Real Estate Terminology


In real estate, to abandon means to voluntarily relinquish your rights of property ownership; to choose not to exercise an option.

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Abstract of Title

A summary of all recorded transactions that affects the title of a property. A title company is usually is the agent that reviews the Abstract of Title to determine if there are any problems affecting the title of the property. Any problems found must be cleared before the buyer can be issued a clear title.

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Acceleration Clause

A stipulation in a loan or mortgage, that will require an immediate repayment of the full balance of the loan. If any part of the contract is breached, or condition for repayment occur.

Addendum Clause

An addendum clause is a provision clause that is added to a contract that supersedes what is written in the contract.

Adjustment Period

An Adjustment Period is the length of time an adjustable-rate mortgage if fixed. If you have a have a mortgage with a fixed rate for 1 year, the interest rate will be fixed for the first year than would be adjusted per the mortgage documents.

After Repair Value (ARV)

ARV is a word used a lot in real estate. ARV is the future value of the property after renovations and repairs. This is not the current value of the property when you are purchasing, but the estimated value of the property, following the improvements or renovations. This estimation is based on what comparable properties have recently sold for in an area near your property.


A real estate agent is a person who works for a seller, buyer, or both during a real estate transaction. The term refers to a person with a real estate license.

Agreement of Sale

This can also be called the contract of purchase. It is a signed agreement between the buyer and seller. In which the seller agrees to sell a certain property under the conditions set within the agreement, to the buyer.

Amortization Loan

A schedule of payments with principal and interest paid over a period of time creating level payments throughout the loan.

Annual Percentage Rate (APR)

Annual Percentage Rate (APR) is the effective rate of interest for a loan per year. This rate considers any closing cost that are rolled into the loan. This is then typically higher than the note rate. Caution: APR is computed differently by lenders so this rate could be misleading.


An appraisal is a professional estimate of a property’s monetary value conducted by appraisers. Appraisals are commonly required before many different types of transactions can be performed such as purchasing a house, a piece of jewelry, or an insured artwork. Homes and offices also need to be appraised for insurance, loans, and tax purposes. Appraisals ensure that these loans and insurance policies are comparable to the property’s tangible market value.

Appraised Value

Appraised value is the estimated amount from an unbiased professional of the property’s value.


Appreciation is the increase in a home’s or property’s value over time. The appreciation value can be calculated based on the current comparable homes sold in the neighborhood of the property in question, less the amount paid for the property. The property’s appreciation value can grow through natural appreciation over time or can be forced through remodels or renovations that add value to the home.


An arbitration is a settlement of dispute by a third party selected by the parties in dispute.

ARM: Adjustable Rate Mortgage

An adjustable rate mortgage is a type of mortgage in which the rate of the outstanding balance varies throughout the life of the loan. With an adjustable rate mortgage, it is more difficult for the borrower to predict and plan for monthly payments. Traditionally, the initial interest rate will be fixed at a lower rate for a certain period of time until it resets from time to time, based on the current interest rates, which can impact the monthly payment drastically.


An assessment is a lien or local tax levied against a property for a specific improvement that has benefits for two or more properties.


The person or entity to whom a title, property, interest, or rights has been transferred.

Assignment Clause

A contract that has an assignment clause, allows the buyer to transfer they right to buy a property. With all the terms and rights of the contract, to another interested party.

Assumable Mortgage

An Assumable Mortgage is a mortgage that allows a new buyer to take over the payments of the loan on the property he/she is purchasing. Usually, the lender must "qualify" the new borrower, in order for them to assume the loan. Furthermore, the seller should get a written release that he/she is no longer liable for the payments.


Assumption is the taking over the repayment of a debt from the seller. Assuming the mortgage.

Balloon Mortgage

A Balloon Mortgage is a fixed rate, short-term loan which involves payments for a period of time, and then one large payment for the remaining balance of the principal at a later date specified in the contract.


A bid is a specific offer for a certain amount of money for a product, service, or property.


The person that applies and obtains a mortgage, for real estate, is called the borrower. The borrower is than responsible for the repayment of the loan.


A broker is a licensed real estate agent or firm that act as an intermediary between seller and buyer.

Buy and Hold

In the world of real estate investing, the phrase 'Buy and Hold' refers to an investor's intention of holding onto a purchased property with the intention of using it as a rental property to produce passive income.


