utilities, subdividing, access, buildings, and any combination of these elements. Also the project where such improvements are being made.
DISCLOSURE STATEMENT a statement required by law, in which sellers of particular kinds of property, or under certain circumstances, must reveal specified information to potential buyers.
DISCOUNT POINTS amounts paid to the lender (usually by the seller) at the time of origination of a loan, to account for the difference between the market interest rate and the lower face rate of the note (the VA and FHA no longer require discount points to be paid by the seller).
DISCRIMINATION applying special treatment (generally unfavorable) to an individual solely on the basis of the person’s race, religion, or sex.
DISTRESSED PROPERTY real estate that is under foreclosure or impending foreclosure because of insufficient income production.
DOMICILE the state in which one makes his or her principle residence.
DOWN PAYMENT the amount one pays for property in addition to the debt incurred.
DRIVE-BY APPRAISAL value estimated prepared without the benefit of an interior inspection. May not conform to uspap standard.
DUAL AGENCY the situation in which an agent represents more than one party to a transaction.
1. Making reasonable effort to perform under a contract.
2. Making a reasonable effort to provide accurate, complete information. A study that often precedes the purchase of property, which considers the physical, financial, legal, and social characteristics of the property and expected investment performance; the underwriting of a loan or investment.
DUE-ON-SALE CLAUSE a provision in a mortgage that states the loan is due upon the sale of the property.
DURESS compulsion to do something because of a threat.
EARNEST MONEY – a deposit made by a purchaser of real estate to evidence good faith.
EASEMENT the right, privilege, or interest that one party has in the land of another.
EASEMENT BY NECESSITY the right of an owner to cross over another’s property for a special necessary purpose.
EASEMENT BY PRESCRIPTION continued use of another’s property for a special purpose can ripen into a permanent use if conditions are met.
ENCROACHMENT a building, or part of a building, or an obstruction that physically intrudes upon, overlaps, or trespasses upon the property of another.
ENCUMBRANCE any right to or interest in land that affects its value. Includes out standing mortgage loans, unpaid taxes, easements, deed restrictions.
ENERGY EFFICIENT as applied to buildings, generally indicating the existence of extra insulation, weatherproofing, and/or special features and equipment designed to reduce the cost of energy for heating, cooling and hot water.
ENVIRONMENT ASSESSMENT (EA) a study of land to determine any unique environmental attributes, considering everything from endangered species to existing hazardous waste to historical significance. Depending on the findings of an EA, and environmental impact statement (EIS) may or may not be needed.
ENVIRONMENTAL IMPACT STATEMENT (EIS) an analysis of the expected effects of a development or action on the surrounding natural and fabricated environment. Such statements are required for many federally supported developments under the National Environmental Policy Act of 1969.
EQUITABLE TITLE the interest held by one who has agreed to purchase but has not yet closed the transaction.
EQUITY the interest or value that the owner has in real estate over and above the liens against it.
ERRORS AND OMISSIONS INSURANCE liability protection against professional malpractice, mistakes in business dealings by insured, etc.
ESCROW an agreement between 2 or more parties providing that certain instruments or property be placed with a third party for safekeeping, pending the fulfillment or performance of a specified act or condition.
ESCROW AGENT any person engaged in the business of receiving escrows for deposit or delivery.
ESCROW CLOSING term meaning the same as closing, especially in states where deeds of trust are used instead of mortgages.
ESTATE AT SUFFERANCE the wrongful occupancy of property by a tenant after the lease has expired.
ESTATE AT WILL the occupation of real estate by a tenant for an indefinite period, terminable by one or both parties at will.
ESTATE FOR LIFE an interest in property that terminates upon the death of a specified person.
ESTATE FOR YEARS an interest inland allowing possession for a specified and limited time.
ESTATE IN REVERSION an estate left by the grantor for himself or herself, to begin after the termination of some particular estate grated by him or her.
EXAMINATION OF TITLE research of the title to a piece of real estate; less thorough than a title search, usually concentrates on recent records.
EXCLUSIVE AGENCY LISTING employment contract giving only one broker, for a specified time, the right to sell the property and also allowing the owner alone to sell the property without paying a commission.
EXCLUSIVE RIGHT TO SELL LISTING employment contract giving the broker the right to collect commission if the property is sold by any one, including the owner, during the term of the agreement.
EXECUTE to sign a contract; sometimes, to perform a contract fully.
EXECUTOR a person named in a will to carry out is provisions for the disposition of the estate.
EXPENSE RATIO a comparison of the operating expenses to potential gross income. This ratio can be compared over time and with that of other properties to determine the relative operating efficiency of the property considered.
EXTENDED COVERAGE insurance that covers specific incidences normally excluded from standard insurance policies.
FACE INTEREST RATE – the percentage interest that is shown on the loan document. Compare with annual percentage rate, effective rate.
FACE VALUE the dollar amount, shown by words and/or numbers, on a document. Compare with market value; see amortization.
FAIR CREDIT REPORTING ACT a federal law that allows individuals to examine and correct information used by credit reporting services.
FAIR MARKET VALUE a term, generally used in property tax and condemnation legislation, meaning the market value of a property.
FALSE ADVERTISING describing property in a misleading fashion.
FANNIE MAE nickname for federal national mortgage association.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) a public corporation, established in1933; insures up to $100,000 for each depositor in most commercial banks and savings and loan associations. Has own reserves and can borrow from the U.S. Treasury.
FEDERAL FAIR HOUSING LAW a federal law that forbids discrimination on the basis of race, color, sex, religion, handicap, familial status, or national origin in the selling or renting of homes and apartments. See steering.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) an organization that purchases mortgage loans, mostly from savings and loan associations.
