Please note that this is an abbreviated list of common terms
used in Real Estate transactions. The terms are very generally defined and their
usage may vary according to state and local custom. For your convenience, all
cross references are hyper-linked. Cautionary Note: These
definitions are for informational use only, and not intended for use in legal
Abstract of Title:
A summary of the public records relating to the title to a particular piece of
land. An attorney or a title insurance company reviews an abstract of title to
determine whether there are any title defects which must be cleared before a
buyer can purchase clear, marketable
Condition in a mortgage
that may require the balance of the loan to become due immediately if regular
mortgage payments are not made or for breach of other conditions of mortgage.
Agency: In real estate,
an agency is created by the contract between a Real
Estate Broker and an owner of real property whereby the broker agrees to act
as the ownerís agent in representing and negotiating for sale of the property
under contract. The contract is known as a listing
In some states, this describes a listing whereby a brokerís commission is
protected against a sale by other agents, but not by a sale by the property
owner or the principal in the agreement. This allows the property owner to sell
on their own as well and not have to pay commission. Called a
"non-exclusive listing" in some states. For other types of listing
agreements, see Exclusive
Listing and Open
Agreement of Sale:
Known by various names such as contract to purchase, purchase agreement, or
sales agreement, according to location. A contract in which a seller agrees to
buy, under certain specific terms and conditions spelled out in writing and
signed by both parties.
payment plan which enables the borrower to reduce his debt gradually through
monthly payments of principal
Appraisal: An expert
judgment or estimate of the quality or value of real estate as of a given date.
Mortgage: An existing obligation undertaken by the purchaser of
property to be personally liable for payment of an existing mortgage.
In an assumption, the purchaser is substituted for the original mortgagor
in the mortgage instrument. Usually this type of transaction can only take place
if there is recorded consent from the mortgagee.
The original mortgagor should always obtain from the mortgagee a written release
from further liability if they desire to be fully released under the assumption.
Failure to obtain such a release renders the original mortgagor liable if the
person assuming the mortgage fails to make the monthly payments.
Binder or Offer
to Purchase: A preliminary agreement, secured by the payment of earnest
money, between a buyer and a seller as an offer to purchase real estate. A
binder secures the right to purchase real estate upon agreed terms for a limited
period of time. If the buyer changes his mind or is unable to purchase, the
earnest money is forfeited unless the binder or offer expressly provides that it
is to be refunded. (In some states, the earnest money may still be refundable
even if not so stated in the offer.)
Broker: See Real
Building Line or
Setback: Distances from the ends and/or sides of the lot beyond
which construction may not extend. The building line may be established by a
filed plat of
subdivision, or by restrictive
covenants in deeds
or leases, by building codes, or by zoning
Certificate of Title:
A certificate issued by the title company or a written opinion rendered by an
attorney that the seller has good marketable and insurable title
to the property which is being offered for sale. A certificate of title offers
no protection against any hidden defects in the title which an examination of
the records could not reveal. The issuer of a certificate of title is liable
only for damages due to negligence. The protection offered a homeowner under a
certificate of title is not as great as that offered in a title
Closing Costs: The
numerous expenses which buyers and sellers normally incur to complete a
transaction in the transfer of ownership of real estate. These costs are in
addition to price of property and are items prepaid at closing.
of sale negotiated previously between the buyer and the seller may state in
writing who will pay each of the above costs.
Closing Day: The day
on which the formalities of the real estate sale are concluded. The certificate
of title abstract
& deed are
generally prepared for the closing by an attorney and this cost is charged to
the buyer. The buyer signs the mortgage, and closing costs are paid. The final
closing meeting merely confirms the original agreement reached in the agreement
Cloud (on the title):
An outstanding claim or encumbrance which adversely affects the marketability
of the title.
paid to the real
estate broker by the seller as compensation for finding a buyer and
completing the sale. Usually a percentage of sales price.
Individual ownership of a dwelling unity and an individual interest in the
common areas and facilities which serve the multi-unit project.