Money used to buy property to generate income.

Capital Gains

Capital Gains is the profit made from the sale of a property; the amount of the selling price exceeds the initial purchase price.

Capitalization Rate (Cap Rate)

The Cap Rate is the rate or process to determine the present value of a property by assessing a numerical factor to the future earning and probability of risk.

Cash Flow

Cash flow is the amount of cash derived over a period of time on an income producing property. It can be calculated by taking the income and subtracting the expenses.

Cash On Cash Return (COCR or CRR)

A cash-on-cash return is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property.

Cash Reserves

In real estate, cash reserves refers to the money the investor has set aside for unexpected situations and expenses. This money is only used to cover unplanned and unexpected expenses such as plumbing issues, flooding, and anything that needs to be fixed within the home. Cash reserves also help cover the costs of landlord if a tenant doesn’t pay or their property is left vacant.

Caveat Emptor

Caveat Emptor legally means “Let the Buyer Beware”. When buying a property that is offered “as is” there is no expressed or implied guarantee of the condition. You as the buyer are buying the property at your own risk. Therefore, you must do your homework and examine the condition. Then and only then, will you know what the property will need and if it is a good fit for your investment.

Certificate of Occupancy

Document issued by a local governmental agency that states a property meets the local building standards for occupancy and is in compliance with public health and building codes. This document is normally required by a lender prior to dosing the loan.

Certificate of Title

The certificate of title is a document that states who owns a real estate property. This certificate gives evidence of any ownership rights that will allow the seller to actually sell the property. Having certificates of title is extremely important in the world of real estate.

Chain of Title

Chronological order of conveyance of a parcel from original owner to the present owner. An abstractor con research title to property going back to the date the property was granted to the United States.


Personal, tangible, moveable property. The same as personal property than real estate.

Clear Title

A marketable title, free of liens and legal questions as to the ownership of the property. Most lenders require a clear title prior to dosing.

Closing Costs

Expenses incurred by the buyer and seller in a real estate or mortgage transaction over and above the price of the property. There are two types of costs: recurring and non-recurring. Nonrecurring costs are one-time transactional costs which include discount and origination points; lender fees - underwriting, processing, document preparations, flood certificate, tax service, wire transfer, courier, etc.; title insurance fees; escrow; attorney or closing agent fees; recording fees; inspection and appraisal fees; and real estate brokerage commissions. Recurring fees are costs associated with owning the property and they recur month after month. These costs may include hazard insurance taxes, mortgage insurance (PMI), and association fees. A pro-rated amount of these fees may have to be paid at closing, including pre-paid interest (interest charges from the date of closing to the end of the month) property taxes if due; and hazard insurance, fire insurance or homeowner's insurance (has to be paid for one year). Mortgage insurance (PMI) may be required if the loan amount is more than 80% of the value of the properly. In the past, a whole year of PMI had to be paid up front, however, in recent years, many PMI companies only require l-2 months up front. Mortgage insurance premiums are normally paid every month with the loan payment. An impound account to be set up with money for future payments.

Closing Statement

The Closing Statement is a document that will disclose the financial information of a real estate transaction for the seller and buyer that will included all cost.


A multi-unit housing complex where the residents own stock in the building instead of individual units.


Collateral is land or other assets pledged by the borrower to secure a loan against the timely repayment of a debt.

Commercial Real Estate

Commercial Real Estate is real estate that is not single-family oriented; usually a building larger that a 4 flat is considered commercial.


Commission is the amount of fees charged by a broker or agent when selling a property.

Comparative Market Analysis (CMA)

A comparison of sales prices of similar properties in a given area for the purpose of determining the fair market value of a property. Also referred to as "comps."

Conditional Commitment

A written document provided by a lender agreeing to make a loan provided certain conditions are met by the borrower prior to closing


Anything of value given to induce another to enter into a contract. Earnest money deposit on a sales contract is consideration.

Construction Loan

A short term loan to pay for the construction of buildings or homes. They typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed, a "take-out" or permanent loan is used to pay off the construction loan.


Contingencies are clauses in a contract that must be satisfied before a buyer will purchase a property. Closing will not take place if certain conditions, contingencies are unsatisfactory either structurally or financially.


