Real Estate Glossary
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Abstract (Of Title)
- A summary of the public records relating to the title to a particular piece of land. A lawyer or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.
- Condition in a mortgage that may require the balance of the loan to become due and payable immediately, if regular mortgage payments are not made or for a breach of other conditions of the mortgage.
Adjustments - On the Day of Completion or Closing Day (the day your lawyer gives you the keys to your new home) there are closing costs to be paid. Adjustments are one item among many that your lawyer will itemize for you - some are paid by you some are paid to you by the Seller. Examples of these costs include, seller has pre-paid taxes that cover a period of your ownership - you will need to pay these back as an adjustment. Any other pre-paid expense will work the same way. If the seller has collected rent in advance from an existing tenant, you will be credited (paid) this amount back as an adjustment. The buyer pays for adjustments (eg; taxes) starting from closing day on.
Agency - An important concept for buyers and sellers to understand. Sellers come into agency by signing the Listing Agreement. Buyers sign a Buyer Agency Agreement. These agreements hold the Brokerage and their Sales Representives (aka Agents) to a higher level of service (fiduciary duties) much like the relationship between a lawyer or doctor has with his clients/patients. The duties include putting the client's best interest first, confidentiality, obedience and competence. See Agency Explained for more details.
Agreement for Sale - An agreement to purchase real property wherein the seller retains title to the property while permitting the buyer to occuy the premises without becoming the owner. Infrequently used and not to be confused with the Agreement of Purchase and Sale (see below). Used when the buyer has little or no downpayment or the seller cannot discharge the current mortgage for a specified period of time. The agreement will have clauses that state what conditions need to be satified to have title pass to the buyer.
Agreement of Purchase and
- Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties and witnessed by a third party.
– “Also Known As” - as in, semi-detached a.k.a. “semi“.
A payment plan that enables the borrower to reduce his debt gradually through periodic (e.g.; monthly) payments of principal and interest..
Application - A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security.
- An expert judgment or estimate of the quality or value of real estate as of a given date.
Appraised Value - An opinion of value reached by an appraiser based upon knowledge, experience, and a study of pertinent data.
Appraiser - A person qualified by education, training, and experience to estimate the value of real and personal property.
Appreciation - An increase in value; the opposite of depreciation.
Assessment - The process of placing a value on property for the strict purpose of taxation. This may also refer to a levy against property for a special purpose, such as a sewer assessment.
Assumption of Mortgage
- Seller's may allow a buyer to “assume“ their existing mortgage. This require the consent of the lender (mortgagee) and the buyer will need to be credit worthy. The buyer if approved becomes fully responsible for payments. This is an attractive feature if the seller's mortgage rate is below current market rates. The buyer may save appraisal fees, some legal costs and survey costs. The seller may save any payout penalties or interest differential. The seller may want to consider a transfer of the mortgage instead of giving it up if moving to a new property requiring a mortgage.
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Balloon Mortgage -
A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at the end of the term.
Balloon Payment - The unpaid principal amount of a mortgagee or other long-term loan due at a certain date in he future, usually the amount that must be paid in a lump sum at the end of the term.
Basis Point - A basis point is one hundredth of a percentage or .01% therefore 0.5% would be 50 basis points.
Binder Insurance - A written evidence of temporary hazard or title coverage that only runs for a limited time and must be replaced by a permanent policy.
Borrower - One who receives funds with the expressed or implied intention of repaying the loan.
See Real Estate Broker
Building Line or Setback
- Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plan of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.
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Canada Mortgage and Housing Corporation (CMHC) - The housing agency for federal Government of Canada. Its main activity is the insuring of residential high ratio mortgage loans made by private lenders. CMHC does not lend money.
A limitation on the interest rate increase of either the periodic or lifetime rate or both for an adjustable rate mortgage.
Certificate Of Occupancy (CO) - Written authorization given by a local municipality that allows a newly-completed or substantially-completed structure to be inhabited. The issuing of a CO means that: the home is SAFE, SOUND & SANITARY, and has matched the PLANS & SPECIFICATIONS given to the Appraiser at the beginning of the Loan Process.
Certificate of Title
- A certificate issued by a title company or a written opinion rendered by a lawyer that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.
Closing or Close of Escrow
- The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by a lawyer and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of purchase and sale.
- The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of the property and are items prepaid at the closing day. This is a typical list:
1. Recording Deed and Mortgage
2. Escrow Fees
3. Lawyer's Fee + GST
4. Title Insurance
5. Appraisal and Inspection
6. Survey Charge
7. Land Transfer Tax (Provincial)
8. Land Transfer Tax (Toronto)
1. Cost of Abstract
2. Escrow Fees
3. Real Estate Commission + GST
4. Recording Mortgage
5. Survey Charge
6. Lawyer's Fee +GST
The Agreement of Purchase and Sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs.
Cloud (On Title)
- An outstanding claim or encumbrance which adversely affects the marketability of title.
Comparative Market Analysis a.k.a. CMA - An analysis made by the listing agent to assist the seller in comparing the property with others similar to it (size, features, location) that have recently sold in order to establish a listing price. This is not an appraisal to establish market value.
- Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price but may be a flat fee but never both.
- The taking of private property for public use by a government, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.
- Individual ownership of a dwelling unit (inside the walls) and a shared interest in the common areas and facilities which serve the multi-unit project.
Contract of Purchase
See Agreement of Purchase and Sale
Construction Loan - A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
- In the construction industry, a contractor is one who contracts to erect homes, buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, sewers and others.
The term sub-contractor is often used to refer to the fact that these contractors work under the project control of a general contractor (“the builder”).
- A mortgage loan not insured by CMHC or GE Capital. It is subject to conditions established by the lending institution and provincial and federal statutes. The mortgage rates may vary with different institutions and between provinces. The Loan to Value is 75% or less. Higher ratio mortgages are for loan to value above 75%. Borrowing (Loan) $70,000 on a home worth (Value) $100,000 (ratio = 70%) would be a conventional mortgage.
– The transfer of an interest in property from one party to another; the means or medium by which legal title to property is transferred. A conveyance is recorded by transfer form that is registered in the registry or land titles office. Procedures and forms will vary by province.
Cooperative Housing (a.k.a Co-op)
- An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles the resident to occupy a unit in the building or property owned by the cooperative. While the resident does not own the unit, the resident has an absolute right to occupy the unit for as long as the resident owns the stock.
Co-signer - A person who signs a legal instrument and therefore becomes individually and jointly liable for repayment or performance of an obligation.
Credit Report - A report to a prospective lender on the credit standing of a prospective borrower or tenant. Used to help determine credit worthiness. Rules and guidelines are set out in the Consumer Protection Act in Canada.
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A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the Province where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. See also general warranty deed, quitclaim deed, and special warranty deed.
- Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth in the mortgage or deed of trust. It is the mortgagor's responsibility to remember the due date and send the payment prior to the due date, not after. Generally, thirty days after the due date if payment is not received, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.
- Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.
Deposit (a.k.a Earnest Money)
- The amount of money to be paid by the purchaser to the seller upon the signing of the agreement of purchase and sale. The agreement will refer to the deposit amount and will acknowledge receipt of this amount. The deposit is held in trust by the Listing Broker or seller’s lawyer. The deposit may not be refundable if the purchaser fails to buy the property without good cause. If the purchaser wants the deposit to be refundable, they should insert a clause in the agreement specifying the conditions under which the deposit will be refunded, if the agreement does not already contain such clause. If the seller cannot deliver good title, the agreement usually requires the seller to return the deposit.
– The amount the mortgagor (the borrower) wishes to pay against the value of the property and reduce the mortgage (loan) amount. See Mortgage. Not to be confused with Deposit (see above).
Draw System - Scheduled payment of money to a builder during the phases of home construction. Between each draw, the appraiser must inspect the home to ensure that construction is proceeding as planned.
Dual Agency - a.k.a. multiple representation occurs when the same brokerage (through one or more of their sales representatives) has an agency relationship with both the buyer and the seller in a real estate transaction. There is a potential conflict of interest in this situation. It can be managed but the buyer and seller must agree in writing to proceed and they must be advised to consult their lawyers before signing any agreements. Note: Re/MAX Hallmark is independently owned and operated as are other Re/MAX franchises, so represenatives from these independent brokerages do not create Dual Agency. Now known a Multiple Representation
Due-on-Sale Clause - A type of acceleration clause, calling for a debt under a mortgage or deed of trust to be due in its entirety upon transfer of ownership of the secured property.
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Earnest Money a.k.a Deposit , See Deposit above.
- A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.
Eminent Domain - The right of a government to take private property for public use upon payment of its fair value.
- An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.
- 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.
- The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting from the property's fair market value the total of the unpaid mortgage balance and any outstanding liens or other debts against the property. A homeowner's equity increases as he pays off the mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in the property.
Equity of Redemption
– The right of the mortgagor (borrower) to reclaim clear title to the property upon full repayment of the debt.
Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual. An escrow account usually refers to the funds a mortgagor pays the lender at the time of the periodic mortgage payments. The money is held in a trust fund, provided by the lender for the buyer. Such funds should be adequate to cover yearly anticipated expenditures for mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments.
Escrow payment - That portion of a mortgagor's monthly payment held by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as impounds or reserves in some jurisdictions.
Exclusive right to sell (Listing) - A written contract giving a licensed real estate agent the exclusive right to sell a property for a specified time. The owner agrees to pay a full commission to the broker even though the owner may sell the property.
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Fair Market Value -
The price at which property is transferred between a willing buyer and a willing seller, each of whom has a reasonable knowledge of all pertinent data and neither of whom is under any compulsion to buy or sell.
Fee Simple - An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. The greatest interest a person can have in real estate.
Fiduciary - A person in a position of trust and confidence for another. See below. Applies to a Listing Agent and Buyer Agent.
Fiduciary Duties - These are the duties of real estate sales person (agent) to his/her client (buyer or seller) and they include:
- Good Faith - always working in the Best Interest of the client.
- Disclosure - reveal any facts affecting the value of the property.