Adjustable-rate Mortgage (ARM)
A mortgage that permits the lender to adjust the interest rate periodically on the basis of changes in a specified index.
Any relationship in which one party (agent) acts for or represents another under the authority of the latter.
A party who is authorized to act in the best interests of a principal/client, and is obligated to place the principal’s interests before the interests of any other parties, including the agent’s own interests regardless of whether the agency relationship is with the seller of the property or the buyer.
A timetable schedule showing the amount of each payment applied to interest and principal and the remaining balance after each payment is made.
A written analysis of the estimated value of a property prepared by a qualified appraiser.
Biweekly Payment Mortgage
A mortgage requiring payments every two weeks instead of the standard monthly payment. The result for the borrower is a substantial savings in interest.
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
Buyer Representation Agreement
An agreement that specifies the duties and the scope of services a buyer’s representative agrees to provide to the buyer as well as specifying the buyer’s responsibilities. In some states, where there is no written agreement required, the agent will be presumed to be representing the buyer. Consult with your local REALTOR® for complete details when you first start the search for any real estate property.
A real estate buyer’s representative represents the consumer who is purchasing property in a real estate transaction, not the seller. State law varies but usually a buyer’s representative works for, and owes fiduciary responsibilities (see fiduciary duties) to, the real estate buyer and has the buyer’s best interests in mind throughout the entire real estate transaction.
Certificate of Title
A statement provided by an abstract company or attorney stating that the title to real estate is legally held by the current owner.
A party whose interests are to be served by the words and deeds of an agent with or without a contract according to state law. Also referred to as a principal. Regardless of whether the duties owed in a particular state are traditional, common law fiduciary duties, or are statutorily defined, they are still owed to any principal/client.
A meeting at which a sale of property is finalized by the buyer signing the mortgage documents and paying closing costs, and seller’s transfer of the deed to the property.
The fees, costs, and taxes associated with the purchasing of a home, the borrowing of money, and the preparation of necessary paperwork to finalize the sale. The total amount of the closing costs will vary depending on where the new home will be located, what type of property it is, the price of the home, and the complexity of the transaction. It is extremely important that the buyer work closely with his/her buyer’s representative and lender and title company (although in states where attorneys are used, the attorney usually works with the title company) in the early stages of the home buying process to determine what these costs could be, since closing costs can easily represent thousands of dollars.
Code of Ethics
The Code of Ethics and Standards of Practice of the National Association of REALTORS® establishes obligations that a real estate professional who is a member (a REALTOR®) must comply with to ensure that all parties to the transaction are treated fairly.
The fee charged by a broker or agent for providing services related to a real estate transaction such as marketing the property, bringing the parties together, and negotiating a purchase contract or loan.
Comparative Market Analysis (CMA)
An analysis provided by a real estate professional that surveys like properties in a given area or of a certain type for the purpose of determining the relative value of a given property.
The fiduciary duty that prohibits the agent from communicating personal information about the principal that was given to or acquired by the agent within the scope of employment as an agent to the principal. Personal information must be kept confidential unless the client releases the agent, or subagent, from this duty. However, the material facts and defects of a property are not confidential.
Cost of Documentation
A closing cost for any research involving public records and the title history on the property that is being bought. This insures that the title on the property is unencumbered by other ownership or liens and can be delivered to the buyer at closing. Other costs include recording and transfer fees that cover the legal recording of the deed to the buyer’s name.
Costs of Originating the Mortgage
A closing cost that generally includes a variety of fees such as the loan origination fee, the appraisal fee, and the cost of credit reports. There are also other fees that will be expected to be paid at closing such as hazard and mortgage insurance and interest accrued on the mortgage between closing date and the end of the month.
An assessment of a person’s ability (or history) of debt repayment. Most information in a credit rating comes from companies that an individual has credit with such as banks, department stores, finance companies, etc. as well as from certain public records such as lawsuits, tax liens, judgments, and bankruptcies.
A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness. Credit reports are usually based on the individual’s: (1) credit history; (2) who reviewed the credit history; (3) information that has been given to the credit information company; (4) specific identification information; and (5) any explanatory notes and comments.
The legal document conveying title to a property.
The party selected to represent a principal/client in a designated agency office. Designated agency has been legislatively created in many states, allowing the management of a brokerage to establish an office policy, whereby the managing broker appoints, or designates, one licensee associated with that brokerage to act as the exclusive agent of the buyer and another to act as the exclusive agent of the seller. No other licensee in the brokerage has an agency relationship to represent that principal/client.
Discount Points (to Buying Down the Mortgage)
A closing cost that is optional and can vary significantly from 0.5 to 3 points on the total of the mortgage. It is a one-time charge that is calculated based on the amount of the mortgage loan. A buyer would pay this amount up front to reduce the ongoing cost of the mortgage over the life of the loan. This charge is fully deductible as mortgage interest.
A broker who works with both parties in a real estate transaction: buyer and seller, landlord and tenant. All jurisdictions require dual agency to be disclosed to the parties to the transaction.
Earnest Money Deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
A homeowner’s financial interest in a property.
A deposit of value, money, or documents with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow, held by the broker, bank or other party, until delivered to the seller when the transaction is closed.
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit information by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.
The term fiduciary is defined as of relating to or involving a confidence of trust. Fiduciary duties are determined by state law and generally include: confidentially, undivided loyalty, obedience, reasonable care and diligence, full disclosure, and accounting. Regardless of whether the duties owed in a particular state are traditional, common law fiduciary duties, or are statutorily defined, they are owed to any principal/client.
The fiduciary duty that requires the agent to disclose affirmatively and honestly all information the agent knows concerning the transaction (and property) which might affect the decisions a client or customer makes.
A thorough inspection that evaluates the structural and mechanical condition of a property. Could be environmental, energy-efficient, etc.
The legal claim against a property that must be satisfied before the property may be sold.
A loan to finance the purchase of real estate, usually with specified payment periods and interest rates. Generally, the mortgage document pledges the mortgaged property to the lender as security for the loan.
A policy that insures the lender against loss caused by a mortgagor’s default on a mortgage.
Multiple Listing Services (MLS)
A database of all properties for sale listed by members of a specified MLS.
The purchase contract is the legally binding document that sets forth the terms of the sale, establishes the rights and obligations of the parties involved, specifies the actions to be taken in order to close the sale, and establishes the time frames for those steps to be completed.
A registered collective membership mark that identifies a real estate professional who is a member of the National Association of REALTORS® and subscribes to its strict code of ethics.
Also known as a purchase contract, the legally binding document that sets forth the terms of the sale, establishes the rights and obligations of the parties involved, specifies the actions to be taken in order to close the sale, and establishes the time frames for those steps to be completed.
A document prepared by a broker, escrow company, or lender detailing the complete breakdown of the costs and disbursements in a real estate transaction.
A broker who works for just one party-client in a real estate transaction—the buyer or the seller, the landlord or the tenant, and not both—with primary fiduciary duties to that party only.
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and the other physical features.
Taxes and Other Local Fees
A closing cost that will vary according to the requirements of local governments. Some may demand that the property taxes be prorated according to when the buyer will officially become the owner of the property. There can also be personal property taxes, homeowner’s association dues, and other assessments that are specific to the area that you are moving into, as well as transfer taxes in some locations.
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Truth in Lending
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate and other charges.
A final inspection of a home before closing to verify that the condition of the property and contents are as contracted.