Glossary of Real Estate terms

Acceleration Clause

A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

Acceptance

A positive response to an offer or counteroffer. An acceptance may be "conditional," "express," "implied" or "qualified."

Adjustable-rate Mortgage (ARM)

A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes

Adjustment Date

The date on which all adjustments of prepaid expenses, taxes, utilities, rents, interest, and similar items will be calculated.

The date the interest rate changes on an adjustable-rate mortgage (ARM).

Adjustments

Those items of a financial nature which are to be settled between the parties as of the Adjustment Date. The usual items for adjustment are annual property taxes, water rates, local utilities, garbage removal, Strata Fees, Interest on assumed mortgages, and rents, but can also include fuel in a tank, prepaid cable services, insurance, and any other item for which one or the other of the parties should be compensated before the transaction is fully completed.

Agency

The legal relationship between a principal and an agent. In real estate transactions, usually the seller is the principal, and the broker is the agent: however, a buyer represented by a broker (i.e., buyer as principal is a growing trend. In an agency relationship, the principal delegates to the agent the right to act on his or her behalf in business transactions and to exercise some discretion while so acting. The agent has a fiduciary relationship with the principal and owes to that principal the duties of accounting, care, loyalty, and obedience.

Amortization

The length of time over which a loan will be retired in full, generally by way of monthly, bi-weekly or weekly payments of principal and interest.

The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

Annual Property Taxes

A tax levied on a property based on the result of multiplying the assessed value time the "Mil Rate" or rate of tax per $1000 of Property value.

Appraisal

A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.

Appraised Value

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.

Appreciation

The increase in the value of a property over time due to changes in market conditions, inflation, or other causes.

Assessed Value

The value placed on a property by the BC Assessment Authority for the purposes of determining annual property taxes. Assessed Value multiplied by the "Mil Rate" equals the tax levy for the year.

Assignment

The transfer of the right to purchase a property from the original buyer (the assignor) to a new buyer (the assignee), executed prior to completion date. The assignment contract is between the assignor and the assignee and does not relieve the assignor of obligations under his/her contract with the seller.

When ownership of your mortgage is transferred from one company or individual to another, it is also called an assignment.

Assumption of Mortgage

An agreement allowing the buyer to assume responsibility for the seller's existing mortgage loan instead of getting a new loan in his or her own name.

Base rate or Prime Rate

Generally the lowest interest rate charged by a lender to its most preferred customers. Some loans are expressed as being "X" percentage points above Prime Rate. The Base or Prime Rate plus the percentage agreed upon are used to determine the amount of interest due on a variable rate mortgage loan.

Bi-weekly Mortgage

A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a mortgage.

Blended Payment Mortgage

A mortgage with blended payments of principal and interest, generally resulting in the same monthly payment over the term of the loan.

Buyer's Agency Contract, Exclusive

A contract between a REALTOR® and a buyer, where the agent has declared to represent only the buyer in a transaction, regardless of whether compensation is paid by the buyer or the listing broker through a commission split. The buyer is also declaring to engage the REALTOR® exclusively for a specific period of time and for a specific geographical region.

CMA - Comparative Market Analysis

A home evaluation based on properties that have sold recently in the neighbourhood similar to the property being priced. There is also a comparison with similar properties actively listed and those that were listed, but failed to sell (expiries).

CMHC - Canada Mortgage and Housing Corporation

A Crown Corporation that insures High Ratio (over 80% of the appraised value) mortgages against default.

Clear Title

A title that is free of liens or legal questions as to ownership of the property.

Closing

The act of completing the registration of the Land Transfer to the Purchaser in the Land Title Office, obtaining Mortgage Funds, if any, and Paying out the Balance of Sale Proceeds to the Vendor.

Closing Costs

Expenses over and above the purchase price for buying and selling a property.

Closing Date

The date upon which the closing is to take place.

