Abstract of Title:  A summary of the public records relating to the ownership of a particular piece of land.  It represents a short legal history of an individual piece of property, and traces the ownership of that property from the time of the first recorded transfer to present. 

Adjustable-rate Mortgage (ARM):  A mortgage that allows the interest rate to be changed periodically. 

Agency:  A legal relationship in which an owner-principal engages a broker-agent in the sale of property or a buyer-principal engages a broker-agent in the purchase of property. 

American Society of Home Inspectors (ASH):  A professional trade association that provides training and education in home inspections.  Members must meet qualification requirements to join. 

Amortization:  The gradual repayment of a mortgage by periodic installments. 

Annual percentage rate (APR):  The total finance charge (interest, loan fees, points) expressed as a percentage of the mortgage amount. 

Appraisal:  An evaluation of a piece of property to determine its value. 

Asbestos:  A mineral fiber used in some building materials such as flooring, siding, insulation and roofing.  It is presently banned for most uses in real property. 

Assessed Value:  The valuation placed on property by a public tax assessor as the basis of property taxes. 

Assumption of Mortgage:  An agreement whereby the buyer assumes responsibility for a mortgage owed by the seller; the seller remains liable to the lender unless the lender agrees to release the seller from the liability. 

Balloon Mortgage:  A mortgage where the amount financed is not fully amortized over the period of the loan.  When the loan becomes due, a large sum, or "balloon" payment, is required to satisfy the mortgage. 

Bridge Loan:  A short-term mortgage made, until a longer-term loan can be made; it's sometimes used when a person needs money to build or purchase a home before the present one has been sold. 

Broker:  A person licensed by a state real estate commission to act independently in conducting a real estate brokerage business.  Although requirements vary from state to state, an individual must usually have at least one year of experience in the industry and pass an examination to earn a broker's license. 

Building Codes:  State and local laws that regulate the construction of new property and the rehabilitation of existing property. 

Cap:  The maximum amount an interest rate or monthly payment can change, either at adjustment time or over the life of the mortgage.

Closing:  The final step in the sale and transfer of ownership of a property.  The title is transferred from the seller to the buyer;  the buyer signs the mortgage and pays costs of settlement; and any money due the seller and purchaser are paid.

Closing Costs:  Fees and expenses, not including the price of the home, payable by the seller and the buyer at the closing (e.g., brokerage commissions, title insurance premiums, and inspection, appraisal, recording, and attorney's fees).

Commercial Bank:  A financial institution authorized to provide a variety of financial services, including consumer and business loans (generally short-term), checking services, credit cards, and savings accounts. 

Comparables:  Properties similar in size and character to the one being bought or sold. 

Condominium:  Ownership of a unit only, rather than of the entire building with the land. 

Contingency:  A condition that must be satisfied before a contract is binding. 

Conventional mortgage:  A fixed rate, fixed-term mortgage not insured by the federal government. 

Deed:  A legal document conveying title to a property. 

Deed (quitclaim):  A deed that transfers only that title or right to a property that the holder of that title has at the time of the transfer.  It does not warrant or guarantee a clear title. 

Department of Housing and Urban Development (HUD):  A U.S. Government agency established to implement certain federal housing and community development programs. 

Disclosure Laws: State and federal regulations which require sellers to disclose such conditions as whether a house is located in a flood plain or whether there are known defects in or affecting the property. 

Earnest Money:  A portion of a down payment given to the seller by a potential buyer indicating the buyer's intent to complete the purchase of the property. 

Encroachment:  A condition that exists when a permanent structure encroaches or lies across a property line, or beyond the allowed buildable area of property. 

Encumbrance:  Any condition that limits the interest in a title to property such as a mortgage, deed restrictions, easements, unpaid taxes, etc. 

Equity Mortgage:  A mortgage based on the borrowers' equity in their home rather than on their creditworthiness. 

Escrow:  The placement of money or documents with a third party for safekeeping pending the fulfillment or performance of a specified act or condition. 

Federal Housing Administration (FHA):  An agency within the Department of Housing and Urban Development (HUD) that administers loan guarantee programs and loan insurance programs to make more housing available. 

Graduated-payment mortgage:  A mortgage that starts with low monthly payments and increase at a predetermined rate. 

Growing-equity Mortgage:  A mortgage loan in which the monthly payments increase by a specific amount each year, with the "overpayments" applied to the principal. 

Installment Debts:  Long-term debts that usually extend for more than one month. 

Lien-A legal claim against a property that must be paid when the property is sold. 

Loan-to-value Ratio:  The relationship between the amount of a home mortgage and the total value of the property.  Lenders may limit their maximum mortgage to between 80 and 95 percent of value. 

Lock-in-rate:  A commitment made by lenders on a mortgage loan to "lock in" a civilian rate pending mortgage approval.  Lock-in periods vary. 

Market Value:  The highest price a buyer will pay for a property and the lowest price the seller will accept. 

Mortgage Broker:  An individual or company that obtains mortgages for others by finding lending institutions, insurance companies, or private sources to lend the money; may also make collections and handle disbursements. 

Mortgage Insurance:  A policy that provides protection for the lender in case of default and guarantees repayment of the mortgage if the borrower becomes disabled or dies. 

