REAL ESTATE TERMS DEFINED
Every industry has its own jargon, and real estate is no different. We have created here a glossary of the most commonly used real estate terms and their definitions in order to help you better understand some of the terminologies used along your home buying or selling process.
Ability to Repay Act
Requires the creditor to make a reasonable and good-faith determination, based on verified and documented information, that the consumer will have a reasonable ability to repay the loan.
abstract of title
A summary of all legal instruments affecting title to a property from the original source of the title to the present. If the buyer’s lawyer examines the abstract and writes a report of the title’s condition, it is called an abstract and a lawyer’s opinion.
accelerated cost recovery system (ACRS)
An alternative method of calculating depreciation in which more depreciation is taken in earlier years and less in later years.
acceleration clause
The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other obligation.
accession
Acquiring additions to real estate as a result of adding a fixture or of accretion.
accretion
The addition of land through natural forces.
accrued expense
An expense that has occurred but not been paid.
acknowledgment
A voluntary statement before a notary or an officer of the court by a person who signed a document that indicates that the signature is genuine and made by the signer’s free will.
acquisition debt
An income tax term used to describe money borrowed to purchase, construct, or improve a residence.
acre
A measure of land equal to 43,560 square feet, 4,840 square yards, 4,047 square meters, 160 square rods, or 0.4047 hectares.
actual cash value
A method of settling an insurance claim in which depreciation is subtracted from the original cost of the property.
actual notice
Information a person has gained by actually reading, hearing, or seeing.
actual-number-of-days-in-the-month method
A variation of the statutory month method for prorating expenses at closing. It takes into account the actual number of days in the month of closing.
actual-number-of-days-in-the-year method
A method of proration using the actual number of days in the proration period.
adjustable-rate mortgage (ARM)
A mortgage in which the interest rate changes at predetermined intervals according to a predetermined financial market index. There are usually ceilings (caps) that limit the amount the rate can change every year and over the life of the loan. In an adjustable-rate mortgage, the interest rate can change over the course of the loan at five, seven, or ten year intervals. For homeowners who plan to stay in their home for more than a few years, this is a risky loan as rates can suddenly skyrocket depending on market conditions.
adjusted cost basis
The original cost of an asset plus capital improvements less certain deductions. Used to determine the amount of gain or loss realized when the asset is sold.
administrative law judge
Judges who operate under HUD in resolving discrimination complaints.
ad valorem tax
A Latin term meaning “according to value.” It is a real estate tax based on the value of the property.
adverse possession
A method of acquiring title to real property by using the property without the owner’s consent and following statutory requirements.
agency
All relationships in which a real estate broker in Maryland acts for or represents another as a client by written authority in a real property transaction.
agency by necessity
An agency created because of an emergency situation.
agency coupled with an interest
An agency in which the agent is given an estate or an interest in the property by the principal.
agent
The party who acts on behalf of a principal.
air rights
Rights a property owner has in the space above the surface of the property.
alienation
The act of transferring property to another. Alienation may be voluntary, such as by gift or sale, or involuntary, as through eminent domain or adverse possession.
alienation clause
The clause in a mortgage that allows the lender to make the entire loan balance due if title to the property is transferred. Also called a due-on-sale clause.
allodial system
A legal system that recognizes private ownership of land.
alluvion
New deposits of land as the result of accretion.
Americans with Disabilities Act (ADA)
A law requiring that property open to the public include features that facilitate access to the building. The ADA is designed to eliminate discrimination against individuals with disabilities by providing equal access to jobs, public accommodations, government services, public transportation, and telecommunications.
amortization
Systematic repayment of a debt through periodic installments. Loans can be fully amortized (the entire balance is extinguished), partially amortized (only part of the balance is paid), or negatively amortized (the balance increases). This is the process of combining both interest and principal in payments, rather than simply paying off interest at the start. This allows you to build more equity in the home early on.
annual percentage rate (APR)
A term used in the Truth in Lending Act to represent the true yearly cost of a loan. The APR is a yearly rate and includes the loan’s interest rate plus other loan fees.
anticipation
The appraisal principle holding that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.
antitrust laws
Laws designed to protect free competition.
appraisal
The process of estimating and supporting an opinion of value. In order to get a loan from a bank to buy a home, you first need to get the home appraised so the bank can be sure they are lending the correct amount of money. The appraiser will determine the value of the home based on an examination of the property itself, as well as the sale price of comparable homes in the area.
Appraisal Foundation, The
The private nonprofit group that establishes uniform appraisal standards.
Appraisal Qualifications Board
A board of The Appraisal Foundation. Sets minimum criteria for state-certified appraisers and endorses uniform examinations for certification.
appreciation
The increase in a property’s value over a period of time, which can be caused by inflation or by the characteristics of the property.
appurtenant easements
Easement rights belonging to properties that are adjacent to one another and pass with the property to new owners. Include water rights and rights-of-way.
ARELLO
The Association of Real Estate License Law Officials. A federation of real estate law officials to assist each other in the administration and enforcement of license laws.
as is
A contract clause indicating the seller will not fix any problems with the property.
assemblage
The process of merging adjoining lots. It is used to take advantage of the principle of value called plottage.
assessed value
A value put on real and personal property by a taxing authority as a basis to calculate the amount of real estate tax. This is how much a home is worth according to a public tax assessor who makes that determination in order to figure out how much city or state tax the owner owes.
assignment
Transferring contract rights or obligations. In a lease situation, transferring all remaining terms of the lease to someone else.
associate broker
A person holding this type of license has passed the requirements for a Broker license but is employed by another broker. Associate Brokers have the same required training and licensure as brokers do, they can create & establish their own brokerage simply by disassociating with their broker and informing MREC of their decision.
assumption
See loan assumption.
attachment
The process of changing personal property to real property.
attorney-at-law
A person licensed by the state to practice law.
attorney-in-fact
A person appointed to act for another under a power of attorney.
avulsion
The sudden removal of land by natural forces.
back-end qualifying ratio
A ratio used by a lender to qualify a loan applicant. It compares the applicant’s gross income with the proposed PITI and long-term debt.
balloon loan
A loan in which the payments do not fully amortize the loan balance. The remaining loan balance is included in the last payment, called a balloon payment.
bargain and sale deed
A deed that may come with or without guarantees. The only guarantee usually associated with this deed is a guarantee against encumbrances for the period the grantor held title.
base lines
East-west lines that intersect with principal meridians. Used in the rectangular survey system.
basis
The original cost of the property plus capital improvements less accrued depreciation. Used for accounting and income tax purposes.
benchmark
Reference point used in metes-and-bounds descriptions.
beneficiary
The party in a trust who benefits from the assets of the trust. Also, the party receiving personal property under a will.
bequest
The disposition of personal property under a will.
bilateral contract
A type of contract in which both parties promise to act.
bill of sale
Transfers title to personal property in a transaction.
binder
A short version of a contract that includes all of the essential contract terms.
biweekly loan
A loan in which a payment is made every two weeks. Under this arrangement, a borrower pays less interest and pays the loan off sooner than if it were under a standard loan arrangement with monthly payments.
blanket loan
A loan that covers more than one property and contains a partial release clause that releases the lien on individual properties as the loan is paid.
blind ad
Advertising that does not include the broker’s name or the name of the real estate company. State licensing laws usually prohibit blind ads.
blockbusting
Inducing owners to sell or rent based on representations that persons of a particular race, religion, national origin, et cetera are moving into the area.
blue-sky laws
Laws passed to protect the public from fraudulent investment schemes.
boot
Additional cash or nonqualifying property received as part of a like-kind exchange. Boot is taxable to the recipient.
borrower
A person who receives a loan (also known as the mortgagor).
boundary lines
Used in metes-and-bounds descriptions. They define the boundaries of a property.
broker
Any person or entity issued a broker’s real estate license by the Maryland Real Estate Commission (MREC) pursuant to Real Estate License Law statutes. The term “broker” also refers to a licensed associate broker who has obtained his or her broker’s license and is thereby legally capable of heading a real estate office, but opted to work for another broker.
brokerage
The occupation or business of a real estate broker.
broker price opinion (BPO)
Broker’s estimate of the probable selling price, rather than an estimate of value. Used by lenders, Fannie Mae, and Freddie Mac. Not considered an appraisal, and may not be used for originating a federally related loan.
broker license
A type of real estate license category that allows the licensee to operate a real estate office. Called a managing broker license in some states.
broker protection clause
See carryover provision.
broker-sales associate agreement
A written agreement between a broker and the broker’s sales agents.
brownfields
Old industrial sites that may contain toxic wastes.
budget loan
A loan arrangement in which a portion of the property’s real estate taxes and insurance is collected by the lender as part of the loan payment.
buffer zone
In zoning, a strip of land separating one land use from another.
building codes
Enacted by local governments under their police powers to protect the public from inferior construction practices.
