Real Estate Glossary

Buyer and Seller Resource

Acceleration clause: A clause written into a mortgage agreement to allow the lender to accelerate or call the entire principal balance of the mortgage, plus accrued interest, when the borrower is delinquent with payments.

Adjusted cost base {ACB}: The value of real property established for tax purposes. It is the original cost plus any allowable capital improvements, certain acquisition costs and any mortgage interest costs, less any depreciation.

Agreement of purchase and sale: A written agreement between the owner and a purchaser for the purchase of real estate for a predetermined price and terms.

Amenities: Generally, those parts of the condominium or apartment building that are intended to beautify the premises and that are for the enjoyment of occupants rather than for utility.

Amortization period: The actual number of years it will take to repay a mortgage loan in full. This can be well in excess of the loan’s term. For example, mortgages often have five-year terms but 25-year amortization periods.

Amortization: The reduction of a loan through periodic payments in which interest is charged on the unpaid balance.

Analysis of property: The systematic method of determining the performance of investment real estate using a property analysis form.

Appraised value: An estimate of the fair market value of the property, usually performed by an appraiser.

Arrears: Arrears are the overdue payments owing on either a mortgage or a lease; it also refers to the state of being late in fulfilling the obligations of the mortgage or lease agreement.

Assessment fee: A monthly fee that condominium owners must pay, usually including management fees, costs of common property upkeep, heating costs, garbage-removal costs, the owner’s contribution to the contingency reserve fund, and so on. In the case of time-shares, the fee is normally levied annually. Also referred to as the maintenance fee.

Assign: The act of transferring ownership of or responsibility for a property to a purchaser or tenant; usually a step that occurs prior to the original owner or tenant completing the purchase or lease term. The assignee assumes the right to purchase a property, or becomes the subtenant of the original tenant.

Assumption agreement: A legal document signed by a home buyer that requires the buyer to assume responsibility for the obligations of a mortgage made by a former owner.

Balance sheet: A financial statement that indicates the financial status of a condominium corporation or apartment building, or other revenue property, at a specific point in time by listing its assets and liabilities.

Blended payments: Equal payments consisting of both a principal and an interest component, paid each month during the term of the mortgage. The principal portion increases each month, while the interest portion decreases, but the total monthly payment does not change.

Budget: An annual estimate of a condominium corporation or apartment building’s expenses and the revenues needed to balance those expenses. There are operating budgets and capital budgets. {See also Capital budget.}

Canada Mortgage and Housing Corporation {CMHC}: The federal Crown Corporation that administers the National Housing Act. CMHC services include providing housing information and assistance, financing, and insuring home-purchase loans for lenders.

Canadian Real Estate Association {CREA}: An association of members of the real estate industry, principally real estate agents and brokers.

Capital budget: An estimate of costs to cover replacements and improvements, and the corresponding revenues needed to balance them, usually for a 12-month period. This is different from an operating budget.

Capital gain: Profit on the sale of an asset that is subject to taxation.

Capital improvements: Major improvements made to a property that are written off over several years rather than expensed off in the year in which they are made.

Charge: A document registered against a property, stating that someone has or believes he or she has a claim on the property. Closing costs: The expenses over and above the purchase price of buying and selling real estate.

Closing date: The date on which the sale of a property becomes final and the new owner takes possession.

Closing: The actual completion of the transaction acknowledging satisfaction of all legal and financial obligations between buyer and seller, and acknowledging the deed or transfer of title and disbursement of funds to appropriate parties.

Collateral mortgage: A loan backed up by a promissory note and the security of a mortgage on a property. The money borrowed may be used for the purchase of a property or for another purpose, such as home renovations or a vacation.

Common area maintenance fee: The charge to owners to maintain the common areas, normally due on a monthly basis.

Common area: The area in a condominium project that is shared by all of the condominium owners, such as elevators, hallways, and parking lots.

Condominium Corporation: The condominium association of unit owners incorporated under some provincial condominium legislation, automatically at the time of registration of the project. It is called a strata corporation in British Columbia. Under each of the provincial statutes, it will differ from an ordinary corporation in many respects. The condominium corporation, unlike a private business corporation, usually does not enjoy limited liability, and any judgment against the corporation for the payment of money is usually a judgment against each owner. The objects of the corporation are to manage the property and any assets of the corporation, and its duties include effecting compliance by the owners with the requirements of the Act, the declaration, the bylaws, and the rules.

Condominium council: The governing body of the condominium corporation, elected at the annual general meeting of the corporation.

