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REALTY Glossary
Defining the Reality of Realty.

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Each term comes with not one, BUT TWO definitions.  The first definition being the widely accepted and approved ‘real’ definition, called the Realty definition.  The second is what the word really means, or as we denote it, the Reality definition.

 

MyREALTY.com is Real Estate 2.0.  You decide the content.  If you have a “Realty” and/or a “Reality” definition for the MyREALTY.com Glossary, then please send it to us.


1031 Exchange

Realty = An exchange called Internal Revenue Code 1031, where a property owner can trade a similar property and defer paying an income tax.

    

Reality = There are very specific guidelines you have to follow, so watch out.  Likely, it will not be an actual trade, but a third party exchange agent holds your sales proceeds so that you can purchase a property.  You could sell a home and purchase a commercial property (or two), or buy land on speculation.

 

Agency

Realty = Your representation during a real estate transaction.  Your agency might be a buyer’s agent, a listing (seller) agent or dual agency. 

 

Reality = Avoid dual agency, or having one real estate agent represent both the buyer and seller.  This typically happens because the potential buyer calls the phone number on the “For Sale” sign in front of a home for sale.  Once you do that, you’re speaking to the real estate agent who is representing (and earning a commission from) the sellers.  If you’re looking to buy, do not call the number on the real estate signs.  Rather find a buyer’s agent to represent you. 

 

Agent

Realty = Usually, an independent sales worker who represents buyers and/or sellers in the transaction of real property.  The client represented is called a “principle”. 

 

Reality = All Realtors® are agents, but not all agents are Realtors®.  The term Realtor® is often considered generic for ‘real estate agent’ when in fact Realtor® is a member of an association (National Association of Realtors®).  For an agent not to be part of the Association is silly (assuming she lives in an area where the association exists) because once an agent pays the annual dues, they can access the MLS, or Multiple Listing Service, and have an agreement with other Realtors® to split a commission.  The MLS is currently the North American industry standard for listing homes for sale.  The newer Global Listing Service (GLS) is open to all agents, Realtors® or not, as well as, property owners who want to get maximum exposure and list their property for free.

 

Agreement of Sale

Realty = The contract in which a seller agrees to sell and a buyer agrees to buy.  Other specific terms and conditions are out in writing and signed by both buyer and seller. Also known as “binder,” “purchase agreement,” "sales agreement” and “buy-sell contract”. 

 

Reality = Get EVERYTHING in writing.  Seller’s tip:  Disclose, Disclose, Disclose!  Buyer’s tip:  Do your Due Diligence before you get to this point, or ensure you have contingencies to allow you the time to perform your due diligence.

 

Amortization

Realty = Paying off and reducing a debt, commonly a mortgage, with regularly installed payments of principal and interest.  Amortization is often associated with an amortization schedule that is the timetable in which a mortgage is paid.  For example, your mortgage may come with a 5, 15, 20, 30 or even a 40-year amortization.

 

Reality = Over the period of a fifteen-year mortgage of $200,000 you might pay $150,000 dollars less in total interest than you would a thirty-year mortgage.  The drawback of a shorter amortization is that you’re monthly payment will be considerably higher.  Watch out for Balloon and Negative Amortization mortgages!  Balloon Mortgages require total payment of the loan after the amortization is over.  Negative amortization requires very little up-front costs but your monthly payment only covers part of the interest while the balance continues to grow.

 

Annual Percentage Rate (APR)

Realty = Includes the cost of initiating a loan as well as costs incurred during the life of the loan.  Interest, insurance and the points (origination fee) are expressed in the total APR as a quoted interest rate.  The APR also represents all additional service and finance charges associated with the loan.

 

Reality = The APR is a good way to find out how much a loan will really cost.  A lot of lenders will advertise a low, low interest rate, but sneak in a variety of fees and closing costs.  The APR offers a more complete picture of the expense at hand an apples-apples comparison, if you will.

 

Appraisal

Realty = Based on an expert appraiser’s site judgment, measure of dimensions, comparable sale analysis, and re-build cost estimates, a professional appraisal includes calculations of the value of real estate for a given date. 

 

Reality = Professional appraisers are good people with houses, spouses and dreams of one day winning the lottery.  However, as of late, the appraisal industry has come under fire for “rubber stamping” the value of a property.  This will happen two ways.  If you are buying, an appraiser might value a home congruent to the offer price stated on the buy/sell contract.  So, it’s a good idea not to make an offer until you get an appraisal.  Secondly, lending institutions have, through their own appraisals, overvalued homes in order to loan money to homeowners.  In turn, homeowners find themselves owing more money than their house is worth.  Foreclosure can result if a home is overvalued for the purpose of loaning money, and the owner can’t keep up on payments. 

 

Appraiser

Realty = A qualified, licensed person who is paid a fee to estimate the value of an asset, your property.

    

Reality = You’ll want to find a reputable appraiser who will act independently, without bias, when evaluating your property. Shop around for references, although your lender often selects the appraiser in a loan/mortgage process.

 

Appreciation

Realty = The increase in the value of your property over time.

           

Reality = The longer you can hold onto your property, the more likely the  

appreciation will grow.  Search for properties in a neighborhood with a good appreciation track record.

    

Assessed Value

Realty = The public tax assessor uses this property valuation for the basis of

taxes.

