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Glossary

We've selected the terms below that a home seller may encounter in most residential real estate transactions. We’ve purposely omitted obscure terms and legal language that rarely enters into the sales process except among the attorneys, lenders and other specialists.

 

Appraisal

An appraisal is an estimate or professional opinion as to the fair market value or justification of the price paid for a property. It is usually based on an analysis of sales of similar homes in the area. It is done to help the lender determine whether the property (the house) being offered for collateral is sufficient security for the loan. It results in an “appraised value” assigned to the property.

Appraiser

An appraiser is an individual who estimates the value of property. Some appraisers work directly for mortgage lenders although most are independent contractors.

As Is

The “as is” designation in a contract signifies that no guarantees are given regarding the subject property. It is intended to be a disclaimer of warranties or representations, though recent court trends lean towards preventing sellers from using "as-is" wording in a contract to shield themselves. Fraud charges may still be brought on if sellers neglect to disclose material defects in the property.

 

Assessed Value

This refers to the value placed on a property by a government body for the purpose of levying taxes. The assessed value and the appraised value are opinions and will often differ from the actual selling price.

Assumable

This describes a mortgage that can be assumed or taken over by a buyer if you decide to sell your home. Check with your lender to make sure the new buyer is an acceptable credit risk. Most mortgages are not assumable.

Average sales price

The average sales price for a given time period is calculated by adding all the

selling prices of the sold properties and dividing this total by the number of

properties that were included in the calculation.

When analyzed for a brief period of time, the average sales price of houses

sold can become rather skewed if a lot of high-end (or low end properties)

are included since this overloading will shift the average price toward one

end or the other.

 

Backup offer

This is an offer to buy a home that is submitted with the understanding that the seller has already accepted a prior offer. The seller usually accepts the backup offer contingent on the failure of the sales transaction from the first buyer within a specified period of time. The seller’s attorney should always review this situation before a back up contract offer is signed.

Bill of sale

A bill of sale is a document that passes title to the personal property that was included with the sale of the house.

Binder

This is money deposited by the buyers under the terms of a contract (to be forfeited if the buyers default), and is applied to the purchase price if the sale is closed. It is also called a deposit. This “earnest money” deposit displays evidence of good-faith intention to complete the transaction. It is typically held in an escrow account by a title company, a real estate company, an escrow agent or an attorney during the period between acceptance of the contract and the closing.

Although an earnest money deposit is extremely common, legally, it is usually not necessary in order to create a valid contract because the mutual promises of the parties to buy and to sell are sufficient consideration to enforce a contract. However, its presence often eliminates the need to file suit when a party breaks the contract.  In some states, most real estate sales contracts will be an “earnest money contract.” 

Bonus to selling agent

This refers to compensation beyond the sales commission, offered as extra incentive to the real estate agent who brings the buyer to the transaction. A bonus is used to encourage real estate agents to show a particular home. Many of these bonuses tend to be eliminated during the negotiations when it becomes obvious the home will not sell for list price.

Breach of contract

This is a violation that occurs when one of the parties to a contract intentionally fails to perform according to the contract.

Bridge loan

This is a short-term loan designed to bridge the borrower from their current mortgage loan to the next one. Bridge loans are common in the real estate market since there can often be a time lag between the purchase of one home and the sale (closing) of the buyer’s previous home (which often provides the down payment funds for their newly purchased home).

Buydown

This refers to a financing technique where the interest rate is lowered, or bought–down, to obtain a lower than market interest rate from a lender. It’s like prepaid interest in exchange for lower monthly payments. It’s usually for a temporary period, such as one to three years. After the “buydown period” the borrower’s payment is calculated at the rate agreed upon when the loan period started.

A key reason lenders offer this is because borrowers may get to "qualify" at this lower “buydown” rate since it enables them to obtain a higher loan amount. It allows borrowers who expect their income to go up substantially in the foreseeable future to get a more expensive home now. 

Buyer's agent

A buyer’s agent is a real estate salesperson who represents the prospective buyer in a transaction. Some brokers conduct their business by representing buyers only and do not list homes to sell.

Certificate of Title

This is a notarized document signed by a title examiner. It certifies that a seller's ownership documents are legally recorded.

