Real Estate Dictionary

What you need to know about specific real estate terms and phrases

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ABANDONMENT - The voluntary relinquishment of rights of ownership or another interest (such as an easement) by failure to use the property, coupled with an intent to abandon (give up the interest).

ABSENTEE OWNER - An owner of property who does not occupy said property.

ABSTRACT OF JUDGMENT - A summary of the essential provisions of a court judgment, which when recorded in the county recorder's office, creates a lien upon the property of the defendant in that county, both presently owned or after acquired

ABSTRACT OF TITLE - A compilation of the recorded documents relating to a parcel of land, from which an attorney may give an opinion as to the condition of title. Still in use in some states, but giving way to the use of title insurance

ACCELERATION CLAUSE - Clause used in an installment note and mortgage (or deed of trust), which gives the lender the right to demand payment in full upon the happening of a certain event, such as failure to pay an installment by a certain date, change of ownership without the lender's consent, destruction of the property, or other event which endangers the security of the loan.

ACCEPTANCE - Voluntary agreement to an offer. (1) Real property acceptance must be unequivocal

ACRE - A measure, usually of land, equal to 160 sq. rods (43,560 sq. ft.) in any shape.

AD VALOREM - "According to value". A method of taxation using the value of the thing taxed to determine the amount of tax. Taxes can be either "Ad Valorem" or "Specific". Example: A tax of $5.00 per $1000.00 of value per house is "Ad Valorem". A tax of $5.00 per house (irrespective of value) is "Specific".

ADDENDUM - Something added. A list or other material added to a document, letter, contractual agreement, escrow instructions, etc.

ADDITIONAL DEPOSIT - A buyer of real property will generally give a small deposit with an offer, and a more substantial deposit after the offer has been accepted. The second deposit is the "additional deposit".

Adjustable Rate Loans (ARL) - Mortgage loans under which the interest rate is periodically adjusted to more closely coincide with current rates. The amounts and times of adjustment are agreed to at the inception of the loan. Also called: Adjustable Rate Loans, Adjustable Rate Mortgages (ARM's), Flexible Rate Loans, Variable Rate Loans.

ADVERSE POSSESSION - A method of obtaining ownership rights by the open, notorious, exclusive, and hostile possession of private real property for a statutory period which varies from state to state (from 5 to 30 years). Some states have additional requirements, such as payment of property taxes by the adverse possessor. The true owner is then barred (statute of limitations) from asserting his/her rights. The adverse possessor has no evidence of title without court action.

ALIENATION CLAUSE - A type of acceleration clause, calling for a debt under a mortgage or deed of trust to be due in its entirety upon transfer of ownership of the secured property. Also called a "due-on-sale" clause.

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AMENDMENT - A change, either to correct an error or to alter a part of an agreement without changing the principal idea or essence

AMORTIZED LOAN - A loan repaid in periodic (most commonly monthly) payments of principal and interest.

ANNUAL - By the year.

ANNUM - Year.

APPRAISAL REPORT - A written report by an appraiser containing an opinion as to the value of a property and the reasoning leading to this opinion. The factual data supporting the opinion, such as comparables, appraisal formulas, and qualifications of the appraiser, will also be set forth.

APPRAISED VALUE - An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.

APPURTENANCE - Something belonging to something else, either attached or not, such as a barn to a house, or an easement to land. The appurtenance is part of the property and passes with it upon sale or other transfer.

ARBITRATION CLAUSE - A clause in a lease calling for the decision of a third party (arbiter) regarding disputes over future rents based on negotiation. Also used in construction contracts, disputes between brokers, etc.

AS IS CONDITION - Premises accepted by a buyer or tenant in the condition existing at the time of the sale or lease, including all physical defects.

ASSESSED VALUE - Value place upon property for property tax purposes by the tax assessor.

AVULSION - A sudden and substantial tearing away of land by water and the deposit of said land as an addition to the land of another owner. The original boundaries apply and ownership of the land in questions remains in the original owner.

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BALLOON NOTE - A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a "balloon" is due at maturity.

BARGAIN AND SALE DEED - A contract or deed which conveys a "use" in the buyer under the Statute of Uses. Although the deed may also convey legal title, there are no warranties by the seller that title is good unless specified.

BILATERAL (RECIPROCAL) CONTRACT - A contract formed by an exchange of promises. Performance of the contract takes place at a later time. The standard real estate sale's agreement or lease is a bilateral contract.

