Adjustable rate mortgage (ARM)
Mortgage loan on which the interest rate falls and rises with changes in prevailing rates. The mortgage rate is tied to a selected index and may be adjusted annually. Also called a variable rate mortgage.

Person authorized to act by and on behalf of another.

Pay a debt in monthly or other periodic installments until the total amount, along with the interest, if any, is paid.

Annual percentage rate (APR)
Combines the interest rate with other loan costs, such as points and loan fees, into a single figure that shows the true annual cost of borrowing.

A formal estimate of property value conducted by a professional qualified to make such an opinion.

Increase in property value or worth due to economic or related factors; the opposite of depreciation.

As is
Said of property offered for sale in its present condition with no guarantees as to quality and no promise of repair or fix-up by the seller; property is purchased in exactly the condition in which it is found.

Assessed value
A value placed on a property by an agency of the government for taxation and other purposes.

Tax or charge levied on property by a taxing authority to pay for local improvements such as sidewalks, streets, and sewers.



Breach of contract
When one party fails to live up to the terms and conditions of a contract, without a valid, legal excuse.

Builder’s warranty
Written statement by a builder assuring that a dwelling was completed according to a stipulated set of standards. It protects the buyer from any latent defects.

Building codes
Minimum construction standards set by state or local laws for public safety and health. Includes the design, construction, repair, and quality of building materials, as well as the use and occupancy of structures.

Buyer’s market
Describes an excess supply of homes for sale, in which there are few buyers and many sellers. In such a market, the buyer can typically negotiate more favorable prices and terms.

Rules and regulations that govern how a homeowners’ association will be run.



Cancellation clause
Stipulation in a contract that allows a buyer or seller to cancel the contract in the event of a certain specified occurrence.

Capital gain
Profit earned from the sale of an asset.

Caveat emptor
Latin for “Let the buyer beware.” Under this legal phrase, the buyer is expected to judge and evaluate property carefully before buying, or purchase at their own risk.

Act of finalizing a transaction in which all the concerned parties meet to transfer title to a property. Also, when real estate formally changes ownership.

Closing costs
Expenses over and above the price of property that must be paid by buyers and sellers before title is transferred. Also known as settlement costs.

Closing statement
Written account of all expenses, adjustments, and disbursements received by the buyer and seller when completing a real estate transaction.

Cloud on title
Defect in the title that impairs the owner’s ability to market the property. This might be a lien, claim, judgment, or encumbrance.

Something of value given or pledged to a lender as security for the repayment of a loan.

Payment, or brokerage fees, given by the seller of a property to a real estate agent for services rendered. Usually paid at the closing.

Common elements
Parts of a condominium, cooperative, or private home association shared by all residents, so that each unit owner holds an undivided interest in, for example, the hallways, parking facilities, or swimming pool.

Properties similar to a specific piece of property that are used to help estimate the value of that property.

Competitive market analysis
A method of determining home value that looks at recent home sales, homes presently on the market, and homes that were listed but did not sell.

Type of housing where buyers own their units outright, plus an undivided share, or joint ownership, in the common elements of the building or community.

Something of value, usually money, given to induce another to enter into a contract.

Construction loan
Type of loan where money is doled out as construction takes place; borrower must obtain a permanent long-term mortgage from another source to repay the construction loan. Also called an interim loan.

A provision in a contract that keeps it from becoming binding until a certain event happens. A satisfactory inspection report might be a contingency.

A legally enforceable agreement between two or more parties. To be valid, a real estate contract must be dated, in writing, include a consideration, have a description of the property, the place and date of delivery of the deed, and spell out all terms and conditions that were mutually agreed upon. It also must be executed (signed) by the buyer and seller.

One who contracts to do something for another. For example, in construction, a specialist who enters into a formal construction contract to build a real estate structure or handle renovations, improvements, and additions to an existing structure.

Conventional loan
Real estate loan that is not insured by the FHA or guaranteed by the VA.

To transfer property from one person to another.

Document used to transfer title. A deed is a conveyance.

An offer made in response to an earlier, unacceptable one; it terminates the original offer.

Credit report
A past history of debt repayment used by creditors as an indicator of future readiness to responsibly repay debt.



Written document that when executed and delivered conveys title to real property.

Deed restrictions
Provisions placed in deeds to control how future landowners may or may not use the property. Also called deed covenants.

