Real Estate 101
Glossary of Real Estate Terms
Like any profession, Real Estate has it's own set of terms and language specific to the industry. We offer this glossary of real estate terms as a means of helping our clients understand and interpret the language of Realtors. Refer to it often to strengthen your understanding of the conversations you have with your Realtor, with Lenders, or just to impress your friends.
The glossary is divided into 5 pages, with a navigational index at the top and bottom of each page. Note also that there are numerous "top of page" links to quickly return you to the top of a page.
Abstract of Title: A summary of all conveyances, transfers, and other facts (of record) as evidence of title or that which would impair title of real property.
Acceptance: Consent to an offer to enter into contract.
Adjustable Rate Mortgage: Any real estate loan in which the interest rate varies over time according to a prescribed formula or set of conditions, usually changes in economic conditions. (Also known as a variable rate mortgage).
Addendum: An addition or change to a contract.
Ad valorem tax: Tax based on assessed property value.
Adverse possession: The acquisition of title to property through possession without the owner's consent for a certain period of time.
Agency: The relationship of trust that exists between sellers and buyers and their agents. The agency is usually formed through a written contract.
Agency Disclosure: Laws in most states require agents who act for buyers or sellers to disclose who represents whom in a real estate transaction. Laws vary widely by state but in Texas it is required at the first meeting when substantive matters about real estate are discussed.
Allowance for Repairs: An amount negotiated within a contract that the seller agrees to pay toward buyer designated repairs.
AMHI: American Society of Home Inspectors
Amortization: The process of paying the principal and interest on a loan through regularly scheduled installments. Initially, most of each payment is applied toward interest owed, and later in the loan term increasingly applied toward principal.
Amortization Schedule: Schedule showing principal and interest payments throughout the life of the loan.
Annual Percentage Rate (APR): A measure of interest rate that expresses the cost of a mortgage as a yearly rate on the loan balance. The APR assumes the loan is held for its full term. For adjustable-rate loans, the APR assumes the loan's index doesn't change from its initial value.
Appraisal: An opinion or statement (written or oral) of the value of the property.
Appraisal Fee: Charged by an appraiser to give an opinion or statement (written or oral) of the value of property.
Appreciation: Increase in value due to any cause.
Arbitration: A method of resolving a dispute in which a third party renders a decision.
Asbestos: A mineral fiber used in some building materials such as flooring, siding, insulation and roofing. It is presently banned for most uses in real property.
Assessed Value: Value of property for taxation purposes as determined by the tax assessor.
Assumption of Loan, Mortgage or Deed of Trust: An agreement wherein the buyer assumes or takes responsibility (becomes liable) for payment of an existing note secured by a mortgage or deed of trust.
Assumption Transfer Fee: Charged by existing mortgage company to process existing loan.
Attorney Document Preparation Fee: Charged by attorney for preparing legal documents for the transaction.
Back-end ratio: A lender calculation that compares a borrower's total debt (principal, interest, property taxes, and insurance, plus other monthly debt payments) to gross monthly income.
Backup offer: A secondary bid for a property that the seller will accept if the first offer fails.
Balloon Payment: Any payment that is greater than twice the amount of the normal and periodic payment. Generally used to refer to the final payment of a note with an advanced due date.
Basis point: A basis point is one one-hundredth of one percentage point. For example, the difference between a loan at 8.25 percent and a mortgage at 8.37 percent is 12 basis points.
Breach of contract: The failure to perform provisions of a contract without a legal excuse.
Bridge loan: A short-term loan for borrowers who need more time to find permanent financing.
Broker: A person who brings parties together and assists in negotiating contracts between them for a commission or fee.
Builder upgrades: Extra features or better finishing materials offered by a builder.
Building code: A comprehensive set of laws that controls the construction or remodeling of a home or other structure.
Building line or setback: Guidelines that limit how close an owner can build to the street or an adjacent property.
Building permit: A permit issued by a local government agency that allows the construction or renovation of a house.
Building restrictions: Regulations that limit the manner in which property can be used.
Built-ins: Appliances or other items that are framed into a home or permanently attached.
Bundle of rights: The various interests or rights an owner has in a property.
Buyer's agent: An agent representing a buyer in a home purchase, either as a single agent or as an exclusive buyer's broker.
Buyer's market: A slow real estate market in which buyers have the advantage.
Bylaws: The rules and regulations that a homeowners association or corporation adopts to govern activities.
Chain of Title: The chronological list of recorded documents affecting title to a specific parcel of real property.
Clear Title: A title that is free from any encumbrance, obstruction or limitation that would "cloud the title".
Closing: Closing of escrow; the final act of a transaction wherein papers are signed, monies are exchanged and title is transferred.
