292+ terms defined — agency, contracts, finance, appraisal, fair housing, escrow, title, zoning, and more. Essential vocabulary for your real estate exam.
25 letters • 292 terms
A condensed history of a property's title, summarizing all recorded documents, conveyances, liens, and encumbrances affecting the title from the earliest recorded source to the present. Abstracts are prepared by a title company or attorney and used to verify that a seller has clear, marketable title to convey.
A provision in a mortgage or deed of trust that allows the lender to demand immediate full repayment of the outstanding loan balance if the borrower defaults on a payment or violates another term of the loan agreement. It is also triggered by due-on-sale clauses when the property is transferred without lender consent.
The right of a property owner to enter and exit their property to and from a public road. If a parcel is landlocked (has no access to a public road), the owner may petition for an easement by necessity across adjacent property. Local governments cannot deny reasonable access to property owners.
A formal declaration made before a notary public or other authorized officer in which the signer confirms that a signature on a document is their own voluntary act. Acknowledgment is required for deeds and other instruments to be recorded in the public record.
Direct knowledge of a fact — knowing something because you were told directly, witnessed it, or read it. In real estate, actual notice of an encumbrance or prior claim prevents a subsequent purchaser from claiming bona fide purchaser status. Actual notice differs from constructive notice, which is imputed by law through recording.
A tax levied in proportion to the assessed value of real property. The term is Latin for 'according to value.' Property taxes are the most common form of ad valorem tax and are the primary source of revenue for local governments and school districts.
A mortgage loan in which the interest rate is periodically adjusted based on a financial index such as SOFR or the one-year Treasury rate. ARMs typically offer a lower initial rate than fixed-rate mortgages but expose the borrower to the risk of rising payments if interest rates increase.
A legal doctrine by which a person who openly, continuously, exclusively, and hostilely possesses another's land for the statutory period (typically 5–21 years depending on state) may acquire legal title. Some states also require payment of property taxes. Adverse possession claims are established through a quiet title action.
A written statement of facts made voluntarily and confirmed under oath or affirmation before a notary public or other authorized officer. In real estate, affidavits may be used to confirm a property owner's marital status, the non-existence of liens, or to correct errors in recorded documents.
The actual cash remaining from an income property after paying operating expenses, debt service, and income taxes. After-tax cash flow provides investors with a realistic picture of the net return on their equity investment, accounting for depreciation deductions and other tax benefits of real property ownership.
A legal relationship in which one party (the agent) is authorized to act on behalf of another (the principal) in dealings with third parties. In real estate, the agent owes fiduciary duties to the principal, including loyalty, confidentiality, disclosure, obedience, reasonable care, and accounting.
A written document, required in most states, that explains the nature of the agency relationship a licensee has with each party in a transaction. It informs buyers and sellers whether the agent represents them, the other party, or both (dual agency), and must be delivered early in the relationship.
A person authorized to act on behalf of a principal in a legal relationship. In real estate, a licensed salesperson or broker acts as agent for a buyer, seller, landlord, or tenant depending on the agreement. The agent's authority and duties are defined by the agency agreement and state license law.
The right to use the space above a property up to a reasonable height. Air rights can be sold or leased separately from the land — for example, the air rights above a railroad track may be sold to a developer to construct a building. The traditional rule is that a landowner owns from the center of the earth to the sky, subject to aviation law.
The voluntary transfer of real property from one owner to another. Alienation can occur through sale, gift, will, or other conveyance. Involuntary alienation occurs through foreclosure, eminent domain, or adverse possession. The right to alienate property is a fundamental aspect of fee simple ownership.
A feature or characteristic that enhances a property's desirability and value without generating direct income. Examples include scenic views, swimming pools, proximity to parks, good school districts, and updated kitchens. Amenities are considered in the sales comparison approach when making adjustments between comparable properties.
The gradual repayment of a loan through scheduled principal and interest payments over the loan term. In a fully amortizing loan, each payment first covers the interest owed for that period, with the remainder applied to reduce the principal balance. By the end of the term, the loan is paid in full.
A major retail tenant — such as a department store, grocery store, or big-box retailer — whose presence in a shopping center attracts customer traffic benefiting smaller tenants. Anchor tenants typically occupy the largest spaces, pay lower rent per square foot, and receive favorable lease terms because of the traffic they generate.
An appraisal principle stating that value is created by the expectation of future benefits. Buyers pay based on what they expect a property to produce or be worth in the future. The income approach to value is based on the principle of anticipation — buyers of income property pay based on anticipated future income streams.
A professional estimate of a property's value as of a specific date, prepared by a licensed or certified appraiser using recognized methodology. Lenders require appraisals to ensure the loan amount does not exceed the property's market value. The three approaches to value are the sales comparison, cost, and income approaches.
Something that belongs to or goes with the property and passes with the title when the property is sold. Easements, water rights, parking spaces, and outbuildings are examples of appurtenances. An appurtenance may be physical or legal in nature and is typically conveyed automatically with a real estate sale.
The true annual cost of a loan expressed as a percentage, including the interest rate plus certain fees such as origination charges and mortgage insurance. Because APR captures additional costs beyond the stated rate, it is almost always higher than the nominal interest rate. TILA requires lenders to disclose APR.
A transaction in which both buyer and seller act independently and in their own self-interest, without pressure or coercion, and neither party has a special relationship with the other. Arm's length transactions produce the most reliable market value data and are preferred by appraisers as comparable sales.
The process of combining two or more adjacent parcels of land into one larger tract. When the combined value of the assembled parcel exceeds the sum of the individual parcel values, the increase is called plottage. Assemblage is common in urban redevelopment and commercial real estate.
The value assigned to real property by a local government assessor for the purpose of calculating property taxes. Assessed value may equal market value or be a fixed percentage of it, depending on the jurisdiction's assessment ratio. In California, Proposition 13 limits assessed value to the purchase price plus 2% per year.
The valuation of real property by a government assessor for the purpose of calculating property taxes. The assessed value may differ from market value depending on the assessment ratio used in a given jurisdiction. Property owners can typically appeal assessments they believe are inaccurate.
The transfer of one party's rights and obligations under a contract to a third party. In a lease, the original tenant (assignor) transfers all their leasehold interest to a new tenant (assignee). In contract assignments, the assignor typically remains liable unless expressly released by the other contracting party.
A transaction in which a buyer takes over the seller's existing mortgage loan, agreeing to make all future payments and accepting liability for the debt. Most modern mortgages contain due-on-sale clauses that prohibit assumptions without lender approval. VA and some FHA loans remain assumable.
The act of witnessing the signing of a legal document. Some states require deeds and wills to be witnessed by one or more disinterested parties who sign as attestors, confirming they witnessed the grantor's signature. Attestation requirements vary by state and document type.
A person authorized by a power of attorney to act on behalf of another party (the principal). An attorney-in-fact is not required to be a licensed attorney. In real estate, a principal may grant an attorney-in-fact authority to sign documents, close transactions, or manage property.
The sudden loss or gain of land caused by a flood, hurricane, or other natural force that abruptly moves soil from one owner's property to another. Unlike accretion (gradual soil buildup), property boundaries generally do not change due to avulsion — the original boundary line remains even if the physical land has shifted.
A large lump-sum payment due at the end of a loan term when the loan has not been fully amortized. For example, a loan may require monthly payments calculated on a 30-year amortization schedule but have a balloon payment of the remaining balance due after 5 or 7 years. Balloon payments carry refinancing risk.
The minimum fixed rent specified in a lease before any additional payments such as percentage rent, CAM charges, or pass-throughs. In a triple net (NNN) lease, the base rent is often lower than in a gross lease because tenants pay their proportionate share of operating expenses in addition to the base rent.
A permanent reference point of known elevation established by a government survey, typically marked by a brass disk set into concrete or bedrock. Benchmarks are used by surveyors to establish elevations and are referenced in legal descriptions and flood zone determinations.
In a deed of trust, the lender who provides the loan and benefits from the security interest held by the trustee. In an insurance policy or trust, the party entitled to receive proceeds or benefits. In a will, the person who inherits property. In real estate, the beneficiary of a trust deed is the lender.
A contract in which both parties exchange promises and are mutually obligated to perform. A standard real estate purchase agreement is bilateral — the seller promises to convey title and the buyer promises to pay the purchase price. This distinguishes it from a unilateral contract such as an option.
A written document that transfers ownership of personal property from seller to buyer. In real estate transactions, a bill of sale may accompany a deed when the transaction includes appliances, fixtures, or other personal property that are not automatically conveyed with the real estate.
An illegal practice, prohibited by the Fair Housing Act, in which a real estate licensee induces homeowners to sell by making representations that persons of a protected class (race, religion, national origin, etc.) are moving into the neighborhood, causing property values to decline. Also called panic peddling.