FEDERAL HOUSING ADMINISTRATION (FHA) an agency, within the U.S. Department of Housing and Urban Development, that administers many loan programs, loan guarantee programs, and loan insurance programs designed to make more housing available.
FEDERALLY RELATED MORTGAGE a mortgage loan that is, in some way, subject to federal law because it is guaranteed, insured, or otherwise regulated by a government agency such as the federal housing administration (FHA), veterans administration (VA), federal national mortgage association (fnma) or federal home loan mortgage corporation (FHMLC).
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) a corporation that specializes in buying mortgage loans, mostly from mortgage bankers. It adds liquidity to the mortgage market. Nicknamed Fannie Mae, FNMA is owned by its stockholders, who elect 10 to its Board of Directors. The U.S. President appoints the other 5 directors.
FEDERAL RESERVE SYSTEM the central federal banking system that regulates and provides services to member commercial banks. Also has the responsibility for conducting federal monetary policy.
FEDERAL TRADE COMMISSION (FTC) a federal agency, headquartered in Washington, DC, that regulates advertising and other promotion and sales practices of firms engaged in interstate commerce. The FTC does not regulate interstate land sales (HUD), anti-competitive activities (JUSTICE), or sale of securities (SEC).
FEE SIMPLE or FEE ABSOLUTE or FEE SIMPLE ABSOLUTE absolute ownership of real property; owner is entitled to the entire property with unconditional power of disposition during the owner’s life, and upon his death the property descends to the owner’s designated heirs.
FHA MORTGAGE LOAN a mortgage loan insured by the FHA. See federal housing administration.
FIDUCIARY one who acts, in a legal role, in the best interests of others.
FIFTEEN-YEAR MORTGAGE a fixed-rate, level-payment mortgage loan with a maturity of 15 years.
FINDER’S FEE money paid to someone other than a broker who locates suitable property ora purchaser. Prohibited or limited in most states.
FIRST MORTGAGE a mortgage that has priority as a lien over all other mortgages. In cases of foreclosure the first mortgage will be satisfied before other mortgages. Also called senior mortgage.
FIXED PAYMENT MORTGAGE a loan secured by real property which features a periodic payment of interest and principal which is constant over the term of the loan. All fixed payment mortgages are fixed rate mortgages, but some fixed rate mortgages may have variable payments, such as a graduated payment mortgage.
FIXED-RATE MORTGAGE a loan secured by real property featuring an interest rate that is constant for the term of the loan. Contrast with adjustable rate mortgage.
FIXTURES improvements or personal property attached to the land so as to become part of the real estate. Tests to determine whether an item is a fixture include:
- Intent of the parties (was it intended to remain?)
- Method of annexation (how is it affixed?)
- Relation of the parties (was it expected to be part of a tenant’s business?)
- Adaptation of the article (is it essential to the building?)
FLOOD INSURANCE an insurance policy that covers property damage due to natural flooding. Flood insurance is offered by private insurers but is subsidized by the federal government.
FLOODPLAIN a level land area subject to periodic flooding from a contiguous body of water.Floodplains are delineated by the expected frequency of flooding.
FORECLOSURE SALE the public sale of a mortgaged property following foreclosure of the loan secured by the property. Depending on the type of foreclosure proceeding, the sale may be administered by the courts (judicial foreclosure) or by an appointed trustee (statutory foreclosure). Proceeds of the sale are used to satisfy the claims of the mortgagee primarily, with any excess going to the mortgagor.
FRANCHISE an arrangement between a franchisor and franchisee through which the franchisee uses the company name of the franchisor and is provided specified business services in exchange for a franchise fee. The fee is usually an initial purchase requirement plus an ongoing percentage of gross sales of the business.
FREDDIE MAC nickname for federal home loan mortgage corporation.
FREE AND CLEAR TITLE title to a property without encumbrances. Generally used to refer to a property free of mortgage debt.
FSBO for sale by owner. a term referring to properties on the market that are not listed with a real estate broker. Pronounced “fizzbo.”
GIFT DEED – a deed for which consideration is love and affection and no material consideration is involved.
GOOD FAITH – a concept of honesty.
GRACE PERIOD the period during which one party may fail to perform without being considered in default.
GRADUATE, REALTORS® INSTITUTE (GRI) an educational program sponsored by the national association of realtors® or State Realtor Boards.
GRANDFATHER CLAUSE when a law is changed or a new law is passed, those whose specific activity was legal under the previous law are often allowed to continue, by virtue of this provision.
GRANT a technical term used indeed of conveyance of property to indicate a transfer.
GRANTEE the party to whom the title to real property is conveyed; the buyer.
GRANTOR anyone who gives a deed.
GRI Graduate, Realtors® Institute, which is affiliated with the national association of realtors®.
HAZARD INSURANCE a form of insurance that protects against certain risks, such as from fires or storms.
HIGHEST AND BEST USE an appraisal term meaning the legally and physically possible use that, at the time of appraisal, is most likely to produce the greatest net return to the land and/or buildings over a given period.
HOLD HARMLESS CLAUSE in a contract, a clause whereby one party agrees to protect another party from claims.
HOME EQUITY LOAN a loan secured by a second mortgage on one’s principle residence, generally to be used for some non-housing expenditure. Generally two types are available. A line-of-credit home equity loan establishes a credit line that can be drawn upon as needed. A traditional second mortgage provides lump-sum proceeds at the time the loan is closed.
HOME INSPECTOR a professional who evaluates the structural and mechanical condition of a home prior to its being sold. Some states require home inspectors to be bonded or licensed. Inspectors in Arizona are not currently required to be licensed.
HOMEOWNER’S ASSOCIATION an organization of the homeowners in a particular subdivision, planned unit development, or condominium; generally for the purpose of enforcing deed restrictions or managing the common elements of the development. See community association.
