Real Estate Glossary

So many terms that it’s easy to get lost in the jargon. Let’s sort it out.

Acre

Land area containing 43,560 square feet.

Action to quiet title

A lawsuit to clear a title to real property.

Adjustable rate mortgage (ARM)

One in which the interest rate changes according to changes in a predeter­mined index.

Agency

The fiduciary relationship between a principal and an agent.

Air rights

Right above the surface of land.

Alienation clause

A statement in a mortgage or deed of trust entitling the lender to declare the entire principal balance of the debt immediately due and payable if the borrower sells the property during the mortgage term. Also known as due-on-sale clause.

Amortization schedule

Designation of periodic pay­ments of principal and interest over a specific term to satisfy a mortgage loan.

Amperage

The amount of current or electricity flowing through the wire.

Annexation

Addition of an area into a city.

Annual percentage rate (APR)

The actual effective rate of interest charged on a loan expressed on a yearly basis; not the same as simple interest rate.

Appraisal

An estimate of value of particular property, at a particular time for a specified purpose.

Appreciation

An increase in property value.

“as is”

Words in a contract of sale indicating that a property is sold without warranty as to condition.

Assessed value

The dollar amount of worth to which a local tax rate is applied to calculate the amount of real property tax.

Attorney-in-fact

A person appointed to perform legal acts for another under a power of attorney.

Balloon mortgage

One in which the scheduled pay­ment will not amortize the loan over the mortgage term; therefore, to fully satisfy the debt, it requires a final pay­ment called a balloon payment, larger than the uniform payments.

Bearing walls

Walls that support the ceiling and/or roof.

Breach of contract

Failure, without legal excuse, to perform any promise that forms the whole or part of a contract.

Building permit

Permission from the appropriate local government authority to construct or renovate any type of property.

Capital gain

The profit realized from the sale of a real estate investment.

Chain of title

Successive conveyances of title to a spe­cific parcel of land.

Closing costs

Expenses incurred in the purchase and sale of real property paid at the time of settlement or closing.

Closing statement

An accounting of the funds received and disbursed in a real estate transaction.

Cloud on a title

A claim against a title to real property.

Commission

A fee paid for the performance of ser­vices, such as a broker commission.

Commitment

A promise, such as that by a lending institution to make a certain mortgage loan.

Common areas

Property to which co-owners hold title as a result of ownership of a condominium unit.

Comparative market analysis

An analysis’ of the competition in the marketplace that a property will face upon sale attempts.

Construction loan

A short-term loan, secured by a mortgage, to obtain funds to construct an improvement on land.

Contingency

A condition in a contract relieving a party of liability if a specified event occurs or fails to occur.

Contract

An agreement between competent parties upon legal consideration to do, or abstain from doing, some legal act.

Counteroffer

A new offer made by an offeror reject­ing an offer.

Credit

In a closing statement, money to be received or credit given for money or an obligation given.

Debit

In a closing statement, an expense or money received against a credit.

Deed

A written instrument transferring an interest in real property when delivered to the grantee.

Depreciation

(a) Loss in value from any cause. (b) Deductible allowance from net income of property when arriving at taxable income.

Devise

A gift of real property by will.

Earnest money deposit

A deposit a buyer makes at the time of offer acceptance to demonstrate the true intent to purchase; also called binder, good faith deposit, escrow deposit.

Easement

A nonpossessory right of use in the land of another.

Eminent domain

The power of government to take private property for public use.

Encroachment

Trespass on the land of another as a result of intrusion by some structure or other object.

Equal Credit Opportunity Act (ECOA)

A federal law prohibiting discrimination in consumer loans.

Equitable title

An interest in real estate such that a court will take notice and protect the owner’s rights.

Equity

The difference between the value of a property and its liabilities.

Escrow

The deposit of funds or documents with a neutral third party, who is instructed to carry out the pro­visions of an agreement.