A local association of real estate professionals affiliated with the National Association of Realtors (NAR). Local boards operate the Multiple Listing Service (MLS), offer professional development, and enforce the NAR Code of Ethics among members. Membership requires adherence to the Code of Ethics.
A buyer who purchases property in good faith, for valuable consideration, and without actual or constructive notice of any prior claims or encumbrances. Recording acts protect bona fide purchasers who record their interest first, cutting off prior unrecorded interests in most states.
In a 1031 tax-deferred exchange, any unlike-kind property (cash, personal property, or net debt relief) received by the exchanger in addition to like-kind replacement property. Boot is taxable to the extent of gain realized in the exchange. Receiving boot does not disqualify the exchange but reduces the tax-deferred amount.
The failure of one party to perform their obligations under a valid contract without legal justification. In a real estate transaction, if the seller breaches, the buyer may sue for specific performance or damages. If the buyer breaches, the seller may retain the earnest money as liquidated damages or sue for the full purchase price.
A short-term loan that provides temporary financing to a borrower while they arrange permanent financing or sell another property. Bridge loans carry higher interest rates than permanent mortgages. They are commonly used when a buyer wants to purchase a new home before the sale of their existing home closes.
A real estate licensee who has met additional education and experience requirements beyond those required of a salesperson and is authorized to operate an independent brokerage, employ salespersons, and manage trust accounts. Only brokers may operate a real estate firm; salespersons must work under a licensed broker's supervision.
A strip of land, typically zoned for a less intense use, separating incompatible land uses such as residential neighborhoods from industrial areas. Buffer zones may include landscaping, open space, or transitional uses such as commercial or multi-family residential. They are a common zoning and land use planning tool.
The collection of legal rights associated with real property ownership, including the rights to possess, use, enjoy, encumber, exclude others from, and dispose of the property. Ownership of real estate is understood as ownership of this bundle, and rights can be separated and conveyed individually (e.g., an easement conveys the right of use).
A financing arrangement in which the seller, builder, or lender pays upfront points to reduce the buyer's interest rate for the life of the loan (permanent buydown) or for a specified initial period (temporary buydown). A 2-1 buydown, for example, reduces the rate by 2% in year one and 1% in year two.
Common Area Maintenance charges in a commercial lease, representing the tenant's proportionate share of costs to operate and maintain the property's common areas (lobbies, parking lots, landscaping, etc.). CAM charges are in addition to base rent and are typical in triple net and modified gross leases.
A ratio used to estimate the value of income-producing property, calculated by dividing the property's net operating income (NOI) by its current market value or purchase price. A higher cap rate indicates greater return and typically greater risk. Cap Rate = NOI ÷ Value.
The Comprehensive Environmental Response, Compensation, and Liability Act (Superfund), a federal law establishing liability for the cleanup of hazardous waste sites. CERCLA imposes strict, joint, and several liability on potentially responsible parties (PRPs), including current and past property owners, even if they did not cause the contamination.
A document issued by a local building authority certifying that a newly constructed or substantially renovated building complies with applicable building codes and is safe for occupancy. A CO is required before a building can be legally occupied. Without a CO, a landlord cannot legally collect rent in many jurisdictions.
The chronological sequence of historical conveyances and encumbrances that document the ownership of a parcel of real estate from the earliest recorded grant to the present owner. A clear, unbroken chain of title is required to establish marketable title and obtain title insurance.
An appraisal principle holding that all economic and social forces are constantly changing, causing property values to continuously rise or fall. No property maintains the same value indefinitely. Appraisers account for the principle of change when selecting comparable sales from dates close to the effective date of the appraisal.
Personal property, as distinguished from real property (real estate). Chattels are movable items not permanently attached to the land. Whether an item is a chattel or a fixture — and therefore conveyed with the real estate — is determined by the tests of attachment, adaptation, and intent.
Fees and expenses paid by the buyer and/or seller at the closing of a real estate transaction, in addition to the purchase price. Common closing costs include loan origination fees, title insurance, appraisal fees, recording fees, transfer taxes, attorney fees, and prepaid items such as property taxes and insurance.
Any claim, lien, encumbrance, or defect that calls into question the validity or marketability of a property's title. Examples include unresolved mechanic's liens, incorrect legal descriptions in past deeds, boundary disputes, and unreleased old mortgages. A cloud on title can be removed through a quiet title action.
The fee paid to a real estate broker for services rendered in a transaction, typically calculated as a percentage of the purchase price or lease amount. Commission rates are negotiable and not set by law. The listing broker may share the commission with a cooperating buyer's broker.
A form of marital co-ownership recognized in nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) in which most property acquired during marriage is owned equally by both spouses. Each spouse has an undivided one-half interest, and both must join in any conveyance.
Recently sold properties that are similar in size, condition, location, and features to the property being appraised or listed, used as benchmarks to establish market value. Appraisers make adjustments to comparable sales prices to account for differences between the comps and the subject property.
An appraisal principle stating that excess profits attract competition, which eventually reduces those profits. In real estate, if a retail center generates above-market returns, new centers will be built nearby until supply equalizes with demand and returns normalize. The principle of competition underpins the income approach to value.
The legal process by which a governmental authority exercises its power of eminent domain to take private property for public use, paying just compensation to the owner. The term also applies to the government declaring a structure unfit for use. Just compensation is generally equal to fair market value.
The amount of compensation paid by a government entity to a property owner whose property is taken through eminent domain. Just compensation is the standard, generally determined by the property's fair market value as of the date of taking. Property owners may challenge the award amount in court through inverse condemnation proceedings.
A form of real property ownership in which individuals own their individual units in fee simple while sharing ownership of common areas (hallways, elevators, pools, parking lots) with all other unit owners. Condominiums are governed by a homeowners association (HOA) and a declaration of covenants, conditions, and restrictions (CC&Rs).
A mortgage loan that meets the underwriting guidelines and loan limits established by Fannie Mae and Freddie Mac and is eligible for purchase in the secondary mortgage market. Loans above the conforming limit are jumbo loans and carry different pricing and underwriting requirements.
An appraisal principle stating that maximum value is achieved when a property is reasonably similar to neighboring properties. A property that is significantly larger, smaller, or different in design from surrounding properties may suffer from functional obsolescence. Deed restrictions and zoning promote conformity.
Something of value exchanged between contracting parties to make a contract legally binding. In a real estate purchase contract, the buyer's consideration is the purchase price and the seller's consideration is the deed conveying title. Nominal consideration such as 'one dollar and other valuable consideration' can be legally sufficient.
Legal knowledge of a fact that the law presumes a person to have because the information is publicly available in the recorded public record. By recording a deed or mortgage, the grantor gives constructive notice to the world of the transaction. A subsequent purchaser cannot claim ignorance of a properly recorded instrument.
A condition stated in a contract that must be satisfied before the parties are obligated to complete the transaction. Common contingencies include financing (mortgage approval), inspection, and appraisal. If a contingency is not met within the specified timeframe, the affected party may typically cancel the contract and recover any earnest money.
A seller-financing arrangement in which the buyer makes installment payments directly to the seller, takes possession of the property, but does not receive the deed until all payments are made. Also called a land contract or installment sales contract. If the buyer defaults, the seller may be able to reclaim the property through forfeiture rather than foreclosure.
An appraisal principle holding that the value of any component of a property is measured by how much it contributes to the total value of the whole, not by its cost. If a $50,000 pool addition increases property value by only $30,000, the pool contributes $30,000 of value, not its cost.
A mortgage loan that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. Conventional loans conform to Fannie Mae and Freddie Mac guidelines and typically require a minimum 3–20% down payment and private mortgage insurance (PMI) if the down payment is less than 20%.
The unauthorized taking or misappropriation of a client's funds by a real estate broker or agent — a serious license law violation. In land use, conversion refers to changing a property from one use to another (e.g., converting apartments to condominiums). Condo conversion requires compliance with local ordinances and tenant protections.
A broker who works with the listing broker to find a buyer for a property listed by another brokerage. In a cooperative sale, the listing broker typically offers a portion of the commission to the cooperating (buyer's) broker through the MLS. The listing agreement authorizes this commission sharing.
A broker other than the listing broker who participates in a real estate transaction, typically representing the buyer. The cooperating broker may receive a share of the listing commission as offered through the MLS. The listing agreement and MLS offer of compensation define the cooperating broker's entitlement.
An appraisal method that estimates property value by adding the value of the land to the cost to reproduce or replace the improvements, minus accumulated depreciation. Value = Land Value + (Cost New of Improvements − Depreciation). Most reliable for new construction, special-purpose properties, and properties with few comparable sales.
