Key Terms (continued)

Key Terms (continued)Course

KeyTerms

Pennslyvania

Key TermsCourseKey TermsCourse

Key Term Description Level, Chapter

abstract of title an abbreviated history of a property, including information on any transfers, grants, wills, conveyances, liens, and encumbrances

L21, C5

acceleration clause a clause in a security instrument (mortgage/deed of trust) which makes the entire loan amount due immediately upon default

L15, C4

accession the rightvto all that one’s own property produces, including that which is added, either naturally or by human action, to the property already owned

L1, C4

accretion the process that results in the gradual increase in land area through deposits of soil by natural forces

L1, C4

acre a measurement of land equal to 43,560 square feet L4, C2

actual eviction the legal process by which someone is expelled from a property and prevented from re-entry

L18, C3

ad valorem taxes a tax calculated according to the assessed value of a piece of real estate

L6, C1

adjustable-rate mortgage (ARM)

a mortgage with an interest rate that can be adjusted based on fluctuations in the cost of money

L14. C2

adverse possession involuntary transfer of title from an owner who does not use or inspect their land for a number of years to another person who has some claim to the land and takes possession

L5, C3

agency agreement a mutually binding understanding between two parties that authorizes another party to act on their behalf

L11, C1

agent an individual with authority to act on behalf of another; a state license is required to operate as an agent in real estate

L9, C1

air rights the right to use the air space above the surface of land L1, C5

air space the area above ground that is owned along with a property. could include space above a piece of land, or the space owned inside a condominium unit.

L1, C5

alienation the transfer of ownership (title) to real property. alienation may be voluntary or involuntary.

L5, C3

Americans with Disabilities Act

a federal civil rights law passed in 1990 which prohibits discrimination against and create standards for people with disabilities

L25, C5

amortization the process of paying off a debt/mortgage in regular installments based on a fixed payment schedule

L13, C2

Annual Percentage Rate (APR)

how much the borrower will pay in interest over the course of a year

L13, C2

appraisal an official valuation given to a property by a licensed appraiser L19, C1

2


appraiser an individual who is trained and licensed to perform appraisals, which estimate the value of real property

L19, C1

appreciation the increase in value of a property L19, C1

appurtenances rights that run with real property ownership; most often transferred with the property, but possible to sell separately

L5, C3

arrears a payment that occurs at the end of a period to compensate for charges accrued during that time.

L13, C2

asbestos a naturally occurring mineral fiber that is commonly used in insulation but if airborne or inhaled, can cause severe respiratory health issues

L12, C4

assemblage the combining of multiple contiguous pieces of real property into a single tract of land, often resulting in an increase in value

L19, C1

assessed value the value placed on a property by a governmental unit for use in calculating property taxes

L19, C1

assignment the transference of rights and obligations in a contract from one party to another

L7, C5

associate broker an individual who meets the licensure requirements to be a real estate broker but provides real estate brokerage services as an independent contractor to a real estate broker

L26, C2

avulsion the sudden loss of land by flood or when a stream or river changes course

L1, C4

balloon payment a payment at the end of a loan period which includes the total outstanding balance of the loan.

L14, C1

bargain and sale deed a deed without any covenants or warranties against encumbrances that only implies the grantor has possession of the property and holds the right to convey title

L21, C3

baseline a parallel used in reference to a meridian to identify ranges, tiers, and townships in the rectangular survey method of land description

L4, C2

benchmark permanent markers of known location and elevation above sea level as established by a government survey team (such as the USGS)

L4, C1

beneficiary the recipient of advantage or gain from an act or instrument such as a trust, will, or insurance policy

L2, C4

bilateral contract a contract wherein both parties are obligated to perform in an exchange of promises

L7, C3

binder a preliminary agreement for the sale of a property secured by a valuable deposit from the potential buyer, which binds the seller to a good faith agreement to sell the subject property, provided that a sale contract meeting the conditions determined is executed within the prescribed period; also known as a *letter of intent (loi)*

L8, C1

Key TermsCourse

3


blanket mortgage a loan for which more than one collateral property acts as security

L14, C3

blind ad an ad in which a license holder attempts to promote or solicit real estate activity without disclosing the fact that they are a license holder; illegal in Pennsylvania

L27, C4

blockbusting the illegal act of causing owners to sell their homes by creating fear that members of a protected class are moving into the area

L25, C6

branch office any fixed location in the Commonwealth of Pennsylvania, other than the main office, which is maintained by a broker or cemetery broker and devoted to the transaction of real estate business

L27, C1

bridge loan short-term loan used to transition from one loan to another; can connect borrower from construction loan to eventual mortgage loan (or current home to their new home)

L14, C3

broker a person or business entity who is licensed to represent one of the parties in a real estate transaction in exchange for a commission or other valuable consideration

L9, C1

brownfield real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant

L6, C3

building code a set of regulations pertaining to building design, materials, safety, sanitation, and structure

L6, C1

bundle of rights ownership of land with all of the legal rights of possession, control, quiet enjoyment, exclusion, transfer, and encumber

L1, C2

buydown the paying of money upfront to reduce a loan’s interest rate and monthly payments

L13, C8

buyer’s market any market that is experiencing an excess of sellers or supply, creating more favorable conditions for buyers.

