The potential home buyer will find this glossary helpful for understanding words and terms used in the real estate industry. There are, however, some factors that may affect these definitions:
- Terms are defined as they are commonly understood in the real estate industry. The same terms may have different meanings in another context.
- The definitions are intentionally general, non-technical and short. They do not encompass all possible meanings or nuances that a term may acquire in legal use.
- State laws, as well as custom and use in various States or regions of the country, may modify or completely change the meanings of certain terms defined.
Abandonment—Failure to occupy and use property; may result in loss of rights.
Absolute Fee—Fee simple absolute. Absolute or fee simple title is absolute and unqualified, unlimited in duration and unconditional. It is the highest, most complete, and best title one can have.
Abstract of Judgment—A summary of the essential provisions of a court judgment which, when recorded, creates a lien upon all the real property of the debtor within the county where recorded.
Abstract (Of Title)—A summary of the public records relating to the title to a particular piece of land. It should normally contain a chronological summary of all grants, conveyances, will, transfers and judicial proceeding which in any way affected title, together with all liens and encumbrances of record, showing whether or not they have been released. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.
Acceleration Clause—Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.
Acceptance—Agreeing to the terms of an offer to enter into a contract, thereby making it a binding contract. Also, the act of accepting delivery of a deed.
Acre—An acre of land equal to 43,560 square feet; or 4840 square yards or 160 square rods. There are 640 acres in a section of land and 36 sections in a township.
Adaptation—Where an item has been specially designed for use in a particular building or is essential to the use of the building and therefore a fixture.
Adjacent—Nearby, bordering, or neighboring; may or may not be in actual contact.
Administrator—A person appointed by the probate court to manage and distribute the estate of a deceased person when no executor is named in the will or there is no will.
AdValorem—Latin phrase meaning "according to value," used in connection with property taxation.
Adverse Possession—Acquiring title to real property owned by someone else, by means of open, notorious, and continuous possession of the property, under color of title, hostile to the title of the owner of record for the statutory period.
Affidavit—Sworn statement made before a notary public, or other official authorized to administer an oath, and then reduced to writing.
Agency—A relationship of trust created when one person, the principal, delegates to another, the agent, the right to represent the principal in dealing with the third parties.
Agency, Dual—Representing both parties of a transaction, such as a broker representing both the buyer and seller.
Agent—In an agency relationship, the one who is authorized to represent another (the principal).
Agreement of Sale—Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.
Alienation—The transfer of title, ownership, or interest in property from one person to another.
Alienation Clause—A provision in a promissory note or mortgage calling for immediate full payment of the debt if the mortgaged property is sold. Such a provision effectively prevents sales by assumption or land contract.
Alienation, Involuntary—The involuntary transfer of real estate by operation of law (such as a mortgage foreclosure), natural processes of adverse possession.
Alienation, Voluntary—Voluntary transfer of real property from one person to another.
Amenities—The intangible benefits that accompany ownership of a particular residence, such as proximity to public transportation, schools, or shopping, as well as panoramic views, architectural excellence, or the prestige that goes with living in a given community.
Amortization—Gradual payment of a debt in installments including principal and interest over a set period of time, where at the end of the period the entire debt has been paid.
Amortized Loan—A loan that is completely paid off, interest and principle, in equal, or nearly equal installment payments.
Appraisal—An estimate or opinion of the value of a piece of property as of a certain date.
Appraiser—One who estimates the value of real or personal property, particularly on qualified by education, training and experience to do so.
Appreciation—Increase in value or worth. Opposite of depreciation.
Appurtenance—Anything that is incident to, attached to, or pertains to the land and is transferred with it, but is not necessarily a part of it.
Assessment—1. The valuation of property for taxation. 2. A non-recurring specific charge against property for a definite purpose, such as curbs or sewers.
Assessor—Official who determines the value of property for taxation.
Assume—To take upon oneself. Example; A buyer may assume the seller's loan and mortgage when purchasing a piece of property, thereby becoming personally liable for repayment.
Betterment—An improvement to real property which is more extensive that ordinary repair or replacement and which increases the value of the property.
Bilateral Contract—A contract in which there has been an exchange of promises by all parties, and all parties are legally obligated to perform.
Bill of Sale—Document used to transfer title, ownership, or interest in personal property from on person to another.
Binder—1.An agreement to consider the deposit or earnest money as evidence of the potential purchaser's good faith when he or she makes an offer to buy a piece of real estate. 2. An instrument giving immediate insurance coverage to an insured person until the regular policy is issued.
