Real Estate Terms

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Real Estate Terms

There are many terms and abbreviations used in real estate. The following is terminology used to rent, purchase or sell a property, as well as some financial and architectural terms.

The following terms are meant to provide general guidelines only.

Abatement
Derived from Latin battere, “abatement” a common legal term meaning “the beating down, removal, or diminishment” of something. For example, lead abatement refers to finding and removing lead paint.

Abstract of Title
Abstract of title is a historical summary of the recorded instruments and proceedings on the title of a property.

Adjustable Rate Mortgage or ARM
An ARM is a loan that has a varying interest rate and payment based on an adjustment period. The adjustment is dependent on the variation in a benchmark index, usually the LIBOR or prime rate. This loan is also known as a variable rate mortgage.

Air Rights
Air rights are the legal ability to use or control the space above a property. Air rights can be sold, rented or leased to another party.

Amenities
Amenities are the enhancements that buildings offer its owners or tenants. These usually include a doorman, health club, garage, children’s playroom, common lounge, etc.

Amortization
Amortization is the periodic payment of principal and interest on a liability (including a mortgage), or the write-off of a non-depreciable asset over a scheduled term.

Amortization Schedule
An amortization schedule is the designation of periodic payments of principal and interest toward the principal to eventually pay off a debt.

Annual Percentage Rate or APR
The APR is the actual effective rate of interest charged on a loan expressed on a yearly basis and represents the full cost of all elements associated with obtaining a full mortgage into a single formula. The APR is a useful device for making comparisons between mortgage products.

Appraisal
An appraisal is the evaluation of a property by a licensed appraiser on its price based on previous sales of similar properties. The appraised value is used by a bank to determine the lending limit on a given property. A seller may also have a property appraised to determine the offering price during a sale.

Assessment
An assessment is a levy against property and can be an extraordinary payment called for by the board of directors of a cooperative or condominium for the purpose of making a capital improvement or to provide some other essential service for which funds in the reserve account are inadequate.

Asset
An asset is something that is owned that has value.

Assignment
Assignment is the process by which a right or contract is transferred from one party to another. Examples of typical assigned contracts are mortgages, leases and deeds of trust.

Attorney-in-Fact
An attorney-in-fact is a person appointed to perform legal acts for another under a power-of-attorney.

Balloon Mortgage
A balloon mortgage is a short-term mortgage with fixed installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at the end of the term.

Broker (See Real Estate Broker)

Building Restrictions
Building restrictions are the requirements in building codes that affect the size and appearance of the building.

Buy Down
Buy down is the voluntary paying of discount points by a borrower to reduce mortgage interest rate at the time the loan is made.

Buyer’s Broker
A buyer’s broker is a broker who represents the buyer in effectuating a purchase. Normally in residential real estate transactions, the buyer’s broker shares the commission received by the listing broker, who represents the seller.

By-Laws
By-laws are the rules by which the cooperative corporation or condominium operates, including those regulating elections, officers, and authorizations.

Capital Expenditure
A capital expenditure is an improvement that will have a life of one year or more and will increase the value of the property.

Capital Gain
Capital gain is the seller’s gain on an asset used in a trade or business or for investment, including real estate. This gain is taxed at varying rates depending on whether the asset was held for more or less than one year.

Capital Improvement
Capital improvement is an item that adds value to the property, adapts the property to new uses, or prolongs the life of property. Maintenance is not a capital improvement.

Capitalization Rate
The percentage of the investment the investor will receive back each year from the net income from the property.

Caps
Caps are percentage restrictions on an ARM which limit the amount the interest rate may change per year and over the life of the loan.

Cash Flow
Cash flow is the income produced by an investment property after deducting operating expenses and debt.

Cash Reserve
In a mortgage commitment, some lenders require that the borrower have on deposit in their bank accounts at the time of the closing an amount equal to a predetermined number of months of the cost of principal, interest, taxes, and insurance, which is referred to as a cash reserve.

Certificate of Occupancy
The Certificate of Occupancy is a certificate issued by a local governmental entity responsible for the use of land in the community where the property is located stating that the structures on the property or any improvements made to these structures comply with the codes, ordinances and regulations of that governmental entity and that they may be occupied.

Chain of Title
Chain of Title is a successive conveyance of title to a specific parcel of land.

Chattel
Chattel is personal property.

Civil Rights Act of 1866
The Civil Rights Act of 1866 is a federal law that prohibits all discrimination on the basis of race.

Civil Rights Act of 1964
The Civil Rights Act of 1964 is a federal law that prohibits discrimination in many instances, but in Title VI it prohibits discrimination on the ground of race, color, or national origin under any program or activity receiving federal financial assistance.

Civil Rights Act of 1968 (See Fair Housing Act of 1968)

Closing
The closing is when the transfer of ownership of a property from the seller to the buyer occurs according to the sales contract.

Closing Costs
Closing costs are the expenses incurred in the purchase and sale of real property paid at the time of settlement or closing. Some examples of closing costs are title insurance, attorney fees, appraisal fees, recording fees and taxes.

Closing Statement
A closing statement is an accounting of the funds received and distributed in a real estate transaction.

Code of Ethics
The Code of Ethics is a standard of conduct required by license laws and by the National Association of Realtors.

Collateral
Collateral is the security put up in exchange for a loan, which can be taken by the bank if the loan goes unpaid. In the case of a mortgage loan, the collateral is the property.

Commercial Zones
Commercial zones allow usage for retail stores, restaurants, hotels and service businesses.

Commingling
Commingling is the mixing of money or property of others with personal or business funds or other property.

