Common Real Estate Terms
Here are a list of common real estate and title insurance terms for buyers and sellers.
Appraisal - Real estate appraisal, property valuation or land valuation is the process of developing an opinion of value for real estate. Real estate transactions often require appraisals because a lender will want to make sure the loan amount requested is accurate.
Closing – the execution of legal documents of conveyance and loan paperwork to transfer and/or mortgage a property. The parties meet at the title company’s office. The settlement agent executes the closing documents, collects funds, and disburses proceeds.
Commission – the fees paid to the real estate agents who represent the buyer and seller. Typically, the amount of commission and the party responsible for paying the commission are outlined in the Listing Agreement, in the sales contract, and/or in a separate commission agreement. Commissions are generally calculated based on a percentage of the sales price. Commissions are reflected on the HUD-1 Settlement Statement.
Contract – the instrument memorializing the agreement between a buyer and seller to purchase and sell real property. The contract contains all material terms relevant to the transaction: sales price; property description; amount of earnest money; who is paying closing costs and how much; closing date; and items to be completed at or before closing, e.g. repairs, etc.
Deed of Trust – In some states, the mortgage is called a Deed of Trust. The Deed of Trust is the instrument which is recorded at the county courthouse to secure the property as collateral for the loan .
Earnest Money – Upon making an offer to purchase real estate, a buyer will generally deposit a sum of money to the seller as a demonstration of the buyer’s good faith intention to purchase the property; this deposit is generally refunded to the buyer at closing on the settlement statement. The contract generally spells out specific guidelines for who shall hold the earnest money and how it should be handled in the event of default on the contract.
Escrow - contractual arrangement in which a third party receives and disburses money for the primary transacting parties, with the disbursement dependent on conditions of the transaction. The title company uses the Contract, Closing Disclosure and instructions from the Lender to disburse funds from a real estate transaction.
Homeowners Association Dues – assessments charged by a Homeowners’ Association to the individual homeowner which are generally used to maintain common areas of the subdivision.
Lien - a claim or charge on property for payment of a debt. With a mortgage, the lender has the right to take the title to your property if you don’t make the mortgage payments.
Promissory Note – the instrument signed by a borrower wherein the borrower promises to repay, on demand or at some time fixed in the future, a sum of money to a lender or holder of the promissory note. This document outlines the terms of the loan including the principal amount, interest rate, term, late payment penalty, and prepayment penalty, if any.
Property Taxes – taxes paid to the city and/or county based upon the assessed value of the property. Inquire with the specific city and county for the computation rates. Property owners are obligated to pay city, county and/or state taxes during the sale or refinance of their home. See Tax Prorations for more information.
Settlement Statement (aka Closing Disclosure) – document developed by the United States Department of Housing and Urban Development which itemizes all fees and services associated with closing the loan. Click here for more details on the Closing Disclosure
Tax Prorations - When calculating taxes for closing, the settlement agent will base prorations on the current year's tax bill. If a tax bill has not been issued yet, they will use the previous year's tax bill. The amount charged to one party is determined by dividing the bill by 365 to get the daily amount. The sellers should be responsible for the amount of unpaid real estate for the number of days that they lived in the property prior to the sale date.
Tax Stamps – the taxes paid to the State on the transfers memorialized by the deed of conveyance and the mortgage deed. Generally, state tax stamps are calculated on the deed of conveyance based on the sales price, and tax stamps are calculated on the mortgage deed based on the loan amount. Formulas vary from state to state.
Termite Letter – A termite letter is an inspection report which shows the existence of active or previous infestation of subterranean termites and other wood destroying organisms. The inspection report is a standard state form which reveals whether there is any earth-to-wood contact on the property, if there were any areas of the structure that were not inspected, and if it appears that any previous termite treatment has been performed. The inspection letter often contains exclusions of liability printed on the back.
Title Exam – an examination of the public records in the county where the property is located. The title examiner reviews the history of the title, or the “back chain” to ensure the seller owns the property, and to determine if there are any mortgages, taxes or liens on the property that will require payment at closing. Each previous owner of the property is a link in the chain of title.
Warranty Deed – the instrument which transfers ownership interest in the property from the seller to the buyer and which contains assurances as to the marketability of the title to the property. It is also known as deed of Bargain and Sale.