Glossary

A summary of all of the recorded instruments and proceedings that affect the title to property. A person who is going to buy real estate or lend money on it wants assurance of ownership. Usually an attorney or title insurance company prepares an abstract of title, based on documents in the county courthouse, to be certain of ownership and only if title is good or marketable is the property bought or the loan made. Typically, title insurance also is required.

Allocating the cost of a wasting asset over time, with larger deductions in early years. For tax purposes, accelerated depreciation allows greater deductions to be taken sooner than does straight-line depreciation, thereby reducing taxable income in early years.

A loan provision giving the lender the right to declare the entire amount immediately due and payable upon the violation of a different loan provision, such as failure to make payments on time. Without an acceleration clause, a missed payment is just that—one overdue payment. The acceleration clause means the entire loan is due, and the real estate may be foreclosed.

The act of agreeing to accept an offer. A valid contract must include an offer and an acceptance. The acceptance may be from either party to the other, such as buyer-seller or landlord-tenant.

The right of owners to get to and from their property. Property may be or become encircled by other property. The access right gives an easement by necessity, which allows the owner of landlocked property to cross over adjacent property to get to a street. Not all property in Texas has an access right

Additions to property that are not created by the owner’s efforts, such as fixtures left by a tenant or alluvial deposits.

Property taxes that have been assessed against the property for a past time period, though payment is not necessarily due.

A measure of land containing 43,560 square feet. Approximately .405 of a hectare.

Expulsion of a tenant from the property.

Latin for "according to value." See ad valorem tax. Used in describing a property tax rate.

A tax based on the value of the thing being taxed. For example, if the effective tax rate is 1 percent, the tax would be $1 per $100 of property value. Texas has several taxing jurisdictions that levy ad valorem taxes. Tax districts include cities, counties and school districts.

An attachment to a contract. In Texas, promulgated forms for residential earnest money contracts include a property condition addendum and addenda for various financing arrangements.

The location of a property indicated by number, street, city and postal code. The address of the property being purchased should appear in all legal documents, including the sales contract, the deed and the mortgage contract.

Lying near to but not necessarily adjoining. See adjoining and contiguous. When describing the physical proximity of property, adjacent includes touching property and other parcels, such as property across the street.

Contiguous; attaching; in actual contact with. See adjacent and contiguous. In describing the proximity of land, adjoining means actually touching.

Mortgage loan that allows the interest rate to vary at specific intervals during the loan term; there may be caps or limits on the amount the interest rate can change annually and during the loan term. ARMs are often a viable alternative to fixed rate mortgages and are especially desirable to the borrower who expects that rates will decline. Often, the initial rate is lower than a fixed rate mortgage, and there are caps on the ceiling rate that can be charged should interest rates rise.

A real estate appraiser selects sales of comparable property to consider in estimating the value of the subject property. From the selling price of the comparables, adjustments are added or subtracted for each salient difference from the subject to estimate the price of the comparable property as if it had the same features as the subject.

A person appointed by a court to administer the estate of a deceased person who left no will (intestate). If a person dies leaving a will, an executor is usually named to carry out the provisions of the will. When there is no executor, an administrator is appointed by the court. The administrator receives a fee.

A deed conveying the property of one who died without a will (intestate). If a person owned real estate and died without leaving a will, the administrator will give a deed. However, the administrator does not want the potential liability associated with a general warranty deed, so an administrator’s deed is used.

One who has attained the age of majority. In Texas, one who is 18 years of age is considered an adult. Also, some who are married or in military service may be adults though not yet 18. A contract with a minor is voidable by the minor or shortly after the person becomes an adult.

A means of acquiring title to real estate where an occupant has been in actual, open, notorious, exclusive and continuous occupancy for the period required by state law. A person can gain or lose title to real estate by acting in a certain way for a specified time. In Texas this may take three, five, ten or 25 years, depending on the circumstances.

A written statement or declaration sworn to or affirmed before an officer authorized to administer an oath or affirmation. Some statements, such as a contractor’s lien, must be in the form of an affidavit before they can be recorded.

To confirm; to ratify; to verify.

Special home financing programs aimed at helping those with low or moderate income to buy homes. Often, such programs are targeted to first-time homebuyers, houses in specified areas and to ethnic minorities. Affordable housing plans may offer opportunities to homebuyers who would not have access to a loan otherwise. Common elements found in these plans are reduced cash down payments, special loans or grants to defray closing costs, relaxed underwriting standards and special counseling. Among those offering such programs are state and local housing finance agencies, Fannie Mae and the regional Federal Home Loan Banks.

The legal relationship between a principal and an agent arising from a contract in which the principal employs the agent to perform certain acts on the principal’s behalf. The law of agency governs the rights and obligations of a broker to the principal and a licensed real estate salesman to the broker.

