Real Estate Terms
A glossary of relevant terms in real estate with accompanying definitions.
Adjustable Rate Mortgage (ARM)- A mortgage permitting lender to periodically adjust the interest rate on the basis of changes in a specified index.
Amortization Schedule- A timetable schedule showing the amount of each payment applied to interest and principal and the remaining balance after each payment is made.
Annual Percentage Rate- The cost of a mortgage stated as a yearly rate, includes interest, mortgage and loan origination fee (points).
Appraisal- A written analysis of the estimated value of a property by a qualified appraiser.
Approval Letter- A written document stating that a loan is fully approved. It frequently contains conditions such as satisfactory appraisal, review of the contract and termite inspection that have to be met before the loan can be funded.
Broker- A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between the parties.
Buyer Representation- Occurs when buyers execute an “Exclusive Right to Represent Buyer Agreement” with a professional and fully licensed REALTOR® who represents their best interests and works closely with them to find the best property at the most acceptable price, terms and conditions.
Certificate of Title- A statement provided by a title company or attorney stating that the title to real estate is legally held by the current owner.
Client– The person who has formed a brokerage relationship with a REALTOR®, usually by executing an agreement in writing; also called a principal.
CLUE- The Comprehensive Loss Underwriting Exchange, a property claims database that enablesinsurers to check the claim history of a purchaser, thehomeowner and the property which the homeowner is purchasing. This helps underwriters determine the risk of loss.
Collateral- An asset such as a home used to guarantee the repayment of a loan.
Commission- The fee charged by a broker for providing services such as transaction coordination, facilitating the search process, negotiating the terms and conditions of the contract, etc.
Contingency- A provision placed in a contract that requires the completion of a certain act, or the happening of a particular event before that contract is binding.
Kick-out Clause- A special clause in a contractpermitting a seller to continue to offer a property for sale after accepting a contract from a purchaser that is contingent on the sale of his or her home. If the seller receives a non-contingent second offer before the first purchaser has removed the contingency, seller gives purchaser previously agreed upon time period to remove the contingency or the first contract is kicked out.
Credit Scores- A numeric representation of a borrower’s financial responsibility based on their credit history. Typically based on a scale of 300 to 850, these scores are one of the measures that most lenders will closely review when evaluating a loan application.
Customer- A party who is not represented by and does not have a relationship with a REALTOR®. Deed- The legal document conveying title to a property.
Designated Representation- Occurs when a REALTOR® represents a buyer who chooses to purchase a listing from the same company for which the REALTOR® works. The REALTOR® continues to represent the interests of the buyer client and the managing or principal broker becomes a dual agent.
Dual Agency- Occurs when a REALTOR® represents both the seller and the buyer in the same real estate transaction; legal in Virginia and Maryland.
Earnest Money Deposit- A deposit made by the prospective purchaser that accompanies an offer to show serious intention to buy the property.
Encumbrance- A claim, lien, charge or liability attached to real property that may lessen its value or obstruct the use of the property; also a right or interest in property held by one who is not the legal owner of the property.
Equity- A homeowner’s financial interest in the property.
Exclusive Listing- A written contract giving a licensed REALTOR® the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property himself without the payment of a commission.
Fair Credit Reporting Act- A consumer-protection law regulating the disclosure of consumer reports by credit-reporting agencies and establishing procedures for correcting mistakes on one’s credit record.
Home Inspection- A thorough inspection of theproperty by a professional home inspector to evaluate its structural and mechanical condition.
Lien- The legal claim against a property that must be satisfied before the property may be sold.
Lock-in Rate- A written agreement in which the lender guarantees a specified interest rate if a mortgage closes within a set period of time.
Mortgage- A legal document pledging a property to the lender as security for a payment of a debt.
Mortgage Banker/Lender- A person or firm, not otherwise in banking and finance, that provides its own funds for mortgage financing.
Mortgage Broker- A person or firm that acts as an intermediary between the borrower and the lender, who may sell the loan or continue to service the loan.
Mortgage Insurance- A contract that insures the lender against loss caused by a mortgagor’s default on a government or conventional mortgage.
Net Worth- The value of all of a person’s assets, including cash, minus all liabilities.
Note- A document which serves as evidence of the debt which is signed by the borrower of a loan and states the loan amount, the interest rate, the time and method of repayment and the obligation to repay; may also be called a Mortgage Note.
PITI- Acronym for Principal, Interest, Taxes and Insurance, commonly found in an all-inclusive mortgage package.
Point- Generic term for a percentage of the principal conventional loan amount; a lender may charge a borrower service-charge points for making the loan or to lower the interest rate. Each point is equal to one percent (1%) of the loan amount.
Prime rate- The interest that banks charge to their preferred customers.
Principal- Amount borrowed or remaining unpaid balance.
Principal Broker- The licensed broker directly in charge of and responsible for real estate operations conducted by a real estate brokerage company.
Ratified Contract- Confirmed and written approval of a pending contract by both the seller and the purchaser.
Real Estate Agent- A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
REALTOR®- A registered collective membership mark which identifies real estate professionals who are members of the National Association of REALTORS® and adhere to its strict Code of Ethics.
Settlement/Closing- The formal transfer of real property through the execution of legal documents, the exchange of money or consideration, and the recordation of the transaction .
Settlement Attorney/Agent- An attorney or professional settlement expert who facilitates the closing and sees that the contract terms are met. This person does not represent either party.
Survey- A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, encroachments, rights of way and any other physical features.
Title Insurance- A comprehensive document under which a title insurance company warrants to make good a loss arising through defects in title to real estate or any liens or encumbrances thereon. This type of insurance protects the lender and the new owner against loss from past occurrences such as a forged deed somewhere in the chain of title.
Title Search- A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Truth-in-Lending- A federal law that requires lenders to fully disclose in writing the terms and conditions of a mortgage, including the annual percentage rate and other charges.
Underwriting- The process of evaluating a loan application to determine the risk involved for the lender and requesting any additional items needed or loan approval.
Walk-Through Inspection- A final inspection of the property just before closing which assures the buyer that the property has been vacated, that no damage has occurred and that the seller has not taken or substituted any property contrary to the terms of the sales agreement. If damage has occurred or conveyed items have been taken, the purchaser and seller resolve any issues at settlement.