Breach of a contract or failure to meet a legal obligation. Nonpayment of a mortgage beyond a certain number of payments is considered a default.

Delinquent loan
One where the borrower is behind, or late, in payments.

Gradual decline on paper in market value of real estate, especially because of age, obsolescence, wear and tear, or economic conditions.

Discount points
Added loan fee charged by a lender to make the yield on a lower-than-market-value loan competitive with higher-interest loans.

Initial cash investment made as evidence of good faith when purchasing real estate. It is usually a percentage of the sale price.



Earnest money deposit
Money that accompanies an offer to purchase as evidence of good faith. It is almost always a personal check, certified check, or money order rather than cash.

Limited right to cross or use for some specified purpose the property of another. It may be permanent or temporary. Water, sewage, and utility suppliers frequently hold an easement across private property.

Eminent domain
The right or power of government to acquire private property for public use without the consent of the owner, provided fair compensation is provided.

A building or other improvement that extends beyond its boundary and intrudes upon the property of another.

Any impediment to a clear title. It can be a claim, lien, zoning restriction, or other legal right or interest in land that diminishes its value. The report of the title search usually shows all encumbrances.

Value an owner has in a piece of property less the debt against it. For example, if the market value of a house is $150,000 and the owner has paid off $10,000 of a $75,000 mortgage, the owner has $85,000 equity.

Money or documents held by a third party until specific conditions of an agreement or contract are fulfilled.

Escrow account
Special bank account into which escrow monies are deposited and from which they are disbursed. Lawyers and real estate brokers maintain escrow accounts to hold money in trust for others.



Fair market value
See market value.

Fannie Mae
Common name for the Federal National Mortgage Association, which buys and sells loans in the secondary mortgage market

First mortgage
Mortgage on a property that is superior to any other. It is the first to be paid in the event of foreclosure.

Any personal property that has been permanently attached to real property and therefore included in the transfer of real estate. The kitchen sink is a fixture.

Legal action instigated by a lender to end all ownership rights when mortgage payments have not been kept up.

Freddie Mac
Common name for the Federal Home Loan Mortgage Corporation, which buys and sells loans in the secondary mortgage market.

Acronym for Federal Housing Authority, an agency created within the Department of Housing and Urban Development (HUD) that insures mortgages on residential property, with downpayment requirements usually lower than prevailing ones.

Person acting in a position of trust, responsibility and confidence for another, such a broker for his client.



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Historic structures
Buildings of historical or architectural significance, perhaps landmarks, that are designated by federal, state, or local historical commissions.

Homeowner’s insurance policy
Packaged insurance policy for homeowners and tenants that cover property damage and public liability, such as fire, theft, and personal liability.

Acronym for the Department of Housing and Urban Development, an agency from which almost all of the federal government’s housing programs flow.



Any form of land development or man-made addition, such as the erection of a building or fence, to enhance the value of private property; also an improvement to publicly owned structures, such as a sewer or road.

The act of physically examining and testing a piece of property to ascertain certain information.

Installment payment
Periodic payment, usually monthly, of interest and principal on a mortgage or other loan.

A fee paid for the use of money; also a share or right in something.

Interim financing
Short-term loan usually made during the construction phase of a building project or until a permanent, long-term loan can be obtained. Also called a construction loan.



Joint tenancy
Property owned by two or more persons with equal and undivided interest and ownership and the right of survivorship. If one owner dies, the property automatically passes to the others.

Court decree stating that one person is indebted to another. Also specifies the amount of the debt.

Junior mortgage
Any mortgage, such a second or third mortgage on a property, which is subordinate to the first one in priority.



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Contract that conveys the right to use property for a period of time in return for a consideration, usually rent, paid to the property owner.

Lease-purchase option
Opportunity to purchase a piece of property by renting for a specified period, with the provision that the lessee may choose to buy after or during the leasing period at a predetermined sale price.

Someone who rents under a lease; the tenant.

Someone who rents to another party through a lease; the landlord.

A privilege or right granted to a person by a state to operate as a real estate broker or salesperson.

A debt on a property which encumbers it until the obligation is paid; a mortgage, back taxes, or other claim.

Contract used for hiring a real estate agent to sell a piece of property. Also a piece of property that is for sale.