L19, C2

capital expenditure an expense paid in order to improve a property L17, C3

capital improvement upgrades or improvements to a property that fall outside the scope of normal repair and maintenance, usually with the intention of increasing value

L17, C3

capitalization rate (cap rate)

a rate of return that calculates the percentage of expected annual income earned over a property’s value; the present value for expected future income earned

L20, C4

carbon monoxide an odorless, colorless gas that occurs as a by-product due to incomplete combustion when burning such fuels as wood, oil, and natural gas

L12, C4

cash flow measures the amount of cash flowing in and out of a business L17, C3

Key TermsCourse

4

Key Terms (continued)CourseKey TermsCourse

CERCLA the comprehensive environmental response, compensation, and liability act, aka the superfund

L6, C3

certificate of occupancy (CO)

legal document from a local authority that authorizes a building to be occupied; issued after the building has passed all required inspections

L6, C1

certificate of title a document prepared by a title attorney detailing the chain of title and offering an opinion on the marketability of the seller’s title

L21, C5

chain of title the entire chronological record of a property’s ownership L21, C5

chattel a commonly used term for personal property in the world of real estate

L1, C3

chlordane a chemical compound formerly used in pesticides that is dangerous to human health

L12, C4

chlorofluorocarbons (CFCs)

chemical compounds containing chlorine, fluorine, and carbon atoms that were once used in refrigerator coolant, air conditioners, and dehumidifiers

L12, C4

Civil Rights Act of 1866 a federal law that prohibits discrimination in housing based on race

L25, C1

cloud any claim to or encumbrance on the title to a property which affects transferability

L5, C2

collateral property liened by a lender in order to assure payment of the loan and protect the lender’s investment

L13, C2

collusion an unlawful agreement between competitors to monopolize a market, disadvantage other competitors, or otherwise undertake activities in violation of fair trade laws

L24, C3

color of title a title transfer that is defective in a way that is unknown to the new owner

L21, C5

commingling the illegal act of mixing personal funds with a client’s funds L24, C4

common elements portions of a shared ownership property not controlled by any one owner or tenant. examples include parking lots, lobbies, fitness centers, elevators, etc.

L3, C2

community property a system of property co-ownership, most commonly applied to married couples, which describes what is joint property and what is individual property

L2, C2

comparable (comp) any property which has sold and is similar enough in features, location, and proximity in time to inform the value of a subject property

L19, C3

5


comparative market analysis (CMA)

a report that compares the prices of recently sold or listed homes (“comparables”) in order to estimate the market value of a similar property (the “subject property”) located in the same area

L19, C3

condominium property where each owner has a separate interest in their own unit and undivided interest in the common areas

L3, C2

consideration something of value exchanged by the parties as evidence of agreement to the terms of a contract

L7, C1

construction mortgage a temporary mortgage used to finance a construction project L14, C3

constructive eviction the termination of a lease in circumstances in which the landlord defaults and acts, or fails to act, in such a way that the premises become unusable

L18, C3

contingency a provision within a contract that makes performance conditional upon the occurrence of a stated event

L8, C2

contract a legally enforceable and binding agreement between parties wherein a promise to do or not do something is given in exchange for valuable consideration

L7, C1

contract for deed a sales contract in which the buyer pays the seller for the property in multiple installments for a predetermined length of time, and the seller holds the title until the property has been fully paid for; also known as an *installment sales contract,* *installment contract,* or *land contract*

L8, C3

contribution the amount of market value added to a property by an addition or improvement to the property; not necessarily the same as the cost of the improvement

L19, C1

conventional loan any loan that is neither insured by the government nor guaranteed by the government

L14, C1

conversion changing real property to personal property, and vice versa; also the illegal act of mixing a fiduciary’s funds with an agent’s personal funds

L24, C4

conveyance an instrument that transfers a grantor’s interest in real property L5, C2

cooperating brokerage an agency arrangement in which two brokerages collaborate to achieve a real estate transaction for a specific piece of property

L10, C2

corrective maintenance the repair of equipment after it has broken L17, C3

cost approach method of estimating the value of a property by determining how much it would cost to replace the building or other improvements, minus the cost of depreciation, plus the value of the land itself

L20, C3

counteroffer a contract proposal submitted in response to a previous offer, modifying the terms of the original offer; considered a rejection of the original offer

L8, C1

6


covenant of seisin a protection in which the grantor states they hold the title conveyed in the deed, a.k.a. covenant of seizin

L21, C3

covenants, conditions, and restrictions (CCRs)

private restrictions similar to deed restrictions that dictate what homeowner may do with their property

L5, C1

credit report contains information regarding an individual’s credit history (loan payments, etc.) as well as the present credit status of all open credit accounts

L16, C2

credits sum of money that is received L22, C2

curtesy/dower the right of a spouse to inherit property held in their spouse’s name after that spouse dies; dower is the word used for women, curtesy for men.

L2, C1

customer an individual with whom a license holder has no agency relationship nor fiduciary duties but to whom fairness and honesty are still required

L9, C2

datum a designated base reference point to elevation used by surveyors to determine the elevations of land or property in an area

L4, C3

debits sum of money that is owed L22, C2

debt service current debt obligations L16, C3

Debt Service Coverage Ratio

used to evaluate income-producing properties; is calculated by dividing the net operating income (cash flow after all expenses and debts are paid) by total debt service (current debt obligations)

L16, C3

debt-to-income Ratio used to measure a borrower’s creditworthiness; calculated by dividing all debt (monthly payment + other debt) by monthly income

L16, C2

deed in lieu of foreclosure an alternative to foreclosure in which the defaulting borrower voluntarily transfers the property title to the lender and the borrower cancels the foreclosure

L21, C3

deed In trust a deed used to convey ownership interest to the trustee under a land trust

L21, C3

deed restriction a provision in a deed that restricts the land use of a property L5, C1

defeasance a clause in a security document that indicates that the loan has been satisfied and that either the title will be conveyed to the borrower or the lien on the borrower’s title will be removed

L15, C4

deficiency judgment a court’s decision to attach a judgement (lien) against a debtor in the event that a property’s sale price does not cover outstanding debts

L21, C3

Key TermsCourse

7


demand a measure of the general desire for an asset or commodity at a given time

L19, C2

density the measure of the proportion of a given area used for residential purposes

L6, C2

Department of Housing and Urban Development (HUD)

a department in the federal government which is in charge of enforcing federal fair housing laws

L25, C8

depreciation a reduction in value for any reason L20, C3

designated agency an agency arrangement wherein both parties to the transaction are represented by their own agent, but both agents are employed by the same brokerage; by necessity each client enjoys an agency relationship exclusively with the named agent within the brokerage

L10, C3

devise the transfer of real or personal property through a will L21, C1

disability or handicap a physical or mental impairment that substantially limits one or more major life activities, the record of such impairment, or being regarded as having such an impairment

L25, C5

discount point a loan fee used to decrease a loan’s interest rate L13, C8

discrimination the unjust or prejudicial treatment of different categories of people, especially on the grounds of race, color, sex, national origin, religion, disability, or other classifications

L25, C1

disintermediation the process of money flowing out of banks L13, C3

doctrine of laches a legal principle used to bar dated claims; used in conjunction with an unreasonable delay or negligence in asserting or defending one’s rights

L5, C1

doctrine of prior appropriation

the legal doctrine which grants states the power to control and regulate all water resources within their borders

L1, C5

Dodd-Frank Act a law passed in response to the subprime mortgage crisis that created the consumer finance protection bureau.