Building Owners and Managers Association (BOMA) International
An association of owners and managers of primarily office buildings.
building permit
Issued by local governments’ building inspectors to allow construction of new buildings or alteration of existing structures.
bundle of legal rights
The concept of land ownership that includes ownership of all legal rights to the land—possession, control within the law, enjoyment, exclusion, and disposition.
buydown
A loan arrangement in which the lender is paid an interest subsidy in exchange for a reduced loan rate in the first years of the loan.
buyer’s agent
This is the agent who represents the buyer in the home-buying process. On the other side is the listing agent, who represents the seller.
CAN-SPAM Act
Establishes requirements for those who send commercial emails and gives consumers the right to “opt out” and have emailers stop emailing them.
capital gain (loss)
The profit (or loss) from the sale or exchange of an asset. It is computed as the difference between an asset’s adjusted basis and the net selling price.
capitalization rate
The rate of return or yield from a property that is expected by an investor. The rate is used in the income approach to estimating value and is determined by dividing a property’s net income by its sales price.
carryover provision
A clause in a listing agreement providing that the broker may be entitled to a commission after the listing contract has expired. Also called an extended clause, automatic extension clause, or broker protection clause.
cash flow
The dollars remaining from income after all expenses have been paid. Cash flow can be either positive or negative.
cash reserves
The cash reserves is the money left over for the buyer after the down payment and the closing costs.
caveat emptor
A Latin phrase meaning “let the buyer beware.” Under this concept, buyers make purchases at their own risk.
certificate of eligibility
Issued by the VA to qualified veterans and includes the maximum loan amount guarantee for the veteran, which is set by the VA based on eligibility period and prior use.
certificate of occupancy
Permission by the municipal inspector to occupy a completed building structure after being inspected and having complied with building codes.
certificate of reasonable value (CRV)
Sets the maximum VA loan amount for a property after it is appraised by a VA appraiser and the appraisal is reviewed by the VA.
certificate of sale
Given to the winner at a foreclosure sale. It entitles the winner to a deed after the redemption period is over.
certificate of title
A document signed by a lawyer or a title examiner stating that the seller has marketable title on a property. Unlike a title insurance policy, it does not provide protection against title defects not found in the public records.
chain of title
A chronological history of all the conveyances of a property. Includes who purchased and sold the property and the dates, using information obtained from public records.
change
A principle of value used in appraisal. States that real estate conditions, both physical and economic, do not remain constant, thus affecting the value of real estate.
chattel
Another name for personal property.
closing
The consummation of a real estate transaction. Includes delivery of the deed, signing of forms, and disbursement of funds to complete the transaction. The closing refers to the meeting that takes place where the sale of the property is finalized. At the closing, buyers and sellers sign the final documents, and the buyer makes the down payment and pays closing costs.
closing agent
The party who schedules and coordinates the closing process. Usually a representative of a title company, the lender, or the lawyer for the buyer or the seller.
closing costs
In addition to the final price of a home, there are also closing costs, which will typically make up about two to five percent of the purchase price, not including the down payment. Examples of closings costs include loan processing costs, title insurance, and excise tax.
Closing Disclosure form
A document designed to provide the consumer with a detailed explanation of all the costs and charges associated with the transaction and the cash they will need to bring at closing.
cloud on title
Anything that impairs the marketability of a title. Clouds include liens, easements, and deed restrictions on the title.
codicil
An amendment or addition to a will.
coinsurance clause
A clause in the insurance policy whereby the owner may take on some of the risk if the house is insured for less than a certain percentage (usually 80%) of the replacement cost stated in the policy.
collateral
Property pledged as security for a debt.
color of title
A claim to title that is defective.
commercial banks
Banks that are either federally or state chartered and that make mortgage, construction, and home improvement loans.
commercial easement
The right given to utility companies to go on the land to maintain their equipment. A type of easement in gross.
commercial property
Property used for businesses, such as stores and office buildings.
commingling
The illegal act by a real estate broker of mixing client or customer funds with personal funds.
commitment fee
A fee paid by a potential borrower to the lender for the lender’s promise to lend money at a specified rate within a certain time period.
commitment to insure
A binder issued by an insurance company stating its intention to grant a policy to an applicant.
commitment to lend
See loan commitment.
common elements
In condominiums, the parts of the property used by all residents of the condominium building.
common law
The body of law based on custom, usage, and court decisions.
Community Reinvestment Act
A law passed to ensure that banks meet the lending needs in the communities where they are located and to prevent redlining.
community property
Property acquired by spouses after marriage. Property acquired before the marriage or obtained by gift or inheritance during the marriage is owned separately.
comparable property
Comparable properties are recently sold properties that are similar to the subject property. Used in the sales comparison approach to estimating value.
comparative (competitive) market analysis (CMA)
A simplified version of the sales comparison approach used by brokers to help sellers set a likely selling price for property. Comparative market analysis (CMA) is a report on comparable homes in the area that is used to derive an accurate value for the home in question.
competent party
A person who has the capacity to be engaged in a legal contract; being of sound mind and body.
competition
A principle of value used in appraisal. States that if substantial profits are being made, competition will be attracted. The increased competition may reduce profit and property value.
conciliation agreement
The successful result of mediation between the parties in a discrimination complaint.
condemnation
A judicial or administrative proceeding to exercise the power of eminent domain, through which a government agency takes private property for public use and compensates the owner.
conditional fee subject to condition precedent
An estate that takes effect when a specified condition is performed. The estate ends when the condition is no longer met.
conditional-use permit
Written governmental permission allowing a use inconsistent with zoning but necessary for the common good, such as locating an emergency medical facility in a predominantly residential area.
condominium
The absolute ownership of a unit in a multiunit building based on a legal description of the airspace the unit actually occupies, or a separate dwelling unit in a multiunit development, plus an undivided interest in the ownership of the common elements in the building or development, which are owned jointly with the other condominium unit owners.
condominium bylaws
Rules passed by the condominium owners association that are used to administer the property.
condominium owners association
An association of all the owners in a condominium. They may elect a board of directors to oversee the administration and management of the condominium.
conforming loans
Loans that follow the established guidelines of the secondary mortgage market.
conformity
A principle of value used in appraisal. States that the value of property is maximized if it conforms to the surrounding land use.
consideration
Anything of value given by parties to a contract.
construction loan
A loan that provides funds for real estate projects. The lender usually disburses the money as work is completed (called draws).
constructive eviction
Occurs when a tenant is forced to leave because the property becomes uninhabitable.
constructive notice
Information that has been made public. The law presumes a person knows all information made available to the public.
consumer
Under the Dodd-Frank Act, the borrower is called the consumer. The terms are used interchangeably.
Consumer Financial Protection Bureau (CFPB)
A government agency created by the Dodd-Frank Wall Street Reform and Consumer Protection Act to create rules and regulations providing consumers the information they need to make financial decisions they believe are best for themselves and their families.
contingencies
Provisions in a contract that require a certain act to be done or a certain event to occur before the contract becomes binding. This term refers to conditions that have to be met in order for the purchase of a home to be finalized. For example, there may be contingencies that the loan must be approved or the appraised value must be near the final sale price.
contract
An agreement among competent parties to do or not to do some legal act(s) and supported by legal considerations.
contract for deed
See installment sales contract.
contribution
A principle of value used in appraisal. States that an improvement’s value is equal to the value added to the property.
conventional life estate
A life estate created by the acts of the parties rather than by statute.
conventional loan
A loan that is not insured or guaranteed by a government agency. The lender assumes the full risk of default in a conventional loan.
conversion
Occurs when a broker uses clients’ funds in an escrow account for personal expenses.
cooperatives
A form of property ownership in which a corporation owns the building and the tenants purchase shares in the corporation that give them a right to occupy a unit in the building.
corporation
An artificial entity created by a corporate charter and run by a board of directors. A corporation may hold title to real estate.
correction lines
Used in the rectangular survey method to compensate for the convergence of range lines caused by the curvature of the earth.
cost
In appraisal, the total in dollars of the value of the land and constructing the improvements on the property.
cost approach
An approach to estimating the value of property through the concept of substitution. The value of the subject property is found by (1) estimating the cost of construction, (2) subtracting depreciation, and (3) adding the land value.
covenants
Guarantees given in deeds by the grantor. Covenants include seisin, encumbrances, further assurance, quiet enjoyment, and warranty forever.
creditor
Under the Dodd-Frank Act, the lender is now called the creditor. The terms are used interchangeably.
credit report
A report issued by a service bureau detailing an individual’s credit history. It is used as a guide in determining the likelihood that an individual will pay loans in the future.
credit score
A number based on statistical analysis of a person’s credit information. A higher score means it is more likely a person will repay loans in a timely manner.
credit unions
Associations that maintain savings accounts for their members, while providing primarily home improvement and home equity real estate loans.