HOMEOWNER’S POLICY an insurance policy designed especially for homeowners. Usually protects the owner from losses caused by most common disasters, theft, and liability. Coverage and costs vary widely.
HOMESTEAD status provided to a homeowner’s principal residence by some state statutes; protects home against judgments up to specified amounts.
HOUSING AND URBAN DEVELOPMENT (HUD) DEPARTMENT a U.S. government agency established to implement certain federal housing and community development programs. This federal agency attempts to assure decent, safe, and sanitary housing for all Americans, and investigates complaints of discrimination in housing.
HUD housing and urban development department.
HUD-1 FORM same as uniform settlement statement.
HYPOTHECATE ti pledge a thing as security without having to give up possession of it.
ILLIQUIDITY inadequate cash to meet obligations. Real estate is considered an illiquid investment because of the time and effort required to convert to cash.
IMPLIED AGENCY occurs when the words and actions of the parties indicate that there is an agency relationship.
IMPLIED WARRANTY one that is not written but exists under the law. Contrasted with “expressed.”
IMPOUND ACCOUNT a fund set aside for future needs. Example: Each month a homeowner deposits 1/12 of the estimated annual property tax and insurance premium requirements into an impound account, so that the balance will be sufficient to pay amounts when they come due.
INCOME APPROACH a method appraising real estate based on the property’s anticipated future income. The formula for appraisal by the income approach is: Expected annual income / Capitalization Rate = Market Value
INCOME PROPERTY real estate that generates rental income.
INCOME STREAM a regular flow of money generated by a business or investment.
INCOMPETENT one not legally capable of completing a contract. Includes the mentally ill, minors, and other considered incapable.
1. To protect another person against loss or damage.
2. To compensate a party for loss or damage.
INDEPENDENT APPRAISAL a value estimate provided by someone who does not participate in the income or value of the property.
INDEX a statistic that indicates some current economic or financial condition. Indexes are often used to make adjustments in wage rates, rental rates, loan interest rates, and pension benefits set by long-term contracts.
Example: Office building rental rates are sometimes adjusted in relation to the consumer price index.
INDEXED LOAN a long-term loan in which the term, payment, interest rate, or principal amount may be adjusted periodically according to a specific index. The index and the manner of adjustment are generally stated in the loan contract.
INFLATION a loss in the purchasing power of money; an increase in the general price level. Generally measured by the consumer price index, published by the Bureau of Labor Statistics.
INSTITUTE OF REAL ESTATE MANAGEMENT (IREM) a professional organization of property managers. Affiliated with the national association of realtors®. Publishes the Journal of Property Management.
INSTRUMENT a written legal document, created to establish the rights and liabilities of the parties to it.
Examples: The following are examples of instruments:
- land contract
1. Cost of the use of money.
2. The type and extent of ownership.
INTEREST-ONLY LOAN a loan in which interest is payable at regular intervals until loan maturity, when the full loan balance is due. Does not require amortization.
INTERNAL REVENUE SERVICE (IRS) an agency of the federal government that is responsible for the administration and collection of federal income taxes. The IRS prints and distributes tax forms and audits tax returns.
INVESTMENT ANALYSIS a study of the likely return from a proposed real estate investment with the objective of evaluating the amount an investor may pay for it, the investment’s suitability to that investor, or the feasibility of a proposed real estate development. Appraised value is based on a synthesis of people in the market whereas investment analysis is based on the value to a specific investor.
JOINT AND SEVERAL LIABILITY a creditor can demand full repayment from any and all of those who have borrowed. Each borrower is liable for the full debt, not just the prorated share.
JOINT TENANCY ownership of realty by 2 or more persons, each of whom has an undivided interest with the right of survivorship. Typically used by related persons.
JOINT VENTURE an agreement between 2 or more parties who invest in a single business or property.
JUDGMENT a decree of a court stating that one individual is indebted to another and fixing the amount of the indebtedness.
JUDGMENT LIEN the claim upon the property of a debtor resulting from a judgment.
JUDICIAL FORECLOSURE having a defaulted debtor’s property sold where the court ratifies the price paid.
LAND CONTRACT a real estate installment selling arrangement whereby the buyer may use, occupy, and enjoy land, but no deed is given by the seller (so no title passes) until all or a specified part of the sale price has been paid. Same as contract for deed and installment land contract.
LANDLOCKED the condition of a lot that has no access to a public thoroughfare except through an adjacent lot.
LANDLORD one who rents property to another; a lessor. A property owner who surrenders the right to use property for a specific time in exchange for the receipt of rent.
LAND USE PLANNING an activity, generally conducted by a local government, that provides public and private land use recommendations consistent with community policies. Generally used to guide decisions on zoning.
LATENT DEFECTS flaws that are hidden but are apt to surface later. Example: a building was found to have latent defects in the form of poor construction of subfloors and improper foundation support.
LEAD-BASED PAINT considered a hazardous material. It is potentially poisonous and its existence in property is to be disclosed. Its presence is often difficult to determine because applications of lead-based paint may have been covered by more recent paint applications that are free of lead.
LEASE a contract in which, for a payment called rent, the one entitled to the possession of real property (lessor) transfers those rights to another (lessee) for a specified period of time.
LEASEHOLD IMPROVEMENTS fixtures attached to real estate that are generally acquired or installed by the tenant.
LEASE WITH OPTION TO PURCHASE a lease that gives the lessee (tenant) the right to purchase the property at an agreed-upon price under certain conditions.
LEGAL DESCRIPTION legally acceptable identification of real estate by one of the following:
- The government rectangular survey
- Metes and bounds
- Recorded plat (lot and block number)
LESSEE a person to whom property is rented under a lease. A tenant.
