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BEST PRACTICES
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Zoning
Procedure that classifies real property for a number of different uses: residential, commercial, industrial, etc. in accordance with a land-use plan.
Warranty deed
A deed in which the grantor guarantees that he or she is giving the grantee good title free of encumbrances. Considered to be the best deed a grantee can receive.
VA loan
Veterans Administration-backed mortgage. The VA, a federal agency, operates a loan guarantee program for honorably discharged veterans and widows of veterans who died of a service-related injury. Mortgages call for low or no down payment. Sometimes referred to as GI loan.
Variance
A permit granted as an exception to a zoning ordinance that allows a property owner to meet certain specified needs.
Value
Market value or present worth. To have value, a property must have utility, scarcity, effective demand, and transferability.
Valid contract
One that meets all requirements of law, is binding upon its parties, and is enforceable in a court of law.
Useful life
The period of time over which a commercial property can be depreciated for federal income-tax purposes. Also known as economic life.
Undivided interest
Ownership by two or more persons that gives each the right to use the entire property.
Trust deed
A document used in place of a mortgage in certain states; a third-party trustee, not the lender, holds the title to the property until the loan is paid out or defaulted. Also called a deed of trust.
Townhouse
Usually a two- or three-story dwelling with shared walls, or a living unit operating under the condominium or townhouse form of ownership.
Title search
A professional examination of public records to determine the chain of ownership of a particular piece of property and to note any liens, encumbrances, easements, restrictions, or other factors that might affect the title.
Title insurance
An insurance policy that protects against any losses incurred because of defects in the title not listed in the title report or abstract.
Title
Actual ownership; the right of possession; also the evidence of ownership such as a deed or bill of sale.
Time-sharing
Part ownership of a property coupled with a right to exclusive use of it for a specified number of days per year.
Tenants in common
Style of ownership in which two or more persons purchase a property jointly, but with no right of survivorship and separate undivided interests. They are free to will their share to anyone they choose, a principal difference between this form of ownership and joint tenancy.
Tenancy by the entirety
A form of joint ownership reserved for married persons; right of survivorship exists and neither spouse has a disposable interest during the lifetime of the other.
Tax rate
The rate at which real property is taxed in a tax district or county. For example, in a certain county, real property may be taxed at a rate of 55 mills (or 0.055) per dollar of assessed valuation.
Tax basis
The price paid for a property plus certain costs and expenses, such as closing costs, legal counsel, and a commission paid to help find the property.
Tax credit
An allowed deduction that can be subtracted from your income tax. If you are entitled to a $1,500 credit, and your income tax would otherwise be $10,000, the credit would reduce the tax due to $8,500.
Survey
An exact measurement of the size and boundaries of a piece of land by civil engineers or surveyors.
Subletting
The leasing of premises by a lessee to a third party for part of the lessee’s remaining term.
Steering
The illegal practice of directing potential home buyers to or away from certain neighborhoods either to maintain or to change the character of an area, or to create a speculative situation.
Special assessment
A special tax imposed on specific parcels of real estate that will benefit from a proposed public improvement, such as a street or sewer.
Secondary mortgage market
Market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; plays an important role in getting money from those who want to lend to those who want to borrow.
Second mortgage
Lien on property that is subordinate to a first mortgage. In the event of default, the second mortgage is repaid after the first. Also called a junior mortgage, and in some circumstances a home equity loan.
Sales contract
Contract that contains the terms of the agreement between the buyer and seller for the sale of a particular parcel or parcels of real estate.
Right of survivorship
A feature of joint tenancy giving the surviving joint tenants the rights, title and interests of the deceased joint tenant. Right of survivorship is the basic difference between buying property as joint tenants and as tenants in common.
Right of first refusal
A person’s right to have the first opportunity to either lease or purchase real property.
Restrictive covenants
Clauses placed in a deed to restrict the full use of the property by controlling how future landowners may or may not use the property; also used in leases.
Reserve account
An account for money collected each month by a lender to pay for property taxes and property insurance as they come due.
Report of title
Document required before title insurance can be issued. It states the name of the owner, a legal description of the property, and the status of taxes, liens, and anything else that might affect the marketability of the title.
Replacement cost
The cost at today’s prices and using today’s construction methods, of building an improvement having the same usefulness as the one being appraised.
Redlining
Practice of refusing to make loans in certain neighborhoods. Also applies to insurance companies that refuse to offer policies in certain neighborhoods.