Loan origination fee
Paid by the borrower to get a loan; it covers expenses incurred by the lender, such as the cost of the appraisal, credit report, title search, etc.

Loan servicing
Task of collecting monthly payments, handling insurance and tax impounds, delinquencies, early payoffs, and mortgage releases.

Loan-to-value ratio
Relationship of a mortgage loan to the appraised value of a piece of property. Usually expressed to the buyer in terms of how much the lender will lend, i.e. – 80 percent financing.



Maintenance fees
Paid by a condominium unit owner to the owners’ association for upkeep of the common areas.

Market price
Actual selling price of a property.

Market value
Generally accepted as the highest price that a ready, willing, and able buyer will pay and the lowest price a ready, willing, and able seller will accept for a property.

Marketable title
Good and clear title that is free from reasonable doubt as to who the owner is.

Maturity date
Date on which principal and interest on a mortgage or other loan must be paid in full.

Mill Rate
The tax per dollar of assessed value of property. The rate is expressed in “mills”, where one mill is one-tenth of a cent ($0.001).

Legal document that creates a lien on property; it secures the repayment of a loan.

Mortgage broker
Individual or company that brings borrowers and lenders together; a loan broker.

Mortgage company or mortgage banker
Financial intermediary that offers mortgages to borrowers, and then resells them to various lending institutions, government agencies, or private investors.

Party or institution that lends money; the creditor.

Party or person that borrows money, giving a lien on the property as security for the loan; the borrower.

Multiple listing
Agreement that allows real estate brokers to distribute information on the properties they have listed for sale to other members of a local real estate organization. Allows the widest possible marketing of those properties. Commissions are split by mutual agreement between the listing broker and the selling broker.



Net lease
Lease requiring the tenant to pay all the costs incurred in maintaining a property, including taxes, insurance, repairs, and other expenses normally required of the owner.

Nonconforming use
Use of property that is permitted to continue after a zoning ordinance prohibiting it has been passed.



Oral or written proposal to buy a piece of property at a specified price.

The exclusive right to purchase or lease a property at a predetermined price or rent at some future time.

Origination fee
A charge by the lender for granting and processing a new mortgage loan.



Acronym for “principal, interest, taxes, and insurance.” Frequently used to describe a loan payment that combines all four items.

Planned Unit Development (PUD)
Individually owned houses with community ownership of common areas, such as swimming pools and tennis courts.

Map or survey showing the location and boundaries of individual properties and how they have been subdivided into lots and blocks.

Fee charged by a lender to get additional revenue over the interest rate. A point is equal to one percent of the loan amount.

Prepayment penalty
Fee charged by the lender when a borrower repays the loan early.

The amount of money borrowed; the amount of money still owed.

Private mortgage insurance (PMI)
Required by most lenders for conventional loans with a down payment of less than 20 percent. Insurance is paid by the borrower and guarantees the lender will not lose money if the borrower defaults.

Promissory note
A written promise to repay a debt on demand or at a stated time in the future.

Property tax deductions
The Internal Revenue Service allows homeowners to claim as itemized personal deductions money paid for state and local realty taxes, as well as interest on debt secured by their homes. It also allows for the deduction of loan prepayment penalties, and the deduction of points on new loans.

Property tax
Assessment levied by city and county governments on real and personal property to generate the bulk of their operating revenues to pay for such public services as schools, libraries, and roads.



Act of determining a potential buyer’s needs, abilities, and urgency to buy and matching these with available properties.

Quit-claim deed
A conveyance by which the grantor transfers whatever interest he or she has in the real estate without warranties or obligations.



Real estate
The land itself and everything extending below and above it, including all things permanently attached, whether by nature or by man.

Real estate broker
Individual who has passed a state broker’s test and represents others in realty transactions. Anyone having his or her own office must be a broker.

Real estate salesperson
Person who has passed a state examination for that position, and must work under the supervision of a broker.

Real estate tax
See property tax.

Real property
Land and buildings and anything permanently attached to them.

A real estate broker or agent who is a member of the National Association of Realtors, a professional real estate group that subscribes to a Code of Ethics. Not every broker or agent is a Realtor, a word that is a registered trademark and always capitalized.

Entering or recording documents affecting or conveying interests in real estate in the recorder’s office; until recorded a deed or mortgage generally is not effective against subsequent purchases or mortgage liens.

