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A
Abstract of title:
A
condensed version of the history of title to a piece of
land that lists any transfers in ownership, as well as
any liabilities attached to it, such as mortgages.
Acceptance:
An
acceptance is a promise by the offeree to be bound by
the exact terms proposed by the offeror. The acceptance
must be communicated to the offeror.
Acknowledgment:
A
declaration made by a person to a notary public, or
other public official authorized to take
acknowledgments, that the instrument was executed by him
and that it was his free and voluntary act.
Acre:
A measure of land
equal to 43,560 square feet.
Adjustable Rate Mortgage
(ARM): A mortgage with rates and terms
that can change. The adjustable rate loan has become
commonplace, with allowable ranges as to time intervals,
percentage of increase or decrease and total increases
or decreases likely to change as market conditions
change.
Adjustments:
Money that
the buyer and sellers credit each other at the time of
closing. Often includes taxes and down payment.
Agency:
A relationship
created when one person, the principal, delegates to
another, the agent, the right to act on his or her
behalf in business transactions and to exercise some
degree of discretion while so acting. An agency gives
rise to a fiduciary relationship and imposes on the
agent, as the fiduciary of the principal, certain
duties, obligations, and high standards of good faith
and loyalty.
Annual Percentage Rate
(APR): An expression of the relationship
of the total finance charge to the total amount to be
financed as required under the federal Truth-in-Lending
Act. Tables available from any Federal Reserve bank may
be used to compute the rate, which must be calculated to
the nearest one-eighth of 1 percent. Use of the APR
permits a standard expression of credit costs, which
facilitates easy comparison of lenders.
Appraisal:
An estimate
of the monetary value of a property on the open market;
an estimate of a property's type and condition, its
utility for a given purpose or its highest and best use.
"As-is":
Words in a
contract intended to signify that no guarantees,
whatsoever, are given regarding the subject and that it
is being purchased exactly as it is found.
Asking
(list) price: The price placed on a
property for sale.
Assessment:
The
imposition of a tax, charge or lien, usually according
to established rates.
Assignment:
A transfer
of property rights from one person to another, called
the assignee.
Assessor:
Municipal or
county official who determines the value of property for
taxation.
B
Balloon mortgage:
A
short-term loan, usually at a fixed interest rate, paid
back in equal monthly payments, with a final "balloon"
payment for the remaining balance.
Broker:
Person licensed
to represent homebuyers or sellers for a fee.
Brokerage:
For a
commission or fee, bringing together parties interested
in buying, selling, exchanging, or leasing real
property.
Building inspection:
An
overall inspection of a home or building performed by a
qualified contractor or inspector. The inspection
usually covers all major systems including foundation,
plumbing, electrical, roof, heating and air
conditioning.
Buyer
listing: An agreement where a buyer
agrees to pay a commission if a broker locates a
property that the buyer purchases.
Buyer's
agent: Agent who represents the buyer in
the real estate transaction.
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.
Buyer's broker:
A
licensee who has declared to represent only the buyer in
a transaction, regardless of whether compensation is
paid by the buyer or the listing broker through a
commission split.
C
Cap:
The maximum
allowable increase, for either payment or interest rate,
for a specified amount of time on an adjustable rate
mortgage.
Closing:
The final
transfer of the ownership of a house from the seller to
the buyer, which occurs after both have met all the
terms of their contract and the deed has been recorded.
Closing costs:
Expenses
of the sale (or loan refinancing) that must be paid in
addition to the purchase price (in the case of the
buyer's expenses) or be deducted from the proceeds of
the sale (in the case of the seller's expenses). Some
closing costs result from legal requirements; others are
a matter of local custom and practice.
Commission:
The
compensation paid to a licensed real estate broker or by
the broker to the salesperson for services rendered,
usually a percentage of the selling price of the
property.
Comparables:
Houses and
properties that are similar in style, appearance,
construction quality, and usefulness to a particular
property in a certain location.
Comparative Market Analysis
(CMA): Realistic estimate of a home's
current market value based on the most salient points of
the local real estate market.
