Real Estate Glossary
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Abstract of title - The history of a title to a particular parcel of real estate, consisting of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property, and a certification by the abstractor that the history is complete and accurate.
Acceleration clause - The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrow defaults on an installment payment, transfers ownership of the property, or defaults on another covenant.
Accrued items - On a closing statement, items of expense that are incurred but not yet payable, such as interest on a mortgage loan or taxes on real property
Acre – An area equal to 43,560 square feet
Adjustable-rate mortgage (ARM) - A loan characterized by a fluctuating interest rate; usually one tied to a bank or savings and loan association cost-of-funds index.
Affidavit of title - A written statement, made under oath by a seller or grantor of real property, in which the grantor (1) identifies himself or herself and indicates marital status, (2) certifies that since the examination of the title on the date of the contracts no defects have occurred in the title and (3) certifies that he or she is in possession of the property (if applicable).
Agency - The relationship between a principle and an agent wherein the agent is authorized to represent the principal in certain transactions. In Georgia, a real estate agent has a limited fiduciary responsibility.
Agent - One who acts or has the power to act for another. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a broker to be his or her agent.
Amortized loan - A loan in which the principal as well as the interest is payable in periodic installments over the term of the loan.
Annual percentage rate (APR) - The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth-in-Lending Act.
Anti-trust laws - Law designed to preserve the free enterprise of the open marketplace by making illegal certain conspiracies and combinations formed to minimize competition. Most violations of antitrust laws in real estate business involve either price-fixing (brokers conspiring to set fixed compensation rates) or allocation of customers or markets (brokers agreeing to limit their areas of trade or dealing to certain areas or properties).
Appraisal - An estimate of the quantity, quality or value of something. The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.
Balloon payment - A final payment of a mortgage loan that is typically considerably larger than the required periodic payments because the loan amount was not fully amortized.
Bargain and sale deed - A deed that carries with it no warranties against liens or other encumbrances but that does imply that the grantor has the right to convey title. The grantor may add warranties to the deed at his or her discretion.
Basis - The financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner’s basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any deprecation allowable or actually taken. This new basis is called the adjusted basis.
Blanket loan - A mortgage covering more than one parcel of real estate, providing for each parcel’s partial release from the mortgage lien upon repayment of a definite portion of the debt.
Building code - An ordinance that specifies minimum standards of construction, alteration, or demolition of an improvement, showing compliance with building codes and zoning ordinances.
Buydown - A financing technique used to reduce the monthly payments due on a loan for a certain period of time. Funds are given to the lender in order to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payment for a set period of time.
Buyer-Agency Agreement - A principal-agent relationship in which the broker is the agent for the buyer, with fiduciary responsibilities to the buyer. In Georgia, State law prohibits Broker from representing Buyer as a client without first entering into a written agreement with Buyer under O.C.G.A. § 10-6A-1 et. seq.
Capital gain - Profit earned from the sale of an asset.
Capitalization rate - The rate of return a property will produce on the owner’s investment. The formula is expressed as: annual net operating income / cost (or value) = Capitalization Rate
Certificate of title - A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.
Chain of title – The document that shows the succession of conveyances, from some accepted starting point to the current holder of title.
Closing statement - A detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made and all cash paid out in the transaction In Atlanta, most closing attorneys use the HUD1 Settlement Statement form.
Cloud on title - Any document, claim, unreleased lien or encumbrance that may impair the title to real property or make the title un-insurable by a Title Company. Normally revealed by a title search and removed by either a quitclaim deed or suit to quiet title.
Comparable – A property used in an appraisal or CMA report that is substantially equivalent to the subject property.
Competitive Market Analysis, (CMA) - A comparison of the prices of recently sold homes that are similar to a subject property in terms of location, style, and amenities.
Conditional-use permit - Written governmental permission allowing a use inconsistent with existing zoning.
Contingency - A provision in a contract that requires a certain act to be done or a certain event to occur before the transaction is ‘closed’, or completed.
Contract - A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.
Cost approach - The process of estimating the value of a property by adding to the estimated land value the appraiser’s estimate of the reproduction or replacement cost of the building, less depreciation.
Counteroffer - A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror.
Covenant - A written agreement between two or more parties in which a party or parties pledge to perform or not perform specific acts with regard to property.
Deed - A written instrument that, when executed and delivered, conveys title to or an interest in real estate.
Deed in lieu of foreclosure - A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.
Deed in trust - An instrument that grants a trustee under a land trust full power to sell, mortgage and subdivide a parcel of real estate. The beneficiary controls the trustee’s use of these powers under the provisions of the trust agreement.
Deed Restrictions -Clauses in a deed limiting the future uses of the property. Deed restrictions may impose a variety of limitations and conditions - for example, they may limit the density of buildings, dictate the types of structures that can be erected or prevent buildings from being used for specific purposes or even from being used at all.
Depreciation - (1) In an appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence and external obsolescence; (2) In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property.
Discount point - “Pre-paid interest”. A unit of measure used for loan charges; one point equals 1 percent of the loan amount.