 

Reality = While some lender appraisals lean to the high side, the county appraisals are usually lower than market value, so don’t confuse the two. 

 

Assessor

Realty = A government official who determines the value of property.

  

Reality = The numbers they come up with will calculate future property taxes.

 

AVM

Realty = An AVM or Automated Valuation Model, often used by lenders, is a computerized estimation of a property’s value.  It is often used by buyers wanting statistical information that will help them make an educated offer on a home for sale, lot or land.

 

Reality = While AVM’s have become all the rage in real estate, they are computer generated and reflect constantly fluctuating valuations; they are NOT professional appraisals.  If you want a professional appraisal (something you might consider BEFORE you make an offer to buy, refinance or borrow money against your property) then contact a professional appraiser. 

 

Balloon Payment

Realty = The final total payment due at the end of a balloon mortgage.

    

Reality = It’s not paying for your property with a fancy balloon, it’s if you have 

a balloon mortgage, then this is the lump sum payment at the end of the decided 

term.  You may have a 5 or 10 year balloon with a loan, although the loan may

be amortized over 20 or 30 years to ensure that the payments are more palatable.

 

Bill of Sale

Realty = A "Deed" that transfers real property.

 

Reality = In many jurisdictions this can be as simple as what’s sold, for how much, to whom and when.  Another example of why you need not get bowled over by real estate transactions.

 

Bridge Loan

Realty = People who haven’t sold their previous property, but have to close on a new purchase property can get this type of loan, which sources their funds for the down payment

    

Reality = These aren’t used so much anymore, because more people tend to use second mortgage lenders that will lend at a high loan to value.

 

Broker

Realty = Like a real estate agent a broker is an intermediary between buy/sell transactions, however, a broker who runs a brokerage oversees real estate agents and their transactions.

 

Reality = After some years of experience, a real estate agent may want to become a licensed broker.  Commonly, an exam must be passed and the new broker may want to work for another broker as a broker-associate.  With all of the experience and education, working with a broker is commonly seen as advantageous to working with an agent, but finding an agent with the oversight of a good broker can be just as good.

 

Broker-Associate

Realty = A broker who does not run his or her own brokerage, but rather works for another broker.

 

Reality = Get to know them because one day they’ll have their own brokerage.

 

Broker-Owner

Realty = A real estate broker who owns a real estate brokerage.

 

Reality = Someone you may want to know when you’re looking to buy or sell real estate.

 

Buyer’s Agent

Realty = A real estate agent who represents the buyer in a real property transaction. 

 

Reality = The person you want to call when looking for a home - instead of calling the number on the “For Sale” sign.  When a buyer’s agent finds you a home, you owe them nothing.  They get a piece of the listing agent’s commission (from the sale price) – assuming the home is listed in an MLS.  If they find you a home that is not listed in an MLS, you’ll have to agree to a commission or fee.

 

Buyer’s Broker (or Buyer’s Agent)

Realty = Represents the potential homebuyer in a buy/sell transaction.

 

Reality = When looking for a home, this is who you call…  NOT the agent on the ‘for sale’ sign.

 

Buy-Sell Agreement or Buy-Sell Contract

Realty = Signed and agreed upon during closing, a real estate sales contract identifies the property being sold, names the buyer and seller, states the amount of money the buyer will pay and the date when title to the property will be exchanged for the money.

 

Reality = Before you get to this point, you might consider a professional appraisal, a professional inspection, negotiated near your original offer and landed the right loan with the best interest rates.  If not this piece of paper could be the beginning of a very painful experience.

 

CAP Rate

Realty = Used to compare investment properties, CAP rate is the Net Operating Income (NOI), divided by the sales price.

 

Reality = There are many ways to value and compare an investment property, and using a CAP rate is generally a precursor to more due diligence and financial analysis.

 

Certificate of Title

Realty = Does the seller have a good and insurable title?  A title examiner or attorney giving a legal opinion should sign a certificate title stating the status of the property’s title.

 

Reality = The proper signature on this certificate ensures that the title is clear.

 

Closing Costs

Realty = There are two types of closing costs: non-recurring and pre-paid items. Non-recurring costs are items you only pay once, as a result of buying or getting a loan.  Pre-paids are items that you pay over time, such as property taxes.

 

Reality = Perform your due diligence to understand closing costs between a loan and a real estate closing.  The loan costs are typically paid by a buyer, and property closing costs are typically paid by the seller or split between the buyer and seller.

 

Closing Statement (Settlement Sheet)

Realty = The total determination that the buyer must pay to seller to finalize the purchase of the real estate. Also the “HUD-1”.

 

Reality = You’ll definitely want to look over it, as it will reveal all the costs lurking at closing. This is usually distributed at least three days prior to closing, so both parties have an opportunity for review.

 

Collateral

Realty = In a home loan, the property is the collateral.

 

Reality = You can lose your home, if the loan isn’t repaid according to the guidelines of the mortgage or deed of trust.

 

Commission

Realty = The percentage of a real estate sale that goes to a broker and/or agent for their services. 

 

Reality = Typically between three to seven percent, real estate commissions are negotiable.  Setting a price in stone constitutes illegal price fixing.  A seller should understand that a commission is usually split between the buyer’s brokerage and the seller’s brokerage.  The brokerage gets part for overhead and the agent gets the remainder. 

