Glossary of Terms
This glossary will assist you in understanding many
of the terms used in real estate transactions. Though general in nature, these
definitions, dependent on the context, may have additional meanings that are
different from those published on this site. Of course, all questions concerning
the meaning of specific words in specific situations should be referred to
an appropriate professional, such as an attorney, lender or escrow officer.
ADDENDUM - An addition to the contract that
must be signed by both parties to be binding.
AMORTIZATION - The payment of a financial obligation
on an installment basis. An AMORTIZED LOAN is
a loan that is completely paid off, interest and principal rather than interest-only,
by a series of regular payments that are equal or nearly equal.
ANNUAL PERCENTAGE RATE (A.P.R.)- The total amount
of the finance charge - including interest, points and all loan fees (i.e.
escrow, processing, etc.) - calculated as a percentage of the borrowed amount
and expressed as a yearly rate.
APPLICATION FEE - This is a fee that may be
charged by the lender to cover the costs of processing your loan application.
APPRAISAL - The professional examination of
property for the purpose of estimating its current market value.
APPRECIATION - The increase in value of a property
due to any cause.
APPURTENANCE - That which "runs with the land";
anything incident to or attached to the land which is part of the property.
ASSESSED VALUE - The value placed upon a property
for property tax purposes.
ASSIGNMENT - The transfer over to another the
whole of any property, real or personal, in possession or in action, or any
right or estate therein. ASSIGNEE is the person
receiving the right or property. ASSIGNOR is
the owner of the right or property, which is being transferred to another.
ASSIGNOR - is the owner of the right or property,
which is being transferred to another.
ASSUMPTION OF A MORTGAGE - A buyer's agreement
to assume the liability under an existing note that is secured by a mortgage
or deed of trust. The mortgage or deed of trust. The lender must approve the
buyer in order to release the original borrower (typically the seller) from
liability. Not all loans or loan terms are "assumable".
ATTORNEY IN FACT - A person holding power of
attorney from another.
ATTORNEY REVIEW - For the state of New Jersey,
there is a 3 day attorney review. For the state of New York, there is a 5-day
attorney review. During this timeframe either party may cancel the contract
for any reason without penalty.
BALLOON PAYMENT - Any payment on a note that
is greater than the smallest installment payment. A lump sum principal payment
due at the end of some mortgages or other long-term loans.
BENEFICIARY - The inheritor of a trust. The
lender on a note and trust deed transaction.
BENEFICIARY STATEMENT - Statement of a lender,
giving the remaining principal balance and other information regarding the
loan. Usually obtained when an owner wishes to sell or refinance.
BINDER - Written evidence of insurance which
covers a limited time; to be replaced later with a permanent policy.
BUNDLE OF RIGHTS - The law designates the rights
that accompany ownership to real property as the bundle of rights. The right
to own, possess, use, enjoy, encumber, dispose of, and exclude those who do
not share ownership of real property.
BUYDOWN - A permanent buydown is prepaid interest
that brings the note rate down to a lower permanent rate. A temporary buydown
is prepaid interest that lowers the note rate temporarily on the loan, allowing
the buyer to more readily qualify and increase payments as income grows.
BUYER AGENT - Agent acts solely on the buyer's
behalf. The Agent has full fiduciary responsibilities, which include reasonable
care, individual loyalty, confidentiality and full disclosure. This means
the agent places the buyer's interest above all else.
CALLED LOAN - A loan that is due and payable
at the demand of the lender.
CAP - The limit on how much an interest rate
or monthly payment can change, either at each adjustment or over the life
of the mortgage.
CAPITAL GAIN - The gain received on the sale
of real or personal property, other than property sold as stock-in-trade.
CAPITALIZATION - In appraising, determining
value of property by considering net income and a percentage of reasonable
return on the investment. The conversion of income into value.
CAPITALIZATION RATE - Any rate used to capitalize
income.
CHAIN OF TITLE - A history of all of the documents
transferring title to a parcel of real estate, beginning when it originally
came from the government to a private owner, through the latest document transferring
title.
CHATTLE - An item of personal property.
CHATTLE REAL - A personal property right in
real estate, such as a lease.
CLOSING
- The same as Close of Escrow or COE. The final procedure in a real estate
transaction. This is the day the new owner can take possession of the house
and actually owns it.
