Glossary of Terms

When buying or selling a home, you’ll read and hear a lot of Real Estate Terminology. We understand that some of these words and terms can seem a bit confusing, so we’ve compiled a glossary just for you so that you can always be in the know. Bookmark this page and return any time you hear or read a term you’re unsure about.

Acceptance: Consent to an offer to enter into contract.
Adjustable Rate Mortgage (ARM): A mortgage in which interest and payment rates vary periodically,
based on a specific index, such as 30-year Treasury Bills or the Cost-of-Funds
index.
Agency: A mutual-consent, legal relationship in which a seller or buyer engages
a broker-agent in the sale or purchase of property.
Agent/REALTOR®: A licensed person who represents the seller (and/or buyer) and who
provides market assessment, offers sales or buying strategy, recommends
various services and sources important to the seller or buyer, is a
member of the National Association of REALTORS (NAR), and subscribes
to NAR’s strict Code of Ethics.
Appraisal: A professional and unbiased written opinion of a property’s value
that is based on recent, comparable sales; quality of construction and
current condition; and style of architecture.
Appreciation: Increase in value to any cause.
Assessed Value: The established value of a property for tax-assessment purposes, which
may or may not reflect market value.
Balloon Mortgage: A short-term mortgage, generally at a fixed rate of interest, to be
paid back in predetermined, equal monthly payments with a large final
payment for the balance of the loan to be paid at the end of the term.
Broker: A person licensed to represent home buyers or sellers for a contracted
fee. Brokers manage real estate offices and employ licensed agents to
sell properties.
Building Codes: State and local laws that regulate the construction of new property
and the rehabilitation of existing property.
Capital Gains: The taxable profit derived from the sale of a capital asset. A gain
is the difference between the sale price and the basis of the property,
after making appropriate adjustments for closing costs, fix-up expenses,
capital improvements, allowable depreciation, etc.
Closing: The final settlement at which time the title is transferred from seller
to buyer, accounts are settled, new mortgages are signed, and all fees
and expenses are dispersed or satisfied.
Closing Costs: All fees, taxes, charges, commissions, surveys, lender fees, inspection
fees, and other costs paid by the buyer and/or seller at the closing.
Commission: A previously agreed upon percentage of the home’s sale price paid
to the listing and selling agent(s).
Comparables: Similar properties in type, size, price, and amenities that have sold
recently, been adjusted, and are used for comparison in the appraisal
report.
Contingency: A condition that must be satisfied before a contract is binding.
Contract: An agreement to do or not to do a certain thing.
Contract for Deed: A contract ordinarily used in connection with the sale of a property
in cases where the seller does not wish to convey title until all or
a certain part of the purchase price is paid by the buyer.
Conventional Mortgage: Most popular home financing form not insured by Federal Housing Administration
(FHA) or guaranteed by Veteran’s Affairs (VA). Available from many lenders
at varying rates, terms, and conditions.
Counteroffer: An offer made by a buyer or seller to the other party, responding
to the asking price or a subsequent adjustment to that price to complete
a purchase of sale.
Curb Appeal: A term used by REALTORS® that encompasses all that a buyer sees
from the street that may induce the buyer to look more closely at the
property.
Deed: A legal “instrument” that conveys the title to a property from seller
to buyer.
Disclosure Laws: State and federal regulations that require sellers to disclose such
conditions as whether a house is located in a flood plain or if there
are any known defects that would affect the value of the property.
Discount Points: Additional charges made by a lender at the time a loan is made. Points
are measured as a percent of the loan, with each point equal to one
percent. These additional interest charges are paid at the time a loan
is closed to increase the rate of return to the lender so as to approximate
the market level.
Down Payment: The buyer and lender determine the down payment requirements during
the pre-qualification process. The down payment is usually expressed
as a percentage of the purchase price: e.g., 0%, 5%, 10%, 20%, 25%,
30%.
Earnest Money (Escrow Deposit): Money paid by the buyer at the time an official offer to purchase
is submitted to the seller, intended to demonstrate the good faith of
the buyer to complete the purchase. Earnest money is applied against
the purchase price when the sale is finalized. Under certain conditions,
the earnest money may be forfeited if the buyer fails to complete the
purchase under the terms of the sales contract.
Easement: A right to use the land of another.
Encroachment: A condition that limits the interest in a title to property such as
a mortgage, deed restrictions, easements, unpaid taxes, etc.
Escrow Account: A third-party account used to retain funds, including the property
owner’s real estate taxes, the buyer’s earnest money, or hazard insurance
premiums.
Exchange: The trading of equity in a piece of property for equity in another
property.
Equity: The difference between the sale price of a property and the mortgage
balance owed on the property.