Clear title

A clear title is one that is free of legal questions or any mortgages or liens pertaining to ownership of the property.

Closing

This is the final procedure of the sales transaction when the seller transfers title to the buyer and receives compensation (consideration). It is also known as settlement, act of sale or closing escrow. In some states the "closing" pertains to a meeting where the documents are signed and money changes hands. In other states a real estate transaction is considered "closed" after the documents are recorded at the local recorder’s office. The closing proceedings are usually held at a title company or a real estate office.

Closing costs

These refer to the expenses the buyers and the sellers must pay at the time of the closing. The lender must issue a “Good Faith Estimate” of closing costs to the borrower within three days of submitting a home loan application. These fees and charges can vary significantly from one lender to another.

Closing statement

The closing statement (the settlement statement or the HUD-1) is a document that itemizes who paid what to whom. This list of the funds that were paid at closing includes items like real estate commissions, loan fees, taxes, inspection fees, points earnest money deposits, etc.

Cloud on title

This is a claim or encumbrance that could affect title to the land.

CMA
This is a term often used by agents to prepare a report for prospective sellers. It includes recent sales of similar properties (comps) in nearby areas and is used to help determine the current market value and a recommended listing price of a property. The buyers’ agent may also show their clients a CMA in order to substantiate that a list price is reasonable or to help determine the buyers’ offer.


Comparables or comps

Comps are homes that are in close proximity and substantially equivalent to a particular property.

Comparative Market Analysis

See CMA. Also commonly referred to as a Competitive market Analysis.


Contingency

A contingency is a contract provision that requires a certain act to be performed or a certain event to occur before a contract is legally binding. For example, buyers may include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector or that the buyers must sell and/or close on their current residence.

 

Contract of sale

This is the sales agreement or sales contract between the buyer and seller on the purchase price, terms, and conditions necessary in order for the sellers to convey title to the buyer.

Conventional mortgage or loan

This is the most common home loan. This type of mortgage is not insured by a government agency, which is the case with a FHA or VA loan.

Counter offer

A counter offer is the rejection of an offer to buy or sell and occurs when the party receiving the offer makes a different offer, which changes the terms in the offer in some way. For example, if the buyers offer $325,000 for a home, and the sellers reply that they want $335,000, the sellers have rejected the buyers’ offer of $325,000 and made a counter offer to sell at $335,000. The legal significance of any counter offer is that it completely voids the original offer so that if the sellers later decide to accept the offer of $325,000, the buyers would be under no legal obligation to buy the property.

Days on the market

This refers to the average length of time properties within a particular area or region are staying on the market as calculated by a local MLS.

Deed

This is the legal document that conveys ownership of a property from seller to buyer.

Deposit

This is money deposited by the buyers under the terms of a contract (to be forfeited if the buyers default), and is applied to the purchase price if the sale is closed. It is also called a binder. This “earnest money” deposit displays evidence of good-faith intention to complete the transaction. It is typically held in an escrow account by a title company, a real estate company, an escrow agent or an attorney during the period between acceptance of the contract and the closing.

Although an earnest money deposit is extremely common, legally, it is usually not necessary in order to create a valid contract because the mutual promises of the parties to buy and to sell are sufficient consideration to enforce a contract. However, its presence often eliminates the need to file suit when a party breaks the contract.  In some states, most real estate sales contracts will be an “earnest money contract.”

Disclosure

This refers to making known a fact that had previously been hidden. In most states you must disclose major physical defects in a house you are selling, such as a leaky basement.

Discount points

This refers to a particular fee paid to the lender to obtain a loan. It is usually used in reference to FHA and VA loans. Each point is one percent of the total loan amount.

Down payment

The down payment is the part of the purchase price of a property that the buyers pay, which is the difference between the purchase price and the mortgage amount. It is usually expressed as a percentage amount, such as the buyers are putting 20 percent down in pursuit of their loan.            

Dual agency

This occurs when the real estate agent represents the buyers and the sellers in the same transaction. There is an inherent conflict in the relationship and obligations when an agent represents both sides.