LESSOR one who rents property to another under a lease. A landlord.
LIABILITY INSURANCE protection for a property owner from claims arising from injuries or damage to other people or property.
LICENSEE one who holds a real estate license; a licensed salesperson or broker.
LICENSE LAWS laws that govern the activities of real estate salespersons.
LIEN a charge against property making it security for the payment of a debt, judgment, mortgage, or taxes; it is a type of encumbrance. A specific lien is against certain property only. A general lien is against all of the property owned by the debtor.
LIFE ESTATE a freehold interest (in real property) that expires upon the death of the owner or some other specified person (pur autre vie).
LIMITED LIABILITY the restriction of one’s potential losses to the amount invested. The absence of personal liability.
LIMITED PARTNERSHIP one in which there is a at least one partner who is passive and limits liability to the amount invested, and at least one partner whose liability extends beyond monetary investment.
LINE OF CREDIT an agreement whereby a financial institution promises to lend up to a certain amount without the need to file another application.
LIQUIDATED DAMAGES an amount agreed upon in a contract that one party will pay the other in the event of a breach of the contract.
LIQUIDITY ease of converting assets to cash.
LIS PENDENS Latin: “suit pending.” Recorded notice of the filing of a suit, the outcome of which may affect title to a certain land.
1. A written engagement contract between a principal and an agent, authorizing the agent to
perform services for the principal involving the latter’s property.
2. A record of property for sale by a broker who has been authorized by the owner to sell.
3. The property so listed.
LISTING BROKER (AGENT) the licensed real estate broker (agent) who secures a listing of the property. Contrast with selling broker (agent).
LOAN APPLICATION document required by a lender prior to issuing a loan commitment. The application generally includes the following information:
- name of the borrower
- amount and terms of the loan
- description of the subject property to be mortgaged
- borrower’s financial and employment data
LOAN PACKAGE the collection of documents associated with a specific loan application.
LOAN-TO-VALUE RATIO (LTV) the portion of the amount borrowed compared to the cost or value of the property purchased. Example: Abel bought a $100,000 house and arranged a $90,000 mortgage loan, resulting in a 90% loan-to-value ratio. Home mortgages at more than an 80% LTV ratio generally require mortgage insurance.
“LOCATION, LOCATION, LOCATION” the “three most important things about real estate”; a popular statement that emphasizes the importance of location with respect to the value of urban real estate.
LOW-BALL OFFER an offer from a prospective property buyer that is much lower than the listing price. Such an offer may indicate the buyer’s belief that the property will not attract many good offers and that the asking price is unrealistic. Also, it probably means the buyer is interested in the property only if it can be purchased at a bargain price.
MARGIN a constant amount added to the value of the index for the purpose of adjusting the interest rate on an adjustable rate mortgage. Example: An adjustable rate mortgage is indexed to the 1 year Treasury yield and has a margin of 3 percentage points. If the index is currently 6%, the fully indexed rate on the loan is 9% (6% index plus 3% margin).
MARKET ANALYSIS a study of the supply and demand conditions is a specific area for a specific type of property or service. A market analysis report is generally prepared by someone with experience in real estate, economics, or marketing. It serves to help decide what type of project to develop and is also helpful in arranging permanent and construction financing for a proposed development.
1. The theoretical highest price a buyer, willing but not compelled to buy, would pay, and the lowest price a seller, willing but not compelled to sell, would accept.
2. The definition of market value provided by USPAP is: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
- Buyer and seller are typically motivated;
- Both parties are well informed or well advised, and acting in what they consider their best interests;
- A reasonable time is allowed for exposure in the open market;
- Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
- The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
MATURITY the due date of a loan.
MEETING OF THE MINDS agreement, by all parties to a contract, to the exact terms thereof.
Example: To have a meeting of the minds there must be:
An offer and acceptance
Description of the subject property
MERIDIAN a longitudinal reference line that traverses the earth in a north-south direction; all meridians circle the earth through the equator and converge at the north and south poles; used by surveyors in describing property under the government rectangular survey method.
METES AND BOUNDS a land description method that details all the boundary lines of land, together with their terminal points and angles.
MINERAL RIGHTS the privilege of gaining income from the sale of oil, gas, and other valuable resources found on land.
MINIMUM LOT AREA the smallest building lot area allowed in a subdivision, generally specified by a zoning ordinance.
MISREPRESENTATION an untrue statement, whether unintentional or deliberate. It may be a form of nondisclosure where there is a duty to disclose or the planned creation of a false appearance. Where there is misrepresentation of material fact, the person injured may sue for damages or rescind the contract.
MODULAR HOUSING dwelling units constructed from components prefabricated in a factory and erected on the site.
MOISTURE BARRIER a layer of foil, plastic, or paper used in the construction of exterior walls, ceilings, and foundations to prevent moisture penetration into wooden members or insulation.
MORTGAGE a written instrument that creates a lien upon real estate as security for the payment of a specified debt.
MORTGAGE BANKER one who originates, sells, and services mortgage loans. Most loans are insured or guaranteed by a government agency or private mortgage insurer.
MORTGAGE BROKER one who, for a fee, places loans with investors, but does not service such loans.
MORTGAGEE one who holds a lien on property or title to property, as security for a debt.
MORTGAGE INSURANCE protection for the lender in the event of default, usually covering the top 25% of the amount borrowed.
MORTGAGE INSURANCE PREMIUM (MIP) the fee paid by a mortgagor to obtain mortgage insurance on a mortgage loan. The fee may be collected as a lump sum at loan closing or as a periodic amount included in the monthly payment, or both.
MORTGAGOR one who pledges property as security for a loan.