curable depreciation
Depreciation that is worth fixing. That is, the cost of fixing does not exceed the value of the property.
curtesy
A husband’s life estate in wife’s property.
datum
Used to measure elevations. While cities may have several datums, the most commonly used is the USGS datum, which is based on sea level in New York Harbor.
debt-to-income ratio
A ratio used by lenders to qualify borrowers. It is used to calculate the percentage of gross income allowed for the monthly PITI payment.
declaration
A document that legally establishes a condominium. Also known as a master deed or enabling declaration.
deductible
The amount an insured has to pay before the insurance company is liable.
deductions
Expenses that taxpayers are allowed to include on their income tax returns to reduce their taxable income.
deed
A written instrument that transfers title to real property from one owner (the grantor) to another (the grantee).
deed in lieu of foreclosure
A type of nonjudicial foreclosure in which the lender accepts title to the property from the borrower in exchange for ending the debt.
deed of trust
An agreement among three parties for the purpose of securing a real estate loan. Parties to the trust are the trustor (the borrower), the trustee (usually a title company or bank), and a beneficiary (the mortgagee). Used in many states in place of a mortgage.
deed restrictions
Clauses in a deed limiting the future uses of the property. Deed restrictions may impose a vast variety of limitations and conditions—for example, they may limit the density of buildings, dictate the types of structures that can be erected, or prevent buildings from being used for specific purposes or even from being used at all.
defeasance clause
Stipulates that the mortgage lien is void when the loan is repaid.
defeasible, or conditional, fee estate
An estate in which the holder has a fee simple title to the property that will end on the occurrence or nonoccurrence of some event.
deficiency judgment
A judgment against a debtor’s personal assets if the sale of real estate is not sufficient to satisfy the loan.
delivery and acceptance
When the title to property is delivered by the grantor and accepted by the grantee.
demographics
The study and description of a population.
Department of Housing and Urban Development (HUD)
One of the duties of this federal agency is to administer the FHA loan programs. Primarily responsible for enforcing the Fair Housing Act of 1968.
Department of Veterans Affairs
A federal agency also known as the VA. One of its functions is to administer the guaranteed loan program for loans made to qualified veterans by approved lenders.
depreciable basis
The total monetary value of an asset that is used to calculate depreciation.
depreciation
(1) In appraisal, a loss of property value due to any cause. Depreciation is used in the cost approach to estimating value. See also cost approach, curable depreciation, economic obsolescence, functional obsolescence, incurable depreciation, physical deterioration.
(2) For tax purposes, a deduction that allows the cost of assets used in business or as investment property to be recovered over a period of time. Noninvestment property (such as principal residences) cannot be depreciated. The rules for calculating tax deductible depreciation are established by the IRS.
descent
Rules used by state law to determine how title to property will pass if the owner dies leaving no will.
designated agent
A licensed person authorized by a broker to act as the agent for a specific principal in a real estate transaction.
determinable fee subject to condition subsequent
An estate that includes a prohibited use of the property.
devise
A transfer of real property by will. The decedent is the devisor, and the recipient is the devisee.
devisee
The party receiving real property under a will.
discount point
Interest points charged by a lender to raise the yield on a loan. One point is equal to 1% of the loan amount.
discount rate
The interest rate charged other banks by the Fed for loans. By adjusting the discount rate, the Fed can control interest rates and the flow of money in the economy.
disintermediation
The rapid outflow of funds from savings institutions.
Dodd-Frank Act
See Wall Street Reform and Consumer Protection Act
dominant tenement
A tract of land that benefits from an easement appurtenant right.
dower
The legal right or interest, recognized in some states, that a wife acquires in the property her husband held or acquired during their marriage. During the husband’s lifetime, the right is only a possibility of an interest; upon his death, it can become an interest in land.
downzoning
A change in zoning from higher-density to lower-density use. Often used to prevent overloading of public services in an area.
dual agency
Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in some states. Dual agency is when one agent represents both sides, rather than having both a buyer’s agent and a listing agent.
due-on-sale clause
See alienation clause.
duress
The inability of a person to exercise free will because of fear from another party.
early intervention requirements
Pertains to foreclosure avoidance and loss mitigation with a focus on the period soon after a borrower becomes delinquent. The creditor must establish, or make a good-faith effort to establish, live contact with the borrower to inform the borrower about available options to avoid foreclosure.
earnest money
A deposit given by the potential buyer of real estate after a purchase contract is signed to demonstrate the buyer’s good-faith intention to purchase the property. The money is held by a third party (usually the seller’s broker) until closing.
easement
A right to use the land of another for a specific purpose, such as for a right-of-way or utilities; an incorporeal interest in land because it does not include a right of possession.
easement by necessity
An easement right granted by law when there is no access to a person’s land.
easement by prescription
An easement acquired by open, notorious, continuous, hostile and adverse use of the property for the period of time prescribed by state law.
easement in gross
An easement right given to a person or corporation to enter someone’s land for a specific purpose.
economic obsolescence
Loss of value caused by variables external to the property. May result from economic, social, or environmental forces, such as zoning changes, et cetera. One of the three types of depreciation calculated in the cost approach to estimating value. The property owner has little or no control over these forces; therefore, this type of depreciation is always considered incurable.
effective gross income
Used in the income approach to estimating value. Effective gross income is found by subtracting an allowance for vacancies and uncollected rent from potential gross income.
Electronic Fund Transfer Act (EFT)
Protects consumers engaged in the transfer of funds through electronic methods. The act requires financial institutions to provide initial disclosures of the consumer’s rights and responsibilities before funds are transmitted electronically.
emblements
Annual crops on a property that are raised by the owner of the property.
eminent domain
The government power to take private land for the public good. Compensation must be given to the owner of the property.
employee
A working relationship between a broker and the broker’s sales agents in which the broker has control over how agents perform their duties. The broker can withhold for taxes and Social Security and offer benefits such as pensions, health insurance, and profit sharing.
enabling legislation
Laws passed by some states giving local governments the authority to establish local laws.
encapsulation
A method of controlling environmental contamination by sealing off a dangerous substance, such as asbestos.
encroachment
Physical intrusion on another’s land.
encumbrance
A charge, claim, or liability on the property.
endorsement
A rider added to an insurance policy that changes the coverage.
environmental site assessment (ESA)
A property inspection to determine the presence and level of environmental problems.
Equal Credit Opportunity Act
Protects borrowers from discrimination when applying for loans. A lender may deny a borrower credit based only on valid business reasons.
equalizer
Adjusts property assessments so that they are equitable throughout a state.
equitable redemption (right)
A borrower’s right to redeem property before a foreclosure sale.
equity
A property’s value minus any loans against it. Equity is ownership. In homeownership, equity refers to how much of your home you actually own — meaning how much of the principal you’ve paid off. The more equity you have, the more financial flexibility you have, as you can refinance against whatever equity you’ve built. Put another way, equity is the difference between the fair market value of the home and the unpaid balance of the mortgage. If you have a $200,000 home, and you still owe $150,000 on it, you have $50,000 in equity.
erosion
The gradual and sometimes imperceptible wearing away of the land by natural forces, such as wind, rain, and flowing water.
errors and omissions insurance
A type of coverage that protects brokers from loss due to errors, mistakes, and negligence.
escheat
The government power to acquire land from owners who die without a will and leave no heirs.
escrow
Placing something (e.g., money, documents, or property) with a third party to be delivered to a designated person when certain conditions, such as the closing of a transaction, are fulfilled.
escrow account
An account maintained with a lender to hold money to pay real estate taxes and insurance. Also used by brokers to hold buyers’ earnest money that comes into brokers’ possession during real estate transactions.
escrow closing
A closing procedure in which an appointed agent handles all the closing details rather than having them handled in a face-to-face meeting between buyer and seller.
estate for years
A leasehold estate that continues for a definite period of time. This is the most common type of leasehold estate and usually requires no notice to terminate.
estate in land
The degree, quantity, nature, and extent of interest a person has in real property.
eviction
The process of removing a tenant from the premises if a lease agreement is breached. Implemented by filing a suit for possession after giving sufficient notice to the tenant. The removal of a tenant by the landlord because the tenant breached a condition of the lease.
evidence of title
Proof of ownership of property; commonly a certificate of title, an abstract of title with lawyer’s opinion, title insurance, or a Torrens registration certificate.
exclusive agency listing
A type of listing in which the seller hires a single broker. If the seller rather than the broker actually sells the property, however, a commission is not owed the broker.
exclusive right-to-sell listing
A type of listing in which the seller hires a single broker. In this type of listing, a commission is owed the broker, no matter who sells the property.
executed contract
A contract in which all parties have fulfilled their promises and thus performed the contract.
executor
An appointed person who carries out the directions of a will. A woman might be referred to as executrix, although executor is the term most commonly used to refer to either a man or a woman.
executory contract
A contract in which some of the terms remain to be completed (an incomplete contract).
expressed agency
An agency created by words (either oral or written).
