REAL ESTATE TERMINOLOGY | Dell Realtor: Northern VA Home Partner

Every industry has its own terminology. Below are some common real estate terms and their definitions when it comes to selling your home.

Addendum: An addendum is a list or additional material added to a document, letter, contractual agreement, or escrow instructions.

Agency: Agency refers to the relationship that exists when a Broker represents a Buyer or Seller in a real estate transaction. An Agent has fiduciary duties to the Client, which include confidentiality, accounting, reasonable care, loyalty, obedience, advocacy, and disclosure.

Annual Percentage Rate (APR): The Annual Percentage Rate (APR) is the yearly interest percentage on a loan, reflecting the actual interest paid. Disclosing the APR is a requirement under federal truth-in-lending laws.

Appraisal: An appraisal is a valuation of property conducted by an appraiser. The appraiser may utilize various valuation methods to determine the property's appropriate value, including the current market value of similar properties, property quality, and valuation models.

As Is: In an "AS IS" contract, the Seller indicates that the property will be sold in its current physical condition, with the Buyer considering this condition when making an offer. This clause does not eliminate the Seller's common law duty to disclose known latent material defects.

Assumption: An assumption refers to the agreement by a Buyer to take on the liability under an existing note secured by a mortgage or deed of trust. The Lender typically must approve the new debtor to release the existing debtor (usually the Seller) from liability.

Beneficiary: In the context of a trust deed, the Lender is designated as the beneficiary, meaning they receive the benefits of the secured property.

Buyer-Broker Agreement: A Buyer-Broker Agreement is an employment contract between a Buyer and a Broker. It engages the Broker to find property and negotiate terms and conditions acceptable to the Buyer for the purchase of a home. The Buyer generally agrees to work exclusively with the Broker, and any compensation the Buyer owes is often offset by the compensation the Broker receives from the Listing Agent.

Close of Escrow: The date on which title is transferred from the Seller to the Buyer, and documents are officially recorded.

Chain of Title: The chronological sequence of ownership transfers for a parcel of land, starting from the original Owner (typically the government) to the current Owner.

Closing Disclosure: A document provided to the borrower at least three business days before they become contractually obligated for the loan, usually when the final loan documents are signed. Similar to the Loan Estimate, the Closing Disclosure includes details about the loan terms, monthly payments, and closing costs. However, the figures presented are actual and final, not estimates. These two forms work together, allowing borrowers to easily compare them and confirm they are receiving the promised loan terms. The use of the Closing Disclosure is mandated when the loan meets the requirements set forth by the Final Rule of the CFPB, effective October 3, 2015.

Closing Statement: An all-inclusive summary that itemizes debits and credits for both parties, the Seller and the Buyer, presented in the form of a balance sheet.

Cloud on Title: An invalid encumbrance on real property that, if valid, would affect the Owner’s rights. This cloud can be removed through a quitclaim deed or, if necessary, by court action.

Comparable Sales: Sales of similar properties that are used as benchmarks to determine the value of a specific property.

Conditions, Covenants & Restrictions (CC&Rs): CC&Rs are recorded against a home and serve as an enforceable contract. These regulations empower the homeowners association, if one exists, to oversee certain aspects of the property. Homebuyers should carefully read the CC&Rs and any other associated documents, as they will be obligated to adhere to all rules and restrictions.

Contract: For the sale of a home to be enforceable, a written contract must be signed by both parties.

Contingency: A contingency is a clause in a contract that requires the completion of a specific action before the parties involved are obligated to fulfill their contractual obligations. The most common contingencies include financing, acceptable property condition, and title conditions.

Conveyance: Conveyance refers to the transfer of title to a property. It encompasses most instruments through which an interest in real estate is created, mortgaged, or assigned.

Counteroffer: A counteroffer is a response to an initial offer, indicating a change in the terms proposed. For example, if Person A offers to buy Person B's house for a certain amount of money, and Person B responds with a higher selling price, Person B's response is considered a counteroffer.

Deed: A deed is a written instrument that transfers ownership of land from one person to another.

Deed of Trust: A deed of trust is used in many states as an alternative to a mortgage. In this arrangement, the borrower (Trustor) transfers property to a trustee in favor of the lender (Beneficiary), with the property being reconveyed upon full payment.

Deposit: A deposit is the money provided by the buyer along with an offer to purchase. It demonstrates the buyer's good faith.

Disclosure: Disclosure means to make information known. All disclosures related to real estate interests and property should be documented in writing.

Due on Sale Clause: A due on sale clause is an acceleration clause that requires full payment of a mortgage or deed of trust balance when the secured property is sold or transferred.

Easement: An easement is the legal right to use someone else's land for a specified purpose, such as for public utilities or access.

