Real Estate Terms

Acceptance:  The written approval of the buyer's offer by the seller.

Amenity:  A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).

Appraisal:  A document from a professional that gives an estimate of a property's fair market value based on the sales of comparable homes in the area and the features of a property; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.  An appraisal is not the same as an inspection.

As-is Condition:  The purchase or sale of a property in its existing condition without repairs.

Arbitration:  A process where disputes are settled by referring them to a fair and neutral third party (arbitrator).  The disputing parties agree in advance to agree with the decision of the arbitrator.  There is a hearing where both parties have an opportunity to be heard, after which the arbitrator makes a decision; a legal method of resolving a dispute without going to court.

Brokers:   A real estate broker represents a party (buyer or seller) in a real estate transaction or may act as an intermediary between the parties.

Clear Title:  Ownership/Property Title that is free of liens, defects, or other legal encumbrances.

Closing:  The final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing the seller receives payment for the property.  Also known as settlement.

Closing Costs:  Fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. A common estimate of a Buyer's closing costs is 2 to 4 percent of the purchase price of the home.

Cloud On The Title:  Any condition which affects the clear title to real property.

Commission:  An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction.  Traditionally the home seller pays the commission.

Common Areas:  Those portions of a building, land, or improvements and amenities owned by a condominium project’s homeowners’ association that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Comparative Market Analysis (COMPS):  A property evaluation that determines property value by comparing similar properties sold usually within the last six months.
Condominium:  A unit in a multiunit building. The owner of a condominium unit owns the unit itself and has the right, along with other owners, to use the common areas but does not own the common elements such as the exterior walls, floors and ceilings, the structural systems outside of the unit or the land unit is on; these are owned by the condominium association. There are usually condominium association fees for building maintenance, property upkeep, taxes and insurance on the common areas and reserves for improvements.

Contingency:  A clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. Both, buyer or seller may include contingencies in a contract, but both parties must accept the contingency.

Conventional Mortgage:  A mortgage loan that is not insured or guaranteed by the federal government or one of its agencies, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), etc

Counter-offer:  An offer made in response to a previous offer that rejects all or part of previous offer and negotiates different terms to reach an acceptable sales contract.  For example, after the buyer presents their first offer, the seller may make a counter-offer with a slightly higher sale price.

Deed:  The legal document transferring ownership or title to a property.

Deed of Trust: A legal document in which the borrower transfers the title to a third party (trustee) to hold as security for the lender. When the loan is paid in full, the trustee transfers title back to the borrower. If the borrower defaults on the loan the trustee will sell the property and pay the lender the mortgage debt.

Disclosures: The release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. "Full disclosure" usually refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lied about a defect may face legal penalties.

Down Payment:  The portion of a home’s purchase price that is paid in cash and is not part of the mortgage loan.  20% of the sales price is the common down payment for residential purchases.

Earnest Money (Deposit): money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.

Easement: A right to the use of, or access to, land owned by another.

Encroachments:  A structure that extends over the legal property line on to another individual's property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.

Encumbrance:  Any claim on a property, such as liens, leases, mortgages, easements or restrictions.

Exclusive Right-to-Sell Listing:  Listing agreement under which the property owner appoints a real estate broker (known as the listing broker) as exclusive agent to sell the property on the owner’s stated terms, and agrees to pay the listing broker a commission when the property is sold.  Typically used by a listing broker to provide the traditional full range of real estate brokerage services.

Fair Market Value: The price at which property would be transferred between a willing buyer and willing seller, each of whom has a reasonable knowledge of all pertinent facts and is not under any compulsion to buy or sell.

Federal Housing Administration (FHA):  An agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages and loans made by private lenders.

First-Time Home Buyer:  A person with no ownership interest in a principal residence during the three-year period preceding the purchase of the security property.

Fixture:  Personal property permanently attached to real estate or real property that becomes a part of the real estate.

Flood Hazard Areas, Floodways and Flood Insurance:   Many properties are in flood hazard areas. Lenders who make loans on properties located in special flood hazard areas typically require the owner to maintain flood insurance.  Check with your realtor.

Foreclosure:  A legal action that ends all ownership rights in a home when the homebuyer fails to make the mortgage payments or is otherwise in default under the terms of the mortgage.

Good-Faith Estimate:  A form required by the Real Estate Settlement Procedures Act (RESPA) that discloses an estimate of the amount or range of charges, for specific settlement services the borrower is likely to incur in connection with the mortgage transaction.

Historic or Conservation Districts:  Properties located in historic or conservation districts may have restrictions on use and architecture of the properties. Local governments may create historic or conservation districts for the preservation of certain architectural appeal. A property owner may or may not be aware if the property is located in such a district. If you are concerned whether the property you wish to buy is located in such a district, contact the local government for specific information.

Home Inspection:  A professional inspection of a home to determine the condition of the property.

Homeowner's Insurance:  An insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms or other damages with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately.

Home Warranty:  Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.

Homeowners’ Association:  An organization of homeowners residing within a particular area whose principal purpose is to ensure the provision and maintenance of community facilities and services for the common benefit of the residents.

