Real Estate Terms

Abstract of title: A summary detailing the history of a parcel of land, including transfers, conveyances, liens, and encumbrances.

Acceleration: The right of a lender to demand full repayment of a loan.

Acceptance: When a buyer and seller reach an agreement regarding the buyer’s offer to purchase land.

Adjustable rate mortgage: A loan with an interest rate that may adjust over time, rather than having a fixed rate.

Adverse possession: A set of laws that allow an individual to claim ownership of property through occupation of it over a period of time. Sometimes called “squatter’s rights.”  See also encroachment.

Amortization: The process of equalizing mortgage payments by adjusting principal and interest over time. This process transitions from high interest payments and low principal payments to low interest payments and high principal payments.

Annual percentage rate: The annual rate charged for borrowing. The percentage represents the actual yearly cost of funds for the loan, including fees and other costs.

Appreciation: The increase in property value over time.

Arrears: Payment made after it was due.

Assumption of mortgage: An agreement made by the buyer to assume legal liability for the mortgage from the seller.

Balloon mortgage: A mortgage with a low interest rate for an initial, fixed period of time. After that period of time passes, the final payment is due and is usually large, hence the name.

Borrower: The individual or entity that obtains and repays a loan from a lender.

Broker: An individual who negotiates between buyers and sellers in real estate transactions. Usually has more qualifications than a real estate agent.

Capital gain: Profit from the sale of a capital asset, such as real estate.

Certificate of title: A document testifying to the ownership of a property and declaring it free and clear of any encumbrance.

Chain of title: The chronological record of a parcel of land, illustrating its various conveyances throughout its history to the present owner.

Clear title: A title with a sole owner, without liens or levies from creditors, and to which no other party can claim ownership.

Closing: The completion of a sale of real property.

Closing cost: Any additional fee not included in the property’s price that is charged to complete the ownership transfer from one party to another.

Community property: Any property and assets obtained by spouses during their marriage, which is then legally owned by both parties.

Contingency: A condition to be met for a contract to be considered legally binding.

Contract of sale: The agreement between the buyer and seller which details the terms of transferring ownership of real estate.

Covenants: A legally-binding promise included in a real estate agreement. See also warranty.

Deed: A written document transferring ownership or interest in a property from one individual or entity to another.

Default: Failure to do something required, such as make house payments. See also foreclosure.

Delinquency: Failure or tardiness in making a payment.

Depreciation: The decrease in property value over time.

Disclosures: The release of background information related to a property, such as defective appliances or known environmental problems.

Double closing: When a property is simultaneously bought and sold, usually by using an investor as a middleman.

Down payment: The initial payment made by a buyer at closing; usually a percentage of the total price.

Easement: The legal right that gives an individual an interest in land owned by someone else, to use it for a specific purpose.

Eminent domain: The government’s constitutional right to take private property from a citizen for public use; usually involves compensation for the land.

Encroachment: Construction of a structure on someone else’s property. Often used in adverse possession cases to give a non-owner a claim to land s/he has been occupying through encroachment, such as by building a fence past the original property line.

Encumbrance: A claim or lien against real property.

Equity: The difference between the market value of a property and the amount still owed with a mortgage.

Escrow: Money held by a third party until a buyer and seller close a real estate deal.

Estate: An individual’s total assets.

Fair market value: An estimate of the value of a property based on what an objective, knowledgeable person would pay to an objective, knowledgeable seller.

Fixed rate mortgage: A mortgage with payments that remain the same throughout the life of the loan.

Foreclosure: A legal process by which a lender recovers what is owed on a house by selling the property as collateral. This only occurs when a borrower is in default.

Grantee: The individual who is granted rights to a property by another individual.

Grantor: The individual who grants rights to a property to another individual.

Home equity loan: A loan secured by using equity in the home as collateral.

Inflation: The consistent increase over time in the general price of goods and services in the economy.

Interest: A charge paid at regular intervals to delay the repayment of a debt.

Interest rate: A percentage of a debt that is charged by the lender to the borrower in exchange for use of its assets.

Joint tenancy with rights of survivorship: When two or more individuals share equal rights to a property. When one owner dies, their share of the property is automatically transferred to the surviving owners.

Lease: An agreement between a property owner allowing another individual to use the property for a specific amount of time in exchange for regular payments.

Lender: An individual or entity who loans money to others. See also borrower.

Liability: Legal responsibility for one’s actions.

Lien: An encumbrance against a property, such as a mortgage, judgement, or tax lien.

Loan: The lending of money by individuals, entities, or organizations, usually with interest.

Maturity: The time when a borrower must repay a loan.

Mortgage: A loan in which real estate is used as a collateral.

Notice of default: An official document notifying a borrower that s/he has not made payments on a loan and is therefore in default.

Offer: The proposal to enter into a contract. In real estate, this means a proposal to purchase property.

Origination: The process to obtain a mortgage.

Ownership: Having rights over a property.

Pre-approval: Process by which a buyer will be approved by a bank to receive a loan to purchase real estate.

Predatory lending: Any fraudulent, unfair, or exploitative action by a lender to convince a borrower to take out a loan that will prove disadvantageous to the borrower and advantageous to the lender. Common practices include extremely high fees and interest rates and failure to disclose or clarify important information.

Pre-qualify: Informal process by which a buyer receives an estimate of how much s/he may be able to borrow from a lender.

Promissory note: A written agreement to pay a certain amount to an individual at a certain time.

Quitclaim deed: A deed in which the grantor transfers any claim to a property to the grantee without any warranties.

Real estate agent: Licensed individual who negotiates the sale of real estate between buyers and sellers.

Refinancing: Using a new mortgage loan to repay an existing one, usually to receive a better interest rate.

Reverse mortgage: An agreement in which a homeowner uses their home as collateral to receive a loan. This requires the homeowner to be 62 or older and meet certain qualifications. Read more here.

Secured loan: A loan that is backed by collateral. A reverse mortgage is a kind of secured loan.

Tenancy in common: A type of property ownership in which two or more individuals each have a share of the rights to the property. At the death of one owner, his/her rights are passed onto heirs or beneficiaries through a will or laws of succession.

Title: Evidence of rights of ownership.

Warranty: A guarantee in a contract that promises everything in the agreement is true and reliable. In real estate, warranties are usually found in deeds, indicating that the seller has the authority to sell a property and that there are no liens or encumbrances on the property.

Warranty deed: A deed in which the seller guarantees s/he has the authority to sell the property and will defend against any claims made against it by a third party. See also warranty.

Zoning: Municipal or local government laws dictating how real estate can be used. For instance, some areas are zoned for commercial use, others for residential, etc.