MULTIFAMILY HOUSING a type of residential structure with more than one dwelling unit in the same building. Example: Multifamily housing is divided into 2 categories:
- 2-4 dwelling units: duplexes, triplexes, and quadriplexes
- 5 or more units: apartment buildings.
MULTIPLE LISTING an arrangement among a group of real estate brokers; they agree in advance to provide information about some or all of their listings to the others and also agree that commissions on sales of such listings will be split between listing and selling brokers.
MULTIPLE LISTING SERVICE (MLS) an association of real estate brokers that agrees to share listings with one another. The listing broker and the selling broker share the commission.
MULTIPLIER a factor, used as a guide, applied by multiplication to derive or estimate an important value.
Example: A gross rent multiplier of 6 means that property renting for $12,000 per year can be sold for 6 times that amount, or $72,000.
NATIONAL ASSOCIATION OF HOME BUILDERS (HAHB) an organization of home builders, providing educational, political information, and research services. Publishes a monthly magazine, Builder.
NATIONAL ASSOCIATION OF REALTORS (NAR) an organization of realtors , devoted to encouraging professionalism in real estate activities. There are over 600,000 members of NAR, 50 state associations, and several affiliates. Members are required to abide by the code of ethics of the NAR.
NEGATIVE AMORTIZATION an increase in the outstanding balance of a loan resulting from the failure of periodic debt service payments to cover required interest charged on the loan. Generally occurs under indexed loans for which the applicable interest rate may be changed without affecting the monthly payments. Negative amortization will occur if the indexed interest rate is increased.
NEGATIVE CASH FLOW situation in which a property owner must make an outlay of funds to operate a property.
NEGOTIATION the process of bargaining that precedes an agreement. Successful negotiation generally results in a contract between the parties.
NET OPERATING INCOME (NOI) income from property or business after operating expenses have been deducted, but before deducting income taxes and financing expenses (interest and principal payments). The formula is: NOI = gross income – operating expenses
NOMINEE one who, in a limited sense, acts for or represents another.
NONCONFORMING LOAN loan that does not meet the standards of, or is too large to be purchased by, FNMA or FHLMC. The interest rate is at least half a percentage point higher that for a conforming loan.
NONCONFORMING USE a use that violates zoning regulations or codes but is allowed to continue because it began before the zoning restriction was enacted.
NON-RECOURSE no personal liability. Lenders may take the property pledged as collateral to satisfy a debt, but have no recourse to other assets of the borrower.
NOTARIZE to attest in one’s capacity as a notary public, to the genuineness of a signature.
NOTARY PUBLIC an officer who is authorized to take acknowledgments to certain types of documents, such as deeds, contracts, and mortgages, and before whom affidavits may be sworn.
NOVATION a 3-party agreement whereby one party is released from a contract and another party is substituted.
NULL AND VOID that which cannot be legally enforced, as with a contract provision that is not in conformance with the law.
OBSOLESCENCE a loss in value due to reduced desirability and usefulness of a structure because its design and construction has become obsolete; loss due to a structure’s becoming old-fashioned, not in keeping with modern needs, with consequent loss of income. See economic depreciation, functional depreciation, functional obsolescence.
OCCUPANCY RATE OR LEVEL percentage of currently rented units in a building, city, neighborhood, or complex. Contrast with vacancy rate.
OFFER an expression of willingness to purchase a property at a specified price.
OPEN HOUSE a method of showing a home for sale whereby the home is left open for inspection by interested parties.
OPTION TO PURCHASE a contract that gives one the right (but not the obligation) to buy a property, within a certain time, for a specified amount, and subject to specified conditions.
ORAL CONTRACT an unwritten agreement. With few exceptions, unwritten agreements for the sale or use of real estate are unenforceable. In most states, contracts for sale or rental of real estate are, unless in writing, unenforceable under the statute of frauds. Verbal leases for a year or less are often acceptable.
ORIGINATION FEES charges to a borrower to cover the costs of issuing the loan.
OUTSTANDING BALANCE the amount currently owed on a debt.
OVERBUILDING a situation in a given area where there has been more real estate construction than the market can absorb within a reasonable time.
OWNER OCCUPANT a tenant of a residence who also owns the property.
OWNER OF RECORD the person(s) who, according to the public records, is/are the owner(s) of a particular property.
P&I principal and interest (payment).
PARTIALLY AMORTIZED LOAN one that requires some payments toward principal but does not fully retire the debt, thereby requiring a balloon payment.
PARTIAL RELEASE a provision in a mortgage that allows some of the property pledged to be freed from serving as collateral.
PASSIVE SOLAR HEATING a system of features incorporated into a building’s design to use and maximize the effects of the sun’s natural heating capability.
PAYMENT CAP a contractual limit on the percentage amount of adjustment allowed in the monthly payment for an adjustable rate mortgage at any one adjustment period. Generally it does not affect the interest rate charged. If the allowable payment does not cover interest due on the principal at the adjusted rate of inters, negative amortization will occur.
PERCENTAGE LEASE a lease of property in which the rental is based on a percentage of the volume of sales made upon the leased premises. It usually stipulates a minimum rental and is regularly used for retailers who are tenants.
PERCOLATION TEST a procedure to measure the drainage characteristics of the soil on a lot. Required in the proper design of septic tank drainfields.
PERFORMANCE in contract law, the completion of duties and obligations specified in a contract.
PERFORMANCE BOND one issued by an insurance company; posted by a party who is to perform certain work. If the work is not performed, the insurer promises to complete the work or pay damages up to the amount of the bond.
PERPETUITY the condition of being never ending. Most states attempt to outlaw perpetuities because of potential problems. A perpetual income stream may cause bankruptcy. A deed that keeps property in a family in perpetuity can cause financial hardship.
