Real Estate Terms

Abstract of title A history of ownership of a property and any documents that affect the title during that ownership.

Acceptance of sale/sales contract An offer of purchase that has been signed by both buyer and seller. A firm contract that outlines all details of the property transaction. (Same as "offer to purchase/contract of sale/sales contract.")

Adjustable Rate Mortgage (ARM) A loan with an interest rate that fluctuates according to the movements of a predetermined index.

Agent/sales associate A person licensed by the state to sell real estate through a real estate broker.

Amortization The paying off of a debt such as a mortgage in periodic installments for the term of the loan.

Appraisal An opinion by a licensed real estate appraiser about the fair market value of a home.

Appreciation The increase in value of a home

Assumable loan An existing mortgage that can be taken over by the buyer -- usually on the same terms given to the original buyer.

Assumption Taking over responsibility for payments on a mortgage and meeting any of the other requirements. Typically, a buyer assumes a mortgage from the seller.

Balloon payment A loan with monthly payments too low to pay off the balance in the specified term. The balance must be paid in full when the loan comes due -- typically within three to five years.

Broker A person who has a real estate broker's license, who may not only make real estate transactions for others in exchange for a fee (or other consideration), but also may operate a real estate business and employ sales associates and other brokers.

Buy down A method of lowering the interest rates on a mortgage, either temporarily or for the entire term of the loan. Often points are paid up front to make up the difference between the rate actually charged on the mortgage and the rate at which the buyer pays. Practically anyone -- sellers, buyers, home builders, relatives, etc. -- can buy down rates.

Buyer pool The entire market of prospective home buyers in a specific area or looking for a type of home.

Caps A safeguard against excessively high payment increases, some ARMs place a cap on the amount by which either the interest rate or payment may rise at any single adjustment, over the life of the loan, or both. Look at the cap as "the worst case scenario" to determine if the ARM suits your financial capabilities.

Clear or marketable title A title that doesn't have any liens or claims against it that would keep it from being transferred, put the buyer in a position to sue for property rights or be obligated for claims.

Closing costs Expenses above the purchase price that buyers and sellers pay at closing.

Contract of purchase A document that lists the price, conditions and terms under which the buyer is willing to purchase the property. (Each of these means the same thing: offer to purchase, or purchase offer, or earnest money agreement, or contract of purchase, or deposit receipt.)

Contract of sale/sales contract An offer of purchase that has been signed by both buyer and seller. A firm contract that outlines all details of the property transaction. (Same as "offer to purchase/acceptance of sale/sales contract.")

Deed The legal document that is used to transfer the title from one owner to another.

Deposit receipt A document that lists the price, conditions and terms under which the buyer is willing to purchase the property. (Each of these means the same thing: offer to purchase, or purchase offer, or earnest money agreement, or contract of purchase, or deposit receipt.)

Due-on-sale clause A restriction in a mortgage that has the effect of stopping assumptions. The clause states that the entire balance of the mortgage is due and payable immediately if the property is sold or conveyed.

Earnest money Money deposited by potential buyers to show their seriousness about buying.

Earnest money agreement A document that lists the price, conditions and terms under which the buyer is willing to purchase the property. (Each of these means the same thing: offer to purchase, or purchase offer, or earnest money agreement, or contract of purchase, or deposit receipt.)

Equity

Equity is the sale price minus selling costs and the remaining principal on the mortgage. The money you are left with after selling your home and paying off the mortgage, selling costs and any other liens.
The amount of ownership that one has in a home. Ownership value is built up by paying down the principal on your mortgage plus the increase in value (appreciation) of your home in the market place.

Exclusive agency listing A listing contract in which the agent has the sole right to sell your home for you, though you are not bound to pay the commission if you produce the buyer.

Exclusive right-to-sell contract A listing contract in which you give the real estate broker the sole right to sell; the person receives a commission, regardless of who produces the buyer.

Federal Housing Administration (FHA) A federal agency that insures first mortgages, enabling lenders to lend a very high percentage of the sale price.

Fixed-rate mortgage A loan with an interest rate and monthly payments that do not vary.

General warranty deed The type of deed considered to provide the most protection to an owner, since the seller guarantees that he or she is the true owner of the property and that no claim will be brought against the property.

Home Market Analysis The Home Market Analysis presents an opportunity to review and evaluate the facts before you decide the price you will ask for your home. It also helps you look at your home from a buyer's perspective. This process will establish a realistic listing price and increase the percentage of qualified buyers who look at your property.

Housing Market Index (HMI) The HMI is based on a monthly survey of home builders that the National Association of Home Builders (NAHB) has been conducting for over 16 years. Each month, the survey asks builders to rate present sales of single-family detached homes and sales expectations over the next six months as "good," "fair," or "poor." Traffic of prospective buyers is rated as "high to very high," "average," or "low to very low." The HMI is a weighted average of the three seasonally adjusted components. On a scale of 0 to 100, with zero being the worst and 100 the best.

