GLOSSARY OF TERMS The following is a selection of real estate terms clearly and briefly defined to help you better understand the home buying and selling process. Adjustable Rate Mortgage (ARM) - A mortgage on which the 'interest' rate charged may change, up or down, according to a predetermined index. Amortization - Reduction of debt in installments of principal and interest, rather than interest-only payments. Annual Percentage Rate (APR) - Required to be furnished to the borrower by Federal law, the APR has no bearing upon the homebuyer's monthly payment and is typically somewhat higher than the stated mortgage rate. Appraised Value - An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc..., of the property and surroundings. Appreciation - An increased value of property. Assessed Value - Value placed upon property for property tax purposes by the tax assessor. Assessment - 1) The estimating of value of property for tax purposes. 2) A levy against property in addition to general taxes, usually for improvements such as streets, sewers, etc. Broker - One who is licensed by the state to carry on the business of dealing in real estate. A broker may receive a commission for his or her part in bringing a buyer and seller, landlord and tenant, or parties to an exchange. (Compare to Realtor®.) Capital Gains - Gains realized from the sale of capital assets. Generally, the difference between cost and selling price, less certain deductible expenses. Closing - In real estate sales, the final procedure in which documents are executed and/or recorded, and the sale is completed. Closing Costs - Expenses incidental to a sale of real estate, such as loan fees, title fees, appraisal fees, etc. Closing Statement - The statement which lists the financial settlement between buyer and seller, and also the costs each must pay. A separate statement for buyer and seller is sometimes prepared. Commission - An amount paid to a real estate broker as compensation for services; generally a negotiated percentage of the sale price or total rental. Condominium - A structure of two or more units, the interior space of which are individually owned; the balance of the property (both land and building) is owned in common by the owners of the individual units. Conventional Loan - A mortgage or deed of trust not obtained under a government-insured program. Credit Report - A report on the past ability of a loan applicant to pay installment payments. Deed - Generally a conveyancing instrument given to pass title to property upon sale. Deposit - Money given by the buyer with an offer to purchase. Shows good faith. Also called earnest money. Equity - The market value of real property, less the amount of outstanding loans secured by the property. Escrow Account - An account set up by most lenders to which the borrower makes monthly payments for such obligations as real estate taxes, homeowner's insurance and special assessments. The lender disburses funds from these accounts for the borrower as bills come due. FHA (Federal Housing Administration) - A federal agency that insures first mortgages, enabling lenders to provide loans or loan a higher percentage of the sale price than they otherwise might. Grace Period - A period of time after the regular due date of a loan payment during which a late payment penalty is not charged. Index - Any ARM adjustments must be based on the movement of an independent index that is beyond the control of the lender and that can be easily verified by the borrower. Interest - 1) A share or right in some property. 2) Money charged for the use of money (principal). Interest Rate Cap - A limit on the maximum interest rate that can be charged during the life of an ARM or on the maximum rise allowed from one adjustment period to the next. Land Contract - An installment contract for the sale of land. The seller retains legal title until paid in full. The buyer has equitable title during the contract term. Lease With Option To Purchase - A lease under which the lessee has the right to purchase the property. The price and terms of the purchase must be set forth for the option to be valid. The option may run for the length of the lease or only for a portion of the lease period. Leverage - The use of financing to use a small amount of cash to make a large investment. Listing - An agreement between an owner of real property and a real estate agent, whereby the agent agrees to market the property for sale and in consideration for the sale of the property will receive a fee or commission. Loan Processing - The work done by a lender from the time a homebuyer applies for a mortgage to the time the loan is approved. Maintenance Fee - As applied to condominiums and planned developments, the amount charged each unit owner to maintain the common area. Usually a monthly fee. Market Value - The highest price a willing buyer would pay and a willing seller would accept, both being fully informed and the property offered for a reasonable period of time. Mortgage - The instrument by which real estate is pledged as security for repayment of a loan. Mortgagee - The party lending the money. Mortgagor - The party who borrows the money. Multiple Listing Service - A facility for making unilateral offers of sub-agency to all other members of the service, offering each the opportunity to cooperate in the sale of property and thereby earn a commission. Note - A unilateral agreement containing an express and absolute promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand. Usually provides for interest and, concerning real property, is secured by a mortgage or trust deed. Payment Cap - A limit on the amount the monthly principal and interest payment can change during the term of an ARM - or from one adjustment period to the next. Plat (Plat Map) - A map dividing a parcel of land into lots, as in a subdivision. Point - One percent. When referring to mortgages or deeds of trust, the term is used to describe the percentage of discount rather than interest (for which the word "percent" is used). The points are paid by either buyer or seller or both. Preliminary Title Report - A report showing the condition of title before a sale or loan transaction. After completion of the transaction, a title insurance policy is issued. Principal - Amount of debt, not including interest. The face value of a note, mortgage, etc. REALTOR® - A registered collective membership mark which may be used only by real estate professionals who are members of the NATIONAL ASSOCIATION OF REALTORS® and subscribe to its strict Code of Ethics. Tax Rate - Traditionally the ratio of dollars of tax per hundred or per thousand dollars of valuation. Tax Shelter - A general term used to include any property or other investment which gives the owner certain income tax advantages, such as deductions for property taxes, mortgage interest or depreciation. Title - The evidence one has of right to ownership and possession of land. Veterans Administration (VA) Loans - Housing loans to veterans by banks, savings and loans or other lenders, which are guaranteed by the Veteran's Administration, enabling veterans to buy a residence with little or no down payment. Zoning - The division of a city or county by legislative or administrative regulation into areas (zones), specifying the uses allowable for the real property in these areas.

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