Eviction

A landlord’s action that interferes with the tenant’s use or possession of the property. Eviction may be actual or constructive.

Exclusive agency listing

A listing given to one broker only (exclusive), who is entitled to the commission if the broker or any agent of the listing broker effects a sale, but imposes no commission obligation on the owner who sells the property to a person who was not interested in the property by efforts of the listing broker or an agent of the listing broker.

Exclusive right to sell listing

A listing given to one broker only, who is entitled to the commission if anyone sells the property during the term of the listing contract.

Fair Housing Act of 1988

A federal prohibition on discrimination in sale, rental, financing, or appraisal of housing on the basis of race, color, religion, gender, national origin, handicap, or familial status.

Fair market value

A price for property agreed upon between buyer and seller in a competitive market with neither party being under undue pressure.

Fannie Mae

The shortened name for the Federal National Mortgage Association (FNMA), a privately owned corporation that purchases FHA, VA, and con­ventional mortgages.

Fascia

In house construction, the area of material facing the outer edge of the soffit.

Federal Housing Administration (FHA)

The U.S. agency that insures mortgage loans to protect lending institutions.

FHA-insured loan

A mortgage loan in which payments are insured by the Federal Housing Administration.

Finance charge

An amount imposed on the borrower in a mortgage loan, consisting of origination fee, service charges, discount points, interest, credit report fees, and finders’ fees.

Fixed-rate mortgage

One in which the interest does not change.

Flashing

A metallic material used in certain areas of the roof and walls to prevent water from seeping into the structure.

Footing

The concrete base below the frost line that supports the foundation of a structure.

Foreclosure

The legal procedure of enforcing pay

Freddie Mac

A nickname for Federal Home Loan Mortgage Corporation (FHLMC), a corporation wholly owned by the Federal Home Loan Bank System that purchases FHA, VA, and conventional mortgages.

General lien

One that attaches to all of the property of a person within the court’s jurisdiction.

Ginnie Mae

A nickname for Government National Mortgage Association (GNMA), a U.S. government agency that purchases FHA and VA mortgages.

Good faith estimate

Lender’s estimate of borrower’s settlement costs,

Highest and best use

The use of land that will pre­serve its utility and yield a net income flow in the form of rent that, when capitalized at the proper rate of inter­est, represents the highest present value of the land.

Home equity loan

A loan against the equity in a home.

Homeowners’ association

An organization of own­ers having the responsibility to provide for operation and maintenance of common areas of a condominium or residential subdivision; also called property owners’ association.

Homeowner’s policy

An insurance policy protecting against a variety of hazards.

Homestead

The land and dwelling of a homeowner.

HVAC

An acronym that stands for heating, ventila­tion, and air conditioning.

Improvements

Changes or additions made to a prop­erty, such as walls or roads, and so on. These typically increase the value of a property, except in some cases of over improvement.

Income property

One that produces rental income.

Inflation

An increase in money and credit relative to available goods resulting in higher prices.

Infrastructure

Services and systems that support a community, such as hospitals, schools, and roadways.

Interest

(a) Payment for the use of someone else’s money. (b) An ownership or right.

Involuntary lien

An act wherein a creditor places a claim on real and/or personal property of another to obtain payment of a debt.

Joint tenancy

A form of co-ownership that includes the right of survivorship.

Joists

Wooden framing members used in the construc­tion of floors and ceilings.

Judicial foreclosure

A court proceeding to require that property be sold to satisfy a mortgage lien.

Junior mortgage

One that is subordinate to a prior mortgage.

Land

The surface of the earth, the area above and below the surface, and everything permanently attached thereto.

Land trust

Type of trust in which title to land is held by a trustee for the benefit of others.

Lead

A toxic metallic element found in some homes in paint, dust, and water.

Lease

A contract wherein a landlord gives a tenant the right of use and possession of property for a limited period of time in return for rent.

Legal description

A description of land recognized by law.