To pay off one loan by taking out another on the same property.

Release of mortgage
Certificate from the lender stating that the loan has been repaid.

Replacement cost
The cost at today’s prices and using today’s construction methods, of building an improvement having the same usefulness as the one being appraised.

Report of title
Document required before title insurance can be issued. It states the name of the owner, a legal description of the property, and the status of taxes, liens, and anything else that might affect the marketability of the title.

Reserve account
An account for money collected each month by a lender to pay for property taxes and property insurance as they come due.

Restrictive covenants
Clauses placed in a deed to restrict the full use of the property by controlling how future landowners may or may not use the property; also used in leases.

Right of first refusal
A person’s right to have the first opportunity to either lease or purchase real property.

Right of survivorship
A feature of joint tenancy giving the surviving joint tenants the rights, title and interests of the deceased joint tenant. Right of survivorship is the basic difference between buying property as joint tenants and as tenants in common.



Sales contract
Contract that contains the terms of the agreement between the buyer and seller for the sale of a particular parcel or parcels of real estate.

Second mortgage
Lien on property that is subordinate to a first mortgage. In the event of default, the second mortgage is repaid after the first. Also called a junior mortgage, and in some circumstances a home equity loan.

Secondary mortgage market
Market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; plays an important role in getting money from those who want to lend to those who want to borrow.

Seller’s market
One with few sellers and many buyers.

One structure containing two dwelling units separated vertically by a common wall.

The day on which title is conveyed.

Settlement costs
See closing costs.

Special assessment
A special tax imposed on specific parcels of real estate that will benefit from a proposed public improvement, such as a street or sewer.

A tract of land divided by the owner into smaller lots for homesites or other use.

The leasing of premises by a lessee to a third party for part of the lessee’s remaining term.

An exact measurement of the size and boundaries of a piece of land by civil engineers or surveyors.



Tenants in common
Style of ownership in which two or more persons purchase a property jointly, but with no right of survivorship and separate undivided interests. They are free to will their share to anyone they choose, a principal difference between this form of ownership and joint tenancy.

Actual ownership; the right of possession; also the evidence of ownership such as a deed or bill of sale.

Title insurance
An insurance policy that protects against any losses incurred because of defects in the title not listed in the title report or abstract.

Title report
A statement of the current condition of title for a parcel of land.

Title search
A professional examination of public records to determine the chain of ownership of a particular piece of property and to note any liens, encumbrances, easements, restrictions, or other factors that might affect the title.

Usually a two- or three-story dwelling with shared walls, or a living unit operating under the condominium or townhouse form of ownership.

One who as agent for others handles money or holds title to their land.

Tax basis
The price paid for a property plus certain costs and expenses, such as closing costs, legal counsel, and a commission paid to help find the property.

Tax credit
An allowed deduction that can be subtracted from your income tax. If you are entitled to a $1,500 credit, and your income tax would otherwise be $10,000, the credit would reduce the tax due to $8,500.

Tax rate
The rate at which real property is taxed in a tax district or county. For example, in a certain county, real property may be taxed at a rate of 55 mills (or 0.055) per dollar of assessed valuation.



Undivided interest
Ownership by two or more persons that gives each the right to use the entire property.

Useful life
The period of time over which a commercial property can be depreciated for federal income-tax purposes. Also known as economic life.



Valid contract
One that meets all requirements of law, is binding upon its parties, and is enforceable in a court of law.

Estimated or determined value; synonymous with appraising.

Market value or present worth. To have value, a property must have utility, scarcity, effective demand, and transferability.

Variable rate mortgage
See adjustable rate mortgage.

A permit granted as an exception to a zoning ordinance that allows a property owner to meet certain specified needs.

VA loan
Veterans Administration-backed mortgage. The VA, a federal agency, operates a loan guarantee program for honorably discharged veterans and widows of veterans who died of a service-related injury. Mortgages call for low or no downpayment. Sometimes referred to as GI loan.



Warranty deed
A deed in which the grantor guarantees that he or she is giving the grantee good title free of encumbrances. Considered to be the best deed a grantee can receive.

Depreciation or amortization an owner takes on a commercial property.



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What an investment or property will return; the profit or income.



Procedure that classifies real property for a number of different uses: residential, commercial, industrial, etc. in accordance with a land-use plan.