Fair and Accurate Credit Transaction Act (FACTA)
To help reduce identity theft; affects the real estate industry with the requirement to dispose of consumer information in a way that cannot be reconstructed by an identify thief.
Fair Credit Reporting Act
A law passed to regulate the action of credit bureaus and consumer credit information. It protects consumers from the reporting and use of inaccurate or obsolete credit information. A lender who rejects a loan request because of adverse credit bureau information must inform the borrower of the source of the information.
Fair Housing Act of 1968
A federal law that prohibits discrimination in the sale and rental of housing based on race, color, religion, gender, handicap, familial status, and national origin.
familial status
As defined by the Fair Housing Act, a protected class consisting of one or more persons under the age of 18 living with a parent or person having legal custody. Also includes pregnant women, foster parents, and people in the process of securing legal custody.
Fannie Mae
A government-sponsored agency that operates in the secondary mortgage market. It handles FHA, VA, and conventional loans and is the largest mortgage purchaser.
Federal Agricultural Mortgage Corporation
A federal agency that establishes a secondary mortgage market for farm real estate loans.
Federal Deposit Insurance Corporation (FDIC)
A government agency that manages two insurance funds used to insure deposits in both commercial banks and savings banks or thrifts.
Federal Housing Administration (FHA)
The FHA is a division of the Department of Housing and Urban Devel¬opment (HUD). The FHA’s principal role is to insure resi¬dential mortgage loans made by private lenders.
Federal Reserve System
Called the Fed, it was established by Congress in 1913 to help maintain a sound credit and economic environment and counteract inflation and deflation trends. The Fed regulates money supply and interest rates.
fee simple absolute
The highest form of ownership recognized by the law. Another name for fee simple estate.
fee simple defeasible
An estate that is subject to some condition to determine when it will begin or end. Also called determinable, conditional, or qualified fee.
feudal system
A system of ownership in which the land was controlled by the king, usually associated with England.
FHA loan
A loan made by an approved lender and insured by the Federal Housing Administration.
fiduciary
One legally placed in a position of trust and confidence.
fiduciary relationship
A relationship of trust and confidence, as between trustee and beneficiary, attorney and client, or principal and agent.
fifteen-year loan
A fully amortized loan with a 15-year term. Reducing the loan term from 30 to 15 years saves the borrower interest with only a moderate increase in the payment amount.
final walk-through
The final inspection of property by a buyer shortly before closing.
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)
A federal law passed as a result of the troubles experienced by the savings and loan industry. The act included amendments intended to improve the competency of appraisers.
first mortgage
A real estate loan that has priority over any subsequent mortgages.
fixed interest rate
An interest rate that does not change during the loan term.
fixed-rate mortgage
A loan in which the interest rate does not change.
fixity
An economic characteristic of real estate that refers to the fact that investments in real estate are for the long term.
fixture
An item of personal property that has been converted to real property by being permanently affixed to the realty.
foreclosure
The process of liquidating a borrower’s assets to satisfy a debt.
fractional section
Sections that are undersized (less than 260 acres). Used in the rectangular survey method for describing real estate.
fraud
The intentional misstatement of a fact to induce someone to take a particular action.
Freddie Mac
Formerly known as the Federal Home Loan Mortgage Corporation (FHLMC), a government sponsored agency that works closely with thrifts to provide a secondary market for their loans.
freehold estate
An ownership interest in real estate for an indeterminable length of time.
friendly foreclosure
The mortgagor in default conveys title to the lender to avoid a record of foreclosure. Also called deed in lieu of foreclosure.
front-end qualifying ratio
A ratio used by a lender to qualify a loan applicant. It compares a loan applicant’s gross income with the proposed PITI.
front foot
A unit of linear measurement (in feet) of the side of a property that faces the street.
fruits of industry
Items such as crops that are on but not part of the real estate.
fruits of nature
Items such as bushes and trees that are on and part of the real estate.
full replacement coverage
A method of settling an insurance claim in which no depreciation is subtracted from the cost of replacing the property.
functional obsolescence
Loss of value caused by outdated features in the property, such as outdated bathroom fixtures. Functional obsolescence may be either curable or incurable. One of the three types of depreciation calculated in the cost approach to estimating value.
further assurance
A guarantee in a deed by which the grantor promises to perform any reasonable acts necessary to correct defects in the title being given.
gap
A defect in the chain of title of a particular parcel of real estate; a missing document or conveyance that raises doubt as to the present ownership of the land.
general agent
Represents the principal in a related range of activities.
general lien
A lien that applies to all of a person’s property.
general partnership
A partnership in which all the partners are general partners and have unlimited liability and the right to manage the partnership.
general warranty deed
A type of deed that provides the greatest protection to the grantee because the grantor provides various covenants (guarantees) that the title being given is good.
Ginnie Mae
A wholly owned government corporation that guarantees investors the timely payment of principal and interest on securities backed by federally insured or guaranteed loans.
good-faith estimate
An estimate required by RESPA, and provided to the buyer by the lender, stating the expected closing costs the buyer will incur.
government lots
Lots that are smaller than full quarter sections. Used in the rectangular survey system of describing real estate.
government survey system
See rectangular (government) survey system.
graduated lease
Allows for rent changes at set future dates. Also called a variable lease.
graduated payment loan
Also called a flexible payment plan, the borrower makes lower monthly payments the first few years and larger payments for the rest of the loan term. This type of loan works well if the borrower’s income is expected to rise with the larger loan payments.
grant deed
Grantors provide assurance only that there were no encumbrances on the property while they held title. Similar to a special warranty deed.
grantee
The party who receives an ownership interest in property.
granting clause
States the grantor’s intention to transfer title and the type of ownership interest conveyed. Also called words of conveyance.
grantor
The party who gives an ownership interest in property.
gross income multiplier (GIM)
A shortened method of estimating the value of income-producing property. The multiplier is found by dividing the selling price by gross annual income of comparable properties. The GIM is used to find the value of the subject property by multiplying the gross annual income of the subject property by the multiplier.
gross lease
A lease agreement in which the tenant pays a fixed amount of rent and the owner pays all the expenses of the building. This is the most common type of lease arrangement.
gross living area (GLA)
In calculating the GLA or room count of a house, appraisers only include the finished area above grade (ground) level.
gross rent multiplier (GRM)
A shortened method of estimating the value of income-producing rental property. The multiplier is found by dividing the selling price by the residential gross monthly rent of comparable properties. The GRM is used to find the value of the subject property by multiplying the gross monthly rent of the subject property by the multiplier. Usually used for single-family rental property.
ground lease
A long-term lease of land (50 years or more) that usually requires the tenant to construct a building.
growing equity loan
A fixed-rate-interest loan, but the monthly payments increase according to an index or schedule. The increase is applied directly to the loan balance resulting in the loan being paid off sooner.
guide meridians
In the rectangular survey method of describing real estate, every fourth range line is a guide meridian and is used in conjunction with correction lines to compensate for the curvature of the earth.
habendum clause
A clause in a deed that defines or limits the estate being granted.
heirs
Persons legally eligible to receive property of a decedent.
highest and best use
The one legal use that provides a property with its greatest value. A principle of value used in appraisal.
holdover tenancy
Occurs when a tenant remains on the property after the right to possess it has expired.
holographic will
A will created in the testator’s own handwriting and not witnessed.
home equity loan
A loan based on a homeowner’s equity in property, usually an adjustable rate, second (junior) mortgage. The interest is usually deductible for income tax purposes.
Home Mortgage Disclosure Act
A law passed to prevent real estate lenders from redlining. Lenders must make annual disclosures showing areas where loans are being made.
homeowners policy
A package of several types of insurance coverage available to homeowners.
homeowners association (HOA) dues
Fees imposed by a condominium or homeowners association for maintenance of the common areas.
home rule powers
Provisions in the constitutions of some states that give local governments the power to regulate real estate to protect the public health and safety.
homestead exemption
A legal life estate that protects a portion of the value of an owner’s principal residence from unsecured creditors. Rules are set by state law.
home warranty
This warranty protects from future problems to things such as plumbing and heating, which can be extremely expensive to fix.
