Real Estate Terms

appraisal contingency

Contract clause that, if the property doesn't appraise at or above the sales price, the buyer is allowed to terminate Ex. If the appraised value is close to the sales price, often the parties can reach agreement. If not, and an appraisal contingency is in place, the buyer can use the fact that the property didn't appraise to terminate and receive a refund of earnest money deposited.

CAN-SPAM Act

Controlling the Assault of Non-Solicited Pornography and Marketing Act; protects consumers against unwanted email solicitations Ex. Thanks to the CAN-SPAM Act, Cecily's email inbox was fairly uncluttered (except from all those jokes her brother-in-law sent her).

Accretion

the gradual growth in the size of a land parcel due to water-deposited sand, silt, or gravel. Ex. Jillian's property grew through accretion when the creek flow created a long sandbar.

blueprint

A building plan with an architect's or engineer's stamp that includes the layout of the rooms and their measurements, and indicates location of windows, doors, fixtures, and major appliances Ex. Bradley looked up from the blueprint of his proposed house and told his architect, "I can't visualize it in 2-D. Can you build me a model in 3-D?"

assumption

A buyer agrees, in writing, to take over the sellers' loan payments Ex. Nicole assumed Matt's loan payments when she bought his house.

amendment

A change to an existing contract

adjustment (loan)

A debit or credit at closing to coincide with appropriate closing costs Ex. When the document preparation fees were more than anticipated, both sides received an adjustment at closing.

bargain and sale deed

A deed where there is at most one warranty: that the current owner has not encumbered it Ex. Clancy purchased a property from his aunt that had been unused for a long period of time. Because his aunt knew nothing about the property, the deed he received was a bargain and sale deed.

certificate of deposit

A deposit held in a bank for a specified term which earns interest (e.g., one-year CD, three-year CD). Ex. Georgio had some extra money in savings and decided to buy a five-year CD. Interest rates were higher than he could get in his savings account, and he had no use for the money for at least five years.

certificate of eligibility (COE)

A document issued by the U.S. Department of Veterans Affairs that certifies a veteran's eligibility for a VA loan Ex. Renita had served in the Air Force and decided to apply for a VA loan to purchase a home once she got out. She applied for and received a certificate of eligibility for the loan.

bill of sale

A document transferring title to personal property. Ex. When Ginger sold her golf cart to Mary Anne, they used a bill of sale to complete the transaction.

certificate of reasonable value (CRV)

A document used with a VA loan that indicates its appraised value Ex. Because his certificate of reasonable value came in above the sales price, the VA was willing to guarantee the full sales price of George's home.

adverse material fact

A fact that might cause the buyer to change his mind about purchasing the property Ex. When Chet learned that a railway was being built behind the property, he withdrew his offer. That was an adverse material fact he couldn't live with

Americans with Disabilities Act of 1990

A federal anti-discrimination law to protect persons with disabilities from discrimination in public accommodations and commercial facilities; also mandates easy access in new multi-family housing with four or more units Ex. The Americans with Disabilities Act requires landlords of properties covered under the Act to allow disabled tenants to make reasonable accommodations at their expense.

buydown

A financing technique in which the buyer obtains a lower interest rate by buying down the interest rate at the time the loan is made Ex. Alec decided to buy down the interest rate on his loan to make his payments more affordable.

Net listing

A listing agreement in which the broker contracts with the seller to receive all net proceeds from a sale above a specified sales price; illegal in some states

avulsion

A loss of existing land by the sudden change in a watercourse, washing it away Ex. Brady was aghast when part of his property washed away in a tidal wave. This avulsion caused him to lose 15% of his property.

balloon payment

A lump sum payment, usually at the end of a loan period Ex. Trinity's loan had low monthly payments, but a large balloon payment at the end of the loan term.

clear title

A marketable title (free and clear of liens or question of ownership). Ex. Because the seller was unable to provide the buyer with a clear title, the buyer backed out of the sale, and received his earnest money back.