Breach—Violation of an obligation, duty or law.
Broker, Real Estate—A licensed natural or artificial person who acts, for a fee, as an intermediary between parties to a real estate transaction.
Broker, Associate—One who has qualified as a broker but who works for a principal broker.
Broker, Designated—A natural person, licensed as a broker, who is responsible for the brokerage activities of a partnership or corporation.
Brokerage—A broker's business. The compensation or commission charged for the broker's services is called a brokerage fee.
Building Code—Rules set up by local governments providing minimum construction standards.
Building Line or Setback—Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.
Building Restrictions—Public or private limitations imposed on buildings with respect to the allowable size or type. Zoning is an example of a public restriction, while conditions or covenants in deeds are examples of private restrictions.
Bylaws—The rules and regulations that govern a corporation or condominium association.
Carry-Over Clause—A clause found in a listing agreement, providing that for some specified period following the expiration date of the listing the broker will still be considered the procuring cause of sale and entitled to his/her commission if someone who was shown the property while the listing agreement was in force later decides to buy.
Cash Flow—The net income after deducting from the gross income all operating and fixed expenses including both interest and principal paid on loans.
Certificate of Eligibility—A certificate issued by the Veterans Administration to a veteran as evidence of eligibility for a Veterans Administration loan.
Certificate of Occupancy—A statement issued by a local government verifying that a newly constructed building is in compliance with all codes and may be occupied.
Certificate of Reasonable Value—A document issued by the Veterans Administration setting forth the property's current market value, based on a VA approved appraisal.
Certificate of Title—A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.
Chattel—Personal property such as money, livestock and automobiles.
Chattel, Real—Personal property which is closely associated with real property, such as a lease.
Client—One who employs a broker, a lawyer or and appraiser. A real estate broker's client can be the seller, the buyer, or both, but is usually the seller.
Close—To close means to complete a transaction. It may mean reaching an agreement or putting the agreement into effect. In real estate, closing is the final stage in the transaction when the seller delivers the deed and the buyer delivers the purchase price.
Closing Costs—The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of the property and are items prepaid at the close. A typical list might include: appraisal fee, title insurance premium, real estate commission, home inspection fee, survey charge, documentary stamps on notes, documentary stamps on deed, recording deed and mortgage, cost of abstract, settlement/closing fee, etc.
Closing Day—The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.
Closing Statement—A financial account given to buyer and seller at completion of a real estate transaction showing their respective credits and debits and the sums received and expended by the escrow holder.
Cloud on the Title—An outstanding claim or encumbrance which adversely affects the marketability of title.
Commission—The compensation or fee paid a broker for services in connection with a real estate transaction.
Commitment—A promise to do something in the future. A finance lending institution's promise or commitment to make a loan. The commitment may be "firm" or "conditional." A conditional commitment might be contingent on something such as a satisfactory credit report on the borrower.
Common Areas—The land and improvements in a condominium, planned unit development or cooperative housing project owned and used collectively by all the residents. Common areas usually include driveways, recreational facilities, stairwells, and other areas available for common use.
Competent—Legally qualified, such as being of legal age and mentally sane to enter into contracts.
Condemnation—The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.
Condition—A provision in an agreement or contract, limiting or modifying the rights and obligations of the parties.
Condominium—Individual ownership of a dwelling unit and an individual interest in the common areas (hallways, stairways, the land and so forth) and facilities which serve the multi-unit project.
Condominium Association—An association made up of condominium unit owners formed to manage, control, regulate, and maintain the common elements in the condominium.
Conservation—Regarding real estate, conservation means preservation of structures or neighborhoods in a sound and favorable condition.
Conservator—A person appointed by a court to take care of the property of another who is incapable of taking care of his/her own property.
Consideration—Anything of value given to induce another to enter into a contract, such as money, services, goods or a promise.
Contiguous—Physically adjoining, abutting or in close proximity, such as two parcels of real estate next to each other.
Contingency—A happening or event that is necessary before a contract becomes binding.
Contract—An agreement, for consideration, between competent parties to do or not do a certain thing. It is an agreement enforceable at law and as a general rule may be written or oral.
Contract, Bilateral—A contract in which each party promises to perform something in exchange of the other's promise to perform.
Contract of Sale—An agreement in which a buyer agrees to buy a parcel of land for a certain price and seller agrees to convey title; also called a Purchase and Sale Agreement.