Commission
The commission is the payment to the broker for his or her efforts on marketing and selling the property, and is usually a percentage of the total purchase price.

Commission Split
A commission split is the sharing of commissions between the listing agent and the broker of the buyer.

Commitment Fee
The commitment fee is a fee paid to the lender for processing, underwriting and originating the mortgage. It is also known as an origination fee.

Commitment Letter
A letter issued by the lender to the applicant that states funds will be provided subject to written terms and conditions.

Common Area or Common Elements
The common area is the area in the property or in the building that is available for use by all owners and tenants.

Common Law
Common law is the law set by judicial precedent or tradition as contrasted with a written statute.

Community Planning
Community planning is a master plan for the orderly growth of a city or country to result in the greatest social and economic benefits to the people.

Comparables (Comps) or Comparative Market Analysis
Comps are used in assessing or establishing the fair market value of a property, a property which has been sold recently that is similar in size, condition, location and amenities.

Competent Parties
Competent parties are persons or organizations legally qualified to manage their own affairs, including entering into contracts.

Complete Performance
Complete performance is the execution of a contract by virtue of all parties having fully performed all terms.

Condemnation
Condemnation is the exercise of the power of eminent domain or taking private property for public use.

Condition
A condition in a contract is any fact or event which, if it occurs or fails to occur, automatically creates or extinguishes a legal obligation.

Condominium
A condominium is a building in which ownership has been partitioned into unit interests. Each apartment owner receives a unit deed and owns an individual unit, but common areas are shared with the other unit owners of the building.

Condominium Declaration
Condominium declaration is the document that, when recorded, creates a condominium. It is also called a master deed.

Conforming Loan
A conforming loan is a mortgage issued within the framework of FNMA/FHLMC (Fannie Mae/Freddie Mac) guidelines in terms and amount. In general, any loan which does not meet these guidelines is a non-conforming loan. A loan which does not meet guidelines specifically because the loan amount exceeds the guideline limits is known as a jumbo loan. The Office of Federal Housing Enterprise Oversight (OFHEO) set the criteria on what constitutes a conforming loan limit that Fannie Mae and Freddie Mac can buy. Criteria include debt-to-income ratio limits and documentation requirements. The maximum loan amount is based on the October-to-October changes in median home price, above which a mortgage is considered a jumbo loan, and typically has higher rates associated with it.

Consideration
Consideration is anything of value, as recognized by law, offered as an inducement to contract.

Construction Loan or Mortgage
A construction loan is a short-term loan to obtain funds to construct an improvement.

Constructive Notice
Constructive notice occurs when one of any affected parties are bound by the knowledge of a fact even though they have not been officially notified of such fact.

Contingency
Contingency is a condition in a contract relieving a party of liability if a specified event occurs or fails to occur.

Contract
A contract is a legally binding agreement between two parties, and in order to have a valid Contract of Sale in real estate there must be: an offer, an acceptance, competent parties, consideration, legal purpose, written documentation, description of the property, and signatures of the principals.

Contract for Deed
Contract for deed is a contract of sale and a financing instrument wherein the seller agrees to convey title when the buyer completes the purchase price installment payments. It is also called installment land contract and installment plan.

Conventional Mortgage Loan
A conventional mortgage loan is a loan in which the federal government does not insure or guarantee payment to the lender, but is under the amount of a jumbo mortgage.

Conversion
A conversion is a change in ownership status. For example, rental housing may be converted to condominiums.

Conveyance
Conveyance is the transfer of title to real property.

Co-ownership
Co-ownership occurs when title to real property is held by two or more persons at the same time.

Cost Approach
Cost approach is an appraisal method for estimating the value of properties that have few, if any, comparables and are not income-producing.

Counter-offer
A counter-offer is a new offer made by either the buyer or seller when rejecting a previous offer.

Covenant
A covenant is a promise made in writing.

Credit Score
A credit score is a numerical rating provided on a credit report that establishes creditworthiness based upon a person’s past credit/payment history and their current credit standing.

Curtesy
Curtesy is a husband’s interest upon the death of his wife in the real property of an estate that she either soley owned or inherited provided they bore a child capable of inheriting the estate.

Damages
Damages is the amount of financial loss incurred as a result of another’s action.

Debt-to-Equity Ratio
The debt-to-equity ratio, also referred to as the loan-to-value ratio, is a rule used by banks requiring that a borrower invest a minimum amount of equity cash (usually 10% to 25% of the purchase price) as a condition to obtaining a mortgage.

Debt Service
Debt Service is the cost of carrying a loan, usually through monthly payments, including the payment of interest and principal.

Debt-to-Income Ratio or Debt-Service Ratio
The debt-to-income ratio is the relationship of a borrower’s monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage.

Declaration
Declaration is the master deed containing legal description of the condominium facility, a plat of the property, plans and specifications for the building and units, a description of the common areas, and the degree of ownership in the common areas available to each owner.

Deductible Expenses
Deductible expenses are the costs of operating property held for use in business or as an investment. These expenses are subtracted from gross income to arrive at net income.

Deed
A deed is a written instrument transferring an interest in real property when delivered to the grantee.

Deed in Lieu of Foreclosure
Deed in lieu of foreclosure is the conveyance of title to the mortgagee by a mortgagor in default to avoid a record of foreclosure.

Deed Restriction
A deed restriction is a limitation on land use appearing in a deed.

Default
An act performed by the buyer, seller, tenant or landlord that breaches the contract of sale or lease and permits a claim for damages.

Defeasance Clause
A defeasance clause is a statement in a mortgage or deed of trust giving the borrower the right to redeem the title and have the mortgage lien released at any time prior to defaulting by paying the debt in full.