Housing and Community Development Act
A 1974 amendment to the 1968 Fair Housing Act that added gender as a protected class.
hypothecation
To pledge property as security for an obligation or loan without giving up possession of it.
immobility
A physical characteristic of real estate, meaning that land cannot be moved.
implied contract
An agreement created by the actions of the parties.
impound account
An account maintained by the lender that holds money collected from the borrower for the payment of real estate taxes and insurance. Also called an escrow or a reserve account.
improvements
Additions to a property that are created artificially rather than by nature.
income approach
An approach to estimating the value of property by finding the net income and applying it with the capitalization rate. The value of the subject property is estimated by (1) finding the annual potential gross income, (2) subtracting a vacancy rate to find the effective gross income, (3) subtracting operating expenses to find the net income, (4) finding the capitalization rate, and (5) applying the capitalization rate to the subject property. See also capitalization rate.
increasing and diminishing returns
The relationship between the cost of improvements and the value they add to the property. Improvements may initially add substantial value (increasing return) but will reach a point where they add less value (diminishing return). A principle of value used in appraisal.
incurable depreciation
When present, the cost of fixing the property will be more than the increase in value or the corrections are not physically possible. Used in appraisal.
independent contractor
A working relationship between a broker and the broker’s sales agents in which the broker may control what the agent will do but not how it will be done. The broker may not withhold for taxes or Social Security or provide benefits. See also employee.
indestructibility
A physical characteristic of real estate meaning that land cannot be destroyed.
index lease
A lease agreement in which the rent changes are based on some common economic index.
industrial property
Property used in industry, such as factories.
in gross
See easement in gross.
Inspection
Home inspections are required once a potential buyer makes an offer. Typically, they cost a few hundred dollars. The purpose is to check that the house’s plumbing, foundation, appliances, and other features are up to code. Issues that may turn up during an inspection may factor into the negotiation on a final price. Failing to do an inspection may result in surprise costly repairs down the road for the home buyer.
installment sale method
A method of selling real estate in which the gain on the sale is received from the buyer over several years and recognized as a taxable gain over the same period.
installment sales contract
A sales contract in which the buyer takes possession of the property but the seller retains title until the loan is paid.
Institute of Real Estate Management (IREM)
The largest property management organization. It is affiliated with the National Association of Realtors®.
instrument
A legal document such as a contract, a deed, or a note.
insured loans
A loan insured by FHA or a private mortgage insurance company that protects the lender against default.
intangible property
Personal property represented by a document but that cannot be detected by the senses. Stock certificates are a representation of intangible property.
intent to proceed
Notice to the lender that the consumer wishes to proceed with the loan application.
Interest
This is the cost of borrowing money for a home. Interest is combined with principal to determine monthly mortgage payments. The longer a mortgage is, the more you will pay in interest when you have finally paid off the loan.
interim financing
A short-term loan often used to finance real estate construction.
Interstate Land Sales Full Disclosure Act (ILSA)
A federal law that regulates the sale of certain real estate in interstate commerce.
inter vivos trust
A living trust created by an owner during the owner’s lifetime.
intestate
Having died without making a will.
inverse condemnation
Forcing the state to buy an owner’s property if government action has forced loss of value or inability to use the property.
involuntary alienation
Transferring title to real estate without the will and consent of the owner.
involuntary lien
A lien created by law, either by statute or by a court.
joint tenancy
Ownership by two or more people who own an undivided interest with right of survivorship. Four unities are required to create a joint tenancy: time, title, interest, and possession.
joint venture
A business entity created for a single project, usually intended to last a limited period of time.
judgment
The formal decision of a court upon the respective rights and claims of the parties to an action or suit. After a judgment has been entered and recorded with the county recorder, it usually becomes a general lien on the property of the defendant.
judicial foreclosure
Foreclosure procedures that use the courts. These procedures include judicial sale and strict foreclosure.
judicial sale
A type of judicial foreclosure in which the lender uses the acceleration clause in the mortgage and then files a suit to have the property sold and the loan paid.
junior mortgage
A loan that is subordinate to a prior mortgage.
Junk Fax Prevention Act
Prohibits unsolicited fax advertisements or solicitations but does allow for an established business relationship exception.
laches
Loss of legal rights because of failure to assert them on a timely basis.
land
The earth’s surface, extending downward to the center of the earth and upward infinitely into space, including things permanently attached by nature, such as trees.
land contract
The seller accepts a down payment and finances the rest of the purchase price. Title to the property remain with the seller until the loan is repaid. Also called an installment sales contract and contract for deed.
landlocked
Property that does not have access to a public road to enter or leave the land. This situation may create an easement by necessity.
land trust
A trust in which property is conveyed, and in which real estate is the only asset.
latent defects
Hidden defects in property.
lease option
Gives the tenant the right to renew the lease if proper notice is given.
lease purchase
An arrangement in which the tenant leases property for a period of time with the intention of purchasing it.
lease with option to buy
Allows the tenant to purchase property within a specified period, usually with terms previously agree to.
leasehold estate
A tenant’s ownership rights (interest) in real estate. Provides the right of possession but not title to the property.
legal description
A precise method of describing a parcel of real estate. A description on documents used in the transfer of title to real estate that is acceptable to the courts.
legal life estate
A form of life estate established by state law, rather than created voluntarily by an owner. It becomes effective when certain events occur. See dower, curtesy, and homestead for legal life estates used in some states.
lessee
The tenant in a lease arrangement.
lessor
The landlord/property owner in a lease arrangement.
leverage
The use of borrowed money to finance an investment.
liability coverage
Protection against claims by others for injuries caused by an owner’s negligence.
license
A personal privilege to enter another’s land for a specific purpose.
lien
A lien is a charge against property for the payment of money.
lienee
The party whose property is subject to a lien.
lienor
The party holding the lien right.
life estate
A noninheritable freehold estate based on the life (or lives) of named individuals.
life insurance companies
A source of money for large industrial and commercial real estate projects. They deal with intermediaries rather than individual borrowers.
life tenant
The party who owns a life estate in the property.
like-kind property
As defined by the tax code (Section 1031), personal property that can be exchanged for other personal property or real estate that can be exchanged for other real estate.
limited liability company (LLC)
Incorporates the tax and liability advantages of corporations and limited partnerships.
limited partnership
A type of partnership that includes at least one general partner and one or more limited partners. The limited partners cannot manage the business, and their liability is limited to the amount of their investment.
limited service brokerage
Offers consumers fewer services than those provided by a full-service brokerage relationship but also charges a smaller fee.
liquidity
The speed at which an investment can be converted into cash.
lis pendens
A notice in the public records of a lawsuit involving a particular property that may result in a claim against the property.
listiing
A listing is essentially a home that is for sale. The term gets its name from the fact that these homes are often “listed” on a website or in a publication.
listing agent
This is the agent who represents the seller in the home-buying process. On the other side is the buyer’s agent, who represents the buyer.
listing contract
An agreement between an owner and a licensed broker in which the broker is employed to sell the real estate within a given time in return for a commission, to be paid by the owner.
littoral rights
The rights of an owner with property bordering large bodies of water, such as an ocean.
loan assumption
Occurs when someone other than the original borrower becomes primarily liable for the loan.
loan commitment
A commitment by a lender to make a loan on a property for a stated amount within a certain period. Given to loan applicants when their credit has been approved by the lender.
Loan Estimate form
Provides consumers information on the costs, features, and risks of the loan they are applying for.
loan-to-value ratio
The relationship between the amount of a loan and the appraised value of a property. The ratio is expressed as a percentage of the appraised value.
lot-and-block system
A method of describing real estate that references a parcel of land by lot and block numbers within a subdivision. Also called recorded plat.
management agreement
A contract between the owner of income property and a management firm or individual property manager that outlines the scope of the manager’s authority.
management plan
A highly detailed plan that lays out the owner’s objectives for a property, as well as what the property manager wants to accomplish and how, including all budgetary information.
margin
In finance, the rate markup over the index rate in an adjustable-rate mortgage.
market data approach
See sales comparison approach.
market price
The actual sales price of a property, usually different from the market value.
market segmentation
Dividing real estate markets into submarkets.
market value
The most probable price a property should bring if payment is made in cash and the buyer and the seller are unrelated, well informed, and acting without pressure.
marketable title
Title that is free from major defects that would deter potential buyers of the property.
Maryland Real Estate Commission (MREC)
The Commission was created to protect the health, safety and welfare of the public through examination, licensing, and regulatory activities, to uphold and apply the governing real estate laws and regulations equally to all, to provide courteous, reasonable, and professional assistance, and to impartially conduct disciplinary actions.
mechanic’s lien
A claim against real property by suppliers of goods and services to the real estate.
Megan’s Law
A federal law that requires a sex offender to register with law enforcement officials in the jurisdiction where the offender has chosen to reside.
