The Complete Real Estate Glossary
A Adjustable rate mortgage A type of mortgage rate loan that allows the interest rate to change periodically up or down, usually once or twice a year. Agent A person who acts, or has the power to act for another. A real estate agent acts on behalf of the principal (the buyer or seller) and has fiduciary responsibilities towards the principal. Agreement of sale A written agreement or contract in which the seller agrees to sell the buyer agrees to buy under specific terms and conditions. Affordable Housing Housing that is governed by a state or federal agency to control the rents and offer assistance to persons meeting certain criteria. Amenities Features that enhance and add to the value or desirability of real estate. Common amenities include a swimming pool, clubhouse and a fitness area. Amortization The reduction of a debt over time by making periodic payments (usually monthly) a portion of which is interest and a portion of which reduces the outstanding amount of the debt. The monthly mortgage payments remain the same over the life of the loan, even though the proportion of principal to interest changes over time. In the early part of the loan, principal repayment is very small and interest repayment very high; at the end of the loan, that relationship is reversed. Apartment A room or a group of related rooms, among similar sets in one building, designed for use as a dwelling. Appraisal The act or process of estimating value; an estimate of value. Appraiser Someone who practices appraisal. Appraisers' work involves appraisal (see above), review (the process of critically studying a report prepared by another), or consulting (the process of providing information, analysis of real estate data, and recommendations on diversified problems in real estate, other than estimating value). B Balloon mortgage A mortgage for a fixed term shorter than necessary to fully repay the debt. As a result, the remaining amount of principal is due at the maturity of the loan. Bridge loan A loan, usually short term that finances the portion of the purchase price not provided by the mortgage loan and the down payment. A bridge loan is commonly used when a purchaser has not sold his existing home before he closes on his purchase of a new home. The bridge loan is paid off when the old home is sold, out of the proceeds of that sale. Broker, as in real estate broker A real estate professional who has acquired a higher level of training and/or experience than a sales agent. Generally, the legal representative or proprietor of the office. Buyer's agent An agent who represents the buyer and owes fiduciary duties to the buyer. C Cap rate Cap Rate is the ratio of the net income produced by a property (after expenses, but independent of financing) and its price. Cap Rate Implied by NOI/ Price Cap Rate Implied by NOI/ Price derives the property “Cap Rate” by dividing the property’s actual Net Operating Income (NOI), or income after expenses and taxes (but before financing), by the property price. Capital gain Income that results from sale of a capital (tangible) asset. Closing The end of the transaction; when the seller hands over the title to the buyer in exchange for payment. Closing costs Costs the buyer must pay at the time of the closing in addition to the down payment which may include points, title charges, mortgage insurance premium, prepayments for property taxes, and homeowners insurance. Closing costs can be as much as three to four percent of the loan amount. Condominium or condo A condominium, literally, is a home in a shared building or development. The buyer owns title to his or her unit, shares the common areas with other unit owners, and pays a maintenance fee to the condominium association to pay for needed maintenance, repairs and improvements to the property. Contingency A condition that must be met before a contract is binding. Conventional loan A fixed-rate, fixed-term loan that is made without government insurance. Co-operative or co-op In a residential co-operative, the buyer purchases shares in the co-op corporation, made up of the residents in the co-op property. The buyer owns the shares rather than owning real property. In exchange, ha has the right to lease and occupy a co-op unit. Co-signer A signer in addition to the principal signer (to verify the authenticity of the principal signature or to provide surety) D Deed A legal document by which property title is transferred from one owner to another. Down payment The down payment is the percentage of the purchase price that the buyer must pay in cash and may not borrow from the lender. The down payment amount, in addition to the mortgage, equals the purchase price of a property. Dual agency Representing both parties in a transaction. In virtually all states, it is unethical and illegal for a broker to represent both buyer and seller in a real estate transaction without written consent of both. Duplex (house) A house having separate apartments for two families, esp. a two-story house having a complete apartment on each floor and two separate entrances. E Earnest money The deposit money given to the seller by the potential buyer as evidence of good faith in purchasing real estate. The broker places the money in an escrow/trust account until closing, when it becomes part of the down payment. Equity in Property Equity in Property measures the total equity owned by the Investor in the current year, including property value escalation, repaid loan principal, and property improvements. Equal Housing Opportunity To create equal housing opportunities for all persons living in America by administering laws that prohibit discrimination in housing on the basis of race, color, religion, sex, national origin, age, disability, and familial status. Escrow Money or other valuables given to a third party with directions to