BORROWER - 1. The party receiving funds that must be repaid, usually with interest. 2. One who uses anything belonging to another with the agreement to return it.

BREACH OF CONTRACT - Failure to perform a contract, in whole or part, without legal excuse

BROKERAGE - The act of bringing together principals (buyer-seller; landlord- tenant; etc.) for a fee or commission, rather than acting as a principal.

BUILD TO SUIT - A method of leasing property whereby the lessor builds to suit the tenant (according to the tenant's specifications). The cost of construction is figured into the rental amount of the lease, which is usually for a long term.

BUNDLE OF RIGHTS - A theory comparing property rights to a bundle of sticks. Each of the usual property rights (possession, alienation, etc.) is represented by a stick and is, therefore, considered separately

BUTTRESS - A support for a wall. A prop. If the buttress projects from the wall and supports by lateral pressure, it is called a "flying buttress".

BUYER - AGENCY AGREEMENT - An agreement by a real estate broker to represent a buyer of property. A broker's agreement to represent a seller is commonly called a listing agreement.

BUYER'S MARKET - A market condition favoring the buyer. In real estate, when more homes are for sale than there are interested buyers

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CANCELLATION CLAUSE - A clause in a lease or other contract, setting forth the conditions under which each party may cancel or terminate the agreement. The conditions may be as simple as giving notice or complex and require payment by the party desiring to cancel.

CAP - (1) A maximum amount of charge. Example: An Adjustable Rate Mortgage with a 5% rate cap could not adjust the interest rate by more than 5%. (2) A fitting used to seal, such as by a plumber to seal (cap) a pipe end. (3) A cornice, lintel, or top of a structure member such as a column.

CAPITALIZATION RATE - The percentage (acceptable to an average buyer) used to determine the value of income property through capitalization.

CARPORT - A roof supported by pillars or cantilevered which shelters a car. May either extend from a structure (usually a house) or be constructed separately (often to accommodate several cars).

CAVEAT EMPTOR - "Let the buyer beware". Legal maxim stating that the buyer takes the risk regarding quality or condition of the item purchased, unless protected by warranty or there is misrepresentation. Modernly, consumer protection laws have placed more responsibility for disclosure on the seller and broker.

CEMENT BLOCK - A building block, composed of cement, and usually hollow.

CERTIFICATE OF TITLE - In areas where attorneys examine abstracts or chains of title, a written opinion, executed by the examining attorney, stating that title is vested as stated in the abstract.

CHAIN OF TITLE - The chronological order of conveyancing of a parcel of land, from the original owner (usually the government) to the present owner.

CLOUD ON TITLE - An invalid encumbrance on real property, which, if valid, would affect the rights of the owner. For example: A sells lot 1, tract 1, to B. The deed is mistakenly drawn to read lot 2, tract 1. A cloud is created on lot 2 by the recording of the erroneous deed. The cloud may be removed by quitclaim deed, or, if necessary, by court action.

COMMISSION - An amount, usually as a percentage, paid to an agent (real estate broker) as compensation for his services. The amount to a real estate broker is generally a percentage of the sale price or total rental.

COMMITMENT - (1) Title insurance term for the preliminary report issued before the actual policy. Said report shows the condition of title and the steps necessary to complete the transfer of title as contemplated by the buyer and seller. (2) A written promise to make or insure a loan for a specified amount and on specified terms.

Comparative Market Analysis (CMA) - Appraising the value of a property by comparing the price of similar properties (comparables) recently sold. The degree of similarity (physical characteristics and locations) of the properties and the circumstances of the sale (time and terms) are the important considerations.

CONDEMNATION - 1. The taking of private property for public use. Consent of the owner is not required but fair compensation must be paid.

CONTRACT - A legally enforceable promise or agreement consisting of offer, acceptance and consideration or a legally acceptable consideration substitute.

Conventional Mortgage - A mortgage or deed of trust not obtained under a government insured program, (such as F.H.A. or V.A.).

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DEBT RATIO - The ratio, expressed as a percentage, of a borrower's monthly expenses to gross monthly income. There are two ratios. The first is the expense of the property to income. This includes the mortgage payment, taxes and insurance. The second is the total expense to income. This includes car payments, credit card payments, etc. Acceptable numbers for almost any loan would be 25% property expense to income and 35% total expense to income. The percentages may be much higher, especially for a hard money mortgage.

