Real estate is complicated in many ways. Real estate is complicated legally. There are laws upon laws in the world of real estate. Real estate is complicated to buy. All the disclosure, agreements and contracts add up to pounds of paper. Real estate is complicated by its structures. Buildings are complicated to design. Buildings are complicated to maintain. Real estate is hard to buy and sell. With all these complications real estate terms are many and somewhat counterintuitive. Below is a small list of terms; many are from the State of California, Department of Real Estate.
Real Estate Terms
ACCELERATION CLAUSE — A condition in a real estate financing instrument giving the lender the power to declare all sums owing lender immediately due and payable upon the happening of an event, such as sale of the property, or a delinquency in the repayment of the note.
ACKNOWLEDGMENT — A formal declaration made before an authorized person, e.g., a notary public, by a person who has executed an instrument stating that the execution was his or her free act. In this state an acknowledgment is the statement by an officer such as a notary that the signatory to the instrument is the person represented to be.
AD VALOREM — A Latin phrase meaning “according to value.” Usually used in connection with real estate taxation.
ALTA TITLE POLICY — (American Land Title Association) A type of title insurance policy issued by title insurance companies which expands the risks normally insured against under the standard type policy to include unrecorded mechanic’s liens; unrecorded physical easements; facts a physical survey would show; water and mineral rights; and rights of parties in possession, such as tenants and buyers under unrecorded instruments.
ANNUAL PERCENTAGE RATE — The relative cost of credit as determined in accordance with Regulation Z of the Board of Governors of the Federal Reserve System for implementing the Federal Truth in Lending Act.
APPRAISAL — An estimate of the value of property resulting from an analysis of facts about the property. An opinion of value.
APPRAISER — One qualified by education, training and experience who is hired to estimate the value of real and personal property based on experience, judgment, facts, and use of formal appraisal processes.
BALLOON PAYMENT — An installment payment on a promissory note - usually the final one for discharging the debt - which is significantly larger than the other installment payments provided under the terms of the promissory note.
BASIS — (1) Cost Basis—The dollar amount assigned to property at the time of acquisition under provisions of the Internal Revenue Code for the purpose of determining gain, loss and depreciation in calculating the income tax to be paid upon the sale or exchange of the property. (2) Adjusted Cost Basis—The cost basis after the application of certain additions for improvements, etc., and deductions for depreciation, etc.
BENEFICIARY — (1) One entitled to the benefit of a trust; (2) One who receives profit from an estate, the title of which is vested in a trustee; (3) The lender on the security of a note and deed of trust.
BLANKET MORTGAGE — A single mortgage which covers more than one piece of real property.
BROKER — A person employed for a fee by another to carry on any of the activities listed in the license law definition of a broker.
BROKER-SALESPERSON RELATIONSHIP AGREEMENT — A written agreement required by the regulations of the Real Estate Commissioner setting forth the material aspects of the relationship between a real estate broker and each salesperson and broker performing licensed activities in the name of the supervising broker.
B.T.U. — British thermal unit. The quantity of heat required to raise the temperature of one pound of water one degree Fahrenheit.
BUILDING CODE — A systematic regulation of construction of buildings within a municipality established by ordinance or law.
CAL-VET PROGRAM — A program administered by the State Department of Veterans Affairs for the direct financing of farm and home purchases by eligible California veterans of the armed forces.
CC&Rs — Covenants, conditions and restrictions. The basic rules establishing the rights and obligations of owners (and their successors in interest) of real property within a subdivision or other tract of land in relation to other owners within the same subdivision or tract and in relation to an association of owners organized for the purpose of operating and maintaining property commonly owned by the individual owners.
CAPITAL ASSETS — Assets of a permanent nature used in the production of an income, such as land, buildings, machinery and equipment, etc. Under income tax law, it is usually distinguishable from “inventory” which comprises assets held for sale to customers in ordinary course of the taxpayer’s trade or business.
CAPITAL GAIN — At resale of a capital item, the amount by which the net sale proceeds exceed the adjusted cost basis (book value). Used for income tax computations. Gains are called short or long term based upon length of holding period after acquisition. Usually taxed at lower rates than ordinary income.