Earnest money

This is money deposited by the buyers under the terms of a contract (to be forfeited if the buyers default), and is applied to the purchase price if the sale is closed. It is also called a binder. This “earnest money” deposit displays evidence of good-faith intention to complete the transaction. It is typically held in an escrow account by a title company, a real estate company, an escrow agent or an attorney during the period between acceptance of the contract and the closing.

Although an earnest money deposit is extremely common, it is usually not necessary to create a valid contract because the mutual promises of the parties to buy and to sell are sufficient consideration to enforce a contract.

Easement

A right of way giving persons other than the owners access to or over a property. A utility company has an easement over many properties in order to provide required service.

Equity

This is the homeowner's financial interest in a property. It is the difference between the fair market value of the property and the amount still owed on its mortgage, including other liens.

Escrow

Escrow often refers to a third party, acting as an agent for the buyers and sellers, who carries out instructions of both and handles all paperwork and disbursement of funds.

Escrow also refers to the process by which money (and/or documents) are held by a disinterested third person until the terms and conditions of the escrow instructions that were prepared by the buyers and sellers have been satisfied.

Escrow account

This refers to a third party account that holds deposit money while a sale is in progress. In many states a real estate broker is authorized to handle the function of holding the earnest money.

This also refers to an account used to save money required for the payment of an eventual debt. Lenders often use such an account to accumulate and pay for property taxes and hazard (homeowner’s) insurance.

Escrow agent

This is the neutral third party individual who is responsible for holding something of value such as the earnest money deposit from the buyers and who ensures that all conditions of the transaction are met. This person performs all the paperwork: steps necessary to prepare and carry out escrow instructions, including obtaining title insurance, securing payoff demands, prorating taxes and interest and distributing the funds held in escrow.

Exclusive agency

This is a listing agreement that gives the listing agent the right to sell the property for a specified time. However, the owners retain the right to sell the property themselves without paying a commission to the listing agent.

Exclusive right to sell

This is the most common type of listing agreement and it gives the listing agent the right to sell the property for a specified time and the right to collect a specified commission if the property is sold by anyone–including the owners–during the listing period.

Fair market value

This is the highest price that a buyer would pay and the lowest a seller would accept. This value is attributed to properties that have already sold since sold properties, by definition, included both a buyer and a seller.

FHA loan

This is a mortgage that is insured by the Federal Housing Administration (FHA). VA loans and FHA loans are often referred to as government loans.

FSBO

FSBO is an acronym for “For Sale By Owner”, and pronounced "fizzbo." Real estate agents coined the term FSBO for homeowners who sell their home without an agent.

Home Owners association (HOA)

This is an organization comprised of local owners concerned with managing the common areas of a subdivision or condominium complex. They deal with issues such as maintaining common land, community swimming pools and recreation areas. The HOA is responsible for enforcing association covenants, conditions and restrictions that apply to the property.

Home warranty

This is a service contract that covers the major items (as specified in the warranty) in a housing system such as the furnace, plumbing or electrical wiring for a set period of time, usually from the date a house is sold. The warranty guarantees repairs to the covered system, less a service call charge, and typically lasts for one year. It typically costs from $300 to $400.

Inventory

The number of homes currently on the market is referred to as inventory.

Lead

Lead is an element that was once used in paint. An excessive or prolonged level of lead in the body can cause serious damage to the brain, nervous system, kidneys and red blood cells. The degree of harm relates to the amount of exposure and the age a person is when exposed. The government estimates that lead is present in approximately three out of every four homes built in the United States built before 1978, the year it was outlawed as an additive in paint.

Legal description

This is a description of a specific parcel of real estate that is acceptable to the courts in that state. It is usually stated on a property survey.

Lien

A lien is a claim that a person or entity has on the property of another as security for a debt or obligation.

Lien theory state

Some states are referred to as lien theory states, where legal title of mortgaged property resides with the borrower and the mortgage is a lien against the property. The other states are title theory states.

Listing agent

The listing agent represents the sellers of real estate. This individual is typically selected from several agents who presented the owners with a listing presentation. In almost all areas of the country, the other agents (except the listing agent) represent the buyers. Outside of the listing agent, those that still represent the seller are referred to as sub agents.