DECLARATORY JUDGMENT - A determination by a court as to the legal rights of the plaintiff, with no order for relief. The judgment is binding on future litigation.

DEED - Actually, any one of many conveyancing or financing instruments, but generally a conveyancing instrument, given to pass fee title to property upon sale

DEFAULT - An omission or failure to perform a legal duty

DETACHED - Not connected to. A house with a detached garage, for example, would have no direct access from one to the other.

DISCOUNT BROKER - A real estate broker charging a lower than the usual commission. The broker will have the seller take on some of the tasks normally performed by the broker, such as showing the property to prospective purchasers.

DISCOUNT POINTS - The amount paid to increase the yield. Example: A borrower receives a loan with an interest rate of seven percent but pays the lender three points in advance. The points raise the annual percentage rate of the loan. The lender may then sell the loan at less than face value and still make a profit. Each point equals one percent of the face value of the loan.

DISCRIMINATION - Refusal to sell or rent property or make a loan based on reasons forbidden by federal or state law. This can include race, gender, pregnancy, color, religion, national origin, age, disability or sexual orientation. Discrimination extends beyond real estate to areas such as hiring and firing and refusing admittance to private schools and other organizations. All the reasons above do not apply to all areas.

DOWN PAYMENT - Cash portion paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed

DUAL AGENCY - The representation of opposing principals (buyer and seller) at the same time. In brokerage many states get around this by saying that the agent aids the buyer but is the agent of the seller only. A problem arises if both buyer and seller pay the broker. Then full disclosure must be made. An escrow agent is the agent of buyer and seller and usually paid by both. This is why an escrow agent must be neutral.

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EASEMENT - A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another. It is either for the benefit of land (appurtenant), such as right to cross A to get to B, or "in gross", such as a public utility easement.

ELEVATION - (1) Height above sea level. (2) The exterior design of a structure, usually but not necessarily, viewed from the front. Called a horizontal elevation. (3) Height measured from any point, such as elevation from a floor. Called vertical elevation.

ERRORS AND OMISSIONS INSURANCE - Insurance covering losses caused by errors and omissions of professions other than medicine. Used by banks, real estate companies, escrow companies, etc.

ESCALATION CLAUSE - A clause in a lease providing for an increased rental at a future time. May be accomplished by several types of clauses, such as (1) Fixed increase - A clause which calls for a definite, periodic rental increase. (2) Cost of living - A clause which ties the rent to a government cost of living index, with periodic adjustments as the index changes. (3) Direct expense - The rent is adjusted according to changes in the expenses of the property paid by the lessor, such as tax increases, increased maintenance costs, etc.

EVIDENCE OF TITLE - A document establishing ownership to property. Most commonly, a deed.

EXCLUSIVE AGENCY LISTING - A listing or agreement protecting the listing broker's commission against the sale of the property by another agent but not against the sale by the principal. The term is not universal, as some areas use the term, nonexclusive listing, to describe this agreement.

EXCLUSIVE LISTING - A written contract between a property owner and a real estate broker, whereby the owner promises to pay a fee or commission to the broker if certain real property of the owner is sold during a stated period, regardless of whether the broker is or is not the cause of the sale. The broker promises to put forth his or her best efforts to sell the property, and may make specific promises as to advertising or other promotion in certain instances.

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FAIR CREDIT REPORTING ACT - A federal law giving one the right to see his or her credit report so that errors may be corrected. A lender refusing credit based on a credit report must inform the buyer which company issued the report. The buyer may see the report without charge if refused credit, or for a charge if just curious.

FEDERAL FAIR HOUSING LAW - Title VIII of the Civil Rights Act which forbids discrimination in the sale or rental of residential property because of race, color, sex, religion or national origin.

FEDERAL TAX LIEN - A lien attaching to property for nonpayment of a federal tax (estate, income, etc.). A federal tax lien differs from other liens in that it is not automatically wiped out by foreclosing on a mortgage or trust deed recorded before the tax lien (except by judicial foreclosure).

FEE SIMPLE - An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. Commonly, a synonym for ownership.

FIDUCIARY - One acting in a relationship of trust, regarding financial transactions.

FINANCIAL STATEMENT - An accounting statement showing assets and liabilities of a person or company. Used generally for large loans or other instances when the credit report (history of payment of debts) in itself is not sufficient.