L23, C2

dominant tenement the parcel of land that benefits from an easement appurtenant by having the right to cross another owner’s adjacent land

L5, C3

dual agency an agency relationship wherein both the buyer and the seller are represented by the same broker in an in-house real estate transaction; requires written consent from both parties

L10, C3

due diligence a legal term used to describe the reasonable steps a person must take in order to satisfy a legal requirement

L11, C1

Due on Sale/Alienation Clause

a clause in the mortgage contract that triggers the right of the lender to demand payment in full of the loan upon the sale or conveyance of the property

L15, C4

earnest money funds paid to confirm or commit to a contract L8, C2

8


easement an interest in, or a right to use, another individual’s land or property, generally for a specific, limited purpose.

L5, C3

easement non-possessory interest in a property that burdens the title L5, C2

easement by condemnation

easement in which private property is taken for public use via eminent domain; declaration that a structure must be closed or demolished because it is unfit for occupants

L5, C3

easement in gross an easement that applies to the person or entity, not the specific land

L5, C3

economic life the length of time for which an improvement on property is expected to remain functional and useful

L20, C3

effective gross income the total annual income that a property produces; does not account for any expenses

L20, C4

electromagnetic field (EMF)

an invisible field of energy produced by electricity L12, C4

eminent domain the power of government to seize private property for public use; government must pay property owner just compensation for exercising power

L6, C1

encroachment physical property that crosses the boundary into a neighboring landowner’s property

L5, C2

enforceability possessing the essential elements necessary to be legally binding and obligate performance; used to describe the compelling nature of a valid contract

L7, C2

environmental assessment; a.k.a. environmental site assessment

a report prepared for a real estate holding that identifies potential or existing environmental contamination liabilities

L12, C5

EPA (Environmental Protection Agency)

the agency charged with enforcing federal environmental protection laws and taking other actions to protect the environment

L6, C3

Equal Credit Opportunity Act (ECOA)

the equal credit opportunity act, a fair lending law that aims to bar discriminatory lending practices.

L23, C3

equilibrium a theoretical market condition in which levels of supply and demand are balanced

L19, C2

equity the portion of a property’s total value owned outright by the holder to title

L13, C2

erosion the gradual loss of land over time L1, C4

escalation clause a clause in a lease allowing payments to increase in relation to a specified factor or index

L18, C1

9


escheat the legal doctrine by which the decedent’s property will pass to the state without their consent if that individual dies without a will, a surviving spouse, lineal descendants, or other known heirs

L6, C1

escrow a process in which funds and/or financial documents are held by a disinterested third party on behalf of the other two parties in the real estate transaction until specific conditions are satisfied

L22, C1

estate at sufferance a tenant’s occupancy of a property beyond their lease’s terms and without the landlord’s consent, also called tenancy at sufferance

L18, C1

estate at will a tenant’s occupancy of a property with the landlord’s consent L18, C1

estate for years a lease with a specific starting and ending date, also called a tenancy for years

L18, C1

estoppel the legal principle that prevents an individual from asserting something contrary to that which was implied by previous words or deeds by that individual

L9, C5

ethics standards of conduct agreed upon and recognized by a particular group or culture

L24, C1

eviction forced removal of a tenant due to a default under the terms of the lease

L18, C3

evidence of title constructive or actual notice of real property ownership L21, C5

exclusive agency listing an agreement in which the seller has an exclusive relationship with a broker but retains the right to sell the property to named prospects

L11, C3

exclusive right to sell agreement

an agreement in which the seller guarantees the named broker receives a commission if the property is sold, even if the seller brings the buyer themselves

L11, C3

executory contract a contract that has not yet been fully performed (both sides have not yet completed their obligations)

L7, C3

external obsolescence loss of property value caused by negative forces outside the property which are beyond the control of the owner

L20, C3

Fair Housing Act of 1968 a federal law that prohibits discrimination in housing based upon race, color, religion, or national origin and was amended to include sex, disability, and familial status

L25, C1

familial status under the fair housing act, a protected class composed of families who have children under 18, pregnant women, and people in the process of obtaining legal custody of a child

L25, C1

Federal Deposit Insurance Corporation (FDIC)

independent agency that provides deposit insurance to depositors in u.s. banks

L13, C1

10


Federal Home Loan Mortgage Corporation (Freddie Mac)

a government-sponsored enterprise created in 1970 to further support the secondary mortgage market, and specifically, to support smaller thrift banks

L13, C4

Federal National Mortgage Association (Fannie Mae)

a government-sponsored enterprise created to act as a secondary mortgage market facility that could purchase, hold, and sell fha-insured loans

L13, C4

fee simple condition subsequent

a defeasible fee estate that comes with specific requirements (or conditions)

L2, C1

fee simple defeasible a property interest characterized by perpetual ownership on the condition that the property is used for a certain purpose or under specific conditions. ownership reverts back to the original owner if these stipulations are violated.

L2, C1

fee simple determinable a type of fee simple defeasible estate which causes the title to automatically revert to the original owner if the deed requirements regarding property use are violated

L2, C1

fee simple estate maximum ownership of real property; also called a fee or a fee simple absolute and is of indefinite duration, freely transferable, and freely inheritable

L2, C1

FHA the federal housing administration; government agency charged with insuring mortgages

L13, C1

FICO score a credit scoring system created by the Fair Isaac Corporation L16, C2

fiduciary - also in Level 24 an individual upon whom is placed the highest levels of trust and confidence when acting on behalf of another

L9, C1

fiduciary duties the full sum of obligations owed to the client in an agency relationship that ensure that the agent always acts in the best interest of the client

L9, C4

first substantive contact the critical point at which agency disclosure is required by a license holder; generally occurs at the first face-to-face meeting with the customer and prior to the sharing of any confidential information or initiation of any action in regards to a specific property

L9, C4

fixity refers to the fact that real estate exists in a fixed location and cannot be moved; describes this truth about land from an economic viewpoint

L1, C4

fixture an object that was once personal property but is now firmly attached to the land in such a way that it is considered to be real property

L1, C3

foreclosure the legal process whereby a lender takes control of a property held by a borrower in default and sells it to recover the lender’s losses

L13, C2

11


fraud wrongful or criminal deception intended to result in financial or personal gain

L12, C7

freehold estate a form of ownership with an indeterminate length L2, C1

Freon the trademarked name of a harmful chlorofluorocarbon found in older air conditioning units

L12, C4

fructus industriales plants or crops intended for harvest and treated as personal property, a.k.a. emblements

L1, C3

fructus naturales trees, perennial plants, and uncultivated plants usually treated as real property because of their permanence

L1, C3

functional obsolescence loss of value because a property’s function or appearance has gone out of style or has been replaced by a more appealing or effective version

L20, C3

general agency a form of agency relationship that authorizes an agent to manage all of a principal’s affairs within certain specified areas; provides broader authority than that of special agency but less than that of universal agency

L9, C3

general lien a lien for which the real estate and personal property may be sold to satisfy the debt

L5, C4

general partnership a business entity in which all co-owners actively share power, responsibilities, and profit

L2, C3

general warranty deed, a.k.a. full covenant and warranty deed

the act of documenting any transfer or claim of interest in the title to real property in public records per state law, a.k.a. full covenant and warranty deed

L21, C3

goodwill good consideration, such as love and affection, that can be exchanged for valuable consideration in a contract or agreement; the exchange of which is generally seen as a gift on the part of the party giving up the valuable consideration

L7, C1

Government National Mortgage Association (Ginnie Mae)

a government-owned entity that supports the secondary mortgage market by guaranteeing mortgage-backed securities (MBS) insured by the u.s. government

L13, C4

graduated lease a lease in which the rental rate increases over time in specific increments

L18, C1

graduated-payment mortgage

a fixed-rate mortgage that has a lower initial interest rate in its first years, but includes gradual increases each year

L14, C3

grantee the person who receives a conveyance of real property in a transaction

L21, C1

grantor the person who conveys real property in a real estate transaction

L21, C1

Key TermsCourse

12


gross lease lease in which the tenant will be responsible for the payment of a fixed monthly charge, while the landlord is responsible for paying all operating expenses, a.k.a. full service lease

L18, C1

gross rent multiplier (GRM) the ratio of the price of investment property to its annual rental income before considering expenses like taxes and insurance, etc

L20, C4

ground lease also known as a land lease, it is the lease of bare, undeveloped land

L18, C1

groundwater water held underground in the soil or in pores and crevices in rock

L12, C5

habendum clause a clause within a deed that clarifies the type and extent of interest conveyed by the granting clause

L21, C2

highest and best use the use of a property which is legal, physically possible, financially viable, and produces the greatest yield

L19, C1

holographic will a handwritten will created solely by the testator and not witnessed

L21, C4

home equity loan a loan in which funds are borrowed using the homeowner’s equity for collateral; the funds can be used for any purpose

L14, C5

homestead laws laws which protect a homeowner from loss of their principal residence from the claims of most creditors and require both spouses to execute any instruments of conveyance

L2, C1

hypothecation the pledging of an asset as collateral to secure a loan without delivery of title, possession, or other ownership rights

L15, C1

implied agency agency that is created by the actions, conduct, and words of either or both parties without ever being expressly requested

L9, C5

implied contract a contract created by the actions of the parties rather than by express agreement

L7, C3

improvement any nonnatural structure built on or affixed to land L1, C2

income capitalization approach

method of estimating the value of a property by applying a rate of return to the net income it produces

L20, C4

independent contractor one who contracts to do work according to their own methods, and is responsible to their employer only as to the results of that work

L27, C1

informed consent the principle that a client or customer must understand and agree to certain actions or agency relationships prior to implementation

L9, C4

instrument of conveyance a tool that transfers a grantor’s interest in real property L21, C1

Interest additional money paid to a lender for the use of their money L13, C1

13


intermediation the facilitation by a third party of a financial transaction between two parties

L13, C3

intestate the name for conditions in which the owner of a property dies without having left a valid will

L21, C4

investment the purchase of an asset with the intention of profiting from it in the future

L20, C4

involuntary alienation transfer of title to property without the owner’s consent, usually carried out by operation of law

L5, C3

joint tenancy co-ownership in which the parties have an equal and undivided interest in the property; includes the right of survivorship rather than inheritance

L2, C2

judicial foreclosure a foreclosure that is processed through the court L13, C2

junior lien a lien that has another (senior) lien superseding it in priority; also called an inferior lien

L5, C4

land the surface of the earth, including all permanently attached natural features, extending downwards to the center of the earth and upwards to infinity

L1, C2

landlocked a piece of land which is is not accessible by any public means L5, C3

land-use control regulations that specify how the owners of individual parcels of real estate in a given area may use property

L5, C1

latent defect any structural defects that cannot be detected by ordinary inspection

L12, C3

law of agency the body of laws affecting agency that have come about as result of custom and/or case law, as opposed to statutory law introduced at the state or federal level