Condominium: A housing unit to which the owner has title and of which the owner also owns a share in the common area {such as elevators, hallways, swimming pool and land}.

Conventional mortgage: A mortgage loan that does not exceed 75 percent of the appraised value or of the purchase price of the property, whichever is the less. Mortgages that exceed this limit generally must be insured by mortgage insurance, such as that provided by CMHC and GEM.

Conversion: The changing of a structure from some other use, such as a rental apartment to a condominium apartment.

Conveyancing: The transfer of property, or title to property, from one party to another.

Credit bureau: An agency that maintains credit files, such as Equifax and others.

Credit check: A report typically run to review the credit history of an individual to assist in determining whether or not the individual is worthy of receiving credit.

Credit rating: The score – usually expressed as a number – calculated using information in an individual’s credit file. The credit rating is typically used go determine credit worthiness. The better the score, the more worthy of credit an individual is.

Debt service: Cost of paying interest for use of mortgage money. Deed: This document conveys the title of the property to the purchaser. Different terminology may be used in different provincial jurisdiction.

Depreciation: The amount by which a property owner writes off the value of a real estate investment over the life of the investment. Depreciation is not applicable to the value of land.

Down payment: An initial amount of money [in the form of cash} put forward by the purchaser. Usually it represents the difference between the purchase price and the amount of the mortgage loan.

Equity return: The percentage ratio between an owner’s equity in a property and total of cash flow plus mortgage principal reduction. Equity: The difference between the price for which a property could be sold and the total debts registered against it.

Escrow: The holding of a deed or contract by a third party until fulfillment of certain stipulated conditions between the contracting parties.

Estate: The title or interest one has in property such as real estate and personal property that can, if desired, be passed on to survivors at the time of one’s death.

Fair market value: The value established on real property that is determined to be one that a buyer is willing to pay and which a seller is willing to sell.

Fee simple: A manner of owning land, in one’s own name and free of any conditions, limitations, or restrictions.

Financial statements: Documents that show the financial status of the condominium corporation, apartment building, or other revenue property at a given point in time. Generally includes income and expense statement and balance sheet.

Floating-rate mortgage: Another term for variable-rate mortgage. Foreclosure: A legal procedure whereby the lender obtains ownership of, or the right to sell, the property following default by the borrower.

Freehold: The outright ownership of land, or land and buildings; differs from leasehold.

GE Mortgage Insurance Canada {GEM}: A private company providing mortgage insurance in Canada.

GEM: The initials for GE Mortgage Insurance Canada. See GE Mortgage Insurance Canada.

Guarantor: A party that guarantees to pay the debts of an individual in the event the individual is unable to pay the debts.

Guarantor’s letter: A legal document by which the guarantor agrees to assume the debt of another party.

High-ratio mortgage: A conventional mortgage loan that exceeds 75 percent of the appraised value or purchase price of the property. Such a mortgage must be insured.

High-rise: Any multi-unit residential building of six or more storeys.

Income, gross: Income or cash flow before expenses.

Income, net: Income or cash flow after expenses {but generally before income tax}.

Interest averaging: The method of determining the overall average interest rate being paid when more than one mortgage is involved.

Interim financing: The temporary financing by a lender during the construction of real property for resale, or while awaiting other funds.

Judgment: The official outcome of a lawsuit or other legal proceeding. The judgment may be financial or otherwise.

Legal description: Identification of a property that is recognized by law that identifies that property from all others.

Lessee: The tenant in rental space.

Lessor: The owner of the rental space.

Letter of intent: Used in place of a formal written contract with a deposit. The prospective purchaser informs the seller, in writing, that he or she is willing to enter into a formal purchase contract upon certain terms and conditions if they are acceptable to the seller.

Leverage: The use of financing or other people’s money to control large pieces of real property with a small amount of invested capital.

Limited partnership: An investment group in which one partner serves as the general partner and the others as limited partners. The general partner bears all of the financial responsibility and management of the investment. The limited partners are obligated only to the extent of their original investment plus possible personal guarantees.

Listings, exclusive agency: A signed agreement by a seller in which he or she agrees to co-operate with one broker. All other brokers must go through the listing broker.

Listings, multiple: {See also Multiple Listing Service.} A system of agency/subagency relationships. If broker A lists the property for sale, “A” is the vendor’s agent. If Broker B sees the MLS listing and offers it for sale, “B” is the vendor’s sub-agent.

Listings, open: A listing given to one or more brokers, none of whom have any exclusive rights or control over the sale, by other brokers or the owner of the property.

Marginal tax rate: That point in income at which any additional income will be taxed at a higher tax rate.

