Glossary of Real Estate Terms

Abatement: A reduction or decrease in property taxes, approved by the taxing authority, initiated at the request of the taxpayer.

Actual Cash Value:An amount equal to the replacement value of damaged property minus depreciation.

Adjustments at Closing: Money that buyers and sellers credit to each other at closing, such as proportion of taxes, lake rights fees, down payments etc.

Adjustable-Rate Mortgage (ARM): Also known as a variable-rate loan, usually offers a lower initial rate than fixed-rate loans. The interest rate can change at specified time periods based on changes in an interest rate index that reflects current finance market conditions. The ARM promissory note states maximum and minimum rates. When the interest rate on an ARM increases, the monthly payments will increase and when the interest rate on an ARM decreases, the monthly payments will be lower.

Adjustment Period: The time between interest rate adjustment dates for an ARM. They are usually the initial period between the time the ARM is originated and the first interest rate change date, and subsequent adjustment periods between each interest rate change after the first interest rate change.

Agent: Licensed representative of the seller who assists both the buyer and the seller with information.

Amortization: A term used to describe the process of paying off a loan over a predetermined period of time at a specific interest rate. The amortization of a loan includes payment of interest and a portion of the outstanding principal balance during each payment cycle.

Amortization Schedule: Provided by mortgage lenders, the schedule shows how over the term of your mortgage the principal portion of the mortgage payment increases and the interest portion of the mortgage payment decreases.

Annual Assessment Date: All comparable sales used for a property tax reduction must precede this date. Twelve months is acceptable, however, more recent comparable sales would be more favorable. A professional appraiser looks for data within 6 months of the date of sale and gives an explanation why any later comparable sales are used.

Annual Percentage Rate (APR): The cost of credit expressed as a yearly rate. The APR includes the interest rate, points, broker fees and certain other credit charges that the borrower is required to pay.

Application Fee: The fee that a mortgage lender charges to apply for a mortgage to cover processing costs.

Appraisal: A professional analysis, including references to sales of comparable properties, used to estimate the value of the property.

Appraised Value: An estimate of the fair market value of a particular property. This should be 100% of the property's market value.

Appraiser: A professional who conducts an analysis of the property, including references to sales of comparable properties in order to develop an estimate of the value of the property. The appraiser's report is called an "appraisal".

Appreciation: An increase in the market value of a home due to changing market conditions and/or home improvements.

Arbitration: A process where disputes are settled by referring them to an impartial third party (arbitrator) chosen by the disputing parties who agree in advance to abide by the decision of the arbitrator. There is a hearing where both parties have an opportunity to be heard, after which the arbitrator issues the decision.

Asbestos: A toxic material that was once used to make insulation and fireproofing material in houses. Because some forms of asbestos have been linked to certain lung diseases, it is no longer used in new homes. However, some older homes may still have asbestos in these materials.

Asking Price: The price at which the owner wishes to sell a property.

Assessed Value: Value placed on land and building(s) by a government tax assessor for use in levying property taxes. The assessed value of the property may be different than the appraised value.

Assessor: Municipal or county tax official who determines the value of property for taxation.

Assets: Everything of value an individual owns.

Assumption: A homebuyer's agreement to take on the primary liability for paying an existing mortgage from a home seller.

Balloon Mortgage: A large payment on a mortgage due at the end of a certain time period.

Bankruptcy: Legally declared unable to pay your debts as they become due. Bankruptcy can severely impact your ability to borrow money. Talk to a credit counselor as soon as you realize you are having problems paying your bills on time to try to prevent bankruptcy.

Broker: A person licensed to represent home buyers or sellers for a fee.

Capacity: Your ability to make your mortgage payments on time. This depends on your income and income stability, your assets and reserves, and the amount of your income each month that is available after you have paid for your housing costs, debts and other obligations.

Closing (Closing Date): When the real estate transaction between buyer and seller is completed. The buyer signs the mortgage documents and the closing costs are paid. Also known as the settlement date.

Closing Agent: A person that coordintes closing-related activities, such as recording the closing documents and disbursing funds.