A response to an offer that changes one or more terms of the original offer, creating a new offer. A counteroffer rejects the original offer and substitutes a new one. The original offeror becomes the offeree and may accept, reject, or counter again. Only a mirror-image acceptance (accepting all terms) creates a binding contract.
A promise or restriction written into a deed or separate declaration that limits or requires certain uses of real property. Covenants run with the land, meaning they bind future owners. Covenants restricting property to residential use, requiring architectural approval, or mandating HOA dues are common examples.
A written legal instrument that conveys ownership of real property from a grantor (seller) to a grantee (buyer). A valid deed must identify the grantor and grantee, contain a legal description of the property, include words of conveyance, be signed by the grantor, and be delivered and accepted. Recording the deed provides constructive notice.
A process in which a borrower who is in default voluntarily transfers the deed of the property to the lender to satisfy the mortgage debt and avoid foreclosure proceedings. The lender may require that the property be free of other liens. While avoiding foreclosure, this option still significantly damages the borrower's credit.
A security instrument used in many states in which the borrower (trustor) conveys legal title to a neutral third party (trustee) as security for a loan owed to the lender (beneficiary). If the borrower defaults, the trustee may sell the property through a nonjudicial trustee's sale without court involvement, which is faster than judicial foreclosure.
A private limitation on land use written into a deed that limits how the property may be used. Deed restrictions run with the land and bind future owners. They are enforceable by neighboring property owners who benefit from the restriction. Examples include requirements that land be used only for single-family residential purposes.
The failure of a borrower to fulfill the terms of a loan agreement, most commonly by missing a required payment. Default may also occur due to failure to pay property taxes, maintain insurance, or keep the property in reasonable condition. Default triggers the lender's right to begin foreclosure proceedings.
A clause in a mortgage that voids the lien and returns title to the borrower upon full repayment of the loan. In title theory states (where the lender holds title during the loan), the defeasance clause is what defeats the lender's title interest when the debt is paid. Upon payoff, the lender records a satisfaction of mortgage.
A court judgment against a borrower for the remaining balance owed on a mortgage loan after the foreclosure sale proceeds are insufficient to cover the full debt. Some states have anti-deficiency laws that limit or prohibit deficiency judgments on purchase money mortgages or loans for owner-occupied residential properties.
In real estate economics, the desire and ability to purchase real property at a given price. Real estate demand is driven by population growth, employment, income levels, interest rates, and consumer confidence. Together with supply, demand determines market prices. An increase in demand with limited supply drives prices upward.
The number of dwelling units or residents per unit of land area, typically expressed as units per acre. Zoning ordinances regulate density to control population growth, traffic, and infrastructure demand. Higher-density developments accommodate more people per land area and are generally associated with urban or transit-oriented locations.
In appraisal, a loss in property value from any cause — physical deterioration, functional obsolescence, or external (economic) obsolescence. In taxation, depreciation is a non-cash accounting deduction that allows income property owners to recover the cost of improvements over time (27.5 years for residential rental property).
A fee paid to a lender at closing equal to 1% of the loan amount in exchange for a reduction in the interest rate. Paying points is called 'buying down' the rate. Whether paying points is beneficial depends on how long the borrower holds the loan and the break-even period relative to the monthly savings.
An agency relationship in which one broker or brokerage represents both the buyer and the seller in the same transaction. Dual agency creates a conflict of interest because the agent owes fiduciary duties to both parties simultaneously. Most states require written informed consent from both parties before dual agency is permitted.
A provision in a mortgage that requires the entire loan balance to be repaid when the property is sold or transferred to another party without the lender's consent. Also called an alienation clause. This prevents buyers from assuming existing mortgages without lender approval and protects lenders against interest rate risk.
A deposit made by the buyer at the time of making an offer, demonstrating good faith intent to purchase the property. Earnest money is typically held in escrow and applied toward the purchase price at closing. If the buyer defaults without a valid contingency, the seller may be entitled to keep the earnest money as liquidated damages.
A non-possessory right to use another person's land for a specific purpose. Common examples include utility easements (allowing utility companies to access property), access easements (allowing passage across a neighbor's land), and drainage easements. Easements appurtenant benefit a neighboring parcel and run with the land.
An easement acquired by open, continuous, hostile, and notorious use of another's land for the statutory period, similar to adverse possession but resulting only in a use right rather than ownership. The user need not pay property taxes (unlike adverse possession in some states) but must prove all elements of prescriptive use.
An easement that benefits a specific person or entity rather than a neighboring parcel of land. Utility easements are the most common easements in gross — the utility company holds the right to access the property regardless of who owns it. Easements in gross generally do not run with the land and may not be assignable.
The period during which an improved property is expected to be useful and generate income sufficient to justify its continued operation. Economic life is typically shorter than physical life. When a building has reached the end of its economic life, it may be more valuable as a vacant site for new development than as an improved property.
The potential gross rental income of an income property minus expected vacancy and collection losses. Effective Gross Income = Potential Gross Income − Vacancy & Credit Loss. It represents a more realistic estimate of actual income than potential gross income, which assumes 100% occupancy.
The right or means to exit a property. In building codes, egress requirements mandate a minimum number of exits, exit widths, and emergency egress windows in residential units. In real estate access rights, egress is paired with ingress (the right to enter). Both are components of an access easement.
The inherent right of government to take private property for public use upon payment of just compensation. It is one of the four governmental powers over real estate (along with taxation, police power, and escheat). The taking process is called condemnation, and just compensation is generally determined by the property's fair market value.
An unauthorized intrusion of a structure, fence, or other improvement onto an adjoining property. Encroachments are revealed by a current survey and can cloud title. If not resolved, an encroachment may ripen into an easement by prescription. Encroachments must typically be disclosed to buyers.
Any claim, lien, restriction, or liability that affects a property's title or limits its use but does not prevent its transfer. Examples include mortgages, easements, covenants, mechanic's liens, and deed restrictions. Encumbrances reduce the marketability of title and must be disclosed to buyers.
A condition on or near a property that may pose health or safety risks, including lead-based paint, asbestos, radon gas, underground storage tanks (USTs), and mold. Sellers of pre-1978 residential properties must disclose known lead-based paint hazards under federal law (LBPA). Environmental hazards are examples of external obsolescence.
A detailed study required by government agencies before approving development projects that may significantly affect the environment. EIRs analyze potential impacts on air, water, wildlife, traffic, and community resources, and propose mitigation measures. The National Environmental Policy Act (NEPA) requires environmental assessments for federal projects.
The difference between the current market value of a property and the outstanding balance of all liens against it. Equity represents the owner's financial interest in the property. As a mortgage is paid down and/or property values increase, equity grows. Equity can be accessed through a home equity loan or line of credit.
The right of a mortgagor (borrower) in default to reclaim property by paying all amounts owed — principal, interest, fees, and costs — before a foreclosure sale is concluded. This equitable right exists in all states. The foreclosure process legally extinguishes the equity of redemption, clearing the way for the lender to sell the property.
The reversion of property to the state when an owner dies intestate (without a will) and has no heirs capable of inheriting. It is one of the four governmental powers over real estate. Escheat prevents property from becoming ownerless. Dormant bank accounts and unclaimed property may also escheat to the state.
A neutral third-party arrangement in which funds, documents, and instructions are held by an escrow agent until all conditions of a transaction are met and closing can occur. In most western states, an escrow company handles closings; in eastern states, attorneys typically perform this function.
A legal doctrine that prevents a party from asserting a claim or position that is inconsistent with their prior conduct when another party has reasonably relied on that conduct to their detriment. In real estate, estoppel certificates prevent tenants from later claiming rent or lease terms different from what they certified.
A document signed by a tenant that certifies key facts about the lease, such as the current rent amount, the lease term, any outstanding landlord obligations, and whether the tenant has any claims against the landlord. Buyers of income property rely on estoppel certificates to verify the accuracy of lease terms provided by the seller.
A tax-deferred exchange of like-kind real property under Section 1031 of the Internal Revenue Code, allowing an investor to defer capital gains taxes by reinvesting the proceeds from a sale into a new investment property. Strict rules apply: properties must be like-kind, a qualified intermediary must be used, and deadlines for identification (45 days) and closing (180 days) must be met.
A listing agreement in which the seller grants one broker the exclusive right to market the property through other brokers, but retains the right to sell the property themselves without paying the broker a commission. If the broker (or cooperating broker) finds the buyer, the commission is owed; if the seller finds the buyer, no commission is due.
The most common type of listing agreement, in which the seller grants one broker the exclusive right to sell the property for a specified period. The broker earns the agreed commission regardless of who finds the buyer — including the seller themselves. This provides the broker maximum protection and incentive to market aggressively.