 

Competitive Market Analysis (CMA)

Realty = A valuation of your home using the prices of “comparable” homes in your area.

 

Reality = You may get an agent to provide this for free or for a fee.  You can purchase a complete property report and valuation from MyREALTY.com. 

 

Condition

Realty = A promise or demand in an agreement or contract

 

Reality = Read the fine print for any stipulations in the contract before signing.  For example, if you’re buying a new home, but you want a new roof to be included in the negotiated price, then it should be stated “a condition” in your contract.

 

Conditions

Realty = As used in phrases like “the market conditions” to imply a “buyer” or “sellers” market. 

 

Reality = No matter the “market” real estate is usually one of your better investment choices.

 

Condo / Condominium

Realty = Individual ownership (deeded) of a portion of a building, with common areas shared by all owners.  Monthly fees are charged to maintain the common areas (parking, lawns, pool, etc.).    

 

Reality = Condos are a great alternative to single-family homes for people who don’t want to maintain the exterior of their home.

 

Contingency

Realty = A contractual clause that states something be done for the contract to be binding.

 

Reality = A buyer often puts a contingency that specifies the contract isn’t binding until he or she gets a home inspection report from a qualified home inspector.

 

Convey

Realty = When one person or entity deeds or transfers a property to another person or entity.

 

Reality = Say the title of your property has your name and your brother’s name on it, but you want your name to be taken off. You can convey, or transfer the title to someone his name.

 

Co-op (Cooperative Housing Unit)

Realty = An ownership (shares) in a corporation that owns the building and carries a leasehold interest in the unit.

 

Reality = Co-ops are often more exclusive than a condo. Co-ops can impose strict guidelines for new buyers such as minimum income or required cash purchases.

 

Covenants

Realty = Restrictive covenants are standards that define how a property may be used and the protections the developer makes for the benefit of all owners in a subdivision.  Commonly called “CC&Rs”, the term usually refers to a written recorded declaration, which sets forth certain covenants, conditions, restrictions, rules or regulations, established by a sub-divider or other landowner, to create uniformity of buildings and use within tracts of land or groups of lots.

 

Reality = Always read covenants thoroughly before agreeing to them.  The homeowners’ association, not city or county authorities must uphold covenants.  The tighter (more restrictive) the covenants are, the more likely your home/property will hold its value.

 

Credit Report

Realty = A credit report includes information on where you reside, the frequency at which you pay your bills, and if you've been sued, arrested or filed for bankruptcy. Consumer reporting companies sell your report to creditors, insurers, employers and other businesses that use it to evaluate your applications for credit, insurance, employment or renting a home. The three credit reporting companies in the United States are Equifax, Experian, and TransUnion.  By law, these companies are required to give you a FREE credit report every year.  Your credit score is based on a three-digit number that, until recently, was not disclosed to the public. 

 

Reality = That fickle three-digit number can cost you thousands of dollars in interest.  Any missed payment or neglected debt could dock your score considerably, and with a lower score comes higher interest rates. 

 

Deed

Realty = A formal written instrument expressing the conveyance by which title to real property is transferred from one owner to another.

 

Reality = Always look through the conditions of a deed, called covenants, before accepting.

 

Deed of Trust

Realty = Just like a mortgage, in that a deed of trust isn’t really a loan, but rather real property held as a security for debt.  Instead of two parties, lender and borrower, a deed of trust also involves a trustee. 

 

Reality = Some states use this document instead of a mortgage. The title is actually transferred to a trustee, such as a bank, rather than to the borrower.

 

Down Payment

Realty = The initial partial payment of the purchase price of a property.

 

Reality = The buyer pays this in cash instead of financing it through a mortgage. It’s typical to put 20% down and get a loan for the remaining 80%, resulting in an 80% loan to value (LTV).

 

Dual Agency

Realty = When a real estate agent or broker represents both buyer and seller in a real estate transaction.

 

Reality = Humans are, well, human and having the same person who’s getting paid by the seller negotiate for the buyer seems to be a conflict of interest.

 

Earnest Money

Realty = Literally, money to show that a potential buyer is “earnest,” or serious, about their intentions to buy a home.  The money is given to the seller and usually held in escrow. 

 

Reality = It wouldn’t be so wrong to call earnest money a “deposit”, although some agreements vary. When you buy a home, typically, the earnest money in escrow goes towards the purchase price of the house.

 

Easement

Realty = Permission granted to use another person’s real estate for any number of specific purposes.  Common easements include the right to travel over someone else’s property or right-of-way for utilities.

 

Reality = Easements are referred to as burdens because once established, the property owner cannot interfere with it.  Please note if you allow a ‘friendly’ use of your land that the easement could become “prescriptive,” or assumed in the description of your property.

 

Encroachment

Realty = An improvement that illegally intrudes on another’s property.

 

Reality = My land is not your land.  Make sure you know your property lines, so that you don’t build that Olympic size pool that takes over your neighbor’s property and vice versa.  Fences are typical offenders in an encroachment.

 

Encumbrance

Realty = Anything that affects or limits the title to a property, such as a lien or mortgage, easement, or a lease or other restriction.

 

Reality = Encumbrances are a drag… avoid them whenever possible.

 

Equity

Realty = The interest or value, which the owner has in real estate, over and above the debts against it.

