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Glossary of Real Estate Terms

This Glossary is a tool to help Buyers and Sellers understand the terms used in real estate transactions. The definitions do not encompass all possible meanings that may be acquired in legal use.

Please note that this section is provided for information purposes only. Remember, a real estate broker is qualified to advise on real estate. If you need legal or tax advise, you should consult the appropriate professional.

Abstract of Title A history of the title to a property including a summary of the original grant and all subsequent conveyances and encumbrances to the property.
Addendum A page separate from the purchase agreement used to amend, add, correct or modify a term or terms of the agreement without changing the remaining terms.
Adjustable Rate Mortgage (ARM) A mortgage with an interest rate that periodically adjusts, up or down with the movement of a specified index.
Agent A licensed real estate broker or salesperson who may represent one or more parties to a real estate transaction. An agent helps clients to determine market values, lists properties for sale, advertises properties for sale, shows properties to prospective buyers, prepares offers and counter offers, negotiates on behalf of their clients, and ensures that their client(s) comply will all applicable laws governing the transfer of property.
Amortization A loan repayment plan that will pay off the loan by making regular payments of principle and interest.
Annual Percentage Rate (APR) The effective interest rate of a loan after including the costs incurred in obtaining the loan, such as, interest, points and fees.
Appraisal A professional estimate of the value of a property.
Arbitration of Disputes A provision of the real estate purchase agreement which, if initialed by all parties, states that the parties agree that any disputes or claim in law or equity arising between them, which cannot be settled through mediation, shall be decided by binding arbitration and that the parties waive their rights to court resolution of any disputes.
Assessment Valuation for property tax purposes made by the county assessor's office. It may also include a levy against the property for a special purpose, such as a sewer assessment.
Assumable Loan A mortgage loan which allows responsibility for repayment to be taken over by a new party when the property is sold.
Attorney in fact The grant of power to sign documents on another's behalf.
Balloon Mortgage A mortgage where the principle balance will not be paid off by making the regular payments. Instead, a balloon payment of principle will be required at the end of the term to pay off the mortgage.
Broker A real estate professional who is licensed by the state and represents one or more parties in a real estate transaction. A broker helps clients to determine market values, lists properties for sale, advertises properties for sale, shows properties to prospective buyers, prepares offers and counter offers, negotiates on behalf of their clients, and ensures that their client(s) comply will all applicable laws governing the transfer of property. A broker may employ other brokers or salespersons under his or her license.
Breach of Contract Failure to perform a term or terms of a contract as agreed upon in the contract.
Certificate of Title A certificate issued by a title company verifying that the current owner holds title to the property.
CC&R Abbreviation for Covenants, Conditions and Restrictions. A document filed by the property developer with the county recorder that sets forth permitted uses, requirement, rules and restrictions for all properties within the development.
Chain of Title A reconstruction of how title to a property came to be held by the current purported owner by working backwards from the current owner to the original sovereign (government) to confirm that each owner, over time, held good title to the property by acquiring title from a person or entity who had the legal right to convey it.
Close of Escrow (Closing) The final step in a real estate transaction when title of the property passes from Seller to Buyer. The Buyer becomes legal owner on this date, when the deed and deed of trust are recorded with the county recorder's office in the buyer's name and the seller's loan(s), if any, is paid off and the seller receives any net proceeds.
Closing Statement A financial statement that discloses all the funds received, disbursed, credited or debited from each party at the time of closing. It includes downpayments, loans funded or paid off, taxes, escrow fees, title and homeowner insurance charges, loan fees, and all other fees that are associated with the real estate transaction.
Cloud on Title A problem or an irregularity that adversely affects or impairs the title of the property. A Cloud on Title may make it difficult or impossible to transfer title.
Commission Compensation to the real estate broker, usually from the seller, for finding a buyer who completes the sales transaction. It is usually based on a percentage of the sales price.
Community Property See Co-Ownership.
Comparable Sales Sales statistics that show sales prices for neighboring homes which have similar characteristics. It is used for sellers to determine the listing price and for buyers to make an offer. It is also used by lenders and appraisers.
Contingency A condition in the contract that has to be satisfied before a party or parties to a contract may proceed.
Co-Ownership Two or more persons hold the title to the property.