Member of the Appraisal Institute (MAI)
A designation awarded by the Appraisal Institute.
metes and bounds
One of the common methods of describing real estate. The description starts at a point of beginning (POB) and describes the circumference of the property, ending at the POB.
mill
One-tenth of one cent. Some states use a mill rate to compute real estate taxes; for example, a rate of 52 mills would indicate a tax of $0.052 for each dollar of assessed valuation of a property.
misrepresentation
A false statement or concealment of a material fact.
modification
The economic characteristic of real estate meaning that a change in one property affects the value of neighboring properties, either favorably or unfavorably.
monument
A fixed natural or artificial object used to establish real estate boundaries for a metes-and-bounds description.
mortgage
A contract between a borrower and a lender that provides security for the loan by creating a lien on the property.
mortgage banking company
Originates loans and packages them to investors, who may use their own money or money borrowed from other lenders. They also service loans.
mortgage bond financing
The process of selling tax-exempt bonds by municipalities to raise money for low-rate loans to first-time homebuyers.
mortgage broker
One who arranges a loan between a lender (mortgagee) and borrower (mortgagor) for a fee. The broker is an individual or company that is responsible for taking care of all aspects of the deal between borrowers and lenders, whether that be originating the loan or placing it with a funding source such as a bank.
mortgagee
The lender or obligee who receives a pledge from a borrower to repay a loan.
mortgage insurance premium (MIP)
An insurance fee paid by the borrower either to the FHA or to a private mortgage insurer to protect the lender against default.
mortgagor
The borrower or obligor who gives the lender a pledge to repay a loan.
multiple listing
A method of sharing listing information among brokers.
multiple listing service (MLS)
An organization composed of member brokers who agree to share their listing information with the intention of more quickly finding buyers for a property.
mutual savings banks
Similar to savings banks, they use most of their funds for residential real estate loans.
National Association of REALTORS® (NAR)
A professional organization for the real estate industry.
National Do Not Call Registry
A national registry, managed by the Federal Trade Commission, which lists the phone numbers of consumers who have indicated their preference to limit the telemarketing calls they receive.
National Flood Insurance Program (NFIP)
A program administered by a division of the Federal Emergency Management Agency (FEMA) that helps provide coverage to homeowners for losses due to flooding.
necessity
See easement by necessity.
negative amortization
A loan arrangement in which the loan balance increases with each payment rather than decreasing because the payment amount is not sufficient to cover the interest.
negotiable instrument
A written promise or order to pay a specific amount of money. The instrument may be transferred to someone else by endorsing the document. A mortgage note and checks are examples of negotiable instruments.
net income
Gross income less operating expenses. Also called net operating income.
net lease
A lease requiring the tenant to pay not only rent but also costs incurred in maintaining the property, including taxes, insurance, utilities, and repairs.
net listing
A listing in which a specified amount is due the seller and the broker’s commission is any amount above that. This type of listing is illegal in some states because of the potential for fraud by the broker.
nonconforming loan
A mortgage not eligible for sale and delivery to either Fannie Mae or Freddie Mac for various reasons, including the loan amount, loan characteristics, or underwriting guidelines.
nonconforming use
A property’s use that existed before the current zoning laws and is not in compliance with those laws.
nonhomogeneity
A physical characteristic of real estate meaning that no two parcels of land are exactly alike.
nonjudicial foreclosure
Foreclosure procedures used by lenders that do not involve the courts. Common types are power of sale clauses and deeds in lieu of foreclosure.
note
A written promise to pay a sum of money at a stated rate during a specific term.
novation
Substituting a new contract for an old one.
nuncupative will
A will created orally by a person near death.
obsolescence
The loss of value due to property features that are outmoded or less useful. Obsolescence may be functional or external.
occupancy permit
A permit issued by the appropriate local governing body to establish that the property is suitable for habitation by meeting certain safety and health standards.
offer
This is the initial price offered by a prospective buyer to the seller. A seller may accept the offer, reject it, or counter with a different offer.
Office of the Comptroller of the Currency (OCC)
A federal government office responsible for monitoring and regulating the nationally chartered banking industry.
oil and gas lease
A lease under which a property owner receives rent from a company for allowing it to drill for oil and gas on the property.
open-end loan
A loan arrangement whereby the mortgagor may borrow additional money up to the original amount of the loan using the same property as collateral.
open listing
Listing in which the seller employs any number of brokers at the same time but owes a commission only to the broker who sells the property.
option
An option creates a contractual right. Typically used to keep open, for a definite period, an offer to sell or lease real property.
ordinary life estate
An estate based on the tenant’s life.
package mortgage
A loan arrangement used to finance both real and personal property in a real estate transaction.
parol evidence rule
Oral evidence will not be allowed to contradict a written contract.
partition
The right of parties in a tenancy in common or joint tenancy to have the courts force the dissolution of the tenancies.
partnership
An agreement between two or more persons to conduct a business. A partnership can be either limited or general. See also general partnership, limited partnership.
party wall
A wall built on the line separating two properties. Because the wall is built partly on each property, each owner has an easement on the adjoining owner’s land that is covered by the wall.
pension funds
These funds invest in packages of real estate loans, primarily from mortgage bankers and brokers.
percentage lease
A lease, commonly used for commercial property, whose rental is based on the tenant’s gross sales at the premises; it usually stipulates a base monthly rental plus a percentage of any gross sales above a certain amount.
percolation (perc) test
A soil test to determine the absorption rate of effluent from a septic system.
perfecting title
The process of removing defects on the title.
perils
Hazards or risks that may be protected against with insurance policies.
periodic estate
A leasehold estate that continues for an indefinite period. Also called an estate from period to period.
personal property
All property that is not classified as real property. The primary characteristic of personal property is mobility.
physical deterioration
Loss of value caused by wear and tear on the building, such as a leaking roof or peeling paint. Physical deterioration may be either curable or incurable. One of the three types of depreciation calculated in the cost approach to estimating value.
PITI
An acronym describing principal (P), interest (I), taxes (T), and insurance (I), the most common components of a mortgage payment.
planned unit development (PUD)
Mixed-use developments of several acres that set aside areas for residences, commercial property, and public areas such as schools, parks, et cetera.
plat
A property map recorded in plat books in the public records.
plat-of-survey method
Also called recorded plat and lot-block-tract, this is one of the methods used to describe real estate. Divides land into blocks, lots, and tracts.
plottage
Combining lots to increase the value of the new larger lot over the sum of values of the smaller ones. A principle of value used in appraisal.
point of beginning (POB)
In a metes-and-bounds legal description, the starting point of the survey, situated in one corner of the parcel; all metes-and-bounds descriptions must follow the boundaries of the parcel back to the point of beginning.
points
Points are interest, usually payable at closing. A point is 1% of the loan amount.
police power
The government’s right to impose laws, statutes, and ordinances, including zoning ordinances and building codes, to protect the public health, safety, and welfare.
portfolio lenders
Lenders who hold loans they originate rather than selling them to investors.
power of attorney
Legal document that gives individuals the right to sign legal documents for another. In Maryland, document must be executed with the same formality required for a deed.
preapproved
The lender collects the buyer’s financial and employment information, performs a credit check, and determines the maximum loan amount for which the lender approves the buyer.
preapproval letter
Before buying a home, a buyer can obtain a pre-approval letter from a bank, which provides an estimate on how much the bank will lend that person. This letter will help determine what the buyer can afford.
predatory lending
Loans that take advantage of poorly informed borrowers to earn the lender high profit by charging exorbitant fees and stripping the property of its equity.
prepaid expense
An expense that has been paid but not yet incurred.
prepayment clause
A mortgage clause that determines the borrower’s rights and duties if the loan is prepaid.
prepayment penalty
A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.
prequalified
An informal process in which the buyer provides the lender with financial information, but there is no credit check and the lender states the maximum loan amount for which the buyer might qualify.
prescriptive easement
See easement by prescription.
price
In appraisal, what a property actually sells for.
price-fixing
An illegal practice (violation of the antitrust laws) in which brokers conspire to establish a standard commission rate.
principal
1. In lending, the amount financed. 2. In an agency, the party an agent represents. Also called the client.
principal meridians
Lines running north and south and intersected by base lines. Used in the rectangular survey system of describing real estate.
prior appropriation
Ownership and use of water are controlled by the state, and property owners must apply to the state to appropriate (divert) water.
private conduits
Organizations that often purchase and pool nonstandardized loans for selling in the secondary market.
private mortgage insurance (PMI)
Insurance written by a private company that protects a mortgage lender against loss if a borrower defaults. The insurance is usually used when the loan-to-value ratio exceeds 80%. PMI insures the top 20% to 25% of the loan, and borrowers are charged a fee at closing as well as an annual fee. These insurance payments typically end once the buyer builds up 20% equity in a home.
probate
The legal process of determining a will’s validity, paying the debts of the estate, and distributing the estate’s remaining assets.
procuring cause
The broker whose actions resulted in completion of the sales transaction.
progression
The economic principle that the value of a poorer property will increase if it is near a better quality property. A principle of value used in appraisal.
promissory note
A contract agreement between a borrower and a lender whereby the borrower commits to pay the lender the loan amount following specific terms. The note is a negotiable instrument, allowing the lender to sell the note to investors.
property management agreement
A document that establishes the working relationship between a building owner and a property manager. A contract between the parties that establishes an agency in which the manager is the agent and the owner is the principal.
proprietary lease
A lease given by the corporation that owns a cooperative apartment building to a shareholder who has the right as a tenant to an individual unit.
prorated expenses
Expenses shared between the buyer and the seller.
puffing
Statements of opinion and exaggeration by the broker.
pur autre vie
A type of life estate based on the life of someone other than the life tenant. Means “for the life of another.”
purchase money mortgage (PMM)
A loan given by the seller to finance part of the purchase price. Also called a take-back mortgage.
pyramiding
Obtaining additional investment property by borrowing on the equity of existing investments.