Lien

A claim that one person has against the property of another for some debt or charge, entitling the lien­ holder to have the claim satisfied from the property of the debtor.

Loan commitment

Obligation of a lending institution to make a certain mortgage loan.

Loan origination fee

Financing charge required by the lender.

Loan-to-value ratio

The relationship between the amount of a mortgage loan and the lender’s opinion of the value of the property pledged to secure payment of the loan.

Market value

A property’s worth in terms of price agreed upon by a willing buyer and seller when neither is under any undue pressure and each is knowledgeable of market conditions at the time.

Mineral rights

A landowner’s ability to take minerals from the earth or to sell or lease this right to others.

Mortgage

A written instrument used to pledge a title to real property to secure payment of a promissory note.

Mortgage assumption

The transfer of mortgage obligations to purchaser of the mortgaged property.

Mortgage insurance premium (MIP)

A payment for insurance to protect the lender and/or insurer against loss if default occurs.

Mortgage principal

The amount of money (usually the loan amount) on which interest is either paid or received.

Nonconforming use

Utilization of land that does not conform to the use permitted by a zoning ordinance for the area; may be lawful or unlawful.

Notary public

A person authorized by a state to take oaths and acknowledgments.

Novation

Substitution of a new contract for a prior contract.

Occupancy

Physical possession of property.

Open listing

A listing given to one or more brokers wherein the broker procuring a sale is entitled to the commission but imposes no commission obligation on the owner in the event the owner sells the property to someone who was not interested in the property by one of the listing brokers.

Option to purchase

A contract whereby a property owner (optionor) sells a right to purchase his or her property to a prospective buyer (optionee).

Ordinance

A law enacted by a local government.

Origination fee

A service charge by a lending institu­tion for making a mortgage loan.

Overimprovement

An improvement to land that results in the land not being able to obtain its highest and best use.

Ownership in severalty

Title to real property held in the name of one person only.

Personal property

All property that is not land and is not permanently attached to land; everything that is movable; chattel.

Physical deterioration

Loss in value caused by unre­paired damage or inadequate maintenance.

Pitch

The slope of a roof.

Possession

One who either actively or constructively occupies a property; implies constructive notice that the possessor has certain legal rights

Prepaid expenses

Costs the seller pays in advance but were not fully used up (such as utility payments or property taxes due) shown as a credit to the seller and debit to the buyer.

Prepaid items

Funds paid at closing to start an escrow account, as required in certain mortgage loans; also called prepaids.

Prepayment penalty clause

A financial charge imposed on a borrower for paying a mortgage prior to expiration of the full mortgage term.

Prime rate

The interest rate a lender charges to the most creditworthy customers.

Principal residence

The home the owner or renter occupies most of the time.

Private mortgage insurance (PMI)

A form of insur­ance coverage required in high loan-to-value ratio conventional loans to protect the lender in case the bor­rower defaults in the loan payment.

Property condition disclosure form

A comprehen­sive checklist pertaining to the condition of the property including its structure and any environmental hazards in and around the property.

Property manager

One who manages properties for an owner as the owner’s agent.

Proration

Division of certain settlement costs between buyer and seller.

Quitclaim

A deed to relinquish or release a claim to real property.

Radon

A colorless, odorless, radioactive gas present in the soil that enters a home through small spaces and openings.

Rafters

Wooden framing members used in the roof.

Rate cap

With adjustable rate mortgages, limits on interest rates during the lifetime of a loan.

Real estate

Land and everything permanently attached to land.

REALTOR®

A registered trademark of the National Association of REALTORS®; its use is limited to mem­bers only.

Redlining

The refusal of lending institutions to make loans for the purchase, construction, or repair of a dwelling because the area in which the dwelling is located is integrated or populated by culturally diverse people.

Referral fee

A percentage of a broker commission paid to another broker for sending a buyer or seller to him or her.

Refinancing

Obtaining a new mortgage loan to pay and replace an existing mortgage.

Rescission

Cancellation of a contract when another party is in default.