The legal requirement that a sales agent make known which party he or she represents in the transaction. Agents represent sellers unless there is a written agreement for the agent to represent the buyer. An agent of the seller is legally obligated to convey all information relevant to the sale to the seller. A buyer unaware of the agent’s allegiance to the seller might share information that compromises the buyer’s negotiating ability. Disclosure ensures that buyers do not mistakenly assume the agent represents them.

One who undertakes to transact some business or to manage some affair for another, with the authority of the latter. In real estate brokerage, a property owner or buyer employs a broker to act as his or her agent in selling or buying real property; the broker in turn may employ salespersons to act as agents. An agent has certain duties to the principal, including loyalty. The agent is to act in the best interest of the principal, even when it is not in the agent’s best interest.

A written agreement between seller and purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon terms and conditions of the agreement. Describes rights and obligations of each party. Also called offer and acceptance or contract of sale. An agreement of sale describes the rights and obligations of a buyer or seller of property. It should be accepted only after each party is satisfied that it contains what will be agreed upon in a final transaction.

Abbreviation of also known as, a term used when a party is known by more than one name.

The transfer of property and possession of lands, voluntarily as in a sale or involuntarily as in condemnation, from one person to another. In Texas, property may be transferred by voluntary alienation, such as in a sale for cash, or involuntarily, as in a condemnation.

Total monthly payments for long-term debt, including mortgage and other loans running longer than six to ten months, allowed for the borrower to qualify for a loan. To qualify for a mortgage loan, a borrower must have sufficient income that the projected mortgage payment and total debt payment are less than a specified percentage of income. For example, for an FHA loan, the mortgage interest and principal plus taxes and insurance cannot be greater than 29 percent of income. Total allowable debt payments cannot exceed 41 percent of income.

Addition to land, as by deposit of alluvium. The increase in land area generally belongs to the owner of land where the soil is deposited.

Gravel, sand, silt, clay or similar material deposited by running water.

A type of mortgage having terms other than fixed rate, fixed term, self amortizing. Important examples are those with adjustable interest rates, variable payments or shared appreciation.

In appraisal, the tangible and intangible benefits derived from property ownership, such as a swimming pool or pride of homeownership. Ownership of real estate may add to one’s self-esteem and community involvement.

A gradual paying off of a debt through periodic installments. Most mortgages require the payment of at least some principal amortization with interest so that the loan is eventually retired.

Incorporation of additional land by a city. Extra territorial jurisdiction (ETJ) in Texas allows cities to exercise some control over adjacent land use without annexation.

An estimate of the actual rate of interest charged for a loan. The federal Truth-in-Lending Act requires mortgage lenders to disclose the APR to borrowers before the loan is closed. The APR is higher than the contract interest rate (the nominal rate quoted for the loan) if discount points are charged. The APR provides a true measure of the cost of the loan and can be used to compare one loan with another.

A series of equal or nearly equal periodic payments or receipts. For example, the receipt of $100 per year for the next five years constitutes a $100 five-year annuity.

An opinion or estimate of a property’s value. If a buyer is unfamiliar with the value of real estate in an area, it is prudent to require that, as a condition of the earnest money contract, the property appraise for at least the price being paid. Also, lenders require an appraisal of property as a requirement of making a loan. The borrower will pay the appraisal fee.

One of three methods used in estimating the value of property. See income approach, market comparison approach and cost approach. Having three separate methods to estimate the value of property will add confidence to an appraiser’s value estimate. However, not all approaches are applicable for all properties.

See cost approach.

A clause in the sales contract that allows the buyer to reject the sale if the appraisal is too low to support the loan. A mortgage lender bases the amount loaned on the lesser of the house’s price or appraised value. If the appraisal is lower than the price, the buyer may have to increase the cash down payment or raise the loan-to-value ratio to purchase the home. A buyer may reassess the transaction if this occurs.

A document that describes the results of a property valuation. The report should indicate the property being appraised, the purpose of the appraisal, the type of value estimated and information about the appraisal process, in addition to the estimate of value. When a mortgage loan is made by a lender (mortgage banker, bank or saving association), an appraisal may be required. A report is the written results of the appraisal.

A professional who estimates the value of property. Appraisers prepare value estimates for a fee. An appraisal often is prepared when a borrower applies for a mortgage loan.

To increase in value as a result of market forces or inflation. Every homeowner wants the home to appreciate. A certain amount of appreciation is caused by inflation, but property may become more valuable because it is more desirable (being in the right location) or more scarce (as when population is growing faster than construction). An increase in value because the home has been remodeled or enlarged is not considered appreciation.

An increase in the value of property such as through inflation or real income. Appreciation is one of the most significant benefits from real estate.

Something that is outside the property itself but is considered a part of the property and adds to its greater enjoyment, such as the right to cross another’s land. The right to use another’s land for a special purpose can affect the value of the subject property.