Deficiency Judgment
Deficiency judgment is a court judgment obtained by a mortgagee for the amount of money a foreclosure sale proceed was deficient in fully satisfying the mortgage debt.

Delivery and Acceptance
Delivery and acceptance occurs when the transfer of a title by deed is given by the grantor to the grantee.

Department of Housing and Urban Development (HUD)
See U.S. Department of Housing and Urban Development.

Depreciation
Depreciation is the expensing of the original cost of an asset, plus any qualified improvements, over its scheduled life as defined by the IRS. Depreciation deductions are permitted only for assets held by the production of income or used in a trade or business.

Descent
Descent is the distribution of property to qualified heirs of one who has died intestate.

Devise
Devise is a gift of real property by will.

Disclosure and Informed Consent
Disclosure and informed consent is a real estate agent explaining his position in the agency relationship and the verbal and written consent of the relationship by the client.

Disclosure Statement
The disclosure statement is an accounting of all financial aspects of a mortgage loan required of lenders to borrowers in residential mortgage loan as regulated by the Federal Reserve Board.

Discount Points
Discount points are a one-time payment by the borrower to the lender at closing to obtain a lower interest rate on the mortgage loan. One point equals 1% of the loan amount; therefore, two points on a $100,000 mortgage would cost $2,000. It is also referred to as points.

Down Payment
The down payment is the amount of money a buyer pays upfront in order to purchase a property.

Dower
Dower is the part of or interest in the real estate of a deceased husband given by law to his widow during her life.

Dual Agent
A dual agent is a broker or salesperson who represents both the buyer and seller in the same transaction.

Due Diligence
Due diligence is the investigation and review of a property to determine any legal liability.

Duplex
A duplex consists of two units.

Earnest Money Deposit
Earnest money deposit is the deposit a buyer makes at the time of submitting an offer to demonstrate the true intent to purchase. It is also called good faith deposit.

Easement
An easement is a non-possessory right of the use of land.

Eave
The eave is the lowest part of the roof that projects beyond the walls of the structure.

Economic Depreciation
Economic depreciation is the physical deterioration of property caused by normal use, damage caused by natural or other hazards, and failure to adequately maintain property.

Economic Life
The economic life is the period of time during which property is financially beneficial to an owner.

Effective Interest Rate
Effective interest rate is the actual rate of interest paid on a loan.

Egress
Egress is the exit from a building or parcel of land.

Encroachment
Encroachment is the trespassing on the land of another by a structure or other object.

Encumbrance
An encumbrance is a claim, lien, charge or liability attached to and binding upon real property.

Environment Impact Statement (EIS)
The environment impact statement is a requirement prior to initiating or changing a land use that may have an adverse effect on the environment.

Environmental Protection Agency (EPA)
The EPA is a federal agency that oversees land use.

Equal Credit Opportunity Act (ECOA)
ECOA is a federal law prohibiting discrimination in consumer laws.

Equitable Title
Equitable title is an interest in real estate such that a court will take notice and protect the owner’s rights.

Equity
Equity is the difference between what something is worth and any loan secured by the asset (i.e. the value of a property less the outstanding mortgage). For example, if a home is worth $100,000 and the owner/borrower owes $65,000 on the mortgage loan secured by the borrower’s home, then the borrower’s equity is $35,000 or 35% equity in the home.

Erosion
Erosion is the wearing away of land by water, wind or other processes of nature.

Escheat
Escheat is the right of the government to take title to property left by a person who dies without leaving a valid will (intestate) or qualified heirs.

Escrow
A state where consideration, benefits, legal rights, document, or a sum of money is held by one person in trust for another, for the purpose of assuring performance under an agreement.

Estate
Estate refers to the collection of all assets of a deceased person. It is also the extent of interest a person has in real property.

Estate at Sufferance
Estate at sufferance is the continuation to occupy property after legal authorization has expired.

Estate at Will
Estate at will is a leasehold condition that may be terminated at any point by either party.

Estate for Life
This is the interest of real property that ends with the death of a person.

Estate for Years
Estate for years is a leasehold condition of definite duration.

Estate in Real Property
Estate in real property is an interest sufficient to provide the right to use, possession, and control of land. It also establishes the degree and duration of ownership.

Estoppel Certificate
An estoppel certificate is a document executed by a mortgagor or mortgagee setting forth the principal amount. The executing parties are bound by the amount specified.

Express Agency
An express agency is a relationship created by an oral or written agreement between a principal and an agent.

Eviction
An eviction is a landlord’s action that interferes with the tenant’s use or possession of the property. Eviction may be actual or constructive.

Exclusive Agency Agreement (Exclusive Listing)
An exclusive agency agreement is between a broker and a seller designating the broker as the seller’s sole agent for the purpose of selling his or her property. This agreement does not preclude the owner from effectuating a sale on his own.

Exclusive Right To Sell Agreement
An exclusive right to sell agreement is between a broker and a seller designating the broker as the seller’s sole representative for the purpose of selling property. In contrast to an exclusive-agency agreement, under an “exclusive-right-to-sell agreement”, a commission is due to the broker even if the apartment is sold directly by the owner.

Exclusive Use Zoning
Exclusive use zoning is a type of zoning in which only the specified use may be made of property within the zoned district.

Executed Contract
An executed contract is an agreement that has been fully performed.

Fair Housing Act of 1968
The Fair Housing Act of 1968 is a federal act prohibiting discrimination in the sale, rental or financing of housing on the basis of race, color, religion, gender or national origin.