Contract of Purchase:
A mortgage loan not insured by HUD
or guaranteed by the Veteran's Administration. It is subject to conditions
established by the lending institution and State statutes. The mortgage rates
may vary with different lender and between different States. (States have
various interest limits.)
An apartment dwelling or a group of dwellings owned by a corporation, the
stockholders of which are the residents of the dwellings. It is operated for
their benefit by their elected board of directors. In a cooperative, the
corporation or the association owns title to the real estate. A resident
purchases stock in the corporation which entitles him to occupy a unit in the
building or property owned by the cooperative. While the resident does not own
his unit, he has an absolute right to occupy his unit as long as he owns the
Deed: A formal written
instrument by which title to real property is transferred from one owner to
another. The deed should contain an accurate description of the property being
conveyed, should be delivered to the purchaser at closing day. There are two
parties to the deed: the grantor
and the grantee.
Deed of Trust:
a mortgage) A
security instrument whereby real property is given as security for a debt.
However, in a deed of trust there are three parties to the instrument: the
borrower, the trustee, and the lender. In such a transaction, the borrower
transfers the legal title for the property to the trustee
who holds the property in trust as security for the payment of the debt to the
thirty days after the due date if payment is not received, the mortgage is in
default. It is the mortgagor's
responsibility to remember the due date and send the payment prior to the due
date, not after. In the event of default, the mortgage may give the lender the
right to accelerate payments, take possession and receive rents, and start
foreclosure. Defaults may also come about by the failure to observe other
conditions in the mortgage
or deed of
Decline in the value of a house due to wear and tear; adverse changes in the
neighborhood, or any other reason.
A State tax, in the form of stamps, required on deeds
when real estate title passes from one owner to another. The amount of stamps
varies with each State.
Down Payment: Down
Payment is the difference between the sales price and the mortgage amount. The
agreement of sale will refer to the down payment amount and will acknowledge
receipt of the down payment. The down payment may not be refundable if the
purchaser fails to buy the property without good cause. If the purchaser wants
the down payment to be refundable, he should insert a clause in the agreement of
sale specifying the conditions under which the deposit will be refunded, if the
agreement does not already contain such a clause. If the seller cannot deliver good
title; the agreement of sale usually requires the seller to return the down
payment and to pay interest and expenses incurred by the purchaser.
Earnest Money: The
deposit given to the seller or his agent by the potential buyer upon the signing
of the agreement of sale to show that he is serious about buying the house. If
the sale goes through, the earnest money is applied against the down payment.
If the sale does not go through, the earnest money will be forfeited or lost
unless the binder or offer to purchase expressly provides that it is refundable.
A right of way granted to a person or company authorizing access to or over the
owner's land. An electric company obtaining a right-of-way across private
property is a common example. These usually "run with the land",
meaning the easement is permanently granted no matter who owns it or how often
it is sold.
obstruction, building, or part of a building that intrudes beyond a legal
boundary onto a neighboring private or public land, or a building extending
beyond the building line.
Encumbrance: A legal
right or interest in land that affects a clear
title, and diminishes the land's value. It can take numerous forms, such as zoning
rights, claims, mortgages, liens, charges, a
pending legal action ,unpaid taxes, or restrictive
covenants. An encumbrance does not legally prevent transfer of the property
to another. A title search is all that is usually done to reveal the existence
of such encumbrances, and it is up to the buyer to determine whether he wants to
purchase with the encumbrance, or what can be done to remove it.
Equity: The value of a
homeowner's unencumbered interest in real estate. Equity is computed by
subtracting from the property's fair market value the total of the unpaid
mortgage balance and any outstanding liens
or other debts against the property. A homeowner's equity increases as he pays
off his mortgage or as the property appreciates in value. When the mortgage and
all other debts against the property are paid in full, the homeowner has 100%
equity in his property.