Fee Appraisal: The act or process of estimating values of real estate or any interest
therein for a fee.
Firm Commitment: A lender’s agreement to make a loan to a specific borrower on a specific
property. An FHA or Private Mortgage Insurance (PMI) agreement to insure
a loan on a specific property, with a designed purchaser.
Fixed-Rate Mortgage: A mortgage with a set interest rate for the entire term of the mortgage.
Foreclosure: A legal procedure whereby mortgaged property is seized and sold as
payment for a debt in the event of default.
Home Inspection: A formal survey of a home’s structure, mechanical systems, and overall
condition, generally performed by an inspector or contractor.
Home Warranty: A policy available to the buyer or seller as insurance against unanticipated
home-repair costs.
Homeowner’s Policy: A hazard insurance policy covering, at the very least, the appraised
value of a house and property.
Inspection Contingency: A written stipulation contained in an “offer to buy” that makes the
sales contract predicated upon the findings of a professional home inspector.
Interest: The predetermined charge or fee paid to a lender by the borrower for
the use of monies loaned.
Joint Tenancy: Joint ownership by two or more persons with right of survivorship;
all joint tenants own equal interests and have equal rights in the property.
Lien: A legal claim against a property that must be paid when the property
is sold.
Listing: A contract through which a seller agrees to terms and fees with an
agent who will sell the property to a buyer.
Loan Commitment: A written promise by a lender to make a loan under certain terms and
conditions. These include interest rate, length of loan, lender fees,
annual percentage rate, mortgage and hazard insurance, and other special
requirements.
Loan-to-Value Ratio: The relationship between the amount of a home mortgage and the total
value of the property.
Lock-In Rate: A commitment made by lenders on a mortgage loan to “lock in” an interest
rate pending mortgage approval. Lock-in periods vary.
Market Price: The actual price at which a property is sold.
Market Value: The price that is established for a property by existing economic
conditions, property location, size, etc.
Mortgage: A legal claim received by the lender on a property as security for
the loan made to a buyer.
Mortgagee: The lender of money or the receiver of the mortgage document.
Mortgage Broker: An independent, third-party, licensed broker who arranges loan transactions
between lenders and borrowers by facilitating the application and approval
process.
Mortgagor: The borrower of money or the giver of the mortgage document.
Multiple Listing Service (MLS): A system through which participating brokers agree to share commissions
on a predetermined percentage split on the sale of properties listed
on the system.
Origination Fee: This fee is a supplemental fee paid buy buyers to lenders, usually
stated as a percentage or as points.
Personal Property: Any property which is not real property: e.g., money, savings accounts,
appliances, cars, boats, etc.
PITI: Common real estate acronym meaning Principal, Interest, Taxes, Insurance.
Point: A single percent of the loan principal, often charged by the lender
in addition to various fees and interest.
Prepayment: When a borrower pays off an entire mortgage before the scheduled payoff
date.
Prequalification: An informal estimate of the “financing potential” of a prospective
borrower.
Principal: The amount of money borrowed against which interest and possibly fees
will be charged. OR: One of the parties to a contract.
Private Mortgage Insurance (PMI): Insurance issued to a lender by a private company to protect the lender
against loss on a defaulted mortgage loan. Its use is usually limited
to loans with high loan-to-value ratios. The borrower pays the premiums.
Promissory Note: A written contract that contains a promise to pay a definite amount
of money at a specific time in the future.
Pro-ration: Proportionate division of expenses based on days or time occupied
or used by the seller and/or buyer.
Purchase Agreement: A written, legally binding contractual agreement between a buyer and
a seller for the purchase of real estate.
Qualification: Ability of a borrower to satisfy a lender’s mortgage-approval requirements.
Radon: A colorless, odorless gas formed by the breakdown of uranium in sub-soils.
It can enter a house through cracks in the foundation or in water and
is considered to be a hazard. Your REALTOR® can supply a radon brochure.
Survey: The process by which a parcel of land is measured and its area ascertained.
Title companies study the survey to check for encroachments.
Title: A legal document that defines the property, right of ownership, and
possession.
Title Defect: An outstanding claim or encumbrance on property that affects marketability.
Title Insurance: An insurance policy that protects the buyer against errors, omissions,
or any defects in the title.
Title Search: A highly detailed search of the document history of a property title
for the purpose of identifying any and all legal encumbrances to the
property prior to title transfer to a new owner.
Variance: A special suspension of zoning laws to allow the use of property in
a manner not in accord with existing laws.
Walk-Through Inspection: The final inspection by the buyers, to ensure that all conditions
noted in the offer to purchase and all seller-related contingencies
have been met. This inspection is most often completed immediately prior
to the closing.