L9, C1

laws of descent and distribution

a set of laws that sets out the process of passing an estate to heirs when the owner dies intestate

L6, C1

lead a naturally occurring mineral that has been used in the manufacturing of paint and water pipes and is toxic to humans

L12, C5

lease a contract in which one party conveys property to another for a specific predetermined period of time, generally in return for periodic payment

L18, C1

leasehold estate an interest in the occupation of a property, established through a lease, a.k.a. non-freehold or less-than-freehold

L2, C1

leasehold interest a form of ownership with an indeterminate length L18, C1

legal description a description of a property that is distinct and precise enough to distinguish it from all other properties

L4, C1

Key TermsCourseKey Terms (continued)Course

14


legal life estate any life estate created by a function of law as opposed to the actions or desires of a property owner

L2, C1

lessee the party to whom the lease is granted, also known as the tenant

L18, C1

lessor the party granting the lease, also known as the landlord L18, C1

leverage the use of a financial instrument or borrowed money to increase a return on investment

L13, C2

liability the state of being responsible for something L24, C2

lien the claim made by a creditor against real or personal property pledged by a debtor as collateral

L5, C2

lien priority the order in which liens against a property will be settled L5, C4

lien theory state states that employ security instruments allowing the borrower to retain title while the lender places a lien on the property to secure the loan

L15, C3

life estate a type of estate limited to the duration of a measuring life L2, C1

limited partnership a business entity composed of both general and limited partners. the general partners manage the business and limited partners are passive investors.

L2, C3

liquid assets assets that can be quickly converted to cash without losing their value

L16, C2

liquidated damages damages established by the contract to be paid as compensation in the event of default

L7, C5

liquidity the relative difficulty of converting an asset to cash without loss of value

L1, C4

lis pendens a document recording at the courthouse giving notice that a lawsuit is pending on a particular piece of property

L5, C4

littoral rights rights that govern lakefront or oceanfront property and usually allow the property owner to use the water bordering their property

L1, C5

living trust a trust established by a living trustor in order to convey legal title of property to a trustee for the benefit of a named beneficiary

L2, C4

loan commitment a lender’s approval of a specific loan for a specific property; occurs upon completion of final loan approval step

L16, C1

loan estimate combines and replaces the good faith estimate and the initial truth-in-lending (til) statement; highlights the most important elements of the transaction

L16, C4

loan flipping a mortgage fraud scheme that involves an inflated appraisal and a straw buyer.

L23, C3


15


loan origination the process through which a buyer obtains a mortgage loan from a lender

L16, C1

loan-to-value ratio (LTV) the amount of money being loaned compared to the value of the property

L14, C9

long-term debt financial obligations often paid as installments over a predetermined time frame, which can extend for years

L16, C2

lot and block system a system of legal land description that identifies a piece of platted property by referring to the section, lot, and block numbers in a subdivision; a.k.a. the recorded plat method

L4, C1

management proposal a plan that a property manager creates for managing the property that includes an analysis of the market along with the financial standing, operating budget, and other important factors of the property

L17, C1

marital status refers to whether a person is married, single, divorced, or widowed

L25, C2

market a theoretical construct that isolates the selling and purchasing of any one particular commodity from the economy as a whole

L19, C2

market or customer allocation

a violation of antitrust laws in which competitors agree to divide markets amongst themselves

L24, C3

market value the price for which a property will theoretically sell under typical conditions

L19, C1

marketable title a title that is free from significant encumbrances or defects that might otherwise prevent a purchaser from enjoying or eventually selling the property

L21, C5

marketing plan a plan created to secure the other party needed to carry out a real estate transaction that includes sales and advertising

L11, C3

master deed a deed used to convey land to a condominium developer L21, C3

master plan a written document created by the local planning board to guide the future growth and development of a community

L6, C1

material fact a fact that, if known, could cause someone to take a different course of action or make a different decision regarding the property to be purchased

L12, C2

mechanic’s lien a type of involuntary, specific lien that a mechanic or materialman can impose upon a property if the property owner fails to pay for materials or work done on the property

L5, C4

meridian an imaginary line of longitude used to identify a certain area of the earth’s surface along a north-south direction

L4, C2


16


metes and bounds a land survey process in which a licensed land surveyor starts at a readily identifiable point of beginning and defines the boundaries of a property in terms of distances and compass directions, finally returning to the point of beginning

L4, C1

ministerial acts an action performed for another according to established procedures or guidelines and without the need for discretion or individual judgment

L9, C2

misrepresentation a statement, written or spoken, that is false or misleading; can be actionable if also found to be fraudulent

L12, C7

mold a type of fungus found in damp building materials that can release toxins into the environment

L12, C4

monument a fixed landmark, whether natural or human-made, used as a reference point in a metes and bounds legal description

L4, C1

mortgage a legal agreement between a creditor and borrower in which the creditor lends money with interest to the borrower for the purchase of property with the condition that the creditor takes ownership of the title if the borrower defaults in repayment of the loan

L13, C2

mortgage insurance premium (MIP)

a borrower-paid insurance required for fha loans, in order to insure lender in case of borrower default/foreclosure

L14, C9

mortgagee the lender of the funds in a loan L13, C2

mortgagor the borrower of the funds in a loan L13, C2

multiple listing service (MLS)

a database in which local member brokers share listings so that fellow member brokers can procure buyers for those properties and establish compensation for properties sold jointly

L19, C3

mutual consent agreement by all parties to either create, amend, or terminate a contract

L9, C1

negative amortization when a borrower’s payment is not large enough to cover the interest due on a loan, the unpaid interest is added to the principal balance

L14, C1

negligent misrepresentation

misrepresentation that occurs when the licensee either knows or should have known that a material fact is not accurate, that certain information should be disclosed, or unknowingly makes a false statement that is not reasonable to believe

L12, C7

negotiable instrument a note that is transferable and assignable L15, C2

net lease a lease in which the tenant pays a base rent rate plus all or part of the operating expenses