Closing Costs: The expenses incurred in a real estate transaction including costs of title examination, title insurance, attorney's fees, lender's service charges, documentary transfer tax, etc.
Cloud of Title: An outstanding claim of title that has yet to be proven invalid.
Commitment: A title insurer's contractual obligation to insure title to real property.
Common area: An area inside a housing development that is owned by all residents.
Community property: Property accumulated through the joint efforts of husband and wife. It is a classification of property peculiar to certain states, including Texas.
Comparables: Properties used as comparisons to determine the value of a certain property.
Comparative market analysis: An estimate of the value of a property based on an analysis of sales of properties with similar characteristics.
Condominium: Fee ownership of an individual unit (within the confines of the perimeter walls) and tenants-in-common ownership in all the underlying fees and in the common buildings and grounds designated for all the unit owners.
Contingency: An item in a contract dependent on a specific condition for its fulfillment.
Construction loan: A short-term loan for home or building construction. The lender disburses the funds in stages.
Construction-to-permanent loan: A construction loan that is converted to a longer-term traditional mortgage after construction has been completed.
Convertible adjustable-rate mortgage: A mortgage which starts as an adjustable rate loan, but allows the borrower to convert the loan to a fixed-rate mortgage during a specified period of time.
Conveyance: The transfer of title of property.
Conveyance tax: A tax imposed on the transfer of real property.
Cooperating broker: A real estate broker who finds a buyer for a property listed by another broker.
Cost-plus contract: A construction contract that determines the builder's profit based on a percentage of the cost of labor and materials.
Counter-offer: A new offer as to price, terms and/or conditions made in reply to and superseding a prior offer.
Courier Fees: Charged by courier to deliver documents to and from participants throughout the transaction.
Covenants, conditions, and restrictions (CC&Rs): Rules and regulations for a development, such as those pertaining to acceptable landscaping or improvements that can be made to individual units.
Credit history: A record of an individual's current and past debt payments.
Credit rating: The degree of creditworthiness assigned to a person based on credit history and financial status.
Credit Report: Lender run comprehensive buyer credit report.
Cul-de-sac: A street or alley that is closed at one end.
Curable defect: A deficiency in a property that is easy or inexpensive to fix, such as chipping paint.
Decorating allowance: An amount of money supplied by the seller and held in escrow for the buyer, to be applied toward negotiated decorating changes.
Deed: A written document that transfers the interest in property from one person to another.
Deed of Trust: A security document used to transfer "bare legal" title from the trustor (borrower) to the trustee (a neutral party) to be held in trust for the benefit of the beneficiary (lender) until the trustor completes performance of an obligation (monetary or otherwise).
Deed Restrictions: Limitations on the use of real estate written into the deed.
Default: The failure to fulfill a duty or discharge an obligation, such as making monthly mortgage payments.
Discount Points: Points a lender charges to reduce interest rate; may be paid by either buyer or seller on conventional loans; one point is equal to 1 percent of the loan value.
Disclosure: A statement to a potential buyer listing information relevant to a piece of property, such as the presence of radon or lead paint.
Documentation preparation fee: A fee charged by the settlement agent (escrow company or attorney) to ready the necessary paperwork for closing.
Down Payment: The portion of the purchase price of a home that the buyer pays in cash and does not finance.
Due-on-Sale Clause: A provision in a security document calling for the automatic maturity (note is all due and payable) in the event of sale or transfer of title.
Earnest Money: Something of value given as part of the purchase price to show "good faith" and to secure an agreement.
Easement: A limited right or interest in the land of another entitling the holder to use, privilege or benefit.
Eminent Domain: The legal right and procedures for a municipality to take title and possession of private property for public use.
Encroachment: Fences or other structures that extend into the property of another owner.
Encumbrance: A claim or lien on a property which complicates the title process. Any right or interest in property interfering with its use or transfer.
Equity: The difference between the value of property and the amount owed on the property.
Escrow: A transaction wherein an impartial third party (escrow agent) acts as agent to both parties (seller/buyer-lender/borrower, etc.) acting only under instructions in delivering papers, drawing and/or recording documents and disbursing funds.
Escrow Fee: Charged by title company to service transaction and to escrow money and documents; amount varies with company.
Estimated closing costs: An estimate of expenses incidental to the sale of real estate, including loan, title, and appraisal fees. These costs are in addition to the price of the property, and are prepaid at closing. Some are one-time expenses and some are recurring.
Examination of title: An inspection by a title company of public records and other documents to determine the chain of ownership of a property.
Exclusive agency: An agreement to employ a particular broker. If another broker makes the sale, both are entitled to commissions.
Exclusive listing: A contract that gives an agent the exclusive right to market a property for a specific period of time.