Fair Housing Act of 1988
This federal act prohibits discrimination in the sale, rental, financing, or appraisal of housing on the basis of race, color, religion, gender, national origin, handicap, or familial status.

Fair Housing Amendments Act of 1988
An amendment to the Fair Housing Act that prohibits discrimination based on a mental or physical handicap, or family status.

Fair Market Value
The fair market value is the price for a property agreed upon between a buyer and seller in a competitive market.

Fannie Mae
Fannie Mae is the nickname for the Federal National Mortgage Association (FNMA), a privately owned corporation that purchase FHA, VA, and conventional mortgages.

Fascia
The fascia is the area facing the outside of a soffit in house construction.

Federal Housing Administration (FHA)
The Federal Housing Administration is a federal agency that is part of the Department of Housing and Urban Development (HUD) that sets policy for mortgage underwriting and provides insurance for residential mortgages.

Fee Simple Absolute
Fee simple absolute is the inheritable estate in land providing the greatest interest of any form of title.

FHA Insured Loan
An FHA insured loan is a mortgage insured by the Federal Housing Administration.

Finance Charge
The finance charge is the amount imposed on the borrower in a mortgage loan, consisting of origination fee, service charges, discount points, interest, credit report fees, and finders’ fees.

Financing
A loan secured by personal property, such as real estate property.

First Mortgage
A first mortgage is a mortgage whose lien is superior to the lien of any other mortgage on the same property. This lien is superior either because it was recorded prior to all other mortgages or because the mortgagee of another mortgage which had been recorded ahead of this mortgage has agreed to have a lien subordinated to the lien of this mortgage.

Fixed Lease
A fixed lease is when the rental amount remains the same for the entire lease term; also called flat, straight or gross lease.

Fixed-Rate Mortgage
A loan secured by real estate that has a fixed interest rate and payment amount for the term of the loan (normally 15 or 30 years).

Fixture
A fixture is an item (appliance, light fixture, etc.) that is permanently attached to a property.

Flashing
Flashing is a metal material used in parts of the roof or walls to prevent water from penetrating the structure.

Floating Rate
A type of loan where the interest rate is not fixed over the term but is allowed to vary according to the change in a specified index, and is also referred to as an ARM (Adjustable Rate Mortgage).

Floating Slab
A floating slab is a type of foundation constructed by pouring the footing first and then pouring the slab after the footing has set.

Footing
The footing is the concrete base below the frost line that supports the foundation of the structure.

Foreclosure
Foreclosure is an enforcement process in which the lender under a defaulted mortgage takes title to the property for the purposes of selling it to recoup moneys owed under the mortgage.

Freddie Mac
Freddie Mac is the nickname for Federal Home Loan Mortgage Corporation (FHLMC), a corporation wholly owned by the Federal Home Loan Bank System that purchases FHA, VA, and conventional mortgages.

Frieze Board
Frieze board is the wooden member fastened under the soffit against a wall.

Front Foot
A front foot is a linear foot of property frontage on a street or highway.

Full Bath
A full bath is a bathroom that consists of a sink, toilet, and a bathtub or shower.

Fully Amortizing Mortgage
A fully amortizing mortgage is a mortgage with scheduled uniform payments that will fully pay-off the loan over the term of the mortgage.

Functional Obsolescence
Functional obsolescence is a flawed or faulty property that is rendered inferior because of advances or changes.

General Agent
A general agent refers to the entity that has full authority over a property of the principal, such as a property manager.

General Lien
A general lien is a lien that attaches to all of the property of a person within the court’s jurisdiction.

General Warranty Deed
A general warranty deed is a deed denoting an unlimited guarantee of title.

Ginnie Mae
Ginnie Mae is the nickname for Government National Mortgage Association (GNMA), a U.S. government agency that purchases FHA and VA mortgages.

Girder
A girder is the main beam in a structure that spans the distance from one side of the foundation to the other.

Good Faith Estimate
A Good Faith Estimate is an estimate of the fees a mortgage borrower will be required to pay at closing.

Grace Period
In a mortgage, the grace period refers to a specified time frame in which payment may be made without the borrower being in default.

Graduated Lease
A graduated lease is a lease in which the rent changes from period to period over the lease term. This type of lease is usually used by a new business tenant whose income will increase over time.

Graduated Payment Mortgage (GPM)
A graduated payment mortgage has payments that are lower in the early years but increase on a scheduled basis until they reach a level of amortization.

Grandfather Clause
A “grandfather clause” allows an activity to continue that was once considered acceptable or legal, but has since had the rules or laws changed.

Grant
A grant is a transfer of title to real property by deed.

Gross Lease
A gross lease is a lease in which the lessor pays all costs of operating and maintaining property, including the property taxes.

Ground Lease
A ground lease is a long-term lease of unimproved land and is usually for construction purposes.

Habendum Clause
The habendum clause is the statement in a deed that begins with the words “to have and to hold” and describes the estate granted.

Half Bath
A half bath, or powder room, has a sink and toilet, but does not have a bathtub or shower.

Headers
Headers are wooden reinforcements for the placement of doors and windows.

Hectare
A hectare is the metric system equivalent to 2.47 acres.

Holding Period
Holding period refers to the length of time a property is owned.

Holdover Tenant
A holdover tenant is a tenant that remains in possession of a property after a lease terminates.

Home Equity Loan
A home equity loan is a loan made against the equity in a home.

Housing Expense Ratio
The housing expense ratio is the relationship of a borrower’s monthly payment obligation on housing (principal, interest, taxes, insurances and other applicable housing expenses) divided by gross monthly income, expressed as a percentage. It is also referred to as top ratio.

HVAC
HVAC is an acronym that stands for heating, ventilation and air conditioning.