L18, C1

net listing an agreement in which the seller names a minimum sales price they will accept for a property, with any excess paid to the broker as commission

L11, C3


17


net operating income (NOI)

a property’s annual income that remains after paying its operating expenses

L20, C4

non-conforming use any property use with is inconsistent with the land use controls for that area, regardless of legality

L6, C2

non-prorated expense closing costs that are not split between the parties L22, C2

notice of title the duty of a real estate owner to make their claim or interest on a subject property publicly accessible

L21, C5

null and void lacking legal or binding force; invalid L7, C2

obsolescence a property’s loss of value due to economic or functional factors

L20, C3

offer a proposition made by an offeror to an offeree to agree to the terms of a binding contract; becomes a contract upon acceptance

L8, C1

offer and acceptance the mutual understanding and agreement of the parties of a contract to that contract’s terms; process that changes an offer into a contract when the offeree communicates acceptance to the offeror

L8, C1

open listing a nonexclusive listing agreement that gives multiple brokers (and owners themselves) the right to sell the property

L11, C3

operating expense an occasional or continuous expense required for the operation of an income-producing property

L20, C4

Opinion of Title the official opinion of an attorney regarding the condition of a property’s title

L21, C5

option gives one party the right to perform a non-obligatory action within a time period (ex: terminating a contract or the right of first refusal)

L8, C2

origination points fees pay for the cost of issuing the loan L13, C8

parallel a line of latitude L4, C2

parol contract an orally created contract or the oral modification of a written contract; enforceability depends on circumstances surrounding creation

L7, C2

partition suit legal action brought with the purpose of terminating the ownership interest of a co-owner to real property

L2, C2

party wall a wall shared by two separate properties; the owners on each side share the right of use, often as an easement

L5, C3

patent defect any structural defects that are easily discoverable upon inspection

L12, C3

payment-to-income ratio used to measure a borrower’s creditworthiness; calculated by dividing monthly payment by monthly income

L16, C2


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percentage lease type of (usually commercial) lease in which the tenant pays a base rent amount and a percentage of their business profits to the landlord

L18, C1

performance the fulfillment of an obligation, duty, or contract L11, C1

periodic estate a leasehold estate which automatically renews until canceled by either party, a.k.a. estate from period-to-period, periodic tenancy, estate from year to year

L18, C1

personal property (a.k.a. chattel)

an unattached, moveable asset not considered real estate, a.k.a. personalty

L1, C3

physical deterioration the loss of value caused by physical wear and tear over time L20, C3

planned unit development a subdivision that includes residential dwellings along with nonresidential real estate, departing from normal zoning and subdivision regulations; recreational facilities may be co-owned by pud lot owners as tenants in common

L3, C2

plat a map indicating the locations and dimensions of lots in a lot and block system

L4, C1

plottage an increase in overall value resulting from the successful assemblage of multiple plots

L19, C1

point of beginning (POB) the starting point for a metes and bounds legal description L4, C1

police power the government right to regulate and restrict land use in order to protect the public; right includes the power to enforce zoning and building codes

L6, C1

polychlorinated biphenyls (PCBs)

a group of human-made organic chemicals made of carbon, hydrogen, and chlorine atoms that were used in hundreds of industrial and commercial applications prior to 1979 and can cause a variety of adverse health effects

L12, C4

potential gross income (PGI)

the total rental income a property would receive if the property was 100% leased

L20, C4

power of attorney a legal instrument used to confer the right of one individual to act on behalf of another

L9, C3

predatory lending imposing unfair and abusive loan terms on borrowers. L23, C4

preventative maintenance conducting periodic inspections to catch minor issues before they become major failures

L17, C3

price fixing any effort made by competitors to jointly establish a fixed rate, price, or commission; considered an antitrust violation

L24, C3

price mechanism the manner in which a price is determined by a buyer and seller (a quantification of value) with respect to the forces of supply and demand

L19, C3


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Key Terms (continued)CourseKey Terms (continued)Course

principal the client of a broker in an agency relationship; the parties to a contract in a real estate transaction (as opposed to license holders, lenders, escrow agents, etc.); also, the amount borrowed in a loan from which interest is accrued

L9, C2

principal meridian a meridian used in reference to a baseline to identify ranges, tiers, and townships in the rectangular survey method of land description

L4, C2

private mortgage insurance (PMI)

insurance that protects the lender if a borrower defaults on a conventional loan; usually required when the borrower has less than 20% equity

L14, C9

probate a process by which courts determine and grant the appropriate ownership interest of an estate to creditors, taxing entities, and heirs of an owner who dies intestate

L6, C1

procuring cause the defining action or actions that brought a buyer to purchase a property

L11, C3

promissory note a negotiable financial instrument that is evidence of a debt and a promise to pay that debt; often referred to as “the note”

L15, C2

property any item which may be owned, including the rights associated with ownership

L1, C2

property inspection an inspection conducted to discover material facts or defects that exist within a property

L12, C2

property management the vocation of renting or leasing someone else’s real property on their behalf in exchange for compensation and in accordance with a property management employee contract.

