REAL ESTATE GLOSSARY
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Adjustable Rate Mortage (ARM) - Mortgage loan where the interest is fixed for only a specific period of time, and then it can adjust according to a pre-specified schedule, minimum amount or prevailing market rate.
Amortization - Payment modality for a real estate loan that includes both principal and interest. The monthly payment remains constant, but the proportion of interest vs. principal varias with time. Initially, most of the monthly payment goes toward interest. Towards the end of the loan, most of the monthly payment goes against principal. Lenders provide borrowers with an Amortization Schedule, which details for every month of the life of the loan, the proportion of principal and interest contained in each payment.
Annual Percentage Rate (APR) - is the effective interest rate for the first year of a mortgage loan, taking into account all the lender's fees and expenses. The APR is higher than the nominal interest rate 9the actual interest rate on the note (the actual loan document).
Appraisal - An estimate of the value of the property in the current market conditions, which needs to be conducted by a licensed appraiser to protect the lender(s) and reassure them that the property is worth at least the amount being paid by the Buyers. In some instances (like in the case of most short sale requests), lenders may request a Broker Price Opinion (BPO) instead of a full appraisal.
Balloon Loan - A mortgage loan that requires a final lump sum payment (balloon payment) at the end of a specified period.
Bill of Sale - a document used to register the sale of the Personal Property involved in a real estate transaction, which cannot be financed in the mortgage loan.
Breach of Contract - violation of any of the terms or conditions contained in a valid, enforceable contract.
Bridge Loan - A short-term loan normally used to finance a purchase transaction until the Buyers are able to sell their existing home.
Broker Price Opinion (BPO) - a simplified estimate of value for a property that can be performed by a licensed real estate agent.
Building Code - Local government regulations that specify minimum standards required for the design and construction of real property (homes, condos, apartment buildings, commercial buildings and industrial facilities). Thus, when a building is "built to code" it means that it complies with the local regulations and can pass an inspection by the appropriate authority.
Buydown - normally a term that specifies some kind or early payment for a loan. There are many ways to structure lower rates with "buydown points". For example a 3-2-1 buydown means that the Seller offers to pre-pay interest on the loan so that the Buyer can enjoy lower initial interest rates (prevailing rate minus 3% for the first year, 2% for the second year, 1% for the thrid year, and prevailing rate thereafter). Buydowns can be temporary or permanent for the life of the loan.
Call Option - A clause that gives a lender, under special circumstances, the ability to demand early payment (in full) of the loan, prior to its maturity.
Capital Expenditure - The accumulated cost of any improvement made to either extend the useful life of a property or to add to its value, such as adding a room, building a garage or a pool. Capital expenditures can be depreciated over their useful life and add to the cost basis of a property.
Capital Gain - accounting term for the gain on the sale of a property. For a primary home, individuals have a capital gains tax exemption of $250,000 every two years ($500,000 for a couple filing jointly). To take full advantage of this tax benefit, the property must have been the Sellers' primary residence for two of the last five years prior to selling.
CL-100 - An official termite, fungi and moisture inspection report that notes the presence of active termites, prior termite treatment and any damage caused by termites, fungi or moisture.
Cost Basis - an accounting term that represents the total cost of a property, for tax purposes, taking into account acquisition costs, depreciation and capital expenditures. Capital gain is calculated using the cost basis of the property, less depreciation recapture, in the case of an investment property.
Closing - Event where all the paperwork and exchange of money concludes a real property sales transaction. In SC, the closing needs to be done by a licensed attorney.
Dry Closing - a closing where the paperwork has been signed, but the transaction is held up pending receipt of funds to close.
Escrow Account - Special account that attorneys and real estate companies use to hold earnest money deposits and lenders' funds pending successful docuemntation of the transaction.
HUD-1 Statement - this is an accounting balance of the real estate transaction showing all the financial details of the transaction both from the Sellers and Buyers side. Both parties and their agents need to review the numbers to make sure it reflects the contract accurately.
Real Estate Agent - licensed individual allowed to represent Buyers or Seller in a real estate transaction and can be compensated with a sales commission.
Real Estate Broker - licensed individual who is the legal representative of a company wiht the state government, and responsible for the legal and ethical behavior of all real estate agents in his/her office.
Real Estate Contract - A legal document that specifies the price, terms and conditions for a sale of a property. In SC, any real estate transaction needs to be in writing (verbal contracts cannot be enforced). A contract that has been signed by both parties to the transaction and delivered to both parties is said to be "ratified". Most re-sales use the standard South Carolina Association of Realtors' (SCAR) contract. Most new construction builders and developers have their own contracts developed by their legal counsel.