Fiduciary Duties of a Real Estate Agent

An adjustable rate mortgage (ARM) index that tracks the weighted average cost of savings, borrowings, and advances for Federal Home Loan Bank Board member banks located in California, Arizona, and Nevada (the 11th District). Because the COFI is a moving average of interest rates that bankers have paid depositors over recent months, it tends to be a relatively stable, slower moving ARM index.

A property for sale without any guarantees or warranties to the buyer as to the condition of the property. The seller won’t make further allowances, credits, or price reductions for any problems with your property.

A loan fixed for the first seven years, then has a one-time adjustment, and remains at a fixed rate for the remaining 23 years.

An offer (or counteroffer) on a property that becomes a contract when both buyer and seller agree upon all of the various terms and conditions of the sale and sign off on the agreement.

A list of every property the agent either listed or sold during the preceding 12 months.

A mortgage whose interest rate and monthly payments vary throughout its life. ARMs typically start with an unusually low interest rate that gradually rises over time. If the overall level of interest rates drops, as measured by a variety of different indexes, the interest rate of an ARM generally follows suit. Similarly, if interest rates rise, so does a mortgage’s interest rate and monthly payment. The amount that the interest can fluctuate is limited by caps.

How often the interest rate for an adjustable rate mortgage changes. Some adjustable rate mortgages change every month, but one or two adjustments per year is more typical. The less frequently your loan rate shifts, the less financial uncertainty you may have. But if you opt for less frequent adjustments in your mortgage rate, you’ll probably have a higher teaser rate or initial (start) interest rate.

Lender jargon for the process of gradually paying down a debt, usually by making monthly payments throughout the loan’s term. In the early years of a mortgage, most of the monthly payment goes toward payment of interest and little toward reducing the loan balance.

A figure that states the total yearly cost of a mortgage as expressed by the actual rate of interest paid. The APR includes the base interest rate, points, and any other add-on loan fees and costs. As a result, the APR is invariably higher than the rate of interest that the lender quotes for the mortgage but gives a more accurate picture of the likely cost of the loan.

A professional opinion about the market value of the house you want to buy (or already own if you’re refinancing your loan). You must pay for the mortgage lender to hire an appraiser, because this opinion helps protect the lender from lending you money on a home that’s not worth enough (in the event that you default on the loan and the lender must foreclose on the property). For typical homes, the appraisal fee is several hundred dollars.

The increase of a property’s value.

The value of a property (according to the local county tax assessor) for the purpose of determining property taxes.

Allows future buyers of a home to take over the remaining loan balance of a mortgage. Most assumables are adjustable rate mortgages — assumable, fixed-rate mortgages are nearly extinct these days because lenders realize that they lose a great deal of money on these types of mortgages when interest rates skyrocket.

When a house for sale receives an acceptable offer, takes it offer the market, and then must relist it after the deal fell apart.

An offer to purchase your property if the current purchase agreement falls through. A good backup offer clearly states that you’ve already accepted another offer on your property. It also stipulates that the backup offer won’t take effect until you give the backup buyers formal written notice that your prior contract is canceled.

Loans that require level payments, just as a 15- or 30-year, fixed-rate mortgage does, but well before their maturity date (typically three to ten years after the start date), the full remaining balance of the loan becomes due and payable.

When multiple buyers compete to purchase the same house.

A loan that enables you to borrow against the equity that is tied up in your old home until it sells. Bridge loans are expensive compared to other alternatives, such as using a cash reserve, borrowing from family, or using the proceeds from the sale of your current home. In most cases, you need the bridge loan for only a few months in order to tide you over until you sell your house.

All states issue two different real estate licenses: one for salespeople (agents) and one for brokers. Real estate brokers must satisfy more stringent educational and experience standards than agents do. If your real estate agent isn’t an independent broker or the broker for a real estate office, a broker must supervise the agent. The broker is responsible for everything that your agent does or fails to do within the course and scope of the duties of real estate sales professionals.

The feeling that you paid too much for or should not have purchased your new home.

One of two different types of limits for adjustable rate mortgages. The life cap limits the highest or lowest interest rate that is allowed over the entire life of a mortgage. The periodic cap limits the amount that an interest rate can change in one adjustment period.

For tax purposes, the profit that you make when you sell a home. If you buy a home for $175,000 and then (a number of years later) sell the house for $325,000, your capital gain is $150,000.

You determine a property’s cash flow by summing the rental income that a property brings in on a monthly basis and then subtracting all the monthly expenses, such as the mortgage payment, property taxes, insurance, utility expenses that you (as the landlord) pay, repair and maintenance costs, advertising expenses, 5 percent (or more) vacancy factor, and so on.

A sufficient amount of cash left over after closing on a mortgage loan to make the first two mortgage payments or to cover a financial emergency. This amount is required by most mortgage lenders.

The climax of a home sale and purchase transaction, in which the house title transfer legally from seller to buyer. After the escrow holder receives loan funds, a Grant Deed is recorded, signifying the close of escrow.

Costs that generally total from 2 to 5 percent of a home’s purchase price and are completely independent of (and in addition to) the down payment. Closing costs include such expenses as points (also called the loan origination fee), an appraisal fee, a credit report fee, mortgage interest for the period between the closing date and the first loan payment, homeowner’s insurance premium, title insurance, prorated property tax, and recording and transferring charges.

The percentage of the selling price of a house that is paid to the real estate agent and broker.

A written analysis of comparable houses currently being offered for sale and comparable houses sold in the past six months.

Housing units contained within a larger development area in which residents own their actual units and a share of everything else in the development (lobby, parking areas, land, and the like, which are known as common areas).

When your real estate agent represents both parties to a seller. One agent can’t possibly represent the best interests of a buyer and seller simultaneously.

Mortgages that fall within Fannie Mae and Freddie Mac’s loan limits.

A negotiable fee based on the amount a seller is willing to accept and the renter is willing to pay for an option to purchase a house.

Conditions contained in almost all home-purchase offers. The seller or buyer must meet or waive all their respective contingencies before the deal can be closed. These conditions are related to such factors as the buyer’s review and approval of property inspections or the buyer’s ability to obtain the mortgage financing specified in the contract.

Apartment buildings where residents own a share of a corporation whose main asset is the building they live in. Cooperative apartments are generally harder to finance and harder to sell than condominiums.

A friend or relative who comes to a borrower’s rescue by cosigning (which literally means being indebted for) a mortgage.

A response to a purchase offer that fine-tunes the terms and conditions of that offer.

Stipulations made by a condominium homeowners association that designate how maintenance and repairs will be handled and what can and can’t be done to individual units and the condominium’s common areas.

A way to loan money to buyers who normally would be termed down for a conventional loan.

A financial inducement that offers to pay a portion of your buyer’s nonrecurring closing costs for such expenses as loan origination fees, title insurance, and property inspections.

A credit account that permits a reverse mortgage borrower to control the timing and amount of the loan advances.

A report that documents your history of repaying debt. It’s the main report lenders utilize to determine your creditworthiness.

A credit scoring methodology developed by Fair Isaac Corporation (FICO) to analyze borrowers’ credit histories. Scores range from a low of 300 to a maximum of 850. Factors considered include public records pertaining to credit; outstanding balances against available credit limits; the age of open delinquent accounts; and recent inquiries generated by a borrower seeking credits.

The external attractiveness of your property when viewed from the street.

A lender may use these scores to make credit decisions about its current customers. Also called behavior scores, these scores generally consider the FICO score along with information on how you’ve paid that lender in the past.

Measures your future monthly housing expenses, which include your proposed mortgage payment (debt), property tax, and insurance in relation to your monthly income. Mortgage lenders generally figure that you shouldn’t spend more than about 33 to 40 percent of your monthly income on housing costs.

The document that conveys title to real property. Before you receive the deed to your new home, the escrow holder must receive the payoff for the old loan on the property, your new mortgage financing, and your payments for the down payment and closing costs. The title insurance company must also show that the seller holds clear and legal title to the property for which title is being conveyed.

An arrangement with a mortgage lender in which they agree not to foreclose on your home and you agree to give them the deed to your property.

Failure to make monthly mortgage payments on time. You are officially in default when you have missed two or more monthly payments. Default also refers to other violations of mortgage terms such as trying to pass your loan on to another buyer when the property is sold, which triggers the loan’s due-on-sale clause. Default can lead to foreclosure on your house.

A court order which states that the borrower in a foreclosure must pay the remaining balance on a mortgage if the foreclosure sale did not pay off the mortgage in full.

Decrease in a property’s value (the reverse of appreciation).

The part of the purchase price that the buyer pays in cash, up front, and does not finance with a mortgage. Generally, the larger the down payment, the better the deal that you can get on a mortgage. You can usually qualify for the best available mortgage programs with a down payment of 20 percent of the property’s value.

Dual agency occurs when the same agent or real estate broker represents buyer and seller.