Commission

The fee paid by the Sellers for marketing and handling the sale of their properties. The Competition Act of BC states that there is no set or standard commission rate to be charged by a Real Estate Company. The commission rate that our company, Royal Pacific Realty, charges is 7% on the 1st $100,000 and 3.5% on the balance of the sale price. For example if you were to sell your property for $700,000, the commission would be $28,000.00. Since this is a service, 5% GST or $1,400.00 is also applicable. So the total commission + 5% GST payable by the Seller on a sale of $700,000.00 would be $29,400.00.

The commission paid to our company, TMG The Mortgage Group, for arranging your mortgage is paid for and absorbed by the lender (the bank) and does not affect the excellent rates we can offer.

Common Areas

Those portions of a building, land, and amenities owned (or managed) by a Strata corporation that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Each strata unit is responsible for paying their share of the expenses to maintain the property and common areas, in proportion to the size of unit.

Comparable Sales

Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps."

Condominium

A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.

Contract of Purchase and Sale

he agreement entered into between Buyer and Seller which sets out the Purchase Price, the Property to be transferred, the Particulars as to date and terms, and the Parties to the transaction.

Conventional Mortgage

A mortgage loan where the mortgage loan does not exceed 80% of the appraised value of the property and is therefore not required to be insured by CMHC or Genworth.

Convertibility

The ability to change a loan from a variable rate schedule to a fixed rate.

Conveyance

The term used to describe the process of transferring the seller's title to a property to a buyer and includes all the steps necessary to complete that transfer. A lawyer or notary usually executes this process.

Cooperative (Co-op)

A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Cost of Borrowing

The annual cost of credit over the life of a loan, including interest, service charges, brokerage, loan fees, CMHC or other mortgage insurance.

Counter offer

An offer made by the seller back to the buyer altering one or several terms and/or conditions of the offer as originally written. A counter offer may in turn be countered back by the buyer. This process continues until both seller and buyer agrees to all terms and conditions.

Covenants

Usually called Restrictive Covenants because they restrict the use of real property. Often required as part of the subdivision process by the approving authority, these are charges registered against the title, and binding upon all subsequent owners. These covenants govern how a property may be used. The most common are Covenants for in favour of the Ministries of Health, Environment or Highways.

Credit Report

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.

Deed

In other jurisdictions, a deed is the title to your property. In British Columbia the title is properly called a "Certificate of Indefeasible Title" and referred to commonly as the "Title".

Default

Breach of a contract. Failure to do or not to do something that you have agreed either to do or not to do, such as failure to make the mortgage payment within a specified period of time.

Density

The number of dwelling units per acre. Allowable densities are determined by the Zoning bylaws of the local government.

Deposit

A sum of money given in advance of a larger amount being expected in the future, paid to secure the right to purchase a home or property at terms agreed upon by the buyer and seller. The Deposit should be sufficient to satisfy the Seller that the Purchaser would not willingly forfeit the deposit if he or she found another home more to their liking after the Contract of Purchase and Sale was signed but before Closing.

Depreciation

A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income ("Capital Cost Allowance").

Disclosure

An oral and/or written communication about agency, property condition, compensation or other key factors.

Down Payment

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Dual Agency

Representing the buyer and the seller in the same transaction by the same agent. Since there is an inherent conflict in fiduciary obligations to two different principals, dual agency, at best, is a risky undertaking. The BC Real Estate Association requires that all parties to a dual agency have full knowledge and consent (Limited Dual Agency Agreement).

Duplicate Certificate of Indefeasible Title

A duplicate copy of the original title that may be signed out of the Land Title Office if the property is free of financial encumbrances. The Duplicate must be returned to the Land Title Office before the owner can deal with his property in any way. As a result, the Duplicate title may be "Hypothecated" or given as security to a lender who will hold the title until the loan is repaid.

Easement

A right of way giving persons other than the owner access to or over a property. The most common are utility easements for the servicing of properties with utilities such as water, sewer, gas and hydroelectric power. There are also access easements for driveways and access lanes, etc.

Encroachment

An improvement that intrudes illegally on another's property. Common examples are a fence, storage shed, or overhanging roofline that partially (or even fully) extends over the property line of the adjoining property.