A loss in property value caused by factors outside the property itself — economic or environmental forces beyond the owner's control. Examples include a new highway adjacent to a residential neighborhood, a factory opening nearby, or declining neighborhood employment. External obsolescence is generally considered incurable.
Federal law (Title VIII of the Civil Rights Act of 1968) that prohibits discrimination in the sale, rental, financing, and advertising of housing based on race, color, national origin, religion, sex, familial status, and disability. Additional protected classes may be added by state or local law. Violations can result in civil and criminal penalties.
The Federal National Mortgage Association (FNMA), a government-sponsored enterprise (GSE) that purchases conforming mortgage loans from lenders, packages them into mortgage-backed securities, and sells them to investors. This replenishes lenders' funds to make additional loans. Fannie Mae sets underwriting guidelines for conforming loans.
The Federal National Mortgage Association (FNMA), a government-sponsored enterprise that buys conforming mortgage loans from lenders and sells them as mortgage-backed securities in the secondary market. Fannie Mae sets the underwriting standards for conventional conforming loans, including loan limits, credit requirements, and documentation standards.
The highest and most complete form of real property ownership. A fee simple owner has the right to possess, use, enjoy, encumber, and convey the property without limitation (subject to governmental powers). Fee simple absolute is the most complete estate; fee simple defeasible is subject to conditions that could terminate the estate.
A mortgage loan insured by the Federal Housing Administration, a division of HUD. FHA loans allow lower down payments (as low as 3.5% for borrowers with 580+ credit scores) and more flexible credit requirements than conventional loans. The borrower pays mortgage insurance premiums (MIP) to fund the FHA insurance program.
A person who is legally required to act in another party's best interest. A real estate agent acting as a fiduciary owes the principal six duties: loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care (LODCAR). The fiduciary duty of loyalty is the highest duty owed by an agent.
See Right of First Refusal. A contractual right giving a party the first opportunity to purchase or lease property before the owner accepts an offer from a third party. The holder must match the third-party offer within a specified time or forfeit the right for that transaction.
An item of personal property that has become permanently attached to real property and is therefore considered part of the real estate. Determining whether an item is a fixture depends on method of attachment, adaptation to the property, and the intention of the party who installed it. Fixtures are conveyed with the real estate unless excluded in the contract.
A zoning measure expressing the relationship between total building floor area and the total lot area. FAR = Total Building Floor Area ÷ Lot Area. A FAR of 2.0 on a 10,000 sq ft lot permits up to 20,000 sq ft of building floor area. FAR controls building bulk and density in urban zoning regulations.
The legal process by which a lender terminates the borrower's right to redeem a mortgaged property after default, typically resulting in a public sale. Judicial foreclosure requires a court proceeding; nonjudicial (trustee's sale) foreclosure is available in states using deeds of trust. Proceeds from the sale satisfy the debt.
The Federal Home Loan Mortgage Corporation (FHLMC), a government-sponsored enterprise that purchases conforming mortgage loans from lenders and sells them as mortgage-backed securities. Along with Fannie Mae, Freddie Mac is central to the secondary mortgage market and establishes conforming loan limits updated annually.
An ownership interest in real property of indefinite duration, as opposed to a leasehold estate. Freehold estates include fee simple (most complete ownership), fee simple defeasible, and life estates. The owner of a freehold estate holds title; a lessee holds only a leasehold (non-freehold) interest.
The width of a parcel of land measured along the street line (or waterfront). Front footage is a common unit of comparison for commercial lots, particularly retail parcels where visibility and accessibility from the street are important to value. Price-per-front-foot is a common unit of comparison for commercial land.
A loss in property value caused by deficiencies or superadequacies in the property's design, layout, or features that make it less useful or desirable compared to modern standards. Examples include outdated electrical systems, floor plans with poor traffic flow, or inadequate insulation.
A lien that attaches to all real and personal property owned by the debtor within a jurisdiction, rather than a specific parcel. Judgment liens and federal tax liens are examples of general liens. They must be paid or released to convey clear title on any property the debtor owns.
A business arrangement in which two or more partners share management responsibilities, profits, losses, and unlimited personal liability for partnership debts. In real estate, general partnerships may own and manage investment properties. All general partners are agents of the partnership and each other.
A deed in which the grantor makes the broadest warranties of title — warranting against all claims arising from any time in the chain of title, not just during the grantor's ownership. The grantor promises to defend the grantee's title against anyone who later claims an interest in the property. Most protective deed for the buyer.
The Government National Mortgage Association (GNMA), a federal agency within HUD that guarantees mortgage-backed securities backed by government loans (FHA, VA, USDA). Unlike Fannie Mae and Freddie Mac, Ginnie Mae is a government agency — not a GSE — and its securities carry a full faith and credit guarantee of the U.S. government.
A document formerly required by RESPA that estimated the costs a borrower would pay at closing. Replaced in 2015 by the Loan Estimate form under the TRID (TILA-RESPA Integrated Disclosure) rule. The Loan Estimate must be provided within three business days of receiving a mortgage application.
A mortgage in which payments start low and increase at a fixed rate for a set number of years before leveling off. Designed for borrowers who expect their income to rise over time. Early payments may be insufficient to cover interest, resulting in negative amortization (increasing loan balance).
A deed used primarily in California in which the grantor implicitly warrants that they have not previously conveyed the property to anyone else and that the property is free from encumbrances made by the grantor (but not prior owners). Offers less protection than a warranty deed but more than a quitclaim deed.
The party who receives title to real property through a deed. The grantee is the buyer in a purchase transaction or the recipient in a gift transaction. The grantee's name must appear clearly in the deed, and to be protected against subsequent purchasers, the grantee should record the deed.
The party who conveys title to real property through a deed. The grantor must have legal capacity to convey (be of legal age and sound mind), sign the deed, and intend to transfer ownership. The grantor is typically the seller in a purchase transaction.
A simple valuation tool for income property, calculated by dividing the property's sale price by its gross annual (or monthly) rental income. GRM = Sale Price ÷ Gross Rent. It does not account for vacancy or expenses, making it less precise than cap rate analysis, but useful for quick comparisons.
A lease in which the landlord pays all (or most) of the property's operating expenses, including taxes, insurance, and maintenance, while the tenant pays a flat rent. Gross leases are common for residential rentals and some office leases. The landlord bears the risk of rising operating costs.
A long-term lease (typically 50–99 years) of land only, under which the tenant constructs improvements on the leased land. The tenant holds a leasehold interest in the land; the landlord retains ownership. Ground leases are common for commercial developments on land owned by institutions or government entities.
The clause in a deed that defines the extent of ownership being conveyed to the grantee, beginning with the words 'to have and to hold.' It confirms the type of estate granted (e.g., fee simple or life estate) and must be consistent with the granting clause. The habendum clause follows the legal description in a deed.
The reasonably probable and legal use of vacant land or an improved property that produces the highest value. A use must be legally permissible, physically possible, financially feasible, and maximally productive. Highest and best use is the foundation of appraisal — a site is valued as if put to its highest and best use.
An organization of property owners within a planned community, condominium, or subdivision that establishes and enforces rules, collects dues, and maintains common areas. Membership is mandatory and dues are typically assessed monthly or annually. Unpaid HOA dues can result in a lien against the property.
A statutory protection that reduces the taxable value of a primary residence for property tax purposes, or shields a portion of a home's equity from unsecured creditors. The amount varies widely by state. In Texas and Florida, the homestead exemption offers substantial creditor protection; in other states, protection may be capped at a modest dollar amount.
A standardized form formerly required by RESPA that itemized all closing costs for both the buyer and seller. Replaced in 2015 by the Closing Disclosure under the TRID rule for most residential mortgage transactions. The Closing Disclosure must be provided to borrowers at least three business days before closing.
An agency relationship created by the conduct and actions of the parties rather than by an express written or oral agreement. If a licensee provides services that a reasonable person would associate with representation — such as advising on pricing strategy or negotiating on behalf of a party — implied agency may be created even without a signed agreement.
See Escrow Account. A reserve account maintained by a mortgage lender into which the borrower makes monthly deposits equal to 1/12 of the annual property tax and insurance premiums. The lender then pays these expenses on behalf of the borrower when due. Also called an escrow impound account.
One of the three appraisal methods, used primarily to value income-producing properties. The appraiser estimates the property's net operating income (NOI) and divides it by a market-derived capitalization rate to estimate value (Value = NOI ÷ Cap Rate). This approach is most reliable for apartment buildings, commercial properties, and other investment real estate.
A self-employed individual who provides services to a business but is not an employee. Most real estate agents are classified as independent contractors for tax purposes, meaning the broker does not withhold income taxes, Social Security, or Medicare. IRS rules for independent contractor status in real estate require a written agreement and that over 90% of compensation be commission-based.