FIRST REFUSAL RIGHT - A right, usually given by an owner to a lessee, which gives the lessee a first chance to buy the property if the owner decides to sell. The owner must have a legitimate offer which the lessee can match or refuse. If the lessee refuses, the property can then be sold to the offeror.

FLOOD INSURANCE - Insurance indemnifying against loss by flood damage. Required by lenders (usually banks) in areas designated (federally) as potential flood areas. The insurance is private but federally subsidized.

FULL DISCLOSURE - In real estate: (1) revealing all the known facts which may affect the decision of a buyer or tenant. A broker must disclose known defects in the property for sale or lease. A builder must give to a potential buyer the facts of his new development (are there adequate school facilities?; sewer facilities?; an airport nearby?; etc.). (2) A broker cannot charge a commission to buyer and seller unless both know (disclosure) and agree.

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GABLE - The exterior wall surface, triangular in shape, formed by the inclined edges of a ridged roof (gable roof).

GABLE ROOF - A ridged roof, having two sloping edges which, at the ends of the ridge, form a gable.

GENERAL CONTRACTOR - One who contracts for the construction of an entire building or project, rather than for a portion of the work. The general contractor hires subcontractors, such as plumbing contractors, electrical contractors, etc., coordinates all work, and is responsible for payment to the said subcontractors.

GIFT LETTER - A letter to HUD from the donor (giver) stating that a gift of money has been made to the buyer in order to purchase specific property. The relationship of the donor and donee is stated, as well as the amount of the gift.

GOOD FAITH - Something done with good intentions, without knowledge of fraudulent circumstances, or reason to inquire further

GROSS INCOME MULTIPLIER - A figure which, when multiplied by the annual gross income, will theoretically determine the market value. A general rule of thumb which varies with specific properties and areas.

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HABENDUM - The clause in a deed, following the granting clause, which defines the extent of the estate of the grantee.

HIP ROOF - A roof with four sloping sides which rise to a ridge. Usually found on garages or church steeples. Also called a pyramid roof.

HOLDBACK - Portion of a loan held back by the lender until a contingency is net. In the sale of a home insured by V.A. or F.H.A., funds may be held back to make necessary improvements to bring the property to V.A. or F.H.A. standards. The money to make these repairs may not be available until closing. One and one half to double the estimated amount necessary is held back. If repairs are not made in the time allowed, these funds are used to make the repairs. In construction financing, funds are held back until, for example, a certain percentage of a subdivision has been sold, or a certain portion of a building has been completed.

HOLDOVER TENANT - One who continues to occupy property after the lease expires.

HOME WARRANTY INSURANCE - Private insurance insuring a buyer against defects (usually in plumbing, heating, and electrical) in the home he has purchased. The period of insurance varies and both new and used homes may be insured.

HOMEOWNER'S INSURANCE - Includes the coverage of Hazard Insurance plus added coverage such as personal liability, theft away from the home (items stolen from the insured's car), and other such coverage.

HOMESTEAD - The dwelling (house and contiguous land) of the head of a family. Some states grant statutory exemptions, protecting homestead property (usually to a set maximum amount) against the rights of creditors. Property tax exemptions (for all or part of the tax) are also available in some states. Statutory requirements to establish a homestead may include a formal declaration to be recorded.

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ILLUVIATION - The deposit of soil material by elevation.

INCOME CAPITALIZATION APPROACH - Estimating value (v) by dividing Net Operating Income (N.O.I.) by an overall capitalization rate R. N.O.I. ÷ R = v.

INCOME PROPERTY - Property which produces income, usually from rental. May also include any property not entirely owner occupied.

INDEPENDENT CONTRACTOR - The term is most important as used to describe the relationship of broker and salesperson. The salesperson is either an employee or independent contractor. If an employee, the broker must withhold income tax and pay social security, provide workman's compensation when applicable, and may be liable for some negligent acts of the salesperson while on the job, such as automobile accidents. The broker avoids all of these responsibilities if the salesperson is an independent contractor. The greater the control over the salesperson, the more likely the salesperson will be considered an employee. Some examples of this control would be required office hours or attendance at regularly scheduled meetings, as well as payment or reimbursement by the broker for license fees, auto expenses, etc.

INFLATION - The expanse or increase in an economy over its natural growth. Usually caused by over printing money and over-extending credit. Marked by a rapid increase in the price of goods.

INFRASTRUCTURE - Services and facilities necessary to cities, such as streets, bridges, public transportation routes, utility generation and delivery, etc. The term can be applied in the same way to a development.

INTANGIBLE PROPERTY - Property which has value but cannot be physically touched, such as a patent, the goodwill of a business, etc.

INTEREST RATE CAP - The maximum interest rate increase of an Adjustable Mortgage Loan. For example: a 12% loan with a 5% interest rate cap would have maximum interest for the life of the loan which would not exceed 17%.

IRRIGATION - Watering, usually by means of pipes, to increase the fertility of ground in areas where additional moisture is needed for crop growth.

IRRIGATION DISTRICT - A local agency which builds and operates an irrigation system (supplies water to a designated area), and has authority to levy taxes for that purpose.

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JOINT TENANCY - An undivided interest in property, taken by two or more joint tenants. The interests must be equal, accuring under the same conveyance, and beginning at the same time. Upon the death of a joint tenant, the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

JUDICIAL FORECLOSURE - Foreclosure through court action rather than by a power of sale. Judicial foreclosure is sometimes necessary to remove certain tax liens.

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LATENT DEFECT - A hidden or concealed defect. One which could not be discovered by inspection, using reasonable care. In legal descriptions, a latent defect may be corrected, and a totally new description not necessary.

LEASE WITH OPTION TO PURCHASE - A lease under which the lessee has the right to purchase the property. The price and terms of the purchase must be set forth for the option to be valid. The option may run for the length of the lease or only for a portion of the lease period.

LEASEHOLD IMPROVEMENTS - Improvements made by the lessee. The term is used in condemnation proceedings to determine the portion of the award to which the lessee is entitled

LETTER OF INTENT - A formal method of stating that a prospective developer, buyer, or lessee, is interested in property. Not an offer and creates no obligation. However, a builder who wants to build an office building, for example, may influence a lender by showing letters of intent from major prospective tenants.

LICENSEE - (1) Regarding classifications of people entering upon another's land, a licensee is distinguished from a trespasser, and so has greater legal rights. (2) One who holds a real estate license (a salesperson).

LICENSING ACTS - Laws regulating the granting of real estate licenses. Because these are state laws, the requirements (education, testing, etc.), are not of equal severity. However, generally they are similar, requiring testing and granting exceptions, such as trustees, executors, owners selling property themselves, etc.

LIEN - An encumbrance against property for money, either voluntary or involuntary. All liens are encumbrances but all encumbrances are not liens.

LIFE BENEFICIARY - One who receives payments or other rights from a trust for his or her lifetime.

LIFE ESTATE - An estate in real property for the life of a living person. The estate then reverts back to the grantor or on to a third party (remainderman).

LIKE IN KIND PROPERTY - A tax term used in exchanges. Property may be exchanged for like in kind property and the tax postponed. The term does not refer to the physical similarity of the properties but the purpose and intent (investment) of the taxpayer.

LIQUIDATED DAMAGES - A definite amount set forth in a contract to be paid by the party breaching the contract. It must be a reasonable estimate of damages or else it is considered a penalty and unenforceable. If the parties intend this to be the only remedy, it should be so stated.

LIS PENDENS - A legal notice recorded to show pending litigation relating to real property, and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation.

LISTING - An agreement between an owner of real property and a real estate agent, whereby the agent agrees to secure a buyer or tenant for specific property at a certain price and terms in return for a fee or commission.

LISTING AGENT - A real estate agent obtaining a listing (see which), as opposed to the selling agent.

LITTORAL - Concerning the shore of lakes and oceans, as opposed to rivers and streams, for which the word riparian is used.

LITTORAL RIGHTS - Rights concerning properties abutting an ocean or lake rather than a river or stream (riparian). Littoral rights are usually concerned with the use or enjoyment of the shore.

LOAN ORIGINATION FEE - A one time set up fee charged by the lender.

LOAN PACKAGE - The file of all items necessary for the lender to decide to give or not give a loan. These items would include the information on the prospective borrower (loan application, credit report, financial statement, employment letters, etc.), and information on the property (appraisal, survey, etc.). There may be a charge for "packaging" the loan.

LOAN POLICY - A title insurance policy insuring a mortgagee, or beneficiary under a deed of trust, against loss caused by invalid title in the borrower, or loss of priority of the mortgage or deed of trust.