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 agreement to do, or not to do, a particular
thing for a consideration.
contract of sale:
The
agreement between the buyer and seller on the purchase
price, terms, and conditions necessary to both parties
to convey the title to the buyer.
Conventional mortgage:
Mortgage not FHA-insured or guaranteed by the VA, known
by this name because it is the most popular home
financing method.
Counter-offer:
Offer
made by the buyer or seller in response to the other's
bid.
Curb
appeal: Common term for everything
prospective buyers can see from the street that might
make them want to take a closer look at a house for
sale.
D
Deed:
A written
instrument, when executed and delivered, conveys title
to or an interest in real estate.
Down
payment: Buyer's payment to the sellers
at time of closing for that percentage of the purchase
price required by the buyer's mortgage loan.
Dual
agency: Representing both the buyer and
the seller in the same real estate transaction. By law,
all states require that dual agency be disclosed to all
parties in the transaction.
E
Earnest money:
Money
paid by the buyer, at the time of making an offer or
entering into a contract to purchase, which is intended
to show the buyer's good-faith intention to complete the
purchase. Generally, earnest money is applied against
the purchase price, but may be forfeited if the buyer
fails to complete the purchase.
Equity:
The interest or
value that an owner has in a property over and above any
indebtedness.
Escrow: The process by
which money and/or documents are held by a disinterested
third person (a stakeholder) until satisfaction of the
terms and conditions of the escrow instructions (as
prepared by the parties to the escrow) have been
achieved. Once these terms have been satisfied, delivery
and transfer of the escrowed funds and documents takes
place.
Escrow account:
The
trust account established under the provisions of the
license law for the purpose of holding funds on behalf
of the principal or some other person until the
consummation or termination of a transaction.
Exclusive Agency (EA):
A
written listing agreement giving a sole agent the right
to sell a property for a specified time, but reserving
to the owner the right to sell the property himself
without owing a commission. The exclusive agent is
entitled to a commission if he or she personally sells
the property or if it is sold by anyone other than the
seller. It is exclusive in the sense that the property
is listed with only one broker. The multiple-listing
service must accept exclusive-agency listings submitted
by participating brokers.
Exclusive right to sell
(ERS): A listing agreement which gives
the listing agent the right to sell the property for a
specified time, with the right to collect a commission
if the property is sold by anyone, including the owner,
during the listing period.
F
Fiduciary:
The
relationship of trust, honesty and confidence between
agent and principal; the faithful relationship owed by
an agent to the principal.
Fair market value:
highest price an informed buyer will pay, assuming there
is not unusual pressure to complete the purchase.
FHA: The Federal Housing
Administration which insures mortgage loans made by
approved lenders, in accordance with FHA regulations.
FHA-insured mortgage:
A
mortgage with low down payment requirements, insured by
the Federal Housing Administration and made available
through banks and other lenders.
Fixed rate mortgage:
A
mortgage with an interest rate that doesn't vary for the
term of the loan.
For Sale By Owner
(FSBO): Some owners choose to sell their
own property without the aid of a real estate broker.
"For Sale By Owner" properties can be a source of
listings when the owner is unsuccessful in selling their
property.
H
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.
Homeowners' insurance:
A
type of insurance policy designed to protect homeowners
from financial losses related the ownership of real
property. In addition to covering losses due to
vandalism, fire, hail, etc., most policies also provide
theft and liability coverage. Flood related damage
requires a separate flood insurance policy or rider.
Home
warranty: A policy purchased by a buyer
or seller as an assurance against unexpected home repair
costs.
House
closing: The final transfer of the
ownership of a house from the seller to the buyer, which
occurs after both have met all the terms of their
contract and the deed has been recorded. Also known as
just "closing".
I
Impound account:
Also
known as an escrow account.
Inspection:
A formal
survey of a home's structure and systems, often
performed by a licensed professional.
Inspection clause:
A
stipulation in an offer to purchase that makes the sale
contingent on the findings of a home inspector.
Interest:
A charge paid
to a lender for borrowed money.
L
Lease-purchase
agreement: An agreement between a tenant
and landlord that a portion of monthly rent may be
credited toward eventual purchase of the rental
property.