Examples are:

Community Property

Property that is owned by a husband and wife during their marriage. In California, any real property acquired during the marriage is presumed to be community property absent evidence to the contrary.

Joint Tenancy

Property that is owned by two or more persons in equal share, who acquired their interests at the same time. Property held in Joint Tenancy is subject to the right of survivorship in the surviving joint tenant(s). When a joint tenant dies, title to the property is automatically conveyed by operation of law to the surviving joint tenant(s).

Tenancy in Common

Property that is owned by two or more individuals in undivided fractional interests. Each Tenant in Common owns a share of the property. The shares need not be equal, can be acquired or transferred at different times and can be disposed of at the death of tenant in common through a will, trust or by operation of law to heirs at law.

Deed A document which shows the current legal owner of an interest in real estate and who the owner acquired title from.. The person who transfers the interest is called the "grantor" and the person who acquires the interest is called the "grantee."
Deed of Trust A document by which the title to the property is pledged as security for the repayment of a loan. It involves three parties: the borrower, the trustee, and the lender (or beneficiary). The borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary.
Delinquency A loan that is overdue in payments.
Deposit There are two types of deposits, initial deposits and increased deposits. An initial deposit (often called an earnest money or good faith deposit) is money deposited when an offer to purchase is accepted to show good faith that the buyer wants to purchase the property. Initial deposits commonly range from $1,000 to 3% of the purchase price depending on the degree of confidence the buyer wants to communicate to the seller that the buyer is willing and able to complete the transaction. Increased deposits are also earnest money deposits used to increase the amount of money held in escrow, usually made after the buyer has had an opportunity to conduct inspections of the property.
Disclosure Information given to a buyer by the seller and/or agent(s) in a real estate transaction informing the buyer of the presence or absence of conditions effecting the property. A seller must disclose any material facts concerning the property.
Due-on-Sale Clause An acceleration clause in a mortgage or deed of trust which allows the lender to demand full re-payment of the loan when the property is sold.
Earnest Money A downpayment made by the Buyer to the Seller as evidence of good faith toward the purchase of a real estate property. See Deposit.
Easement The legal right to use or enter land belonging to another for a specified purpose. Most common are utility easements allowing utility companies to construct pipes, wires, poles, etc., on, under, or over a property.
Encroachment A structure which crosses over the property line onto the adjacent property.
Encumbrance A condition that effects the clear title to the property. Encumbrances can include mortgages or deeds of trust, liens, easement rights, unpaid taxes or assessments. Encumbrances do not prevent the transfer of title of the property. However, the buyer must decide whether to buy the property subject to the encumbrances that will not be removed prior to the change in ownership.
Escrow The process where an independent third party acts as a neutral intermediary for both the buyer and seller. The escrow company will carry out mutual instructions from both parties and handle all the paperwork, prepare and record the deed and distribute funds.
Equity The value of a property owner's interest in a property after deducting the amount of all liens (including loans) outstanding against the property from the fair market value. Equity increases as the mortgage is paid off and as the property appreciates in value. When the mortgage and all other liens against the property are paid in full, the homeowner has 100% equity in his property.
Fee Simple The highest level of ownership possible. The property owner has unrestricted rights to dispose of the property, leaving by will or inheritance.
FHA loans A loan insured by the Federal Housing Administration
Fixed Rate Mortgage A mortgage where the interest rate remains unchanged during the entire term of the mortgage.
Foreclosure The lender's remedy for a borrower's default on loan. The property is sold at a foreclosure sale, with the proceeds of the sale first being used to pay off the original note, plus unpaid, accrued interest and fees, and the lender's costs of foreclosing. Any money left over after all lenders have been paid is returned to the defaulting borrower/property owner.
Grant Deed A type of deed that is used to transfer ownership of real property that includes warranties against prior conveyances or encumbrances. In other words, property that includes warranties that the (grantor) seller owned and had the right to transfer to the (grantee) buyer.
Grantee The person who acquires a property by grant deed, such as, a buyer.
Grantor The person who conveys property by grant deed, such as, the seller.
Hazard Insurance An insurance policy for the Homeowner to protect against fire, windstorm and other specified hazards or perils.
Home Inspection Report A detailed report on the property produced by a professional after an inspection of the property. It usually contains evaluation of structures, electrical and mechanical systems. Generally, it is an evaluation based on a visual inspection of the property, without testing, drilling or opening inaccessible areas.
Homeowner Insurance An insurance policy for homeowners that combines hazard insurance, personal property and liability coverage.
Home Warranty Plan An insurance policy which typically covers failures in the plumbing, electrical and heating systems and breakdowns of major appliances. The policy holder pays a deductible to have the item repaired or replaced during the term of the warranty.
HUD The U.S. Department of Housing and Urban Development.
Joint Tenancy See Co-Ownership.


