Real Estate Glossary

NOTE: The list of terms below is neither exhaustive nor technical, and is intended to give the user of this glossary a very basic understanding of some of the commonly used terms associated with a real estate transaction.

Adjustable Rate Mortgage (ARM) – A mortgage that allows the lender to adjust the mortgage’s interest rate based on changes to a pre-selected index. When rates change, the mortgage’s monthly payments will increase or decrease, but are usually subject to a cap.

Agency – A relationship in which a real estate broker or associated licensee represents a client in a real property transaction. The relationship can be express (evidenced by a written agreement) or implied (no written agreement). In Illinois, a real estate agent will owe the client certain statutory duties that are similar to fiduciary duties (see agency duties below).

Agency Duties – A licensee has a duty to perform according to the terms of the agency or brokerage agreement and to promote the client’s best interests by:

  • Seeking a transaction that meets the terms of the agency agreement or that is otherwise acceptable to the client;
  • To present all offers to the client unless the client directs otherwise; and
  • To disclose material facts about the transaction that the agent actually knows and that are not confidential to the client.

Americans with Disabilities Act (ADA) – A 1992 federal law designed to eliminate discrimination against individuals with disabilities.

Amortization – Gradual debt reduction. Normally, the reduction is made according to a predetermined schedule for installment payments.

Annual Percentage Rate – A term used in the Truth in Lending Act to represent the full cost of a loan including interest and loan fees.

Appraisal – An estimate of a property’s fair market value based upon an analysis by a disinterested, qualified, licensed person.

Appraiser – The appraiser decides the market value of a home based on its condition and the selling prices of comparable homes recently sold in the area. His or her job is to compute a fair estimate of market value that might help the lender decide a reasonable loan amount, for one example.

Appreciation – An increase in value of an asset; the opposite of depreciation.

Arbitration – A means of settling a dispute between parties through an impartial party; the decision is final and binding.

Assessed Valuation – The value that a taxing authority places upon personal or real property for the purpose of computing a taxation amount.

Assessor – An elected public official who appraises property for tax purposes. He determines only the assessed value, not the tax rate.

Balloon Mortgage – Where principal and interest on a loan are amortized for a longer period than the term of the loan. For example, a 30-year amortization and a 5-year term.  At the end of the 5-year term, the outstanding principal on the loan is due. The principal sum due at maturity is known as the “balloon.”  

Balloon Payment – The final, lump sum payment paid at the maturity date of a balloon mortgage.

Borrower – A person who receives funds in the form of a loan from a lender and who will be obligated to repay the loan in full, usually with interest, to the lender.

Brokerage Agreement – A written or oral agreement between a sponsoring broker and a consumer for acting as a broker/agent on behalf of the consumer in return for the right to be paid for those services. Any exclusive brokerage agreement must be in writing and contain certain minimum services that must be provided by the broker to the consumer.

Broker, Real Estate – A person or entity who will engage in the following activities for another person and in exchange for payment:

  • Sell, exchange, purchase, rent or lease real estate
  • Offer to sell, exchange, purchase, rent or lease real estate
  • Negotiate, offer, attempt or agree to negotiate the sale, exchange, purchase, rental or leasing of real estate
  • Lists, offers, attempts or agrees to list real estate for sale, lease or exchange
  • Buys, sells, offers to buy or sell, otherwise deals in options on real estate or improvements on real estate
  • Supervises the collection, offer, attempt, or agreement to collect rent for the use of real estate
  • Advertises himself or herself as being in the business of buying, selling, exchanging, renting or leasing real estate
  • Assists or directs in the procuring or referring of real estate prospects
  • Assists or directs in the negotiations of any real estate transaction
  • Markets real estate to the public by means of an open house
  • Auctions real estate

Building Code – The local regulations that affect design, construc­tion, and materials used in construction. Building codes can be based on safety and health standards.

Chattel – Personal property.

Client – A person who is represented by a licensee/agent.

Closing – The conclusion of a transaction.  In real estate, the closing can include the delivery of a deed, payment of the purchase price and expenses associated with the transaction, the signing of any documents such as notes and mortgages, and the disbursement of funds necessary to the sale or loan transaction.

Closing Agent/Attorney – A closing agent or attorney assures that all documentation related to the sale of a house has been completed prop­erly, including the title search and title insurance. The closing agent explains all closing documents to the buyer and the seller, obtains their signatures where necessary and records the documents.

Closing Costs – All of the costs to the buyer and seller individually that are associated with the purchase, sale, or financing of real property. They include, but are not limited to, prorating of agreed items such as taxes and rents, the cost of title insurance policies, and the cost of credit reports, recording fees and escrow fees. Synonym: settlement costs.

Closing Statement – A financial disclosure form that summarizes and outlines all funds received and expected at the closing, including but not limited to the escrow deposits for taxes, hazard insurance, and mortgage insurance.

Collateral – Property pledged as security for a debt, such as the real estate as security for a loan.

Commission – (real estate brokerage) A real estate broker’s fee for negotiating a real estate trans­action, often expressed as a percentage of the sales price.

Commitment – An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to compliance with stated conditions.

Condominium – A form of ownership of real property. The purchaser receives title to a particular unit and a proportionate interest in certain common areas.

Condominium Declarations – The basic condominium document that must be registered by the developer before the first unit is sold. The declaration thoroughly describes the entire condominium entity, including each unit and all common areas.

Confidential Information – Information learned by the licensee from a client during the term of a brokerage agreement where:

  • The client gave written instruction that it be kept confidential;
  • It deals with the client’s negotiating position;
  • It is information that could materially harm the negotiating position of the client.