Real Estate Glossary
1. Amortization Schedule- A complete schedule of periodic blended loan payments, showing the amount of principal and the amount of interest that comprise each payment so that the loan will be paid off at the end of its term. Early in the schedule, the majority of each periodic payment is interest. Later in the schedule, the majority of each periodic payment is put toward the principal.
2. Annual Mortgage Statement- In the United States, the annual mortgage statement is also known as the year-end statement or Form 1098, which is used when filing taxes.
3. Appraised Value- The appraised value of a home is an important factor in the loan underwriting process and plays a role in determining how much money may be borrowed and under what terms. For example, the loan-to-value (LTV) ratio is based on the appraised value.
4. Assessed Value- You may be familiar with assessed valuation because it is used to determine the value of your residence for taxation purposes.
5. Assumable Mortgage- Buyers are typically attracted to homes with existing assumable mortgages during times of rising interest rates. This is because they can assume the seller's mortgage, which was created when interest rates were lower, and use it to finance their purchase. By assuming the previous owner's remaining debt, the buyer can avoid having to obtain his or her own mortgage
6. Capital Improvement- The addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property's overall value or increases its useful life. Although the scale of the capital improvement can vary, both individual homeowners and large-scale property owners can make capital improvements.
7. Cash-On-Cash Return- A rate of return often used in real estate transactions. The calculation determines the cash income on the cash invested. Calculated as:
For example when you purchase a rental property, you might put down only 10% for cash down payment. Cash-on-cash return would measure the annual return you made on the property in relation to the down payment.
8. Closing Statement- This legal document sets out the exact amount of money needed to close a real estate transaction and affect the transfer of title and ownership from the seller to the buyer. It includes all the costs involved in the sale, such as mortgage insurance and property tax deposits.
9. Commercial Real Estate- Property that is solely used for business purposes. Examples are malls, industrial parks, gas stations, convenience stores and office towers.
10. Condominium- A large property complex that is divided into individual units and sold. Ownership usually includes a non-exclusive interest in certain "common properties" controlled by the condominium management.
11. Condotel- A condominium project that is operated as a hotel with a registration desk, cleaning service and more. The units are individually owned. Unit owners also have the option to place their unit in the hotels rental program where it is rented out like any other hotel room. Generally, condo hotels are sold as a second or third home.
12. Conveyance- A written instrument, such as a deed or lease that transfers some ownership interest in real property from one person to another.
13. Eminent Domain- The power the government has to obtain the property of an individual even without the person's full consent. In most countries, including the U.S., the landowner will be compensated for the land at fair market value. This power allows the government to seize land to be used in public enterprises such as roads, schools, or utilities installations. Eminent domain is generally found in some form in most common law nations.
14. Home Equity Line Of Credit (HELOC)- A line of credit extended to a homeowner that uses the borrower's home as collateral. Once a maximum loan balance is established, the homeowner may draw on the line of credit at his or her discretion. Interest is charged on a predetermined variable rate, which is usually based on prevailing prime rates.
15. Loan To Value Ratio (LTV Ratio)- A lending risk assessment ratio those financial institutions and others lenders examine before approving a mortgage. Typically, assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is accepted, the loan will generally cost the borrower more to borrow or he or she will need to purchase mortgage insurance.
16. Equity- Individuals can also use market valuations to calculate equity in real estate. An owner refers to his or her equity in a property as the difference between the market price of a property and the liability attached to the property (mortgage or home equity loan). This is the exact opposite of how equity is considered for accounting purposes.
17. Negative Equity- When the value of an asset falls below the outstanding balance on the loan used to purchase that asset. Negative equity is calculated simply by taking the value of the asset less the balance on the outstanding loan.
18. Lien- is an interest in real property that serves as security for an obligation.
19. Real Property- the rights in land and its permanent structures. (Building, street, railroad, bridges, ECT.)
20. Personal Property- is the rest, that is, it is simply rights in any kind of objects. (Vehicles, Household Goods, Stocks and Bonds, ECT.)
21. Title- The right to the ownership and possession of any item that may be legally recognized as belonging to someone or something. In its most basic sense, title is the recognition of ownership. There are three components to the concept of title; possession or occupation, the right of possession and apparent ownership.
