FELIX RESOURCES

Glossary of
Real Estate Terms.

Your handy reference for aspiring real estate agents, nervous home sellers (or buyers), or anyone who’s curious about the industry.

A

Abandonment
Abandonment can refer to the physical vacating of real estate. The term also has a legal meaning when a person's rights to property are voluntarily relinquished or surrendered to terminate their interest in the property.
Abatement
Abatement can refer to the physical removal of materials from a property, such as lead paint or asbestos. It can also refer to the reduction or elimination of taxes in connection with tax value assessments or economic incentives to attract new businesses.
Absorption Rate
The Absorption Rate refers to the rate at which homes are selling in a specific geographic territory or price range. It is determined by taking the total homes sold in a given time period, like a year, and dividing by a number of time units, usually months. For example, 360 homes sold in the 78704 zip code in the previous year. The absorption rate would be 360 homes divided by 12 months for an absorption rate of 30 homes per month.
Active
When a property is Active, it is "officially" listed for sale. Sometimes, a property may be listed as Coming Soon prior to being "officially" active. The term Active is also used on the MLS to designate the status of a property. Active typically means the home is ready to be shown to prospective buyers.
Active Option Contract
An active option contract means the seller has accepted an offer on their home and the property is now in the option period. During this time, the buyer has the unrestricted right to terminate the contract for any reason without risking their earnest money deposit. This is also the time in which the home inspection will occur. The agreed upon length of the option period and the amount of the option fee will be outlined in the Purchase Contract. If the buyer decides to terminate the contract during the option period, the seller has the right to keep the option fee.
Addendum
Addendums are additional documents that are added to an agreement, such as a listing agreement or a purchase contract. Addendums are required to add language to contracts that are not included within the contracts themselves. For a listing agreement, some examples of addendums are the Seller's Disclosure Notice, Addendum for Seller's Disclosure of Information on Lead-Based Paint and Lead-Based-Paint Hazards, and Keybox Authorization by Tenant. For the purchase contract, addendums can be the Third Party Financing Addendum, Non-Realty Items Addendum, and the Addendum for Property Subject to Mandatory Membership in a Property Owners Association.
Adjustable-Rate Mortgage
An Adjustable-Rate Mortgage is a mortgage that maintains a fixed rate for a set period of time, sometimes between 3 and 10 years, thereafter it adjusts as often as every year. If you're planning to sell within that set time frame, ARMs may be perfect for you.
Amenity
An Amenity is any feature or attribute connected to a property that enhances its value in the eyes of a prospective buyer. A fireplace or pool is an example of an amenity in a particular home. Parks, sports courts, and trails are examples of neighborhood amenities.
Amortization
Amortization is a way to make equal payments on a loan over time. The schedule separates each payment out. In the beginning, you’re paying mostly interest; by the end, you're mostly reducing the principal with very little applied to interest. While the allocation toward principal and interest changes in every payment, the total amount of the payment remains constant throughout the term of the loan.
Annual Percentage Rate (APR)
An Annual Percentage Rate (APR) is the effective interest rate you pay on your mortgage. It differs from the loan interest rate because it includes loan origination costs and discounts applied at the beginning of the loan. The APR was introduced by the Truth in Lending Act of 1968 as a requirement for all consumer credit and is a way for consumers to compare loan costs between different lenders. If a mortgage has a stated interest rate of 5%, the APR will usually be slightly higher.
Assessor
An Assessor is an individual or entity responsible for assigning a value to a property for purposes of property tax collections. In Texas, the assessor is a county function and each county has an appraisal district. The appraisal district will assign a value as of January 1st of each calendar year and notices of the current year assessed value are usually sent to property owners in the spring. See Property Taxes for more information.
Average
The Average is the sum of a list of values divided by the number of items in the list. For example, three homes have individual prices of $265,000, $275,000, and $285,000. The average price is (265,000+275,000+285,000)/3 = $275,000. See also Median.
Basis (Cost Basis)
The Basis or Cost Basis of a property is the original amount paid by an individual or entity. The basis is deducted from the sale price to determine the amount of gain for tax purposes. A home's basis can be reduced if depreciation is taken during the time of ownership, as might be the case for an investment property. Some improvements, such as solar panels or a room addition, add to the basis. Other items, such as new paint or replacing an air conditioner, are considered maintenance and don't add to the basis. The IRS rules about determining the basis of property are complex and may require the help of a tax professional.
Beneficiary
