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Cali RE Practice
| Term | Definition |
|---|---|
| Agent | A person authorized to represent another (the principal) in dealings w/third parties. |
| Principal | A person who grants another person (an agent) authority to represent her in dealings w/third parties. |
| Third party | A person seeking to deal w/a principal through an agent. AKA a customer. |
| Client | A person who employs a real estate agent. A real estate broker's client can be the seller, the buyer or both. |
| Dual agent | An agent who represents both parties to a transaction, as when a broker represents both the buyer and the seller. |
| Finder | Someone who introduces a real estate buyer and seller, but doesn't help them negotiate their contract. A finder isn't the agent of either party and doesn't have to be licensed. AKA a middleman. |
| Fiduciary relationship | Relationship of trust & confidence. One party owes the other (or both parties owe each other) loyalty & a higher standard of good faith than is owed to third parties; I.E., an agent is a fiduciary in relation to the principal; spouses are fiduciaries. |
| Trust funds | Money or things of value received by an agent, not belonging to the agent but being held for the benefit of others. |
| Commingling | Illegally mixing trust funds held on behalf of a client w/personal funds. |
| Secret profit | A financial benefit that an agent takes from a transaction w/o informing the principal. |
| Latent defects | Defects that are not visible or apparent from an ordinary inspection of the property. |
| Material fact | An important fact; one that's likely to influence a decision. |
| Imputed knowledge | A legal doctrine stating that a principal's considered to have notice of information that the agent has, even if the agent never told the principal. |
| Vicarious liability | A legal doctrine holding that a principal can be held liable for harm to third parties resulting from an agent's actions. |
| Joint and several liability | A form of liability in which two or more persons are responsible for a debt both individually and as a group. |
| In-house transaction | A sale in which the buyer and the seller are brought together by salespersons working for the same broker. |
| Ready, willing and able | A buyer is ready, willing and able if he makes an offer that meets the seller's stated terms, and has the contractual capacity and financial resources to complete the transaction. |
| Procuring cause | The real estate agent who's primarily responsible for bringing about a sale; for example, by negotiating the agreement between the buyer and seller. |
| Open listing | A nonexclusive listing, given by a seller to as many brokers as she chooses. If the property is sold, a broker's entitled to a commission only if he was the procuring cause of the sale. |
| Exclusive agency listing | A listing agreement that entitles the broker to a commission if anyone other than the seller finds a buyer for the property during the listing term. |
| Exclusive right to sell listing | A listing agreement that entitles the broker to a commission if anyone - including the seller - finds a buyer for the property during the listing term. |
| Safety clause | Clause in a listing agreement that says for a specified time after the listing expires, the broker will still be paid a commission if the property's sold to someone the broker dealt w/during the listing term. AKA an extender clause or protection clause. |
| Real estate transfer disclosure statement | A statement containing information about the property that a seller of residential property's required to give to the buyer. |
| Mello-Roos lien | A lien based on a type of special assessment allowed under the Mello-Roos Community Facilities Act, which allows communities to create special districts to finance certain kinds of improvements or services. |
| Block busting | Attempting to induce owners to list or sell their homes by stating or implying that the neighborhood's likely to decline and property values will fall because members of a protected class (a different race or religion, for example) are moving in. |
| Steering | Channeling prospective buyers or tenants to or away from particular neighborhoods based on their race, religion, national origin or membership in any other protected class. |
| Redlining | The refusal by a lender to make loans secured by property in a certain neighborhood because of the racial or ethnic composition of the neighborhood. |
| Place of public accommodation | A nonresidential facility operated by a private entity and open to the public, if operation of the facility affects commerce. |
| Conspiracy | An agreement or plan between two or more persons to perform an unlawful act. |
| Price fixing | The cooperative setting of prices by competing firms. Price fixing's an automatic violation of antitrust laws. |