A recorded encumbrance against a property to secure a loan, assessment, judgment or tax bill.
Liquidated Damages A provision of the purchase contract which specifies the amount of damages the seller will recover in the event the buyer breaches the contract. Liquidated damages do not establish that the buyer has breached, but sets the amount of damages once a breach has been proven. In California, if the property has no more than four units, one of which the buyer intends to occupy, then the amount retained by the seller shall be the amount actually deposited or 3% of the purchase price, whichever is less. Any excess shall be returned to the buyer.
Listing Agreement An agreement between a real estate broker (agent) and the property owner employing the agent to find a buyer for the property. This agreement states the address, list price, other conditions for the sale, term of the listing agreement, and the amount of compensation the agent will receive upon completion of a sale.
Loan Conditions Conditions that must be satisfied in order for the lender to make a loan. The lender will not release any funding until all conditions have been met. The loan agent is given a list of all conditions that must be met after submitting the loan application to the lender.
Loan Contingency A term in the purchase contract that allows a buyer to back out of the contract, if, after making a good faith effort to obtain a loan, the buyer is unable to obtain a loan. The buyer must remove the loan contingency (agree to proceed with the transaction) within the stated amount of time or withdraw from the contract. If a buyer withdraws from a contract because of failure to obtain a loan, generally, the buyer is entitled to a refund of his or her earnest money deposit, less any costs actually incurred.
Loan-To-Value Ratio The relationship between the amount of loan(s) against a property and the appraised value of the property.
Lock Box A key safe that is placed on a property to allow greater access and flexibility in showing the property. Only licensed real estate brokers (agents) who are members of the local real estate boards have the key or combination to open the lock box and get the property key. Modern lock boxes have an electronic "key" where each agent has an individual code. This way, the listing agent is able to recall a record of who has accessed the property key.
Mechanics Lien A lien issued for the purpose of securing payments for work performed and material used in construction or improvement of the property.
Mortgage A lien against real property given by the borrower to the lender as security for money borrowed. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off according to the terms of the note.
Mortgagee The lender in the mortgage agreement.
Mortgagor The borrower in the mortgage agreement.
M.L.S. Abbreviation for Multiple Listing Services. Real estate brokers (agents) input and update information on homes for sale in a computer system that is maintained by the local real estate board. Other agents have access to the M.L.S. and can retrieve information on homes for sale. Agents can search the M.L.S. by specific feature, price or area to get information on homes meeting the needs of their clients.
Origination Fee A fee paid to the lender for originating (making) a loan.
Parcel An individual lot of land with its own legal description.
PITI Abbreviation for the components of a monthly housing payment: Principal, Interest, Taxes and Insurance.
Point Equal to one percent of the total amount of a loan. The lender charges it to increase the yield on the loan to be competitive with other types of investments. It is also called "discount points." Usually borrowers can raise or lower the interest rate on their loan by paying fewer or greater numbers of points up front. Your loan officer can discuss the various options.
Pre-approval A commitment by a lender to give the borrower a home loan prior to the borrower entering a contract to buy a home. The commitment to lend is subject only to the property appraising for the correct amount. During the home buying process, being pre-approved for a home loan is an advantage. Pre-approval helps the buyer to identify their price range and enables them to close quickly when they have found the right house. It also gives the buyer a competitive advantage against other buyers who have not been pre-approved since they are considered more risky by sellers.
