NOTE: The list of terms below is neither exhaustive
nor technical, and is intended to give the user of
this glossary a very basic understanding of some of
the commonly used terms associated with a real
Adjustable Rate Mortgage (ARM) – A mortgage
that allows the lender to adjust the mortgage’s
interest rate based on changes to a pre-selected
index. When rates change, the mortgage’s monthly
payments will increase or decrease, but are usually
subject to a cap.
Agency – A relationship in which a real
estate broker or associated licensee represents a
client in a real property transaction. The
relationship can be express (evidenced by a written
agreement) or implied (no written agreement). In
Illinois, a real estate agent will owe the client
certain statutory duties that are similar to
fiduciary duties (see agency duties below).
Agency Duties – A licensee has a duty to
perform according to the terms of the agency or
brokerage agreement and to promote the client’s best
- Seeking a transaction that meets the terms
of the agency agreement or that is otherwise
acceptable to the client;
- To present all offers to the client unless
the client directs otherwise; and
- To disclose material facts about the
transaction that the agent actually knows and
that are not confidential to the client.
Americans with Disabilities Act (ADA) – A
1992 federal law designed to eliminate
discrimination against individuals with
Amortization – Gradual debt reduction.
Normally, the reduction is made according to a
predetermined schedule for installment payments.
Annual Percentage Rate
– A term used in
the Truth in Lending Act to represent the full cost
of a loan including interest and loan fees.
Appraisal – An estimate of a property’s
fair market value based upon an analysis by a
disinterested, qualified, licensed person.
Appraiser – The appraiser decides the
market value of a home based on its condition and
the selling prices of comparable homes recently sold
in the area. His or her job is to compute a fair
estimate of market value that might help the lender
decide a reasonable loan amount, for one example.
Appreciation – An increase in value of an
asset; the opposite of depreciation.
Arbitration – A means of settling a
dispute between parties through an impartial party;
the decision is final and binding.
Assessed Valuation – The value that a
taxing authority places upon personal or real
property for the purpose of computing a taxation
Assessor – An elected public official who
appraises property for tax purposes. He determines
only the assessed value, not the tax rate.
Balloon Mortgage – Where principal and
interest on a loan are amortized for a longer period
than the term of the loan. For example, a 30-year
amortization and a 5-year term. At the end of the
5-year term, the outstanding principal on the loan
is due. The principal sum due at maturity is known
as the “balloon.”
Balloon Payment – The final, lump sum
payment paid at the maturity date of a balloon
Borrower – A person who receives funds in
the form of a loan from a lender and who will be
obligated to repay the loan in full, usually with
interest, to the lender.
Brokerage Agreement – A written or oral
agreement between a sponsoring broker and a consumer
for acting as a broker/agent on behalf of the
consumer in return for the right to be paid for
those services. Any exclusive brokerage agreement
must be in writing and contain certain minimum
services that must be provided by the broker to the
Broker, Real Estate
– A person or entity
who will engage in the following activities for
another person and in exchange for payment:
- Sell, exchange, purchase, rent or lease real
- Offer to sell, exchange, purchase, rent or
lease real estate
- Negotiate, offer, attempt or agree to
negotiate the sale, exchange, purchase, rental
or leasing of real estate
- Lists, offers, attempts or agrees to list
real estate for sale, lease or exchange
- Buys, sells, offers to buy or sell,
otherwise deals in options on real estate or
improvements on real estate
- Supervises the collection, offer, attempt,
or agreement to collect rent for the use of real
- Advertises himself or herself as being in
the business of buying, selling, exchanging,
renting or leasing real estate
- Assists or directs in the procuring or
referring of real estate prospects
- Assists or directs in the negotiations of
any real estate transaction
- Markets real estate to the public by means
of an open house
- Auctions real estate
Building Code – The local regulations that
affect design, construction, and materials used in
construction. Building codes can be based on safety
and health standards.
Chattel – Personal property.
– A person who is represented by a
Closing – The conclusion of a
transaction. In real estate, the closing can
include the delivery of a deed, payment of the
purchase price and expenses associated with the
transaction, the signing of any documents such as
notes and mortgages, and the disbursement of funds
necessary to the sale or loan transaction.
Closing Agent/Attorney – A closing agent
or attorney assures that all documentation related
to the sale of a house has been completed properly,
including the title search and title insurance. The
closing agent explains all closing documents to the
buyer and the seller, obtains their signatures where
necessary and records the documents.
– All of the costs to the
buyer and seller individually that are associated
with the purchase, sale, or financing of real
property. They include, but are not limited to,
prorating of agreed items such as taxes and rents,
the cost of title insurance policies, and the cost
of credit reports, recording fees and escrow fees.
Synonym: settlement costs.
Closing Statement – A financial disclosure
form that summarizes and outlines all funds received
and expected at the closing, including but not
limited to the escrow deposits for taxes, hazard
insurance, and mortgage insurance.
– Property pledged as security
for a debt, such as the real estate as security for
Commission – (real estate brokerage) A
real estate broker’s fee for negotiating a real
estate transaction, often expressed as a percentage
of the sales price.
Commitment – An agreement, often in
writing, between a lender and a borrower to loan
money at a future date subject to compliance with
Condominium – A form of ownership of real
property. The purchaser receives title to a
particular unit and a proportionate interest in
certain common areas.
Condominium Declarations – The basic
condominium document that must be registered by the
developer before the first unit is sold. The
declaration thoroughly describes the entire
condominium entity, including each unit and all
Confidential Information – Information
learned by the licensee from a client during the
term of a brokerage agreement where: