Real Estate Language
Buying a home, whether for the first time or the fourth time, can be a little confusing with the real estate terminology that you will encounter. This glossary of some of the most common real estate terms will help you better understand the language of real estate.
Adjustment Date: The day from which all calculations of interest, tax adjustments, utility bill adjustments (if applicable) are made to the credit of either the purchaser or the vendors. This is usually (but not always) the same as the possession date.
Amortization: The number of years it takes to repay the entire amount of the mortgage.
Appraised Value: An estimate of a property's market value, used by lenders in determining the amount of the mortgage.
Appreciation: The value that a property increases over time.
Assessed Value: The value of a property, set by the local municipality, for the purposes of calculating property tax.
Blended Mortgage Payments: Equal or regular mortgage payments, consisting of both a principal and an interest component.
Broker: A real estate professional licensed by British Columbia to facilitate the sale, lease or exchange of property.
Completion Date: The real estate transaction's completion. This happens when the parties involved agree that all legal and financial obligations have been met and the deed to the property is transferred from the seller to the buyer.
Closing Costs: Expenses in addition to the purchase price for buying and selling a property, such as legal fees, transfer fees and disbursements.
CMHC: Canada Mortgage and Housing Corporation. A Crown corporation that administers the National Housing Act for the Federal Government and encourages the improvement of housing and living conditions for Canadians. CMHC also develops and sells mortgage insurance.
Conditional Offer: An Offer to Purchase a home that includes one or more conditions that must be met before the sale is official. i.e.: subject to financing or home inspection.
Condominium Common Property, or Common Elements: The portions of a condominium development owned in common (shared) by the unit owners, e.g.: pool, exercise room, lobby, etc. A strata fee is charged to every unit owner for the use of the common property.
Condominium Ownership: Shared ownership in a strata-titled property. Owners have title (ownership) to individual units and a proportionate share in the common property.
Contingency Reserve Fund: A sum of money put aside by a strata corporation for the repair or replacement of common elements such as the roof, windows, boiler, hallway carpets, etc.
Conventional Mortgage: A first mortgage issued for up to 80% of the property's appraised value or purchase price, whichever is lower.
Conveyance: The term used to describe the process of transferring the vendor's title to the purchaser and indicates all the necessary steps to complete the transfer. A conveyancing lawyer is a lawyer (or notary) responsible for the conveyance process (this is normally the purchaser's lawyer).
Counter offer: An offer made by the vendor (seller) back to the purchaser (or visa versa) altering one or several terms and/or conditions of the offer as originally written.
Debt Service Ratio: The percentage of a borrower's income that can be used for housing costs. Gross Debt Service (GDS) Ratio is the amount that a lender will permit a borrower to use from his/her gross income in order to qualify for a loan for housing costs, including mortgage payment and taxes (and condominium fees, when applicable). Total Debt Service (TDS) Ratio is the maximum percentage of a borrower's income that a lender will consider for all debt repayment (other loans and credit cards, etc.) including a mortgage.
Deed: A legal document that conveys (transfers) ownership of a property to a buyer.
Depreciation Report: A legislated planning requirement for strata corporations in BC, used to establish long term planning for common property and assets in regards to maintenance and expenditures.
Down Payment: The portion of the price of a home that is not financed by the mortgage loan, and which the buyer pays out of their own savings or other eligible sources.
Easement: A legal right to use or cross (right-of-way) another person's land for limited purposes. A common example is a utility company's right to run wires or lay pipe across a property.
Encroachment: An intrusion onto an adjoining property. Common examples are a neighbour's fence, storage shed, or overhanging roof line that partially (or even fully) intrudes onto your property.
Equity: The difference between the price for which a property can be sold and the mortgage(s) on the property. Equity is the owner's stake in the property.
Foreclosure: A legal process by which the lender takes possession and ownership of a property when the borrower doesn't meet the mortgage obligations.
High-ratio Mortgage: A mortgage that exceeds 80% of the loan-to-value ratio; must be insured by either the Canada Mortgage and Housing Corporation (CMHC) or a private insurer to protect the lender against default by the borrower who has less equity invested in the property.
Home Warranty Insurance: A contract of insurance covering defects in the construction of a new home and consequential losses or costs incurred by the owner.
Land Transfer Tax: Payment to the provincial government for transferring property from the seller to the buyer. See Property Transfer Tax.
Lien: Any legal claim against a property, filed to ensure payment of a debt.
Mortgage: A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt.
Mortgagee: The lender.
Mortgagor: The borrower.
Mortgage Insurance: Government-backed or private-backed insurance protecting the lender against the borrower's default on high-ratio (and other types of) mortgages.
Mortgage Penalty: Is a fee paid by the borrower to the lender in exchange for being permitted to break a contract (a mortgage agreement); usually three months interest, but it can be higher, or it can be the equivalent of the loss of interest to the lender.
Multiple Listing Service® (MLS®): A current and comprehensive listing system for relaying property information to the various Real Estate Boards and its Realtors. This service offers the widest exposure to properties listed for sale.
Offer to Purchase: Is a Contract of Purchase and Sale. This is a written offer that sets out the terms under which a buyer agrees to buy a home. If the offer is accepted by the seller, it becomes a legally binding contract.
Open Mortgage: A mortgage that can be prepaid or renegotiated at any time and in any amount, without penalty.
Principal: The mortgage amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.
Property Disclosure Statement (PDS): The PDS enables sellers to disclose known defects such as water or moisture problems, and work done without required permits.
Property Taxes: This levy is affected by location and is determined by local property tax assessment practice. Tax assessments are conducted by local government. They are paid on an annual basis.
Property Transfer Tax (PTT): Payment to the provincial government for transferring property from the seller to the purchaser. There are exemptions to paying this tax.
REALTORS®: Real estate professionals who are members of the Fraser Valley Real Estate Board and the British Columbia and Canadian Real Estate Associations. Only these professionals can call themselves REALTORS.
Rights of Way: Are indicated on title at the Land Title Office; often for use of utilities or city or municipality in order to make repairs to pipes, etc. No permanent structure may be built on a right of way.
Statements of Adjustments: Closing statements in a real estate transaction which set out the sources of funds which make up the purchase price, adjustments to and from the purchase price, the final amount required from the purchaser and the amount due to the vendor. Lawyers will prepare a statement for the vendor and the purchaser.
State of Title Certificate: A copy of the title which lists charges against the property, e.g.: liens, mortgages, rights of way, etc.
"Subject-to" Clause: A statement of a condition to be fulfilled before the contract will become firm and binding; must include a specific deadline for removal.
Survey Certificate: A document that shows the legal boundaries and measurements of a property, specifies the location of any buildings and states whether anyone else has the right to cross over the property for a specific purpose.
Title: The legal evidence of ownership in a property.
Title Search: A detailed examination of the ownership documents to ensure there are no liens or other encumbrances on the property, and no questions regarding the seller's ownership claim.
Utility Taxes: Examples may include water, sewer and garbage (may include recycling levies).
Variable-rate Mortgage: A mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of the payment goes to interest. If rates go down, a larger portion of the payment is applied to the principal.
Vendor Take-Back Mortgage: When sellers use their equity in a property to provide some or all of the mortgage financing in order to sell the property.
Zoning Regulations: Strict guidelines set and enforced by municipal governments regulating how a property may or may not be used.