Glossary of Real Estate Terms

Adjustable-Rate Mortgage (ARM): A mortgage that permits the lender to adjust the interest rate periodically on the basis of changes in a specified index.

Agency: Any relationship in which one party (agent) acts for or represents another under the authority of the latter.

Agent: A party who is authorized to act in the best interests of a principal/client, and is obligated to place the principal’s interests before the interests of any other parties, including the agent’s own interests regardless of whether the agency relationship is with the seller of the property or the buyer.

Appraisal: A written analysis of the estimated value of a property prepared by a qualified appraiser.

Buyer’s Agent (or Buyer Broker): Represents the consumer who is purchasing property in a real estate transaction, not the seller. A buyer’s representative works for, and owes fiduciary responsibilities to, the real estate buyer and has the buyer’s best interests in mind throughout the entire real estate transaction.

Buyer Broker Agreement: An agreement that specifies the duties and the scope of services a buyer’s representative agrees to provide to the buyer as well as specifying the buyer’s responsibilities.

Closing: A meeting at which a sale of the property is finalized by the buyer signing the mortgage documents and paying closing costs, and the seller’s transfer of the deed to the property. Typically held at the attorney’s office for the buyer.

Closing Costs: The fees, costs, and taxes associated with the purchasing of a home, the borrowing of money, and the preparation of necessary paperwork to finalize the sale. Closing costs can vary depending on location, property type, price, and transaction complexity. Typical categories include: (1) discount points, (2) origination fees, (3) taxes/local fees, (4) documentation costs, (5) legal fees/insurance.

Commission: The fee charged by a broker or agent for providing services related to a real estate transaction, such as marketing the property, bringing parties together, and negotiating a purchase contract.

Comparative Market Analysis (CMA): An analysis provided by a real estate professional that surveys properties in a given area or of a certain type for the purpose of determining the relative value of a given property.

Confidentiality: The fiduciary duty that prohibits the agent from communicating personal information about the client unless released by the client. Material facts and defects of property are not confidential.

Deed: The legal document conveying title to a property.

Earnest Money Deposit: A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Equity: A homeowner’s financial interest in a property.

Escrow: A deposit of value, money, or documents with a third party to be delivered upon the fulfillment of a condition. Typically held by the listing agency acting as escrow agent.

Fair Housing Laws: Local, state, and federal laws that prevent discrimination against individuals or groups based on race, color, religion, sex, handicap, national origin, or familial status.

For Sale By Owner (FSBO): A property for sale that is not listed by a real estate professional. The seller is unrepresented.

Fiduciary Duties: Legal obligations of confidence or trust owed by agents to clients. Includes confidentiality, loyalty, obedience, reasonable care, diligence, full disclosure, and accounting.

Full Disclosure: The fiduciary duty requiring agents to disclose all information they know concerning the transaction/property that could affect a client’s decision.

Good-Faith Estimate: An estimate of closing costs associated with the purchase of your home provided by a lender.

Home Inspection: A thorough inspection that evaluates the structural and mechanical condition of a property.

Home Warranty: A guarantee for mechanical systems and appliances (but not structure), covering repairs not included in homeowner’s insurance.

Inspections: Reviews of the general building, radon air/water testing, sewage disposal, or other environmental concerns.

LTV (Loan to Value): The ratio of the amount of a mortgage loan to the appraised value or sales price of the property, whichever is lower.

Lock-In: A written agreement in which the lender guarantees a specified interest rate if a mortgage closes within a set period.

Mortgage: A loan to finance the purchase of real estate, with specified payment periods and interest rates.

Mortgage Insurance: A policy that insures the lender against loss caused by a mortgagor’s default.

Multiple Listing Services (MLS): A database of properties for sale listed by members of a specified MLS.

PMI (Private Mortgage Insurance): Insurance to protect lenders against borrower default, usually required if down payment <20%.

Points: One percent of the mortgage amount. Paid upfront to reduce the lender’s cost or in exchange for a lower interest rate.

Pre-Approval: A lender’s written commitment verifying income, resources, and credit score after full analysis. Makes a buyer more attractive to sellers.

Pre-Qualification: An estimation of what a purchaser can afford based on basic financial information.

Purchase Contract: The legally binding contract setting forth terms, rights, actions, and timelines for a real estate sale.

Real Estate Agent: A person licensed by a state to negotiate and transact real estate sales on behalf of buyers/sellers.

REALTOR®: A real estate agent who is a member of the National Association of REALTORS® and subscribes to its Code of Ethics.

Seller Property Information Report (SPIR): A report completed by the seller, based on their knowledge of the property.

Settlement Statement: A document prepared by an attorney/lender detailing the complete breakdown of the costs/disbursements in the transaction.

Taxes and Other Local Fees: Closing costs including prorated property taxes, homeowner’s association dues, and transfer taxes.

Title Search: A check of title records to ensure the seller is the legal owner and property is free of claims/liens.

Underwriting: The process for evaluating a loan application to determine the risk involved for the lender.