A contract is an agreement that binds 2 or more parties to do or not do certain thing for considerations.

Contract of Sale

Same as the Agreement of Sale.

Contract Sale or Deed

A real estate installment selling arrangement where the buyer may occupy the property, but the seller retains the title until the agreed upon sales price has been paid. Also known as an installment land contract.

Contract to Purchase

An agreement of sale detailing the transaction and submitted by the buyer to the seller

Conventional Loan

Any mortgage loan other than a VA or FHA loan. A conventional loan may be conforming or non-conforming.

Convertible ARM

Some variable rate loans come with options to convert them to a fixed rate loan based on a pre-determined formula, during a given time period. For example, the 1-year T-bill adjustable may be converted to a fixed during the first five years on the adjustment date. This means you could convert during the 13th, 25th, 37th, 49th and 61st months of the loan.


The transfer of title of real property from one party to another.


An association of one or more shareholders having its own legal entity separate from the individual shareholders.


A written agreement or restriction on the use of land or promising certain acts. Homeowner’s association often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowner’s association.

Credit Report

A report detailing a borrower’s credit history, including payment history on revolving accounts (e.g., credit cards), installment accounts (e.g., car loan), late payments, bankruptcies, and recent inquiries. It can be obtained by prospective lenders with the borrower’s permission to determine his or her creditworthiness. A credit report also includes information found from public records, including tax liens and judgments.

Debt-to-Income Ratio

The Debt-to-Income ratio is presented as a percentage. It is calculated by taking the monthly debt obligations divided by the monthly income. For example, if you make $1,000 per month and have $500 worth of bills per month, you would have a debt-to-income of 50%.


The written legal document that determines who has ownership of a property. The deed contains an accurate description of the property. This document will be conveyed from seller to buyer at closing.

Deed of Trust

A Deed of Trust is a legal document that transfers the title to a third party (trustee) to hold as security for the lender. When the loan is paid in full, the trustee transfers title back to the borrower. If the borrower defaults on the loan the trustee will sell the property and pay the debt.

Deed Restriction

A clause in a deed that limits the use of land. Example: A deed might require that a road cannot be built on the land.


Failure to fulfill a legal obligation. A default includes failure to pay on a financial obligation, but also may be a failure to perform some action or service that is non-monetary.

Defective Title

Any recorded instrument that mount prevent a grantor/seller from giving a clear title. Example: The seller has a contractor lien on the property that was filed when he/she failed to pay the contractor for the kitchen remodel. The seller may obtain clear title by paying the contractor and removing the lien.


Failure to make payments on time. This can lead to foreclosure.


A depreciation is a decline in the value of a house due to changing market conditions or deterioration of a home.


Statement of fact(s) concerning the condition of the property for sale and the surrounding area. In most states, the buyer is protected by disclosure laws requiring sellers to divulge certain information about the property (e.g., if the property is in a special studies zone).

Discount Points

Fees paid to a lender to reduce the interest rate.

Documentary Tax Stamps

A clause in the deed of trust or mortgage that states that the entire loan is due upon the sale of the property.

Down Payment

A down payment is the amount of money paid upfront for the property which reduces the total amount of the loan or mortgage. The amount of the down payment typically varies between 0% to 20% of the purchase price depending on the lenders.

Due-on-Sale Clause

A Due-on-Sale Clause is a provision in a mortgage that allows the lender to demand repayment in full of the outstanding balance if the property is sold.

Earnest Money

Earnest Money is a deposit that is submitted with an offer as evidence of good faith, to prove the buyer is serious and not wasting either party’s time. The money is typically heed in an escrow account.


The right to use the land of another for a specific purpose. Easements may be temporary or permanent. Example: The utility company may need an easement to run electric lines.

Eminent Domain

The right of the government or a public utility to acquire private property for public use by condemnation, with proper compensation to the owner.


The intrusion onto another’s property without right or permission.


A legal right or interest in land that affects a good or clear title and diminishes the land’s value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance or what can be done to remove it.

Equal Credit Opportunity Act (ECOA)

Equal Credit Opportunity Act (ECOA) is a federal law that requires lenders to make credit equally available without regard to the applicant’s race, color, religion, national origin, age, sex, or marital status; the fact that all or part of the applicant’s income is derived from a public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. It also requires various notices to consumers.


