Real Estate Vocabulary

Prepayment clause

allows the borrower to pay "penalty free" and avoid a penalty charged by the lender for paying off the loan early

prepayment penalty

a fee charged to a borrower for paying off the loan faster than scheduled payments call for

Purchase Money Mortgage

and new mortgage accepted by the seller as part pf the purchase price (the vendor is the lender)

Receiver

independent party appointed by a court or by an entity's creditors under the terms of a debenture. When a party fails to comply with the terms of the loan agreement.

Satisfaction of mortgage

when debt is paid in full, mortgage (lender) executes a satisfaction of mortgage which is usually recorded in public records.

Subordination Clause

an acknowledgement that a mortgage lien will become junior to a subsequent lien (i.e. land loan when it is understood that a subsequent construction lender must have first position).

Term Mortgage (Straight Term)

a promissory note under which periodic payments consist of interest only

Discount Points

a form of prepaid interest on a mortgage, or a fee paid to a lender to cover cost the making of a loan. The fee for one discount point is equal to 1% of the loan amount.

discount rate

the minimum interest rate set by the Federal Reserve for lending to other banks

Disintermediation

when depositors withdraw money from banks, savings and associations, and credit unions and invest directly in more rewarding offerings like stocks, bonds and other securities.

Intermediation

when depositors deposit funds into banks, savings and loan, associations, and credit unions instead of other investments such as stocks and bonds

Mortgage lender

a person or company that loans money and takes a security interest in real property

Mortgage Loan Originator (MLO)

an individual that works with a borrower to locate and find a lender (requires a MLO license)

Office of the Comptroller of the Currency (OCC)

an arm of the Treasury Department, regulates all federally chartered commercial banks.

Office of Thrift Supervision (OTS)

an arm of the Treasury Department, regulates all federally charted saving associations.

primary market

the market where mortgage loans are originated

secondary market

the market where mortgages are sold by primary mortgage lenders

Arrears

the state of being behind or late, something overdue in payment; a debt that remains unpaid

Credit

as a verb, to make an entry on the right or credit side of an account; as a noun, payment or value received

Debit

as a verb, to make an entry on the left or charge side of an account; as a noun, a charge or expense

Level-payment plan

a type of mortgage that requires the same dollar payment each month or payment period

Principal

amount of money borrowed in a mortgage loan, excluding interest and other charges. Also could mean a relationship that the seller or buyer has with the real estate agent when they enter into a single agency relationship.

Profit

anything above your cost

Prorate (proration)

to divide, distribute, or calculate proportionately

Contract

a legally binding agreement between two or more competent parties (written or oral)

Exclusive Agency Listing

an employment agreement giving only one broker the right to sell the property for a specified time and also allowing the owner to sell the property themselves without paying a real estate commission

Exclusive-right-of-sale listing

an employment agreement giving the broker the right to collect a commission if the property is sold by anyone including the owner, during the term of the agreement (anyone who has this type of listing is the procuring cause).

Implied listing

occurs when the words and actions of the parties indicate that there is an agreement

Liquidated Damages

an amount that has been agreed upon in a contract that one party will pay the other in the event of a breach of the contract

Meeting of the minds

agreement by all parties to a contract to its terms and conditions

Net listing

a listing agreement providing the broker with all proceeds received from the sale over a specified amount (Net listings are not legal in many states). Florida it is legal but it prevents the broker from keeping any amount over their customary commission

Novation

Substituting a new obligation for an old one or substituting new parties to an existing obligation.

Open Listing

a listing agreement that gives a broker the nonexclusive right to sell property and receive compensation (usually a commission) if, but only if, the broker is the first to procure a buyer for the property.

option

contract that gives the purchaser of the option the right to buy a certain property at a set price any time during the option term (true consideration required)

Unenforceable

a contract that will not be enforced in a court of law

Unilateral Contract

an obligation by one party to perform under a contract (i.e. option contract)

Valid

a well grounded contract grounded by fact, law or logic that is fully enforceable in a court of law

Vendee

a party in a contract the purchaser, buyer

vendor

a party in a contract, the seller

void

having no force or effect; unenforceable

voidable

capable of being voided, but not void unless action is taking to void. (i.e. a minor's contract is voidable because the minor can choose to void the contract).

Adjustable Rate Mortgage (ARM)

a mortgage under which interest rates are tied to an index (i.e. 5 year treasury rate)

Amortized mortgage

a loan which scheduled periodic payments that consist of both principal and interest. An amortized mortgage is gradually and systematically killed or extinguished by equal regular periodic payments.

Balloon payment

a large payment due at the end of the loan, the remaining balance is due as a final repayment (the balloon)

Blanket mortgage

a mortgage used to finance two or more parcels of real estate.

Defeasance Clause

specifies method of repayment. "defeats" actual transfer of property's title to mortgagee (lender) as long as terms are met

due on sale clause

stipulates that the full balance of the loan may be called (due) upon sale or transfer of ownership of the property without the lenders permission

Equity of Redemption

the right of a real estate owner to reclaim property after default, but before foreclosures proceedings by paying all debts plus interests and cost

Estoppel Certificate

a document used in mortgage closing to establish facts and financial obligations, such as outstanding amounts due that can affect the settlement of a loan

home equity loan

a type of loan in which the borrower uses the equity of their home as collateral. The money can be used to improve the home or for anything including non-home improvements

mortgage

an agreement with a lender (mortgagee) who lends money at an interest rate in exchange for placing a lien on the mortgagors (borrower) property

Mortgage Insurance Premium (MIP)

required to cover greater risk of high loan to value ratio, (premium is paid by the borrower to protect the lender)

Mortgagee

A lender in a mortgage loan transaction.

mortgagor

the borrower/debtor who gives mortgage to mortgagee(lender)

note

evidence of debt and personal guarantee (IOU); contains the financial details of the loan (i.e., amount, interest rate, repayment terms, etc.)