Negative amortization:  An increase in the outstanding balance of a mortgage resulting from the failure of periodic debt service payments to cover required interest charges on the loan. 

Points:  A dollar amount paid to a lender as a consideration for making the mortgage.  A point is 1 percent of the loan amount; also called discount points. 

Principal, Interest, Taxes, and Insurance (PITI) Payment:  A periodic (typically monthly) payment that includes the principal and interest payment plus a contribution to the escrow account established by the lender to pay insurance premiums and property taxes on the mortgaged property. 

Private Mortgage Insurance (PMI):  Insurance issued to a lender by a private company to protect the lender against loss on a defaulted mortgage loan.   Its use is usually limited to loans with high loan-to-value ratios.  The borrower pays the premiums. 

Radon:  A colorless, odorless gas formed by the breakdown of uranium in subsoils.  It can enter a house through cracks in the foundation or in water and is considered to be a health hazard. 

REALTOR and REALTOR-Associate:  Registered collective membership marks that identify real estate professionals who are members of the National Association of Realtors and who subscribe to its strict Code of Ethics. 

Savings and Loan Association (S&Ls):   Depository institutions that specialize in originating, servicing, and holding mortgage loans, primarily on owner-occupied residential property. 

Savings Bank:  A financial institution organized to hold individual depositors' funds in interest-bearing accounts and to make long-term investments, such as home mortgage loans. 

Shared Equity Mortgage:  A home loan in which an investor is granted a share of the equity, thereby allowing the investor to participate in the proceeds from resale. 

Title:  A document that provides evidence of ownership. 

Title Defect:  An outstanding claim or encumbrance on property that affects marketability. 

Title Insurance:  Protection for lenders and homeowners against financial loss resulting from legal defects in the title. 

Veterans Administration (VA):  A government agency that provides services for eligible veterans of the armed forces.  Among other programs, it guarantees mortgage loans made by private lenders to veterans. 

Variance:  A special suspension of zoning laws to allow the use of property in a manner not in accord with existing laws. 

Zoning restrictions:  Local municipal ordinances that classify property according to specific uses (single family, residential, commercial, industrial, multi-family, etc.). 
 

Definitions of Agency 

Agency laws vary from state to state-- and are continuing to evolve.  The goal is to provide competent and professional service to the consumer.  When there are potential conflicts in those fiduciary duties, the obligation of each agent is to disclose the nature of that conflict and to obtain the consent of the parties involved in the transaction. The following are some of the common terms. 

Agency--This is a framework that developed in the law to allow individuals to act through another person or representative. This particularly occurs in commercial transactions.  Examples might include hiring an attorney to represent you in a business transaction, working with a stock broker to purchase stocks or other investments, or working with a real estate broker to buy or sell real estate.  Your legal agent may have unlimited or limited powers on your behalf.  Your legal agent owes you certain fiduciary-like statutory duties which include such things as confidentiality, promoting your best interests, and exercising reasonable skill and care. 

Buyer’s Agent--Traditionally, buyers of residential real estate worked with a real estate brokers or sales associates on a non-agency basis.  In other words, the sales associate you work with acts as the legal agent of the seller and not as the buyer’s legal agent.  In contrast, buyers in commercial transactions often work with a real estate sales associate as their agent.  Now, you may contract with the agent you are working with to represent you.  As a buyer, you have access to listings available to your buyer’s agent through the Multiple Listing Service.  As a buyer, you will also receive other services from your buyer’s agent, such as financing information, assistance in determining your particular price range, and assistance in facilitating the closing.  Typically, the buyer and the brokerage company will enter into a written brokerage agreement.  In addition, the buyer’s agent will owe you all of the fiduciary duties as defined in agency law, including loyalty, confidentiality, accountability, and reasonable care and skill.  The buyer’s agent will represent your best interests during the transaction. 

Seller’s (Listing) Agent--A seller’s agent works to assist the seller in locating a buyer and in negotiating a transaction suitable to the seller’s specific needs. A seller’s agent has fiduciary duties to the seller, which include loyalty, full disclosure, confidentiality, diligence, obedience, reasonable care, and holding safe moneys entrusted to the agent. Although a seller’s agent represents the seller in the fiduciary capacity, they owe the buyer fairness and honesty. If your sales associate is representing the seller, just what kind of service can you, the buyer, hope to get?  Plenty. As agent of the seller, real estate professionals fulfill that agency relationship by assisting buyers in all aspects of the home purchase.  The law requires that all sales associates treat buyers with honesty and fairness.  In addition to the law, there is strong motivation to do so because buyer satisfaction means repeat and referral business.  Sales associates want you to think of them the next time you or a friend is selling a home.  

Limited or Dual Agency--In this type of situation, both the seller and buyer in a transaction are represented by the same legal agent.  In this case, there are specific statutory duties that the dual agent owes to both buyer and seller. However, those duties have a “limitation.”  Most notably is the duty not to disclose confidential information of one party to the other.  Dual Agency is allowed only with your consent.  Upon entering into a brokerage agreement (whether as buyer or seller) you will be given a form explaining dual agency that seeks your consent to allow your agent to act as dual agent should the situation arise.  If you consent at that time and a dual agency situation actually arises, you will be asked to confirm your prior consent before entering into a contract for the purchase or sale of property.