Hydronic System
A hydronic system is a process in an HVAC system where liquids are heated or cooled.

Hypothecate
Hypothecate is to pledge property as security for the payment of a debt without giving up possession.

Improvements
Improvements are changes or additions made to a property. These typically increase the value of the property.

Indemnification
Indemnification is the reimbursement or compensation paid to someone for a loss already suffered.

Index
Index is a benchmark, usually a published interest rate, such as a one-year London Interbank Offered Rate (LIBOR) security yields, used to calculate the interest rate of an adjustable rate mortgage when rate is scheduled to change. Generally, a margin stated in loan documents is added to the index to determine the new interest rate.

Ingress
An ingress is the right to enter a parcel of land, usually used as “ingress and egress”, or both entering and leaving.

Injunction
An injunction is a court instruction to discontinue a specified activity.

Insider Rights
Special rights offered to tenants occupying apartments in a building in the process of converting to a co-op or condo, giving them the exclusive right to buy their apartments for a limited period of time and normally at a discounted price.

Installment Land Contract
See Contract For Deed.

Installment Sale
An installment sale is a property sale in which the purchaser pays the purchase price over a period of years. The seller recognizes gain for tax purposes by the proportion of the profit (determined by the profit divided by the nest sales price of the asset) received on each payment as it is received.

Insurable Interest
Insurable interest is the amount of property qualifying for insurance.

Insured Value
The insured value is the amount that a structure is insured and should include the cost of replacing the structure if completely destroyed.

Interest-Rate Spread
The interest-rate spread is the differential between the retail interest rate charged to a borrower and the wholesale rate accepted by the financial industry when acquiring home mortgage loans. The spread is the profit to the bank.

Interest Rates
The interest rate is the cost of borrowing money from a lender. Rates will vary and will change over time.

Interim Financing
Interim financing is a short-term or temporary loan such as a construction or bridge loan.

Interim Interest
Interim interest is interest owed by the borrower to the lender on the mortgage loan from the day of the closing top the date covered by the first payment.

Intestate
Intestate is the condition that occurs when someone dies without a valid will.

Involuntary Alienation
Involuntary alienation is the transfer of title to real property as a result of a lien foreclosure sale, adverse possession, filing a petition in bankruptcy, condemnation under power of eminent domain, or, upon the death of the titleholder, to the state if there aren’t any heirs.

Joint Tenancy
Joint tenancy is a form of co-ownership that includes the right of survivorship.

Joist
A joist is a wooden framing member used in the construction of floors and ceilings.

Judgment Lien
A judgment lien is a general lien resulting from a court decree.

Jumbo Loan
A mortgage issued in an amount exceeding the threshold stipulated under Fannie Mae (FNMA) regulations for a conforming loan.

Land Lease
A land lease is a situation in which a building and other land improvement are rented for a term of years. At the end of the lease term, the right of possession is extinguished and reverts back to the landowner. At the time, the tenant loses any remaining equity interest in the property.

Landmark
Landmark status is the designation given to a building or neighborhood that is under government protection for purposes of preservation.

Lease
A lease is a written agreement to rent a property or part of a property from an owner.

Liability
A liability is a debt or claim that is owed.

LIBOR Index
Stands for “London Interbank Offered Rate”, and is the average yield of interbank offered rates for one-year U.S. dollar-denominated deposits in the London market. LIBOR is a common index used as a benchmark for adjusting mortgage interest rates in adjustable-rate mortgages.

Lien
A lien is an encumbrance on property which acts as security for the payment of a debt or the performance of an obligation. A mortgage is a lien. A lender will want most, if not all, liens on a property removed before making a mortgage loan.

Lien Foreclosure Sale
A lien foreclosure sale is the sale of property without consent of the owner, as ordered by a court or authorized by state law due to a debt resulting in a lien.

Life Estate
Life estate is a freehold estate created for the duration of the life or lives of certain named persons. It is a non-inheritable estate.

Life Estate in Remainder
A life estate in remainder is a form of life estate in which certain persons are designated to receive the title upon termination of the life tenancy.

Like-Kind Exchange
The like-kind exchange is an exchange of similar property, as defined in the Internal Revenue Code that can be performed without recognition of taxable gain at the time of transfer.

Limited Liability Company
A form of organization that is similar to a partnership, in that recognition of income and expenses flow directly through to the owners for tax purposes (without a corporate tax), but that still permits insulation from liability similar to that of a corporation.

Liquidated Damages
Liquidated damages are the agreed amount to be paid as compensation for a breach of contract.

Liquidity
Liquidity refers to the ability of assets that are readily convertible to cash.

Lis Pendens
Lis pendens means a “lawsuit pending”. See Notice of Lis Pendens.

Listing
The term used by brokers to market an apartment for sale or rent.

Listing Broker
The listing broker represents the interests of the seller or landlord in the sale or rental of his or her property.

Loan Commitment
The loan commitment is the written obligation from a lending institution to provide a mortgage to a borrower.

Loan Origination Fee
The loan origination fee is the financing charge required by a lender.

Loan-to-Value Ratio (LTV)
The loan-to-value ratio is the mortgage amount divided by the lower of the purchase price or the appraised value of the property. This ratio is expressed as a percentage. A lender will use this ratio in determining the maximum mortgage loan that it will make on the property.

Lock-In / Rate Lock Agreement
A lock-in is an agreement by the lender guaranteeing the applicant a specified interest rate on the mortgage loan provided the loan closes within a set period of time.

Loft
A loft refers to an open living space that was converted from commercial space to residential space. Lofts typically have very high ceilings, large windows and open space.