PERSONAL RESIDENCE the dwelling unit that one claims as one’s primary home. This dwelling establishes one’s legal residence for voting, tax, and legal purposes.
PHYSICAL DEPRECIATION OR DETERIORATION the loss of value from all causes of age and action of the elements. Example: Sources of physical depreciation:
- Deferred maintenance
- Effects of age on construction material
- Normal wear and tear
PITI see principal, interest, taxes, and insurance payment.
PLAT a plan or map of a specific land area. Example: Plat of a subdivision.
PLOT PLAN a diagram showing the proposed or existing use of a specific parcel of land.
PMI private mortgage insurance.
POINTS fees paid to induce lenders to make a mortgage loan. Each point equals 1% of the loan principal. Points have the effect of reducing the amount of money advanced by the lender. Same as discount points. Example: Mortgage lenders commonly charge one point as a loan origination fee. Additional points may be charge to raise the loan yield to current market interest rates. If only one point is required, a borrower requesting a loan of $50,000 would actually receive only $49,500. The $500 cost of the point is a closing cost.
POWER OF ATTORNEY an instrument authorizing a person to act as the agent of the person granting it. See attorney-in-fact.
1. The cost of an insurance policy. Example: Annual or monthly premiums are generally required for hazard insurance, liability insurance, and life insurance. Title insurance premiums are paid only once.
2. The value of a mortgage or bond in excess of its face amount. Example: When the face rate of a mortgage exceeds the prevailing market interest rate, the mortgage may be worth a premium over its face value.
3. An amount over market value paid for some exceptional quality or feature.
PREPAYMENT CLAUSE a clause in a mortgage that gives a mortgagor (borrower) the privilege of paying the mortgage indebtedness before it comes due. Sometimes there is a penalty for prepayment, with waiver of the interest that is not yet due.
PREPAYMENT PENALTY fees paid by borrowers for the privilege of retiring a loan early.
PREPAYMENT PRIVILEGE the right of a borrower to retire a loan before maturity.
PREPAYMENTS advance payments of expenses such as insurance and taxes, often into an escrow account.
PRE-SALE sale of proposed properties, such as condominiums, before construction begins.
PRICE FIXING illegal effort by competing businesses to maintain a uniform price, such as the commission rate on the sale of real estate.
PRIME RATE the lowest commercial interest rate charged by banks on short-term loans to their most credit worthy customers. The prime rate is not the same as the long-term mortgage rate, though it may influence long-term rates. Also, it is not the same as the consumer loan rate that is charged on personal property loans and credit cards. Mortgage rates and consumer loan rates are generally higher than the prime rate, but exceptions occur at times.
1. the one who owns or will use property. Example: the principals to the lease are the landlord and tenant; principals to a sale are the buyer and seller. 2. one who contracts for the services of an agent or broker, the broker’s or agent’s client.
3. the amount of money raised by a mortgage or other loan, as distinct from the interest paid on it.
PRINCIPAL, INTEREST, TAXES AND INSURANCE PAYMENT (PITI) the periodic (typically monthly) payment required by an amortizing loan that includes escrow deposits. Each periodic payment includes a principal and interest payment plus a contribution to the escrow account set up by the lender to pay insurance premiums and property taxes on the mortgaged property.
PRIVATE MORTGAGE INSURANCE default insurance on conventional loans, provided by private insurance companies. See mortgage insurance.
PROCURING CAUSE a legal term that means the cause resulting in accomplishing a goal. Used in real estate to determine whether a broker is entitled to a commission.
PROJECTION PERIOD the time duration for estimating future cash flows and the resale proceeds from a proposed real estate investment. Example: A 10-year projection period is typically used in a discounted cash flow analysis of income-producing real estate.
PROPERTY TAX a government levy based on the market value of privately owned property. Sometimes referred to as ad valorem tax or real estate tax.
PROPRIETARY LEASE in a cooperative apartment building, the lease a corporation provides to the stockholders which allows them to use a certain apartment unit under the conditions specified.
PRORATE to allocate between seller and buyer their proportionate share of an obligation paid or due; for example, to prorate real property taxes or insurance.
PROSPECT a person considered likely to buy. A prospective purchaser.
PROSPECTUS a printed descriptive statement about a business or investment that is for sale, to invite the interest of prospective investors.
PROXY a person who represents another, particularly in some meeting. Also, the document giving to another the authority to represent.
PUBLIC RECORD usually refers to land transaction records kept at the county courthouse.
PUBLIC SALE an auction sale of property with notice to the general public. Example: After foreclosure, a public sale was effected. It was advertised in the local newspaper in advance. The property was auctioned off on the courthouse steps to the highest bidder.
PUFFING overstating the qualities of a property.
PUNCH LIST an enumeration of items that need to be corrected prior to a sale.
PURCHASE CAPITAL the amount of money used to purchase real estate, regardless of the source.
PURCHASE MONEY MORTGAGE a mortgage given by a grantee (buyer) to a grantor (seller) in part payment of the purchase price of real estate.
QUIET TITLE SUIT (OR ACTION) a suit in court to remove a defect, cloud on the title, or suspicion regarding legal rights of an owner to a certain parcel of real property.
QUITCLAIM DEED a deed that conveys only the grantor’s rights or interest in real estate, without stating the nature of the rights and with no warranties of ownership. Often used to remove a possible cloud on the title. Contrast with general warranty deed.
RADON a naturally appearing (not man-made) gas that may contaminate water or air in buildings. Studies from mines have indicated a correlation between radon and lung cancer in humans. Homes that are too well insulated may trap radon gas, increasing its concentration. A pipe that serves to vent radon, especially from the basement to the roof, is often suggested to prevent its buildup.