Package Mortgage

a loan secured by real estate and in which the personal property is included in the purchase price of the house (i.e., refrigerator, washer/dryer)

Partial Release Clause

a clause in a blanket mortgage that allows a developer to sell off individual parcels free and clear to purchasers. so the buyers can obtain a mortgage on the property

appraisal

a defensible non-biased opinion of value

Assemblage

a real estate term referring to the process of combining adjacent parcels of land to form one larger parcel. Typically the value of the whole parcel will be greater than the sum of the individual smaller parcels (also called plottage).

Comparative Market Analysis (CMA)

a variation of the sales comparison approach, they are not appraisal reports.

Cost-depreciation approach

a method to estimate the value of property by determining the cost of reproducing or replacing a building, minus an estimate for depreciation, plus the value of the land (used on special purpose properties i.e., schools, hospitals, etc.)

curable

depreciation or deterioration that CAN be corrected at a cost less than the value that will be added

Depreciation

decrease in value due to wear and tear, decay, decline in price, etc. such a decrease is allowed in computing the value of property for tax purposes.

Economic Life

an estimated life a building will be useful

Gross Rent Multiplier (GRM)

the ratio between a property's gross monthly income and it's selling price. GRM is calculated by obtaining 5 or 6 comps and dividing the selling price of each comp by its gross monthly income and averaging the results

Highest and best use

the legally and physically possible use that, at the time of the appraisal is most likely to produce the greatest net return to the land and/or building over a given time period

Income Capitalization Approach

one of three appraisal methods used in estimating the market value of income producing properties

incurable

a defect that cannot be cured or that is not financially practical to cure

Market Value

the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting, prudently, knowledgeably, and assuming the price is not affected by undue stimulus

over improvement

a situation where the expenditure on improving a property does not make the best use or investment to the property

Plottage

a real estate term referring to the process of combining adjacent parcels of land to form one larger parcel. Typically the value of the whole parcel will be greater than the sum of the individual smaller parcels (also called assemblage)

Principle of Substitution

the basis for all 3 approaches to market value. It states that a buyer will not pay more for a property than the cost of an equally desirable alternative property

executor

A person named in a will to carry out the directions contained in the will

Forceclosure

a legal process by which a lender, in an attempt to recover the balance of a loan from a borrower who has defaulter on the loan, forces the sale of the collateral that secured the loan

counter offer

a new offer by an offeree that acts as a rejection of an offer by an offeror

Sales Comparison Approach

one of three appraisal approaches; also called market approach value. is estimated by analyzing sales prices of similar properties (comparable) recently sold.

Executed Contract

a contract all terms and conditions of which have been fulfilled

Debt Service

the cash that is required to cover the repayment of interest and principal on a debt for a particular period

Effective Gross Income (EGI)

for income producing property, potential gross income, less a vacancy and collection allowance, plus miscellaneous income provides the effective gross income

investment

the investment of money for profit or material result

investment value

value of a property to a particular investor

leverage

the use of borrowed funds to increase purchasing power

Liquidity

the degree to which an asset or security can be quickly bought and sold in the market without affecting the loss of principal

Loan-to-Value Ratio (LTV)

the ratio obtained by dividing the mortgage loan amount by the property value

Net Operating Income (NOI)

the actual earnings, after deducting all expenses, including reserves for replacements from the effective gross income

Potential Gross Income (PGI)

the amount of money that would be collected in a year if all units in a rental building were fully occupied all year

REIT

Real Estate Investment Trust, is a company that owns or finances income-producing real estate.

risk

might arise from such things as liability, legal issues, partner problems that can force a sale, fire or theft, loss of rental income and purchasing property with an imperfect title.

vacancy and collection loss

the amount of money or percentage that is estimated to not be realized due to non-payment of rent and vacant units

ad volorem

taxes are levied solely as a percentage of a property's market value without regard to quantity or intrinsic value

assessed value

assessed value of a property is a figure local government used to determine a homeowners annual property taxes. It's not to be confused with fair market value

mill

A unit of money used to specify a property tax rate ($1 for each $1,000 of taxable value).

Special Exception

grants a specific use of a particular property

real estate business

an intermediary who receives a commission for arranging and facilitating the sale and lease of property for others

Zoning Ordinance

Written regulations and laws that define how property in specific geographic zones can be used.

Variance

it is used to vary from strict compliance with all or part of the zoning codes, because of an undue hardship on the property owner

social exception

grants a specific use of a particular property

parcel

a piece of property under one ownership; a log in a subdivision

Planned Unit Development (PUD)

it s a designed grouping of both varied and compatible land uses, such as housing, recreation, commercial centers and industrial parks, all within one contained development or subdivision.

Nonconforming use

a use that violates zoning ordinances or codes but is allowed to continue because it began before the zoning restriction was enacted