 

Reality = Property sale price (or market value) – what you owe (mortgage, lien, etc.) = Equity

 

Escrow

Realty = Money, property, or anything of value left in a trust account overseen by a third party. Upon fulfillment of certain conditions or by agreement of the parties, the money is released. Often a lender will set up an escrow account that accumulates a set amount of your monthly mortgage in order to pay homeowner’s insurance and county property taxes.

 

Reality = It’s as easy as buying a soda (pop, cola, depending on your region’s vernacular.)  When you put change in the vending machine your money is held in an escrow “account” until you commit to buy.  If you change your mind and decide to cash out, then the refund button releases the money.  If you decide to buy and make your selection, the money is sent to the vending machine’s vault.  Impress your friends by saying you’re constantly dealing with money in escrow.  In many regions a title company provides escrow and closing services for a fixed fee.

 

Estate

Realty = The total amount of all property (real and personal) owned by a person at time of death.

 

Reality = Work with a good attorney to ensure that your heirs don’t end up paying a large amount of taxes for transfer of your estate after your death.

 

Federal Housing Administration

Realty = An agency whose main activity is insuring residential mortgage loans made by private lenders.

 

Reality = The FHA insures private first mortgage loans for new and existing homes and repairs, but they don’t permit 2nd mortgages on insured mortgage loans.

 

Fixture

Realty = What was formerly personal property, which is now permanently attached to real property and goes with the property when it is sold.

 

Reality = If you can’t remove it without damaging the property, it’s a fixture.

 

Flipping (Fix and Flip)

Realty = A type of real estate investment where a property is purchased and resold often within a few weeks or months for a quick profit.

 

Reality = Profit is generated through price appreciation, renovations and capital improvements.

 

Foreclosure

Realty = A legal process where a property is taken back or sold to satisfy a debt if the owner defaults on payments or terms.

 

Reality = The increase in foreclosures has flooded the market with inexpensive houses, but for every foreclosed property is an individual or family that just lost their home.  Adding to the dark side of the growing foreclosure market is that a foreclosed home in your neighborhood can potentially decrease the value of your property.   The simplest way to avoid foreclosing on your home is to owe less than your house is worth.  Interest-only loans can be a good option when you have equity built in other properties or know for certain (if that’s ever possible) that the property for which you’ve taken the loan will appreciate.   But interest-only loans and some “no money down” options are risky.   Any mortgage or loan, however, requires much due diligence before signing the dotted line. 

 

FSBO

Realty = For Sale by Owner versus using a real estate agent.

 

Reality = FSBO, or For Sale By Owner, properties have taken a small chunk of business from listing agents because seller’s want to avoid paying the listing agent a commission on the ultimate selling price of their property.  Selling your own home is not a difficult thing to do and it can save you money.  One note:  Recent research shows that the professional sales skills of a listing agent will get you more money for your home and that comparatively FSBO’s sometimes lose money.  For example, a FSBO might sell their home for $200,000.  A listing agent might sell the same property for $220, 000 therefore completely negating any savings attained by selling without commissioned representation. 

 

FSBA

Realty = For Sale by Agent.

 

Reality = Until recently this term did not yet exist in the universal sphere of real estate definitions, however, it just makes sense to have it.  MyREALTY.com’s web wizard, Mark Husson, invented it.  “FSBO” came up in a conversation about real estate acronyms and Mark innocently proclaimed, “So a FSBO is different than a FSBA.”   No one in the room had ever heard of a “FSBA” but it just made so much sense that we’re kicking off the FSBA revolution right here and now. 

 

Gazunder

Realty = When a buyer reduces his or her bid for a property before the transaction has been signed and finalized.

 

Reality = If the real estate market is crashing, a buyer might offer less because he or she knows that the seller desperately wants to sell the property.

 

GLS

Realty = The Global Listing Service emulates the many Multiple Listing Services (MLS) in its function as a catalog of properties for sale.  However, the GLS differs in that the MLS requires an agent to join the National Association of Realtors® to submit listing to or access its data.  The GLS is free and open to all, agents and consumers alike.

 

Reality = The GLS is the brainchild of the founder of MyREALTY.com, the company that hosts this glossary, so even though the facts completely warrant it, there’s potential for a favorable bias in the definition. 

 

Grantee

Realty = The person who receives a transfer of real property by a grant deed.

 

Reality = Grantee obtains property from the grantor.

 

Grantor

Realty = A person who transfers his or her interest in real property to another by a grant deed.

 

Reality = Grantor transfers ownership in a property to the grantee.

 

Hazard Insurance

Realty = Protects against damages caused to property by fire, windstorms, and other common hazards.

 

Reality = If you live in a high-risk area, (some fire or hurricane-prone areas; just Google “State Farm Rita Court” for more) then you may need this in addition to your Homeowner’s Policy.

 

Home Equity

Realty = The value of ownership built up in a property (not including any outstanding mortgage Payments).

 

Reality = One of the largest sources of net worth for many investors and homeowners.

 

Home Equity Line of Credit (HELOC)

Realty = A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified.  Repayment is secured by the equity in your home – often times in lieu of a second mortgage.  Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible.  Often used for home improvements, major purchases or expenses, and debt consolidation.

 

Reality = A loan where you can get cash, which is drawn against the equity in your property.  Consider this alternative to a second mortgage.

