Real Estate Terms & Definitions

Agreement

If in writing, is a legally binding contract made between two or more persons.

Appraisal

A report from an independent third party detailing the estimated value of real estate.

Assessment

(1) The valuation of real estate for purpose of taxes or special improvement charges.
(2) The amount of taxes or special improvement charges. Special improvement charges are usually for the costs of streets, sidewalks, sewers, etc.

Bottom Line Signatures

The final signature needed to make a legally binding contract. It normally is to show receipt of the other parties’ acceptance.

Clear to Close

Final loan approval from the lender, which allows the closing to be scheduled.

Closing

A meeting of all parties involved in a property transaction during which the transaction is consummated.

Commitment

Also called “binder.” A document issued by a title insurance company that contains the conditions under which a policy of title insurance will be issued.

Contingency

A clause in the purchase contract that describes certain conditions that must be met and agreed upon by both buyer and seller before the contract is binding.

Counter Offer

An offer, made in response to a previous offer, which rejects all or part of it while enabling negotiations to continue towards a mutually-acceptable sales contract.

Conventional Mortgage

One that is not insured or guaranteed by the federal government.

Covenant

A formal agreement or contract between two parties in which one party gives the other certain promises and assurances.

Debt-to-Income Ratio

A ratio that measures total debt burden. It is calculated by dividing gross monthly debt repayments, including mortgages, by gross monthly income.

Deed

A document through which a conveyance of property is effected.

Down Payment

The money paid by the buyer to the lender at the time of the closing. The amount is the difference between the sales price and the mortgage loan. Requirements vary by loan type. Smaller down payments, less than 20%, usually requires mortgage insurance.

Earnest Money

A deposit of funds by the purchaser of a piece of real estate as evidence of good faith.

Easement

A right to use all or part of the land owned by another for a specific purpose. An easement may, for example, entitle its holder to install and maintain sewer or utility lines.

Encroachment

Any building, improvement or structure located on one property (such as a wall, fence or driveway) that intrudes upon the property of another.

Equity

The market value of real property, less the amount of existing liens.

Escrow

Funds held by a neutral third party (the escrow agent) until certain conditions of a contract are met and the funds can be paid out. Escrow accounts are also used by loan servicers to pay property taxes and homeowner’s insurance.

Fixed Rate Mortgage

A mortgage having a rate of interest that remains the same for the life of the mortgage.

Free Market Evaluation

An offer by a REALTOR®, usually presented in marketing materials, to provide a complimentary assessment of your home’s current market value.

Good Faith Estimate (GFE)

A document from your lender of a breakdown of costs you can expect to incur when obtaining a mortgage.

Home Inspection

Professional inspection of a home, paid for by the buyer, to evaluate the quality and safety of its plumbing, heating, wiring, appliances, roof, foundation, etc.

Homeowners Insurance

Real estate insurance protecting against loss caused by fire, some natural causes, vandalism, etc., depending on the terms of the policy. Also includes coverage such as personal liability and theft away from home.

Lien

A claim or charge on property for payment of a debt. With a mortgage, the lender has the right to take the title to your property if you don’t make the mortgage payments.

Listing Presentation

A presentation given by a REALTOR® to a prospective home seller in hopes that the seller will allow the REALTOR® to represent their interests throughout the sales process. Typically delivered in the seller’s home, the presentation includes the REALTOR’S® pricing, marketing and showing strategies, as well as a suggested asking price.

Market Value

The average of the highest price that a buyer, willing but not compelled to buy, would pay and the lowest price a seller, willing but not compelled to sell, would accept.

Mortgage

A conditioned pledge of property to a creditor as security for the payment of a debt.

Mortgage Insurance

Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price.

Multiple Listing

The pooling in a central bureau of listings of properties for sale. These listings are held individually by members of a group of real estate brokers, with the agreement that any member of the group may sell the properties and, in the case of a sale, the commission will be divided between the broker making the sale and the broker who filed the listing.

Plat

Also called “plat map.” A map dividing a parcel of land into lots, as in a subdivision. A plat book contains the plat maps for a given area.

Possession Date

The date, as specified by the sales agreement, which the buyer can move into the property. Generally, it occurs within a couple days of the Closing Date.

Pre-Approval Letter

A letter from a mortgage lender indicating that a buyer qualifies for a mortgage of a specific amount.

Principal

The amount of money borrowed from a lender to buy a home, or the amount of the loan that has not yet been repaid. Does not include the interest paid to borrow.

Purchase Offer

A detailed, written document which makes an offer to purchase a property, and which may be amended several times in the process of negotiations. When signed by all parties involved in the sale, the purchase offer becomes a legally-binding sales agreement.

Sales Agreement

A contract entered into between a buyer and seller, setting forth the terms, provisions and conditions of a sale of real estate.

Title

The right to, and the ownership of, property. A Title or Deed is sometimes used as proof of ownership of land. Clear title refers to a title that has no legal defects.

Title Insurance

Insurance policy that guarantees the accuracy of the title search and protects lenders and homeowners against legal problems with the title.

Truth-In-Lending Act (TILA)

Federal law that requires disclosure of a truth-in-lending statement for consumer loans. The statement includes a summary of the total cost of credit.

Title Search

A historical review of all legal documents relating to ownership of a property to determine if there have been any flaws in prior transfers of ownership or if there are any claims or encumbrances on the title to the property.

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