CLOSING SERVICE NETWORK - A network of experienced
Real Estate Attorneys who provide efficient, reliable and responsive representation
for homebuyers and sellers.
CLOSING STATEMENT - (HUD-1 STATEMENT) The financial
disclosure statement prepared by the escrow holder (attorney, broker, escrow
company, or lender) that accounts for all of the funds received and expected
at closing, including deposits for taxes, hazard insurance and mortgage insurance.
CLOUD ON TITLE - Any condition which affects
the clear title of real property.
COMMISSION - An amount paid by the seller to
the listing and selling agent for handling the real estate transaction.
COMMUNITY PROPERTY - Property acquired by husband
and wife during marriage, when not acquired as separate property.
COMPARATIVE ANALYSIS - A method of appraisal
in which selling prices of similar properties are used as the basis for arriving
at the value estimate (a.k.a. the Market Data Approach).
COMPOUND INTEREST - Interest paid on original
principal and on the accrued and unpaid interest, which has accumulated.
CONCIERGE™ SERVICE - The Coldwell Banker
Concierge™ Service is a resource to help buyers and sellers find the
service providers need before, during and after the sale or purchase of a
home.
CONDITION - A stipulation or qualification in
the deed which, if violated or not performed, defeats the deed and places
the title back in the hands of the original grantor.
CONDOMINIUM - A form of real estate ownership
in which the owner receives exclusive title to a particular unit and shares
ownership in certain common areas with other unit owners. The unit itself
is generally a separately owned space whose interior surface (walls, floors
and ceiling) serve as its boundaries.
CONSIDERATION - Anything of value given to induce
another to enter into a contract including money, service or a promise. This
is essential to a valid contract.
CONTINGENCY - A condition that must be satisfied
before a contract is binding. For example, a sales agreement or offer may
be contingent upon the buyer obtaining financing.
CONTINGENCY REMOVAL - Must be signed by the
buyer to remove any contingency and create a binding contract.
CONTRACT - A deliberate agreement, based upon
legal consideration, between two or more parties who have legal capacity,
to perform a legal act. A binding promise.
CONVENTIONAL LOAN - A loan that is not underwritten
by a government agency.
CONVEYANCE - 1) The transfer of a title. 2)
The document, such as a deed, by which the title is officially transferred.
CO-OP - (Co-operative housing) A form of multiple
ownership in which a corporation or business trust entity (made up of the
occupants) holds title to a property and grants occupancy rights to shareholders
by means of proprietary leases or similar arrangements. As such, no real property
is owned by the individuals, only shares in the corporation allocated to particular
apartments.
COVENANT - A clause in a contract; an agreement
contained in a deed for the performance or non-performance of certain acts.
CURABLE DEPRECIATION - Items of physical deterioration
and functional obsolescence which can be repaired or replaced by a prudent
property owner.
DEBT RATIO - The comparison of a buyer's housing
costs to gross or net effective income.
DEED - A document which, when properly executed,
conveys title of real property.
DEFERRED PAYMENT - A payment under which the
total balance of principal and an amount for finance charge is put off until
the future. This balance is paid by means of installments over a long period.
DEPRECIATION - As used in appraisal, loss in
value due to any cause. As used in taxation, a capital cost recovery out of
income.
DISCLOSURE
- To make known or public. By law, a seller of real property must disclose
facts which affect the value or desirability of the property. Unless exempt,
the seller completes and signs specific disclosure forms, including the Real
Estate Transfer Disclosure Statement, to disclose those material facts.
DISCLOSED DUAL AGENT - When an agent shows properties
that are listed with Coldwell Banker, or if Coldwell Banker is representing
more than one buyer on a particular property, the Coldwell Banker agent then
becomes a disclosed dual. The agent will not be able to disclose confidential
information to either party, such as price, terms or motivation to sell or
buy. The dual agent must treat all parties fairly, act in good faith and disclose
all appropriate property facts.
DISCOUNT POINTS - A negotiable fee paid to the
lender to secure financing to the buyer. Discount points are interest charges
paid up-front to reduce the interest rate on the loan over the life or a portion
of the term.
DOCUMENTARY TRANSFER TAX - A method of taxing
real property transfers. State law requires that a tax be paid prior to recording
a deed.
EARNEST MONEY - The portion of the downpayment
delivered to the seller or escrow agent by the purchaser with a written offer
as evidence of good faith.