A lease in which rent adjustments are tied to a published economic index such as the Consumer Price Index (CPI). Index leases protect landlords from inflation over long lease terms. Rent increases or decreases in proportion to changes in the chosen index, typically calculated annually.
The right or means to enter a property. Paired with egress (the right to exit), ingress is a fundamental component of access rights. An access easement typically includes both ingress and egress across a neighboring parcel. Landlocked property without ingress may qualify for an easement by necessity.
A method of selling real property in which the seller receives payments over multiple tax years, allowing gain to be recognized proportionally as payments are received rather than all at once in the year of sale. Installment sales allow sellers to spread their tax liability and may be beneficial for sellers in high tax brackets.
A temporary use of land that is not its highest and best use but generates income while the land is being held for future development. For example, a parking lot in an urban area may represent an interim use while the owner awaits favorable conditions to develop the site to its highest and best use.
Dying without a valid will. When a property owner dies intestate, the property passes to heirs according to state statutes of descent and distribution rather than the decedent's wishes. If no heirs exist, the property escheats to the state.
The legal process by which a deceased person's property is distributed to heirs according to state statutes when the person dies without a valid will (intestate). Each state's statutes of descent determine the priority of heirs. Intestate succession may result in property being distributed contrary to the decedent's wishes.
A lien placed against a property without the owner's consent, such as a tax lien, judgment lien, or mechanic's lien. Unlike voluntary liens (mortgages), involuntary liens arise by operation of law. They must typically be paid or resolved before clear title can be conveyed to a buyer.
A form of concurrent ownership in which two or more persons hold equal, undivided interests with the right of survivorship. The four unities of time, title, interest, and possession (TTIP) must exist. When one joint tenant dies, their interest automatically passes to the surviving joint tenants, bypassing probate.
A business arrangement in which two or more parties pool resources for a specific real estate project, sharing profits, losses, and management responsibilities. Unlike a partnership, a joint venture is typically formed for a single project. Joint ventures combine capital from one partner with expertise from another.
A general lien imposed on all real property owned by a debtor within a county after a court enters a money judgment against them. The lien is created when the judgment is recorded and must be paid or released for title to transfer free and clear. Judgment liens have a priority date based on when they are recorded.
A lien that has lower priority than another lien on the same property. Priority is generally determined by the order of recording — the first recorded lien is senior, subsequent liens are junior. In a foreclosure, senior liens are paid first from proceeds; junior lienholders may receive nothing if proceeds are insufficient.
An illegal payment of compensation (cash or other value) for the referral of settlement service business in connection with a federally related mortgage loan, prohibited by RESPA Section 8. Examples include a lender paying a real estate agent for referring borrowers, or a title company paying a broker for title business. Kickbacks increase consumer costs.
See Contract for Deed. A seller-financing arrangement in which the seller retains legal title until the buyer completes all installment payments. The buyer receives equitable title and possession of the property during the contract period. Upon final payment, the seller must convey legal title via deed.
A federal requirement under the Residential Lead-Based Paint Hazard Reduction Act that sellers and landlords of housing built before 1978 must disclose known lead-based paint and hazards, provide EPA-approved hazard information, and include a specific disclosure form in sales contracts and leases. Buyers have a 10-day inspection period to test for lead.
A tenant's temporary, possessory right to occupy real property for a defined period under a lease agreement. A leasehold is a non-freehold estate — the tenant does not hold title. Types include tenancy for years (fixed term), periodic tenancy (month-to-month), tenancy at will, and tenancy at sufferance.
A formal description of real property that identifies it with sufficient precision to locate and distinguish it from all other parcels. The three systems used in the U.S. are the metes and bounds system, the rectangular survey (government survey) system, and the lot and block (recorded plat) system.
A legal claim or encumbrance against a property, giving the lienholder the right to have the debt satisfied from the proceeds of a sale if the property owner fails to pay. Liens can be voluntary (such as a mortgage) or involuntary (such as a tax lien or mechanic's lien). Liens must be paid to convey clear title.
A freehold estate that lasts only for the life of a designated person. The life tenant has the right to possess, use, and enjoy the property but cannot take any action that would permanently damage its value (waste). Upon the measuring life's death, the property passes to a remainderman or reverts to the grantor.
Latin for 'suit pending.' A notice recorded in the public record that warns all parties of pending litigation affecting title to a specific property. Anyone who purchases or lends on property after a lis pendens is recorded takes subject to the outcome of the lawsuit. A lis pendens is a cloud on title.
A written employment contract between a property owner (principal) and a licensed real estate broker authorizing the broker to market and sell the property in exchange for compensation. Common types include exclusive right-to-sell, exclusive agency, and open listing. The listing agreement must comply with state license law requirements.
Water rights of property owners whose land borders a non-flowing body of water such as a lake, ocean, or bay. Littoral owners typically own to the high-water mark and have the right of access to and use of the water. These rights differ from riparian rights, which apply to flowing water such as rivers and streams.
The ratio of the mortgage loan amount to the appraised value or purchase price of the property (whichever is lower), expressed as a percentage. LTV = Loan Amount ÷ Property Value. Higher LTV ratios represent greater risk to the lender. Most conventional lenders require PMI when the LTV exceeds 80%.
The most probable price a property would sell for in a competitive, open market under all conditions requisite to a fair sale, with both buyer and seller acting prudently and knowledgeably, and neither under pressure to complete the transaction. Market value is the standard measure used by appraisers.
Title that is free from reasonable doubt about its validity, meaning a prudent buyer would accept it without risk of litigation or loss. Marketable title does not require perfect title — it requires title free from defects that a court would require the seller to remedy. Sellers are generally obligated to deliver marketable title at closing.
A comprehensive long-range plan developed by a local government that establishes goals and policies for land use, transportation, housing, infrastructure, and economic development. Zoning ordinances are implemented to achieve the goals of the master plan. The master plan is also called a general plan or comprehensive plan.
A statutory lien placed against real property by contractors, subcontractors, laborers, or material suppliers who have provided work or materials to improve the property but have not been paid. Mechanic's liens must be recorded within a statutory time period and can cloud title, blocking sales and refinancing.
The oldest system of land description in the U.S., using distances (metes) and directions (bounds) measured from a defined starting point (point of beginning or POB) around the perimeter of a parcel, returning to the POB. Metes and bounds descriptions are common in the original 13 colonies and rural areas.
The rate used to calculate property tax, expressed as dollars of tax per $1,000 of assessed value. One mill equals $0.001. To calculate property tax: Assessed Value × Mill Rate ÷ 1,000 = Annual Tax. A mill rate of 20 mills on a property assessed at $200,000 produces an annual tax of $4,000.
Routine acts a real estate licensee performs that do not require the exercise of judgment or discretion and do not create an agency relationship. Examples include providing public information about properties, describing services, and filling in blanks on standard forms. Performing ministerial acts for a non-client does not obligate the licensee as an agent.
A legal instrument by which a borrower (mortgagor) pledges real property as collateral for a loan from a lender (mortgagee). In title theory states, the lender holds title as security; in lien theory states (the majority), the borrower retains title and the lender holds a lien. Failure to repay may result in foreclosure.
The insurance premium paid by borrowers on FHA loans to protect the lender against loss in the event of default. MIP includes an upfront premium at closing and annual premiums paid monthly. Unlike conventional PMI, MIP may continue for the life of an FHA loan depending on the initial down payment amount.
A cooperative database maintained by a board of Realtors in which member brokers share information about properties listed for sale and make offers of compensation to cooperating brokers. The MLS facilitates cooperation between listing and selling brokers, expands market exposure for sellers, and increases access to listings for buyers.
A condition in which a loan's balance increases over time because the required payment is insufficient to cover the full interest due, and the unpaid interest is added to the principal. Negative amortization can occur with certain adjustable-rate mortgages and graduated payment mortgages. The borrower owes more than they originally borrowed.
A commercial lease in which the tenant pays base rent plus some or all property operating expenses. A single net lease requires the tenant to pay property taxes; a double net (NN) lease adds insurance; a triple net (NNN) lease adds maintenance and repairs. Net leases shift operating cost risk from landlord to tenant.
A listing agreement in which the broker earns as commission any amount above a specified net price the seller wants to receive. For example, if the seller wants $200,000 and the property sells for $215,000, the broker keeps $15,000. Net listings are illegal in many states due to the potential for conflict of interest and abuse.
The annual income generated by an income property after deducting all operating expenses (taxes, insurance, maintenance, management fees, reserves) from effective gross income but before deducting debt service (mortgage payments) and income taxes. NOI is used in the income approach to value (Value = NOI ÷ Cap Rate).