Closing Costs: The costs to complete the real estate transaction. These costs are in addition to the price of the home and are paid at closing. They include points, taxes, title insurance, financing costs and items that must be prepaid or escrowed and other costs. Ask a lender or real estate professional for a complete list of closing cost items.

Collateral: Property which is pledged as security for a debt. In the case of a mortgage, the collateral would be the land, the house, and other buildings and improvements.

Commission: The percentage of the home's final sales price paid at closing to the listing agent and cooperating agents.

Commitment Letter: A letter from your lender that states the amount of the mortgage, the number of years to repay the mortgage (the term), the interest rate, the loan origination fee, the annual percentage rate and the monthly charges.

Competitive Market Analysis (CMA): An estimate of a home's current market value based on using recent sales of comparative home with similar features.

Concession: Something yielded or conceded in negotiating a transaction.

Condominium: A unit in a multiunit building. The owner of a condominium unit owns the unit itself and has the right, along with other owners, to use the common areas but does not own the common elements such as the exterior walls, floors and ceilings or the structural systems outside of the unit; these are owned by the condominium association. There are usually condominium association fees for maintenance for building and property upkeep, taxes and insurance on the common areas and reserves for improvements.

Counteroffer: The offer made by the buyer or seller in response to the other's bid.

Credit: The ability of a person to borrow money, or obtain goods with payments over time, as a consequence of the favorable opinion held by a lender as to the person's financial situation and reliability.

Credit Bureau: A company that gathers information on consumers who use credit and sells that information in the form of a credit report to credit lenders.

Credit History: A credit history is a record of credit use. It is comprised of a list of individual consumer debts and an indication as to whether or not these debts were paid back in a timely fashion or "as agreed." Credit institutions have developed a complex recording system of documenting your credit history.

Credit Report: A document used by the credit industry to examine an individual's use of credit. It provides information on money that individuals have borrowed from credit institutions and a history of payments.

Credit Score: A computer-generated number that summarizes an individual's credit profile and predicts the likelihood that a borrower will repay future obligations.

Creditworthy: Your ability to qualify for credit and repay debts.

Debt: A sum of money owed from one person or institution to another person or institution.

Debt-to-Income Ratio: The percentage of gross monthly income that goes toward paying for your monthly housing expense, installment debts, alimony, child support, car payments, and payments on revolving or open-ended accounts such as credit cards.

Deed: The legal documents conveying title to a property.

Deed of Trust: A legal document in which the borrower conveys the title to a 3rd party (trustee) to hold as security for the lender. When the loan is paid in full the trustee reconveys the deed to the borrower. If the borrower defaults on the loan the trustee will sell the property and pay the lender the mortgage debt.

Default: Failure to perform a legal obligation; a default includes failure to pay on a financial obligation, but may also be a failure to perform some action or service that is nonmonetary.

Deposit: The amount of money you put down on a house to hold it.

Depreciation: A decline in the value of a house due to changing market conditions, decline of a neighborhood or lack of upkeep on a home.

Down Payment: A portion of the price of a home, usually between 3-20%, not borrowed and paid up front.

Earnest Money Deposit: The deposit you make to show that you are committed to buying the home. The deposit will not be refunded to you after the seller accepts your offer, unless one of the sales contract contingencies is not satisfied.

Easement: A right or privilege that one has in order to use land for a specific purpose. For example, a right of way for pipes, utility poles, private or public passage, etc.

Equity: The value in your home above the total amount of the liens against your home. If you owe $100,000 on your house but it is worth $130,000, you have $30,000 of equity.

Escrow: The holding of money or documents by a neutral third party prior to closing. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.

Escrow Account: A third-party account for holding money in trust for others.

Estate: The degree of ownership a person has in real property.

Exclusive Agency: A sales contract by which sellers own no commission to an agent if they find a buyer for their house on their own.

Exclusive Right to Sell: A sales contract in which sellers owe commission to the listing agent even if the sellers find a buyer for their house on their own.

Fair Market Value: See market value.