Qualified mortgage standards (QM)
Defines minimum mortgage standards that must be adhered to by creditors to determine if the consumer has the ability to repay the mortgage. Generally QM loans cannot contain risky features.
quiet enjoyment
A guarantee in a deed that the title being given is good against third parties.
quiet title lawsuit
Used to clear up defects or uncertainty in a title.
quitclaim deed
A deed that conveys whatever interest, if any, is held by the grantor and does not provide the grantee with any guarantees.
range lines
Lines that run north and south and are mea¬sured from the principal meridian. Used in the rectangular survey system of describing real estate.
ranges
Strips of land running north and south and measured from the principal meridian. Used in the rectangular survey system of describing real estate.
ratification
to confirm by expressing consent, approval, or formal sanction. To approve and give formal sanction to; confirm. If something is considered ratified, it has been officially approved. To ratify a contract is to officially approve it by signing for it.
raw land
Land that has no improvements. Also called unimproved land.
real estate
Land plus any artificial things permanently attached.
real estate assistant
An individual who assists a broker or sales agent in the real estate business. Assistants may be licensed or unlicensed.
Real estate investment trust (REIT)
Allows small investors to participate in real estate investments. Investors transfer title to real estate to a trustee, who manages the property for the benefit and profit of the investors. Funds from the issuance of investment trust certificates to investors are used to purchase real estate investments for the benefit of the investors.
Real Estate Mortgage Investment Conduit (REMIC)
A tax entity that issues multiple classes of investor interests (securities) backed by a pool of mortgages.
Real estate owned (REO)
Property acquired by the lender through foreclosure and held in inventory.
Real Estate Settlement Procedures Act (RESPA)
The primary purpose of this federal law is to ensure that the parties in a residential real estate transaction are informed of settlement costs. Disclosure requirements include giving the Closing Disclosure form and prohibiting kickbacks.
real property
All components of real estate plus the legal rights and interests associated with its ownership.
REALTOR®
A registered trademarked term reserved for the sole use of active members of state and local REALTOR® associations affiliated with the National Association of REALTORS®. A Realtor is a real estate agent who specifically is a member of the National Association of Realtors. NAR has a code of standards and ethics that members must adhere to.
recapture clause
Allows a lessor to take back the premises if a minimum sales amount is not met. Used in percentage leases.
reciprocal agreements (reciprocity)
Agreements between states that make it easier for brokers to obtain licenses in other states.
recovery fund
An account operated by the state to pay uncollectible judgments against licensees.
rectangular survey system
Established by Congress as a method of describing real estate. Established a grid of intersecting lines to describe the location of a property. Also known as the government survey system.
redemption
The rights of an owner whose property is sold (or is being sold) to satisfy a lien against the real estate to recover the property. Redemption rights are commonly given when property is being sold to satisfy mortgage loans and real estate taxes. See also statutory redemption, equitable redemption.
redlining
Refusing to make loans or to issue insurance policies in certain areas, based on the presence of a protected class.
refinancing
Refinancing is when you restructure your home loan, replacing your old loan with an entirely new loan that has different rates and payment structures. The main reason people refinance their home loans is to get a lower interest rate on their mortgage, and therefore lower not only the monthly payment but also the overall debt owed.
regression
An appraisal principle that the value of a better-quality property is affected adversely by the presence of a lesser-quality property.
Regulation Z
Implements the Truth in Lending Act, requiring credit institutions to inform borrowers of the true cost of obtaining credit.
reinstatement
In finance, the right a defaulting borrower has to stop a foreclosure and restore the loan. Typically, the borrower must pay the amount in arrears and other costs.
release deed
A deed given by a trustee when a loan is repaid. Also called a trustee’s deed of reconveyance.
reliction
The gradual subsiding of water that uncovers additional land.
remainder interest
A third party who has a future ownership interest in property.
renouncing the will
A spouse’s election to receive the benefits of the estate that are allowed under state law rather than those given by the will.
replacement cost
Estimates the current cost of constructing similar or equivalent improvements. Used in the cost approach to estimating value.
reproduction cost
Estimates the current cost of constructing duplicates of the property improvements. Reproduction creates an exact replica, while replacement cost creates similar improvements. Used in the cost approach to estimating value.
reserve requirement
The portion of a bank’s deposits that may not be loaned. By adjusting the reserve requirement, the Fed can control interest rates and the flow of money in the economy.
residential property
Property used for housing. Includes single-family housing, condos, cooperatives, and apartment buildings.
reverse equity mortgage (REM)
A loan designed for elderly people with little or no debt on their houses. The lender pays the borrower a fixed amount of money each month based on the equity in the property and the owner’s life expectancy. The loan is repaid when the owner dies, sells the house, or moves out of the house.
reversion interest
Under this arrangement, property “reverts,” or returns, to the original owner.
rider
An additional amendment annexed to a document that becomes part of the agreement.
right of first refusal
In a lease arrangement, allows the tenant the opportunity to buy the property if the owner receives a purchase offer. In a cooperative or a condominium, the corporation or the condominium board can require the shareholders to offer their shares, or unit, to the corporation or board before selling them to others.
right of survivorship
When tenants in a joint tenancy die, their ownership share goes to the surviving joint tenants.
riparian rights
Rights pertaining to land bordering flowing water, such as streams or rivers.
run with the land
Easement rights that are passed on to successive owners of the property.
sale and leaseback
An arrangement whereby an owner sells property and then leases it back from the purchaser. Often used with commercial and industrial property.
sales comparison approach
An approach to estimating the value of property by comparing the subject property with various similar (comparable) properties. The value of the subject property is found by (1) locating at least three comparable properties, (2) making adjustments for differences between the comparables and the subject property, and (3) reconciling the adjusted sales price of the comparables.
salesperson license
An entry-level real estate license category. A person holding a salesperson license must be employed by a broker to perform selling activities.
satisfaction of mortgage
A document issued by a lender verifying that a loan has been repaid.
savings banks
Also called thrifts. Lenders that have traditionally been an important source of loans for residential property. Their role has greatly diminished in recent years.
scarcity
An economic characteristic of real estate that refers to the finite amount of land.
S corporation
A special form of corporation that is taxed like a partnership but has limited liability.
secondary mortgage market
A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages. Mortgages are first originated in the primary mortgage market.
Section 1031
The section of the IRS code that authorizes the deferment of tax on a gain through an exchange of like-kind property.
sections
A land measure of one square mile or 640 acres used in the rectangular survey method of describing real estate. See also townships.
Secure and Fair Enforcement (SAFE Act)
Mandates a nationwide licensing and registration system for residential mortgage loan originators (MLOs and LOs).
security deposit
Money deposited by the tenant with the landlord to be used as compensation for damages or maintenance to the property caused by the tenant.
seisin
A guarantee in a deed that the grantor has the power and authority to convey title.
seller disclosure statement
A listing by a seller of any property defects.
service animal
Trained animals that perform tasks to assist people with disabilities.
Servicemembers Civil Relief Act
Provides military personnel and their dependents protections regarding issues related to mortgages and housing.
servient tenement
A tract of land over which an appurtenant easement right runs.
setback
The amount of space local zoning regulations require between a lot line and a building.
settlement agent
See closing agent.
severalty
Ownership of real property by one person only; also called sole ownership.
severance
Changing an item of real estate to personal property by detaching it from the land (e.g., cutting down a tree).
shared appreciation mortgage (SAM)
A mortgage loan in which the lender, in exchange for a loan with a favorable interest rate, participates in the profits (if any) the borrower receives when the property is eventually sold.
short sale
Sale of property in which the sales price is less than the remaining indebtedness.
situs
The economic characteristic of real estate that refers to people’s preference for some areas over others.
special agent
A representative of the principal in a specific transaction.
special assessment
A special real estate tax for improvements that benefit the property.
SSAs
Special taxing districts established by municipalities to pass on the costs of new or improved streets, landscaping, water lines, and sewers systems to the property owners within the SSA. The SSA assessments are included annually on the property tax bills.
special warranty deed
A deed that limits the guarantee given by the grantor to encumbrances acquired while title was held by the grantor. Used by someone acting on behalf of the owner, such as an executor or administrator.
specific lien
A lien affecting or attaching only to a certain, identified parcel of land or piece of property.
specific performance
A legal action to compel a party to carry out the terms of a contract.
spot survey
A survey that shows the location, size, and shape of buildings on the lot, in addition to the lot’s legal description.
spot zoning
Rezoning of a particular property that is inconsistent with the zoning for the area.
