A code of ethics established by the Texas Real Estate Commission. Agents and Brokers in Texas are required to abide by the rules set out in the Canons. Failure to do so can result in actions against the licensee up to and including the removal of the Agent or Broker’s license to practice real estate in Texas.
The profit made when selling a property. It is the difference between the purchase price and the sales price and is usually considered taxable income. Ask your real estate agent or your financial advisor about legitimate methods of avoiding paying capital gains tax on the sale of a piece of real estate property
The sum of all expenses involved in owing an investment property. This includes the initial capital to purchase the property, the total cost of any loans on the property (including interest payments), the costs of additions and upgrades to the property, ongoing expenses such as utilities and the total costs of maintenance of the property.
A mathematical formula used to determine the true value of an income-producing property. Divide the annual net operating income by the capitalization rate to find the value. The formula is written as Income/Rate = Value.
Often referred to more casually as the “cap rate,” this is simply a term for the rate of return on an owner’s investment that an income-producing property will make.
: Slang for an investment property which consistently produces a large amount of income well in excess of its expenses.
The amount of cash an investment property owner nets after deducting operating expenses and loan payments from the gross income. If the amount of income exceeds the expenses, the property is said to have positive cash flow. If it doesn’t, the property is said to have negative cash flow.
A type of property insurance policy which protects the property owner from losses related to theft, vandalism, and liability for the injuries or losses of others at the property.
A Latin phrase meaning “Let the buyer beware.” As a principle of real estate business, it means that the buyer of a property is responsible for doing due diligence regarding determining the property’s condition, market value and title status prior to closing the sale. In the name of Caveat Emptor, most buyers have a property inspection, review title research and have and appraisal completed before the sale goes through.
Covenants, Conditions & Restrictions. Also known as Deed Restrictions. The restrictions governing the use of real estate usually enforced by a homeowners’ association. Could include such items as how to landscape your yard, whether you’re allowed to keep chickens or put up a sign in your yard when you sell your house.
Document issued by a local governmental agency that states a property meets the local building standards for occupancy.
An appraisal that has been performed on a property that is being paid for a VA loan. After the property has been appraised, the Veterans Administration issues a CRV.
A history of all the transfers of ownership affecting a property going back from the present owner to the earliest recorded ownership. In Texas, the chain of title theoretically goes back to “the sovereignty of the land” or, when the land owned itself. In practical terms, however, chain of title in Texas goes back to the Spanish Land Grants
Personal property as opposed to real property. Chattels are items which are tangible and moveable. Chattel does not convey with the sale of a property unless it is specifically mentioned as conveying in the sales contract. A refrigerator is a good example of chattel in a real estate transaction.
A federal law which prohibits racial discrimination in real estate transactions. It is the earliest civil rights law and arose from the need to clarify and define the rights of freed slaves and freeborn persons of color in the United States in the aftermath of the Civil War.
A title that is free of liens or any legal question as to the ownership of the property.
The person making the purchase through an agent or agency. The seller is a client of the listing agent, for example. The buyer can be a client of a buyer’s agent or customer of the seller’s agent. Customers are not protected as fiduciaries the way clients are.
Final arrangements to transfer title of property as well as allocate charges and credits.
The person who conducts the closing of a real estate property sale, also called the escrow officer. In Texas, this person usually is an employee at a title company; however, attorneys also act as closing agents.
The numerous expenses (over and above the price of the property) that buyers and sellers incur to complete a real estate transaction. Costs incurred include loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed-recording fee and credit report charges. Also known as “settlement costs”.
A financial statement, also called a “settlement statement” rendered to the buyer and seller at the time of transfer of ownership, giving an account of all funds received or expended in the transaction.
Any irregularity found in a title search which makes clear title (clear ownership) doubtful. Many things can cause a cloud on title, including a divorce between the previous owners, disputed easements or typographical errors in recording the deed. Often, clouds on the title provide the buyer an opportunity to extricate themselves from the contract. Some clouded titles can be remedied by a quitclaim deed or a court action.
A category of ownership in which a property is owned by 2 or more people. Examples of this type of ownership include joint tenancy, tenancy in common and community property.
Members of the National Associations of Realtors (NAR) must agree to adhere to a strict standard of ethical behavior in their dealing with clients, customers, the public and other Realtors. This Code of Ethics is a 17 point document which is enforceable by the NAR. Realtors who violate the Code face censure by NAR up to and including revoking their membership in NAR. This usually leads to the subsequent revocation of the former Realtor’s license to practice real estate by the state real estate commission.
a clause in a hazard insurance policy which requires the property owner to maintain fire insurance coverage on the property for an amount equal to a certain percentage (usually 80%) of the property’s actual replacement cost.
An asset which is used to secure a loan. In the case of a real estate mortgage loan, the collateral is usually the property which is bought with the loan. If the borrower fails to make the payments, the lender can seize the collateral
Combining clients’ money with a broker’s personal money in the same account. When a broker is holding someone else’s funds in escrow (for example, a tenant’s security deposit), they are required by law to deposit those funds into a separate account from any accounts containing the broker’s funds. Failure to do so, known as “commingling of funds,” is grounds for the revocation of the broker’s license to practice real estate.