Lease
purchase: A contract in which an owner
leases his house (usually for one to five years) to a
tenant for an increased monthly rent, and which gives
the tenant the right to buy the house at the end of the
lease period for a price established in advance, with
the incremental rent increase being used to form a down
payment. Buyers should be wary of this type of contract
since they may lose their extra rent/down payment money
should the owner suffer financial setbacks before the
purchase has been completed.
Lender's agent:
A person
who represents the lender holding the mortgage at
closing.
Listing:
A contract in
which the seller agrees to pay a commission to the agent
who finds a purchaser who can meet the specified terms.
Listing agreement:
A
written employment agreement between a property owner
and a real estate broker authorizing the broker to find
a buyer or a tenant for certain real property. Listing
can take the form of open listings, net listings,
exclusive-agency listings, or exclusive-right-to-sell
listings. The most common form is the
exclusive-right-to-sell listing.
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.
M
Market:
A place where
goods can be bought and sold and a price established.
Market analysis:
A
regional and neighborhood study of economic, demographic
and other factors made to determine supply and demand,
market trends, and other factors important to
buying/leasing and selling real property.
Market
value: The price that a willing buyer and
a willing seller, both given full information, and
neither under pressure to act, would agree upon. Also
known as Fair Market Value.
Mortgage:
A contract
providing security for the repayment of a loan,
registered against property, with stated rights and
remedies in the event of default. Lenders consider both
the property and financial worth of the borrower in
deciding on a mortgage loan.
Mortgage broker/company:
A person or firm that acts as an intermediary between
borrower and lender; one who, for compensation or gain,
negotiates, sells or arranges loans and sometimes
continues to service the loans; also called a loan
broker. Loans originated by the mortgage broker are
closed in the lender's name and are usually serviced by
the lender. This is in contrast to mortgage bankers, who
not only close loans in their own names but continue to
service them as well.
Mortgage insurance:
A
kind of insurance policy that will pay off the mortgage
balance in the event of death, and in some policies,
disability. Premiums are paid with the regular monthly
mortgage payment.
Mortgage loan:
A loan
which utilizes real estate as security or collateral to
provide for repayment should you default on the terms of
your loan. The mortgage or deed of trust is your
agreement to pledge your home or other real estate as
security.
Mortgage note:
A signed
promise to repay a mortgage loan in regular monthly
payments.
Multiple-Listing Service
(MLS): A marketing organization composed
of member brokers who agree to share their listing
agreements with one another in the hope of procuring
ready, willing and able buyers for their properties more
quickly than they could on their own.
O
Offer:
A proposal to
enter into an agreement with another person. An offer
must express the intent of the person making the offer
to form a contract, must contain some essential terms —
including the price and subject matter of the contract —
and must be communicated by the person making the offer.
A legally valid acceptance of the offer will create a
binding contract.
offeree:
The person to
whom an offer is made — usually the owner.
offeror:
The party who
makes an offer — usually the buyer.
Open
house: The common real estate practice of
showing listed homes to the public during established
hours.
Open
listing: A listing given to any number of
brokers who can work simultaneously to sell the owner's
property. The first broker to secure a buyer who is
ready, willing and able to purchase at the terms of the
listing earns the commission. In the case of a sale, the
seller is not obligated to notify any of the brokers
that the property has been sold.
Origination fee:
A fee
charged by lenders, in addition to interest, for
services in connection with granting of a loan. Usually
a percentage of the loan amount.
Over-improvement:
An
addition or improvement in which the cost is greater
than the increased value of the house.
P
Payment
cap: protective device included in some
adjustable-rate mortgages that sets a maximum amount
monthly payment may rise in any given year.
PITI:
Principal,
Interest, Taxes, and Insurance, the four main parts of a
monthly mortgage payment.
PMI:
Private Mortgage
Insurance, which protects the lender in case of default
by the borrower. PMI is often used to allow buyers to
obtain financing with less than a 20 percent down
payment.
Points:
Where one point
equals one percent of the total mortgage loan amount.
Buyers often pay lenders a supplemental fee, calculated
in points, to get a better mortgage interest rate.