A use of property that was legally established but no longer conforms to current zoning regulations because the zoning was subsequently changed. Nonconforming uses are generally allowed to continue but cannot be expanded, rebuilt if destroyed beyond a certain percentage, or resumed after abandonment for a specified period.
A formal notice recorded and sent to a borrower by a lender or trustee indicating that the borrower has defaulted on their loan and that foreclosure proceedings have begun. In states using deeds of trust, a notice of default typically initiates a non-judicial trustee's sale process with a mandatory reinstatement period.
The substitution of a new contract or new party for an old one, with the consent of all parties, which discharges the original obligation. In real estate, novation occurs when a lender agrees to release a seller from mortgage liability and substitutes the assuming buyer as the new obligor, relieving the seller of future liability.
The mutual agreement that forms the basis of a contract. An offer is a proposal to enter a contract on specified terms; acceptance is the unconditional agreement to all terms of the offer. Together they constitute mutual assent, one of the essential elements of a valid contract. Acceptance must be communicated to the offeror.
A non-exclusive listing agreement in which the seller may simultaneously authorize multiple brokers to market the property, and only the broker who produces the buyer earns a commission. The seller retains the right to sell the property independently without paying any commission. Open listings are rarely submitted to the MLS.
A unilateral contract that gives the option holder (optionee) the right, but not the obligation, to purchase a property at a specified price within a specified time period, in exchange for consideration paid to the property owner (optionor). The optionor is bound to sell; the optionee is not bound to buy.
See implied agency. An agency relationship that arises when a principal's actions lead a third party to reasonably believe that another person has authority to act as their agent, even if no express authorization was given. The principal may be bound by the actions of an ostensible agent.
A legal action to divide co-owned real property among co-owners who cannot agree on use or sale. A partition in kind physically divides the property; a partition by sale converts the property to cash distributed among owners. Any co-owner of tenancy in common may file for partition; joint tenants may sever the joint tenancy and file for partition.
A commercial lease in which rent is calculated as a percentage of the tenant's gross sales, often with a minimum base rent. Common in retail settings such as shopping centers. A typical structure might be a base rent of $5,000 per month plus 5% of gross sales above $100,000 per month.
A type of depreciation caused by wear and tear, age, deferred maintenance, or damage to a property's physical structure. Physical deterioration may be curable (economically worth repairing) or incurable (too expensive to fix relative to the value added). It is the most common type of depreciation in older properties.
An acronym for the four components of a typical mortgage payment: Principal, Interest, Taxes (property), and Insurance (homeowners). Lenders use PITI to calculate a borrower's housing expense ratio and to set up escrow impound accounts. Private mortgage insurance (PMI) may be added, making the acronym PITIMI.
A type of development that combines residential, commercial, and/or recreational uses in a master-planned community, often with shared amenities and open space. PUDs require special zoning approval and are governed by a homeowners association. Individual lots are typically owned in fee simple with ownership of common areas shared.
A recorded map or plan of a subdivision that shows the boundaries, dimensions, and legal descriptions of individual lots, streets, easements, and common areas. Plats are recorded in the county recorder's office and provide the basis for lot and block legal descriptions. A plat must be approved by local planning authorities before recording.
The increment of value that results from combining two or more parcels of land into a single, larger parcel through assemblage. The combined value exceeds the sum of the individual values because the larger parcel can support uses that individual smaller parcels cannot accommodate.
Insurance that protects the lender — not the borrower — against loss if the borrower defaults on a conventional loan with an LTV above 80%. PMI premiums are paid monthly by the borrower. Federal law requires lenders to automatically cancel PMI when the borrower's equity reaches 22% of the original purchase price.
The starting point of a metes and bounds legal description, typically an identifiable monument such as a survey benchmark, street intersection, or natural landmark. All distances and directions in the description are measured from the POB, and the description must return to the POB to close properly.
The inherent authority of state and local governments to enact laws and regulations to protect the public's health, safety, morals, and general welfare. Zoning ordinances, building codes, and environmental regulations are exercises of police power. Police power does not require compensation to property owners, unlike eminent domain.
A legal document authorizing one person (the attorney-in-fact or agent) to act on behalf of another (the principal) in legal and financial matters. A general power of attorney grants broad authority; a special (limited) power of attorney grants authority for specific acts. A durable power of attorney remains effective if the principal becomes incapacitated.
Costs paid at closing for expenses not yet due, including prepaid interest from the closing date to the first payment date, the first year's homeowners insurance premium, and initial deposits into the impound/escrow account for property taxes and insurance. Prepaid items appear on the Closing Disclosure as part of closing costs.
A fee charged by some lenders when a borrower pays off a mortgage loan before the scheduled maturity date, either in full or in excess of a permitted amount. Prepayment penalties compensate lenders for lost interest income. They are prohibited on many government-backed loans including FHA, VA, and most qualified mortgages.
In an agency relationship, the party who authorizes an agent to act on their behalf. In a real estate transaction, the seller is the listing broker's principal and the buyer is the buyer's broker's principal. The term also refers to the outstanding loan balance (original loan amount minus payments made toward principal).
The legal process by which a court supervises the administration of a deceased person's estate, including validating the will, identifying heirs, paying debts, and distributing remaining assets. Real property must typically pass through probate unless title is held in joint tenancy, in a trust, or in community property with right of survivorship.
An appraisal principle holding that the value of a property of lesser quality is enhanced by its proximity to properties of greater quality. A modest home in a neighborhood of larger, more expensive homes tends to be worth more than it would be in a neighborhood of similar-quality homes. Opposite of the principle of regression.
A written, unconditional promise by a borrower (maker) to pay a specified sum of money to a lender (payee) at a defined time or on demand. In a mortgage transaction, the promissory note is the evidence of the debt; the mortgage or deed of trust is the security instrument that pledges the property as collateral.
A form required in most states that obligates sellers of residential property to disclose known material defects and conditions that may affect the property's value or desirability, such as roof leaks, foundation issues, neighborhood nuisances, and environmental hazards. Failure to disclose known defects can result in rescission and damages.
The operation, control, and maintenance of real estate on behalf of an owner in exchange for a fee. Property managers handle leasing, rent collection, maintenance, repairs, accounting, and tenant relations. In most states, property managers must hold a real estate license unless they work exclusively for one owner.
The division of ongoing income or expense items between buyer and seller at closing based on the number of days each party owns the property during the billing period. Common prorated items include property taxes, HOA dues, rental income, and prepaid insurance. Proration ensures each party pays only for their period of ownership.
A mortgage given by the buyer directly to the seller as partial payment of the purchase price, representing seller financing. Also refers to any mortgage used to acquire the property rather than a subsequent refinance or equity loan. Purchase money mortgages often receive special protections under state anti-deficiency laws.
A court proceeding used to resolve competing claims to real property or to remove clouds on title, resulting in a court judgment that establishes who holds clear title. Common grounds for a quiet title action include adverse possession claims, boundary disputes, unreleased liens, and defective deeds.
A deed that conveys whatever interest, if any, the grantor has in a property without making any warranties about the title. A quitclaim deed offers the grantee no protection if the grantor had no interest or if there are undisclosed encumbrances. Quitclaim deeds are commonly used to clear title defects or transfer property between family members.
A naturally occurring, colorless, odorless radioactive gas produced by the decay of uranium in soil and rock that can accumulate to dangerous levels in enclosed spaces. Radon is the second-leading cause of lung cancer in the U.S. The EPA recommends mitigation when radon levels exceed 4 pCi/L. Buyers may test for radon as part of a home inspection.
The after-the-fact approval and adoption of an act performed by an agent who lacked authority to act at the time. When a principal ratifies an agent's unauthorized act, it is as if the agent had proper authority from the beginning, and the principal is bound by the act as if previously authorized.
A company that owns, operates, or finances income-producing real estate and is structured to allow individual investors to pool resources and invest in large-scale, diversified real estate portfolios. REITs are required to distribute at least 90% of taxable income to shareholders as dividends and are traded on major stock exchanges.
A registered trademark designating a real estate licensee who is a member of the National Association of Realtors (NAR) and bound by NAR's Code of Ethics. Not all real estate licensees are Realtors. Members agree to a higher standard of conduct than required by state license law alone.
The right to cancel a contract within a specified period. The Truth in Lending Act grants borrowers a three-business-day right of rescission on refinance loans and home equity lines of credit on their primary residence. This rescission right does not apply to purchase money mortgages. The lender must refund all fees if the borrower rescinds.
The final step in an appraisal in which the appraiser reviews and weighs the value indications from each of the three approaches (sales comparison, cost, and income) to arrive at a single final value estimate. The appraiser does not average the approaches but gives weight to the approach most applicable to the property type and available data.
