Real Estate Terms and Definitions

Lexicon Essentials

All terms are in alphabetical order. Clicking on the first letter of the alphabet below sends you directly to that heading.
A B C D E F G H I J L M N O P Q R S T V Z
Adjustable rate mortgage A type of mortgage rate loan that allows the interest rate to change periodically up or down, usually once or twice a year. Most ARMs have limits as to how much the interest rate can change over time.
Agent      A person who acts, or has the power to act for another. A real estate agent acts on behalf of the principal (the buyer or seller) and has responsibilities towards the principal. New Century Real Estate & its Brokers will usually work with you as Transaction Brokers. Other Brokerage relationships include Buyer's agent and Seller's agent .

Agreement of sale     A written agreement or contract in which the seller agrees to sell and the buyer agrees to buy under specific terms and conditions. The Colorado Real Estate Commission has approved standardized contracts for use in Colorado.

Amenities      Features that enhance and add to the value or desirability of real estate. Common amenities include a deck, swimming pool, clubhouse, tennis courts and great views.

Amortization     The reduction of a debt over time by making periodic payments (usually monthly) a portion of which is interest and a portion of which reduces the outstanding amount of the debt. The monthly mortgage payments remain the same over the life of the loan, even though the proportion of principal to interest changes over time. In the early part of the loan, principal repayment is very small and interest repayment very high; at the end of the loan, that relationship is reversed.

Appraisal     The act or process of estimating value; an estimate of value. Some examples are a full appraisal performed by a licensed appraiser, a Broker price opinion performed by a licensed real estate agent.

Appraiser     Someone who practices appraisal. Appraisers' work involves appraisal (see above), review (the process of critically studying a report prepared by another), or consulting (the process of providing information, analysis of real estate data, and recommendations on diversified problems in real estate, other than estimating value). In Colorado, appraisers are licensed by the Colorado Real Estate Commission.

Asset management    That sector of the real estate profession that is dedicated to finding tenants, collecting rents, maintaining and marketing the income property. The three main functions of asset management are Fiscal, Physical and Administrative management.

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Balloon mortgage     A mortgage for a fixed term shorter than necessary to fully repay the debt. As a result, the remaining amount of principal is due at the maturity of the loan.

Bridge loan     A loan, usually short term, that finances the portion of the purchase price not provided by the mortgage loan and the down payment. A bridge loan is commonly used when a purchaser has not sold his existing home before he closes on his purchase of a new home. The bridge loan is paid off when the old home is sold, out of the proceeds of that sale.

Broker, as in real estate broker     Colorado has gone to "Single Licensing", meaning all licensed real estate professionals are Brokers. All new Brokers are required to work under an established Broker for a period of two years before becoming eligible to work as sole proprietors or start their own company.

Buyer's agent     An agent who represents the buyer and owes fiduciary duties to the buyer.

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Capital gain     Income that results from sale of a capital (tangible) asset.

Closing     The end of the transaction; when the seller hands over the title to the buyer in exchange for payment.

Closing costs     Costs the buyer and Seller must pay at the time of the closing. The Buyer, in addition to the down payment, may have to pay points, title charges, mortgage insurance premium, prepayments for property taxes, and homeowners insurance. Closing costs can be as much as three to four percent of the loan amount. Sellers may have to pay commissions, title insurance premiums, points and closing fees.

Condominium or condo     A condominium, literally, is a home in a shared building or development. The buyer owns title to his or her unit, shares the common areas with other unit owners, and pays a maintenance fee to the condominium association to pay for needed maintenance, repairs and improvements to the property.

Contingency     A condition that must be met before a contract is binding.

Conventional loan     A fixed-rate, fixed-term loan that is made without government insurance. May require private mortgage insurance.

Co-operative or co-op     In a residential co-operative, the buyer purchases shares in the co-op corporation, made up of the residents in the co-op property. The buyer owns the shares rather than owning real property. In exchange, he has the right to lease and occupy a co-op unit.

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Deed     A legal document by which property title is transferred from one owner to another.

Down payment     The down payment is the percentage of the purchase price that the buyer must pay in cash and may not borrow from the lender. The down payment amount, in addition to the mortgage, equals the purchase price of a property.

Dual agency     Illegal in Colorado.