LOAN SERVICING - The bookkeeping and collection of a loan. It may be done by the lender or by another for the lender.

LOAN TO VALUE RATIO - The ratio, expressed as a percentage, of the amount of a loan to the value or selling price of real property. Usually, the higher the percentage, the greater the interest charged. Maximum percentages for banks, savings and loans, or government insured loans, is set by statute.

LOCK-IN - The prohibition of prepayment of a loan secured by a mortgage or deed of trust, so that the borrower is "locked in" to the loan for a specified period.

LONG TERM CAPITAL GAIN - Gain on the sale of a capital asset which has been held for a specified time or longer. Long term capital gain is taxed at a special rate and not as ordinary income.

LONG TERM LEASE - A general term which may refer to a lease 10 years or longer in term, or in some areas, 5 years or longer.

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MAINTENANCE - Keeping a property in condition to efficiently serve its intended purpose.

MAINTENANCE FEE - As applied to condominiums and planned developments, the amount charged each unit owner to maintain the common area. Usually a monthly fee paid as part of the budget.

MAINTENANCE RESERVE - Money reserved to cover anticipated maintenance costs.

MECHANIC'S LIEN - A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as the improvements.

MONUMENT - A visible, permanent object, marked by a surveyor, to indicate the boundaries of land. May be artificial, such as a post, or natural, such as a tree or large stone.

MORTGAGE - A legal document that pledges a property to the lender as security for payment of a debt.

MORTGAGE BANKER - A company providing mortgage financing with its own funds rather than simply bringing together lender and borrower, as does a mortgage broker. Although the mortgage banker uses its own funds, these funds are generally borrowed and the financing is either short term or, if long term, the mortgages are sold to investors (many times insurance companies) within a short time.

MORTGAGE BROKER - One who, for a fee, brings together a borrower and lender, and handles the necessary applications for the borrower to obtain a loan against real property by giving a mortgage or deed of trust as security. Also called a loan broker.

MORTGAGOR - The party who borrows the money and gives the mortgage.

MULTIFAMILY AFFORDABLE HOUSING (TARGETED AFFORDABLE HOUSING) - Multifamily property with a certain percentage of the units set aside for low income families. The rental amount is based on a percentage of the median income of the area, adjusted for family size. Appropriate units meet FNMA's Multifamily Affordable Housing lending requirements.

MULTIPLE LISTING (MLS) - An exclusive listing, submitted to all members of an association, so that each may have an opportunity to sell the property.

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NAR (NATIONAL ASSOCIATION OF REALTORS®) - An association of people engaged in the real estate business. Organized in 1908, it currently lists over half a million members. With headquarters in Chicago, it is dedicated to the betterment of the real estate industry through education, legislation, and high ethical standards for its members.

NEGATIVE LEVERAGE - A loss that occurs when the cost of borrowing exceeds the return on the investment. Example: A building with a six percent return if debt free would return less if a seven percent mortgage were placed on the property.

NONBEARING WALL - A wall used only to separate areas, and which carries only its own weight.

NONCONFORMING USE - A property which does not conform to the zoning of the area. Usually, the property was built in conformity and then the zoning was changed.

NONEXCLUSIVE LISTING - A listing under which the real estate broker has an exclusive listing as opposed to other agents, but the owner may sell the property without using an agent, and not be liable to pay a commission. Also called an agency agreement.

NOVATION - A contract that releases the obligation of a party to an existing contract and substitutes another party. Differs from assignment or delegation in that all parties must agree and an assignor or delegator is not released of obligation.

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OBSOLESCENCE - An appraisal term meaning that the age of a structure may cause it to become undesirable in use or appearance (old fashioned) and consequently lose income and value.

OCCUPANCY - With reference to land, the word has become synonymous with possession.

OPEN LISTING - A written authorization to a real estate agent by a property owner, stating that a commission will be paid to the agent upon presentation of an offer which meets a specified price and terms. However, the agent has no exclusive right to sell and must bring in his offer before any other offer is presented or accepted.

OPERATING EXPENSE RATIO (OER) - The ratio of operating expenses to effective gross income. The percentage derived from the ratio can be used by an appraiser to determine if the operating expenses are appropriate for the property.

OWNER'S POLICY - Title insurance for the owner of property, rather than a lienholder.