Listing agreement

This is a written agreement between property owners and a real estate broker authorizing an agent/broker to find a buyer for specific property. It establishes the service that is to be rendered, the property for sale and states the terms of payment. The agreement can take the form of an open listing, net listing, exclusive-agency listing, or exclusive-right-to-sell listing.

Listing presentation

This is the sales pitch given by a real estate agent to prospective sellers with the goal of convincing the sellers that they should list their property with the respective agent who would then become the listing agent.

Loan to value ratio (LTV)

The LTV refers to what the buyers are borrowing compared to the price. The smaller a down payment, such as 5%, the higher the ratio (95% LTV), the riskier the mortgage is. When a loan is applied for, a lender will consider the ratio closely.

Lock-in rate

This refers to an agreement between the borrower and a lender in which an interest rate is guaranteed to remain the same from the time of loan application through the time the loan is approved (the lock-in period).

Median Price

This is a form of averaging, using the midpoint as the median price, in which half the homes sold for more and half for less. Some people prefer this average instead of the “average selling price” which can be subject to distortion. (See Average selling price.)

MLS

The MLS, or Multiple Listing Service, refers to an organization composed of most of the real estate firms in an area who share information about all the homes that are for sale, have sold and those that didn’t sell. They agree to allow each of the other members to sell their listed properties and share in the commission. The MLS restricts access to member Realtors and the information is usually available to its members via the internet.

Mortgage banker

These people originate mortgage loans, much like a lender, loaning the buyer their funds and closing the loan in their name. The funds usually come from a line of credit through a commercial bank. The loans are then sold on the secondary market.

Mortgage broker

This is an individual who originates loans, then places them with a variety of other lending institutions. Mortgage bankers loan their own funds whereas a broker is actually a middleman and has the flexibility to seek the lowest rate from among his “suppliers.”

Multiple Listing Service

The Multiple Listing Service, or MLS, refers to an organization composed of most of the real estate firms in an area who share information about homes that are for sale, have sold and those that didn’t sell. They agree to allow each of the other members to sell their listed properties and share in the commission. The MLS restricts access to member Realtors and the information is usually available to its members via the internet.

Net listing

This refers to a type of listing agreement an agent could take in which the agent’s commission would be all of the selling price that is over some specified dollar amount (the net price). This type of compensation arrangement is highly frowned upon and even outlawed in many states.

Open listing

This is a listing agreement in which the owners reserve the right to list their property with other brokers at the same time–whoever sells the property gets the commission. This type of listing is rarely used.

PMI (Private mortgage insurance)

This is insurance that protects the lender against loss due to a mortgage default. It is paid by the buyers, typically monthly, and is required when the buyers are securing a loan with less than a 20 percent down payment. It is known as MIP for FHA loans.

 

PITI

This lender created acronym refers to an owner's monthly payment, which includes Principal, Interest (property), Taxes and (homeowner’s) Insurance. Conventional lenders like to use a 28 percent calculation for PITI. That is, calculate 28 percent of the buyers’ gross monthly income and use this figure as the maximum limit they should spend on PITI each month.

 

Point

A point is one percent of the loan amount. For example, two points on a $200,000 loan would be $4,000. Buyers may elect to pay points to their lender to get a lower interest rate and therefore qualify for a larger house with a larger mortgage. Points are also called loan discount fees.

Power of attorney (POA)

This is a legal method (document) that authorizes another person to act on one’s behalf. A POA can be set up to grant complete authority or can be limited to certain acts, such as a power of attorney to represent a seller at the closing. 

Pre-approval

This is a term that is applied to a borrower who has completed a loan application and provided debt, income and savings documentation, which a lender has reviewed and approved. It specifies a certain loan amount by making assumptions about what the interest rate will be at the time the loan is made (calculating principal and interest amounts) along with estimates for the amount that will be paid for property taxes and insurance.

Pre-qualification

This refers to the loan officer’s opinion of the ability of a borrower to qualify for a home loan. The information provided to the lender could have been presented verbally and will not have been reviewed in as much depth as borrowers who receive a “pre-approval” designation.