An offer of the property in its present condition with no guarantee of soundness. If a property is advertised "as is," the seller will not repair defects revealed by a buyer’s inspection. Consequently, such properties are listed at discounted prices. Sellers of "as is" properties are liable for mandatory disclosure of material defects.

A valuation placed on property by a public officer or a board as a basis for taxation. A property’s assessed value is typically a reasonable estimate by the tax assessor, who must periodically review all property in the jurisdiction. By contrast, an appraisal of a single property is more likely to approximate its market value.

Estimate of property value to which property taxes are applied.

A charge by a government against real estate for taxes or to cover the cost of an improvement, such as a street or sewer line. See assessed valuation. Property buyers and owners need to recognize that they may have to pay extra amounts for municipal improvements that affect their property. Frequently, the owner has little or no input in the decision.

The ratio of assessed value to market value. For example, if a county requires a 40 percent assessment ratio on all property to be taxed, then property with a $10,000 value is assessed at $4,000 (40 percent of $10,000), and the tax rate is applied to $4,000. In Texas, all taxing jurisdiction are expected to assess at 100 percent of market value.

An official who has the responsibility of placing an assessed value on property. The assessor estimates the value of each piece of real estate in the tax jurisdiction but does not fix the tax rate or amount.

Something that has value. An asset can be tangible or intangible. Assets can be sold to raise cash and may be used to produce income.

A legal term for the person to whom an agreement or contract is sold or transferred.

The method or manner by which a right or contract is transferred from one person to another. Contracts for the sale of real estate are generally assignable, except when there is financing to be arranged or certain conditions are imposed on a party. In a lease, an assignment gives all rights of the original tenant to the new one.

A party who assigns or transfers an agreement or contract to another. While many contracts can be assigned, the assignor is not necessarily relieved of the obligation. For example, debts cannot be assigned. Another party can assume a debt, but the original borrower remains liable.

A periodic charge levied by a homeowners’ association for the purpose of maintaining common areas in a subdivision or condominium development. Nearly all condominiums and some subdivisions of detached homes have homeowners’ associations. Membership often is mandatory for residents within the jurisdiction covered by the association. A fee may be charged to pay for the association’s activities.

A mortgage loan in which the lender agrees to substitute the buyer for the seller when the property is sold. An assumable mortgage is an asset to a seller when the mortgage has an interest rate below that currently available in the market. The seller may be able to charge a premium for such financing. For an assumable loan, the mortgage contract must not have a "due on sale" clause, or the clause must allow substitution of a new borrower without a change in loan terms.

The act of taking on the obligation for existing mortgage financing when buying a property. When interest rates are high or mortgage loans difficult to obtain, it may be an advantage to the buyer to assume an existing loan. The interest rate is unchanged, and the buyer may not have to qualify for the financing. However, if the property has appreciated or the loan has been paid down, there may be a large differential between the loan amount and the house price, requiring either a large cash payment or additional financing. When a loan is assumed, the buyer takes full responsibility for repaying the loan. However, when a property is taken subject to an existing loan, the seller remains responsible for the loan.

Purchase financing based on the buyer’s assuming the existing mortgage loan. When an assumable loan exists on a home, loan assumption offers an alternative to new mortgage financing. An assumption may offer advantages in lower interest rate, easier loan arrangement, lower closing costs and a quicker sale. However, the seller may demand a higher price when an assumption is available, and additional financing may be needed.

The purchase of mortgaged property whereby the buyer accepts liability for any debt. The seller remains liable to the lender unless the lender agrees to release the seller. A party entering an agreement for the purchase or sale of real estate should check the financing to determine whether the mortgage is assumable. A mortgage that carries favorable terms and is assumable adds value to the transaction.

Legal seizure of property to force payment of a debt. Property can be taken as security for a debt provided it is done with court approval.

To witness to; to witness by observation and signature. Certain documents must be attested to as a condition for recording at the county courthouse.

A person designated to act for another. See lawyer. A buyer or seller of real estate may wish to hire a lawyer to review legal documents and provide advice on accepting the legal obligations of the sales contract.

One who is authorized to act for another under a power of attorney, which may be general or limited in scope. A person may give another the right to act for him or her in some or all matters. The designated person, called an attorney-in-fact, need not be an attorney at law.

A method of selling a property in which interested buyers submit competitive bids, with the property going to the highest bidder. Bidding usually takes place in an public session in which buyers enter their bids and are allowed to increase those bids until no higher bids are entered. Auctions offer a way to sell a property quickly but with the risk that it will not return market value. In some countries, auctions are the favored way to sell real estate, but in the United States, auctions are used primarily for disposal of repossessed properties.

The sudden removal of land from one owner to another when a river or other body of water abruptly changes its channel. If a stream or river is a boundary line, the boundary may or may not change with the addition or removal of land, depending on respective state laws.