RANGE LINES lines parallel to a principal meridian, marking off the land into 6-mile strips known as ranges; they are numbered east or west of a principal meridian in the government rectangular Survey.
READY, WILLING, AND ABLE capable of an action and disposed to act.
1. In law, land and everything more or less attached to it. Ownership below to the center of the earth and above to the heavens. Distinguished from personal property. Same as realty.
2. In business, the activities concerned with ownership and use transfers of the physical property. Example: The following are engaged in real estate business activities:
- Government regulators
- Mortgage brokers
- Mortgage lenders
- Title companies
REAL PROPERTY the rights to use real estate. Sometimes also defined as real estate.
REALTOR® a professional in real estate who subscribes to a strict code of ethics as a member of the local and state boards and of the national association of realtors®.
REALTOR® -ASSOCIATE a licensed salesperson (not broker) who is a member of the national association of realtors®.
RECAPTURE CLAUSE in a contract, a clause permitting the party who grants and interest or right to take it back under certain conditions.
Example: Carter grants a lease to Frank’s Furniture, with rent set at 6% of retail sales. The lease contains a recapture clause whereby Carter can regain the property unless sales are over $1 million per year.
RECESSION general economic slowdown; officially declared after two consecutive quarters of reduced gross domestic product. Often, there is a shrinkage in the real estate industry without a recession in the general business economy.
RECONCILIATION in appraisal, the process of adjusting comparables to estimate the value of the subject being appraised.
RECONVEYANCE occurs when a mortgage debt is retired. The lender conveys the property back to the equity owner, free of the debt.
RECORDING the act of entering in a book of public records instruments affecting the title to real property. Recording in this manner gives notice to the world of facts recorded.
RECOVERY RUND generally administered by the real estate commission. Requires licensees to contribute, then reimburses aggrieved persons who are unable to collect from brokers for wrongdoings.
REDEMPTION PERIOD the period during which a former owner can reclaim foreclosed property.
REDLINING an illegal practice of a lender refusing to make home loans in certain areas. The term is derived from circling, with red pencil on a map, areas where the institution will not lend. If the area is completely cut off from mortgage financing, property values will plummet and neighborhood conditions will deteriorate rapidly. Redlining is outlawed by the community reinvestment act.
REFINANCE to replace an old loan(s) with a new loan(s).
REGULATION Z a federal regulation requiring creditors to provide full disclosure of the terms of a loan. Compliance is compulsory for anyone who arranges credit for more than 5 sales of residential real estate in a year. Terms of the loan must be disclosed. The interest rate must be stated as an annual percentage rate (apr).
RELEASE CLAUSE in a mortgage, a clause that gives the owner the privilege of paying off a portion of the mortgage indebtedness, thus freeing a portion of the property from the mortgage.
RELEASE OF LIEN to free real estate from a mortgage.
RELOCATION SERVICE a company that contracts with other firms to arrange the relocation of employees from one city to another. The service generally handles the sale of the employee’s home and purchase of a new home. Furniture-moving services may be included.
RENEGOTIATE to legally revise the terms of a contract.
RENT CONTROL laws that govern the rate that may be charged for space.
REPLACEMENT COST the cost of erecting a building to replace or serve the functions of a previous structure.
REPRODUCTION COST the cost of exact duplication of a property as of a certain date. Reproduction differs from replacement in that replacement requires the same functional utility for a property, whereas reproduction is an exact duplication.
RESCIND to withdraw an offer or contract. Regulation z allows a 3-day period in which to rescind-certain credit transactions.
RESCISSION the act of canceling or terminating a contract. Recession is allowed when the contract was induced by fraud, duress, misrepresentation, or mistake. Regulation z allows one to rescind certain credit transactions within 3 business days (not applicable to first mortgages on a home); purchasers of certain land that must be registered by department of housing and urban development (hud) may rescind within 3 business days.
RESIDENTIAL BROKER one who lists and sells houses or condominiums. Contrast with commercial broker.
RESIDENTIAL SALES COUNCIL affiliate of the realtors® national marketing institute of the national association of realtors® that provides educational and promotional materials for members, most of who are involved in residential real estate sales or brokerage.
RESIDENTIAL SERVICE CONTRACT an insurance contract or home warranty, generally for one year, covering the plumbing, mechanical, and electrical systems of a home. It is available in most areas upon the purchase of an existing home. Either the buyer or seller can pay for the contract.
RESOLUTION TRUST CORPORATION (RTC) a federal agency created by FIRREA to manage and resolve insolvent savings and loan associations placed into its conservatorship or receivership. The agency is supervised by the federal deposit insurance corporation.
RESPA real estate settlement procedures act.
RESTRICTIVE COVENANT a covenant or deed restriction that limits the property rights of the owner. Example: A restrictive covenant was placed on property to prevent the sale of alcoholic beverages on the land for the next 50 years.
RIGHT OF SURVIVORSHIP the right of a surviving joint tenant to acquire the interest of a deceased joint owner; the distinguishing feature of both joint tenancy and tenancy by the entirety.
Example: Frank Adams and Anna Adams own property as joint tenants with the right of survivorship. When either dies, the entire property will pass to the other without probate.
RIPARIAN OWNER one who owns land bounding upon a lake, river, or other body of water.
RIPARIAN RIGHTS rights pertaining to the use of water on, under, or adjacent to one’s land. May be qualified to avoid nuisance and pollution. Riparian rights are recognized in most eastern states but rarely in western states, where they recognize usufructory rights.
RULE OF 72’s an approximation of the time it takes for money to double when earning compound interest. Divide the percentage rate into 72 to derive the number of years to double the principal.
Example: A $1,000 certificate of deposit pays a 9% interest rate with annual compounding. In about 8 years the balance will be $2,000 (72 ÷ 9% = 8 years).