CAPITALIZATION — In appraising, determining value of property by considering net income and percentage of reasonable return on the investment. The value of an income property is determined by dividing annual net income by the Capitalization Rate.
CAPITALIZATION RATE — The rate of interest which is considered a reasonable return on the investment, and used in the process of determining value based upon net income. It may also be described as the yield rate that is necessary to attract the money of the average investor to a particular kind of investment. In the case of land improvements which depreciate, to this yield rate is added a factor to take into consideration the annual amortization factor necessary to recapture the initial investment in improvements. This amortization factor can be determined in various ways — (1) straight-line depreciation method, (2) Inwood Tables and (3) Hoskold Tables.
COMMERCIAL ACRE — A term applied to the remainder of an acre of newly subdivided land after the area devoted to streets, sidewalks and curbs, etc., has been deducted from the acre.
COMMON INTEREST SUBDIVISION — Subdivided lands which include a separate interest in real property combined with an interest in common with other owners. The interest in common may be through membership in an association. Examples are condominiums and stock cooperatives.
COMPOUND INTEREST — Interest paid on original principal and also on the accrued and unpaid interest which has accumulated as the debt matures.
CONDOMINIUM — An estate in real property wherein there is an undivided interest in common in a portion of real property coupled with a separate interest in space called a unit, the boundaries of which are described on a recorded final map, parcel map or condominium plan. The areas within the boundaries may be filled with air, earth, or water or any combination and need not be attached to land except by easements for access and support.
CONDOMINIUM DECLARATION — The document which establishes a condominium and describes the property rights of the unit owners.
CONTRACT — An agreement to do or not to do a certain thing. It must have four essential elements — parties capable of contracting, consent of the parties, a lawful object, and consideration. A contract for sale of real property must also be in writing and signed by the party or parties to be charged with performance
CONVENTIONAL MORTGAGE — A mortgage securing a loan made by investors without governmental underwriting, i.e., which is not FHA insured or VA guaranteed. The type customarily made by a bank or savings and loan association.
COVENANT — An agreement or promise to do or not to do a particular act such as a promise to build a house of a particular architectural style or to use or not use property in a certain way.
DEBENTURE — Bonds issued without security, an obligation not secured by a specific lien on property.
DECLINING BALANCE DEPRECIATION — A method of accelerated depreciation allowed by the IRS in certain circumstances. Double Declining Balance Depreciation is its most common form and is computed by using double the rate used for straight line depreciation.
DECREE OF FORECLOSURE — Decree by a court ordering the sale of mortgaged property and the payment of the debt owing to the lender out of the proceeds.
DEED — Written instrument which when properly executed and delivered conveys title to real property from one person (grantor) to another (grantee).
DEED IN LIEU OF FORECLOSURE — A deed to real property accepted by a lender from a defaulting borrower to avoid the necessity of foreclosure proceedings by the lender.
DEED OF TRUST — Just as with a mortgage this is a legal document by which a borrower pledges certain real property or collateral as guarantee for the repayment of a loan. However, it differs from the mortgage in a number of important respects. For example, instead of there being two parties to the transaction there are three. There is the borrower who signs the trust deed and who is called the trustor. There is the third, neutral party, to whom trustor deeds the property as security for the payment of the debt, who is called the trustee. And, finally, there is the lender who is called the beneficiary, the one who benefits from the pledge agreement in that in the event of a default the trustee can sell the property and transfer the money obtained at the sale to lender as payment of the debt.
DEED RESTRICTIONS — Limitations in the deed to a property that dictate certain uses that may or may not be made of the property.
DEFAULT — Failure to fulfill a duty or promise or to discharge an obligation; omission or failure to perform any act.
DEFEASANCE CLAUSE — The clause in a mortgage that gives the mortgagor the right to redeem mortgagor’s property upon the payment of mortgagor’s obligations to the mortgagee.
DEPRECIATION — Loss of value of property brought about by age, physical deterioration or functional or economic obsolescence. The term is also used in accounting to identify the amount of the decrease in value of an asset that is allowed in computing the value of the property for tax purposes.
