These terms are frequently used in the Real Estate Industry. Understanding their true meaning can be very beneficial to you whether you are buying or selling a property.
Adjustable Rate Mortgage (ARM)
A loan in which the interest rate is adjusted periodically, either up or down, according to prevailing financial market conditions. The loan term is not affected; however, when the interest rate changes, the periodic payment will change.
Acquiring title to real property through public, continuous, exclusive, uninterrupted, and peaceable possession for a period of time prescribed by statue.
In the real estate profession, an agent is a licensee who represents either a buyer or seller, or both buyer and seller through disclosed dual agency, in a transaction.
The schedule of periodic loan payments that will extinguish the loan over the repayment period. The periodic loan payment includes both principal and interest payments. In most real estate loans, the amount of the periodic payment allocated to principal will increase with each payment, while the amount allocated to interest will decrease. The amount of the periodic payment remains the same over the term of the loan.
Annual Percentage Rate (APR)
The amount of interest paid on the loan, plus any other costs or fees incurred in connection with the loan divided by the amount borrowed. The APR will usually be higher than the stated loan interest rate due to the inclusion of the loan fees. Loan fees may include an origination fee, document preparation fee, points, and other costs.
Estimate of fair market value, at a given time and for a stated purpose, prepared by a licensed appraiser.
A right, privilege or improvement permanently attached to the land.
Generally refers to the purchase of real property with all faults/defects included. The seller must disclose any known defects in the property in an “as is” purchase; the buyer may also have the right to inspect the property. However, the buyer has agreed to purchase regardless of the condition of the property.
The value of a property as determined by the local tax assessor acting for the appropriate taxing jurisdiction.
Bill of Sale
An instrument, which passes title to personal property.
Boundary Line Agreement
A legal document used to address encroachments such as fences, walls, garages, and other improvements that extend across property lines.
Breach of Contract
Occurs when one, or more, parties to a contract default on the terms of the agreement. Remedies may include a suit for monetary damages, recission of the agreement, or specific performance.
The final step in a real estate transaction when all parties approve the distribution of the funds generated by the transactions and the seller delivers a deed to the buyer.
The sum of all costs incurred by both buyer and seller in a real estate transaction. For the buyer, typical closing costs include loan fees, attorney’s fees and recording fees. For the seller, typical closing costs include state transfer tax, recording fees, and brokerage commissions.
Portions of a condominium or subdivision for which all owners or residents have a right of use and enjoyment. In a condominium, all owners have an undivided ownership interest in the designated common areas. In a subdivision, the community association owns the common areas and all property owners have an easement for the use of the property.
An organization of property owners in which mandatory membership is conferred when the grantee accepts a deed to the property.
Comparable Market Analysis (CMA)
A CMA, prepared by a real estate professional, estimates the most likely selling price of a property. The subject property is compared to similar properties that have recently sold properties, competitive properties that are currently for sale, and properties that expired without selling. The sold properties indicate where the market has been, the competitive properties indicate where the market may be heading, and the expired properties indicated what the market has rejected.
A type of fee simple ownership in which the deed holder owns the space between defined vertical planes, such as walls, ceilings and floors, plus an undivided ownership interest in certain common elements of the property, such as recreational facilities.
Conditions to the performance of one or both parties to a contract. The most common contingencies in a real estate sales contract are for financing and for inspection of the property. In general, if a contingency cannot be met, the party subject to the contingency has the right to declare the contract null and void and be released of his obligations to the other party.
Something of value named in a contract that supports the agreement between the parties. “Valuable” consideration may be money, personal services, stocks, notes, or other items for which a value can be established. “Love and affection,” the consideration named in a gift deed, is “good” consideration and will not support certain kinds of contracts. Earnest money is not consideration.
An alternate proposal tendered during a negotiation. When a counter-offer is tendered, the original offer is rejected and a new offer presented. The original offeror is no longer bound by the original offer.
Covenants (Also Covenants, Conditions and Restrictions)
Restrictions on the use of real property. Covenants are generally considered an encumbrance on property because the owners’ compliance with the covenants can be enforced judicially. Covenants are a permanent attachment to the property and pass with the title to the property to all subsequent owners. Covenants are recorded in the land records of the county in which the property is located.
Debt to Income Ratio
The ratio computed by dividing the borrower’s total debt obligations by the borrower’s total gross income.