deliver them to another party upon the fulfillment of a specific act or condition. Ethics / Professionalism The system of moral principles and rules that becomes the standards for professional conduct. Eviction A legal process to oust a person from possession of real estate Exclusive agency listing A written agreement giving the broker the right to market an owner's property for a certain period of time, but also allowing the owner to sell the property during that period without paying a commission. Exclusive right-to-sell A written agreement between the agent and the owner, whereby the owner promises to pay a fee or commission to the broker if his property is sold during the listing period, regardless of whether the broker is responsible for the sale. F Fair Housing Act The federal law that prohibits discrimination in housing based on race, color, religion, sex, handicap, familial status, and national origin Fannie Mae Nickname for the Federal National Mortgage Association, FNMA is a public corporation originally established by the federal government. Fannie Mae purchases mortgage loans from lenders, and thus, is a major source of funds for mortgage companies. FHA or Federal Housing Administration Part of the US Department of Housing and Urban Development (HUD) --established in 1934 to encourage improvement in housing standards and communities. The FHA insures mortgage loans. See HUD listing. FHA mortgage A mortgage loan insured by the Federal Housing Administration. Future Property Value Future Property Value represents the Fair Market Value of the property in the current year, assuming property improvements and value escalation. G Good Faith estimate The good-faith estimate is a report from your lender that outlines the costs you will incur to get your mortgage. It is based on the lender's typical loan origination costs for the area where your home is located. The estimate usually changes between application and closing, so you'll want to review your settlement form before the closing meeting. The settlement form will list the actual amount of money you'll need to bring to closing. You'll need to pay your closing costs in the form of a certified or cashier's check because personal checks usually are not accepted. Government Mortgage A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Contrast with conventional mortgage. Gross Rent Multiplier Gross Rent Multiplier is the ratio of the price of a property to its annual rental income before all expenses, including property taxes, property management, insurance, etc. H HAP (Housing Assistance Payments) contract This form of Housing Assistance Payments Contract (HAP contract) is used to provide Section 8 tenant-based assistance under the housing choice voucher program (voucher program) of the U.S. Department of Housing and Urban Development (HUD). The main regulation for this program is 24 Code of Federal Regulations Part 982. Home inspection An examination of the physical structure, systems and condition of a home. Homeowners insurance Insurance that protects the homeowner from "casualty" (losses or damage to the home or personal property) and from "liability" (damages to other people or property). Homeowners insurance is required by the lender and is usually included in the monthly mortgage payment. House A building in which people live; residence for human beings. HUD or the US Department of Housing and Urban Development Department of Housing and Urban Development, a government agency created to make the American dream of home ownership a real possibility for everyone. HUD has many programs involving homeownership assistance for low- and moderate-income families, community planning and development, fair housing and equal opportunity, and home improvement loans. The Housing and Urban Development home page is a rich resource of information. I Income Levels These are income limits based on the median household income of the government agency used to provide limits on tax credit and other affordable housing. Insured Mortgage A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount. Interest Rate Buy down Plan An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. During the specified period, the mortgagor's effective interest rate is "bought down" below the actual interest rate. Internal Rate of Return The Internal Rate of Return is the annualized effective compounded return rate which can be earned on the invested capital, i.e. the yield on the investment. J Judgment A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor. Judicial Foreclosure A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. L Lead Based Paint Disclosure Recognizing that families have a right to know about lead-based paint and potential lead hazards in their homes, Congress directed EPA and HUD to work together to develop disclosure requirements for sales and leases of older housing. These requirements became effective in 1996.? EPA has established hazard standards for paint, dust, and soil in most pre-1978 housing and child-occupied facilities. These requirements became effective in 2001. Lease A written or oral contract between a landlord (the lessor) and a tenant (the lessee) that transfers the right to exclusive possession and the use of the landlord's real property to the lessee for a specified period of time and for a stated consideration (rent). By state law, leases for longer than a certain period of time (generally one year) must be in writing to be enforceable. Lease Option A lease under which the tenant has the right to purchase the property either during the lease term or at its end. Lease Renewal A renewal of the lease for a period of time generally under its original conditions unless otherwise stated in the renewal. Lease Term The term or duration of the lease that the landlord (lessor) and tenant (lessee) agree that that tenant will occupy, or have