British Thermal Unit (BTU)

A measure of heat energy (the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit. Ex. It takes 40 BTUs to cool one cubic foot of space.

budget mortgage

A mortgage in which taxes and insurance are added to the payment for principal and interest. Ex. Gabrielle hated paying bills, so she was glad her lender had set her up with a budget mortgage where her PITI was handled in one payment each month.

biweekly mortgage

A mortgage in which the borrower makes payments every two weeks, resulting in 13 payments a year instead of 12. Some borrowers use this strategy to pay off their loan earlier. Ex. Charlene made biweekly payments on her mortgage .She avoided the often expensive independent companies who offer to set up such payment plans for borrowers, and did it herself. She was able to pay off her 30-year mortgage several years early.

assumable mortgage

A mortgage that can be assumed when property transfers ownership (requires borrower to qualify for the loan). Ex. When interest rates rise, buyers often prefer assumable mortgages at more favorable rates.

balloon mortgage

A mortgage that has lower initial payments that do not amortize and provide for a "catch up" lump sum to be paid at a specific time Ex. Jeb agreed to a balloon mortgage because he knew that in 5 years, when the balloon payment was due, he would have money available from his trust fund to pay it off.

adjustable rate mortgage (ARM)

A mortgage with a rate that adjusts based on changes in a market index Ex. Caleb had a 5/1 ARM. His loan had a fixed interest rate for the first five years, and after 5 years, it could change annually depending changes to the market index.

benchmark

A permanent affixed brass plaque that is numbered and is used as a point of reference by surveyors when measuring elevation Ex. When the surveyor referenced the benchmark he noted that its numbers had worn off over time. Now he would have to use different criteria as a point of reference.

co-borrower

A person who's both responsible for the loan and on the title for the property. Ex. Alice and Jimmy bought a house together. The applied for the loan as co-borrowers, and took title in both of their names.

collection

A process of attempting to recover loaned funds when the borrower is in default. Ex. Because Jewel didn't pay her credit card bill, the credit card company sent her bill to collections. Jewel now receives almost daily calls from the collection agency asking for payment.

constructive notice

A public recordation of an event; constructive notice means "you could have known if you'd bothered to look it up."Ex. Karen's conveyance of her deed was publicly recorded; this was constructive notice to the world that she had sold her property and that Vince was the new owner.

annual percentage rate (APR)

A rate derived according to a government formula that's intended to reflect the true cost of financing that allows consumers to compare loan products; includes financing fees, so it will always be higher than the actual interest rate on a loan

cash-out refinance

A refinance in which the borrower assumes a loan balance higher than the current one to pull out money for other use. Ex. Interest rates had dropped, and Avril decided to refinance his home, which had a loan balance of $200,000 but an appraised value of $260,000, at $240,000. He used the $40,000 to pay off his car and credit cards, and ended up saving several hundred dollars each month. However, his new loan balance was now higher, and his payback term reset at 30 years.

Acknowledgment

A requirement for deed transfer; a public official must acknowledge the grantor's signature Ex. Gary purchased a duplex. The grantor signed the deed; a notary public acknowledged his signature

collateralized mortgage obligation (CMO)

A security that uses mortgage-backed securities as collateral Ex. CMOs are subdivided into tranches. Each tranche has specific rules for distributing income received from the collateral, and has differing balances, maturities, and risks.

Closing Disclosure

A statement of final loan terms and closing costs, provided to the borrower three days prior to closing; part of TRID lender disclosure requirements Ex. Wendy's lender sent her a closing disclosure three days before she closed on her purchase of a delightfully renovated plantation manor.

bridge loan

A temporary loan used to cover the interval between two transactions. Ex. The Clausens' sale of their current home would not go through until after the closing date on their dream home. They used a bridge loan to close the gap in financing.

Acre

A unit of land that is equal to 43,560 square feet Ex. The Jones farmhouse was on 10 acres. Their parcel had 435,600 square feet.

Coastal Zone Management Act

Administered by the National Oceanic and Atmospheric Administration; designed to "preserve, protect, develop, and where possible, to restore or enhance the resources of the nation's coastal zone" Ex. The act encourages coastal states to develop and implement coastal zone management plans. This encompasses the 95,331 miles of the nation's ocean and Great Lakes coastlines.

cloud on title

Aka title defect; any encumbrance, such as a lien or inheritance claim, that impedes the conveyance of a property; may be removed with a quitclaim deed Ex. Erica was in the process of buying a foreclosure property, when an unknown lien cropped up, creating a cloud on the title. The lien had to be removed before Erica could buy the property.