The process of filing a legal document — such as a deed, mortgage, or lien — in the public record maintained by the county recorder or register of deeds. Recording creates constructive notice to the world of the document's existence and establishes priority among competing claims. An unrecorded instrument is still valid between the parties.
A land description system developed after the Land Ordinance of 1785 that divides land into a grid of townships (6 miles square) and sections (1 mile square, 640 acres). Principal meridians (north-south) and baselines (east-west) form the starting points. Sections are numbered 1–36 within each township.
A statutory period following a foreclosure sale during which the former owner may reclaim the property by paying the full amount owed, including the sale price, interest, and costs. Equitable redemption occurs before the foreclosure sale; statutory redemption (where available) occurs after. Not all states provide a post-sale redemption period.
An illegal practice in which lenders refuse to make loans or provide insurance in certain geographic areas, typically minority neighborhoods, regardless of the creditworthiness of individual applicants. Redlining violates the Fair Housing Act and the Community Reinvestment Act. The term originated from the practice of drawing red lines on maps.
An appraisal principle holding that the value of a superior property is reduced by its proximity to inferior properties. A large, expensive home surrounded by smaller, lower-value homes will be worth less than it would be if located among homes of similar quality. Opposite of the principle of progression.
The gradual withdrawal of water from land, resulting in the permanent exposure of land that was previously covered. The exposed land (relicted land) generally belongs to the adjacent riparian or littoral landowner. Reliction is the opposite of submergence (land being covered by rising water).
The cost to construct an improvement of equal utility using modern materials and methods at current prices. Replacement cost is used in the cost approach to appraisal and differs from reproduction cost (which uses identical materials and methods). Replacement cost is more commonly used in modern appraisal practice.
The cost to construct an exact replica of an existing improvement using the same materials, design, and workmanship at current prices. Reproduction cost may include functional obsolescence built into the original design. In the cost approach, either reproduction or replacement cost may be used as the starting point.
The cancellation of a contract, returning all parties to the position they were in before the contract was made. Rescission may occur by mutual agreement, by a court order when fraud or misrepresentation occurred, or by operation of a statutory right such as TILA's three-day rescission right for home equity transactions.
Money set aside by a condominium association or property management company to pay for future major repairs and replacements, such as roof replacement, elevator repairs, or parking lot repaving. Adequate reserve funds prevent the need for large special assessments when major capital expenditures arise.
A federal law that governs the real estate settlement process for federally related mortgage loans on 1–4 family residential properties. RESPA requires lenders to provide a Loan Estimate and Closing Disclosure, prohibits kickbacks between settlement service providers, and limits escrow account balances.
Section 8 of RESPA prohibits any person from giving or receiving any fee, kickback, or thing of value pursuant to an agreement to refer settlement service business in connection with a federally related mortgage loan. Violations carry criminal penalties up to $10,000 and one year in prison, plus civil liability for triple damages.
The return of a property interest to the original grantor (or their heirs) upon the termination of a lesser estate. In a life estate, the grantor retains a reversion — the property reverts to the grantor upon the life tenant's death. The grantor's future interest is called a reversion; a third-party future interest is called a remainder.
A contractual right giving a party the first opportunity to match a third-party offer to purchase or lease property before the owner accepts it. The right holder must match the offer within a specified time. Unlike an option, the holder has no right to purchase unless the owner first receives and decides to accept a third-party offer.
The right of surviving co-owners to automatically acquire the ownership interest of a deceased co-owner without going through probate. The right of survivorship is a defining characteristic of joint tenancy and tenancy by the entirety. Tenancy in common does not include a right of survivorship.
Water rights of property owners whose land borders a stream, river, or lake. Under riparian doctrine (used in eastern states), landowners may use the water as long as they do not unreasonably interfere with other riparian owners. In western states, water rights are governed by the prior appropriation doctrine.
A transaction in which a property owner sells the property and simultaneously leases it back from the buyer. The seller converts equity to cash while maintaining occupancy. Sale-leasebacks are common with commercial and industrial properties. The seller becomes a tenant; the buyer becomes the landlord and investor.
An appraisal method that estimates property value by comparing the subject property to recently sold comparable properties (comps). Adjustments are made to comp prices for differences in features, condition, location, and date of sale. The adjusted sale prices are reconciled to form a value estimate. Most reliable for residential properties.
An entry-level real estate license classification. A salesperson may only practice real estate under the supervision of a licensed broker. Salespersons cannot operate their own brokerage, manage trust accounts, or employ other licensees. License requirements vary by state, including pre-license education hours and exam passage.
A document recorded by the lender after a mortgage is paid in full, releasing the lien against the property. Also called a release of mortgage or mortgage discharge. Upon full repayment, the lender must provide a satisfaction of mortgage promptly so the borrower can clear their title. Failure to record may cloud title.
One of the four elements of value in real estate (along with demand, utility, and transferability). Scarcity refers to limited supply relative to demand. Real estate is inherently scarce because land is fixed in quantity and location. Scarcity in desirable locations drives up property values.
The marketplace in which existing mortgage loans are bought and sold by investors. Lenders originate loans in the primary market and sell them to investors (such as Fannie Mae, Freddie Mac, or private investors) in the secondary market, replenishing funds to make new loans. Mortgage-backed securities are the primary secondary market instrument.
See Exchange (1031 Exchange). A provision of the Internal Revenue Code allowing investors to defer capital gains taxes on the sale of investment property by reinvesting the proceeds into like-kind replacement property within strict time limits and through a qualified intermediary.
A federal housing assistance program under Section 8 of the Housing Act of 1937, now called the Housing Choice Voucher Program. Eligible low-income tenants receive vouchers covering a portion of rent paid directly to private landlords. Landlords must maintain units meeting HUD housing quality standards.
The actual possession of real property by a freeholder. The covenant of seisin in a warranty deed is the grantor's promise that they actually own and have the right to convey the property described. If the grantor lacked seisin, the grantee may sue for breach of the covenant of seisin.
The lien with highest priority on a property, typically the first recorded mortgage. In a foreclosure, senior lien holders are paid first from the proceeds of sale. The senior lienholder's claim survives a junior lienholder's foreclosure; a senior lienholder's foreclosure extinguishes junior liens.
A minimum distance required by local zoning ordinances between a structure and a property line, street, or other designated boundary. Setbacks regulate lot coverage and help maintain neighborhood character, light, and air. Buildings that violate setback requirements may need to be modified or may qualify as nonconforming structures.
A sale of real property in which the lender agrees to accept less than the full outstanding mortgage balance as payment in full, allowing the property to sell at current market value when the seller owes more than the property is worth (underwater). Short sales require lender approval and may result in a deficiency balance or tax liability to the seller.
A tax levied against specific properties that benefit from a public improvement project, such as new sidewalks, street lights, or sewer lines. Unlike general property taxes, special assessments are proportional to the benefit received. Unpaid special assessments become a lien against the property.
A deed in which the grantor warrants title only against claims arising during the grantor's own period of ownership, not against defects that existed before the grantor acquired the property. Common in commercial transactions and in foreclosure sales. Offers more protection than a quitclaim deed but less than a general warranty deed.
A lien that attaches to a specific identified parcel of real property, as opposed to a general lien. Mortgages, deeds of trust, mechanic's liens, and property tax liens are examples of specific liens. Only the property described in the lien is encumbered.
A court remedy requiring a party who has breached a real estate contract to perform the terms of the contract rather than simply pay monetary damages. Courts may order specific performance in real estate disputes because each parcel of land is considered unique, making money damages an inadequate remedy for the buyer.
The total floor area of a building measured in square feet. Methods for measuring square footage vary (ANSI, GLA for residential, BOMA for commercial), and discrepancies between represented and actual square footage can be a basis for misrepresentation claims. Gross living area (GLA) for residential properties measures above-grade finished space.
A law requiring certain contracts to be in writing and signed to be enforceable. In real estate, the Statute of Frauds requires that contracts for the purchase or sale of real property, leases longer than one year, and listing agreements in most states be in writing. Oral real estate contracts are generally unenforceable.
An illegal practice under the Fair Housing Act in which a real estate licensee directs prospective buyers or tenants toward or away from certain neighborhoods based on their race, religion, national origin, sex, familial status, or disability. Steering perpetuates segregation and is a violation regardless of intent.
A property that has experienced events that may make it undesirable to some buyers, such as a murder, suicide, alleged haunting, or nearby criminal activity. Disclosure requirements for stigmatized properties vary widely by state. In California, sellers must disclose deaths on the property within the past three years.
An agent of an agent — a licensee who works for and represents a client's agent in a transaction. Traditionally, all cooperating brokers were subagents of the listing broker and therefore represented the seller. Modern practice largely replaced subagency with buyer's agency, though subagency still exists in some transactions.