Homestead Credit:  Property tax credit program, offered by some state governments, that provides reductions in property taxes to eligible households.

HUD-1 Statement:  Also known as the "settlement sheet," or "closing statement" it itemizes all closing costs.  Items that appear on the statement include real estate commissions, loan fees, points, and escrow amounts.

Inspection, Repairs & Walk-Through:
Inspections. You are encouraged to have the property you want to buy inspected by licensed inspectors of your choice. You should have the inspections completed during any option period. You should accompany the inspectors during the inspections and ask the inspectors any questions. Brokers and agents do not posses any special skills, knowledge or expertise concerning inspections or repairs. If you request names of inspectors or repair professionals from your agent, you should note that the agent is not making any representation or warranty as to the ability or workmanship of the inspector or repair professionals.
Repairs. You and the seller should resolve, in writing, any obligation to complete repairs you may request before the option period expires.
Walk-Through. Before you close the sale, you and your realtor should walk through the property and verify that any repairs are complete. If the condition of the property does not satisfy the contractual provisions, notify your agent before you close.

Income Property:  Real estate developed or purchased to produce income, such as a rental unit.

Investment Property:  A property purchased to generate rental income, tax benefits, or profitable resale rather than to serve as the borrower’s primary residence. Contrast with “second home.”

Lease:  A written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period of time.

Lender:  A term referring to a person or company that makes loans for real estate purchases.  Sometimes referred to as a loan officer or lender.

Listing Agreement:  A contract between a seller and a real estate professional to market and sell a home.  A listing agreement obligates the real estate professional (or his or her agent) to seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.

Mandatory Owners’ Associations:  The property you buy may require you to be a member in one or more owners’ associations. You may obtain copies of any deed restrictions and owners’ association rules from the county clerk, the title company you use in the transaction, or the owners’ association. If membership in an owners’ association is required, you will probably be obligated to pay periodic dues or assessments. Failure to pay such dues could result in a lien on and foreclosure of the property.

Market Value:  The current value of your home based on what a purchaser would pay.  An appraised value is an estimate of the current fair market value.

Mortgage:  A loan using your home as collateral. In some states the term mortgage is also used to describe the document you sign (to grant the lender a lien on your home). It also may be used to indicate the amount of money you borrow, with interest, to purchase your house. The amount of your mortgage often is the purchase price of the home minus your down payment.
Multiple Listing Service:  The Multiple Listing Service (MLS) is a database and cooperative tool between brokers. Agents who use the MLS must comply with the MLS’s rules. The listing agent is required to timely report the current status of a listing, including when the property is sold or leased or is no longer available, as well as the sales price. Subscribers (other brokers, agents, appraisers, other real estate professionals, and the appraisal districts) have access to the information for market evaluation purposes.
Much of the information in the MLS, such as square footage, assessed value, taxes, school boundaries, and year built is obtained from different sources such as the county appraisal district, an appraiser, or builder. The broker or agent who provides you with information from the MLS does not verify the accuracy of the information. You should independently verify the information in the MLS and not rely on the information.

Offer:  See Purchase Offer.

Open House:  When the seller’s real estate agent opens the seller’s house to the public.

Owner Financing:  A transaction in which the property seller provides all or part of the financing for the buyer’s purchase of the property.

Owner Financing:  A home purchase where the seller provides all or part of the financing, acting as a lender.

Owner-Occupied Property:  A property that serves as the primary residence.

Ownership:  Ownership is documented by the deed to a property. The type or form of ownership is important if there is a change in the status of the owners or if the property changes ownership.

Personal Property:  Any property that is not real property.

Possession:  Most contracts provide that the seller will deliver possession of the property to the buyer at the time the sale closes and funds. Sometimes there is a short delay between closing and actual funding; especially if the buyer is obtaining funds from a lender. You may need to verify with the lender if the loan will fund on the day of closing. You should also take this potential delay into account when planning your move into the property. Any possession by the buyer before the sale closes and funds (or by the seller after the sale closes and funds) must be authorized by a written lease.

Power of Attorney:  A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
Pre-Approval Letter:  A letter from a mortgage lender indicating that you qualify for a mortgage of a specific amount. It also shows a home seller that you’re a serious buyer.

Pre-Qualification Letter:  A letter from a mortgage lender that states that you’re pre-qualified to buy a home, but does not commit the lender to a particular mortgage amount.

Price Range:  The high and low amount a buyer is willing to pay for a home.

Property Insurance:  Promptly after entering into a contract to buy a property and before any option period expires, contact your insurance agent to determine the availability and affordability of insurance for the property. There are numerous variables that an insurance company will evaluate when offering insurance at certain coverage levels and at certain prices. Most lenders require that the property be insured in an amount not less than the loan amount. The failure to obtain property insurance before closing may delay the transaction or cause it to end. The Texas Association of REALTORS® publishes a document titled,
“Information about Property Insurance for a Buyer or Seller” (TAR 2508), which discusses property insurance in more detail.