Fee Simple: Sometimes called fee or fee simple absolute. It is the greatest possible estate or degree in the right of ownership and continues without time limitation.

Fixed-Rate Mortgage: A mortgage with an interest rate that does not change during the entire term of the loan.

Foreclosure: A legal action that terminates all ownership rights in a home when the homebuyer fails to make the mortgage payments or is otherwise in default under the terms of the mortgage.

Frontage: The length of the property's boundary that parallels the street. On a lakefront home, the frontage is the shore line.

Gift Letter: A letter that a family member writes verifying that he/she has given you a certain amount of money as a gift and that you do not have to repay it. You can use this money towards a portion of your down payment through some mortgage products.

Good-Faith Estimate: A written statement itemizing the approximate costs and fees for the mortgage.

Gross Living Area: Used by appraisers, it is the method for measuring the size of a house by measuring the outside of the house above the foundation. Each story is included. Areas such as basements, attics, porches or garages, are excluded from the total calculation.

Gross Monthly Income: The income you earn in a month before taxes and other deductions. Under certain circumstances, it may also include rental income, self-employed income, income from alimony, child support, public assistance payments, and retirement benefits.

Highest and Best Use: All land is appraised "as if vacant and available for its highest and best use." It is one of the most important principles in valuation and can have tremendous impact on the value of a property. The highest and best use of the land must be legally and economically possible. It is the most profitable use of the land and must be physically possible.

Home Inspection: A professional inspection of a home to review the condition of the property. The inspection should include an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation and pest infestation.

Homeowner's Insurance: A policy that protects you and the lender from fire or flood, which damages the structure of the house; a liability, such as an injury to a visitor to your home; or damage to your personal property, such as your furniture, clothes or appliances.

Housing Expense Ratio: The percentage of your gross monthly income that goes toward paying for your housing expenses.
Improvements: Improvements are buildings, additions to buildings, parking lots, decks, sidewalks, wells and/or other permanently attached additions to land.

Inflation: An increase in the general level of prices.

Inquiry: A request for a copy of your credit report. An inquiry occurs every time you fill out a credit application and/or request more credit. Too many inquiries on a credit report can lower your credit score.

Inspection Clause: A stipulation in an offer that makes the contract contingent on the findings of a professional home inspector.

Interest: The cost you pay to borrow money. It is the payment you make to a lender for the money it has lent to you. Interest is usually expressed as a percentage of the amount borrowed.

Leasehold: The right to possess and use real estate for a specific time created by a lease.

Lease-Purchase Agreement: An agreement between tenant and landlord that a portion of the monthly rent may be credited toward the eventual purchase of a rental property.

Liabilities: Your debts and other monetary obligations.

Lien: A claim or charge on property for payment of some debt. With respect to a mortgage, it is the right of the lender to take the title to your property if you do not make the payments due on the mortgage.

Listing: A contract in which the seller agrees to pay a commission to the agent who finds a purchaser.

Loan Origination Fees: The fee paid to your mortgage lender for processing the mortgage application. This fee is usually in the form of points. One point equals 1% of the mortgage amount.

Location: An economic concept unique to real estate because of its immobility.

Lock-in rate: A written agreement guaranteeing a specific interest rate when your mortgage closes.

Lot and Block System: A legal description used in describing a parcel of land as found in the plat record of subdividable land.

Low-Down-Payment Feature: A feature of a mortgage, usually a fixed-rate mortgage that helps you buy a home with as little as a 3% down payment.

Margin: The amount (expressed as a percentage) added to the index for an ARM to establish the interest rate on each adjustment date.

Market Value: The current value of your home based on what a willing purchaser would pay. The value determined by an appraisal is sometimes used to determine market value.

Mortgage: A loan secured by a lien on your home. In some states the term mortgage is also used to describe the document you sign to show that you have granted the lender a lien on your home; other states use a deed of trust document instead of a mortgage. It may also be used to indicate the amount of money you borrow, with interest, to purchase your house. The amount of your mortgage is usually the purchase price of the home minus your down payment.