 

Homeowner’s Association (HOA)

Realty = A nonprofit association which manages the common areas of a planned unit development or condominium.

 

Reality = Homeowners pay monthly fees in exchange for using common areas.  Beware:  know your HOA rules before you alter your property.  Some HOA members have been known to be rabid.

 

Homeowner’s Insurance

Realty = An insurance policy that covers a residential real estate owner against personal liability, common risks, theft, fire, etc.

 

Reality = If you live in a natural disaster prone area, you may need to get additional insurance, such as flood or hurricane insurance.  Homeowner’s policy prices vary widely depending upon prior claims, personal credit, location, building construction, building age, and the amount of your deductible.

 

Homeowner’s Warranty

Realty = An insurance policy that covers certain physical systems within a home. Typically, the warranty will cover the electrical and plumbing systems, the furnace and range, roof, and other items, for one year from the date of closing. If a repair is needed, the homeowner calls the warranty company, who dispatches a technician to repair or replace the item in question. The homeowner pays a small deductible, and the warranty company covers the rest.

 

Reality = A warranty can be a homeowner’s best friend.

 

HUD (Housing and Urban Development)

Realty = A department of the federal government created in 1965 which is responsible for the implementation and administration of the U.S. government Housing and Urban Development programs which include FNMA, FHA, Public Housing Urban Renewal and Community Facilities.

 

Reality = HUD oversees many programs designed to promote home ownership.

 

HUD-1 Form

Realty = A form used by a closing agent which itemizes charges imposed on a borrower and seller in a real estate transaction.

 

Reality ="Buyers" are referred to as "borrowers" on this form even if no loan involved.  It’s also known as a “closing sheet” or “settlement form”.  The HUD-1 is usually issued three days before a closing.

 

Inspection (home)

Realty = A written statement illustrating the inspection results of a given property by a professional home inspector. It will show problems and potential problems with the property not always visible to an average purchaser (i.e. a deteriorating roof, an ancient furnace, termites, wood rot, and basement seepage). Many purchasers make their offer to purchase conditional upon obtaining a satisfactory Home Inspection report.

 

Reality = Do your homework for a good home inspector.  They will write it up and sign a report that states every little flaw of the property to any major disasters waiting to happen.  Oftentimes an inspector will oversee tests for radon, termites, etc...

 

Interest only

Realty = A mortgage where the borrower is only required to pay the interest due on the principle mortgage amount during the specified term. The principle loan must be repaid at the end of the term.

           

Reality = Seems like a boon, but keep in mind that you’re not building any equity and if your property depreciates you still owe the entire original principal of the mortgage.

 

Joint Tenancy

Realty = An equal ownership interest of property of two or more persons.

 

Reality = Each party of the property ownership is on the form and in the event of death, the survivor owns the property in its entirety.

 

Jumbo Loan

Realty = a loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

 

Reality = Watch out for those jumbo loans. That higher interest rate might get you if you aren’t careful.

 

Lease Option

Realty = A lease where the tenant has the right to purchase real property under certain conditions either during or at the end of the lease term.

 

Reality = A rent to own type of property.  The monthly rent may have an additional amount added which can be applied to the down payment of the property. It often starts with a sizeable down payment as well.  Many investors use lease options to control and sell properties without ever owning them.

 

Lessee

Realty = The person who rents property from a Lessor.

 

Reality = The tenant.  Always read your lease and understand what you’re bound to.

 

Lessor

Realty = An owner, or landlord who has granted tenant possession and use of a property for a period of time.

 

Reality = Typically, a landlord. 

 

Lien

Realty = A piece of property is used to secure payment of some sort.  Your mortgage is considered a lien.

 

Reality = It’s like someone is holding your car for ransom. You don’t pay your parking tickets, so the county takes your car as a lien (impounds it) until you pay up.  In addition to a mortgage, tradesmen may file a “mechanics” lien on your property, in the event they are not paid for their work.

 

Listing Agent

Realty = The real estate agent assisting the sellers of real property.  They work for a commission, anywhere form 3-7% of the sale price of the home. 

 

Reality = You pay them to do the dirty work.

 

Listing Broker

Realty = Also known as the seller’s agent, representing the party selling real estate in a buy/sell transaction.

 

Reality = This is the person listed on the ‘for sale’ sign.

 

Listing Contract

Realty = A contract between a homeowner (as principal) and a licensed real estate broker (as agent) by which the broker is employed to market the real estate within a given time, and in return,  the owner agrees to pay a commission.

 

Reality = A signed agreement between the homeowner and agent that says you will pay the agent a commission for listing your house.  These contracts are usually exclusive and the standard listing term is 180 days.

 

Loan (vs. Mortgage)

Realty = Borrowing of money.

 

Reality = Use loans with caution, as the interest that can accumulate can be substantial.  A mortgage is different from a loan in that you basically sign away your house if the money isn’t paid back. 

 

Loan to Value (LTV)

Realty = The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

 

Reality = Most lenders require a minimum 20% down payment (80% loan to value).

 

Loan to Value Ratio

Realty = The amount of mortgage debt a lender can loan you compared to the appraisal value of a property used as collateral (expressed as a percentage).

 

Reality = The higher the LTV, the higher the risk…which means the loan will cost you more to borrow or you’ll need to purchase mortgage insurance. Bankers usually require a ratio at a maximum of 80% for a mortgage to be approved.