Encumbrance

Anything registered on title, whether financial or non-financial, that affects or limits the fee simple title to a property, such as mortgages, leases, easements, liens or restrictions. An easement is a non-financial charge, while a mortgage, Judgement or Claim of Builder's Lien would be a financial charge.

Equity

A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its debts.

Estate

The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Exclusive Listing

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time. This does not obligate the REALTOR® to cooperate with other agents as in the case of a Multiple Listing Service® (MLS®) contract.

Fair Market Value

The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fee Simple Ownership

The greatest possible interest a person can have in real estate. The English Common Law provided for a number of ways of owning title to land. The word "Fee" meant ownership and additional words added described the style of ownership. "Fee Simple" was simple ownership, without any reservations or terms. An estate limited absolutely to a person and his or her heirs and assigns forever without limitation or condition. The name survives today.

Fire Insurance

All Risk Broad Form Insurance Coverage Insurance against loss by fire, wind, storms, or other common hazards that a homeowner can purchase.

First Mortgage

The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.

Fixed-Rate Mortgage

A mortgage in which the interest rate does not change during the entire term of the loan.

Fixture

Personal property that becomes real property when attached in a permanent manner to real estate.

Flood Insurance

Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in designated flood areas.

Foreclosure

A legal process by which the lender takes possession and ownership of a property when the borrower defaults on the mortgage obligations.

Grantee

Properly called the "Transferee" in British Columbia, the Grantee is the buyer, the person who receives the transfer of title to the property from the seller.

Grantor

Properly called the "Transferor" in British Columbia, the Grantor is seller, the person who transfers title to the property to the buyer.

High Ratio Mortgage

A mortgage loan in which the amount borrowed exceeds 80% of the appraised value of the property.

Home Equity Line of Credit (HELOC)

A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

Home Inspection

A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a subject condition by the buyer.

Homeowner's Insurance

An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

Joint Tenancy

The form of ownership in which the Registered Owners of equal interests in the property declare that there shall be an automatic right of survivorship. If one dies, the other automatically becomes the owner of the entire property. The property does not form part of the deceased's estate and is deemed to pass to the surviving owner the moment before death.

Judgment

A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.

Land Title Fees

The fees paid to the Land Title Office for the processing and recording of a Transfer or Mortgage document.

Latent Defect

Hidden structural defects and flaws.

Lease

A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.

Leasehold Estates

A form of real estate in which a tenant is allowed to construct permanent structures upon a parcel of leased land, and derive some use or income from said structures during the period of the lease.  Leasehold estates usually involve long-term leases, ranging from 20 to 99 years.  Land owners are able to have their property developed, with no out of pocket expenses.  Instead of having to sell their land too soon, they retain their family's rights to the land, while receiving a steady income stream.  The tenant saves the initial land acquisation costs and may gain access to property that would be otherwise unavailable.  The downside is, as the lease nears the end or its term, the tenant's investment becomes uncertain, and the landlord is in a position to make demands for compensation, above the fair market price.  Leaseholds are much more common in commercial real estate, but can apply to some residential properties as well.  Vancouver has many leasehold subdivisions and condominium projects, with the land owned by the Municipality, UBC and various First Nations groups.

Legal Description

A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

Lien

Any legal claim against a property, filed to ensure payment of a debt, that must be paid off when the property is sold.

Lender

A term which can refer to the institution making the loan or to the individual representing the firm.

Liability Insurance

Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner's insurance policy.

Line of Credit

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Loan

A sum of borrowed money (principal) that is generally repaid with interest.

Loan-to-value (LTV)

The ratio of the amount being loaned in respect to the appraised value of the property, usually expressed as a percentage.  If a buyer was putting down $150,000, and borrowing a first mortgage of $600,000, on a $750,000 property, then the loan would have a 80% LTV.

Market Value

The price a property will sell for, given reasonable time and market exposure, to a willing buyer from a willing seller. Comparable recent sales and current listings can be used to help determine a property's probable market value range.

Mortgage

A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Broker

A mortgage company that places mortgage loans on behalf of clients, with a variety of other lending institutions with whom they usually have pre-established relationships. TMG The Mortgage Group is one such company.

Mortgage Lender

A Bank, Credit Union, Trust Company, life insurance company or private company that lends money on the security of land, houses, and real estate.

Mortgagee

The lender in a mortgage agreement.

Mortgagor

The Borrower who grants a mortgage against his property to the lender to secure a mortgage loan.

Mortgage Loan

A loan agreement where the security is the borrower's real property. The mortgagor (borrower) agrees to repay the loan, and interest, and during the term of the mortgage (lender) to keep the home insured, to pay all taxes and to keep the property in good condition.

Mortgage Application Fee

The fee charged by the mortgage lender for preparing a mortgage application, conducting credit checks, etc.

Multi-family Dwelling Units

Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Multiple Listing Service® (MLS®)

A current and comprehensive listing system for relaying property information to the various real estate boards' member REALTORS®. This service offers the widest exposure to properties listed for sale.

Offer

A written proposal to enter into an agreement with another person. An offer must express the intent of the person making the offer to form a contract, must contain some essential terms--including the price and subject matter of the contract--and must be communicated by the person making the offer. A legally valid acceptance of the offer will create a binding contract, subject to the terms and conditions stated in the document.

Open House

An opportunity for prospective buyers to view a house in a low pressure environment.

Open Mortgage

A mortgage that can be prepaid or renegotiated at any time and in any amount, without penalty.

Occupancy Permit

The local building inspector's certification that the property has been fully completed in accordance with the building code and local regulations.

Owner Financing

A property purchase transaction in which the property seller provides all or part of the financing.

PID Number

The parcel identifier (PID) is a nine-digit number assigned by the Land Title Office to a parcel of land and does not change when the property’s ownership is transferred.

PIT

The standard components of a monthly residential mortgage payment Principal, Interest, and Taxes. Some lenders do not include the Tax component and allow the borrower to pay their own taxes annually.

Possession Date

The date on which the purchaser is to take occupancy of the premises.

Power of Attorney

A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Pre-approval

A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification

Prepayment

Any amount paid to reduce the principal balance of a loan before the due date. While a standard mortgage does not permit any prepayment, most lenders will allow a borrower to prepay a portion, typically 10% or 20% of the principal, once in each year. They may also allow a similar increase in the monthly payment once in each year.

Prepayment Penalty

A fee that may be charged to a borrower who pays off a loan before it is due.

Pre-qualification

This usually refers to the loan officer's written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

Prime Rate

The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some variable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.

Principal

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal Balance

The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.

Promissory Note

A legal document verifying the existence of a debt and an unsecured promise to repay it, setting out the terms of repayment and the interest rate to be paid.

Property Condition Statement (PDS)

This form enables sellers to disclose known defects. If the seller decides not to complete the form and does not disclose known defects, he or she can still be held liable. The form also serves as a checklist for buyers enabling them to address concerns about the property's condition on the spot. The British Columbia Real Estate Association developed this form. Submission of the form is required before any listing is placed on the Real Estate Board's MLS® system.

Property Taxes

A levy affected by location and the value of the property as determined by BC Assessment. The rate of taxation is determined by local government and assessed annually.

Property Transfer Tax (PTT)

A Land Transfer Tax levied on the transfer of a real property by the Provincial Government. The rate is 1% on the first $200,000.00 and 2% on the balance. Certain exemptions exist for transfer between spouses or between certain related parties, and there are exemptions for people who have never owned real estate before. Many restrictions apply. Please consult the current rules to ensure that you qualify for an exemption before making a commitment to purchase your property.

REALTORS®

Real estate professionals licensed to negotiate and transact the sale of real estate by the Real Estate Council of BC who are active members of the various Real Estate Boards and the British Columbia and Canadian Real Estate Associations. Only these professionals can call themselves REALTOR®.

Real Property

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof

Refinancing

The process of paying off one loan with the proceeds from a new loan using the same property as security.

Right of Survivorship

In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Rights of Way

Indicated on title at the Land Title Office; often for use of utilities or city or municipality in order to make repairs to pipes, etc.; no permanent structure may be built on a right of way.

Second Mortgage

A mortgage that has a lien position subordinate to the first mortgage.

Sales Contract

In British Columbia, this is properly called a "Contract of Purchase and Sale".

Seller Take-back Mortgage

When sellers use their equity in a property to provide some or all of the mortgage financing in order to sell the property.

Statement of Adjustments

A Statement prepared to include the purchase price, deposit, real estate commissions, legal fees, property transfer tax, GST (if brand new), property taxes and all adjustments that should be made between the parties. The net result of the transaction is clearly set out for the seller or buyer to see.

Statutory Building Scheme

A Special form of Restrictive Covenant that is filed by the developer to establish special building and design guidelines and land use controls for the subdivision which are over and above those of the municipality.

Strata Hotel

A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.

"Subject-to" Clause

A statement of a condition to be fulfilled before the contract will become firm and binding; must include a specific deadline for removal.

Sublease

A rental agreement or lease between a tenant and a new tenant (called a sublessee) who will either share the rental or take over from the first tenant. The sublessee pays rent directly to the tenant.  The tenant is still completely responsible to the landlord for the rent and for any damage, including that caused by the sublessee. Most landlords prohibit subleases unless they have given prior written consent.

Survey

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

Surveyor's Certificate of Location

A survey to determine that the buildings or improvements located on a property are properly situated within the boundaries of the property and that the distance from the buildings to the property lines complies with local regulations. Note that a Surveyor's Certificate of Location does not establish property boundaries.

Tenancy in Common

The form of ownership in which the Registered Owners of interests in the property declare that there shall be NO automatic right of survivorship. If one dies, his or her share is distributed in accordance with their Will or the Estate Administration Act, if intestate. The property forms part of the deceased's estate and passes to the Personal Representative of the Deceased upon filing a Probate Order with the Land Title Office.

Time is of the essence

A clause, which if included in a contract, makes failure to perform by a specified date a material breach or violation of the contract.

Title

Properly called a "Certificate of Indefeasible Title". This is the proof of a person's right to or ownership of a property. The original "Certificate of Title" cannot be removed from the Land Title Office and is in fact only an electronic record. A Duplicate of the "Certificate of Indefeasible Title" may be requested if there are no financial charges registered against the property. This Duplicate Title must be returned to the Land Title Office before the Owner can deal with his property. As such, the "Title" may be hypothecated or used as security for a loan, since the lender knows that the owner cannot dispose of the property without returning the Duplicate Title to the Land Title Office.

Title Insurance

Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

Title Search

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.

Transfer of Ownership

The written instrument, signed by the "Transferor" (seller), and delivered to the "Transferee" (buyer), by which one person conveys a property to another (ownership of the property changes hands).

Triple Net Lease

A commercial real estate lease in which the tenant regularly pays not only for the space but for a portion of the landlord’s operating costs as well. When all three of the usual costs--taxes, maintenance and insurance--are passed on, the arrangement is known as a "triple net lease." Because these costs are variable and almost never decrease, a net lease favors the landlord.  Accordingly, it may be possible for a tenant to bargain for a net lease with caps or ceilings, which limits the amount of rent the tenant must pay. For example, a net lease with caps may specify that an increase in taxes beyond a certain point (or any new taxes) will be paid by the landlord. The same kind of protection can be designed to cover increased insurance premiums and maintenance expenses.

Utility Taxes

Examples may include water, sewer and garbage (may include recycling levies).

Variable Rate Mortgage

A mortgage loan where the interest rate is adjusted according to movements in the Bank of Canada Discount Rate, or the Prime Rate offered by the lending institution. Most variable rate mortgages carry the option of converting to a Fixed Rate Mortgage at any time.

Walk-through

A final inspection of the home before closing to inspect the premises for any damage that needs to be corrected by the vendor before closing.

Warranty

A promise, either written or implied, that the material and workmanship of a product is defect-free or will meet a specific level of performance over a specified period of time.

Zoning

Regulations established by local governments regarding the use of land and the location, size and height of any improvements built thereon within a specific area.