Pre-approval:
An actual
decision on a home loan, involving the obtaining of a
credit approval and an agreement to finance a home, with
specifics on the total mortgage amount available to the
buyer.
Prepayment:
Paying off
all or part of the mortgage before the scheduled date.
Pre-qualification:
An
informal determination by a lender or broker of how
large a mortgage a buyer can afford.
Principal:
Money
borrowed from a lender, not including any fees or
interest.
Purchase offer:
A
document that lists the price, terms and conditions
under which a buyer is willing to purchase a property.
Q
Qualify:
The ability to
meet a lender's mortgage approval requirements.
R
Rate
cap: A protective device in some ARMs
that sets a maximum amount that interest rates may rise
or decrease annually over the life of the loan.
Real
estate: The physical land at, above and
below the earth's surface with all appurtenances,
including any structures; any and every interest in land
whether corporeal or incorporeal, freehold or
nonfreehold; for all practical purposes, the term real
estate is synonymous with real property.
Real estate agent:
A
person licensed to negotiate and transact the sale of
real estate on behalf of the property owner.
Real estate brokerage:
A
Real Estate Brokerage is a business in which real estate
license-related activities are performed under the
authority of a real estate broker.
REALTORŪ:
A registered
trade name that may be used only by members of the state
and local real estate boards affiliated with the
National Association of REALTORSŪ (NAR). The term
REALTORŪ designates a professional who subscribes to
associations of REALTORSŪ to govern real estate
practices of members of the board. The use of the name
REALTORŪ and the distinctive seal in advertising is
strictly governed by the rules and regulations of the
national association.
Referral:
One agent's
recommendation of a potential buyer or seller to another
cooperating agent.
Refinance:
To obtain a
new loan to pay off an existing loan, or to pay off one
loan with the proceeds from another. Properties are
frequently refinanced when interest rates drop and/or
the property has appreciated in value.
Return on investment:
The net annual income divided by the original cash
investment equals a percentage return on investment.
S
Sales
contract: A real estate sales contract
contains the complete agreement between a buyer of a
parcel of real estate and the seller. Depending on the
area, this agreement may be known as an offer to
purchase, a contract of purchase and sale, a purchase
agreement, an earnest money agreement or a deposit
receipt.
Sales professional:
A
licensed representative who assists buyers and sellers
with information, advice, and assessment of current
market conditions.
Seller's agent:
An agent
who represents the seller of real property.
Settlement disclosure
statement: A list giving a complete
breakdown of costs involved in a real estate
transaction, prepared by the lender's agent at closing.
T
Title:
The right of
ownership and possession of a property
Title insurance:
Protection for lenders or homeowners against financial
loss resulting from legal defects in the title.
U
Underwriting:
The
process of evaluating a mortgage loan applicant's
credit, collateral value and the risks in making a loan.
V
VA
loan: A government-sponsored mortgage
assistance program administered by the Department of
Veterans Affairs. Under the Servicemen's Readjustment
Act of 1944, eligible veterans and widows or widowers
(who have not re-married) of veterans who died in
service or from service-connected causes may obtain
partially guaranteed loans for the purchase or
construction of a house or to refinance existing
mortgage debt.
W
Walk-through:
A final
inspection of a property just before closing. This
assures the buyer that the property has been vacated,
that no damage has occurred and that the seller has not
taken or substituted any property contrary to the terms
of the sales agreement. If damage has occurred, the
buyer might ask that funds be withheld at the closing to
pay for the repairs.
Warranty:
A promise that
certain stated facts are true. A guarantee by the
seller, covering the title as well as the physical
condition of the property. A warranty is different from
a representation in that a representation is a statement
made in the course of negotiations leading up to the
sale, but not incorporated into the contract. A
warranty, on the other hand, is a statement in the
contract asserting the truth of certain things about the
property.
Z
Zoning:
The regulation
of structures and uses of property within designated
districts or zones. Zoning regulates and affects such
things as use of the land, lot sizes, types of structure
permitted, building heights, setbacks and density (the
ratio of land area to improvement area).
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