 

Market Price

Realty = The actual amount for which a piece of property is sold.

 

Reality = The sales price or purchase price.

 

Market Value

Realty = The highest price, which a ready, willing and able buyer, (but is not compelled to buy), would pay, and the lowest price a ready, willing and able seller, (but not compelled to sell), would accept.

 

Reality = Research the market value in your area.  It is pretty much the basis for a "listing price" or "asking price".

 

MLS (Multiple Listing Service)

Realty = MLS is a current and comprehensive listing system for relaying a specific area’s “for sale property” information, (except those being sold by the owner) between Realtors®.

 

Reality = A marketing service in which many brokers pool all of their listings and establish procedures for sharing commissions. Generally, multiple listing services (MLS) require that property owners sign an exclusive agency or exclusive right to sell their listing with participating brokers in order to have access to the marketing pool.

 

Mortgage

Realty = A lien or claim against real property, given by the buyer to the lender, as security for money borrowed.

 

Reality = The amount of money you owe your lender until your property is completely paid off.  Once you pay off your note, ensure that your lender removes the mortgage from county records.

 

Mortgage Note

Realty = A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of indebtedness, and states the manner in which it shall be paid. Also, “deed of trust note".

 

Reality = A loan that puts your mortgage up as proof of debt and lists the terms under which the mortgage is to be paid.

                       

Option

Realty = A right to purchase or lease a property upon certain specified terms within a particular time period.

 

Reality = The receiving party is not obligated to purchase the property.  It’s only an option.

 

Origination Fee

Realty = A fee charged for the work involved in the evaluation, preparation and submission of a proposed mortgage loan.

 

Reality = Beware of all origination fees and “closing costs” associated with obtaining a loan.  Shop to obtain an apples-apples comparison.

 

Origination Points

Realty = A type of fee borrowers pay to lenders or loan officers in order to compensate them for the role they play in evaluating, processing and approving mortgage loans. Some borrowers pay points (one point is equal to 1% of the loan amount) up front, in order to obtain a lower interest rate.

    

Reality = Credit history is one factor that plays a role in the amount of origination points a borrower needs to pay. They are not tax deductible.

 

Owner Financing

Realty = A property purchase where the seller provides all or part of the financing.

    

Reality = A buyer’s dream. An owner may be willing to offer financing if they own the property outright and want to have income from the sale of the property.  The interest rate and amortization term is oftentimes negotiable.

 

P.I.T.I.

Realty = The four components of a mortgage payment: Principal, Interest, Taxes, and Insurance. Also, “carrying charges".

 

Reality = Principal, Interest, Taxes, and Insurance add up to your total monthly payment.  Lenders usually pay your taxes and insurance to reduce their risk from tax liens and expired insurance policies.

 

Point

Realty = Sometimes called "discount points.”  A point is 1% of the amount of the mortgage loan.

A one-time charge, by the lender, to increase or decrease the stated interest rate on a loan. To decrease the interest rate, the borrower "pays" points, to increase the interest rate; the borrower receives points which can be used to reduce the closing cost. Each point is equal to one percent (1%) of the loan amount.

 

Reality = A point is 1% of the loan amount.  Paying points up front may be beneficial, if you intend to hold your property for a long period of time.

 

Power of Attorney

Realty = A legal document that authorizes another person to act on one’s behalf.

 

Reality = A POA can have total authority or can be limited to certain acts or certain periods of time. A POA for real estate is often used if one is out of country or does not have all of his/her faculties.

 

Pre-approval

Realty = A guarantee that a lender will loan a potential buyer a fixed amount, as long as, he or she buys a home within a certain time frame and the house appraises for the amount of money for which he or she qualifies.

 

Reality = A process whereby a potential homebuyer secures a guaranteed mortgage approval before making an offer on a house. A lending institution guarantees, in writing, to grant a loan for a specified amount. Not to be confused with prequalification. (See the full definition of pre-approval.)

 

Prepayment Penalty

Realty = Penalty for the payment of a mortgage note or deed of trust note before it actually becomes due.

 

Reality = Think you’re in the clear for paying your loan off early?  Think again, you may have to pay a fee for paying your debt earlier than they want you to.  Always make sure your loan does not include a pre-payment penalty.

 

Prequalification

Realty = Some lenders "pre-qualify" mortgage applicants in less than an hour by performing cursory checks. Seldom can a lender fully check an applicant's credit, asset and debt status this quickly, so final approval typically takes at least a few more days.

 

Reality = Though such preliminary pre-qualifications may soon lead to a full pre-approval, there is no guarantee until the applicant receives a letter, certificate or wallet-size card bearing the mortgage-holder's name and maximum loan amount.

 

Prime Rate

Realty = The lowest commercial interest rate charged by banks on short-term loans to their

most creditworthy customers.

           

Reality = Changes in the prime rate do not directly affect mortgage rates, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.

 

Principal

Realty = The amount borrowed or remaining unpaid.  The part of the monthly payment that reduces the remaining balance of a mortgage.

 

Reality = Usually, it’s the remaining balance of your mortgage.

 

Private Mortgage Insurance (PMI)

Realty = A policy provided by private mortgage insurers to protect lenders against loss if a borrower defaults. Most lenders require PMI for loans with loan-to-value (LTV) percentages in excess of 80%. This allows the borrower to make a smaller down payment of as low as 3%, instead of about 20%, and usually requires an initial premium payment and possibly an additional monthly fee depending on the loan's structure.