possession of the real property. Leasing Agent A real estate agent employed by a licensed real estate broker who leases (rents) property owned by a landlord (lessor) to a tenant (lessee) and has the authority to sign on that lessor's behalf. Lessee The tenant that has the possession of the real property for the lease term for a specified consideration (rent). Lessor The landlord that has given possession of their real property for the lease term for a specified consideration (rent). Lien A hold or a claim on the property of another to satisfy an unpaid debt. Listing contract An agreement between a homeowner and a licensed real estate broker that authorizes the broker to market the property for sale during a given time period. Loan origination fee A fee charged by the lender for evaluating, preparing and submitting a proposed mortgage loan. Loan-to-value ratio The ratio of a mortgage loan principal to the property's appraised value or its sales price, whichever is lower. Loan-to-value ratios vary depending upon the individual lender's policy. Lock-in rate A commitment made by a lender to make a mortgage loan at a specified rate, pending loan approval, on or prior to a specified date. LITC (Low Income Tax Credit) Properties These are properties that have been given a designation from the IRS, HUD, and the Justice department that govern the rents, criteria for eligible tenants, and landlords about property in exchange for tax credits paid to the owner. M Maintenance The care or upkeep of a property or unit. This usually does not increase the value but keeps the property in good working order (i.e. grass cutting, minor plumbing, etc.) Market Rate These are properties that are leased at the current rates of the market (what the market will bear, or pay for a said property). Market value The highest price a buyer will pay for a property and lowest price the seller will accept. Mortgage A lien on real estate given by the buyer to secure repayment of money borrowed to purchase the real estate. Mortgage broker An individual or company that obtains mortgages for others by finding lending institutions, insurance companies, or private sources to lend the money; may also handle collections and disbursements. Mortgage insurance A policy that provides protection for the lender in case of default and/or which guarantees repayment of the loan if the borrower becomes disabled or dies. N NATIONAL ASSOCIATION OF REALTORS® The NATIONAL ASSOCIATION OF REALTORS® is the largest trade association in the country serving over 700,000 REALTORS®. The purpose of the NATIONAL ASSOCIATION OF REALTORS® is to enhance the ability and opportunity of its members to conduct business successfully and ethically, and to promote the preservation of the right to own, transfer, and use real property. O Offer A proposal to purchase real estate at a particular price and subject to other specified terms and conditions. Acceptance of the offer by the seller creates a purchase contract. (Counteroffer: An offer made in response to a different offer.) P Persons with Disabilities Act The Americans with Disabilities Act gives civil rights protections to individuals with disabilities similar to those provided to individuals on the basis of race, color, sex, national origin, age, and religion. It guarantees equal opportunity for individuals with disabilities in public accommodations, employment, transportation, State and local government services, and telecommunications. Private mortgage insurance or PMI Insurance Insurance issued to a lender to protect it against loss on a defaulted mortgage loan. Its use is usually limited to loans with high loan-to-value ratios (generally in excess of 80%). The borrower pays the premiums. PITI Payment A loan payment that combines Principal, Interest, Taxes and Insurance. Point An amount equal to one percent of the loan amount paid to a lender for making the loan. A lender may charge the borrower several points in order to provide the loan. Post-tax Annual Cash-on-cash return Post -tax Annual Cash-on-cash return measures the annual total cash received by the Investor relative to the total investment in the property, after taxes. Post-tax Annual Cash Flow Post -tax Annual Cash Flow measures the total cash returned to the Investor during the calendar year, after financing costs and taxes. The figure is independent of first-year down payment and closing costs, or final year sale proceeds. Post -tax Monthly Cash Flow Post-tax Monthly Cash Flow measures the total cash returned to the Investor during the average month, after financing costs and taxes. The figure is independent of first-year down payment and closing costs, or final year sale proceeds. Pre-tax Annual Cash-on-cash return Pre-tax Annual Cash-on-cash return measures the annual total cash received by the Investor relative to the total investment in the property, before taxes. Pre-tax Annual Cash Flow Pre-tax Annual Cash Flow measures the total cash returned to the Investor during the calendar year, after financing costs, but before taxes. The figure is independent of first-year down payment and closing costs, or final year sale proceeds. Pre-tax Monthly Cash Flow Pre-tax Monthly Cash Flow measures the total cash returned to the Investor during the average month, after financing costs, but before taxes. The figure is independent of first-year down payment and closing costs, or final year sale proceeds. Property Management Agreement An agreement between a landlord (lessor) and a real estate broker (management company) about the details of how a property will be managed, the compensation paid to the broker, and any other criteria deemed to be necessary between the two parties. Property Manager Someone who manages real estate for another person for compensation. Duties include collecting rents, maintaining the property, and keeping up all accounting. Principal