Starker exchange
A delayed exchange of properties that qualifies as a tax-deferred exchange.
statute of frauds
That part of a state law that requires certain instruments, such as deeds, real estate sales contracts, and certain leases, to be in writing to be legally enforceable.
statute of limitations
That law pertaining to the period of time within which certain actions must be brought to court.
statutory month method
A method of proration that treats every month as though it had 30 days.
statutory redemption (right)
The borrower’s right to redeem property after the foreclosure sale.
steering
The illegal practice of channeling home seekers to particular areas based on their race, national origin, religion, or other protected classification.
stigmatized property
A property that has acquired an undesirable reputation due to an event that occurred on or near it, such as violent crime, gang-related activity, illness, or personal tragedy. Some states restrict the disclosure of information about stigmatized properties.
straight-line method
A method of depreciating an asset in which equal amounts of depreciation are taken annually over the asset’s useful life.
strict foreclosure
A foreclosure procedure in which the court awards the lender the title and all equity to the property.
subagents
Parties who assist the agent.
subdivider
One who buys undeveloped land, divides it into smaller, usable lots and sells the lots to potential users.
subdivision
A tract of land divided by the owner, known as the subdivider, into blocks, building lots, and streets according to a recorded subdivision plat, which must comply with local ordinances and regulations.
subject property
The property being appraised.
subject-to mortgage
An arrangement in which the buyer assumes the seller’s mortgage and makes payments but is not personally liable for the debt.
sublease
In a sublease, the original tenant becomes the lessor and takes on a new tenant (a sublessee). The sublessee makes payments to the original tenant.
subordination agreement
A written agreement between holders of liens on a property that changes the priority of mortgage, judgment, and other liens under certain circumstances.
subprime loans
Loans to borrowers with a poor credit history who have a greater likelihood of default. The lender charges higher fees and interest rates to compensate for the greater risk.
subrogation
Obtaining the legal rights of another party. Used by title insurance companies to defend the insured title against lawsuits from other parties. This clause in the policy prevents the insured from collecting from both the insurance company and the party causing the loss.
substantially equivalent laws
State or local government fair housing laws that are similar to the federal fair housing laws.
subsurface rights
Ownership rights in a parcel of real estate to the water, minerals, gas, oil, and so forth that lie beneath the surface of the property.
suit for possession
A lawsuit that initiates an action for eviction against the tenant.
suit to quiet title
A court action intended to establish or settle the title to a particular property, especially when there is a cloud on the title.
supply and demand
In the real estate market, property values change as these two forces adjust themselves. As supply increases or demand decreases, values decrease. As supply decreases or demand increases, values increase.
survey
A measurement and description of land. Surveys usually are required when property is sold or improvements are being made.
syndication
Usually a limited partnership formed by two or more parties to operate a real estate investment.
tacking
Combining successive periods of property use.
tangible property
Property that can be seen and touched, such as a car.
taxation
The process by which a government body raises monies to fund its operation.
tax shelter
An investment intended to lower (or protect) taxable income through tax-deductible expenses.
Telephone Consumer Protection Act (TCPA)
Strengthens consumer protection from unwanted solicitations by including new technologies that telemarketing companies use, such as robo-dialing, autodialers, text messages, and internet-to-phone calls.
tenancy at sufferance
This tenancy occurs when a tenant wrongfully remains on the property after the right to possess has ended.
tenancy at will
A form of tenancy whereby the tenant possesses the property with the consent of the landlord. The term is for an indefinite period of time and may be canceled without notice.
tenancy by the entirety
A form of joint tenancy that exists between husband and wife.
tenancy (tenants) in common
A form of holding title in which two or more parties have an undivided interest in the property. They may hold unequal shares in the property, and there is no right of survivorship.
term loan
A loan arrangement in which payments include only interest and the loan balance is due at the end of the loan period. They are usually nonamortizing loans for short terms. Also called a straight loan.
testamentary trust
A trust that is established by will after one’s death.
testate
Having made and left a valid will.
testator
A person who has made a valid will. A woman might be referred to as a testatrix, although testator can be used for either a man or a woman.
thrifts
See savings banks.
tie-in agreement
An agreement in which one transaction depends on another, usually less desirable, transaction. Tie-in agreements may violate state and federal antitrust laws.
TILA-RESPA Integrated Disclosure Rules (TRID)
Combines the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) disclosures into two new documents; the Loan Estimate form and Closing Disclosure form.
time is of the essence
A clause in a contract stipulating that time limits stated in the contract must be met.
time-share (time-sharing)
Ownership of a specified time interval in a property, usually recreational or resort property.
title
The legal evidence of ownership rights to real property.
title cloud
See cloud on title.
title insurance
Insures the existence of rights in real estate and pays for losses to the insured because of successful claims to the title by other parties. A policy is issued after a search of the public records. There are lender and owner policies.
title report
The results of a search of the public records by a title insurance company. The report lists anyone who has an ownership interest in the property being examined.
title search
A search of the public records to determine past and present facts regarding ownership of the property. Also called title examination.
topographical lines
Lines on a map that indicate contour of the land. Lines that are far apart indicate relatively level land while lines close together indicate a slope.
Torrens system
A system used for both assuring and recording title to real estate. This system is used in only a small number of states. When a property is registered in Torrens, a Torrens certificate establishing title to the owner on the certificate is issued by the registrar of title.
township
The principal unit of the rectangular (government) survey system. A township is a 6-mile square of 36 square miles.
township lines
Township lines are 6 miles apart, run east and west, and are measured from the base lines. Used in the rectangular survey method of describing real estate.
trade fixture
An article installed by a tenant under the terms of a lease that is removable by the tenant before the lease expires.
transactional broker
A licensee who does not act as the agent for either party in a real estate transaction. The broker’s function is to assist the parties with the required paperwork and other activities in the transaction but not negotiate on behalf of either party.
transfer tax
A tax on the transfer of real property that is assessed by state and local law. The seller in the real estate transaction is usually required to pay the tax.
trust
A three-party arrangement (trustor, trustee, beneficiary) in which title to real estate or other assets is placed with the trustee.
trust deed
A deed that creates security for a loan by conveying title to a trustee, who holds it as security for the benefit of the lender (the beneficiary). Also called a deed of trust.
trustee
The party in a trust that holds title to the assets for the benefit of the beneficiary.
trustor
The party that creates a trust by transferring title to assets to a trustee.
Truth in Lending Act
A federal law implemented by Regulation Z that requires lenders to inform borrowers of the true costs of obtaining a loan. Primary disclosures include the finance charge, the annual percentage rate, the amount financed, and the total payments. The law also provides certain restrictions when advertising financing terms.
Uniform Residential Appraisal Report (URAR)
The most common appraisal report form used today. Most government agencies use the form.
unilateral contract
A one-sided contract wherein one party makes a promise so as to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise.
universal agent
A person empowered to do anything the principal could do personally.
useful life
The length of time that an asset will be useful to the owner and that it can be depreciated. For tax purposes, this is defined by the IRS.
usury laws
Laws that limit the interest rates lenders can charge borrowers.
vacancy levels
The percentage of building units that are not occupied.
Valuations Rule
Require creditors to disclose to applicants that they have the right to receive copies of all appraisals and all other written valuations in the creditors possession. Creditors must provide the copies as soon as they become available to the creditor but no more than three days before consummation of the loan.
variable lease
A lease agreement that allows for changes in the rent. May be an index or graduated lease.
variance
An exception to the zoning law. Often granted if strict enforcement of the zoning law would force an undue hardship on the property owner.
Vendor and Purchaser Risk Act
A law that defines which party suffers a loss if the property is destroyed before closing a transaction.
void contract
A contract that has no legal force or effect because it does not meet the essential elements of a contract.
voidable contract
A contract that seems to be valid on the surface but may be rejected or disaffirmed by one or both of the parties.
voluntary alienation
Transferring title to real estate by the will and consent of the owner.
Wall Street Reform and Consumer Protection Act (Dodd-Frank)
Passed in response to the events that caused the 2008 financial crisis. Its goal is to protect consumers from abusive financial services practices.
warranty forever
A guarantee given in a deed that gives assurance that the grantor will pay for expenses to defend the title against claims by third parties.
waste
Acts that injure a property and reduce its value.
wetlands
Refers to land seasonally or permanently inundated with water. A number of federal and state laws and regulations affect wetland use and development.
will
A written document, properly witnessed, providing for the transfer of title to property owned by the deceased, called the testator.
wraparound loan
A loan arrangement in which an existing loan on a property is assumed by a lender, who then gives the borrower a new, larger loan.
zoning ordinance
Zoning laws regulate and control the use of land. An example of the government’s police powers.