Equity is the financial value above what is owed on the property. ( e.g. the mortgage balance and any other loans again the property) As a loan is paid off equity is built so when the property is sold all proceeds pay off the remaining loan balance and the left over money is equity that goes in the owner’s pocket.


The reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs.


An escrow is an account held by a neutral third party or attorney that handles the exchange of money and documents between a buyer and seller once a mutual offer has been accepted and the parties move to closing.


An eviction is the lawful removal of an occupant from a property.

Exclusive Agency Listing

An Exclusive Agency Listing is a listing agreement under which a real estate broker (known as the listing broker) acts as an exclusive agent to sell the property for the property owner but may be paid a reduced or no commission when the property is sold if, for example, the property owner rather than the listing broker finds the buyer. This kind of listing agreement can be used to provide the owner a limited range of real estate brokerage services rather than the traditional full range. As with other kinds of listing agreements, if a second real estate broker (known as a selling broker) finds the buyer for the property, then some commission will be paid to the selling broker.

Exclusive Right-to-Sell Listing

An Exclusive Right-to-Sell Listing is a listing agreement under which the property owner appoints a real estate broker (known as the listing broker) as exclusive agent to sell the property on the owner’s terms and agrees to pay a commission when the property is sold, regardless of who finds the buyer. This is the kind of listing agreement that is commonly used by a listing broker to provide the traditional full range of real estate brokerage services. If a second real estate broker (known as a selling broker) finds the buyer for the property, then some commission will be paid to the selling broker.


An executor is a person named and approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will or bankrupt court.

Fannie Mae/Federal National Mortgage Association (FNMA)

Purchases loan from lenders, then sells then sells them on FNMA mortgage-backed securities on Wall Street.

Farmer’s Home Administration (FmHA)

An agency within the U.S. Department of Agriculture that makes and insures loans for rural housing and farms.

Federal Deposit Insurance Corporation (FDIC)

Government agency that supervises and insures accounts.

Federal Housing Administration (FHA)

A government agency within HUD that administers and insures mortgage loans for private lending agencies.

Fee Simple (Fee Absolute or Fee Simple Absolute)

Absolute ownership of real property. Owner is entitled to the entire property with unrestricted power of disposition during the owner’s life and upon his death, the property descends to the owner’s designated heirs.

FHA Loan

This program provides mortgage insurance to protect lenders against the risk of default on loans to qualified buyers. A loa insured by the FHA is open to all qualified home purchasers. The FHA does not make loans to borrowers, it does not process loans, and it does not build or insure houses. While there are limits to the size of FHA loans, they are generous enough to handle moderately-priced homes almost anywhere in the country.

FICO Score

The FICO score is a three-digit number, ranging from 300 to 850, that is assigned to your credit based on a formula developed by Fair, Isaac & Company. Credit scores are reported by three major credit bureaus, Equifax, Experian, and TransUnion. Scores are not the same on each bureau’s report because each bureau places a slightly different value on different items. It is in your best interest to know your FICO score because it is a key factor in determining if you get a mortgage, whether you can refinance your home at a favorable rate, or whether or not you can get a new credit card. Your FICO core can also determine whether or not you can finance a new car, buy insurance, or even get a job.


A person in a position of trust or responsibility with the legal authority and duty to make decisions regarding financial matters on behalf of the other party. Example: A real estate broker is a fiduciary for his/her clients.

Finance Charge

Interest charged by a lender.

Fix and Flip

Fix and Flip is a term for properties that need some remodeling, in order to make the property appealing to new buyers. Real estate investors will buy the property, renovate it, and resell the property for a profit.

Fixed Rate Mortgage (FRM)

A Fixed Rate Mortgage (FRM) is a mortgage interest rate that stays constant over the entire life of the loan.

For Sale By Owner (FSBO)

For Sale By Owner (FSBO) is a property that is listed for sale by the owner, that is not listed with a real estate brocker. This method saves the seller costs associated with hiring a real estate agent but has its positives and negatives as well.


A lender’s postponement of foreclosure in order to give the borrower time and an opportunity to make up for overdue payments.


A home equity line of credit (HELOC) is when a property owner borrows money against the equity that has been built up in said property.