Dual agency - Representing both parties to a transaction. This is unethical unless both parties agree to it.
Due-on-sale clause - A provision in the mortgage that states that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property.
Earnest money - A good faith deposit that upon acceptance of a buyer’s Purchase & Sale Agreement by a seller, is held in a trust account until closing.
Encroachment - A building or some portion of it - a wall or fence for instance - that extends beyond the land of the owner and illegally intrudes on some land of an adjoining owner, street, or alley.
Equity - The interest or value that an owner has in property over and above any indebtedness.
Escrow account - The trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker’s principal or some other person until the consummation or termination of a transaction.
Exclusive-right-to-sell listing - A listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time, to sell the property on the owner’s stated terms, and agrees to pay the broker a commission when the property is sold, whether by the broker, the owner or another broker.
Fair Housing Act - The federal law that prohibits discrimination in housing based on race, color, religion, sex, handicap, familial status and national origin.
Fannie Mae - See Federal National Mortgage Association (FNMA).
Farmer’s Home Administration (FmHA) - An agency of the federal government that provides credit assistance to farmers and other individuals who live in rural areas.
Federal Home Loan Mortgage Corporation (FHLMC) - A corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market.
Federal National Mortgage Association (FNMA) - A quasi-governmental agency established to purchase qualified mortgage loans in the secondary mortgage market from the primary lenders.
FHA loan - A loan insured by the Federal Housing Administration and made by an approved lender in accordance with FHA’s regulations.
Fiduciary - One in whom trust and confidence is placed; a reference to a broker under the terms of a listing contract or buyer agency agreement.
Fiduciary relationship - A relationship of trust and confidence; as between trustee and beneficiary, attorney and client, or principal and agent.
Foreclosure - A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the property at the foreclosure sale.
General warranty deed - A deed in which the grantor fully warrants good clear title to the premises. Used in most real estate deed transfers, a general warranty deed offers the greatest protection of any deed.
Graduated-payment mortgage (GPM) - A loan in which the monthly principal and interest payments increase by a certain percentage each year for a certain number of years and then level off for the remaining loan term.
Grantee - A person who receives a conveyance of real property from a grantor.
Grantor - The person transferring title to or an interest in real property to a grantee.
Gross Lease - A lease of property where the landlord pays all property charges regularly incurred through ownership, such as repairs, taxes, insurance and operating expenses. Most residential leases are gross leases.
Home equity loan - A loan (sometimes called a line of credit), under which a property owner uses his or her property as collateral and can then draw funds up to a prearranged amount against the property.
Homeowner’s insurance policy - An insurance policy that covers a residential real estate owner against financial loss from fire, theft, public liability and other common risks.
Homestead - Land that is owned and occupied as the family home. In Georgia, a homestead exemption is given to reduce the taxable value of an owner’s primary residence.
Independent contractor - Someone who is retained to perform a certain act but who is subject to the control and direction of another only as to the end result and not as to the way in which the act is performed. Unlike an employee, and independent contractor pays for all expenses and social security and income taxes and receives no employee benefits. Most real estate salespeople are independent contractors.
Installment contract - A contract for the sale of real estate whereby the purchase price is paid in periodic installments by the purchaser, who is in possession of the property even though title is retained by the seller until a future date, which may be not until final payment.
Installment Sale - A transaction in which the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer can postpone reporting such income until future years by paying sales tax each year only on the proceeds received that year.
Joint tenancy - Ownership of real estate between tow or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the descendant’s interest passes to the surviving joint tenant or tenants by the right of survivorship.
Land contract - See installment contract.
Lease option - A lease under which the tenant has the right to purchase the property either during the lease term or at its end.
Lease purchase - The purchase of real property, the consummation of which is preceded by a lease, usually long-term.
Liquidated damages - An amount predetermined by the parties to a contract as the total compensation to an injured party should the other party breach the contract.
Lis pendens - A recorded legal document giving constructive notice that an action affecting a particular property has been filed in either a state or a federal court.
Listing agreement - A contract between an owner (as principle) and a real estate broker (as agent) by which the broker is employed to find a buyer for the owner’s real estate on the owner’s terms, for which service the owner agrees to pay a commission.
Loan origination fee - A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.
Loan-to-value ratio - The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.
Marketable title - Good or clear title, reasonably free from the risk of litigation over possible defects.
Market value - The most probable price a property would bring in an arm’s-length transaction under normal conditions on the open market.
Mechanic’s lien - A statutory lien created in favor of contractors, laborers and material men who have performed work or furnished materials in the erection or repair of a building.
Mortgage - A conditional transfer or pledge of real estate as security for the payment of a debt.
Mortgage banker - Mortgage loan companies that originate, service and sell loans to investors.
Mortgage broker - An agent of a lender who brings the lender and borrower together. The broker receives a fee for this service.
Mortgagee - A lender in a mortgage loan transaction.
Mortgage lien - A lien or charge on the property of a mortgagor that secures the underlying debt obligations.
Mortgagor - A borrower in a mortgage loan transaction.
