A Guide To Real Estate Terms
Every industry and profession has its own short forms and acronyms, but those terms can sometimes make it difficult for a ‘outsiders’ to follow what’s going on.
Think of your own business. Would your friends or spouse know what you were talking about if you started firing your “work speak” at them? When you decide to buy a home, it can pay to get educated about all the different terms real estate agents and mortgage brokers use so that you can keep up to speed.
Adjustments: Adjustments are added to or subtracted from your purchase price on closing. They may be property taxes (either unpaid or paid in advance), electricity, gas or other fuel, condo fees or mortgage interest already paid out for future service. These must be pro-rated and be credited on closing to the appropriate side of the transaction. This can involve an expenditure of several hundred dollars payable on the closing date when the sale is completed.
Agreement of Purchase and Sale (Offer to Purchase): A contract by which one party agrees to sell and another agrees to purchase. The contract may be firm (no conditions attached), or conditional (certain conditions must be fulfilled) for a specific period of time.
Amortization Period: The number of years that it will take to pay off your mortgage, were the interest rate to remain constant… usually 25 in Canada. The mortgage term refers to the length of time a particular interest rate will be in effect (usually 6 months to 5 years).
Amortization Schedule: The amortization schedule for a mortgage separates out the monthly installment portions for both principal and interest and how much of the payment is allocated to each. It also shows the unpaid principal balance.
Appraisal: The act or process of estimating real estate value. The appraisal for a home is most often done for mortgage-lending purposes and may not necessarily match the sale price of the property (in a rising market appraisers are using ‘old’ data).
Assessed value: A valuation placed upon property by the province, as a basis for municipal taxation. This is not the same as market value and, so far in Ontario, they are usually not the same!
Canada Mortgage and Housing Corporation (CMHC): The federal CMHC is the Canadian Crown corporation that administers the National Housing Act. CMHC services include providing housing information and assistance to consumers and, most importantly, insures real estate purchase loans (between 75% & 95% of the purchase value) for lenders.
Chattels: Personal property that is tangible and moveable and which may be included in the sale such as appliances, blinds, light fixtures, etc.
Closing date: The date specified in the Agreement of Purchase and Sale when the purchaser is to deliver the balance of money due and the vendor is to deliver a duly executed deed and vacant possession of the property… the day you get your keys and can celebrate!
Co-operative: Similar to condominiums, but the owner does not own his/her specific unit. He/she becomes a shareholder of the corporation that owns all the real property and occupies the unit by way of a tenancy agreement.
Commission: The percentage of the home’s sale price paid at closing (between 5-6%) to the listing agent and to the co-operating buyer agent.
Condition: A condition in a contract calling for the happening of some event, or the performance of some act, before the agreement becomes firm and binding on all the parties.
Conditional Offer: An Agreement of Purchase and Sale may be subject to specific conditions. These conditions could be the arranging of a mortgage or a home inspection, the examination of condo documents, or the selling of an existing home. There is always a time limit stipulated within which the specified conditions must be met.
Condominium: The ownership of a separate amount of space in a multiple-family dwelling, or other multiple-occupancy building, with proportioned tenancy in common ownership of common elements used jointly with other owners.
Deed: The final document prepared by a lawyer to be signed by the purchaser transferring ownership. This document is then registered against the property at the Registry Office as evidence of ownership.
Deposit: An amount of money that accompanies the Agreement of Purchase and Sale that acts as a ‘good faith’ deposit; usually given as a bank draft or certified cheque once your offer has been accepted.
Easement: The right acquired for access to or over another person’s land for a specific purpose, such as for a mutual driveway or public utilities.
Encroachment: The unauthorized extension of boundaries of land, such as when a homeowner puts up a fence over the lot line and “takes over” some of a neighbour’s property.
Encumbrances: An outstanding claim or lien recorded against property (such as a mortgage or tax arrears claim), or any legal right to the use of the property by another person who is not the owner (i.e. via a lease).
Fair Market Value: The highest price, in terms of money, that the property will bring to a willing seller if exposed for sale on the open market while allowing a reasonable time to find a willing purchaser, buying with the knowledge of all the uses and values, and with neither party acting under necessity, compulsion or peculiar and special circumstances.
The key phrase here is ‘knowledge of all the uses and values’… a good buyer agent should be showing you what comparable homes are selling for in the immediate neighbourhood around the house or condo that you want to buy.
Holdback: An amount of money withheld by the lender during the progress of construction of a house to ensure that construction is satisfactory at every stage. The amount of the holdback is generally equivalent to the estimated cost to complete construction.
Home Inspection: The examination of the house by an expert selected by the buyer.
Insurance: Before the transaction can be closed, the purchaser must have fire insurance arranged and in effect. A certificate from the insurance company will be required by the buyer’s lawyer at the closing.
Irrevocable Date: The date that the offer, from either purchaser or vendor, is good until. It is typically the same day the offer is signed, or up to 48 hours after the signing (or counter-signing) date.
Mortgage Buydown: The vendor effectively lowers the rate of interest of a mortgage by prepaying a portion of the interest on his own existing mortgage, or on a mortgage arranged by the purchaser.
Mortgage Discharge: The removal of all mortgages and other encumbrances by paying all outstanding liens against the property.
Multiple Listing Service (MLS): The system in which participating brokers agree to share commission on the sale of real estate listed by any one of them.
Owner’s Net Equity: The difference between the price for which a property could be sold and the total debts (mortgages or liens) registered against it.
Permanent Fixtures: Permanent improvements to property that may not be removed upon the sale of the property (furnace, central air conditioning, pool, windows, etc).
Power of Sale: The right of a lender to force the sale of real estate if borrowers/owners fail to make their mortgage payments on time.
Real Estate Broker or Salesperson: An intermediary between the buyer and seller who is licensed to carry out such activities. A buyer agent is a salesperson who signs contracts with purchasers and who works (and negotiates) on their behalf.
Real Estate: Includes real property, leaseholds or the sale of a business, whether with or without the building. Most typically it includes the house (or condo) and the land beneath it, although some homes in Toronto come with land leases.
Real property: The combination of the tangible and intangible attributes of land and improvements. Value-wise, it is the sum of the value of the real estate, considered as land and structure. For example, with a condo, you have the structure, the land underneath it and the rights that go with ownership of a suite in that particular building.
Salesperson (Sales Representative or Realtor): An employee of a broker authorized to trade in real estate … your listing or buyer agent. By the way, a Realtor can act as both your listing agent and your buyer agent in different circumstances.
Sealed and Delivered: A term indicating that a vendor has received adequate consideration as evidenced by his voluntary delivery (i.e. your deposit cheque). The word “sealed” adds more strength, since under old conveyancing law an official seal was used as a substitute for consideration.
Statement of Adjustments: A statement of the financial breakdown of the transaction prepared by the solicitor for the purchaser setting out, in balance sheet form, the credits to the vendor (e.g. purchase price, prepaid taxes, prepaid insurance, etc.) and the credits to the purchaser (e.g. deposits, arrears in taxes prior to the date of closing) and the balance due on closing.
Survey: The accurate mathematical measurement of land and buildings thereon, made with the aid of instruments. You should always ask for one when purchasing a house and over 80% of the time the vendor will have one to give to you.
Title: The means of evidence by which the owner of land has lawful ownership thereof.
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