L17, C1

proprietary lease long-term and exclusive lease given to resident and stock owner of a cooperative

L18, C1

proration the act of dividing or allocating expenses between buyers and sellers based on the actual period of usage of the item or service

L22, C2

protection period a limited time frame after an agency agreement ends during which an agent can be owed compensation *if* certain situations occur

L11, C4

puffing the making of exaggerated claims (technically opinions) in order to achieve a sale or some other objective; a.k.a puffery

L27, C4

pur autre vie a life estate characterized by ownership lasting only for the duration of a designated party’s lifetime

L2, C1

purchase-money mortgage

instrument given by the purchaser to a seller who “takes back” a note for part or all of the purchase price

L14, C3

quiet title suit a lawsuit brought with the purpose of removing any outstanding ownership claim, title defect, or encumbrance on a property

L5, C2

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quitclaim deed a type of deed that conveys any interest, title, or right to a parcel of land the grantor has at the time the deed is executed

L21, C3

radon an odorless, radioactive gas produced by the decay of other radioactive materials in rocks under the surface of the earth; can cause lung cancer

L12, C4

range the area of land between two consecutive range lines L4, C2

ratification an unauthorized action taken on behalf of a principal which is accepted and legitimized after the fact by the principal

L9, C5

real estate land plus improvements L1, C2

real estate investment trust (REIT)

a trust that invests in, owns, or acquires real property and is owned by investors who share the trust’s profits according to shares

L3, C3

Real Estate Owned (REO) property

bank-owned properties that have been through the foreclosure process

L17, C1

real property land from the surface to the center of the earth and upward into space, all attachments, and the bundle of legal rights of ownership

L1, C2

recording the act of documenting any transfer or claim of interest in the title to real property in public records per state law

L21, C2

rectangular survey system a system of legal land description that uses the global lines of longitude and latitude to create a surveyed grid of meridians, base lines, townships, and ranges to describe a piece of land; a.k.a. the government survey system

L4, C2

redlining the illegal act of a lender refusing to issue mortgages in a specific area

L25, C6

refinancing the process of obtaining a new mortgage in an effort to reduce monthly payments, lower interest rates, take cash out of a home for large purchases, or change mortgage companies

L14, C4

Regulation Z the part of the truth in lending act (tila) that seeks to protect consumers by requiring proper disclosures and fair lending practices

L23, C1

reliction a gradual increase in land area when water gradually withdraws

L1, C4

remainder interest the interest in an estate that will pass to another party (other than the grantor) at the death of the person upon whom the life estate is base

L2, C1

replacement cost the actual cost of replacement without regard to depreciation of the property

L20, C3

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RESPA the real estate settlement procedures act, passed to eliminate kickbacks in lending and disclose the costs of closing a loan.

L23, C1

reverse mortgage a financial arrangement where a homeowner pledges equity to a lender in exchange for periodic payments of the pledged equity; essentially selling off equity in their home in exchange for monthly payments

L13, C5

reversionary interest the interest in an estate wherein, upon the death of the life estate owner, full ownership reverts back to the original fee simple owner (grantor)

L2, C1

revocation the termination of an agreement by the person who granted it, such as when as when a principal terminates an agency relationship or withdraws an offer

L8, C1

revolving debt an ongoing line of credit, as with a credit card, where the amount of debt can fluctuate as the borrower uses it to manage cash flow issues

L16, C2

right of survivorship the statutory principle of survivorship tenancy that provides that when one co-owner dies, their ownership interest reverts to the surviving co-owners

L2, C2

riparian rights rights that govern the use of flowing water, such as rivers and streams that pass through or border a property

L1, C5

routine maintenance monitoring, assessing, and attending to the needs of a facility’s most necessary features

L17, C3

sales comparison approach

property appraisal method that estimates value by comparing the subject property to the sales prices of similar properties in the same market area

L20, C2

sales contract a contract used in the sale of real property that outlines the responsibilities of the parties and terms of the sale

L8, C2

salesperson a real estate license holder who is associated with a licensed broker for the purpose of performing real estate brokerage acts on the broker’s behalf

L26, C2

SARA the superfund amendments and reauthorization act L6, C3

scarcity the economic characteristic that informs the economic principle of supply and demand

L1, C4

section one of 36 equal square miles in a township L4, C2

security the collateral for a loan L13, C2

seller financing a loan provided by the seller to the purchaser of the property L13, C3

seller’s market a market condition in which the number of properties for sale does not meet the demand (number of people looking to buy)

L19, C2

senior lien a lien that comes first on the priority of liens, often a tax lien; also called a superior lien

L5, C4

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service contract the written form of an agency agreement between a client and a broker

L11, C1

servient tenement describes the parcel of land that must allow an adjacent owner to cross; an easement appurtenant exists at the expense of this party

L5, C3

severalty undivided ownership of an estate, with an interest that is exclusive from other owners; often referred to as ownership in severalty or tenancy in severalty

L2, C2

severance the act of converting real property into personal property L1, C3

Sherman Antitrust Act a landmark law passed in 1890 that prohibits the formation of trusts, or monopolies, in the marketplace; this law governs business by regulating anti-competitive conduct to promote fair competition on behalf of american consumers

L24, C3

single agency an agency arrangement in which one agent represents one party in a real estate transaction; the party may be either a seller or a buyer

L10, C2

situs the economic significance of a property’s location L1, C4

sole proprietorship ownership of a business by a lone individual L2, C3

special agency a form of agency relationship in which agents are limited in scope and are only authorized to perform acts permitted by their principal

L9, C3

special assessment lien a lien placed against property to collect taxes for a specific improvement benefiting the property

L5, C4

special exception a variance that allows an out-of-zone use that benefits the community, and is included as a permitted special use in a zoning ordinance

L6, C2

special warranty deed a deed that only protects against defects that occurred while the grantor held title

L21, C3

specific lien a lien that applies to a certain property only L5, C4

specific performance a legal remedy that requires the party in breach of contract to perform in accordance with the terms of the contract (as opposed to paying damages)

L7, C5

square mile a measurement of land equal to 640 acres L4, C2

State Real Estate Commission

the regulatory body responsible for regulating the brokerage industry and licensing real estate practitioners in Pennsylvania

L26, C1

statute of frauds a law which requires certain types of contracts, including those conveying interest in real property, to be in writing to be enforceable

L7, C2

statute of limitations a legal concept that establishes time limits for bringing certain kinds of legal actions

L7, C2

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steering the illegal act of guiding prospective home buyers toward or away from certain neighborhoods because of their membership in a protected class

L25, C6

stigmatized property property with suppressed market value unrelated to its physical condition or features; frequently as result of death of an occupant, murder, suicide, or a belief the property is haunted

L12, C6

straight-line cost recovery an accounting method in which depreciation expenses are deducted from a property’s income