Acceleration clause

Allows a lender to demand immediate and full payment of all debt owed if a buyer defaults: Ex. When Wendy stopped making home loan payments, her lender told her she must pay off her entire balance or risk foreclosure.

amperage

Amount of current or electricity flowing through electrical wires

brownfield

An abandoned commercial or industrial site that is believed to contain toxic waste Ex. The former site of a petroleum company became a brownfield eyesore until it was rehabilitated and turned into a community garden

addendum

An addition to a real estate contract that's added before contract acceptance Ex. Steve decided to ask for the washer and dryer after all, so he asked his broker to write up an addendum to the sales contract.

buyer's agency agreement

An agency agreement between a buyer and an agent to provide representation; it explains the duties of the agent to the buyer and the duties of the buyer to the agent. Ex. Jerome was tired of working with disloyal buyers and decided that from now on, he would only work with buyers if they were willing to sign an exclusive buyer agency agreement with him. In that way, he could be assured of getting paid--provided he found the buyer a property!

collateral

An asset used to secure a loan. With a home mortgage, the home itself acts as collateral. If the borrower defaults, the lender can foreclose and take the property. Ex. When Lance purchased a home using financing, he pledged his property as collateral. If he defaults on his loan, his lender can collect what it's owed by forcing a foreclosure sale on his home.

appraisal

An estimate of value as of a specific date and for a specific use

appraised value

An estimate of value as of a specific date, and for a specific use Ex. Barbara refinanced her property two years ago. At that time, the appraised value was $450,000. If she puts it on the market today, she can't use the appraised value as list price, because it's no longer valid.

blockbusting

An illegal practice in which licensees or others encourage homeowners to sell because of an influx or expected influx of minorities into the area Ex. Sharon lost her license when it was discovered that she had told homeowners in the Birdseye neighborhood that they should sell because the neighborhood was "turning Asian." This is blockbusting and it is illegal.

base line

An imaginary line that runs east and west and crosses the principal meridian at a specified point; it is used by surveyors as a reference point to locate and describe land under the rectangular survey system. Ex. Beginning at the initial point and the number 1 on a rectangular system grid, each township is designated as being a number of six-mile units (""Townships"") north or south of the baseline, and so many six-mile units (""Ranges"") east or west of the meridian.

Accessory use

An incidental or subordinate use to the primary use of the property Ex. Andy's military bunker in his back yard constituted an accessory use of the property

broker's price opinion (BPO)

An opinion of value prepared by a real estate licensee; similar to a comparative market analysis, but not as detailed; a lender or relocation company generally orders the BPO Ex. Chico's broker's price opinion (BPO) was prepared for XYZ Lending company on a potential foreclosure property.

building permit

Authority to construct a building or residential property by the local government Ex. Builder Barry was issued a building permit to build a home on the empty lot next to his mother's house.

appurtenances

Automatic rights inherent in property ownership Ex. Jason loved being a property owner. He decided not to sell off any of his appurtenances to others. He kept all of his bundle of sticks together.

assessment

Charge against a property; for instance, condominiums will have periodic assessments for maintenance and repairs of common areas Ex. Before a condominium owner can close on a sale of the condo, the owner must bring all assessments up to date so the buyer is not left paying for assessments owed from the time the seller was in possession.

bracketing

Determines a probable range of property values by comparing a group of comparable sales to the subject Ex. The appraiser attempts to include both superior and inferior units of comparison such as age and transaction price.

Clean Water Act

Established quality standards for surface waters and added a structure to regulate pollutants (e.g., oil) discharged into U.S. waters Ex. Real estate transactions are impacted by this act when the property includes water features protected by the CWA (e.g., a buyer wants to build a guest cottage, but wetlands on the site prevent the plan from being implemented).

chain of title

Establishes the title history or the path and proof of property ownership through a public records search for successive conveyances of title and encumbrances; each owner is considered to be a "link" in the chain Ex. Karen's chain of title showed no gaps in ownership since the time it was built.