A Beneficiary is someone who benefits from a trust or other instrument designed to create or impart value on its behalf. As an example, Anna might be the beneficiary of rents collected by a property held in a real estate trust created for her by her parents. The term also refers to a lender who is named as the recipient of funds in a note and the deed created when a homeowner takes out a mortgage.
Bill of Sale
A Bill of Sale is a document used to transfer ownership of personal property from one party to another. Land is considered real property, not personal property.
Bond
A Bond is an instrument of debt commonly used by governments to finance infrastructure projects and improvements.
Book Value
Book Value is an accounting term that refers to the reported value of an asset minus any associated liabilities. Assets on a balance sheet are generally shown at their book value.
Breach of Contract
A Breach of Contract is a violation of a contract's terms without legal reason. Failure to make mortgage payments when due or canceling a contract without cause are examples of breaches of contract.
Bridge Loan
A Bridge Loan is a short-term financing instrument intended to provide a "bridge" to long-term financing. A common example of bridge financing is a home construction loan. The borrower might secure a construction loan to build a house with the intent of rolling the loan into a conventional mortgage once the home is complete.
Broker
A Real Estate Broker is an individual or entity licensed by a state regulatory agency to represent real estate buyers and sellers. A broker has a fiduciary obligation to put clients' interests above their own, to lend their expertise in guiding clients through a real estate transaction, and to treat all parties of a transaction fairly. Brokers may also sponsor sales agents and are responsible for the actions of their sponsored agents. Brokers must have a minimum level of sales experience and are subject to additional education requirements. Brokers are not allowed to give legal advice or draft contracts unless they also hold a law license.
Broker Price Opinion (BPO)
A Broker Price Opinion, commonly referred to as a BPO, is a determination of a price at which a property might sell. As the name implies, it's developed by a licensed real estate broker by evaluating comparable sales and current market conditions. A BPO differs from an appraisal in that it is not an opinion of value. Brokers are not allowed to use the term "value" when developing a BPO; licensed appraisers must be employed to determine a market value for a property. BPOs are commonly used by relocation companies to determine pricing for sellers who need to sell their homes because of a job transfer.
Brokerage
A Brokerage is a collection of brokers and sales agents operating under a company banner. All brokerages have a single designated broker, but may also employ other brokers called broker associates. The term is also used to describe the act of bring together parties for the purpose of transacting a property, including buying, selling, exchanging, and leasing.
Building Codes
Building Codes are standards created by building industry trade groups and adopted by local jurisdictions. The codes lay out prescribed methods and minimum standards for construction. Building codes are enforced by local government inspectors who conduct site inspections during construction. The most commonly adopted set of codes for residential construction is the International Residential Code (IRC) published by the International Code Council. Building codes are typically updated every three years, although local adoption may lag as rules are added or IRC codes are modified. In some geographic areas, such as property outside city limits, code compliance may be handled by private inspectors, or it may not be enforced at all. It is important to know that building code compliance IS NOT normally part of the purchase and sale of real estate. Appraisers and home inspectors may note code issues or concerns on reports, but they do not certify if buildings comply with codes.
Bundle of Rights
The Bundle of Rights is used to refer to the rights that convey with the ownership of real estate. The rights refer to the ability to purchase, possess, use, convey, encumber, and exclude in connection with the ownership of the property.
Buyer's Agent
A Buyer's Agent–also referred to as a selling agent–is a broker or sales agent who has agreed to represent a buyer in the search and purchase of real estate. The buyer's agent has a fiduciary responsibility to the client that overrides their own interests. Buyer's agents are generally compensated by the listing broker via the listing broker's agreement with the seller. The listing broker will typically agree to list a property for a percentage of the sale price and agree to share a portion of the commission with any agent who brings a ready and willing buyer to the transaction.
Buyer's Market
A Buyer's Market refers to the overall state of a local real estate market and is used when supply exceeds demand, meaning the market favors buyers. A six month supply of inventory is considered a balanced market, meaning the available inventory of homes for sale can be expected to sell within the next six months, assuming no new homes are added. If the inventory is greater than six months, a market is referred to as a buyer's market. This is a snapshot in time and is always fluctuating. Market conditions are usually evaluated on a monthly basis and are tracked to communicate the overall state of a local market.