RUN WITH THE LAND an expression indicating a right or restriction that affects all current and future owners of a property. Contrasted to an agreement, between a current owner and other parties, that is not passed on to future owners in a deed. Example: A covenant, written into the deed, prohibits the property from being used as a liquor store. The restriction runs with the land, and all future owners are restrained from violating the covenant.
SALES CONTRACT a contract by which the buyer and seller agree to the terms of sale. Same as agreement of sale, earnest money contract.
SALESPERSON one who is licensed to deal in real estate or perform any other act enumerated by state real estate license laws, while under the supervision of a broker licensed by the state.
SALES PRICE the amount of money required to be paid for real estate according to a contract, or previously paid.
SEASONED LOAN a loan on which several payments have been collected.
SECOND MORTGAGE a subordinated lien, created by a mortgage loan, over the amount of a first mortgage. Second mortgages are used at purchase to reduce the amount of a cash down payment or in refinancing to raise cash for any purpose.
SECTION 8 HOUSING privately owned rental dwelling units participating in the low-income rental assistance program created by 1974 amendments to Section 8 of the 1937 Housing Act. Under the program, landlords receive rent subsidies on behalf of qualified low-income tenants, allowing the tenants to pay a limited proportion of their incomes toward the rent.
SECTION 1031 the section of the internal revenue code that deals with tax-deferred exchanges of certain property. General rules for a tax-deferred exchange of real estate are: The properties must be:
- Exchanged or qualify as a delayed exchange
- Like-kind property (real estate for real estate)
- Held for use in a trade or business or held as an investment
SELLER FINANCING a debt instrument taken back by the seller as part of the purchase price for a property. Such financing is used as an inducement to a sale when normal third-party financing is expensive or unavailable and in situations where the existing, first-lien loan may be assumed by the buyer but the difference between the existing debt and sales price exceeds the cash resources of the buyer. Seller financing may be in the form of a senior mortgage or a junior mortgage.
SELLER’S MARKET economic conditions that favor sellers, reflecting rising prices and market activity. Contrast with buyer’s market.
SEPARATE PROPERTY property acquired by either spouse prior to marriage or by gift or devise after marriage, as distinct from community property.
SETBACK the distance from the curb or other established line within which no buildings may be erected.
SIMPLE INTEREST a method of calculating the future value of a sum assuming that interest paid is not compounded, i.e., that interest is paid only on the principal. See also compound interest.
SPEC HOUSE a single-family dwelling constructed in anticipation of finding a buyer.
SPECIAL ASSESSMENT an assessment made against a property to pay for a public improvement by which the assessed property is supposed to be especially benefited.
SPECIAL USE PERMIT a right granted by a local zoning authority to conduct certain activities within a zoning district. Such activities are considered conditional uses, which are permitted within the zone only upon special approval of the zoning authority. Also termed a “conditional use permit.”
SQUARE FOOTAGE the area, measured in square feet, of a piece of real estate. Generally measured from outside the exterior walls in the case of structures.
STATUTE OF LIMITATIONS a specified statutory period after which a claimant is barred from enforcing his claim by suit.
STEERING an illegal practice of limiting the housing shown to a certain ethnic group.
STEPPED-UP BASIS an income tax term used to describe a change in the adjusted tax basis of property, allowed for certain transactions. The old basis is increased to market value upon inheritance, as opposed to a carry-over basis in the event of a tax-free exchange. Example: Dooley dies, leaving land worth $100,000. The land was purchased for $20,000, but the heirs receive a stepped-up basis to the fair market value at death. The $80,000 unrealized gain to Dooley escapes capital gains tax.
SUBORDINATE MORTGAGE one having a lower priority than another; the subordinate mortgage has a claim in foreclosure only after satisfaction of mortgage(s) with priority.
SUBORDINATION CLAUSE a clause or document that permits a mortgage recorded at a later date to take priority over an existing mortgage.
SURVIVORSHIP the right of a joint tenant or tenants to maintain ownership rights following the death of another joint tenant. Survivorship prevents heirs of the deceased from making claims against the property.
SWEAT EQUITY value added to a property due to improvements as a result of work performed personally by the owner.
SWING LOAN a short-term loan that allows a homeowner to purchase a new home before selling the former residence. See bridge loan, gap loan.
TITLE REPORT a document indicating the current state of the title, such as easements, covenants, liens and any defects. The title report does not describe the chain of title.
TITLE SEARCH an examination of the public records to determine the ownership and encumbrances affecting real property.
TOWN HOUSE a dwelling unit, generally having 2 or more floors and attached to other similar units via party walls. Town houses are often used in planned unit developments and condominium developments, which provide for clustered or attached housing and common open space.
UNIFORM SETTLEMENT STATEMENT the form prescribed by the real estate settlement procedures act for federally related mortgages, which must be prepared by whoever handles a closing, must contain certain relevant closing information, and must be given to buyer and seller.
VA LOAN home loan guaranteed by the U.S. veterans administration (va) under the Servicemen’s Readjustment Act of 1944 and later. The VA guarantees restitution to the lender in the event of default. The guaranty is 60% of the loan, but not more than $27,500. Home must be a principal residence.
VETERANS ADMINISTRATION (VA) an agency of the federal government that provides services for eligible veterans. Generally, a veteran who has served (beyond basic training) more than 120 days active duty in the armed forces is eligible for a home loan with no down payment.
WALK-THROUGH INSPECTION inspection of premises by a buyer or tenant prior to closing or taking possession.
WARRANTY a promise contained in a contract.
WARRANTY DEED one that contains a covenant that the grantor will protect the grantee against any and all claims. Usually contains covenants assuring good title, freedom from encumbrances, and quiet enjoyment.
WCR women’s council of realtors®.