    

Reality = To make it easier, lenders are now required to tell the buyer at closing how many years and months it will take for them to pay 20% of the principal to cancel PMI.  If you must have PMI, make sure you aren’t paying it after achieving 20% equity.

     

Promissory Note

Realty = A written promise to repay a specified amount over a specified period of time.

   

Reality = A loan… with a promise by the borrower to repay the lender.

 

Property Management

Realty = The operation of real property, including the leasing of space, collection of rents, selection of tenants, and the repair and renovation of the buildings and grounds.

 

Reality = A property owner often pays a brokerage or property management firm a few to maintain a property, collect rents, and keep it occupied.

 

Prorate

Realty = To allocate between seller and buyer, their proportionate share of an obligation paid or due.

 

Reality = For example, a prorate of real property taxes, fire insurance, or condominium fee.

 

Purchase Agreement

Realty = A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

    

Reality = Synonymous with buy-sell agreement.

 

Purchase Money Transaction

Realty = The acquisition of property through the payment of money or its equivalent.

 

Reality = That’s right, money “or its equivalent.”  Do you have other property or something else of value to barter for the property you want?  It never hurts to ask a seller to what options they’re open. 

 

Qualifying vs. non-qualifying

Realty = Qualifying Ratios: Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The "top" or "front" ratio is a calculation of the borrower’s monthly housing costs (principle, taxes, insurance, mortgage insurance, and homeowner’s association fees) as a percentage of monthly income. The "back" or "bottom" ratio includes housing costs as well as all other monthly debt.

 

Reality = Perform your own calculations to ensure you have more than enough income to pay off all of your monthly obligations and still have money for fun and emergencies.

 

Quitclaim Deed

Realty = Quitclaim deeds transfer or "quit" any interest in real property. The grantor may not be in title at all, so the grantee cannot assume that the grantor has any real interest to convey.   A common example is a divorce settlement where one spouse “quits” his or her interest in the property to the other party (now ex-spouse) in the proceedings.

 

Reality = Now you can correct those who call it a “Quick” Claim.

 

Radon gas

Realty = A ground-generated radioactive gas that seeps into some homes through sump pumps, cracks in the foundation and other inlets. Radon exists naturally in many locations, and may present a serious health risk when it accumulates in basements or crawl spaces beneath homes.

To reduce the risk of lung cancer, EPA has set a recommended “action level” of 0.4 pCi/L for homes. The Canadian limit before remediation is required is 800 Bq/m3 (vs. 150 Bq/m3) in the United States.

Reality = You don’t want an excessive amount radon in your home.

 

Real Estate Investment Trust (REIT)

Realty = A portfolio of properties managed for investors.  Similar in nature to a mutual fund.

    

Reality = REIT’s are an alternative to those who want to invest in real estate, yet don’t have the time, knowledge, or large amount of investment capital required.

 

Realtor®

Realty = Any real estate agent who belongs to the National Association of Realtors®.

 

Reality = It’s Real-Tor not Real-I-tor.  Much like Real-tee (realty) is the correct pronunciation over Ree-al-i-ty. 

 

Recording Fee

Realty = The fee a government charges for reporting a real estate purchase or sale into the public record.

 

Reality = The fee to file a deed or lien is usually $5-$20.  The escrow/closing company or an attorney usually files deeds and mortgages, although any individual can file a document at the county Clerk and Recorder’s office.

 

Refinance

Realty = The process of paying off one loan with the proceeds from a new loan (usually for a lower interest rate) using the same property as security.

 

Reality = Refinancing is a popular practice when interest rates drop.

 

REO (Real Estate Owned”

Realty = An REO is a “Real Estate Owned” property that, after an unsuccessful foreclosure auction, goes back to the lender/bank.

 

Reality = For many who rocked with the great hair bands of the 80’s, REO stands for Ransom Eli Olds who invented the REO Speedwagon.  Now it’s time for me to fly.

 

Reverse Amortization

Reality = The annual payment is less than the interest obligation during the early years of the debt obligation, so that the outstanding balance on the debt actually increases rather than decreases.

 

Realty = When you have a mortgage, the annual interest adds up, so even when you pay off your mortgage, you will still owe more than the value of your house.

 

Reverse Mortgage

Realty = A special type of loan used to convert the equity in a home into cash.  Therefore, the borrower/homeowner gets monthly payments based upon the equity in their home.

   

Reality = Instead of the borrower making monthly payments to a lender, as with a regular mortgage, a lender makes payments to the borrower. While a reverse mortgage loan is an option for older homeowners who have considerable equity, the borrower owns the home and holds title to it, without having to make any monthly mortgage payments.

   

Right of First Refusal

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

 

Reality = In general, the right of a person or company to purchase something before the offering is made available to others.

     

Right of Survivorship

Realty = The right, which is the distinguishing feature of joint tenancy, of a surviving tenant or

tenants to become owner of the entire interest of a deceased tenant.

 

Reality = A good thing for the surviving member when a spouse or partner dies.

 

Sale –Leaseback

Realty = An arrangement where the seller of an asset leases back the same asset from the purchaser.

 

Reality = Used to free up operating capital for expansion, operating capital, or other investments.

