Real Estate Terms and Definitions
Addendum - Something added to the buyer and seller agreement. A list or other material added to a document, letter, contractual agreement, escrow instructions, etc. which may override the original document. Similar to an amendment except an amendment is something added that is mutually accepted by both parties. (See also: Amendment and rider)
Amendment - A mutually agreed upon change of an original agreement. The amendment is made to create in writing, any changes to make clear of the parties involved in the real estate transaction.
Appraisal - An opinion of a homes value based upon factual analysis of its condition and location. An Appraisal Management Company (AMC) is hired as a disinterested 3rd party to determine the property value. The appraisal is used mainly to insure to a loan company that the value of the home is sufficient to justify the loan amount.
Annual Percentage Rate (A.P.R.) - A yearly interest percentage of a loan, the actual rate of interest paid. A 4% add-on interest would be more than 4% simple interest, even though both would say 4%. The A.P.R. is requirement by the federal truth in lending statutes.
Assumption of Mortgage - A buyer the assumes the liability of an existing note which is secured by a mortgage, or deed of trust. To release the existing debtor (usually the seller) of any liability, the lender must approve the new debtor.
Beneficiary - One for whose benefit a trust is created. Some states use a deed of trust instead of mortgages, the lender (mortgagee) is called the beneficiary.
Close of Escrow- The date that title passes from the seller to the buyer and the documents are recorded.
CC&R's - Covenants, Conditions, and Restrictions. Many home owners associations, developers or builders use CCR's to keep a neighborhoods condition to a set standard. The CCR's many times place restrictions on the use of the property, upkeep and building restrictions.
Chain of Title - A historical record of title changes for a property. The chain of ownership can be tracked from the current owner back to the original property owner. In real estate the chain of title is very important and is used by lending institutions and title insurance agencies to verify ownership.
Cloud of Title - A cloud of title indicates there is or has been a situation which makes the title risky since someone else might have a claim to the title in addition to the person who currently claims to have ownership of the title. Common problems that may arise are improper recording of: deed transfers, mortgage or tax payments, easements or property rights.
Comparable Sales - A comparison of homes sold or currently being sold to a property to determine its current market value. Main comparisons include, location, square footage of home, sales price. Washington Realty group provides a free home market analysis here. Contact one of our agents for a more in depth review of you r property.
Conveyance - Transfer of title to a property. Includes most instruments by which an interest in real estate is created, mortgaged or assigned.
Counter-Offer - An offer made in response to another parties offer.
Property Deed - Actually, any one of many conveyance or financing instruments, but generally a conveyancing instrument given to pass fee title to property upon sale. A written and signed legal document which conveys ownership. The title of property is transferred by a property deed which is reviewed by a lawyer to make sure everything is done legally.
Deed of Trust - The legal title is transferred to a trustee which holds the Deed of Trust as security for a loan. Once the loan is paid off the borrower receives legal title ( denotes full ownership), instead of equitable title (denotes right to obtain full ownership.)
Disclosure - Reveal information about a property. The seller provides (discloses) any relevant information about the property that the buyer should know about the property before purchasing the home. To keep lawsuits from occurring after the sale of a home the seller should disclose any problems, in writing, to the buyer.
Discount Points - A borrower can purchase a rate reduction (discount points) at the beginning of a loan; essentially one is paying for interest up front. If a person has 5% loan and would like to get a long term lower rate they can purchase discount points which can lower the interest rate. Each discount point costs 1% of the full loan amount. 1 point is usually .25% interest rate. So on a $100,000 loan at 5% interest each point (.25% interest rate reduction) would cost $1000. The longer one pays on the home the more savings one will obtain by using discount points.
Due on Sale Clause - A clause in a loan or promissory note which requires full payment of the loan if the property securing the loan is sold. A lending institution is not obligated to require full payment but has the right to.
Earnest Money - Money given by the buyer with an offer to purchase. Shows good faith.
At the time of an offer to purchase property the buyer can include money to show they are serious about the offer. It shows good faith in wanting to complete the offer. If the offer is accepted the earnest money is applied to purchase the property.
Easement - A right to use private property for a specific purpose. Many times easements are created to allow for a road to pass through someones property to get to another piece of property. Utility companies have easements to allow for their utilities to pass through private property.
Escrow - The use of a third party to hold on to documents or money between two parties until the agreed upon conditions are met at which time the escrow company will transfer the items to the appropriate entities.
Fair Market Value - Estimate of the value of a property in today's market. A price, which both a willing buyer and and seller agree upon, both having reasonable knowledge of all relevant facts, to exchange property. In real estate comparable homes are used to help determine that value.
Hazard Insurance - Real Estate insurance protecting against damage or loss caused by disasters which occur to ones property. Depending upon the terms of ones insurance policy one can buy insurance for vandalism, theft, fire and more.
Homeowners Association - Usually a non-profit organization to regulate what can and can't be done to a piece(s) of property. The owners of real estate which is governed by a homeowners association have to become members of the association and must abide by the rules. Many times the homeowners association is started by a land development company and is transferred to the homeowners as the lots are sold off.
Impound account - An account created by a mortgage company to hold amounts for insurance, property taxes, mortgage insurance and other payments on the home. The impound accounts are created to protect the lender.
Lien - A legal hold on property to insure payment of a debt.
Mortgage - A loan guaranteed by real estate until the amount due is paid off.
Mortgage Insurance -Insurance which pays a lender when if their borrower defaults on a loan.
PITI - A payment that includes the Principal, Interest, Taxes and Insurance.
Power of Attorney - A written letter which authorizes another person (attorney in fact) to conduct business in place of themselves (principal).
Public Report - A public report is created when a developer wants to sell a number of lots. The report is made available for prospective buyers of the lots. The report provides information about the plans for site development, disclosures, utilities, public amenities, financial aspects of the lots.
Purchase Agreement - A written form detailing a buyers offer for a property. The offer usually provides a price offered, a date and time the offer expires, financing being used, when the buyer wants to close, inspection and any other conditions. The seller will then review the offer and if they like it they will sign the form or they may provide a counter offer.
Quitclaim Deed - A legal instrument which transfers ones rights to a property to another; they quit their ownership. A quitclaim deed provides no warranty to the title.
REALTOR - A member of the National Association of REALTORS
Recording - Documents filed with the County Recorders office which become public record.
Subdivision - Creating smaller lots from a larger lot. The new lots are filed with the appropriate government agency.
Property Title - A group of rights which belong to a piece of property. A "title" or" deed" is used to show ownership.
Warranty Deed - A deed which guarantees that the seller holds clear title to a piece of property and has the right to sell it.
1031 Exchange - A tax deferment for profit made from an investment property. When certain criteria are met during the transfer of "like kind"investments to another; any taxes due on the profit or losses will be deffered.