Lot
A lot is a measured section of land.

Market Value
The market value of a property is an estimation of the price for a property in relation to the current real estate market.

Master Deed
A master deed is the instrument that legally establishes a condominium. It is also referred to as a condominium declaration.

Mechanic’s Lien
A mechanic’s lien is a statutory lien available to anyone supplying labor or material to the construction of an improvement of land that ahs not been properly compensated.

Metes and Bounds
Metes and bounds is a system of land description with distances and directions.

Monolithic Slab
A monolithic slab is a type of foundation in which the footing and slab are poured at the same time.

Mortgage
A mortgage is a pledge of real estate collateral to secure a debt. Also, it is a legal document describing and defining the pledge. The mortgage may also include the terms of repayment of the debt. It is also referred to as a deed of trust.

Mortgage Banker
A mortgage banker is an institution that performs services similar to those of a mortgage broker. However, a mortgage banker is also legally permitted to lend its own funds.

Mortgage Broker
A real estate professional who represents an array of banks seeking to issue mortgages. The mortgage broker meets with a customer, assists with the application, and facilitates the mortgage process on behalf of the borrower and the bank. Generally, in the case of residential mortgages, the mortgage broker is paid a fee by the bank for this service.

Mortgage Insurance (or Private Mortgage Insurance / PMI)
Mortgage insurance is insurance that protects the lender in case the home buyer does not make their mortgage payments. Typically, a borrower would be required to pay a fee for mortgage insurance if their down payment is less than 20%.

Mortgage Note
A mortgage note is a document signed at closing which states the borrower’s promise to re-pay a sum of money. The note states an interest rate and a fixed period of time (term) for repayment.

Mortgage Satisfaction
Mortgage satisfaction refers to the full payment of a mortgage loan.

Mortgagee
The mortgagee is the lender in a mortgage transaction.

Mortgagor
The mortgagor is the borrower in a mortgage transaction.

Multiple Dwelling
A multiple dwelling is a structure with two or more residential units.

Multiple Listing Service (MLS)
A MLS is a central service for real estate listings available to member brokers.

National Association of Realtors (NAR)
The NAR is the largest and most prominent trade organization for real estate brokers and agents.

Negative Amortization
This occurs when a loan permits the borrower to make a payment that is less than the full amount required to cover the interest charge on the open balance and the shortfall is added to the mortgage principal.

Net Lease
A net lease refers to a type of lease in which the tenant pays a fixed rent plus the operational costs of the property.

Net Worth
Net worth is your assets less your liabilities.

Nonconforming Use
A nonconforming use refers to the utilization of land that does not conform to the zoning ordinance for the area.

Nonrecourse Note
A nonrecourse note is a type of note in which the borrower has no personal liability for payment.

Notarize
Some legal documents, including certain leases and contracts of sale, are notarized by a certified Notary Public to verify the authenticity of a signature.

Notice of Lis Pendens
Notice of lis pendens is a public record warning all concerned parties that title to a property is the subject of a lawsuit and any lien resulting from the suit will attaché to the title.

Offer
An offer is made to purchase a property at a specific price. Once an offer is accepted, then a contract of sale is issued by the seller’s attorney.

Offering Plan
See “Prospectus”.

Open-end Mortgage
An open-end mortgage is a mortgage that may be refinanced without rewriting the mortgage contract.

Origination
Origination is the first step in the mortgage loan process consisting of the completion of the application.

Ordinance
An ordinance is a law enacted by the local government.

Open Listing
An open listing is a property for sale for which the owner has not signed an exclusive agreement with a real estate broker. Many brokers may represent the seller, or the seller can promote the property independently.

Option to Renew
An option to renew is a provision in a lease that states the method and terms of a lease renewal.

Origination Fee
The origination fee is a service charge by a lending institution for a mortgage.

Ownership in Severalty
Ownership in severalty is title to real property held in the name of one person only.

Parcel
A parcel is a specific portion of land such as a lot.

Partition
Partition refers to the legal proceeding that divides property of co-owners so each will hold title in severalty.

Party Wall
Party wall refers to the wall in common between two adjoining structures, such as in townhouses and brownstones.

Passive Loss
A passive loss is a loss generated by investment real estate when real estate is not the taxpayer’s primary business. Loss in excess of income may not be fully recognized for tax purposes in the year it was incurred.

Penthouse
A penthouse apartment refers to the apartment on the highest floor in a luxury, high-rise building.

Percentage Lease
A percentage lease refers to a lease that has a rental amount that is a combination of a fixed amount plus a percentage of the lessee’s gross sales.

Percolation
Percolation is the movement of water through soil.

Percolation (Perc) Test
A perc test determines if the soil is sufficiently porous for the installation of a septic tank.

Periodic Tenancy
A periodic tenancy lease automatically renews for successive periods unless terminated by either party. It is also called an estate from year to year.

Phantom Gain
A sale of real estate in which income is recognized for tax purposes but no money has been received correlating to the gain amount. This can occur when the property’s basis has been depreciated below the property’s mortgage amount.

Pied-a-Terre
Pied-a-terre is a term that refers to an apartment that is not the primary residence of the owner. The term refers to an apartment that is used only sporadically throughout the year.

PITI
PITI is an acronym for a mortgage payment that includes principal, interest, taxes and insurance.

Plat
A plat is a property map that is part of the public record.

Platform Framing
Platform framing is the most common type of framing in residential construction in which the framing of the structure rests on a subfloor platform.

Points
Points refer to the payment made to a lender as consideration for issuing a mortgage, usually based on a percentage of the loan amount. Each point is equal to 1% of the principal of the mortgage.