An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction
: In a traditional condominium, the interior of each unit is owned by the individual owners. However, the remainder of the property is jointly owned in common by all of the owners. Examples of common elements include shared roofs, shared hallways, landscaping, swimming pools, tennis courts and parking lots. Each individual owner has an undivided ownership interest in the common elements.
A system of law which predates the United States and has it’s origin in England. Also called “case law,” it is based on precedents set by judicial decisions, as opposed to legislative statutes or executive branch actions.
A system of ownership in which both spouses in a married couple equally own any assets (and appreciation of those assets) which are acquired during the marriage. The exception to the rule is property acquired by will, gift or inheritance. Nine states in the US are currently community property states. They are Texas, California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Washington, and Wisconsin.
A written statement signed by both spouses that states that, in the event of the death of one spouse, any community property will automatically belong to the surviving spouse. This statement eliminates the need for probate regarding community property.
A United States federal law enacted in 1978 which requires lending institutions to meet the needs of all segments of the communities in which the banks are located. The act was passed as a response to a discriminatory practice known as “redlining.” Redlining occurs when commercial banks or savings associations refuse to make loans to low-income people and/or minorities, historically based on geographic location.
Sales that have similar characteristics as the subject property and are used for analysis in the appraisal process.
A comparison method used by real estate professionals to determine the appropriate market value of a property. The subject property is compared by size, location and condition to other properties which are currently on the market as well as properties which have recently sold. Seller’s agents use the CMA to help the seller determine the correct market asking price for a property. Buyer’s agents also use CMA’s to help the buyer determine an appropriate offer price.
A judicial proceeding through which the government can exercise its right of eminent domain to take private land for public use and compensate the owner.
Written permission from a local government which allows a property to be used for a function which would otherwise be prohibited by zoning. The variance is allowed if the use meets certain conditions and is a benefit to the community. For example, a local government might issue a conditional use permit for the construction of an emergency medical facility or a police substation in an otherwise residential area.
Refers to a form of legal ownership as opposed to a style of construction. Condos can be high-rise residential buildings, townhouse complexes, individual houses and low-rise residential buildings
Anything of value to induce another to enter into a contract, i.e., money, services, a promise.
A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.
Notice given to the world of a legal fact by recording documents with a public official. Once the document has been properly recorded, everyone is expected to behave as though they have read the documents, even if they have not done so. For example, you are expected not to trespass on your neighbors’ private property even though you have not gone down to the courthouse and read the documents proving their ownership of the property.
An insurance policy which insures the removable contents in a property against theft or damage. Condominium owners and renters can (and should) take out contents insurance for their personal belongings since the HOA or landlord’s insurance insures only the property and not the contents.
The dependence upon a stated event which must occur before a contract is binding. The most common contingency is a clause stating that the buyer must sell their present home before they can buy another one. If the buyer’s home does not sell within the time specified in the contract, the contract is cancelled.
An agreement to do or not to do a certain thing.
Also variously known as an “installment contract”, a “contract of sale,” a “land contract” or “articles of agreement for warranty deed.” This a written agreement in which the seller retains possession of the property’s deed while the buyer has use of the property and makes regular payments. When the payment schedule has been completed, the seller then releases the property’s deed to the buyer
A private sector loan, one that is not guaranteed or insured by the U.S. government.
A mortgage loan that is obtained without any additional guarantees for repayment, such as FHA insurance or VA guarantees. Typically one approved by Fannie Mae or Freddie Mac.
In real estate, conveyance is a term meaning the legal document used to describe the process of transferring ownership of a property from one person to another.
In real estate, a housing cooperative is a legal entity (usually a corporation) that owns real estate, most often one or more residential buildings. Each shareholder in the corporation has the right to occupy one housing unit in the property subject to the rules in an occupancy agreement (similar to a lease) that specifies the cooperatives rules. Cooperative also describes a non-share capital cooperative model in which members pay monthly rent and occupy one bedroom and share communal resources in a cooperative household. This is most commonly seen in the form of student housing co-ops on or near college campuses.
A method of determining a property’s value. The value is arrived at by taking the current construction costs, adding the land value and subtracting depreciation.
An IRS term for “depreciation.” It allows businesses to take a tax deduction and recover the cost of personal and some real property over a stated time period. It’s pretty much the same thing as depreciation except that costs are recovered regardless of the condition of the property.
An offer made in response to a previous bid.
On a closing statement (HUD-1), a credit means an amount of money in one party’s favor.
This can be an amount which a party has already paid or an amount which is owed to the party. Examples would be credits to the buyer for the option fee and for the earnest money.
A report to a prospective lender on the credit standing of a prospective borrower. Used to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here.
A number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.
A dead end street which widens sufficiently at the end to permit an automobile to make a “U” turn.
In real estate, the term “customer” is distinct from the term “client.” The difference is that a client has made a formal agreement with a real estate professional to be represented exclusively by that agent. A customer is someone who buys or sells property without being formally or exclusively represented by a particular agent.