The document that is visible evidence of ownership of real property. In a real estate transaction, a deed transfers title to property when delivered from the seller to the buyer. The new owner records the deed as notice to the public that a transfer of ownership has transpired. There are four types of deeds: (1) General Warranty Deed, (2) Limited Warranty Deed, (3) Bargain and Sale Deed, and (4) Quitclaim Deed. The difference between the deeds is not the quality of title, but the number of promises made by the Grantor to the Grantee.
Deed to Secure Debt
Instrument used in Georgia to secure a promissory note with real property. A deed to secure debt conveys title to the property from the borrower to the lender, with the lender having an obligation to re-convey the property back to the borrower upon payment of the debt.
Generally, an item of real property that (1) is not in good working order, (2) is a serious risk to health or safety, or (3) does not meet code standards in the municipality in which the property is location. Also, an encroachment or title issue that renders a property less marketable. If the property is being sold subject to defects being repaired or replaced, the contract should define the term as it pertains to that particular transaction.
The process of thoroughly inspecting all aspects of a property, including both a physical examination and an examination of the public records pertaining to the property. In Georgia, a buyer must make a reasonably diligent inspection of the property and a diligent inspection of the neighborhood.
Due Diligence Period
A specified time period in a purchase agreement within which a buyer may conduct his due diligence inspections. The agreement may provide a right of termination if the buyer discovers any defects in the property, which are unacceptable to the buyer or which prevent the property from being used as intended.
Also known as good faith money or binder, earnest money is submitted by a buyer along with an offer to purchase real estate. If the buyer defaults, the seller may keep the earnest money as a full remedy. The earnest money is usually held by the Broker in a trust or escrow account until the settlement of the transaction. At settlement, the earnest money is credited towards the purchase price.
An interest in land owned by another person, consisting of the right to use or control the land, or an area above or below it, for a specific limited purpose.
Easement by Prescription
An unrecorded easement that was acquired after a period of twenty years’ use that was public, continuous, uninterrupted, and peaceable. Private ways (a road, path or driveway across property belonging to another) are protected after seven years’ use, which must be constant and uninterrupted.
The difference between the value of a property and the amount of any loans secured by the property.
An illegal intrusion or projection of improvements either from or onto real property. There are three general classifications of encroachments, which may affect the title to real property: (1) encroachments upon abutting property, (2) encroachment upon the subject property, and (3) encroachments upon streets and alleys.
Funds held on behalf of another, such as earnest money held by a Broker or advance payments toward taxes and insurance held by a lender.
A loan made by an institutional lender and insured by the Federal Housing Administration against the borrower’s default. The FHA is not a lending institution, but functions as an insurance company for which the borrower pays a premium based on the amount of the loan. Because the FHA insures 100% of the loan amount, the lender’s risk is eliminated.
Fixed Rate Mortgage
A loan whose interest rate is established at origination and remains constant throughout the repayment period.
An item that was originally personal property but which has been permanently attached to real property. Fixtures are part of the real estate and are conveyed to the buyer, unless the agreement between the parties states otherwise.
FSBO (For Sale by Owner)
A real estate transaction where the owner does not employ a real estate licensee to market the property or handle the details of the transaction. The seller is unrepresented in the transaction.
The process through which a lender redeems a property, which is the security for a loan, usually when the borrower defaults on any of the terms of the loan agreement. In some states, the process of securing title is handled through the court system (judicial foreclosure); other states have a process through which the lender, or a third party on behalf of a lender, sells the property (non-judicial foreclosure).
An instrument that conveys title without the exchange of valuable consideration. The phrase “For love and affection” is usually stated in the deed and is sufficient to make the title transfer valid.
Government Rights in Real Property
The government has the right to (1) Taxation, (2) Eminent Domain, (3) Escheat (Reversion of Title to the State in cases of (a) abandonment or (b) death without a will and no known heirs), and (4) Police Power (Zoning, Building Codes, and Environmental Regulations.)
One named in a deed to receive the title being transferred through the deed.
One who gives the title being transferred through a deed. A Grantor must be of legal age and sound mind to convey title to real property. Only the Grantor signs the deed.
An unrecorded easement in favor of one owner by law when the easement is necessary, such as for light, air, or access to a land-locked parcel of land.
The portion of a constant mortgage payment plan that is the “rent” on money borrowed. The interest portion of the payment decreases as the balance owned decreases.
Lender’s Title Insurance Policy
Protects the lender in the event a defect in the title to real property causes either a loss in value or loss of title to the property. The lender’s policy does not protect the borrower; a borrower should also purchase an Owner’s Title Insurance Policy.