DISCOUNT — To sell a promissory note before maturity at a price less than the outstanding principal balance of the note at the time of sale. Also an amount deducted in advance by the lender from the nominal principal of a loan as part of the cost to the borrower of obtaining the loan.
DISCOUNT POINTS — The amount of money the borrower or seller must pay the lender to get a mortgage at a stated interest rate. This amount is equal to the difference between the principal balance on the note and the lesser amount which a purchaser of the note would pay the original lender for it under market conditions. A point equals one percent of the loan.
DUAL AGENCY — An agency relationship in which the agent acts concurrently for both of the principals in a transaction.
DUE ON SALE CLAUSE — An acceleration clause granting the lender the right to demand full payment of the mortgage upon a sale of the property.
EARNEST MONEY — Down payment made by a purchaser of real estate as evidence of good faith. A deposit or partial payment.
EASEMENT — A right, privilege or interest limited to a specific purpose which one party has in the land of another.
ECONOMIC LIFE — The period over which a property will yield a return on the investment over and above the economic or ground rent due to land.
ECONOMIC OBSOLESCENCE — A loss in value due to factors away from the subject property but adversely affecting the value of the subject property.
ECONOMIC RENT — The reasonable rental expectancy if the property were available for renting at the time of its valuation.
EMINENT DOMAIN — The right of the government to acquire property for necessary public or quasi-public use by condition; the owner must be fairly compensated and the right of the private citizen to get paid is spelled out in the 5th Amendment to the United States Constitution.
ENCROACHMENT — An unlawful intrusion onto another’s adjacent property by improvements to real property, e.g. a swimming pool built across a property line.
ENCUMBRANCE — Anything which affects or limits the fee simple title to or value of property, e.g., mortgages or easements.
EQUITY — The interest or value which an owner has in real estate over and above the liens against it. Branch of remedial justice by and through which relief is afforded to suitors in courts of equity.
ESCALATOR CLAUSE — A clause in a contract providing for the upward or downward adjustment of certain items to cover specified contingencies, usually tied to some index or event. Often used in long term leases to provide for rent adjustments, to cover tax and maintenance increases.
ESCHEAT — The reverting of property to the State when heirs capable of inheriting are lacking.
ESCROW — The deposit of instruments and/or funds with instructions with a third neutral party to carry out the provisions of an agreement or contract.
ESCROW AGENT — The neutral third party holding funds or something of value in trust for another or others.
ESTATE — As applied to real estate, the term signifies the quantity of interest, share, right, equity, of which riches or fortune may consist in real property. The degree, quantity, nature and extent of interest which a person has in real property.
EXCLUSIVE AGENCY LISTING — A listing agreement employing a broker as the sole agent for the seller of real property under the terms of which the broker is entitled to a commission if the property is sold through any other broker, but not if a sale is negotiated by the owner without the services of an agent.
EXCLUSIVE RIGHT TO SELL LISTING — A listing agreement employing a broker to act as agent for the seller of real property under the terms of which the broker is entitled to a commission if the property is sold during the duration of the listing through another broker or by the owner without the services of an agent.
FAIR MARKET VALUE. This is the amount of money that would be paid for a property offered on the open market for a reasonable period of time with both buyer and seller knowing all the uses to which the property could be put and with neither party being under pressure to buy or sell.
FANNIE MAE — An acronymic nickname for Federal National Mortgage Association (FNMA).
FEDERAL HOME LOAN MORTGAGE CORPORATION — An independent stock company which creates a secondary market in conventional residential loans and in FHA and VA loans by purchasing mortgages.
FEDERAL HOUSING ADMINISTRATION — (FHA) An agency of the federal government that insures private mortgage loans for financing of new and existing homes and home repairs.
FEDERAL LAND BANK SYSTEM — Federal government agency making long term loans to farmers.
FEDERAL NATIONAL MORTGAGE ASSOCIATION — (FNMA) “Fannie Mae” a quasipublic agency converted into a private corporation whose primary function is to buy and sell FHA and VA mortgages in the secondary market.