MLS: see Multiple Listing Service.

Mortgage wraparound: Sometimes called an all-inclusive mortgage. A mortgage that includes any existing mortgages on the property. The buyer makes one large payment on the wraparound and the seller continues making the existing mortgage payments out of that payment.

Mortgage, balloon: A mortgage amortized over a number of years, but that requires the entire principal balance to be paid at a certain time, short of the full amortization period.

Mortgage, constant: The interest rate charged on a mortgage consisting of both the rate being charged by the lender and the rate that represents the amount of principal reduction period.

Mortgage, deferred payment: A mortgage allowing for payments to be made on a deferred or delayed basis. Usually used where present income is not sufficient to make the payments.

Mortgage, discounted: The selling of a mortgage to another party at a discount or an amount less than the face value of the mortgage.

Mortgage, first: A mortgage placed on a property in first position.

Mortgage, fixed: This is a conventional mortgage, with payments of interest and principal. Fixed terms with a fixed rate can vary from six months to 10 years or more.

Mortgage, insurance: Insurance provided by the lender as an option for the borrower. It would pay out the balance outstanding on the mortgage, in the event of the borrower’s death.

Mortgage, interest only: Payments are made only of interest; the payment does not reduce the principal of the debt.

Mortgage, points: The interest rate charged by the lender.

Mortgage, second: A mortgage placed on a property in second position to an already existing first mortgage.

Mortgage, variable: A mortgage with an interest rate that fluctuates with the Band of Canada interest rate. The mortgagee just pays the interest, with optional pay-down on the principal. This is different from a fixed-rate mortgage {see Mortgage, fixed}.

Mortgage: The document that pledges real property as collateral for indebtedness.

Mortgagee: The lender.

Mortgagor: The borrower.

Multiple Listing Service {MLS}: A service licensed to member real estate boards by the Canadian Real Estate Association. Used to compile and disseminate information by publication and computer concerning a given property to a large number of agents and brokers.

National housing Act {NHA} Loan: A mortgage loan that is insured by Canada Mortgage and Housing Corp. to certain maximums.

Offer to purchase: The document that sets forth all the terms and conditions under which a purchaser offers to purchase property. This offer, when accepted by the seller, becomes a binding agreement of purchase and sale once all conditions have been removed.

Operating budget: An estimate of costs to operate a building or condominium complex and corresponding revenues needed to balance them, usually for a 12-month period. This is different from a capital budget.

Operating costs: Those expenses required to operate an investment property; generally excluding mortgage payments.

Option agreement: A contract, with consideration, given to a purchaser of a property, giving him or her the right to purchase at a future date. If the individual chooses not to purchase, the deposit is forfeited to the seller.

Personal property: Property in an investment property, such as carpeting, draperies and refrigerators that can be depreciated over a shorter useful life than the structure itself.

PI: Principal and interest due on a mortgage.

PIT: Principal, interest, and taxes due on a mortgage.

Prepayment penalty: A penalty charge written into many mortgages that must be paid if the mortgage is paid off ahead of schedule.

Principal: The amount the purchaser actually borrowed, or the portion of it still owing on the original loan.

Property manager: A manager or management company hired to run an investment property for the owner.

Purchase-and-sale agreement: See Agreement of purchase and sale.

Tax shelter: The tax write-off possible through the depreciation benefits available on investment real estate ownership.

Title insurance: This insurance covers the purchaser or vendor in case of any defects in the property or title, that existed at the time of sale but which were not known until after completion of the sale. Title: Generally, the evidence of right that a person has to the possession of property.

Trust account: The separate account in which a lawyer or real estate broker holds funds until the real estate closing takes place or other legal disbursement is made.

Trust funds: Funds held in trust, either as a deposit for the purchase of real property or to pay taxes and insurance.

Unit: Normally refers to the rental suite or that part of a condominium owned and occupied or rented by the owner.

Useful life: The term during which an asset is expected to have useful value.

Utilities: Any one of the array of services that allow a property to function, and which typically deliver a basic social good, such as heat, water and electricity, or phone and television service. The landlord may provide access to utilities for a fee, or the tenant may be responsible for arranging a connection to the utilities.

Value, assessed: The property value as determined by local, regional, or provincial assessment authority.

Vendor take-back: A procedure wherein the seller {vendor} of a property provides some or the entire mortgage financing in order to sell the property. Also referred to as vendor financing.

Vendor: A person selling a piece of property.

Zoning: Rules for land use established by local governments.

Source: Reality CHECK – Real Estate Secrets by Sandra Rinomato

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