Index The rate you pay directly related to a particular interest-rate index.

Lien A monetary claim against your property. Usually liens must be settled before the seller can take the title.

Listing agreements Three types of listing agreements:

With an exclusive right-to-sell agreement, the seller pays a fee regardless of who produces the buyer. This fee covers many important services that the sales associate performs above and beyond finding a qualified buyer.
If the seller finds a buyer, he or she is not obligated to pay the fee in exclusive-agency listing. If the sales associate finds a buyer, then the fee is paid to the real estate company.
An open listing is one in which you sign with several real estate firms and give each authority to sell your home. It is typically less effective than exclusive listing because the sales associate lacks the incentive to make and all-out effort to sell your home.

Listing contract A contract with the broker or firm you hire to represent you in the sale of your home, according to the terms of the sale that you specify. In exchange for producing a ready, willing and able buyer for you, the sales associate is paid a commission.

Loan application fee A lender's fee that you must pay when applying for a mortgage.

Loan origination fee A fee, usually one to four points, charged by the lender for processing your mortgage.

Margin Most lenders will offer adjustable-rate mortgages that state a margin which is added to the index to get the rate upon which payments are based.

Multiple Listing Service (MLS) A networking system, frequently on computer, in which a number of real estate firms share information about their clients' houses that are for sale.

National Association of Home Builders The National Association of Home Builders (NAHB) is a federation of more than 800 state and local builders associations
throughout the United States. The mission of this Washington, D.C.-based trade association is to enhance the climate for housing and the building industry, and to promote policies that will keep housing a national priority. Chief among NAHB’s goals is providing and expanding opportunities for all consumers to have safe, decent and affordable housing.

About one-third of NAHB’s 190,000 members are home builders and/or remodelers. The remainder of the membership consists of associates working in closely related fields -- such as mortgage finance and building products and services -- within the housing industry.

National Association of REALTORS® Founded in 1908, NAR has grown from its original nucleus of 120 to today's 720,000 members. NAR is composed of residential and commercial REALTORS®, who are brokers, salespeople, property managers, appraisers, counselors and others engaged in all aspects of the real estate industry.

Members belong to one or more of some 1,700 local associations/boards and 54 state and territory associations of REALTORS®. They can join one of many institutes, societies and councils. NAR offers members the opportunity to be active in appraisal and international real estate specialty sections. REALTORS® are pledged to a strict Code of Ethics and Standards of Practice.

Negative amortization The increasing of a debt. In the case of a mortgage, the principal is increased.

Offer to purchase A document that lists the price, conditions and terms under which the buyer is willing to purchase the property. (Each of these means the same thing: offer to purchase, or purchase offer, or earnest money agreement, or contract of purchase, or deposit receipt.)

Offer to purchase of sale/sales contract An offer of purchase that has been signed by both buyer and seller. A firm contract that outlines all details of the property transaction. (Same as "acceptance/contract of sale/sales contract.")

Open listing A listing contract in which you hire more than one firm or person to sell your home, and only the one who produces the buyer is entitled to the commission.

Point An amount equal to 1 percent of a mortgage (not sale price) that is paid at closing. A point is usually considered to be prepaid interest -- interest paid up front that represents the difference between the interest being charged on the mortgage and the rate the lender wants to receive.

Points Fees charged by lenders. One point equals one percent of the mortgage amount.

Pre approved buyer Pre approval is more in-depth and gives the buyer more buying strength. The lender makes a credit decision based on the information gathered from and about the buyer. The buyer is then pre approved for a mortgage amount of "X," with maximum interest rate of "Y". The buyer now has the strength of a cash buyer.

Prepayment penalties A penalty charged for paying off a mortgage early.

Pre qualified buyer A buyer can be pre qualified for a loan based on non-verified income and credit information provided by the buyer. The prequalification, which is usually done over the phone, is the opinion of the loan originator and does not represent a formal loan approval.

Purchase offer A document that lists the price, conditions and terms under which the buyer is willing to purchase the property. (Each of these means the same thing: offer to purchase, or purchase offer, or earnest money agreement, or contract of purchase, or deposit receipt.)

Rate adjustment periods With most ARMs, any periodic adjustment in the interest rate changes the payment. Adjustment periods tend to reflect the period of the index of the most popular ARMs; currently, annual adjustments are the most common.

REALTOR® An active member of a local board of realtors. Local boards are affiliated with the National Association of REALTORS®.

Title The right to ownership in real estate, which is transferred by a deed. Evidence of ownership in real estate.

Title insurance Insurance, usually paid through a single premium at closing, that insures the owner against loss because of a claim against the title that was not found in the title search.

Title search The process of checking all the records relating to the title to see that it doesn't have any liens or claims against it that would keep it from being transferred.

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