FEDERAL RESERVE SYSTEM — The federal banking system of the United States under the control of central board of governors (Federal Reserve Board) involving a central bank in each of twelve geographical districts with broad powers in controlling credit and the amount of money in circulation.
FIDUCIARY — A person in a position of trust and confidence, as between principal and broker; broker as fiduciary owes certain loyalty which cannot be breached under the rules of agency.
FIDUCIARY DUTY — That duty owed by an agent to act in the highest good faith toward the principal and not to obtain any advantage over the latter by the slightest misrepresentation, concealment, duress or pressure.
FIRST TRUST DEED — A legal document pledging collateral for a loan (See “trust deed”) that has first priority over all other claims against the property except taxes and bonded indebtedness. That trust deed superior to any other.
FIXTURES — Appurtenances attached to the land or improvements, which usually cannot be removed without agreement as they become real property; examples — plumbing fixtures, store fixtures built into the property, etc.
FORECLOSURE — Procedure whereby property pledged as security for a debt is sold to pay the debt in event of default in payments or terms.
GENERAL LIEN — A lien on all the property of a debtor.
GOODWILL — An intangible but salable asset of a business derived from the expectation of continued public patronage.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION — An agency of HUD, which functions in the secondary mortgage market, primarily in social housing programs. Commonly called by the acronymic nickname “Ginnie Mae” (GNMA).
GRADUATED PAYMENT MORTGAGE — Providing for partially deferred payments of principal at start of loan. (There are a variety of plans.) Usually after the first five years of the loan term the principal and interest payment are substantially higher, to make up principal portion of payments lost at the beginning of the loan.
GRANT DEED — A limited warranty deed using the word “grant” or like words that assures a grantee that the grantor has not already conveyed the land to another and that the estate is free from encumbrances placed by the grantor.
GRANTEE — A person to whom a grant is made.
GRANTOR — A person who transfers his or her interest in property to another by grant.
GROSS RENT MULTIPLIER — A number which, times the gross income of a property, produces an estimate of value of the property. Example — The gross income from an unfurnished apartment building is $200,000 per annum. If an appraiser uses a gross multiplier of 7%, then it is said that based on the gross multiplier the value of the building is $1,400,000.
HABENDUM CLAUSE — The “to have and to hold” clause which may be found in a deed.
HIGHEST AND BEST USE — An appraisal phrase meaning that use which at the time of an appraisal is most likely to produce the greatest net return to the land and/or buildings over a given period of time; that use which will produce the greatest amount of amenities or profit. This is the starting point for appraisal.
HYPOTHECATE — To pledge a thing as security without the necessity of giving up possession of it.
IMPOUNDS — A trust type account established by lenders for the accumulation of borrowers funds to meet periodic payment of taxes, FHA mortgage insurance premiums, and/or future insurance policy premiums, required to protect their security. Impounds are usually collected with the note payment. The combined principal, interest, taxes and insurance payment is commonly termed a PITI payment.
JOINT TENANCY — Undivided ownership of a property interest by two or more persons each of whom has a right to an equal share in the interest and a right of survivorship, i.e., the right to share equally with other surviving joint tenants in the interest of a deceased joint tenant.
JUDGMENT LIEN — A legal claim on all of the property of a judgment debtor which enables the judgment creditor to have the property sold for payment of the amount of the judgment.
JUNIOR MORTGAGE — A mortgage recorded subsequently to another mortgage on the same property or made subordinate by agreement to a later-recorded mortgage.
LAND — The material of the earth, whatever may be the ingredients of which it is composed, whether soil, rock, or other substance, and includes free or unoccupied space for an indefinite distance upwards as well as downwards.
LAND CONTRACT — A contract used in a sale of real property whereby the seller retains title to the property until all or a prescribed part of the purchase price has been paid. Also commonly called a conditional sales contract, installment sales contract or real property sales contract.
LEASE — A contract between owner and tenant, setting forth conditions upon which tenant may occupy and use the property and the term of the occupancy. Sometimes used as an alternative to purchasing property outright, as a method of financing right to occupy and use real property.
LEGAL DESCRIPTION — A land description recognized by law; a description by which property can be definitely located by reference to government surveys or approved recorded maps.