Mortgage Broker: An independent finance professional who specializes in bringing together borrowers and lender to facilitate real estate mortgages.

Mortgage Insurance (MI or PMI): Insurance needed for mortgages with low down payments (usually less than 20% of the price of the home).

Mortgage Lender: The lender providing funds for a mortgage. Lenders also manage the credit and financial information review, the property and the loan application process through closing.

Mortgage Note: The legal, negotiable evidence of debt that is created by a signed promise to repay a mortgage loan. It specifies the amount of the loan, rate of interest, repayment schedule and other terms associated with the debt repayment.

Mortgage Rate: The cost or the interest rate you pay to borrow the money to buy your house.

Multiple Listing Service (MLS): An association of real estate brokers that agrees to work together, pooling their data and cooperating to sell the group's listings.

Mutual Funds: A fund that pools the money of its investors to buy a variety of securities.

Neighborhood: A separately identifiable area within a community retaining some quality or character which distinguishes it from other areas.

Net Monthly Income: Your take-home pay after taxes. It is the amount of money that you actually receive in your paycheck.

Obsolescence: One of the causes of depreciation brought about by changes in design, new concepts and/or new inventions.

Offer (Offer-to-Purchase): A legally binding, written contract that stipulates the amount the buyer will pay for the house providing certain conditions are met.

Open House: When the seller's real estate agent opens the seller's house to the public. You do not need a real estate agent to attend an open house.

Origination Fee: Is a fee paid to the lender, similar to points.

Over-Improvement: A feature to a house or attached to the house in which the cost is greater that the increased value to that property.

Personal Property: Non-real items and tangible items not permanently attached to the ground. Permanent items would cause injury to the item or to the real estate if they were extracted.

PITI: Principal, Interest, Taxes,and Insurance. The main parts of a monthly mortgage payment.

Plat: A plan, map or chart of a city, town or section, usually on land that has been subdivided, indicating boundaries and borders of individual properties. Each lot is identified by number and letter. Lot dimensions are noted. It may also include features such as building locations, water pipes, sewer lines, vegetation, topography, etc.

PMI: Private mortgage insurance which protects the lender against default by the borrower. Most lenders not insured by the federal government require PMI on low down payment loans.

Points: 1% of the amount of the mortgage loan. For example, if a loan is made for $50,000, one point equals $500.

Pre-approval Letter: A letter from a mortgage lender indicating that you qualify for a mortgage of a specific amount. It also shows a home seller that you are a serious buyer.

Predatory Lending: Abusive lending practices that include making a mortgage loan to an individual who does not have the income to repay it or repeatedly refinancing a loan, charging high points and fees each time and "packing" credit insurance on to a loan.

Pre-qualification letter: A letter from a mortgage lender that states that you are pre-qualified to buy a home but does not commit the lender to a particular mortgage amount.

Principal: The amount of money borrowed to buy your house or the amount of the loan that has not yet been paid back to the lender. This does not include the interest you will pay to borrow that money. The principal balance (sometimes called the outstanding or unpaid principal balance) is the amount owed on the loan at any given time. It is the original loan amount minus the total repayments of principal you have made to date.

Private Mortgage Insurance: see Mortgage Insurance.

Productive Use Value: Productive use value is that value which land has for agricultural and/or horticultural use.

Property Appreciation: see Appreciation.

Property Classification: For property tax purposes, property is divided into three classes: (1) real property (2) tangible personal property and (3) intangible personal property. Real property is further subclassified as (1) residential, (2) agricultural or horticultural, and (3) utility, industrial, commercial railroad, etc.

Property Record Card: This card is found at the tax assessor's office and contains the information gathered on a particular property along with calculations used to determine assessed value.

Radon: A toxic gas found in the soil beneath a house that can contribute to cancer and other illnesses.

Rate Cap: The limit on the amount that the interest rate on an ARM can increase or decrease during any one adjustment period.

Ratified Sales Contract: A contract that shows both you and the seller of the house have agreed to your offer. This offer may include sales contingencies, such as obtaining a mortgage of a certain type and rate, getting an acceptable inspections, making repairs, closing by a certain date, and the like.