Accrued items

Expenses that are accruing but are not yet payable (e.g., property taxes) Ex. At closing, accrued items must be accounted for on the settlement statement. If the seller has accrued expenses not yet payable, the amount accrued will be a seller debit and buyer credit.

actual notice

Express notice given directly to a person Ex. Karen told her neighbors she would be moving; this was actual notice.

chlorofluorocarbons (CFCs)

Synthetic chemical substances used in cooling products whose release into the atmosphere is blamed for ozone layer depletion Ex. Jane was surprised to learn that Styrofoam was a CFC product, and also that CFC is used in most car air conditioners.

Administrative Procedure Act

Helps to ensure that no governmental entity acts without an opportunity for public input by requiring public disclosure and discourse before rulemaking Ex. The Administrative Procedure Act was partially enacted in response to FDR's New Deal, in an effort to prevent the federal government from having too much power

appreciation

Increase in property value

active fraud

Intentional misstatement of a material fact Ex. "Sure, the foundation is perfectly safe!" Lisa said, even though she knew full well that there was a crack the size of Toledo in it.

asset

Items of value owned by an individual; often used when qualifying for financing Ex. Liquid assets include checking and savings accounts. Other assets include real property, automobiles, and accounts receivable.

Abutting

Land parcels that share a common border. Ex. Many neighbors find that fences make abutting properties more tolerable.

common law

Law established by court outcome or tradition rather than statute Ex. Another name for common law is case law.

bond market

Market for buying and selling of (frequently) 30-year treasury bonds. Yield on bonds often rises and falls as fixed rate mortgages do. Ex. ABC Lending watched the bond market. When yields rose, it knew interest rates would soon do the same.

commingling

Mixing trust funds with business or personal funds Ex. Jack, a real estate broker, is in a hurry. He includes his client's earnest money check into a deposit into his general business fund. This is commingling, and is illegal.

alluvion

Newly formed land created by deposits from water action Ex. When water flowing from a creek bordering Jillian's property created a sandbar, she was able to use the alluvion—the new landmass that formed—as her own property.

Accounting

One of the fiduciary duties, accounting means an agent is accountable for any funds or properties entrusted to the agent. This is a duty that survives termination of an agency agreement. Ex. Cameron accepted an earnest money deposit from his buyer. His duty of accounting means that he must safeguard the funds and handle them according to the agreement with his client and the policies of his firm.

breach of contract

One or more parties fail to meet the terms of their agreement Ex. When Caleb failed to turn over the keys to his house to Susan after the transaction closed, she sued him for breach of contract.

buyer presentation

Opportunity to build trust with a potential client, showcase your expertise, and learn more about the buyer's needs Ex. Chet always prepared for buyer presentations as carefully as he would have prepared for a job interview--because that's exactly what the buyer presentation is.

capital improvements

Permanent structural changes, remodels, or restorations that increase a property's value or use Ex. Capital improvements can be deducted from capital gains when a property is sold.

cease-and-desist order (advertising)

Requires you to stop running a deceptive ad or engaging in a deceptive practice; effective immediately upon issuance Ex. Future actions after issuance of a cease-and-desist order may result in fines of up to $16,000 per ad per day.

Littoral right

Rights of the owners of a bordering property to the use of a stationary body of water, such as a lake or sea.

air rights

Rights to use the airspace above the land may be sold or leased independently of the land itself Ex. In Burlesque, "Ali" saved the day when she told the club's owner (played by Cher) that she could sell her air rights to the luxury condominium developer across the street.

building code

Rules to ensure a safe, properly functioning environment for occupants of a building Ex. The building code specified plumbing, electrical and structural specifications for builders.

auction

Sale in which highest bidder buys the property Ex. After the Millers' house was foreclosed on, the lender auctioned it off

1031 tax-deferred exchange

Section 1031 of the Internal Revenue Code allows the owner of real property to sell that property and then reinvest the proceeds in a "like-kind" property and defer paying any capital gains taxes.

aesthetic zoning

Specifies style or architecture of buildings in an area in order to preserve charm, feel, etc. Ex. Zoning required that all homes in Ocean City be either Victorian or Tudor in design, and no taller than three stories.