Powder Room
A powder room is also referred to as a half-bath, and only has a toilet and sink.

Pre-Approval
A pre-approval is a process in which a conditional commitment is issued after a loan profile is underwritten with all standard documentation except a property appraisal and a title search.

Pre-Qualification
A pre-qualification is a process in which a loan officer calculates the housing-to-income ratio and the total debt-to-income ratio to determine an approximate maximum mortgage loan amount.

Price-to-Earnings Ratio (P/E Ratio)
The price-to-earnings ratio is the common metric used to assess the relative valuation of equities. To compute the P/E ratio in the case of a rented house, divide the price of the house by its potential earnings or net income, which is the market rent of the house minus expenses, which include maintenance and property taxes. This formula is:
House P/E Ratio = House Price / Rent-Expenses
Compare this ratio to the simpler but less accurate price-rent ratio.

Price-to-Income Ratio
It is the basic affordability measure for housing in a given area. It is generally the ratio of median house prices to median familial disposable incomes, expressed as a percentage or as years of income. This ratio, applied to individuals, and also referred to as “attainability”, is a basic component of mortgage lending decisions.

Price-Rent Ratio
The price-rent ratio is the average cost of ownership divided by the received rent income (if buying to let) or the estimated rent that would be paid if renting (if buying to reside). This formula is:
House Price-Rent ratio = House Price / Monthly Rent x 12

Primary Residence
Generally, a primary residence of an owner or renter is one that they occupy the majority of time.

Principal
The principal in the mortgage is the amount that is borrowed and on which interest is paid or received.

Private Mortgage Insurance (PMI)
See Mortgage Insurance.

Processing
Processing is the second step in the mortgage application process which involves the verification of information stated on the application. Credit reports and the appraisal are also ordered at this time.

Property Condition Disclosure Form
This form is a comprehensive checklist pertaining to the condition of the property including its structure and any environmental issues in and around the property.

Property Description
The property description is an accurate, legal description of the land.

Property Tax
The tax issued by a municipality on the ownership of a property.

Prospectus
A document issued by a sponsor in the process of converting a building to a cooperative or condominium ownership. It is intended to provide “full disclosure” of all relevant facts associated with evaluating an investment in the property, and is also referred to as the offering plan or black book.

Quadruplex
A quadruplex has four units.

Radon
Radon is a colorless, odorless gas present in soil that enters a home through small spaces and openings.

Rate Cap
A rate cap is the limit on interest rates during the term of an adjustable rate mortgage.

Ratios
Ratios are guidelines applied by the lender during underwriting a mortgage loan application to determine how large a loan to grant an applicant. The ratios the lenders use are generally the Loan-to-Value Ratio, Housing-to-Income Ratio, and Debt-to-Income ratio.

Real Estate Broker
A real estate broker is an individual employed on a fee or commission basis as an agent to bring buyers and sellers together and assist in negotiating real estate contracts between them.

Real Estate Investment Trust (REIT)
An REIT is a trust owned by shareholders that buys and initiates mortgage loans.

Real Estate Salesperson
A real estate salesperson performs any of the acts of a real estate broker but while associated with and supervised by a broker.

Real Estate Settlement Procedures Act (RESPA)
RESPA is a federal law that regulates the activities of lending institutions in making mortgage loans.

Real Property Tax Lien
This lien is a tax levied against real property by the local government and has priority over all other liens.

Recapture
When investment real estate has been depreciated for tax purposes, the gain on the sale includes a “recapture” of the previously written-off depreciation as gain. In certain cases, this can result in a tax liability that exceeds the cash received.

Recording
Recording is registering the ownership, lien, or claim of a party to a specific parcel of real estate with the local county.

Recording Fees
Recording fees are the fees charged by the recorder’s office to record a document such as a mortgage or deed.

Redlining
Redlining is the resistance of lending institutions to make loans for the purchase, construction, or repair of a dwelling due to the socio-economic conditions of the property’s location.

Referral Fee
A referral fee is a percentage of a broker’s commission paid to another broker for the referral of a buyer or seller.

Refinancing
Refinancing are the proceeds of a new loan used to pay off an existing mortgage on the same property.

Rental
A rental is the possession, but not ownership, of a property for a limited duration of time under defined terms and conditions.

Rental Building
A rental building only has apartments for rent and not for purchase.

Reserve Fund
A reserve fund is the amount reserved to provide funds for future expenses in order to maintain a cooperative or condominium building and is managed by the building’s board.

Residential Lead-based Paint Hazard Reduction Act
This act stipulates procedures to be followed in disclosing the presence of lead-based paint in the sale or rental of properties built prior to 1978.

Reverse Annuity Mortgage
A reverse annuity mortgage is a type of mortgage that retirees on fixed incomes can use to generate income out of the equity in their homes while they continue to live in the home.

Rider
A rider is an addendum to a document that covers supplemental issues.

Ridge Beam
A ridge beam is the highest part of framing in a structure and forms the apex of the roof.

Right of Assignment
The right of assignment allows the lender to sell a mortgage at any time and obtain money invested rather than wait for the completion of the loan term.

Right of Survivorship
The right of survivorship is the right of an owner to receive the title to a co-owner’s share upon death of the co-owner, as in the case of joint tenancy and tenancy by the entirety.

Right-of-Way
Right-of-way is an easement allowing someone to use the land of another for a specific purpose.

Riparian Rights
Riparian rights are the rights of an owner of property adjoining a watercourse such as a river, including access to and use of the water.

Sale Price
The sale price, also referred to as the purchase price, refers to the amount of money paid by the purchaser to the seller.