Preliminary Title Report A report prepared by a title company that shows the state of the title to a property that will be the basis for issuing a title insurance policy.
Pre-qualification It refers to an informal evaluation of your borrowing ability based on the lender's guidelines. No application is submitted and no commitment is made. The evaluation uses general information about your financial situation. It is called "pre-qual" for short.
Quitclaim Deed A type of deed that releases any interest or claims that the grantor may have in the property. It does not warrant that the grantor had any interest or claims to the property. Usually used to clear a cloud on title.
Quiet Title The right to possess and use a property free from claims of other persons. It also includes the right to exclude others from possessing and using the property.
Real Property Land that extends downward to the center of the earth and upward into space, including all things permanently attached thereto by nature or man. For example: minerals, trees, buildings, and appurtenant rights.
Reconveyance The release from a deed of trust by the trustee to the owner of real estate when the underlying loan has been paid in full. The release is in the form of a deed of reconveyance which essentially cancels the deed of trust.
Recording Formal filing of documents affecting the title of a property with the county recorder's office. Recorded documents become a matter of public record, giving notice to all parties of the state of title for the property.
Right of Way The right to pass over or through a property owned by others based upon an easement.
Second Mortgage A mortgage that is in second position to the first mortgage. The second mortgage is "junior" to the first meaning that if the property goes into foreclosure, the first mortgage must be paid in full before the second mortgage holder is entitled to be paid. Some buyers will get a second mortgage if they cannot obtain enough of a loan from the first mortgage or if they can qualify for better terms on the first mortgage by obtaining a smaller second mortgage. There is no limit to the number of junior mortgages that can be placed against a property.
Section 1031 A provision of the Internal Revenue Code that allows owners of investment property to "exchange" a property for other "like-kind" property and to defer any capital gains into the acquired property. Also called a "1031 Exchange" or a "Starker Exchange."
Subdivision A tract of land where lots, blocks, and building sites are divided and streets, parks, easements, and public utilities are laid out.
Sole Ownership Ownership of property by a single person or entity.
Tenancy in Common See Co-Ownership.
Title The proof of ownership of property.
Trustee A person or entity who holds, for the benefit of the beneficiary, title to property. For example, the Trustee under a deed of trust holds the deed of trust for the lender and is responsible for enforcing the provisions of the deed of trust.
Title Insurance Insurance that protects the lender or owner from claims resulting from defects in title. A one time premium paid at the time of purchase of funding of a loan covers the lender or owner as long as the lender or owner has an interest in the property.
Transfer Tax A tax charged by the county and/or city when there is a change in ownership of a property. Usually based on the sale price.
Truth In Lending A required disclosure given to the prospective borrower by a lender itemizing all the terms and conditions and costs of a loan.
Underwriting The process where a lender evaluates a loan application and determines the creditworthiness and ability of the applicant to repay a loan. The underwriter makes sure that the loan will conform to the lender's guidelines for lending and verifies that all necessary documentation is provided.
Variable Interest Rate: See Adjustable Rate Mortgage (ARM)
VA Mortgage A loan guaranteed by the Department of Veteran Affairs. Available to qualified veterans.

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