Restrictive covenant

Restriction placed on a private owner’s use of land by a nongovernmental entity or individual.

Reverse annuity mortgage

Used by older people who need additional income and want to take advantage of the equity in their homes.

Rider

Addendum to cover supplemental issues of an agreement.

Right of first refusal

A statement in a lease or condo­minium articles of association that provides for a lessee or an association to have the first opportunity to pur­chase the property before it is offered to anyone else.

Right of survivorship

The right of an owner to receive the title to a co-owner’s share upon death of the co-owner, as in the case of joint tenancy and tenancy by the entirety.

Riparian rights

The rights of an owner of property adjoining a watercourse such as a river, including access to, and use of, the water.

Sale and leaseback

A transaction in which a property owner sells a property to an individual who immediately leases back the property to the seller.

Sales contract

An agreement between buyer and seller on the price and other terms and conditions of the sale of property.

Secondary mortgage market

The market in which lenders sell mortgages.

Security deposit

A sum of money that the landlord requires of the tenant prior to the lease, to be refunded at the end of the lease based upon the condition of the premises.

Seepage pit

A covered pit through which the discharge from the septic tank infiltrates into the surrounding soil.

Septic system

A household wastewater treatment system consisting of a house sewer, septic tank, distribu­tion box, and absorption field or seepage pit.

Service drop

Above ground electrical cables that come from the nearest pole connecting to the service entrance conductors of a house.

Setback

The distance from a front or interior property line to the point where a structure can be located.

Special assessment

A levy by a local government against real property for part of the cost of making an improvement to the property, such as street paving, installing water lines , or putting in sidewalks.

Special use permit

A permit for a use that is not per­mitted in the zone except with the special permission of the planning board or other legislative body.

Steering

The practice of directing prospective pur­chasers toward or away from certain neighborhoods to avoid altering the racial/ethnic makeup of these areas.

Studs

Wooden framing members used for forming the wall skeleton of a structure.

Sublease

The transfer of only part of a lease term with reversion to the lessee; a lesser lease estate.

Taking title subject to a mortgage

Accepting a title

Term mortgage

One that requires the mortgagor to pay interest only during the mortgage term, with the principal due at the end of the term.

Testate

To have died leaving a valid will.

Title

Evidence of the right to possess property.

Title closing

The consummation of a real estate con­tract; a meeting in which the buyer, seller, and closing agent meet for execution of documents and disburse­ment of funds.

Title insurance

An insurance policy protecting the insured from a financial loss caused by a defect in a title to real property.

Topography

The physical features and contours of land.

Tax deed

A deed conveying title to real property to a new owner that a municipality obtained from the origi­nal owner’s failure to pay real estate taxes.

Tenancy by the entirety

A form of co-ownership lim­ited to husband and wife, with the right of survivorship.

Tenancy in common

A form of co-ownership that does not include the right of survivorship.

Trade fixtures

Items that are installed by a commer­cial tenant and are removable upon termination of the tenancy.

Trust

A legal relationship under which title to property is transferred to a person known as trustee.

Underwriting

The act of reviewing loan documenta­tion and evaluating borrower’s ability and willingness to repay the loan and sufficiency of collateral value of the property.

Uninsured conventional loan

One in which the loan payment is not insured to protect the lender.

Vacant land

Unimproved land that could include land brought back to its natural state, or land that does not possess improvements necessary to serve some kind of purpose.

VA-guaranteed loan

A mortgage loan in which the loan payment is guaranteed to the lender by the Depart­ment of Veteran Affairs.

Variance

A permitted deviation from specific require­ments of a zoning ordinance because of the special hardship to a property owner.

Wetlands

Federal and state protected transition areas between uplands and aquatic habitats that provide flood and storm water control, surface and groundwater pro­tection, erosion control, and pollution treatment.

Zoning ordinance

A statement setting forth the type of use permitted under each zoning classification and specific requirements for compliance.