Contract for Deed—A contract for the sale of property in which the buyer receives possession of the property upon signing the contract, but the seller retains title. When the full purchase price has been paid, the deed is delivered to the buyer and title is conveyed. This type of contract is also referred to as a Contract of Sale, Conditional Sales Contract, Installment Sales Contract, or Land Contract.
Contract, Unilateral—A contract which is accepted by performance. The offeror is not required to perform his or her part of the contract (a promise), until the offeree has performed.
Contractor—In the construction industry, a contractor is one who contracts to deliver labor or materials or to construct a building or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road, or other work for a certain price.
Conventional Mortgage—A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and State statutes. The mortgage rates may vary with different institutions and between States. (States have various interest limits.)
Conveyance—The transfer of title to real property from one person to another by means of a written document, such as a deed.
Cooperative Housing (Apartment or Building)—An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.
Co-ownership—Two or more people simultaneously share title to one piece of property.
Cost—The amount paid for anything in money, goods or services.
Cost Approach to Value—One of the three appraisal methods. A value estimate is arrived at by estimating the cost of replacement or reproduction of improvements on the property, then deducting from that the estimated accrued depreciation and adding the estimated market value of the land.
Co-Tenancy—A type of ownership where two or more persons own undivided interests in the same property at the same time. SEE: Joint Tenancy and Tenancy in Common.
Covenant—1. A written agreement or promise to do or not do something. 2. A stipulation that a property be used or not used for a particular purpose or purposes. 3. A guarantee that some state of facts exists (good title in a grantor of a deed). It occurs in such documents as leases, mortgages, land contracts and deeds.
Cul-De-Sac—A dead end street, normally with a circular turnaround at the end.
Customer—In real estate, a customer is usually a prospective purchaser.
Damages—The amount of money one can recover as compensation for injury to his or her person or property resulting from an act or failure to act.
Damages, Liquidated—A sum stipulated and agreed upon by the parties at the time of entering into a contract, as being payable as compensation for loss suffered in the event of a breach. The buyer's earnest money deposit is often retained by the seller as liquidated damages in the event of a breach of contract by the purchaser.
Debt Service—The amount of money required to make the periodic payments of principal and interest on an amortized debt.
Debtor—One who owes something, normally money, to another.
Declaration of Homestead—The act of applying for homestead protection.
Declaration of Restrictions—A statement of all the conditions, covenants and restrictions affecting a piece of property.
Deed—A formal written instrument by which title to real property is transferred from the owner to the grantee. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (SEE: the various types of deeds such as General Warranty, Special Warranty, or Quit Claim.)
Deed, General Warranty—A deed containing warranties or guarantees of clear title and the right to convey, as well as the grantor's willingness to defend against claims that the title conveyed is not good. This is the type of deed used most commonly used in Minnesota.
Deed, Quit Claim—A deed which operates to convey and release any interest in a piece of real property which the grantor may have. It contains no warranties of any kind, but does transfer any right, title, or interest the grantor has at the time the deed was executed.
Deed Restrictions—Limitations in a deed limiting or restricting the use of the property, such as residential only or no building over 35 feet in height.
Deed Tax—The deed given to the successful bidder when property is sold to satisfy unpaid property taxes.
Default—Failure to fulfill an obligation, duty or promise. The most common default is probably failure of a borrower or lessee to pay money when due.
Delivery—The legal transfer of an instrument evidencing title or ownership. A deed must be delivered and accepted to convey title.
Demise—A transfer of an estate or interest in real property to another for years, for life or at will.
Density—The term refers to the number of buildings per acre or the number of occupants per unit of land, square mile, acre, etc. Zoning ordinances are designed to control not only the manner in which the land is used, residential, industrial or agricultural, but also the number of buildings situated on the land and the number of people using it.
Depreciation—A loss in value. Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.
Detached Residence—A home physically separated from and not connected to another by a common wall.
Developer—One who makes changes to bring land to its most profitable use by subdividing and/or improving it.
Devise—Gift of real property through a will. The donor is the testator and the recipient is the devisee.
Devisee—Recipient of real property under a will.
Disbursements—Term used in accounting to describe money paid out or expended.
Discrimination—Unequal treatment, either favorable or unfavorable, based on a class, race or group to which a person or persons belong.
Due on Sale Clause—A clause in a loan agreement which states that the entire amount of the loan shall be due and payable if the security property is sold.
Duplex—A single structure that contains two separate housing units, with separate entrances, living rooms, baths and kitchens.
Dwelling—A building or part of a building used or intended to be used as living quarters.