Earnest money     The deposit money given to the seller by the potential buyer as evidence of good faith in purchasing real estate. The broker places the money the brokers trust account (some times called an escrow account) until closing, when it becomes part of the down payment .

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Equity     The value of the property, less the amount of unpaid mortgages and any outstanding liens.

Escrow     Money or other valuables given to a third party with directions to deliver them to another party upon the fulfillment of a specific act or condition.

Exclusive agency listing     A written agreement giving the broker the right to market an owner's property for a certain period of time, but also allowing the owner to sell the property during that period without paying a commission.

Exclusive right-to-buy    A written agreement between the Agent and the Buyer, whereby the Buyer agrees to use only the Agent to find and close on a property. The Buyer Broker has a fiduciary responsibility to the Buyer.

Exclusive right-to-sell     A written agreement between the Agent and the Seller, whereby the Seller promises to pay a fee or commission to the broker if his property is sold during the listing period, regardless of whether the broker is responsible for the sale.

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Fannie Mae     Nickname for the Federal National Mortgage Association, FNMA is a public corporation originally established by the federal government. Fannie Mae purchases mortgage loans from lenders, and thus, is a major source of funds for mortgage companies.

FHA or Federal Housing Administration      Part of the US Department of Housing and Urban Development (HUD) -- established in 1934 to encourage improvement in housing standards and communities. The FHA insures mortgage loans. See HUD listing ahead.

FHA mortgage      A mortgage loan insured by the Federal Housing Administration.

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General Warranty Deed    A deed in which the grantor fully warrants good clear title (no clouds) to a property. Most common deed in real estate transactions, and offers the most protection for the buyer.

Gift Letter    A letter to a lender acknowledging that money given to the buyer from the giver is in fact a gift, and not a loan.

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Home inspection      An examination of the physical structure, heating and cooling systems and condition of a home.

Homeowners insurance      Sometimes called Hazard Insurance. Insurance that protects the homeowner from "casualty" (losses or damage to the home or personal property) and from "liability" (damages to other people or property). Homeowners insurance is required by the lender and is usually included in the monthly mortgage payment.

HUD or the US Department of Housing and Urban Development      Department of Housing and Urban Development, a government agency created to make the American dream of home ownership a real possibility for everyone. HUD has many programs involving homeownership assistance for low- and moderate-income families, community planning and development, fair housing and equal opportunity, and home improvement loans. The Housing and Urban Development home page is a rich resource of information.

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Immediate Family Member      To a lender this term means the borrowers spouse, parent, step-parent, grandparent, sister, brother or legal guardian.

Improvement    A valuable addition to a property above mere repairs. Some examples are: a deck, new garage or a finished basement.

Income Property    Can be commercial, industrial or residential. Primary purpose is to produce income. Life is much easier when the services of a professional property managers like Dave & Karyn Toso with New Century Real Estate are used.

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Joint tenancy   When real property is owned by two or more natural persons with the right of survivorship.

Jurat   The clause written at the bottom of an affidavit by a notary public stating where, when and before whom the affidavit was sworn.

Lien      A hold or a claim on the property of another to satisfy an unpaid debt. Some common liens are tax liens and mechanics liens.

Listing contract      An agreement between a homeowner and a licensed real estate broker that authorizes the broker to market the property for sale during a given time period.

Loan origination fee      A fee charged by the lender for evaluating, preparing and submitting a proposed mortgage loan.

Loan-to-value ratio      The ratio of a mortgage loan principal to the property's appraised value or its sales price, whichever is lower. Loan-to-value ratios vary depending upon the individual lender's policy.

Lock-in rate      A commitment made by a lender to make a mortgage loan at a specified rate, pending loan approval, on or prior to a specified date.

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Market value      The highest price a buyer will pay for a property and the lowest price the seller will accept.

Mortgage      A lien on real estate given by the buyer to secure repayment of money borrowed to purchase the real estate.

Mortgage broker      An individual or company that obtains mortgages for others by finding lending institutions, insurance companies, or private sources to lend the money; may also handle collections and disbursements.

Mortgage Insurance     A policy that provides protection for the lender in case of default and/or which guarantees repayment of the loan if the borrower becomes disabled or dies.

Most Definitions above from one or more of the following: