Any relationship in which one party (agent) acts for or represents another under the authority of the latter.
A party who is authorized to act in the best interests of a principal/client, and is obligated to place the principal’s interests before the interests of any other parties, including the agent’s own interests regardless of whether the agency relationship is with the seller of the property or the buyer.
A written analysis of the estimated value of a property prepared by a qualified appraiser.
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
A real estate buyer's representative represents the consumer who is purchasing property in a real estate transaction, not the seller. State law varies but usually a buyer's representative works for, and owes fiduciary responsibilities (see fiduciary duties) to, the real estate buyer and has the buyer's best interests in mind throughout the entire real estate transaction.
Buyer Representation Agreement
An agreement that specifies the duties and the scope of services a buyer’s representative agrees to provide to the buyer as well as specifying the buyer’s responsibilities. In some states, where there is no written agreement required, the agent will be presumed to be representing the buyer. Consult with your local REALTOR® for complete details when you first start the search for any real estate property.
A party whose interests are to be served by the words and deeds of an agent with or without a contract according to state law. Also referred to as a principal. Regardless of whether the duties owed in a particular state are traditional, common law fiduciary duties or are statutorily defined, they are still owed to any principal/client.
A meeting at which a sale of property is finalized by the buyer signing the mortgage documents and paying closing costs, and seller’s transfer of the deed to the property.
The fees, costs and taxes associated with the purchasing of a home, the borrowing of money and the preparation of necessary paperwork to finalize the sale. The total amount of the closing costs will vary depending on where the new home will be located, what type of property it is, the price of the home and the complexity of the transaction. It is extremely important that the buyer work closely with his/her buyer’s representative and lender and title company (although in states where attorneys are used, the attorney usually works with the title company) in the early stages of the home buying process to determine what these costs could be, since closing costs can easily represent thousands of dollars. There are four categories of closing costs: (1) discounts points to buying down the mortgage; (2) the costs of originating the mortgage; (3) taxes and other local fees; (4) the cost of documentation.
The fee charged by a broker or agent for providing services related to a real estate transaction such as marketing the property, bringing the parties together, and negotiating a purchase contract or loan.
Comparative Market Analysis (CMA)
An analysis provided by a real estate professional that surveys like properties in a given area or of a certain type for the purpose of determining the relative value of a given property.
The fiduciary duty that prohibits the agent from communicating personal information about the principal that was given to or acquired by the agent within the scope of employment as an agent to the principal. Personal information must be kept confidential unless the client releases the agent, or subagent, from this duty. However, the material facts and defects of a property are not confidential.
Costs of Originating the Mortgage
A closing cost that generally includes a variety of fees such as the loan origination fee, the appraisal fee and the cost of credit reports. There are also other fees that will be expected to be paid at closing such as hazard and mortgage insurance and interest accrued on the mortgage between closing date and the end of the month.
An assessment of a person’s ability (or history) of debt repayment. Most information in a credit rating comes from companies that an individual has credit with such as banks, department stores, finance companies etc. as well as from certain public records such as lawsuits, tax liens, judgments and bankruptcies.
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. Credit reports are usually based on the individual's: (1) credit history; (2) who reviewed the credit history; (3) information that has been given to the credit information company; (4) specific identification information; and (5) any explanatory notes and comments.
The legal document conveying title to a property.
Disclosed Limited Agency
A broker who works with both parties in a real estate transaction buyer and seller, landlord and tenant. All jurisdictions require dual agency to be disclosed to the parties to the transaction.
Earnest Money Deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
A homeowner’s financial interest in a property.
A deposit of value, money, or documents with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow, held by the broker, bank or other party, until delivered to the seller when the transaction is closed.
A foreclosure occurs when a property owner cannot make principal and/or interest payments on his/her loan, typically leading to the property being seized and sold.
For Sale By Owner (FSBO – pronounced “fizzbo)
A property for sale that is not listed by a real estate professional.
The fiduciary duty that requires the agent to disclose affirmatively and honestly all information the agent knows concerning the transaction (and property) which might affect the decisions a a client or customer makes.
An estimate of closing costs associated with the purchase of your home.
A thorough inspection that evaluates the structural and mechanical condition of a property. Could be environmental, energy-efficient, etc.
Home Ownership Cycle
The sequence that begins with assisting with property selection and contract negotiation, providing home improvement resources, and assisting in the sale when that time comes.
A guarantee for mechanical systems and appliances, but not the structure, against repairs not covered by homeowner's insurance; coverage is for a specific period of time.
The legal claim against a property that must be satisfied before the property may be sold.
LTV (loan to value)
The ratio of the amount of a mortgage loan to the appraised value or sales price of the property mortgaged, whichever is lower.
A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time.
A loan to finance the purchase of real estate, usually with specified payment periods and interest rates. Generally, the mortgage document pledges the mortgaged property to the lender as security for the loan.
A policy that insures the lender against loss caused by a mortgagor’s default on a mortgage.
Multiple Listing Services (MLS)
A database of all properties for sale listed by members of a specified MLS.
National Association of REALTORS® (NAR)
Since its inception in 1908, the National Association of REALTORS® has worked successfully to advance home ownership, real estate investment, private property rights and the free enterprise system in the halls of Congress and the Federal agencies. NAR is the acknowledged leader in developing standards for efficient, effective, and ethical real estate business practices. With more than 1,200,000 members representing every city, township and community across America, NAR is the "Voice for Real Estate" in the nation's capital.
The value of all of a person’s assets, including cash, minus all liabilities.
Principal, Interest, Taxes and Insurance: four components of a monthly payment on mortgage loans.
Private Mortgage Insurance is coverage provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Coverage is usually required for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
A point is one percent of the amount of the mortgage. At closing, Lenders sometimes charge borrowers a percentage of the loan amount equal to the number of points to cover the lender's cost. Sometimes borrowers pay higher points in exchange for a lower interest rate.
The interest that banks charge to their preferred customers, usually large corporations, for short-term loans.
- The amount borrowed or remaining unpaid.
- The client in a real estate agency relationship.
- In other contexts, the term principal can mean an owner. (For example, the principals of a corporation means the owners of the corporation.)
The purchase contract is the legally binding document that sets forth the terms of the sale, establishes the rights and obligations of the parties involved, specifies the actions to be taken in order to close the sale, and establishes the time frames for those steps to be completed.
Real Estate Agent/Real Estate Broker
A person licensed by a state to negotiate and transact the sale of real estate on behalf of a property owner/seller or buyer.
Real estate owned or REO is a class of property owned by a lender—typically a bank, government agency, or government loan insurer—after an unsuccessful sale at a foreclosure auction. A foreclosing beneficiary will typically set the opening bid at a foreclosure auction for at least the outstanding loan amount. If there are no bidders that are interested, then the beneficiary will legally repossess the property. This is commonly the case when the amount owed on the home is higher than the current market value of this foreclosure property, such as with a high loan-to-value mortgage following a real estate bubble. As soon as the beneficiary repossesses the property it is listed on their books as REO and categorized as an asset (non-performing asset).
A registered collective membership mark that identifies a real estate professional who is a member of the National Association of REALTORS® and subscribes to its strict Code of Ethics.
Reasonable Care and Diligence
The fiduciary duty that requires the agent to protect the principal/client from foreseeable risks of harm, recommending that the principal obtain expert advice or assistance when the principal’s needs are outside the scope of the agent’s expertise.
Also known as a purchase contract or earnest money agreement, the legally binding document that sets forth the terms of the sale, establishes the rights and obligations of the parties involved, specifies the actions to be taken in order to close the sale, and establishes the time frames for those steps to be completed.
A document prepared by a broker, escrow company, or lender detailing the complete breakdown of the costs and disbursements in a real estate transaction.
A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens' full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt. Any unpaid balance owed to the creditors is known as a deficiency. Short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties.
A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower; however both will often result in a negative credit report against the property owner.
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and the other physical features.
Taxes and Other Local Fees
A closing cost that will vary according to the requirements of local governments. Some may demand that the property taxes be pro-rated according to when the buyer will officially become the owner of the property. There can also be personal property taxes, homeowner's association dues, and other assessments that are specific to the area that you are moving into, as well as transfer taxes in some locations.
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Truth in Lending
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate and other charges.
The process for evaluating a loan’s application to determine the risk involved for the lender.
The fiduciary duty that prohibits the agent from advancing any interests adverse to the principal’s interest or conducting the principal’s business in such a way as to benefit a customer, a subagent, the agent or any other party to the detriment of the principal’s interest unless required by statute, regulation or common law – e.g., disclosing material facts and defects of a property.
A final inspection of a home before closing to verify that the condition of the property and contents are as contracted.