For your convenience, we have compiled a list of real estate terms that may help you become familiar with real estate jargon you might encounter during the process of buying or selling real estate. These definitions are for reference purposes only, and are in no way a sufficient substitute for actual legal advice. If a need arises, we would love to clarify the meaning of any of these terms, and how they relate to your specific situation.
Action for Specific Performance: A court action to compel a defaulting party to comply with the provisions of a contract.
Affidavit: A statement or declaration reduced to writing and sworn to or affirmed before some officer who is authorized to administer an oath or affirmation.
Amortization: A gradual paying off of a debt by periodic installments.
Appraisal: Also known as a property valuation, is an estimation of the market value of a given property, as reported by a licensed professional, after he or she has conducted a thorough review. Every property is different, and variables such as location will factor into an appraiser’s decision. Appraisals directly influence the amount a mortgage bank will be willing to loan a buyer.
Assignment: The method or manner by which a right or contract is transferred from one person to another.
Bank Attorney: A bank attorney represents the lending bank’s interests. They appear at the closing to oversee the finalization of the transaction and to handle the disbursement of funds.
Bona Fide: In good faith, without fraud.
Clear Title: A clear title refers to a title free of any encumbrances, liens, judgments and mortgages. Buyers are advised to purchase title insurance to protect them from inheriting any previously undiscovered encumbrances that may present themselves after a contract is signed.
Closing: The “closing” is the event when a real estate transaction becomes official. With all involved parties present (including but not limited to: the buyer, the seller, the attorneys representing both parties, the attorneys representing banks, the title closer, the transfer agents/coop attorney and the real estate brokers), the deed or stock certificate along with the keys to the house or apartment is handed to the buyer and the payment for the balance of the purchase price is made to the seller. Any remaining pertinent legal documents are signed at the closing.
Common Areas: In a condominium, the “common areas” refer to all non-personal unit areas, such as hallways, staircases, anterooms, lobbies, elevators, and in some cases, rooftops. Communal spaces used for traversing the grounds or for shared recreation are all considered part of the “common area.”
Condominium: Any specified and individually taxed section of a larger piece of real estate, registered under the Condominium Act is considered to be a condominium, or condo. Each unit is individually owned but owners share communal spaces (e.g. lobbies, gyms, elevators, heating systems, hallways, laundry rooms) known as “common areas” (see above).
Contract of Sale: A legally binding agreement between two or more parties participating in a purchase and sale, exchange, or transfer of real estate. A real estate contract needs to be in writing to be enforceable. It identifies the parties and the purchase price and how it is going to be paid. It should adequately describe the property to be sold, the type of deed to be delivered, the quality of the seller’s title to the property, a description of personal property included in the sale, and the date of the closing or the date the buyer will take possession to the property. It should also cover dozens of other issues about the property and the responsibilities of the parties to each other.
Cooperative Corporation: Any corporation comprised of a shareholding group with vested financial interest in the corporation as a whole, that owns one or more buildings.
Cooperative Unit: Also known as a “co-op”. A cooperative unit is any apartment owned by a cooperative corporation (see above). Unlike more basic rental agreements, those who buy into a cooperative unit receive a proprietary lease which entitles them to a stock certificate. Shareholders own shares of stock in a corporation and are allowed to occupy a specific apartment in the building outlined in a proprietary lease that they receive with the stock certificate.
Deed: An instrument in writing duly executed and delivered that conveys title to real property.
Default: Failure to fulfill a duty or promise, or to discharge an obligation; omission or failure to perform any act.
Down Payment: The lump sum paid by the buyer during the contract signing stage of a real estate transaction. A down payment is subject to forfeit in the event of a breach of contract. This payment is sometimes referred to as a “good faith deposit.”
Dual Agent: In some cases, a real estate agent can represent both the buyer and the seller of a particular property. These agents are referred to as “dual agents.”
Easement: A right that may be exercised by the public or individuals on, over or through the lands of others.
Fixtures: Personal property so attached to the land or property as to become part of the real property.
Foreclosure: A procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default in payments or terms.
Home Inspection: A comprehensive evaluation of a property’s overall condition, including its structure, roof, electrical, plumbing and heating systems, among other things. It is prudent to conduct a home inspection before signing a contract of sale.
Judgment: Any decision related to a real estate case made by a court of law.
Lien: A legal claim encompassing a wide variety of encumbrances, made against a property in order to secure payment of a debt or obligation.