Property (Fixture and Non-Fixture):  In a real estate contract, the property is the land within the legally described boundaries and all permanent structures and fixtures. Ownership of the property confers the legal right to use the property as allowed within the law and within the restrictions of zoning or easements. Fixture property refers to those items permanently attached to the structure, such as carpeting or a ceiling fan, which transfers with the property.

Purchase Offer:  A detailed, written document that makes an offer to purchase a property, and that 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 contract, sometimes called the Sales Contract.

Purchase and Sale Agreement:  A document that details the price and conditions for a transaction. In connection with the sale of a residential property, the agreement typically would include: information about the property to be sold, sale price, down payment, earnest money deposit, financing, closing date, occupancy date, length of time the offer is valid, and any special contingencies.

Real Property:  Land and anything permanently affixed thereto — including buildings, fences, trees, and minerals.

REALTOR®:  A real estate professional or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations.

Residential Service Contracts:  A residential service contract is a product under which a residential service company, for an annual fee, agrees to repair or replace certain equipment or items in a property (for example, covered appliances, air conditioning and heating systems, and plumbing systems). Co-payments typically apply to most service calls. If you request names of residential service companies from your agent, you should note that the agent is not making any representation or warranty about the service company.

Right of First Refusal:  A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Sale Leaseback:  When a seller deeds property to a buyer for a payment, and the buyer simultaneously leases the property back to the seller for a specified period of time.

Septic Tanks and On-Site Sewer Facilities:  Many properties have septic tanks or other on-site sewer facilities. There are several types of such systems. Special maintenance requirements may apply to certain systems. Please refer to a document titled, “Information about On-Site Sewer Facility” (TAR 1407) for more information.

Square Footage:  If you base your purchase price on the size of the property’s building and structures, you should have any information you receive about the square footage independently verified. Square footage information comes from other sources such as appraisal districts, appraisers, and builders. Such information is only an estimate. The actual square footage may vary.

Survey:  A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc. Surveys are conducted by licensed surveyors and are normally required by the lender in order to confirm that the property boundaries and features such as buildings, and easements are correctly described in the legal description of the property.

Taxes and Insurance:  Funds collected as part of the borrower’s monthly payment and held in escrow for the payment of the borrower’s, or funds paid by the borrower for, state and local property taxes and insurance premiums.

Tax Prorations:  Typically, a buyer and seller agree to prorate a property’s taxes through the closing date. Property taxes are due and payable at the end of each calendar year. The escrow agent will estimate, at closing, the taxes for the current year. If the seller is qualified for tax exemptions (for example, homestead, agricultural, or over-65 exemption), such exemptions may or may not apply after closing. After closing the taxes may increase because the exemptions may no longer apply. When buying new construction, the taxes at closing may be prorated based on the land value only and will later increase when the appraisal district includes the value of the new improvements. The actual taxes due, therefore, at the end of the year and in subsequent years may be different from the estimates used at closing.

Termite Inspection:  An inspection to determine whether a property has termite infestation or termite damage. In many parts of the country, a home must be inspected for termites before it can be sold.

Termination Option:  Most contract forms contain an option clause which provides the buyer with an unrestricted right to terminate the contract. Most buyers choose to buy the termination option. You will be required to pay for the termination option in advance. The option fee is negotiable. Most buyers will conduct many of their reviews, inspections, and other due diligence during the option period. You must strictly comply with the time period under the option. The option period is not suspended or extended if you and the seller negotiate repairs or an amendment. If you want to extend the option period you must negotiate an extension separately, obtain the extension in writing, and pay an additional fee for the extension. Do not rely on any oral extensions.

Tide Waters:  If the property you buy adjoins any of the state’s tidal waters, you will be given a prescribed notice titled, “Addendum for Coastal Area Notice” (TAR 1915) at the time you sign a contract. Boundaries of properties along such waters may change and building restrictions will apply. If the property is located seaward of the Gulf Intracoastal Canal, you will receive a separate notice (TAR 1916).

Title:  A legal document establishing the right of ownership and is recorded to make it part of the public record.  Also known as a Deed.

Title Company:  A company that specializes in examining and insuring titles to real estate.

Title Insurance:  Insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event of a title defect. This charge is included in the closing costs. A policy that protects the buyer from title defects is known as an owner's policy and requires an additional charge.

Title Search:  A check of the public records to ensure that the seller is the legal owner of the property and to identify any liens or claims against the property.

Underwriting:  The process used to determine loan approval. It involves evaluating the property and the borrower’s credit and ability to pay the mortgage.

Veterans Affairs (U.S. Department of Veterans Affairs):  A federal government agency that provides benefits to veterans and their dependents, including health care, educational assistance, financial assistance, and guaranteed home loans.

VA (Department of Veterans Affairs):  A federal agency, which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.

VA Guaranteed Loan:  A mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs (VA).

VA Mortgage:  A mortgage guaranteed by the Department of Veterans Affairs
(VA).

Warranty Deed:  A legal document that includes the guarantee the seller is the true owner of the property, has the right to sell the property and there are no claims against the property.