Real Estate: This is the land itself and all things permanently attached to it.

Real Estate Professional: An individual who provides services in buying and selling homes. The real estate professional is paid a percentage of the home sale price by the seller. Unless you have specifically contracted with a buyer's agent, the real estate professional represents the interest of the property seller. Real estate professionals may be able to refer you to local lenders or mortgage brokers, but are generally not involved in the lending process.

Real Property: Real property refers to the rights of ownership.

Realtor©: A trademark which identifies Real Estate Professionals who are members of the Canadian Real Estate Association or of the National Association of Realtors in the United States. As such, they subscribe to a high standard of professional service and to a strict Code of Ethics.

Referral: The recommendation of a potential buyer or seller to another cooperating agent.

Refinance: Obtaining a new mortgage with all or some portion of the proceeds used to pay off the original mortgage.

Repairs: This is the expenditure for general upkeep to maintain the property close to the original condition. It does not include the renovation or replacement of any substantial part of the house.

Replacement Cost: The cost to replace damaged personal property without a deduction for depreciation.

Revaluation: This is the mass appraisal of all property within an assessment district, municipality, county, parish, precinct, township, or ward to obtain equalization of assessed values.

Right of Way: The privilege to cross over the land of another by one person or persons.

Securities: A financial form that shows the holder owns a share or shares of a company (stock) or has loaned money to a company or government organization (bond).

Settlement Disclosure Statement: A complete breakdown of costs prepared by the lender's agent at closing.

Site: A plot of land that has been improved or is suitable upon which to build.

Special Assessments: A variety of the property tax that requires that the rate of assessment be uniform for all property within a particular special benefit classification.

Substitution: The principle of substitution says that the maximum value of a property tends to be set by the cost of an equivalent, equally desirable, similar substitute property at a certain date. The cost of an addition or the cost of remodeling work may not increase the value of your house by a value equivalent to the construction cost. The value of a component part of the property's value depends on the amount that it contributes to the value of the whole property. For example, if the cost of building an attached greenhouse is $16,000, the actual amount that increases and contributes to the total property value may be only $3,000. A prudent buyer will buy a feature at the lowest price given a choice of features.

Tangible Personal Property: Includes such things as automobiles, boats, planes, farm implements which are moveable and are not attached to the land.

Tax Abatement: A decrease in the amount of property tax resulting in a refund of taxes due to the taxpayer.

Tax Base: The sum of all assessed property values in a community.

Taxing District: The specific area, such as a county, over which a taxing authority can levy taxes. Synonymous with assessment district.

Tax Map: A map that shows by block and lot the boundaries of individual lots within a taxing district.

Tax Rate: The ratio of dollars of tax found by dividing the budget (the amount of money the local government will spend in one year) by the total assessed value of real estate in the taxing district. The tax rate is shown as dollars per hundred ($7.00 per hundred shown as .07) and may also be known as the mill rate (millage means per thousand. A millage rate quoted as 70 mills would be equivalent to a tax rate of $70.00 per thousand in valuation).

Tax Sale: The sale of property for unpaid taxes done by public auction.

Title: The right to, and the ownership of, land by the owner. Title is sometimes used to mean the evidence or proof of ownership of land; although another term used for that is "deed".

Title Insurance: An errors and omissions insurance policy that protects a buyer against defects in the title of a property.

Underwriting: The process a lender uses to determine loan approval. It involves evaluating the property and the borrower's credit and ability to pay the mortgage.

Uniform Residential Loan Application: A standard mortgage application that your lender will ask you to complete. The form request your income, assets, liabilities and a description of the property you plan to buy, among other things.

Variable Rate Mortgage: See ARM (Adjustable Rate Mortgage).

Warranties: Written guarantees of the quality of a product and the promise to repair or replace defective parts free of charge.

Zoning: The division of a community into separate areas showing how the property in each zone may be developed and used such as residential, multifamily, local business district, light industrial, commercial park district, etc.