Sales Comparison Approach
The sales comparison approach is an appraisal tool for estimating the value of a property with other similar properties that have sold recently.

Satisfaction of Mortgage
The satisfaction of mortgage indicates that a mortgage has been paid in full.

Security Deposit
The security deposit is the payment required by the landlord that guarantees that the tenant will meet their financial obligations under the terms of the lease. Besides guarding against any unpaid rent, it also guards against any potential damage that may be incurred by the tenant.

Seller Contribution
The seller contribution is a payment by the seller of a property of some, or all, of the buyer’s closing costs.

Seller’s Agent
A seller’s agent is the listing agent that works in the best interests of the seller.

Service Drop
A service drop is the above-ground electrical cables that come from the nearest electrical pole connecting the electrical service of the house.

Service Lateral
Service lateral are the underground electrical wiring connecting the electrical service of the house.

Servicing
Servicing are activities the lender performs such as collecting the payments and/or paying taxes and insurance from an escrow account.

Setback
The setback is the distance from the front or interior property line to the point where the structure is located.

Severalty
Severalty refers to ownership by only one person.

Soffit
A soffit is the area under the roof extension of a structure that can be made of wood, vinyl or aluminum.

Square Footage
The area measured in square feet of a certain property. Square footage can be measured in different ways and is usually considered approximate. Condominium apartments have specific laws that determine the way in which the apartment is measured and usually more accurately reflect the actual square footage within a property.

Super Jumbo Loan
This is a loan that exceeds $1,000,000.

Survey
A survey is a document indicating measurements, boundaries and the area of a property.

Tax Abatement
A tax abatement is a financial incentive offered by a local or municipal government to stimulate development in a particular area. The owner of the property and/or the developer has reduced taxes for a specific period of time.

Tax Deductible
A tax deductible expense helps to reduce taxable income. The tax deductible expenses related to real estate are interest payments on mortgages and real estate taxes.

Tenancy by the Entirety
Tenancy by the entirety refers to co-ownership limited to husband and wife, with the right to survivorship.

Tenancy in Common
Tenancy in common is co-ownership that does not include the right of survivorship.

Term, Amortization
The amortization term is the period of time in which the interest and principal payments of a loan must be made.

Term Mortgage
A term mortgage is a mortgage with interest payments only during the mortgage term, with the principal due at the end of the term.

Title
The title of a property is the evidence or documentation that an owner is in lawful possession of the property, such as a property deed.

Title Insurance
Title insurance is an insurance policy protecting the insured from financial loss caused by a defect or question about the title to real property.

Title Search
Title search is a process that examines local public records, laws and related court decisions to determine if any other parties have valid claims against the subject property (such as past due taxes, judgments or mechanics’ liens). It also discloses past and current facts about the subject property’s ownership.

Title Transfer Tax
Title transfer tax is a tax imposed on the conveyance of title to real property by deed.

Townhouse
A townhouse is a private residence where at least one wall is shared with another residence.

Treasury Index
The Treasury Index is the weekly average yield on US Treasury securities adjusted to a constant maturity of one, three or five years, as made available by the Federal Reserve Board.

Triple Net Lease
Triple net lease refers to a condition when the lessee pays all the expenses associated with the property in addition to the rent.

Triplex
A triplex has three units.

Truth-in-Lending Disclosure
Federal law requires that the lender must give this document to the home buyer within three business days after the loan application. This disclosure gives details of the mortgage payments along with the corresponding APR and finance charges.

Underwriting
In mortgage lending, underwriting is the decision-making process used to determine whether the loan risk is acceptable to the lender. Underwriting involves the satisfactory review of the property appraisal and examination of the borrower’s ability and willingness to repay the debt and sufficiency of collateral value of the property.

Unencumbered Property
Unencumbered property is property that is free of any lien.

U.S. Department of Housing and Urban Development (HUD)
A federal agency that administers funding for projects related to housing.

Useful Life
Useful life is the period of time that a property is expected to be economically useful.

Use Variance
Use variance is the permission to use the land for a purpose which, under the current zoning restrictions, is prohibited.

Usury
Usury is charging a rate of interest higher than the rate allowed by law.

Vacancy Rate
The vacancy rate is the projected rate of the percentage of rental units that will be vacant in a given year.

VA Guaranteed Loan
A VA guaranteed loan is a mortgage loan in which the loan payment is guaranteed to the lender by the Department of Veteran Affairs.

Valuation
Valuation establishes an opinion of value utilizing an objective approach based on facts related to the property, such as age, square footage, location, cost to replace, etc.

Variance
A variance is a deviation from specific requirements of a zoning ordinance due to special conditions of the property.

Walk-up Building
A walk-up building is a building that does not have an elevator and are usually four or five stories.

Walk-Through Inspection
The walk-through inspection of a property occurs right before a closing to ensure that the property is being delivered as stipulated in the contract of sale.

Wetlands
Wetlands are federal and state protected transition areas between uplands and aquatic habitats that provide flood and storm water control, surface and groundwater protection, erosion control, and pollution treatment.

Words of Conveyance
Words of conveyance is a stipulation in a deed demonstrating the definite intent to convey a specific title to real property to a named grantee.

Wraparound Mortgage
A wraparound mortgage is a junior mortgage in an amount exceeding a first mortgage against the property.

Yield
The yield refers to the return on an investment.

Zone
An area of a municipality or specific building that is zoned for a specific use, such as residential, commercial, etc.

Zoning
Zoning are the laws regulating land use.

Zoning Ordinance
Zoning ordinance is a statement settling forth the type of use permitted under each zoning classification and specific requirements for compliance.