22. Appreciation - Appreciation is the increase in value of a property over time due to inflation, supply and demand, capital improvements and other factors. Most real estate investors purchase income property for cash flow and capital appreciation. When weighing the benefits of purchasing a home or renting, many people opt to buy because they can increase their net worth via appreciation.
a. Are mortgage rates increasing or decreasing? The general level and the direction of interest rates can greatly affect the demand for real estate.
b. Over supply of a particular type of income property can result in high vacancy rates and reduced cash flows making it difficult for property owners to meet their financial obligations. The end result is lower prices. Ineffective property management and poor property upkeep can also result in high vacancy rates. Correcting managerial problems that improve operational efficiency and increase the bottom line can have a positive impact on the value of an income property. Be sure you understand your local real estate market place before you buy. You can correct a mismanagement problem, but you have little to no control when an oversupply problem exists.
c. Is the job base in your community growing or is it declining? The availability of high paying jobs can greatly impact appreciation growth rates.
23. Assignment - Assignment of rights under a contract is the complete transfer of the rights to receive the benefits accruing to one of the parties to that contract. For example, if party A contracts with Party B to sell his car to him for $10, party A can later assign the benefits of the contract - the right to be paid $10 - to party C.
24. Capital Gains- Rate of tax applied to the portion of the taxable gain on sale that is due to appreciation in the market value.
25. Easement- Easements and rights-of-way allow an individual or entity to use your land in some way.
26. Agency- The company or person that repesrsents you.
a. “Exclusive agency" listing allows an agent to list and market your home, guaranteeing them a commission if the house sells through any real estate agent or company. It also allows sellers to seek out buyers on their own.
b. "Exclusive right to sell" your property does not mean that there will not be other agents involved
c. People trying to sell their home by owner who are also willing to work with real estate agents mostly use “Open listing”.
d. “One-time show" is similar to an open listing in many respects, as it is most often used by real estate agents who are showing a FSBO (for sale by owner) to one of their clients.
27. REO- usually a bank - after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank: the minimum bid in most foreclosure auctions equal the outstanding loan amount, the accrued interest and any fees associated with the foreclosure sale.
28. Short sale- A short sale is when the lender agrees to accept a mortgage payoff that doesn't cover the outstanding loan.
a. Why do lenders accept short sales? Lenders almost always lose money when they foreclose on property. In many cases, they will lose less money through a short sale than they would by foreclosing on the home and selling it as a bank-owned property.
b. Rules- must experience a genuine financial hardship.
29. Foreclosure- Foreclosures are the result of a homeowner falling behind in their payments. Depending on how late the payment is, lenders respond to try to recoup the loan amount.
30. Deed / Title Deed in Trust- The deed of trust is an instrument that identifies the following: Original loan amount, Legal description of the property being used as security for the mortgage, The parties, Inception and maturity date of the loan, Provisions of the mortgage and requirements, Late fees, Legal procedures, Acceleration and alienation clauses, Riders, if any, regarding such clauses as prepayment penalties or terms of an adjustable rate mortgage.
31. Cashflow- is a term that refers to the amount of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. Measurement of cash flow can be used
a. To evaluate the state or performance of a business or project.
b. To determine problems with liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable.
c. To generate project rate of returns. The time of cash flows into and out of projects are used as inputs to financial models such as internal rate of return, and net present value.
d. To examine income or growth of a business when it is believed that accrual accounting concepts do not represent economic realities. Alternately, cash flow can be used to 'validate' the net income generated by accrual accounting.
32. Good Faith Estimate- An estimate of the fees due at closing for a mortgage loan that must be provided by a lender to a borrower within three days of the lender taking a borrower's loan application. The Real Estate Settlement Procedures Act (RESPA) requires a good faith estimate. Consumers should beware of unscrupulous lenders who add their own "junk" fees and/or charge excessive fees for items such as wire transfers.
33. PMI- 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. Keep track of your payments on the principal of the mortgage. When you reach 80% equity, notify the lender that it is time to discontinue the PMI premiums.
34. Fully Executed Contract-A contract, which is fully performed by both parties.
35. Lease Options -This basically means you are leasing or renting a property with an option to buy it at a future date. The future price of the property should be fixed at the time the lease-option is signed.