C

Cap
The Capitalization Rate–commonly referred to as the cap rate–is a measure of the return on investment of income-producing property. It's a short-hand method for evaluating a property and comparing one investment versus another. The simplest version of a cap rate formula is the measure of net income after expenses divided by the cost of the property. An example: A rental duplex generates $2400 per month in rents and has expenses of $800 for a net income of $1600 per month, or $19,200 annually. If the property costs or is valued at $300,000, the cap rate would be $19,200/$300,000 = 6.4%. This is the equivalent of a return on cash, assuming an investor pays all cash for the purchase. More sophisticated cap rate formulas factor the use of debt for the acquisition.
Capitalization Rate
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Cash Flow
Cash Flow is the measure of the cash income and spending for an entity. A cash flow statement is an accounting document used to show cash receipts and expenditures over a period of time for a company. It's similar to an income statement but differs in that it doesn't include non-cash items such as depreciation and amortization. Cash flow is frequently used to evaluate income property such as multifamily housing.
Chattel
Chattel is usually used to describe movable personal property. Land and real property are not chattel. In some jurisdictions, chattel can also describe intangible property.
Closing Costs
Closing Costs refer to the transaction-related costs incurred when a property is sold. There are closing costs for both buyers and sellers. Seller closing costs can include title insurance, escrow fees, realtor commissions, and other costs negotiated as part of the purchase contract such as a home warranty, new survey, or POA fees. Buyer closing costs can include loan origination fees, escrow fees, appraisal costs, and POA fees. Buyer closing costs will vary depending on the type of loan used to purchase the property.
Closing Disclosure (Statement)
The Closing Disclosure is the final settlement statement for buyers in purchase transactions involving financing. The form was implemented as part of the Dodd-Frank mortgage reform passed in 2013. Lenders are required to provide the Closing Disclosure at least 3 days before closing so that a buyer can review closing costs, monthly payment amounts, cash needed to close, and compare the final terms with the initial loan estimate provided when the buyer applied for the loan. In some types of transactions, such as reverse mortgages, buyers will receive a HUD-1 and Truth-In-Lending forms instead of the Closing Disclosure.
Cloud
In real estate, a Cloud may refer to an issue that affects an owner's clear title to a property. If a lien, judgment, encumbrance, or claim is attached to a property, title to the property is characterized as having a cloud. These issues should be resolved before the title is passed from one owner to another.
Collateral
Collateral is something of value put up as security to ensure repayment of a loan. In real estate, property is frequently pledged as collateral against a mortgage loan for the purchase of the property. If a borrower defaults on the repayment of the loan, the lender can seize the property as a means of satisfying the debt.
Coming Soon
Coming Soon is used to describe a property status when a listing agreement has been signed with a listing broker but the property is not officially for sale. Coming Soon properties may be marketed by a broker to generate interest ahead of an official listing. A Coming Soon status is often advertised on a sign as a means of attracting attention to a home about to be listed. The Coming Soon status is more popular when market conditions heavily favor sellers, and it's possible to pre-sell a listing. Some websites, such as Zillow, allow properties to be listed as Coming Soon. Some MLS services also allow Coming Soon listings, but many– including the Austin MLS– do not. The Austin MLS allowed Coming Soon listings until summer 2018, at which time the Austin Board of Realtors removed the status.
Comparative Market Analysis
A Comparative Market Analysis or CMA is a method of estimating a home’s value based on recent sales of similar properties in the same area. The CMA is a tool used by real estate agents to help them determine what a property is worth. They do this by assessing the features of your property and finding “comps” or comparable properties that are similar to your own. A CMA will likely include three to four comparable properties. These properties should share similar features to your own home, have recently sold, and be in close proximity to your home. The analysis will include the sold price of the properties along with a proposed listing price for your property. Some agents may also include other market data including days on market and pricing trends.
Condominium
A Condominium is a property type in which an owner purchases a unit but shares a common interest in the building and land with other unit owners. The owner has all rights to the interior of the unit but shares rights and responsibilities for the remainder of the property with the other unit owners. A condominium is a legal vehicle for ownership commonly used in multi-unit buildings with shared walls. A condominium owner association (COA) is created to administer the rules and regulations of the condo, to collect dues, and maintain the building and grounds of the condo community. The COA is usually responsible for the master insurance of the overall property, though individual owners typically insure the interior of their units separately. Condominiums can take many forms, from high-rise towers to two-unit detached homes sharing a single lot. Purchasing a condo involves added layers of complexity and it's wise to work with a broker who has extensive experience with condo regimes.
Condominium Information Statement (CIS)
A Condominium Information Statement (CIS) is the packet of documents provided to buyers purchasing a condo unit that is newly constructed or recently converted from a different use. It is a requirement of the Texas Property Code. The packet includes the condo regime declaration, certificate of formation, bylaws, rules & regulations, the association budget, etc. If the condo has been sold previously, the seller would provide a Condominium Resale Certificate, which is similar to the CIS.
Contingent
Contingency has several meanings in a real estate transaction. A contingent offer or contract means that a buyer is willing to purchase a property subject to a contingency that must be satisfied before the purchase can be completed. Most often the contingency involves the sale of another home by the buyer. A contingency in a contract may also refer to some condition or term of the contract that must be satisfied or met, such as credit approval for a loan or an appraisal to support the contract price.
Contract for Deed
A Contract for Deed is a transaction where the seller retains title to a property until a buyer completes all repayment obligations. The buyer is allowed to occupy and treat the property as their own but doesn't have the rights of ownership. A contract for deed is a type of owner financing. Contracts for deed are legitimate instruments but have been associated with unscrupulous sellers who take advantage of buyers unable to obtain financing through traditional channels. Sellers might use a late payment or loan-term violation as a pretext to cancel the contract and leave the buyer with no interest in the property and little or no recourse. Contracts for deed are also called land contracts or installment land contracts.
Credit
Credit commonly refers to financing for the purchase of real estate. Credit approval is obtained when a borrower has met all the underwriting requirements set forth by a lender for loan approval. Credit also refers to an individual borrower's creditworthiness, as reported by a credit reporting agency such as TransUnion, Experian, or Equifax. A credit score is a numeric representation of an individual's credit history and likelihood of debt repayment.