Escrow: Escrow is a process in which a third party acts as a neutral stakeholder for both the buyer and the seller. This party carries out the instructions of both parties and manages all related paperwork and the distribution of funds.

Escrow Account: An escrow account is held by the lender to collect and pay for taxes, homeowner’s insurance, and other periodic debts associated with real property, ensuring the protection of the lender's security interest.

Fixtures and Personal Property: A fixture is an item that was once considered personal property but has been attached to the home in such a way that it becomes part of the home itself. When a buyer purchases a property, they acquire the fixtures that are affixed to the home, while personal property is not included in the transaction unless explicitly listed in the contract. It is essential for the contract to specifically identify all items that will be conveyed in the transaction.

Homeowners’ Association (HOA): An association of individuals who own real property within a specific area, established to improve or maintain the quality of the community. This association can also be created by the builder of condominiums or planned developments, and in some states, it is required by law. The builder's involvement and the association's responsibilities are governed by statutory regulations.

Homeowner’s Insurance: Property insurance that protects against losses caused by fire, certain natural disasters, vandalism, and other risks, depending on the terms outlined in the policy.

Homestead Exemption: A homestead exemption safeguards equity in a home in the event of bankruptcy. This exemption is generally automatic, meaning that there is no need to file a homestead declaration to claim it during bankruptcy proceedings.

Lien: An encumbrance against a property for the purpose of repaying a debt. Examples of liens include judgments, taxes, mortgages, and deeds of trust.

Listing Agreement: An employment contract between a seller and a listing broker that establishes the broker's duties and the terms under which they will earn a commission.

Loan Estimate: This document is usually provided to the borrower within three business days of applying for a mortgage loan. It outlines the loan terms, projected payments, and an estimate of the closing costs. Since the Loan Estimate is standardized across lenders, it serves as a useful tool for comparing different mortgage options suited to a borrower's needs. The use of this form is mandatory if the loan falls under the requirements of the Final Rule of the Consumer Financial Protection Bureau (CFPB), effective October 3, 2015.

Mortgage: This is the legal instrument by which real estate is pledged as security for the repayment of a loan.

Mortgage Insurance: This insurance is provided by an independent mortgage insurance company to protect the lender from losses due to mortgage default. It allows the lender to offer a higher percentage of the sales price.

Multiple Listing Service (MLS): The MLS is a comprehensive database of homes for sale. It also serves as a platform where broker participants can offer compensation to other brokers for bringing a ready, willing, and able buyer for a property.

PITI: This term refers to a payment that combines Principal, Interest, Taxes, and Insurance.

Points: This represents an amount equal to 1 percent of the mortgage loan. Lenders can charge a point as an origination fee to cover the cost of processing the loan. Additionally, a discount point may be paid by the borrower to reduce the interest rate on the loan.

Power of Attorney: This is the authority granted by one person (the principal) to another person (the attorney) to act on their behalf.

Purchase Agreement: This is a contract between a buyer and a seller of real property that outlines the price and terms of the sale.

Quitclaim Deed: This type of deed releases any title, interest, or claim that the grantor may have in the property, but it does not provide any warranty regarding the validity of the grantor's interest or title.

Recording: This is the process of filing documents that affect real property with the County Recorder to make them a matter of public record.

Right of First Refusal: A right of first refusal is a provision in a contract that requires the owner of a home to give another party (usually a tenant) the first opportunity to purchase or lease the property before it is offered for sale to anyone else.

Subdivision: Subdivision refers to the process of dividing a single parcel of land into smaller parcels (lots). This is done by filing a subdivision plat with the relevant governmental authority (city or county) and obtaining approval from that authority.

Title: Title is the legal evidence of a person's right to possess a piece of land.

Title Commitment: A title commitment outlines the status of the title to the property. It informs the buyer whether taxes and assessments are paid, if there are any deed restrictions, liens, or easements on the property, and what requirements need to be met for the issuance of title insurance.

Title Insurance: Typically, two title insurance policies are issued at the close of escrow: Owner’s Title Insurance and Lender’s Title Insurance. The Owner’s policy protects the homeowner from defects in the property’s title, such as a forged deed. The Lender’s policy protects the lender against similar title defects until the loan is fully repaid.

Warranty Deed: A warranty deed is a legal document that conveys full title to real property from the grantor (usually the seller) to the grantee (usually the buyer).

§1031 Exchange: A §1031 exchange is a tax-deferred transaction involving the transfer of investment or income property in exchange for like-kind property that will also be used for investment or income purposes. When certain criteria are met, as specified in section 1031 of the Internal Revenue Code, any capital gains taxes on the sale of the relinquished property are deferred.