LIEN — A form of encumbrance which usually makes specific property security for the payment of a debt or discharge of an obligation. Example — judgments, taxes, mortgages, deeds of trust, etc.
LOAN APPLICATION — The loan application is a source of information on which the lender bases a decision to make the loan; defines the terms of the loan contract, gives the name of the borrower, place of employment, salary, bank accounts, and credit references, and describes the real estate that is to be mortgaged. It also stipulates the amount of loan being applied for and repayment terms.
LOAN CLOSING — When all conditions have been met, the loan officer authorizes the recording of the trust deed or mortgage. The disbursal procedure of funds is similar to the closing of a real estate sales escrow.he borrower can expect to receive less than the amount of the loan, as title, recording, service, and other fees may be withheld, or can expect to deposit the cost of these items into the loan escrow. This process is sometimes called “funding” the loan.
LOAN COMMITMENT — Lender’s contractual commitment to make a loan based on the appraisal and underwriting.
LOAN-TO-VALUE RATI0 — The percentage of a property’s value that a lender can or may loan to a borrower. For example, if the ratio is 80% this means that a lender may loan 80% of the property’s appraised value to a borrower.
MARKET PRICE — The price paid regardless of pressures, motives or intelligence.
MARKET VALUE — The highest price in terms of money which a property will bring in a competitive and open market and under all conditions required for a fair sale, i.e., the buyer and seller acting prudently, knowledgeably and neither affected by undue pressures.
MARKETABLE TITLE — Title which a reasonable purchaser, informed as to the facts and their legal importance and acting with reasonable care, would be willing and ought to accept.
MECHANIC’S LIEN — A lien created by statute which exists against real property in favor of persons who have performed work or furnished materials for the improvement of the real property.
MEDIATION CLAUSE — A clause in a contract requiring mediation in the event of a dispute.
MILE — 5,280 feet.
MORTGAGE — An instrument recognized by law by which property is hypothecated to secure the payment of a debt or obligation; a procedure for foreclosure in event of default is established by statute.
MORTGAGE BANKER — A person whose principal business is the originating, financing, closing, selling and servicing of loans secured by real property for institutional lenders on a contractual basis.
MORTGAGEE — One to whom a mortgagor gives a mortgage to secure a loan or performance of an obligation; a lender or creditor.
MORTGAGOR — One who gives a mortgage on his or her property to secure a loan or assure performance of an obligation; a borrower.
MULTIPLE LISTING SERVICE — An association of real estate agents providing for a pooling of listings and the sharing of commissions on a specified basis..
MUTUAL WATER COMPANY — A water company organized by or for water users in a given district with the object of securing an ample water supply at a reasonable rate; stock is issued to users.
NOTARY PUBLIC — An appointed officer with authority to take the acknowledgment of persons executing documents, sign the certificate, and affix official seal.
NOTE — A signed written instrument acknowledging a debt and promising payment, according to the specified terms and conditions. A promissory note.
NOTE RATE — This rate determines the amount of interest charged on an annual basis to the borrower. Also called the “accrual rate”, “contract rate” or “coupon rate.”
NOTICE TO QUIT — A notice to a tenant to vacate rented property.
OPEN-END MORTGAGE — A mortgage containing a clause which permits the mortgagor to borrow additional money after the loan has been reduced without rewriting the mortgage
PLANNED UNIT DEVELOPMENT — (PUD) A term sometimes used to describe a planned development. A planning and zoning term describing land not subject to conventional zoning to permit clustering of residences or other characteristics of the project which differ from normal zoning.
PRIVATE MORTGAGE INSURANCE — Mortgage guaranty insurance available to conventional lenders on the first, high risk portion of a loan (PMI).
QUITCLAIM DEED — A deed to relinquish any interest in property which the grantor may have, without any warranty of title or interest.
REAL ESTATE SYNDICATE — An organization of investors usually in the form of a limited partnership who have joined together for the purpose of pooling capital for the acquisition of real property interests.
REAL ESTATE TRUST — A special arrangement under Federal and State law whereby investors may pool funds for investments in real estate and mortgages and yet escape corporation taxes, profits being passed to individual investors who are taxed.