EASEMENT - A right to use all or part of the
land owned by another. EFFECTIVE AGE - Age of
a structure as estimated by its condition rather than actual age. Takes into
account rehabilitation and maintenance.
EGRESS - As applied to an easement, a way out
or exit.
ENCUMBRANCE - Anything that affects or limits
the ownership of real property, such as mortgages, liens, easements, or restrictions
of any kind.
EQUITY - The difference between what is owed
and the amount for which the property could be sold.
ESCROW - The temporary holding by a third neutral
party of deposited money pending completion of agreed terms in the sales contract.
This third party acts as stakeholder for both parties' instructions and assuming
responsibility for the handling of all paperwork and distribution of funds.
ESCROW FEES - The fee that the title company
(the third party) charges for doing the paper work involved.
ESTATE - The ownership interest of a person
in real property; also used to refer to the property left by a deceased person.
EXCLUSIVE AGENCY LISTING - A written instrument
giving one agent the "authorization to sell" property for a specified time,
but reserving the right to collect a commission if the property is sold by
anyone during the term of the listing.
EXECUTED - A contract that has been fully performed.
EXTENDED COVERAGE - A form of title insurance
that is available to homeowners.
FHA LOAN - (Federal Home Loan Mortgage Corp.-FHLMC)
Often referred to as "Freddie Mac", a part of the secondary market and used
to purchase loans from savings and loan lenders within the Federal Home Loan
Bank Board.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -
Popularly known as "Fannie Mae", a privately owned corporation formed by the
congress to support the secondary mortgage market. It purchases and sells
residential mortgages insured by FHA or guaranteed by the VA, as well as conventional
home mortgages.
FEE SIMPLE - An estate in which the owner has
unrestricted power to dispose of the property as he or she wishes, including
leaving by will or inheritance.
FIDUCIARY - A person holding a position of trust;
agents, trustees, attorneys, etc.
FINANCE CHARGE - The total cost that a borrower
must pay (directly or indirectly) to obtain credit according to Regulation
Z, the set of rules governing consumer lending issued by the Federal Reserve
Board.
FINANCIAL STATEMENT - A statement in writing
often required of a borrower of money from a bank, stating fully all of the
borrower's assets, liabilities and net worth.
FIXED EXPENSES - The regular recurring costs
or charges required in the holding of a property, such as taxes and fire insurance.
FIXED RATE MORTGAGE - A conventional loan with
the same interest rate for the life of the loan.
FIXTURE - Personal property that is attached
to real property and is legally treated as real property when its attached-such
as light fixtures and window treatments.
FULLY INDEXED RATE - The maximum interest rate
on an ARM that can be reached at the first adjustment.
FUNCTIONAL OBSOLESCENCE - A loss of value due
to out-of-date, old-fashioned or poorly designed equipment; a type of depreciation.
GIFT LETTER - A letter from a relative stating
that an amount will be gifted to the buyer, and that said amount is not to
be repaid.
GOVERNMENT NATIONAL MORTGAGE (GNMA) - Known
as "Ginnie Mae", a governmental part of the secondary market that deals primarily
with recycling VA and FHA mortgages, particularly those that are highly leveraged.
GRANT DEED - Customary document used to transfer
title to real property; contains two implied warranties.
GRANTEE - Receiver of the title being granted.
GRANTOR - Owner of title being granted; the
person who makes the grant.
GUARANTEE OF TITLE - A guarantee by an abstract
company or title company that the title is vested as shown on the guarantee;
backed only by the assets or reserves of the guarantor.
HAZARD INSURANCE - Insurance protection for
the borrower and lender against property loss due to fire, wind or natural
hazards.
HOME INSPECTION SERVICE - A qualified inspector's
report on the overall condition of a property. The report typically includes
an evaluation of both the structure and mechanical systems.
HOME WARRANTY PLAN - Protection against failure
of mechanical systems within the property, and usually includes plumping,
electrical, heating and cooling systems, and installed appliances.
HOMEOWNER'S ASSOCIATION (HOA) - An organized
group of homeowners whose members help to regulate and enforce the rules and
standards of their respective communities.
IMPOUND ACCOUNT - An account held by the lender
for payment of taxes, insurance and other periodic debts against a property.
The borrower pays an apportioned amount with each monthly loan payment and
the lender pays the bills with the accumulated funds.
INDEMNIFY - To secure against hurt, loss or
damage; to make compensation to for hurt, loss or damage.
