Glossary of Real Estate Terms - Courtesy of the California Department of Real Estate
A through F
Adjustable Rate Mortgage (ARM) A mortgage loan which bears interest at a rate subject
to change during the term of the loan, predetermined or otherwise.
Agent One who acts for and with authority from another called the principal.
Amortization The liquidation of a financial obligation on an installment basis; also, recovery
over a period of cost or value.
Amortized Loan A loan to be repaid, interest and principal, by a series of regular payments
that are equal or nearly equal, without any special balloon payment prior to maturity. Also
called a Level Payments Loan.
Annual Percentage Rate The relative cost of credit as determined in accordance with
Regulation Z of the Board of Governors of the Federal Reserve System for implementing
the Federal Truth in Lending Act.
Appraisal An estimate of the value of property resulting from an analysis of facts about the
property. An opinion of value.
Appraiser One qualified by education, training and experience who is hired to estimate the
value of real and personal property based on experience, judgment, facts, and use of
formal appraisal processes.
APR See ANNUAL PERCENTAGE RATE.
Balloon Payment An installment payment on a promissory note - usually the final one for
discharging the debt - which is significantly larger than the other installment payments
provided under the terms of the promissory note.
Blighted Area A district affected by detrimental influences of such extent or quantity that real
property values have seriously declined as a result of adverse land use and/or destructive
economic forces; characterized by rapidly depreciating buildings, retrogression and no
recognizable prospects for improvement. However, renewal programs and changes in use
may lead to resurgence of such areas.
Bond Written evidence of an obligation given by a corporation or government entity. A surety
instrument.
Broker A person employed for a fee by another to carry on any of the activities listed in the
license law definition of a broker.
Broker-Salesperson Relationship Agreement A written agreement required by the
regulations of the Real Estate Commissioner setting forth the material aspects of the
relationship between a real estate broker and each salesperson and broker performing
licensed activities in the name of the supervising broker.
CC&Rs Covenants, conditions and restrictions. The basic rules establishing the rights
and obligations of owners (and their successors in interest) of real property within a
subdivision or other tract of land in relation to other owners within the same subdivision
or tract and in relation to an association of owners organized for the purpose of operating
and maintaining property commonly owned by the individual owners.
Closing Process by which all the parties to a real estate transaction conclude the details of
a sale or mortgage. The process includes the signing and transfer of documents and
distribution of funds.
Closing Costs The miscellaneous expenses buyers and sellers normally incur in the transfer
of ownership of real property over and above the cost of the property.
Closing Statement An accounting of funds made to the buyer and seller separately. Required
by law to be made at the completion of every real estate transaction.
Commission An agent's compensation for performing the duties of the agency; in real estate
practice, a percentage of the selling price of property, percentage of rentals, etc. A fee for
services.
Common Area An entire common interest subdivision except the separate interests therein.
Comparable Sales Sales which have similar characteristics as the subject property and are
used for analysis in the appraisal process. Commonly called comparables, they are
recent selling prices of properties similarly situated in a similar market.
Compound Interest Interest paid on original principal and also on the accrued and unpaid
interest which has accumulated as the debt matures.
Condition In contracts, a future and uncertain event which must happen to create an
obligation or which extinguishes an existent obligation. In conveyances of real property
conditions in the conveyance may cause an interest to be vested or defeated.
Conditional Sales Contract A contract for the sale of property stating that delivery is to be
made to the buyer, title to remain vested in the seller until the conditions of the contract
have been fulfilled.
Condominium An estate in real property wherein there is an undivided interest in common
in a portion of real property coupled with a separate interest in space called a unit, the
boundaries of which are described on a recorded final map, parcel map or condominium
plan. The areas within the boundaries may be filled with air, earth, or water or any
combination and need not be attached to land except by easements for access and support.
Conventional Mortgage A mortgage securing a loan made by investors without
governmental underwriting, i.e., which is not FHA insured or VA guaranteed. The type
customarily made by a bank or savings and loan association.
Cooperative (apartment) An apartment building, owned by a corporation and in which
tenancy in an apartment unit is obtained by purchase of shares of the stock of the
corporation and where the owner of such shares is entitled to occupy a specific apartment
in the building. In California, this type of ownership is called a stock cooperative.
Co-signer A second party who signs a promissory note together with the primary borrower.
Discount Points The amount of money the borrower or seller must pay the lender to get a
mortgage at a stated interest rate. This amount is equal to the difference between the principal
balance on the note and the lesser amount which a purchaser of the note would pay the
original lender for it under market conditions. A point equals one percent of the loan.
Effective Interest Rate The percentage of interest that is actually being paid by the borrower
for the use of the money, distinct from nominal interest.
Equity The interest or value which an owner has in real estate over and above the liens against it.
Equity Build-up The increase of owner's equity in property due to mortgage principal
reduction and value appreciation.
Escrow The deposit of instruments and/or funds with instructions with a third neutral party to
carry out the provisions of an agreement or contract.
Escrow Agent The neutral third party holding funds or something of value in trust for
another or others.
Fair Market Value This is the amount of money that would be paid for a property offered on the
open market for a reasonable period of time with both buyer and seller knowing all the uses
to which the property could be put and with neither party being under pressure to buy or sell.
First Mortgage A legal document pledging collateral for a loan (see mortgage) that
has first priority over all other claims against the property except taxes and bonded
indebtedness. That mortgage superior to any other.