L20, C3

subagency a form of agency that arises when an agent enlists the use of other agents to accomplish a client’s goal

L10, C2

subject to this provision in a sales contract refers to the purchase of a property that is *subject to* the existing mortgage; in such a sale, the title changes hands, so the buyer owns the house legally, but the seller’s old mortgage stays in place

L8, C2

sublease a tenant’s transfer of part of their right of possession in a leased property to another person for a period of the lease term

L18, C2

subordination agreement a contract that gives a mortgage recorded at a later date priority over a previously recorded mortgage

L5, C4

subprime loan a mortgage with an interest rate higher than prime mortgages due to the higher risk associated with a less qualified borrower

L14, C3

substitution an economic principle stating that the value of a good or service is affected by the cost of getting a similar (substitute) item elsewhere

L19, C1

subsurface rights (a.k.a. mineral rights)

ownership rights to all that is found beneath the surface of the tract of land owned, extending downward to the center of the earth, a.k.a. mineral rights

L1, C5

superior lien a higher priority lien L5, C4

supply in real estate, the amount of properties that are vacant or are available for sale or rent

L19, C2

surface rights the rights to access the surface area of a parcel of real property

L1, C5

survey the process and physical product of finding and measuring the boundaries of a piece of real estate, including the location of improvements, encroachments, and easements

L4, C1

tax base the total taxable assets available in a specific area L6, C1

tax deed a deed used to convey the title to a property sold in a tax foreclosure sale

L21, C3

24


tax sale the forced sale or auction of a property to cover outstanding debts

L21, C3

taxable value the value placed on a property by a governmental unit for use in calculating property taxes, minus any exemptions

L19, C1

tenancy in common co-ownership with individual, undivided interest in the property; includes rights of inheritance rather than survivorship

L2, C2

testate the name for conditions in which the owner of a property dies having left a valid will

L21, C4

testator, a.k.a. testatrix the party who makes a will L21, C4

tester an individual who, without any bona fide intent to rent or purchase a home, apartment, or other dwelling, poses as a prospective buyer or renter for the purpose of gathering information, which may indicate whether a housing provider is complying with fair housing laws

L25, C6

third party any person involved in a real estate transaction who is not your client; includes not only customers (the non-client principal in a transaction) but also all other non-client participants in a transaction such as title officers, lenders, appraisers, etc.

L9, C2

tier the area of land between two consecutive baselines L4, C2

time is of the essence a phrase that communicates to parties of a contract that they must perform their contractual duties by a specific date and time in order to avoid a breach of contract

L8, C2

timeshare a form of co-ownership where each owner has use of the property at a different prescribed period of time, also known as interval ownership

L3, C2

title the actual ownership of a real property that includes the bundle of rights in which a party may own a legal or equitable interest; not an actual document

L21, C1

title insurance a policy that protects homeowners (and likewise, lenders) from certain financial losses due to title issues, such as defects, encumbrances, and liens

L21, C5

title theory state states that convey the title to the lender or, more commonly, to a third-party trustee (operating on behalf of the lender) for the life of the loan

L15, C3

Torrens System a recording system used in some states in which the state holds all records of land and title ownership, evidenced by a certificate of title

L21, C5

25


township a square area of land with sides of 6 miles each, consisting of 36 square-mile sections and identified in reference to a meridian and baseline in the rectangular survey system

L4, C2

trade fixture personal property that is owned by and needed for a tenant’s business

L1, C3

transaction coordinator an agent who facilitates a transaction absent of any agency relationship with either party to the contract; has no fiduciary duties for ministerial acts performed, a.k.a. transaction licensee, facilitator, or intermediary

L10, C3

transfer tax one-time tax issued by the state that must be paid when a property is transferred from one owner to another

L22, C2

triple-net lease a type of lease requiring the tenant to pay a prorated portion of all the operating expenses for the property.

L18, C1

trust a legal entity where control of some asset or property is transferred by a grantor (trustor) to a third party (trustee) to be held for the benefit of another (beneficiary)

L2, C4

underground storage tanks (USTs)

tanks located in the ground underneath properties that store chemicals, fuels, toxic wastes, and other potentially harmful substances

L12, C5

underwriting the process of determining the level of risk a lender is willing to take in extending a loan to a borrower

L16, C1

unilateral contract a contract wherein one party makes a promise and is obligated to perform if a second party chooses to accept the offer and perform in exchange for that which was promised

L7, C3

universal agency the most broad type of agency; gives agents the power to act and make decisions on behalf of the principal in all business matters of concern; often granted via a power of attorney

L9, C3

urea-formaldehyde foam insulation (UFFI)

a human-made insulation material that becomes dangerous because of the gases released from the material after it hardens

L12, C4

usury illegally lending money at unfair interest rates L23, C4

utility the measure of the degree to which something performs a desired function; serves as a component of the thing’s value

L12, C2

VA entitlement the amount of money that is guaranteed in a VA loan L14, C7

validity possessing accuracy and, in context of contractual status, being legally binding and enforceable

L7, C2

value the price for which a property will theoretically sell under typical conditions

L19, C1

variance permission granted by the government so that property may be used in a manner not allowed by the current zoning

L6, C2

void lacking legal or binding force; used to describe a contract that is either illegal or impossible to complete

L7, C2

26


void contract a contract lacking legal or binding force; often used with phrase “null and void”

L7, C2

voidable contract a contract wherein the wronged party has the option to perform, enforce, or void the contract

L7, C2

water rights the right of a property owner on a waterfront to access and use that water

L1, C5

will a written or verbal legal statement by an owner (testator) prescribes the method of distribution of the owner’s estate to heirs

L21, C4

wraparound mortgage an arrangement in which the seller of a property extends a mortgage to a buyer; the seller maintains their original loan and continues to pay it while also receiving mortgage payments from the buyer

L14, C3

zoning ordinance local laws that control how land is used and what structures can be built in a designated district

L6, C1

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Key Terms (continued)

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