D

Developer
A Developer is an individual or organization that purchases raw land and converts that into a subdivision of properties. In the process, the developer may also install utilities and infrastructure to support the subdivision.
Down Payment
A Down Payment is the specific amount of money that is being paid by the buyer in a real estate transaction that is not a part of their mortgage. Down payments can be as low as 3%. Different loan programs have different specifications. The more money that is put down, the lower your monthly mortgage payment will be. Typically, if a buyer puts down over 20%, they are able to bypass mortgage insurance.
Dual Agency
Dual agency is when a single brokerage represents both the buyer and the seller in a real estate transaction and has a fiduciary duty to both. Dual agency is illegal in Texas. However, intermediary agency is legal.

E

Equity
Equity is synonymous with value. In real estate, equity is the value of your share in a specific property, less any debt owed on it. A simple equation is: Equity = Value - Mortgage (also known as debt).
Down Payment
A Down Payment is the specific amount of money that is being paid by the buyer in a real estate transaction that is not a part of their mortgage. Down payments can be as low as 3%. Different loan programs have different specifications. The more money that is put down, the lower your monthly mortgage payment will be. Typically, if a buyer puts down over 20%, they are able to bypass mortgage insurance.
Dual Agency
Dual agency is when a single brokerage represents both the buyer and the seller in a real estate transaction and has a fiduciary duty to both. Dual agency is illegal in Texas. However, intermediary agency is legal.
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