Recording
Entering or recording documents affecting or conveying interests in real estate in the recorder’s office; until recorded a deed or mortgage generally is not effective against subsequent purchases or mortgage liens.
Realtor
A real estate broker or agent who is a member of the National Association of Realtors, a professional real estate group that subscribes to a Code of Ethics. Not every broker or agent is a Realtor, a word that is a registered trademark and always capitalized.
Real estate salesperson
Person who has passed a state examination for that position, and must work under the supervision of a broker.
Real estate investment trust (REIT)
Entity that allows a very large number of investors to pool their money in the purchase of real estate, but as passive investors. The investors do not buy directly. Instead, they purchase shares in the REIT that owns the real estate investment.
Real estate broker
Individual who has passed a state broker’s test and represents others in realty transactions. Anyone having his or her own office must be a broker.
Real estate
The land itself and everything extending below and above it, including all things permanently attached, whether by nature or by man.
Quit-claim deed
A conveyance by which the grantor transfers whatever interest he or she has in the real estate without warranties or obligations.
Qualification
Act of determining a potential buyer’s needs, abilities, and urgency to buy and matching these with available properties.
Property tax
Assessment levied by city and county governments on real and personal property to generate the bulk of their operating revenues to pay for such public services as schools, libraries, and roads.
Property tax deductions
The Internal Revenue Service allows homeowners to claim as itemized personal deductions money paid for state and local realty taxes, as well as interest on debt secured by their homes. It also allows for the deduction of loan prepayment penalties, and the deduction of points on new loans.
Private mortgage insurance (PMI)
Required by most lenders for conventional loans with a down payment of less than 20 percent. Insurance is paid by the borrower and guarantees the lender will not lose money if the borrower defaults.
Point
Fee charged by a lender to get additional revenue over the interest rate. A point is equal to one percent of the loan amount.
Plat
Map or survey showing the location and boundaries of individual properties and how they have been subdivided into lots and blocks.
Planned Unit Development (PUD)
Individually owned houses with community ownership of common areas, such as swimming pools and tennis courts.
PITI
Acronym for “principal, interest, taxes, and insurance.” Frequently used to describe a loan payment that combines all four items.
Option
The exclusive right to purchase or lease a property at a predetermined price or rent at some future time.
Open listing
Listing that gives a broker a nonexclusive right to find a buyer; the owner can still find a buyer himself and avoid a commission.
Nonconforming use
Use of property that is permitted to continue after a zoning ordinance prohibiting it has been passed.
Net lease
Lease requiring the tenant to pay all the costs incurred in maintaining a property, including taxes, insurance, repairs, and other expenses normally required of the owner.
Multiple listing
Agreement that allows real estate brokers to distribute information on the properties they have listed for sale to other members of a local real estate organization. Allows the widest possible marketing of those properties. Commissions are split by mutual agreement between the listing broker and the selling broker.
Mortgagor
Party or person that borrows money, giving a lien on the property as security for the loan; the borrower.
Mortgage company or mortgage banker
Financial intermediary that offers mortgages to borrowers, and then resells them to various lending institutions, government agencies, or private investors.
Maturity date
Date on which principal and interest on a mortgage or other loan must be paid in full.
Market value
Generally accepted as the highest price that a ready, willing, and able buyer will pay and the lowest price a ready, willing, and able seller will accept for a property.
Maintenance fees
Paid by a condominium unit owner to the owners’ association for upkeep of the common areas.
Loan-to-value ratio
Relationship of a mortgage loan to the appraised value of a piece of property. Usually expressed to the buyer in terms of how much the lender will lend, i.e. - 75 percent financing.
Loan servicing
Task of collecting monthly payments, handling insurance and tax impounds, delinquencies, early payoffs, and mortgage releases.
Loan origination fee
Paid by the borrower to get a loan; it covers expenses incurred by the lender, such as the cost of the appraisal, credit report, title search, etc.
Listing
Contract used for hiring a real estate agent to sell a piece of property. Also a piece of property that is for sale.
Lien
A debt on a property which encumbers it until the obligation is paid; a mortgage, back taxes, or other claim.
License
A privilege or right granted to a person by a state to operate as a real estate broker or salesperson.
Lease-purchase option
Opportunity to purchase a piece of property by renting for a specified period, with the provision that the lessee may choose to buy after or during the leasing period at a predetermined sale price.
Lease
Contract that conveys the right to use property for a period of time in return for a consideration, usually rent, paid to the property owner.
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