ABR - Accredited Buyer’s Representative. A designation held solely by REALTORS who have met the educational and practical requirements demonstrating skills and knowledge to represent homebuyers. Awarded by the Real Estate Buyer’s Agent Council (REBAC).

adjustable-rate mortgage (ARM) - A mortgage with an interest rate that changes, based on a specific index, after a predetermined number of years.

adverse possession - the legal process whereby someone not legally the owner MAY become legal owner of real property merely by physically occupying it against the legal owner’s wishes for a statutory period of time.

agency - Any relationship in which one party (agent) acts for or represents another under the authority of the latter.

amortization schedule - A timetable showing the amount of each mortgage payment applied to interest and principal and the remaining balance after payment is made.

annual percentage rate (APR) - The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage, and loan origination fee (points).

appraisal - A qualified appraiser’s written analysis of the estimated value of a property.

arbitration - A non-litigation method of dispute resolution. It is binding on all parties. Litigation is precluded.

assessed value - The value placed on property by a municipality for the purpose of levying taxes. It may differ widely from appraised or market value.

assumption of mortgage - Buyer assumes liability for an existing mortgage held by the seller. This is subject to approval by the lender, who must be willing to approve the buyer and release the seller. Balloon payment: A large principal payment due at once at the end of some loan terms.

biweekly payment mortgage - A mortgage requiring payments every two weeks rather than the standard monthly payment. The benefit for the borrower is a substantial savings in interest over the life of the loan.

broker - A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

buyer contract - A contract between a buyer & Realtor which allows the Realtor to act as the buyers’ sole agent and both declare their loyalty to each other.

cap - Limit on how much the interest rate can change in an ARM at one time and ever.

capital gains - The profit obtained from the sale of an asset, such as real estate.

certificate of title - A statement provided by a title company or attorney stating that the title to real estate is legally held by the current owner.

closing - A meeting at which a sale of a property is finalized.

closing costs - Expenses incidental to a sale of real estate, such as loan fees, title fees, appraisal fees, etc.

closing statement - A statement prepared by a title company giving a complete itemization of costs incurred in a real estate transaction.

collateral - An asset (such as a car or a home) that guarantees the repayment of a loan.

commission - The fee charged by a broker for providing services related to a real estate transaction, such as marketing the property (for the seller), finding a property (for the buyer), and negotiating a purchase contract.

comparative market analysis (CMA) - A survey of attributes and selling prices of comparable houses on the market or recently sold; used to help determine correct pricing strategy for a seller’s property and a buyer’s purchase.

contract - Binding legal agreement between two or more parties that delineates the conditions for the exchange of value (example: money exchanged for title to property).

cost basis - The original price paid for an asset such as real estate, including any commissions or fees, used to determine capital gains or losses at the time of sale.

curb appeal - Attractiveness of a home from the street to a prospective buyer. You can never have to much of this.

deed - The legal document conveying title to a property.

disclosure - Information provided by Seller to prospective buyers about the home & its condition that could have a material effect on their decision to buy or not buy the property. It is required by State of Michigan law.

duel agency - When the same Real Estate Broker and/or agent represents both Seller and Buyer in the same transaction. This requires written approval by both parties.

earnest money - A deposit made by potential buyers to demonstrate their good faith interest in purchasing a property.

easement - A legal definition whereby rights to the use of real property by someone other than the legal owner are conveyed to that person by the legal owner. This must be in writing.

equity - The value of the property actually owned by the homeowner: the purchase price plus appreciation plus improvements, less mortgage and liens.

escrow account - Account held by a lender for payment of taxes, insurance, including if necessary, MIP, or other periodic debts against a property. The borrower pays an apportioned amount with each monthly loan payment, and the lender pays the bills with the accumulated funds.

escrow deposit - 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 the transaction is closed.

Fair Credit Reporting Act - A consumer protection law that regulates the disclosure of consumer reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

fixed rate mortgage - Interest rates on this type of mortgage remain the same over the life of the loan term. ( compare to “adjustable rate mortgage”)

fixture - A recognizable entity ( such as a kitchen cabinet or light unit) that is permanently attached to the property and belongs to the property when it is sold.

good-faith estimate - An estimate of closing costs associated with the purchase of your home.

hazard insurance - Compensates the home owner for property damage from specified hazards such as fire and wind.

home inspection - A thorough examination that evaluates the structural and mechanical condition of a property.

home inspection service - A service performed by a contractor or experienced individual or company; the purpose is to detect and diagnose defects in a property and generally evaluate its condition. It evaluates a property’s structure and mechanical systems.

home warranty - A guarantee for mechanical systems and appliances, but not the structure, against repairs not covered by homeowners insurance; coverage is for specific period of time.

interest - The cost of borrowing money, usually expressed as a percentage over time.

lien - A legal claim against a property that must be paid before the property can be sold.

listing contract - An agreement whereby an owner engages a real estate agent for a specified period to sell property, for which sale the agent receives a commission.

lockbox - A key-safe for the keys to the property left at the property to assist Realtors in showing the property when the occupants are away. Only Realtors have access to these, thus insuring security.

lock-in - A lender’s written guarantee of a specified interest rate if a mortgage is closed within a set period of time.

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.

market value - The current value of real estate that a buyer is willing to pay and a seller is willing to accept.

mediation - A non-litigation method of dispute resolution. Unlike arbitration, this is not binding on the parties, and, should the parties choose, can be followed by either binding arbitration or litigation.

M.I.P. - Mortgage insurance premium paid by buyer for mortgage insurance.

mold - Fungal growth, caused by moisture. There are literally thousands of types, but a very few are highly toxic. Due to this, mold inspections are recommended if there has ever been a history of leaks or moisture in the home.

mortgage - A loan secured by real estate. A mortgage is used by a borrower to pledge real property to the lender as security for a loan.

mortgage insurance - A policy that insures the lender against loss caused by a borrower’s default on a mortgage, when down payment is less than 20%. (see PMI)

multiple listing service - The computer-based service for listing most properties by Realtors in a particular area. Sometimes referred to as the MLS.

negative amortization - When monthly payments aren’t enough to cover interest costs, they are added to the principal balance, and you may end up owing more than when you started.

net worth - The value of all of a person’s assets, including cash, minus all debts and liabilities.

open house - There are types: Brokers’ and Public. The former is to allow Realtors to see the property when it first comes on the market to determine if it suites any of their buyers. The latter is for the general public, and allows potential buyers to view the property.

origination fee - Application fee(s) for processing a proposed mortgage loan.

personal property - Item within the real property that is separate from the realty and can easily be removed from the property, i.e.: furniture.

PITI - Principal, interest, taxes, and insurance, forming the basis for monthly mortgage payments.

PMI - 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 down payment less than 20% of cost of home.

points - A point is one percent of the amount of the mortgage. Lenders charge borrowers a percentage of the loan amount equal to the number of points to cover the lender’s costs. Sometimes borrowers pay higher points in exchange for a lower interest rate.

prepayment penalty - A fee paid by a borrower who pays off the loan before it is due. This may be charged only when stipulated in the loan agreement.

prequalification - Informal estimate of how much financing a potential borrower might expect to obtain. Not the same as pre-approval.

prime rate - The interest rate that banks charge to their preferred customers.

principal - The amount borrowed or remaining unpaid on a mortgage loan.

prorate - Divide or assess proportionately.

real estate agent - A person licensed to negotiate and transact the sale or purchase of real estate on behalf of the property owner or buyer.

Realtor - Licensed professional handling purchase or sale of realty for buyer or seller. Usually a member of the National Association of Realtors.

REBAC - The Real Estate Buyer’s Agent Council is a wholly-owned subsidiary of the National Association of REALTORS whose purpose is to educate and support real estate professionals and to promote superior buyer representation.

RESPA Statement (Real Estate Settlement Procedures Act) - A precise breakdown of closing costs for both sellers and buyers.

sales contract - Also known as a purchase agreement, the legal document that details the price and terms of the property sale between a seller and a buyer.

settlement statement - A document prepared by a broker, title company, or lender detailing the complete breakdown of the costs and disbursements in a real estate transaction, sometimes called the “HUD”.

survey - A drawing or map showing the precise legal boundaries of a property, the precise location of improvements, easements, rights of way, encroachments, and other physical features.

title - The document that indicates ownership of a specific property.

Title company - A company which issues title insurance and conducts the “Closing” functions, at which the buyer becomes the owner.

title search - A check of public records to ensure that the seller is the legal owner of the property being sold and that there are no liens or other claims against the property.

title insurance - Insurance policy issued by title company guaranteeing legal title in real property to the named owner, listing any exceptions to its coverage, as well as the specific realty covered.

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 borrower will incur.

Underwriting - The lender’s process of evaluating a loan application to determine the risk of providing the applicant the requested funds.

walk through - A final inspection of a home before closing to verify that the condition of the property and contents are as contracted.