OWNERSHIP - Rights to the use, enjoyment, and alienation of property, to the exclusion of others. Concerning real property, absolute rights are rare, being restricted by zoning laws, restrictions, liens, etc.

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PACKAGE MORTGAGE - Mortgage covering both real and personal property.

PERCOLATION (PERK) TEST - The test to determine the capability of the soil to absorb liquid, both for construction and septic systems.

PMI PASS-THROUGH CERTIFICATES - Mortgage-backed securities of conventional mortgages insured by private mortgage insurance (PMI) companies.

POINT - (1) One percent of the amount of the loan. (2) A commission paid for arranging a loan.

POINT OF BEGINNING (POB) - A term used in metes and bounds descriptions. The description will start with the words "Beginning at a point" and end with "to the point of beginning".

POSITIVE LEVERAGE - Using borrowed money to increase the return on an investment. Example: Property is purchased for $100,000 cash and sold one year later for $150,000. The investment produced a return of 50%, less the cost of sale. Another property is purchased for $100,000 with $10,000 down and a $90,000 mortgage and sold one year later for $150,000. The investment produced a return of 500%, less the cost of sale and cost of the mortgage, still a much higher return than the cash purchase.

POWER OF ATTORNEY - An authority by which one person (principal) enables another (attorney in fact) to act for him. (1) General power - Authorizes sale, mortgaging, etc. of all property of the principal. Invalid in some jurisdictions. (2) Special power - Specifies property, buyers, price and terms. How specific it must be varies in each state.

PREPAYMENT CLAUSE - A clause in a mortgage that determines whether the borrower may make additional principal payments without penalty and the limit, if any, of the additional payments.

PREPAYMENT PENALTY - A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid before it is due.

PRINCIPAL RESIDENCE - The prime or main living quarters. It may be based on time spent at the location or declared by the resident to be his/her principal residence. It is important, for example, for tax purposes and declarations of homestead.

PRIVATE MORTGAGE INSURANCE - Insurance against a loss by a lender in the event of default by a borrower (mortgagor). The insurance is similar to insurance by a governmental agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.

PROMISSORY NOTE - A promise in writing, and executed by the maker, to pay a specified amount during a limited time, or on demand, or at sight, to a named person, or on order, or to bearer.

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QUITCLAIM DEED - A deed operating as a release; intended to pass any title, interest, or claim which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

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RANCH STYLE HOUSE - Modernly, any one story house is called a ranch style. A true ranch style house is rambling, with low pitched gable roofs, and an interior of open design.

RATE INDEX - An index used to adjust the interest rate of an adjustable mortgage loan. For example: the change in U.S. Treasury securities (T-Bills) with a 1 year maturity. The weekly average yield on said securities, adjusted to a constant maturity of one year, which is the result of weekly sales, may be obtained weekly from the Federal Reserve Statistical Release H.15 (519). This change in interest rates is the "index" for the change in the specific Adjustable Mortgage Loan.

REAL ESTATE - (1) Lands and anything permanently affixed to the land, such as buildings, fences and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items which would be personal property if not attached. The term is generally synonymous with real property, although in some states a fine distinction may be made. (2) May refer to rights in real property as well as the property itself.

RECIPROCITY - A mutual exchange of privileges by states, allowing attorneys, real estate brokers, and others to practice in one state while being licensed in another.

RECORDING - Filing documents affecting real property as a matter of public record, giving notice to future purchasers, creditors, or other interested parties. Recording is controlled by statute and usually requires the witnessing and notarizing of an instrument to be recorded.

RED LINING - The outlining of a map of certain "high risk" areas for real estate loan purposes. This means lenders will not extend credit in these areas for real property loans, regardless of the qualifications of the applicant. Some states have passed laws against this practice. The use of a red pen or pencil for the outlining gave rise to the term.

RESALE MARKET - The selling of property after the initial sale. Example: A builder sells a house. The homeowner subsequently "resells" the house. The second sale is in the resale market.

RESCISSION OF A CONTRACT - Annulling or abrogating a contract and placing the parties to it in a position as if there had not been a contract.

RIPARIAN - Belonging or relating to the bank of a river or stream. Land within the natural watershed of a river or stream.

ROW HOUSES - A method of construction of individual houses with common side walls and a common roof. Modernly called townhouses.