| Group boycott | In the real estate profession, an agreement between two or more real estate brokers to exclude other brokers from equal participation in real estate activities. |
| Tie-in arrangement | An agreement to sell one product, only on the condition that the buyer also purchases a different product. A tie-in arrangement is an automatic violation of antitrust laws. |
| Market allocation | When competing brokers agree not to sell: 1) certain products or services in certain specified areas; 2) in specified areas; or 3) to certain customers in specified areas. |
| Environmental hazards | Dangerous elements or conditions present on the property that real estate agents should be aware of and warn clients about including asbestos, radon, mold, etc.... |
| Competitive market analysis | A comparison of homes similar in location, style and amenities to the subject property, for setting a listing price. Process's based on the sales comparison approach to value used by appraisers. AKA comparative market analysis or broker price opinion. |
| Value in use | The value of a property to its owner or to a user. AKA use value. |
| Value in exchange (market value) | The most probable price which a property should bring in a competitive & open market under all conditions requisite to a fair sale, the buyer & seller each acting prudently & knowledgeably & assuming the price's not affected by undue stimulus. |
| Market price | The price actually paid for a property. |
| Comparable | Property that's similar to the subject property & has recently sold, currently listed or who's listing has recently expired. Prices of comps. provide data for est. value of subject property using the sales comp. approach to appraisal or cma. AKA comp. |
| Cash equivalent | When a property's financing terms do not affect the market value of the property, the financing's said to be cash equivalent. |
| Arm's length transaction | A transaction in which there's no pre-existing family or business relationship between the parties. |
| Request for reconsideration of value | A request to a lender to reconsider the appraised value of a property, when the appraisal comes in lower than expected. The request includes data on comparable sales that would support a higher market value for the subject property. |
| Farming | A sales technique that involves choosing a neighborhood where you wish to concentrate your activities & then becoming a well-known name in that neighborhood through various marketing activities. |
| Cold calling | A sales method that involves making unsolicited contact w/prospects you have had no previous contact with, to see if they're interested in your product or services. |
| For sale by owner (FSBO) | A property that's being sold by the owner w/o the help of a real estate agent. |
| One-party listing | A listing agreement that's effective only for one particular buyer. |
| Curb appeal | The attractiveness of a property to a prospective buyer, based solely on its external appearance. |
| Truth in Lending Act (TILA) | Fed. law that req. lenders to make disclosures concerning loan costs to applicants for consumer loans (including mrtg loans that will be used for personal, family or household purposes) & also req. certain disclosures in ads concerning consumer credit. |
| Triggering term | Under the TILA, a specific financing term that, when included in an ad, triggers the req. that the APR & other financing terms must also be disclosed in the ad. |
| Annual Percentage Rate (APR) | All of the charges that a borrower will pay for the loan (including the interest, loan fee, discount points & mortgage insurance costs) expressed as an annual percentage of the loan amount. |
| Purchase agreement | A contract in which a seller promises to convey title to real property to a buyer in exchange for the purchase price. AKA deposit receipt, sales contract or contract of sale. |
| Backup offer | An offer that's contingent on the failure of a previous purchase agreement. |
| Counteroffer | A response to a contract offer, changing some of the terms of the original offer. It operates as a rejection of the original offer (not as an acceptance). |
| Revoking an offer | When someone who made an offer withdraws the offer, as when a buyer withdraws his offer to purchase property. |
| Acceptance | Agreeing to the terms of an offer to enter into a contract, thereby creating a binding contract. |
| Cancellation | Termination of a contract w/o undoing acts that have already been performed under the contract. |
| Good faith deposit | A deposit that a prospective buyer gives the seller as evidence of her good faith intent to complete the transaction. AKA earnest money. |
| Liquidated damages | A sum that the parties to a contract agree in advance (at the time the contract's made) will serve as full compensation in the event of a breach. |