Escrow: Funds paid by one
party to another (the escrow agent) to hold until the occurrence of a specified
event, after which the funds are released to a designated individual. In FHA
mortgage transactions, an escrow account usually refers to the funds a mortgagor
pays the lender. The money is held in a trust fund, provided by the lender for
the buyer. Such funds should be adequate to cover yearly anticipated
expenditures for mortgage insurance premiums, taxes, hazard
insurance premiums, and special
A listing contract whereby a property owner agrees to pay a fee or commission to
the listing broker
if the property under contract is sold during the stated period, regardless of
whether the broker or their sales
agents were or were not the cause of the sale. Also known as an Exclusive
Right to Sell listing contract. For other types of listing agreements,
Listing and Open
Foreclosure: A legal
term applied to various methods of enforcing payment of the debt secured by a
mortgage, or deed
of trust, by taking and selling the mortgage property, and depriving the
mortgagor of possession.
General Warranty Deed:
A deed which conveys all the grantor's interests in and title to the property of
the grantee. It also warrants that if the title is defective or has a
"cloud" on it; such as mortgage claims, tax liens, title claims,
judgments, or mechanic's liens against it; the grantee may hold the grantor
Grantee: The party in
the deed who is the buyer or the recipient.
Grantor: The party in
the deed who is the seller or the giver.
Protects against damages caused to property by fire, windstorms, and other
HUD: U.S. Department of
Housing and Urban Development. Office of Housing / Federal Housing
Administration (FHA) within HUD insures home mortgage loans made by lenders and
sets minimum standards for such homes.
Interest: A charge paid
for borrowing money.
Lien: A claim by one person
on the property of another as security for money owed. Such claims may include
obligations not met or satisfied, judgments, unpaid taxes, materials, or labor.
Contract between a Real
Estate Broker and an owner of real property whereby it is agreed that the
broker will perform as the sellerís agent for the express purpose of selling
the property under contract. This agreement sets the listing price and terms in
return for a fee or commission. It usually is made for a set length of time
after which it expires. There are three basic types of listing agreements; Agency
Listing and Open
Marketable Title (Clear
Title): A title that is free and clear of objectionable liens,
clouds, or other title defects. A title which enables an owner to sell his
property freely to others and which others will accept without objection.
Mortgage: A lien or
claim against real property given by the buyer to the lender as security for
money borrowed. Under government-insured or loan-guarantee provisions, the
payments may include escrow
amounts covering taxes, hazard insurance, water charges, and
assessments. Mortgages generally run from 10 to 30 years, during which the
loan is to be paid off.
A written notice from the bank or other lending institution saying it will
advance mortgage funds in a specified amount to enable a buyer to purchase a
Premium: The payment made by a borrower to the lender for
transmittal to HUD
to help defray the cost of the FHA mortgage insurance program and to provide a
reserve fund to protect lenders against loss in insured mortgage transactions.
In FHA insured mortgages this represents an annual rate of one-half of one
percent paid by the mortgagor on a monthly basis.
Mortgage Note: A
written agreement to repay a loan. The agreement is secured by a mortgage,
serves as proof of an indebtedness, and states the manner in which it shall be
paid. The note states the actual amount of the debt that the mortgage secures,
the interest rate, and renders the mortgagor
personally responsible for repayment.
Mortgagee: The lender
in a mortgage agreement.
borrower in a mortgage agreement.
Open Listing: A
listing contract whereby a property owner agrees to pay a fee or commission to
the listing broker if the broker or their sales agent presents the seller with a
bone fide offer that meets the specified price and terms. There is no Exclusive
Right to Sell and the offer must be brought before any other offer is
presented or accepted. It is not required that the offer be accepted by the
owner for the commission to have been earned. For other types of listing
agreements, see Agency
Listing and Exclusive
Plat: A map or chart of a
lot, subdivision or community drawn by a surveyor showing boundary lines,
buildings, improvements on the land and easements.
Points: Sometimes called
"discount points." A point is one percent of the amount of the mortgage
loan. For example, if a loan is for $100,000, one point is $1000. Points are
charged by a lender to raise the yield on his loan. On a conventional mortgage,
points may be paid by either the buyer or the seller. Sellers must pay points on
a Veterans Administration (VA) loan.
of mortgage loan, or part of it, before the due date. Mortgage agreements often
restrict the right of prepayment either by limiting the amount that can be
prepaid in any one year or charging a penalty for prepayment. FHA
loans may be prepaid.