Prepaid items

On a closing statement, prepaid items are those that have been paid in advance by the sellers (such as insurance premiums or association dues) for which the buyer is reimbursing them.

Private mortgage insurance (PMI)

This is insurance that protects the lender against loss due to a mortgage default. It is paid by the buyers, typically monthly, and is required when the buyers are securing a loan with less than a 20 percent down payment. It is known as MIP for FHA loans.

Property disclosure

This is also referred to as a seller’s disclosure form and is mandatory in most states. It lists a number of areas of concern that buyers may have regarding elements of the property being sold. It is required to be presented to the buyer anywhere from before the offer to purchase is made, to sometime before the property is conveyed to a buyer, depending upon the state and possible local laws governing the subject property.

Purchase agreement

This is the sales agreement or sales contract between the buyer and seller on the purchase price, terms, and conditions necessary in order for the sellers to convey title to the buyer.

Radon

Radon is the slow release of radon gas from deep in the bowels of the earth as uranium decomposes. In an attempt to increase consumer awareness of the presence of radon in residential housing, the EPA has set forth guidelines that define health risks associated with property structures that exceed prescribed radon levels and the steps occupants can take to lower these levels.

Ready, willing and able

This describes a buyer who is prepared to buy on the seller's terms and has the financial capacity to do so.

Sales contract

This is the sales agreement or sales contract between the buyer and seller on the purchase price, terms, and conditions necessary in order for the sellers to convey title to the buyer.

Seller carryback financing

This is a form of credit by the seller in which the seller receives a portion of the sales price in the form of a promissory note that is secured by the real estate being purchased. 

Seller’s agent

A seller’s agent represents the seller of real estate. The selling agent (also referred to as a buyer’s agent) represents the buyers of real estate. In order to avoid confusion a seller’s agent is usually referred to as the listing agent.

Selling agent

The selling agent, also referred to as a buyer’s agent, represents the buyers of real estate. A seller’s agent represents the seller of real estate and is usually referred to as the listing agent in order to avoid confusion.

Settlement statement

The settlement statement (the closing statement or the HUD-1) is a document that itemizes who paid what to whom. This list of the funds that were paid at closing includes items like real estate commissions, loan fees, taxes, inspection fees points and earnest money deposits, etc.

Short sale

This term is applied to the sale of a house in which the proceeds are short of what the owner still owes on the loan(s). In order to avoid a costly foreclosure, some lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed if the owner cannot make the payments.

Term of loan

The length of time a borrower has to pay back his or her loan is the term of a loan. The term of most loans is 30 years, although lengths of 15 and 20 years do exist, as do terms of 40 and 50 years.

Title

This is the right of ownership of a property.

Title and Escrow companies

Title and Escrow Companies hold earnest money deposits, perform the title search, provide title insurance, calculate closing costs, disbursements, and conduct the closing.

Title insurance

This provides protection for lenders or homeowners against financial loss resulting from legal defects in title to real estate (such as a forged deed) or any liens or other encumbrances. This insurance protects what happened in the past as opposed to most types of insurance that insure against future events.

Title search

This is the examination of public records of a property to determine the current state of ownership, including the existence of any recorded lien(s).

Title theory state

This refers to a system in which the lender has legal title to the mortgaged property and the borrower has equitable title. States are either title theory states or are lien theory states.

VA loan

Private lenders (such as banks) make VA guaranteed loans to eligible veterans for the purchase of a home that must be for their own personal occupancy. The lender is protected against loss if the buyer defaults on the loan. 

Virtual home tour

This is a method used to provide internet viewers with a visual presentation of a house. Presentations are usually composed of panoramic (360 degree) images or multiple pictures.

Void

Void means having no legal force or effect; legally invalid.

Voidable

This is a contract that appears valid and enforceable on the surface, but may be declared invalid, such as a contract entered into by a minor.

Walk through

This is the buyer's on-site, final inspection of the property just prior to closing. This assures the buyer that no damage has occurred, agreed upon repairs have been made and that the seller has not taken or substituted any property contrary to the terms of the sales agreement.

If you've encounterd a particular phrase that you feel should be listed here, send us an email (see Contact Us below).

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