INDEX - A measure of interest rate changes used
to determine changes in an ARM's interest rate over the term of the loan.
INTEREST RATE - The percentage of a sum of money
charged for its use.
INVOLUNTARY LIEN - A lien imposed against property
by operation of law without the consent of the owner, such as a tax lien,
judgement lien or mechanic's lien.
JOINT TENANCY - An equal, undivided ownership
of property by two or more persons. Upon the death of any owner, the survivors
take the descendant's interest in the property.
JUMBO LOAN - Mortgage loan that exceeds the
loan amount acceptable for sale in the secondary market. Jumbos are packaged
and sold differently to investors, and have separate underwriting guidelines.
LIEN - A legal hold or claim on a property as
security for a debt or charge. It can be voluntary such as a mortgage or involuntary
such as for back taxes.
LIST-TO-SALE RATIO - The ratio between the price
at which a property is listed and the amount for what it is actually sold.
LOAN COMMITMENT - A written promise to make
a loan for a specified amount on specific terms.
LOAN ORIGINATION FEE - A fee charged by the
lender for Evaluating, preparing, and submitting a proposed mortgage loan.
LOAN-TO-VALUE (LTV) RATIO - The amount of the
loan as a percentage of the property's appraised value. An 80% loan, for example,
is determined by subtracting a 20% down payment from the property's appraised
value.
LOCK-IN - The fixing of an interest rate or
points at a certain level during the loan application process. It is typically
fixed for a specified amount of time, such as 20-30 days or some other period
of time determined by the lender.
MARGIN - The number of percentage points the
lender adds to the index to calculate the ARM interest rate at each adjustment.
For example, an index rate of 8% plus a margin of 2.5% could result in a home
loan rate of 10.5%. The fixed margin over the index covers the lender's operating
expenses and profit margin.
MARKET VALUE - The current value of real estate
that a buyer is willing to pay and a seller is willing to accept.
MARKETABLE TITLE - Title to property that is
free of objectionable encumbrances and liens.
MECHANIC'S LIEN - A statutory lien on a specific
property for labor or materials contributed to a work of improvement.
MORATORIUM - A temporary suspension, as in the
payment of a debt.
MORTGAGE (DEED OF TRUST) - A legal document
between the lender and borrower providing security for and stipulating the
terms of repayment of a loan for a specific property.
MORTGAGE INSURANCE PREMIUM (MIP) - The mortgage
insurance required on FHA loans for the life of said loan.
MULTIPLE LISTING SERVICE (MLS) - The pooling
in a central bureau of all properties listed for sale. Listings are held individually
by members of a group of real estate brokers, with the agreement that any
member may sell the property and the commission will be divided between the
listing and selling broker.
NEGATIVE AMORTIZATION - Monthy payments fail
to cover the cost of the interest on a loan, which is then added to the principal
balance. As a result, a borrower could owe more than at the beginning of the
loan even after making several payments.
OFFSET STATEMENT - Statement of owner setting
forth the present status of title and all liens against the property.
OPTION - A right given to a person to buy, sell
or lease property within a stated period and under certain specified terms.
A contract to keep an offer open.
OPTIONEE receives an option.
OPTIONOR owns the title who gives an option.
PAYMENT CAP - This cap places an annual limit
on the amount that a monthly payment can increase. This feature is offered
by some ARM lenders instead of an annual interest rate cap.
PITI - The term for a mortgage payment that
includes principal (P), interest (I), taxes (T), and insurance (I).
PLANNED UNIT DEVELOPMENT (PUD) - A zoning designation
for property developed at the same or slightly higher density than conventional
development, often with improvements clustered between open or common areas.
POINT(S) - An amount equal to one percent of
the principal loan amount. For example, two points equal 2% of the amount.
POWER OF SALE CLAUSE - A clause in a trust deed
that gives the trustee the right to sell borrower's property publicly, without
court procedure, if the borrower defaults on the loan.
PREPAID INTEREST - Interest paid before accrued.
PREPAYMENT PENALTY - A fee charged to a borrower
who pays a loan in full before the stated due date.
PRIVATE MORTGAGE INSURANCE (PMI) - Insurance
written by private companies to protect a lender against loss if the borrower
defaults on a mortgage. PMI is often required on mortgage loans with less
than 20% down payment.
PROMISSORY NOTE - A written contract containing
a promise to pay a definite amount of money at a definite future time. The
evidence of a debt.