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SALES CONTRACT - Another name for a sales agreement, purchase agreement, etc. Not to be confused with a land contract, which is a conditional sales contract.

SECONDARY MORTGAGE MARKET - The buying and selling of first mortgages or trust deeds by banks, insurance companies, government agencies, and other mortgagees. This enables lenders to keep an adequate supply of money for new loans. The mortgages may be sold at full value (par) or above, but are usually sold at a discount. The secondary mortgage market should not be confused with second mortgages.

SINGLE FAMILY HOUSE - A general term originally used to distinguish a house designed for use by one family from an apartment house. More recently, used to distinguish a house with no common area from a planned development or condominium.

SLIP - A place between two piers or docks, where a boat is kept.

SPECIAL ASSESSMENT - Lien assessed against real property by a public authority to pay costs of public improvements (sidewalks, sewers, street lights, etc.), which directly benefits the assessed property.

SQUARE - A unit of measurement in roofing or siding, 10' X 10' (100 sq. ft.)

SQUARE FOOT - The area contained by boundaries of 1 foot long and 1 foot wide. There are 9 square feet in 1 square yard.

SQUARE FOOT COST - The cost of a square foot of floor space of a building or of land.

SUBDIVISION - Commonly, a division of a single parcel of land into smaller parcels (lots) by filing a map describing the division, and obtaining approval by a governmental commission (city or county). The exception is a condominium, which is sometimes called a "one lot subdivision".

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TAX DEED - (1) Deed from tax collector to governmental body after a period of non-payment of taxes according to statute. (2) Deed to a purchaser at a public sale of land taken for delinquent taxes. The purchaser receives only such title as the former owners had, and strict procedures must be followed to prevent attachment of prior liens.

TIME-SHARING - A concept of ownership increasing in popularity as real estate prices rise. The purchase of an undivided interest (usually in a resort area condominium) for a fixed or variable time period. For example: Fifty-two different purchasers buy one condominium; each agrees to possession for one week per year. Costs (taxes, insurance, maintenance, etc. are shared equally. Possession may be fixed, or by reservation, by lease, license, etc. Some developers provide several projects in different parts of the world, so that a person owning one week in a project in Hawaii could elect to spend that week in a connected project in France or other area.

TITLE SEARCH - A review of all recorded documents affecting a specific piece of property to determine the present condition of title.

TRUST ACCOUNT - An account used by brokers, escrow agents, or anyone holding money in trust for another.

TURN KEY - Referring to an owner making a property ready for a tenant to begin business by having the tenant furnish only furniture, phone, and inventory, if any. Ready to "turn the key" in the front door and begin business.

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UNDERWRITER - One who insures another. A small title company may buy insurance from a larger one (the underwriter) for all or part of the liability of its policies. A larger title company may buy part of the insurance from another company on high liability policies.

UNMARKETABLE TITLE - Not saleable. A title which has serious defects.

UNRECORDED INSTRUMENT - A deed, mortgage, etc., which is not recorded in the county recorder's office and, therefore, not protected under recording statutes. Valid between the parties involved, but not against innocent third parties.

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VALUABLE CONSIDERATION - A legal term meaning any consideration sufficient to support a contract. The word "valuable" does not mean of great value but merely having value.

VALUATION - The estimating of value.

VARIABLE INTEREST RATE - An interest rate which fluctuates as the prevailing rate moves up or down. In mortgages there are usually maximums as to the frequency and amount of fluctuation. Also called "flexible interest rate".

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WARRANTY - A legal, binding, promise, given at the time of a sale, whereby the seller gives the buyer certain assurances as to the condition of the property being sold. Warranties as to real property have taken on a lesser role with the increase of the use of title insurance.

WARRANTY DEED - A deed used in many states to convey fee title to real property. Until the widespread use of title insurance, the warranties by the grantor were very important to the grantee. When title insurance is purchased, the warranties become less important as a practical means of recovery by the grantee for defective title.

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X - A common mark used by one who cannot sign his/her name. The signature is as valid as a signed name unless restricted by statute.

YIELD - Ratio of income from an investment to the total cost of the investment over a given period of time.

ZERO LOT LINE - The construction of a building on any of the boundary lines of a lot. Usually built on the front line, such as a store built to the sidewalk

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For more information please e-mail Tracy@WorryFreeRealEstate.com or call 843-247-3770.

Information is deemed reliable, but must be verified by all parties.

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