| Community property | Property owned jointly by a married couple in California & other community property states, as distinguished from each spouse's separate property; generally, any property acquired through the labor or skill of either spouse during marriage. |
| Power of attorney | An instrument authorizing one person (the attorney in fact) to act as another's agent, to the extent stated in the instrument. |
| Closing date | The date on which all the terms of a purchase agreement must be met, or the contract is terminated. |
| Mediation | A negotiation to resolve a dispute that's led by an impartial third party. |
| Arbitration | Submitting a disputed matter to a private party (rather than to the judicial system) for a legally binding resolution. |
| Time is of the essence | A clause in a contract that means performance on or before the exact dates specified is an essential element of the contract. Failure to perform on time is a material breach. |
| Contingency | A provision in a contract that makes the parties' rights and obligations dependent on the occurrence (or nonoccurence) of a particular event. |
| Good faith effort | A reasonable effort, such as when attempting to fulfill a contingency. |
| Financing contingency | A contingency that makes the sale dependent on the buyer's ability to obtain the financing needed to complete the sale. |
| Inspection contingency | A contingency that makes the sale dependent on the satisfactory results of an inspection, (such as a general home inspection, a geological inspection, a hazardous substances inspection or a structural pest control inspection). |
| Sale of buyer’s home contingency | A contingency that makes the sale dependent on the sale of the buyer’s existing home, because the buyer needs the proceeds from that sale to close this transaction. |
| Notice to perform | A notice from one party to the other that lets the second party know that a deadline for fulfilling a contingency has passed and that the second party must fulfill or waive the contingency or the transaction will terminate. |
| Preapproval | Formal loan approval given before the buyer has chosen property to purchase, establishing the maximum loan amount that the lender is willing to provide. |
| Preapproval letter | A letter from a lender in which the lender agrees to loan the borrower up to a specified amount when she finds a home she wants to buy, provided the property meets the lender's standards. |
| Qualifying (or underwriting) standards | The standards a lender requires a loan applicant to meet before a loan will be approved. |
| Nonconforming loan | A loan that doesn't meet the underwriting standards of Fannie Mae and Freddie Mac. |
| Automating underwriting system | Software used to analyze a borrower's loan application & credit report & provide a recommendation for or against approval. |
| Stable monthly income | A loan applicant's gross monthly income that meets the lender's tests of quality & durability. |
| Income ratios | A standard used in qualifying a buyer for a loan, to determine whether he has sufficient income. The buyer's debts & proposed housing expense shouldn't exceed a specified % of his income. |
| Net worth | An individual's personal financial assets, minus her personal liabilities. |
| Liquid assets | Cash & other assets that can be readily turned into cash (liquidated), such as stock. |
| Liabilities | Financial debts or obligations. |
| Credit reputation | An individual's record of bill payment & debt repayment, as revealed in a credit report compiled by a credit rating bureau. |
| Credit score | A figure used in underwriting that encapsulates the likelihood that a loan applicant will default, calculated using a credit scoring model & the information from the applicant's credit report. |
| Low-documentation loan | A loan where the lender waives some of the requirements for proof of income & assets in the underwriting process, in exchange for a higher interest rate. |
| Subprime lending | When lenders apply more flexible underwriting standards in order to take on riskier borrowers & riskier loans, in return for higher loan fees & interest rates. |
| Truth in Lending Act (TILA) | Fed law req. lenders to make disclosures concerning loan costs to applicants for consumer loans (including any mtg. loan that'll be used for personal, family or household purposes). Also requires certain disclosures in ads concerning consumer credit. |
| Annual percentage rate (APR) | All of the charges a borrower will pay for the loan (including interest, loan fees, discount pts. & mtg ins. costs), expressed as an annualized % of the total amount financed. |
| Predatory lending | Lending practices used to take advantage of unsophisticated borrowers. |
| Fully amortized loan | A loan that requires regular installment payments of both principal & interest, w/the installment payments paying off the full amount of the principal & all of the % by the end of the repayment period. |