A form of concurrent ownership created when two or more persons are entitled to the simultaneous possession of real property. Joint tenants must have equal ownership shares, take title by the same deed at the same time, and named in the deed as “joint tenants.” When a Joint Tenant dies, the decedent’s interest in the property will automatically be transferred to the surviving tenant. (Right of Survivorship)
A permission, usually revocable, to commit some act that would otherwise be unlawful, such as trespassing upon real property.
A money judgment against any owner of real property for the purpose of satisfying a debt. Some types of liens are: (1) Property Tax liens, (2) Federal Tax liens, (3) Mechanics and Materialman’s liens, and (4) liens under the Georgia Condominium Act or Georgia Property Owners’ Association Act.
A term formerly used to denote a property that was offered for sale or rent, on an exclusive or non-exclusive basis, by a real estate Broker. The term used today is “Employment Agreement.”
Loan to Value Ratio
The amount of the loan expressed as a percentage of the total value of the property, which secures the loan.
Metes and Bounds Property Description (Long Form Description)
A means of describing the boundary lines of land measured by distances and angles from designated landmarks and in relation to adjoining properties.
MLS/ILS (Multiple Listing Service/Internet Listing Service
An organization established to disseminate information on properties listed for sale or lease to its member firms. Properties are not listed with the MLS/ILS, but rather properties are listed with the member firms.
One who makes an offer.
One who receives an offer.
A charge imposed by a lender, usually paid by the borrower at settlement, for processing and placing a loan secured by real property.
A mandatory membership organization for owners of property in a certain community, whether a condominium, town home, or single-family detached neighborhood. The owners association enforces the community’s Covenants, Conditions and Restrictions, collects any periodic fees required, and maintains the area’s common amenities.
Anything not permanently attached to land. Anything not permanently attached to real property belongs to the seller and may be removed prior to closing.
PMI (Private Mortgage Insurance)
Insurance which protects the lender in the event a borrower defaults on a conventional mortgage.
One point is equal to 1% of the loan amount. Discount points are expressed as a percentage of the loan amount and are paid at closing in exchange for a lower interest rate on the loan. In this case, the points are pre-paid interest, that is, an advance interest charge.
Generally the first step in the purchase process. The lender may request a credit report and take a preliminary application to determine if the borrower meets the lender’s standards of income and credit-worthiness.
The order in which liens against real property are paid. Liens are paid in order of their recording dates, with the exception of General and Special Assessment liens (property tax liens), which are always paid first, and Mechanic’s liens, which get their priority date from the date work first began.
A contract between a borrower and a lender in which the borrower promises to repay the lender the amount of the loan, usually plus interest. The promissory note includes the amount of the loan, maturity date, interest rate, payment terms, and any other agreements between the parties.
Also called a “legal description.” A contract for the sale of real property must include a description sufficient to identify the exact amount and location of the property to be sold.
Usually considered part of a buyer’s due diligence obligations, a property inspection by a qualified professional is commissioned to uncover any hidden (latent) defects in the property.
The land and its appurtenances. Land includes the surface of the earth, the material beneath the surface to the center of the earth and the air above the earth to infinity. An appurtenance is a right, privilege or improvement that is permanently attached to the land.
A legal action in which the non-defaulting party in a contract sues for enforcement of the terms of the contract. In a real estate transaction, a buyer may force a seller to sell, or the seller may force a buyer to buy.
A deed used to convey title to property sold by the government because of non-payment of ad valorem property taxes.
Tenants in Common
A form of concurrent ownership created when two or more persons are entitled to the simultaneous possession of real property. Tenants in Common may have unequal ownership shares. When a Tenant in Common dies, the decedent’s interest in the property will be transferred through his will or as provided by intestacy laws.
Protects either the owner of real property or the lender who holds a promissory note secured by real property in the event a superior claim to the property’s title arises. The premium is paid one time at closing. The title insuror may defend the insured’s rights to the property against the claimant or pay the insured the value of the policy.
An item installed in real property by a commercial tenant for use in his trade or business. A trade fixture may be removed by the tenant prior to the expiration of his lease. If not removed timely, the item will become the property of the landlord.
A loan made by an institutional lender, which is guaranteed by the Veteran’s Administration. The VA does not actually loan the funds, although it is permitted to do so in areas that are not serviced by lending institutions. A VA loan may permit a borrower to finance up to 100% of the value of the property.
Municipal regulations that control how property can be used.