One of the parties to a transaction. For example, the buyer and seller are principals in the purchase of real property. Proration Expenses, either prepaid or paid in arrears, that are divided or distributed between buyer and seller at the closing or landlord and tenant at the signing of the lease. Q Qualifying Ratios Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio. Quiet Enjoyment The right of a property owner or tenant to enjoy his or her property without interference. Leases and rental agreements often contain a "covenant of quiet enjoyment," expressly obligating the landlord to see that tenants have the opportunity to live undisturbed. R REALTOR® A REALTOR® is a real estate professional who is a member of the NATIONAL ASSOCIATION OF REALTORS® and subscribes to its strict Code of Ethics. This distinguished professional is committed to protecting and promoting private ownership of real property, establishing and maintaining high professional standards of practice, and creating unity in the NATIONAL ASSOCIATION OF REALTORS® organization and respect for the real estate profession. When you want to buy or sell a home, call a REALTOR®. Rent A fixed, periodic payment made by a tenant of a property to the owner for possession and use, usually by prior agreement of the parties. Rent Schedule A statement of proposed rental rates, determined by the owner or the property manager or both, based on a building's estimated expenses, market supply and demand, and the owner's long-range goals for the property. Rent to Own Typically, this is a lease where you would have the option to buy, and part of your rent may go towards the purchase of the house. Rental Discount The discount provided by the landlord (lessor) or management company to the tenant if the tenant will pay the consideration (rent) by a certain day. Rent/ Sq Ft Rent per Square Foot is a commonly used metric to compare properties. It is obtained by dividing the estimated monthly property rental income by the livable square feet in the property. Rent Ratio Rent Ratio is the ratio of the monthly rental income for a property to its price. Repairs Improvements made on properties that enhance the value or fix something outdated or broken. S Section 8 The Section 8 Rental Voucher Program increases affordable housing choices for very low-income households by allowing families to choose privately owned rental housing. The public housing authority (PHA) generally pays the landlord the difference between 30 percent of household income and the PHA-determined payment standard-about 80 to 100 percent of the fair market rent (FMR). The rent must be reasonable. The household may choose a unit with a higher rent than the FMR and pay the landlord the difference or choose a lower cost unit and keep the difference. Security Deposit A payment by a tenant, held by the landlord during the lease term, and kept (wholly or partially) on default or destruction of the premises by the tenant. Seller's agent An agent who represents the seller and owes fiduciary duties to the seller. Usually referred to as the listing agent, this agent is authorized by a property owner to find a buyer or a tenant for the property. Settlement The final step before you get the keys to your home is a formal meeting called the closing. It is at this meeting in which ownership of the home is transferred from the seller to the buyer. Also called a settlement in some parts of the country, the meeting is typically attended by the buyer(s), the seller(s), their attorneys if they have them, both real estate sales professionals, a representative of the lender, and the closing agent. The purpose is to make sure the property is physically and legally ready to be transferred to you. Several closing costs will be paid at this meeting. These expenses are over and above the price of the property and are incurred when ownership of a property is transferred. Closing costs generally include a loan origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance, and a survey. Closing costs vary according to the area of the country. Subsidy / Subsidized Monetary assistance granted by a government to a person or group in support of an enterprise regarded as being in the public interest. T Tenant Damages Damages done by the tenant or guest of the tenant during the tenants lease term that are outside the normal wear and tear of that unit. Title Ownership of real property. Title is transferred from one party to another through a document called a deed. Title insurance Protection for lenders and homeowners against financial loss resulting from legal defects in or other claims against the property's title. Townhouse One of a row of houses joined by common sidewalls. Trust A property interest held by one person for the benefit of another. U Underwriting The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself. V VA or US Department of Veterans Affairs A federal agency designed and operated to help veterans enter the housing market. The VA assists veterans in terms of low or no down payment, mortgage qualification assistance and low interest rates. VA loan A mortgage loan guaranteed by the US Department of Veterans Affairs against loss to the lender, and made through a private lender. Voucher(s) (Section 8) Through the Section 8 Rental Voucher Program, the administering housing authority issues a voucher to an income-qualified household, which then finds a unit to rent. If the unit meets the Section 8 quality standards, the PHA then pays the landlord the amount equal to the difference between 30 percent of the tenant's adjusted income (or 10 percent of the gross income or the portion of welfare assistance designated for housing) and the PHA-determined payment standard for the area. The rent must be reasonable compared with similar unassisted units.
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