| Partially amortized loan | A loan where the installment payments will cover only part of the principal, so that a balloon payment of the remaining principal balance's required at the end of the repayment period. |
| Interest-only loan | A loan that requires interest payments but no repayment of principal during the initial yrs. of the loan term but rather starts paying down the principal at the end of the interest-only period. |
| Loan-to-value ratio (LTV) | The relationship between the loan amount and either the sales price or the appraised value of the property (whichever is less), expressed as a percentage. |
| Secondary financing | Money borrowed to pay part of the required downpayment or closing costs for a first loan, when the second loan's secured by the same property that secures first loan. |
| Origination fee | A fee a lender charges a borrower upon making a new loan, intended to cover the administrative costs of making the loan. |
| Discount points | A percentage of the principal amount of a loan, collected by the lender at the time a loan is originated, to give the lender an additional yield. One discount point equals one percentage point of the loan amount. |
| Adjustable-rate mortgage | A loan in which the interest rate's periodically increased or decreased to reflect changes in the cost of money. |
| Note rate | The interest rate state in a promissory note. |
| Index | A published statistical report that indicates changes in the cost of money; used as the basis for interest rate adjustments in an ARM. |
| Margin | In an adjustable-rate mortgage, the difference between the index rate and the interest rate charged to the borrower. |
| Negative amortization | The addition of unpaid interest to the principal balance of a loan, thereby increasing the amount owed. |
| Conversion option | Provision in many adj. rate mrtg. that gives the borrower option of converting to a fixed % rate @ certain times during the first yrs. of the loan term; if borrower chooses to do this, loan will remain @ that fixed rate for the rest of the term. |
| Conventional loan | An institutional loan that's not insured or guaranteed by a gov't agency. |
| Private mortgage insurance | Insurance provided by private companies to protect lenders against losses due to borrower default; it's generally required for conventional loans w/loan-to-value ratios over 80%. |
| Reserves | Cash or other liquid assets that a borrower will have left over after closing (after making the downpayment and paying the closing costs) and could use to pay the mortgage in the event of a financial emergency. |
| Gift funds | Money that a relative (or other third party) gives to a buyer who otherwise would not have enough cash to close the transaction. |
| Buydown | The payment of discount points to a lender to reduce (buy down) the interest rate charged to the borrower; especially when a seller pays discount points to help the buyer/borrower qualify for financing. |
| FHA-insured loan | A loan made by an institutional lender and insured by the Federal Housing Administration, so that the FHA will reimburse the lender for losses that result if the borrower defaults. |
| Mortgage insurance premium (MIP) | Most often used to refer to the fee charged for FHA insurance coverage. The initial FHA premium's referred to as the UFMIP (upfront MIP). |
| VA-guaranteed loan | A home loan made by an institutional lender to an eligible veteran, where the Department of Veterans Affairs will reimburse the lender for losses if the veteran borrower defaults. |
| VA guarantee amount | The portion of a VA loan guaranteed by the Department of Veterans Affairs; The maximum amount that the VA will pay the lender for a loss resulting from the borrower's default. |
| Cal-Vet loan | A loan made through the California Veterans Farm and Home Purchase Program. |
| Seller financing | When a seller extends credit to a buyer to finance the purchase of the property, as opposed to having the buyer obtain a loan from a third party, such as an institutional lender. |
| Purchase money mortgage | When a seller extends credit to a buyer to finance the purchase of the property by accepting a mortgage or deed of trust instead of cash. |
| Land contract | Contract for sale of real prty which buyer pays in installments; buyer possesses prty immediately, but seller has legal title until full price is paid. AKA conditional sales contract, installment sales contract real estate contract or contract for deed. |
| wraparound loan | A seller financing arrangement in which the seller uses part of the buyer's payments to make the payments on an existing loan (called the underlying loan). The buyer takes title subject to the underlying loan, but does not assume it. |