Multiple-listing service (MLS) - An organization composed of member brokers who agree to share their listing agreements with one another in the hopes of procuring a buyers for their properties more quickly than they could on their own.
Net listing - A listing based on the net price the seller will receive if the property is sold. Under a net listing the broker can offer the property for sale at the highest price obtainable to increase the commission. This type of listing is illegal in Georgia.
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Open listing - A listing contract under which the broker’s commission is contingent on the broker’s producing a ready, willing and able buyer before the property is sold by the seller or another broker.
Payment cap - The limit on the amount the monthly payment can be increased on an adjustable-rate mortgage when the interest rate is adjusted.
Percolation test - A test of the soil to determine if it will absorb and drain water adequately to use a septic system.
Power of attorney - A written instrument authorizing a person, the attorney-in-fact, to act as agent for another person to the
extent indicated in the instrument.
Pre-Approval - One step (or two) beyond the pre-qualification process; this is a powerful tool for any buyer to have when searching for property. It is a commitment, usually for a specific period of time and at a specific interest rate, for a loan amount a buyer will receive from the approving lender.
Pre-Qualification - The process by which a mortgage lender determines the amount of loan you are eligible to receive based on your stated income, monthly expenses, and other items. Lenders must verify this information in order to actually qualify you.
Prepayment penalty - A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.
Private mortgage insurance (PMI) - Insurance provided by private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.
Promissory note - A financing instrument that states the terms of the underlying obligation, is signed by its maker and is negotiable (transferable to a third party).
Prorations - Expenses, either prepaid or paid in arrears, that are divided or distributed between buyer and seller at the closing.
Quiet title - An action to remove a cloud on the title.
Quitclaim deed - A conveyance by which the grantor transfers whatever interest he or she has in the real estate, without warranties or obligations.
Rate cap - The limit on the amount the interest rate can be increased at each adjustment period in an adjustable-rate loan. The cap may also set the maximum interest rate that can be charged during the life of the loan.
Real estate investment trust (REIT) - Trust ownership of real estate by a group of individuals who purchase certificates of ownership in the trust, which in turn invests the money in real property and distributes the profits back to the investors free of corporate income tax.
Real Estate Settlement Procedures Act (RESPA) - The federal law that requires certain disclosures to consumers about mortgage loan settlements. The law also prohibits the payment or receipt of kickbacks and certain kinds of non-disclosed referral fees.
Regulation Z - Implements the Truth-in-Lending-Act requiring credit institutions to inform borrowers of the true cost of obtaining credit.
Restrictive covenants - A clause in a deed that limits the way ownership of real estate may be used.
Reverse-annuity mortgage (RAM) - A loan under which the homeowner receives monthly payments based on his or her accumulated equity rather than a lump sum. The loan must be repaid at a prearranged date or upon the death of the owner or the sale of the property.
Secondary mortgage market - A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; also called secondary money market.
Setback - The amount of space local zoning regulation requires between a lot line and a building line.
Severalty - Ownership of real property by one person only; also called sole ownership.
Special assessment - A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement like a street or sewer.
Specific performance - A legal action to compel a party to carry out the terms of a contract.
Square-foot method - The appraisal method of estimating building costs by multiplying the number of square feet in the improvements being appraised by the cost per square foot for recently constructed, similar, improvements.
Steering - The illegal practice of channeling home seekers to particular areas, either to maintain the homogeneity of an area or to change the character of an area, which limits their choices of where they can live.
Survey - The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions and position of a house on a lot, including the determination of any existing encroachments or easements.
Tax deed - An instrument, similar to a certificate of sale, given to a purchaser at a tax sale.
Tax lien - A charge against property, created by operation of law. Tax liens and assessments take priority over all other liens.
Tax sale - A court-ordered sale of real property to raise money to cover delinquent taxes.
Time-share - A form of ownership that may include an estate interest in property an which allows use of the property for a fixed or variable time period.
Title insurance - A policy insuring the owner or mortgagee against loss caused by defects in the title to a parcel of real estate, other than encumbrances, defects and matters specifically excluded by the policy. (For example: forgery or fraud, which is undetectable during a title search.)
Title search - The examination of public records relating to real estate to determine the current state of the ownership.
Transfer tax - Tax stamps required to be affixed to a deed by state and/or local law.
Trust deed - An instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a deed of trust.
Trust deed lien - A lien on the property of a trustor that secures a deed of trust loan.
Trustee’s deed - A deed executed by a trustee conveying land held in a trust.
Trustor - A borrower in a deed of trust loan transaction.
Unilateral contract - A one-sided contract wherein one party makes a promise to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise made.
VA loan - A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs.
Wraparound loan - A method of refinancing in which an existing first mortgage is placed in a secondary, or subordinate, position by a new mortgage which includes both the unpaid principal balance of the previous, first mortgage and whatever additional sums are advanced by the lender. In essence it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount without disturbing the existence of the first mortgage.
Zoning ordinance - An exercise of police power by a municipality to regulate and control the character and use of property.