REAL PROPERTY — Land and anything growing on, attached to, or erected on it, excluding anything that may be severed without injury to the land.
RECONVEYANCE — The transfer of the title of land from one person to the immediate preceding owner. This instrument of transfer is commonly used to transfer the legal title from the trustee to the trustor (borrower) after a trust deed debt has been paid in full.
RECORDING — The process of placing a document on file with a designated public official for public notice. This public official is usually a county officer known as the County Recorder who designates the fact that a document has been presented for recording by placing a recording stamp upon it indicating the time of day and the date when it was officially placed on file. Documents filed with the Recorder are considered to be placed on open notice to the general public of that county. Claims against property usually are given a priority on the basis of the time and the date they are recorded with the most preferred claim going to the earliest one recorded and the next claim going to the next earliest one recorded, and so on. This type of notice is called “constructive notice” or “legal notice”.
RESTRICTION — A limitation on the use of real property. Property restrictions fall into two general classifications—public and private. Zoning ordinances are examples of the former type. Restrictions may be created by private owners, typically by appropriate clauses in deeds, or in agreements, or in general plans of entire subdivisions. Usually they assume the form of a covenant, or promise to do or not to do a certain thing.
RIPARIAN RIGHTS — The right of a landowner whose land borders on a stream or watercourse to use and enjoy the water which is adjacent to or flows over the owners land provided such use does not injure other riparian owners.
SALE-LEASEBACK-BUY-BACK — A sale and leaseback transaction in which the leaseholder has the option to buy back the original property after a specified period of time.
SELLER’S MARKET — The market condition which exists when a seller is in a more commanding position as to price and terms because demand exceeds supply.
TAKE-OUT LOAN — The loan arranged by the owner or builder developer for a buyer. The construction loan made for construction of the improvements is usually paid in full from the proceeds of this more permanent mortgage loan.
TITLE — Indicates “fee’’ position of lawful ownership and right to property. “Bundle of Rights” possessed by an owner. Combination of all elements constituting proof of ownership.
TITLE INSURANCE — Insurance to protect a real property owner or lender up to a specified amount against certain types of loss, e.g., defective or unmarketable title.
TITLE REPORT — A report which discloses condition of the title, made by a title company preliminary to issuance of title insurance policy.
TRUST DEED — Just as with a mortgage this is a legal document by which a borrower pledges certain real property or collateral as guarantee for the repayment of a loan. However, it differs from the mortgage in a number of important respects. For example, instead of there being two parties to the transaction there are three. There is the borrower who signs the trust deed and who is called the trustor. There is the third, neutral party, to whom trustor deeds the property as security for the payment of the debt, who is called the trustee. And, finally, there is the lender who is called the beneficiary, the one who benefits from the pledge agreement in that in the event of a default the trustee can sell the property and transfer the money obtained at the sale to lender as payment of the debt.
TRUSTEE — One who holds property in trust for another to secure the performance of an obligation. Third party under a deed of trust.
TRUSTOR — One who borrows money from a trust deed lender, then deeds the real property securing the loan to a trustee to be held as security until trustor has performed the obligation to the lender under terms of a deed of trust.
VA LOAN — A loan made to qualified veterans for the purchase of real property wherein the Department of Veteran’s Affairs guarantees the lender payment of the mortgage.
WARRANTY DEED — A deed used to convey real property which contains warranties of title and quiet possession, and the grantor thus agrees to defend the premises against the lawful claims of third persons. It is commonly used in many states but in others the grant deed has supplanted it due to the modern practice of securing title insurance policies which have reduced the importance of express and implied warranty in deeds.
WRAP AROUND MORTGAGE — A financing device whereby a lender assumes payments on existing trust deeds of a borrower and takes from the borrower a junior trust deed with a face value in an amount equal to the amount outstanding on the old trust deeds and the additional amount of money borrowed.
X — An individual who cannot write may execute a legal document by affixing an “X” (his/her mark) where the signature normally goes. Beneath the mark a witness then writes the person’s name and signs his or her own name as witness.
ZONING — Act of city or county authorities specifying type of use to which property may be put in specific areas.