 

Sales Associate                                                                                                                                                                

Realty = A person with a real estate license and associated with a specific real estate broker.

 

Reality = A salesperson is a licensed real estate agent who works under the supervision of a broker.

 

Second Mortgage (and subordination)

Realty = A second financing arrangement, in addition to the first mortgage, also secured by the property.  Second mortgages are usually issued at a higher interest rate and for a shorter term than the first mortgage.

 

Reality = A second loan placed upon a piece of property, and the interest is still tax deductible.  Oftentimes this money is used to reduce credit card debt, for home improvements, or to start a business or purchase an asset.  Synonymous with home equity loan.  One might also consider a home equity line of credit (HELOC).

 

Survey

Realty = A map or drawing made by a licensed surveyor showing the precise legal boundaries of a property, measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure a building is actually sited on the land according to its legal description.

 

Reality = My land is your land… It just may be if you don’t get a boundary line survey to determine what is actually yours.

 

Tenants in Common (TIC)

Realty = When a property is owned by two or more tenants.

  

Reality = If one owner dies, the other does not automatically take the entire estate. When the person dies, the property portion is transferred to the descendant's beneficiary

    .    

Title

Realty = A legal term for an owner's interest in a piece of property.  It may also refer to a formal document that serves as evidence of ownership.  Conveyance of the document may be required in order to transfer ownership in the property to another person. Title is distinct from possession, a right that often accompanies ownership but is not necessarily sufficient to prove it. In many cases, both possession and title may be transferred independently of each other.

 

Reality = A document that indicates rights of ownership and possession of a particular property.

 

Title Abstract

Realty = A summary of the public records relating to the title of particular piece of land. An attorney or title company reviews an abstract or title to determine whether there are any title defects. This can include a brief history of the transfers of a piece of land, including all claims that could be made against it

 

Reality = An abstract is a condensed version of a longer piece of writing (Summary highlighting major points in the Title)

 

Title commitment / Preliminary Title Report

Realty = A report made by a title company stating whether there are any other claims to ownership of a property. A necessary step before a mortgage loan can be approved.

 

Reality = Review this report closely prior to purchase, to see what you’re getting yourself into.

Important information in the Title Commitment

Before issuing the Title Commitment, the title company (issuing the title insurance policy) will perform a title search on the property. The results of the title search that may be an issue in the transaction will be included in the Title Commitment. Thus, the Title Commitment may contain important disclosure issues, such as:

•           Easements

•           CC&R’s and other deed restrictions

•           Access problems

•           Whether the property is the vicinity of a military airport

•           Prior leases

 

The Title Commitment may also reveal problems that could delay the close of escrow, such as:

 

•           Court orders/divorce decrees

•           Probate issues

•           Foreclosures

•           Bankruptcies

•           Judgment liens

•           State and federal tax liens

•           Environmental liens

•           Other matters of record affecting title.

 

Title Insurance

Realty = A policy, usually issued by a title insurance company, which insures a homebuyer against errors in the title search. It protects lenders and homeowners against loss of their interest in property due to legal defects in title. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.  A lender’s policy is usually purchased in conjunction with a loan/mortgage to protect the lender.

 

Reality = If you want to be protected against potential flaws in your title, but title insurance.

 

Title Search or Examination

Realty = A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims.

 

Reality = Double checking to make sure there are no problems “clouds” with the title.  Clouds or encumbrances include leans and easements.

 

Transaction Management System (TMS)

Realty = An automated system built to electronically organize and track documents in a real estate transaction.  

 

Reality = TMS’s saves time, money, and trees.  In the future, there will be no stacks of documents to sign at a closing.  Buyers and sellers will have the ability to sign electronically and get a CD at closing.

 

Transfer Tax

Realty = State tax, local tax (where applicable), and tax stamps (in some areas) required by law when title passes from one owner to another.

 

Reality = In a narrow legal sense, a transfer tax is essentially a transaction fee (often relatively small in relation to the value of property) imposed on the transfer of title to property.

 

Trust Deed (Deed of Trust)

Realty = A written instrument that legally conveys property to a trustee; often used to secure an obligation such as a mortgage or promissory note.

    

Reality = Used in place of a mortgage.

 

VA Mortgage

Realty = A mortgage that is guaranteed by the Department of Veterans Affairs (VA).        

 

Reality = The guarantee by the VA protects the lender against loss and thus encourages lenders to make mortgages to veterans.

 

Warranty Deed

Realty = A warranty deed assures the buyer that the Seller will defend his title to the property from all other persons.

 

Reality = A general warranty deed is a type of deed where the grantor (seller) guarantees that he or she holds clear title to a piece of real estate and has a right to sell it to you. The guarantee is not limited to the time the grantor owned the property—it extends back to the property's origins.  When purchasing a home or property, make sure you get a “warranty” deed.

 

Zoning

Realty = The division of a city or a county by legislative regulations into areas (zones), specifying the uses allowable for the real property in these areas.

 

Reality = The public regulation of land and building used to control the character of a place.  It’s probably a good idea to check out the zoning laws in your area if you want to tear down or build.  Zoning is often categorized as residential, multi-family, business, industrial, etc.

 

 

Did we miss anything?  We’re updating the glossary everyday with your suggestions for definitions. Share with us your Realty and Reality of Real Estate.