PRORATE - To divide proportionally to time or
use.
PURCHASE AGREEMENT - A written document in which
the purchaser agrees to buy a certain real estate and the seller agrees to
sell under stated terms and conditions. May also be called a sales contract,
earnest money contract, or agreement for sales.
QUITCLAIM DEED - A deed used to transfer any
interest in real property which the grantor may have. It contains no warranties
of any kind.
RATE CAP - The rate cap defines rate limits,
either from one adjustment period to the next or over the life of the loan.
RATE GAP - The difference between the current
rate and the rate to which it could adjust on an ARM.
RATIFY - The agreement of both the buyer and
seller to the terms offered in the real estate contract.
REAL ESTATE AGENT (REALTOR) - A person licensed
by the state, who represents a broker in real estate transactions.
REAL PROPERTY - Land, that which is affixed
to the land, incidental or appurtenant to land and that which is immovable
by law.
REAL ESTATE TRANSFER DISCLOSURE STATEMENT -
This must be provided by the seller, listing any known defect or problem with
the house. Both agents must reveal anything they know that might be a problem
with the property. See also DISCLOSURE.
RECORDING FEES - Charged by the County or Town
Clerk to record documents in public records. May be included in the borrower's
closing costs.
RECURRING COSTS - Expenses that the buyer can
expect again, year after year, such as property taxes, fire insurance, earthquake
insurance, interest.
REFINANCE - The securing of a new loan either
to pay off an existing lien or mortgage on the property, or to access your
equity.
RESCIND - To cancel a contract from the beginning,
restoring the parties to their original positions. Referred to as an annulment.
SALES ASSOCIATE (Agent) - A person who for compensation
or expectation of compensation acts for another in a real estate or related
transaction. A real estate license is required, and individual for a real
estate broker.
SALE-LEASEBACK - A transaction in which at the
time of sale the seller retains occupancy by concurrently agreeing to lease
the property from the purchaser. The seller receives cash while the buyer
is assured a tenant and a fixed return on the buyer's investment.
SECONDARY MORTGAGE MARKET - Market place for
the sale and purchase of existing trust deeds and mortgages.
SELLERS' AGENT - Agent acts solely on the sellers'
behalf. Agent has full fiduciary responsibilities that include reasonable
care, undivided loyalty, confidentiality and full disclosure. This means the
agent places the sellers' interest above all else.
SETTLEMENT - See "Closing."
SUBORDINATION CLAUSE - A clause in a junior
lien permitting retention of priority for prior liens OR it may be used in
a first deed of trust permitting it to be subordinated to subsequent liens
as, for example, the liens of construction loans.
SURVEY - This may be required by the title company
to insure that the house is properly situated on the property.
TENEMENT - All rights in land that pass with
a conveyance of the land.
TENENCY IN COMMON - A type of joint ownership
of property by two or more persons with no right of survivorship.
TITLE - The rights of ownership recognized and
protected by law. A combination of all elements that constitute the highest
legal right to own, possess, use, control, enjoy, transfer, and dispose of
real estate. A title spells out who has the right of ownership of a property.
TITLE COMPANY - The company who issues Title
Insurance and employs the escrow officer.
TITLE INSURANCE POLICY - A clear title has no
liens or claims against it. This policy protects the purchaser, mortgagee,
or other party against defects or losses associated with the title.
TOWNHOUSE - Architectural term for a two or
more story unit with no units above or below, but with one or more shared
walls. Ownership may be in the form of condominium, planned unit development
or stock cooperative.
TRUSTEE - The third person who holds legal title
to property for a special purpose without being the actual owner. A trustee
is one of the parties to every trust deed.
UNDERWRITING - These are standards set by the
lender which the borrower must meet in order to qualify for the loan.
USURY - Charging interest in excess of the maximum
rate as set by law.
VA LOAN - A loan made by a private lender that
is partially guaranteed by the Veterans Administration.
VESTING - Conveying ownership.
WAIVER - The intentional or voluntary relinquishment
of a known right, essentially a unilateral act.
WOOD DESTROYING PEST AND ORGANISM INSPECTION -
An inspection identifying existing or potential pest, dry rot, fungus, and
other structure-threatening infestation or conditions. Sometimes referred
to as "termite inspection."
ZONING - Laws passed by local governments regulating
the size, type, structure, nature, and use of land or buildings.