The division of a tract of land into two or more lots, parcels, or sites for the purpose of sale, lease, or development. Subdivisions must comply with local planning and zoning regulations, and the developer must typically prepare and record a subdivision plat. The federal Interstate Land Sales Full Disclosure Act regulates large subdivisions.
An arrangement in which an existing tenant (sublessor) transfers a portion of their leasehold rights to a new tenant (sublessee) for less than the remaining lease term. The original tenant remains liable to the landlord under the master lease. Unlike an assignment, a sublease does not transfer all remaining rights.
The substitution of one party for another with respect to a legal right or claim. In real estate, title insurance companies and casualty insurers commonly exercise the right of subrogation: after paying a claim to an insured, the insurer steps into the insured's shoes to pursue recovery against the responsible third party.
The amount of real estate available for sale or lease in a given market at a given price level. Supply is relatively inelastic (slow to respond to price changes) because new construction takes time. When supply is tight relative to demand, prices rise; when supply exceeds demand, prices fall.
The status of a tenant who remains in possession of a property after their lease has expired without the landlord's permission. The tenant is a holdover and technically a trespasser, but the landlord has not yet taken action to remove them. The landlord may choose to evict or to accept rent and create a new periodic tenancy.
A form of concurrent ownership available only to married couples in states that recognize it. Like joint tenancy, it includes a right of survivorship. Unlike joint tenancy, neither spouse can sever the tenancy or convey their interest without the other's consent, providing creditor protection from claims against only one spouse.
A leasehold estate with a definite beginning and ending date, regardless of the actual duration. A one-year lease is a tenancy for years; so is a lease for six months or five years. Notice to terminate is generally not required because the end date is pre-determined. Most residential and commercial leases are tenancies for years.
A form of concurrent ownership in which two or more persons hold undivided interests in a property, which may be unequal in size. There is no right of survivorship — each owner may sell, mortgage, or bequeath their interest independently. Tenancy in common is the default form of concurrent ownership when the instrument is silent on the matter.
A federal law requiring lenders to clearly disclose the true cost of credit, including the Annual Percentage Rate (APR), finance charges, payment schedule, and total amount financed, before a loan is consummated. TILA disclosures must be provided within three business days of receiving a mortgage application.
A contract clause signifying that performance within the specified time period is a material element of the agreement, and failure to perform on time is a breach of contract. When time is of the essence, missing a deadline — even by one day — may allow the other party to terminate and pursue remedies.
The legal evidence of one's right to ownership of real property, representing the collection of rights the owner holds in the property. Title is different from a deed — a deed is the document that transfers title. Marketable title is title that a reasonably informed buyer would accept without fear of litigation.
An insurance policy that protects against financial loss from defects in title that are not revealed by the public record search, such as forged deeds, undisclosed heirs, errors in the public record, and fraud. Lender's title insurance (required by most lenders) protects only the lender; owner's title insurance (optional) protects the buyer.
An examination of the public record to determine the current state of a property's title, including ownership history, encumbrances, liens, easements, and any other recorded documents affecting title. A title search is conducted before issuing title insurance and is typically performed by a title company or attorney.
A system of land registration, used in some states, in which title is registered with the government and a certificate of title is issued to the owner. The certificate serves as conclusive evidence of title, eliminating the need for traditional title searches. Torrens differs from the recording system used in most U.S. states.
A unit of land in the rectangular survey system measuring 6 miles by 6 miles (36 square miles). Each township is divided into 36 sections, each one mile square (640 acres). Townships are identified by their position north or south of a baseline and east or west of a principal meridian (e.g., T2N, R3E).
A tax imposed by state or local governments on the transfer of real property. Also called a documentary transfer tax, deed tax, or stamp tax. Transfer taxes are typically calculated based on the sale price and are usually paid by the seller, though in some jurisdictions they are shared or paid by the buyer.
A rule issued by the CFPB in 2015 that combined the TILA and RESPA disclosure requirements into two standardized forms: the Loan Estimate (provided within 3 business days of application) and the Closing Disclosure (provided at least 3 business days before closing). TRID applies to most consumer mortgage loans.
A commercial lease in which the tenant pays base rent plus all three major operating expenses: property taxes, insurance, and maintenance/repairs. Triple net leases are common for freestanding retail buildings, restaurants, and industrial properties. They provide landlords predictable income with minimal management responsibility.
A separate bank account required by real estate license law in which brokers deposit and maintain funds belonging to clients, such as earnest money, security deposits, and property management rents. Trust account funds must be kept separate from the broker's personal and business funds. Commingling trust funds with personal funds is a license law violation.
See Deed of Trust. A security instrument in which the borrower (trustor) conveys title to a neutral trustee to hold as security for a loan made by the beneficiary (lender). In case of default, the trustee can sell the property through a nonjudicial trustee's sale, providing a faster alternative to judicial foreclosure.
The process by which a lender evaluates a borrower's creditworthiness and the adequacy of a property as collateral for a mortgage loan. Underwriting analyzes the borrower's income, credit history, assets, and debt (the 'four Cs': capacity, credit, capital, and collateral) against the lender's guidelines before approving the loan.
A contract in which only one party makes a promise in exchange for an act by the other party. An option contract is a classic example: the optionor promises to keep the offer open in exchange for the optionee's payment of option consideration. The optionee is not obligated to perform.
Charging an interest rate on a loan that exceeds the maximum rate permitted by law. Most states have usury laws that cap interest rates on certain types of loans. Federally chartered banks are exempt from state usury limits for most loan types under federal preemption.
One of the four elements of value in real estate (along with scarcity, demand, and transferability). Utility refers to the ability of a property to satisfy a human need or desire — to provide shelter, generate income, or offer some other use. A property with no useful purpose has no real value.
A mortgage loan guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service members, and surviving spouses. VA loans typically require no down payment, no PMI, and competitive interest rates. The VA's guarantee (not insurance) protects the lender against loss on a portion of the loan.
An official permission granted by a zoning board of adjustment that allows a property owner to deviate from a specific requirement of the zoning ordinance due to unique hardship related to the property itself. An area variance allows deviation from dimensional standards; a use variance allows a non-permitted use. Variances run with the land.
A contract that has no legal effect and is not enforceable from the beginning. A void contract is essentially no contract at all. Examples include contracts for illegal purposes, contracts with no consideration, or contracts where a party lacked legal capacity entirely (e.g., a minor in some states, a person adjudicated incompetent).
A contract that is valid and enforceable unless one of the parties elects to void it due to a legal deficiency such as misrepresentation, fraud, duress, undue influence, or minority. Only the party with the right to void the contract may choose to enforce it or disaffirm it.
A lien placed against property with the owner's consent, such as a mortgage or deed of trust. Voluntary liens are created when the owner voluntarily uses the property as collateral for a loan. This distinguishes them from involuntary liens (tax liens, judgment liens, mechanic's liens) which are imposed by law without owner consent.
A deed in which the grantor makes broad warranties about the title, including that the grantor has good title, has the right to convey it, the property is free of encumbrances (except those stated), and the grantee will have quiet enjoyment. A general warranty deed covers all prior periods; a special warranty deed covers only the grantor's ownership period.
Any permanent or unreasonable damage to real property by a person who has a temporary interest or limited right to the property, such as a life tenant, tenant under a lease, or mortgagor. Voluntary waste is intentional damage; permissive waste is neglect allowing deterioration. Waste reduces the value of the future interest holder's property.
The legal entitlement to use water from a natural source. In eastern (riparian) states, landowners bordering a body of water may use it reasonably without diminishing others' rights. In western (prior appropriation) states, rights are allocated by priority ('first in time, first in right'), and water may be owned separately from the land.
A court order directing a law enforcement officer (typically a sheriff) to seize and sell a debtor's property to satisfy a money judgment. In real estate, a writ of execution can result in a sheriff's sale of the debtor's real property to satisfy an unpaid judgment lien.
The return on a real estate investment, typically expressed as a percentage of the invested capital. Yield may be calculated on cash invested (cash-on-cash return), total property value (overall rate or cap rate), or equity (equity dividend rate). Lenders express yield as the interest rate or mortgage yield.
The division of a municipality into districts by local government, with regulations specifying the permitted uses of land and buildings in each district. Common zoning categories include residential, commercial, industrial, and agricultural. Zoning is an exercise of the government's police power and does not require compensation to property owners.
See Variance. A discretionary exception to zoning requirements granted by a zoning board when strict application of the zoning ordinance would cause unnecessary hardship unique to the property, not shared by properties in the same zone generally. Variances must not conflict with the general purpose of the zoning ordinance.
Now that you know the vocabulary, test your knowledge with state-specific practice questions modeled on the actual real estate licensing exam.