Principal: The basic
element of the loan as distinguished from the interest,
mortgage insurance premium, hazard
insurance or real estate taxes.
Principal is the amount upon which interest is paid. (Note: This is not what is
meant by the term "Principals Only" often used in ads.
"Principals" in that case mean a buyer without a middleman or Real
Estate agent representing them.)
Such a deed makes no warranties as to the title, but simply transfers to the
buyer whatever interest the grantor
has. A deed which transfers whatever interest the maker of the deed may have in
the particular parcel of land. A quitclaim deed is often given to clear the
title when the grantor's interest in a property is questionable. By accepting
such a deed the buyer assumes all the risks.
Real Estate Agent:
A licensed sales agent working under the authority of a Real Estate Broker. In
some states, agent is required to have a brokers license, in others, only a
sales agent license is required. Check with a stateís Board of Realtors for
Real Estate Broker:
A middleman or agent who buys and sells real estate for a company, firm or
individual on a commission basis. The broker does not have title to the
property, but generally represents the owner. Required to have a license and be
registered in the state where practicing. Is legally responsible for complete
disclosure and ultimately works for the seller, not the buyer. In many states,
broker is manager over sales agents and has more training in state and federal
process of the same mortgagor
paying off one loan with the proceeds from another loan.
(AKA C&Rs - Covenants and Restrictions) Private restrictions limiting the
use of real property. Restrictive covenants are created by deed
and may "run with the land," binding all subsequent purchasers of the
land, or may be "personal" and binding only between the original
seller and buyer. The determination whether the covenant runs with the land or
is personal is governed by the language of the covenant, the intent of the
parties, and the law in the State where the land is situated. Restrictive
covenants that run with the land are encumbrances
and may affect the value and marketability of title.
A tax imposed on property, individual lots or all property in the immediate area
for road construction, sidewalks, sewers, street lights, etc.
Special Liens: A
lien that binds a specified piece of property, unlike a general lien, which is
levied against all one's assets. It creates a right to retain something of value
belonging to another person as compensation for labor, materials, or money
expended in that person's behalf. In some localities it is called
"particular" lien or "specific" lien. (See lien)
Special Warranty Deed:
A deed in which the grantor
conveys title to the grantee
and agrees to protect the grantee against title
defects or claims asserted by the grantor and those persons whose right to
assert a claim against the title arose during the period the grantor held title
to the property. In a special warranty deed the grantor guarantees to the
grantee that he has done nothing during the time he held title to the property
which has or which might in the future, impair the grantee's title.
State Stamps: See documentary
Survey: A map or plat
made by a licensed surveyor showing the results of measuring the land with its
elevations, improvements, boundaries, and it's relationship to surrounding
tracts of land. A survey is often required by the lender to assure him that a
building is actually sited on the land according to its legal description.
Tax: As applied to real
estate, an enforced charge imposed on persons, property or income, to be used to
support the State.
Title: As generally used,
the rights of ownership and possession of particular property. In real estate
usage, title may refer to the instruments or documents by which a right of
ownership is established (title documents) or may refer to the ownership
interest one has in the real estate.
Protects lenders or homeowners against loss of their interest in property due to
legal defects in the title. Title insurance may be issued to either the mortgagor
or as an "owner's title policy". Insurance benefits will be paid only
to the "named insured" in the title policy, so it is important that an
owner purchase an owner's title policy, if he desires the protection of title
Title Search or
Examination: A check of the title records, generally at the local
courthouse, to make sure the buyer is purchasing a house from the legal owner
and there are no
liens, overdue special
assessments, or other claims or outstanding restrictive
covenants filed in the record, which would adversely affect the
marketability or value of title.
Trustee: A party who is
given legal responsibility to hold property in the best interest of or "for
the benefit of" another. The trustee is one placed in a position of
responsibility for another, enforce-able in a court of law. (See deed
The acts of an authorized local government establishing building codes, and
setting forth regulations for property land usage.