Homeowners Association (HOA)

The purpose of a homeowners association is to manage a property’s or neighborhood's common areas; such as roads, parks, pools and more. Homeowners are obligated to pay dues which could range from a few dollers per mounth to thousands per mounth, depending on the building/neighborhood and its amenities. This is an added monthly expense on top of a mortgage payment and should be considered as such when investing in a property.

Mortgage Note

A note is a fiscal obligation between a borrow and the creditor, usually in the form of a loan. This note will detail the terms of the loan, such as the interest rate, principal amount, and the specific details of how the loan must be paid back. A mortgage note is specific to a home loan and is secured by real property. It specifies the buyer's required interest, the amount and duration of all mortgage payments.


A multi-family building or structure is designed to house several different families in separate housing units. It is important to note here that for investors, there is a massive difference after four units since 1 to 4 units are considered residential five and above are commercial.


A multi-family building or structure is designed to house several different families in separate housing units. It is important to note here that for investors there is a huge difference after 4 units since 1 to 4 units are considered residential 5 and above are commercial.

Net Operating Income (NOI)

Net Operating Income (NOI) is a profitability formula that is often used in real estate to measure a commercial property’s profit potential and financial health by calculating the income after operating expenses are deducted. In other words, it measures the amount of cash flows that a property has after all necessary expenses have been paid. NOI = Operating Income – Operating Expenses

The NOI is one of the most important formulas you should know, because it’s also used in so many other calculations (such as cap rate, debt coverage ratio, etc.).

Seller Financing

Seller Financing is similar to a standard bank loan except the seller is agreeing to provide the loan to the buyer instead of a bank. The buyer typically would still need to provide a down payment to the seller with the remainder of the loan being paid off in monthly installments. This payment is based on an agreement between the seller and the buyer on number of payments and the interest rate until the loan itself has been completely paid back. To protect both the seller and the buyer, a purchase agreement laying out the agreed upon terms would need to be drafted by an attorney so that it is legally enforceable in a court of law should any future dispute arise. Once both parties sign this agreement, the transaction is fully legal and enforceable./p>

Underwriting Fee

An underwriting fee is a fee charged by the lender to verify information on the loan application, authenticate the property’s worth as collateral, and make a final determination about whether to grant a loan to the applicant.

Unrecorded Deed

An Unrecorded Deed is a document that transfers ownership from one party to another without being officially recorded.

US Department of Housing and Urban Development (HUD)

The US Department of Housing and Urban Development is also known as HUD. It is a federal agency that oversees the Federal Housing Administration and a variety of housing and community development programs.

VA Loan

A VA loan is a loan through the Veterans Administration program, which allows most veterans to purchase a house without a down payment.

Variable Interest Rate

A Variable Interest Rate is a loan rate that moves up and down based on factors including changes in the rate paid on bank certificates of deposit or Treasury bills.

Variable Rate Mortgage (VRM)

A Variable Rate Mortgage (VRM) is a loan with an interest rate varies during the term of the mortgage that hinges on factors such as the rate paid on bank certificates and Treasury bills.


A Violation is an act, deed, or condition contrary to the permissible use of property.

Voluntary Lien

A voluntary lien is document that claims ownership of the property that a homeowner willingly gives to a lender in order to secure the loan provided in order to purchase the property.

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A waiver is a document voluntary relinquishing of certain rights or claims.


A walk-through is a buyer’s final inspection of the home to determine if conditions in the purchase agreement have been satisfied.

Weekly and Bi-Weekly Payments

In addition to the option for monthly payments, you can usually choose to make your mortgage payments once a week or once every two weeks (bi-weekly). This accelerates the reduction of your mortgage because you are making the equivalent of one extra monthly payment per year.

Wild Deed

An improperly recorded deed.

Witness Tree

The term 'witness tree' is generally used in the public land states referring to the trees close to a section corner. The surveyor blazed them and noted their position relative to the corner in his notebook. Witness trees are used as evidence for the corner location.

Wraparound Mortgage

A wraparound mortgage is a loan given to a buyer for the remaining balance on a seller’s first mortgage and an additional amount requested by the seller. Payments on both amounts are made to the lender who holds the wraparound loan.

Zoning Laws

Zoning laws are the statutes that mandate the ways that you are able to utilize your properties. The local governments control the zoning laws so that they are able to set standards for development for the benefit of all the residents.

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