Accession

The addition of value to property through labor or the addition of new materials, including an increase in land through natural processes: Ex. Jonathan's property borders a bay. The bay receded, and Jonathan gained an extra 10 feet of property to his land through accession.

annexation

The conversion of personal property into real property Ex. When Mrs. Goldman planted the rosebushes in her yard, the resultant annexation meant that the rosebushes were now made part of the property.

adjustment date

The date on which the interest rate changes on an adjustable rate mortgage. Ex. Karey made sure to refinance before her adjustment rate. Rates had dropped and she could get a better rate than the one she'd face once her ARM adjusted

adjustment

The dollar value or percentage added to or subtracted from the sales price of a comparable to arrive at an indicated value for the subject Ex. Whether the adjustment is made for a "good" or a "bad" feature, it is made to the comparable, not to the subject.

adjusted basis

The final basis for taxing purposes computed by taking acquisition costs plus capital improvements and subtracting depreciation taken Ex. When Mark computed the adjusted basis in his property, he had to subtract $10,000 in depreciation he had taken over the years.

Civil Rights Act of 1866

The first statute affecting equal housing opportunity largely interpreted to prohibit racial discrimination Ex. Although the Civil Rights Act of 1866 was enacted more than a century ago, it still has relevance and impacts discrimination laws today.

bankruptcy

The legal process of discharging or restructuring a borrower's debts Ex. Individuals most commonly file Chapter 7 or Chapter 13 bankruptcy.

amortization

The paying off of a debt with regular installments over a fixed repayment schedule Ex. A 30-year fixed rate loan provides amortization for the debt—in 30 years it is fully paid off.

beneficiary

The person entitled to the benefit of a trust arrangement Ex. Mr. and Mrs. Thomas created a shared living trust. Each put co-owned and separately owned property into the trust. When Mr. Thomas dies, Mrs. Thomas takes over as trustee and distributes her husband's trust property to the beneficiaries he named in the trust document. Her property stays in the living trust

broker of record

The person responsible for the real estate activities of licensees in a corporation or other business entity. Ex. XYZ Corporation provides real estate services, among other services. XYZ is required to have a broker of record to oversee its resale estate activities.

assemblage

The process of combining separate adjacent parcels of land into one piece Ex. Through the principle of assemblage, by purchasing several adjoining parcels, the combined parcel was worth far more.

advance consent to dual agency

The process of obtaining a client's go-ahead to dual agency should it arise. A client should always be given the option. Ex. Because some states allow advance consent to dual agency, agents don't have to scramble to obtain this form in the heat of the moment when faced with a potential dual agency situation

bundle of rights

The rights of ownership that come with owning real property; includes both tangible and intangible rights; may be sold separately from the land itself Ex. A property may have many owners; the sticks in its bundle of rights may be sold individually. One may own air rights, another mineral, another water, etc.

bylaws

The rules of an association, such as a homeowner's association or cooperative. Ex. The Greener Grass Cooperative included in its bylaws the process for resolving shareholder disputes.

closing

The settlement of a real estate transaction in which a property transfer occurs Ex. At closing, buyer and seller reconcile expenses, prepaids and prorations; buyer provides seller with sales price and seller transfers ownership to buyer.

assignment (rentals)

The substitution of tenants, putting the responsibility for the lease contract in the new tenant's hands. Requires written permission of landlord. Ex. Daniel is moving out of state, and assigns his lease to Benjamin. Benjamin becomes responsible for the lease.

assignment (mortgages)

The transfer of a mortgage from the original lender to another Ex. Sima must not have been paying attention to her disclosures because she was surprised with EZ Well Bank assigned her mortgage to another lender.

advance consent to dual agency with designated sales associate

This is an option for a client who wants independent representation. It basically allows the broker to act as a dual agent, while two agents of the broker each represent different sides in a transaction.

assignment (contracts)

When a new party to a contract agrees to satisfy the former party's obligations. Unless there is a novation (a new contract) the original parties remain liable for the contract terms. Ex. Ty decided to take an African Safari in the middle of his transaction. His brother agreed to have the contract assigned to him. However, Ty remains responsible unless a new contract is drawn up, naming his brother as the contracted party.

Hypothecation

When an asset is pledged to secure a loan without giving up possession of the asset.

building specifications

Written narrative of the building plan; describes major systems, construction details, landscaping, and design features not captured in the building plan Ex. While his wife pored over the blueprints for their new house, Bill preferred reading the building specifications, since they included his plans for an antique rose garden.