Lien Search: Also known as Lien and Judgment Search, seeks to determine whether or not a given property has any outstanding liens against it. A buyer is generally obligated to conduct such a search before closing, and must alert the seller to remove all liens prior to transferring ownership to the buyer.
Limited Common Element: A portion of the common elements allocated for the exclusive use of one or more but fewer than all of the unit owners. The key phrase here is exclusive use. Unlike other common elements, the use of a limited common element is restricted to only certain unit owners. Examples of limited common elements are porches, patios and balconies.
Mansion Tax: A property tax imposed at closing on the purchaser of the residential property equalling $1 million and up. Historically, this tax has been always a 1% tax on the purchase price regardless of amount above $1 million. Recently, the state has converted the tax to a progressive system based on price brackets.
Mortgage: An instrument in writing, duly executed and delivered, that creates a lien upon real estate as security for the re-payment of a specified debt, which is usually in the form of a bond. It stipulates that a bank may foreclose on the property in question if payments are failed to be made.
Mortgage Commitment: A formal indication by a lending institution that it will grant a mortgage loan on property in a certain specified amount and on certain specified terms.
Mortgage Commitment Contingency: Most contracts of sales include a deadline clause requiring a buyer to secure a mortgage commitment within a specified period of time (typically 45 days). Failure to do so, according to the terms of the clause, grants the parties permission to terminate the contract.
Net Proceeds: The monetary figure given to a borrower by the lender after all applicable lender’s fees are collected. These fees, including all bank fees, bank attorney’s fee, interest and escrows are deducted from the loan amount upfront. Loan proceeds are handled by the bank attorney at the closing.
Note: A written promise to pay back a definite sum of money (typically a loan), between the borrower and a lender. By signing a promissory note, the borrower promises to abide by the loan terms set by the lender and pay back the loan according to the established interest rates and payment schedule.
Power of Attorney: A written document authorizing an agent to act on behalf of the principal, typically used at closings when principal cannot be present.
Prepayment Clause: A clause in a mortgage which gives a mortgagor the privilege of paying the mortgage indebtedness before it becomes due.
Proprietary Lease: Sometimes called an occupancy agreement, gives a co-op shareholder the right to occupy a particular unit within the building. In addition, a proprietary lease outlines the rights and responsibilities of the shareholder, and the co-op’s board of directors.
Recording: The act of writing or entering in a book of public record instrument affecting the title to real property.
Satisfaction: An instrument for recording and acknowledging payment of an indebtedness secured by a mortgage.
Security Instrument: A co-op’s analog to a mortgage. A security instrument gives a bank the ability to foreclose on a cooperative unit if the borrower fails to make the required payments.
Short Sale: When seller owes more on his or her home than it’s worth and they need to sell it, the transaction in which the seller will sell the property is called a short sale. Lender’s approval to do a short sale is a pre-requisite for the transaction to go forward. There are many reasons homeowners opt for a short sale, but one of the most common is to avoid going into foreclosure.
Sponsor: Most sponsors are the developers who built or converted the building, formed into an LLC. When a building is constructed as a condominium or converted from a rental into a co-op, the sponsor takes responsibility for selling off the apartments in the building, and will often retain a number of them as investments. Sponsors have to comply with the law and write an offering plan. And then they offer the apartments to the public as the sponsor, and the public will buy them from the sponsor.
Stock Certificate: An important document in co-op transactions. A stock certificate denotes the shares a co-op owner receives. Along with the proprietary lease, the stock certificate signifies ownership of the shares allocated to the specific cooperative unit.
Termite Inspection: A component of a full home inspection, is an important pre-sale search which could have implications regarding the title and closing process. Termites can cause massive future infrastructural damage to a building, and all prudent prospective buyers should arrange for a termite inspection at some point during the transactional preliminaries.
Title Insurance: Is essential to both the buyer and the seller of any given real estate property. Title insurance is split into two categories: 1) the Owner’s Policy which ensures that the buyer is a new and legitimate owner and has clean title to the property, free from any encumbrances, judgments, liens or preexisting mortgages, and 2) the Lender’s Policy which proves that the bank does indeed hold a valid first mortgage on the property in question. A policy of title insurance indemnifies the holder for any loss sustained by reason of defects in the title.
Title Search: An examination of the public records to determine the ownership and incumbrances affecting real property.
Transfer Tax: The state charges all sellers a tax equal to a small percentage of the final sale price of a property.