| Escrow | An arrangement in which something of value (such as money or a deed) is held on behalf of the parties to a transaction by an escrow agent until specified conditions have been fulfilled. |
| Escrow agent | An agent who holds things of value on behalf of the parties to a transaction in an escrow arrangement. Also called a closing agent. |
| Hazard insurance | Insurance against damage to real property caused by fire, theft, vandalism and other covered perils. |
| Settlement statement | A document that presents a final, detailed accounting for a real estate transaction, listing each party's debits and credits and the amount each will receive or pay at closing. |
| Debits and credits | A debit is a charge or debt owed by a party and a credit is a payment owed to a party. |
| Prepaid (interim) interest | Interest on a new loan that must be paid at the time of closing; covers the interest due for the first month of the loan term. |
| FIRPTA | The Foreign Investment in Real Property Tax Act, which requires that an escrow agent must withhold funds from a sale of real property in the U.S. by a seller who's not a U.S. citizen or resident alien, in order to prevent tax evasion. |
| RESPA | The Real Estate Settlement Procedures Act, a federal law that governs residential real estate closings, requiring disclosure of closing costs to borrowers and prohibiting kickbacks between settlement service providers. |
| Closing disclosure form | A form required by RESPA and the TILA in most residential transactions; it discloses each party's closing costs and also shows how the actual loan charges compare to the estimates in the buyer's loan estimate form. |
| Return | A profit from an investment. |
| Yield | The amount of profit on an investment, stated as a percentage of the amount invested. |
| Appreciation | An increase in value; the opposite of depreciation. |
| Equity | An owner's unencumbered interest in his or her property; the difference between the value of the property and the liens against it. |
| Leverage | The effective use of borrowed money to finance an investment such as real estate. |
| Cash flow | A property's residual income after deducting operating expenses, mortgage payments and income taxes from gross income. |
| Sale-leaseback | A transaction in which a business owner raises capital by selling real property used in the business to an investor and leasing it back from the investor; the business continues to occupy the property and the sale proceeds are used for business purposes. |
| Market rental rate | The rental rates currently being charged for comparable rental units. |
| Rental schedule | A list of all the rental rates assigned to the different types of units in a building. For example, a rental schedule for an apartment building might list the rates of its studio apartments, one-bedroom apartments and two-bedroom apartments. |
| Vacancy factor | A percentage deducted from a property's potential gross income to determine the effective gross income, estimating the income that'll probably be lost because of vacancies and tenants who don't pay. |
| Fixed expenses | Recurring property expenses, such as general real estate taxes and hazard insurance, which are paid on a regular schedule and generally do not vary w/the property's occupancy rate. |
| Variable expenses | Expenses incurred in connection w/property that don't occur on a set schedule (such as the cost of repairing a roof damaged in a storm) and/or that may vary depending on the property's occupancy rate, such as utility cost & maintenance expenses. |
| Security deposit | Money tenant gives landlord @ start of tenancy to protect landlord in case tenant fails to comply w/the terms of the lease. Landlord may retain all/part of deposit to cover unpaid rent/repair costs @ the end of the tenancy. |
| Summary of operations | A brief description of the property's income and expenses; this report makes it easier for the owner to evaluate the property's monthly financial performance. |
| Rent roll | A monthly report on rent collection, listing both occupied and vacant units and the total rental income earned, both collected and uncollected. |
| Statement of disbursements | A report that lists all of the expenses paid during the pertinent time period. |
| Preventive maintenance | A program of regular inspection and servicing for a property and its fixtures and equipment, to prevent potential problems. |
| Corrective maintenance | Repairs that keep equipment, utilities and amenities functioning in a proper manner (such as fixing a leaking faucet). |
| Unlawful detainer | A lawsuit filed by a landlord to evict a defaulting tenant. |
| Closing agent | A neutral third party who holds funds, documents or other valuables on behalf of the parties to a transaction, releasing these items to the parties only when certain conditions in the escrow instructions have been fulfilled. |
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