In the real estate world, equity refers to the difference between the market value of a home and the amount the borrower owes on it. For example, if your home is worth $200,000 and you have an outstanding mortgage of $140,000, your equity is $60,000.

The holding of important documents and money related to the purchase/sale of real estate by a neutral third party (the escrow officer) prior to the close of the transaction. During the period when contingencies have to be met or waived, the escrow service holds the down payment and other buyer and seller documents related to the sale.

The price a market-educated buyer will pay and a market-savvy seller will accept for property given that neither the seller nor the buyer is under duress caused by a divorce, an unanticipated job transfer, or some other circumstance that puts either party under pressure to perform quickly.

Buys mortgages from banks and other mortgage-lending institutions and, in turn, sells them to investors.

A mortgage that allows you to lock in an interest rate for the entire term (generally 15 or 30 years) of the mortgage. Your mortgage payment will be the same amount every month.

Rundown houses with physical problems. Real estate agents generally refer to fixer-uppers as “needing work” or “having great potential.”

An agreement by the mortgage lender not to proceed with a foreclosure or other collection action against a homeowner for a specified period of time.

The legal process by which a lender takes possession of and sells property in an attempt to satisfy mortgage indebtedness. When you default on a loan and the lender deems that you are incapable of making payments, you may lose your home to foreclosure. Being in default, however, does not necessarily lead to foreclosure. Some lenders are lenient (and realize that foreclosure is costly for them).

Buys mortgages from banks and other mortgage-lending institutions and, in turn, sells these mortgages to investors.

A period of time beyond a payment due date in which a lender allows for a late payment without fees or actions taken; typically 10 days for a home mortgage.

The market value of a home minus any debt against it.

A type of second mortgage that allows you to borrow against the equity in your house. If used wisely, a home equity loan can help people pay off high-interest, non-tax-deductible consumer debt or meet other short-term needs, such as payments on a remodeling project.

A type of insurance that covers repairs to specific parts of the home for a predetermined time period.

A policy that protects what is probably your most valuable asset — your home. Mortgage lenders will always require that you have this coverage before funding your loan. “Dwelling coverage” covers the cost to rebuild a house. The liability insurance portion of this policy protects you against accidents that occur on your property. The personal property coverage pays to replace your lost worldly possessions.

A house is inspected for overall condition of the property, inside and out; electrical, heating, and plumbing systems; foundation; roof; pest control and dry rot; and seismic/slide risk.

Loans that combine features of fixed-rate and adjustable rate mortgages. The initial interest rate for a hybrid loan may be fixed at the same rate for the first three to ten years of the loan (as opposed to only 6 to 12 months for a standard adjustable rate mortgage); then the interest rate adjusts biannually or annually. The longer the interest rate remains the same, the higher the initial interest rate will be. These loans are best for people who plan to own their house for a short time (fewer than ten years) and who do not like the volatility of a typical adjustable rate mortgage.

A measure of the overall level of market interest rates that the lender uses as a reference to calculate the specific interest rate on an adjustable-rate loan. The index plus the margin determines the interest rate on an adjustable rate mortgage.

Interest charges generally accrued as a percentage of the amount borrowed. The interest rate is usually quoted in percent per year. (Interest is the amount lenders charge you to use their money.)

The limit that determines the maximum amount your adjustable rate mortgage interest rate and monthly payment can fluctuate up or down during the duration of the loan. The life cap is different from the periodic cap that limits the extent to which your interest rate can change up or down in any one adjustment period.

Enables real estate brokers to share listings online among their Web sites so that your property gets maximum online exposure

A form of co-ownership that gives each tenant equal interest and rights in the property, including the right of survivorship. At the death of one joint tenant, ownership automatically transfers to the surviving joint tenant. This form of ownership is most appropriate for unmarried people in a long-term relationship.

Mortgages that exceed the Fannie Mae and Freddie Mac maximum permissible conforming loan amounts. Lenders generally require more than the usual 20-percent down on jumbo loans over $500,000. You’ll probably be asked to make at least a 25-percent cash down payment. Also, the interest rate on jumbo fixed-rate mortgages generally runs about .5 percent higher than on conforming loans.

A property that you can lease with an option to purchase at a later date has a lease-option contract. These contracts usually require an upfront payment to secure the purchase option. The consideration is usually credited toward your down payment when you exercise your option to buy the home.

A legal claim against a property for the purpose of securing payment for work performed and money owed on account of loans, judgments, or claims. Liens are encumbrances that must be paid off before a property can be sold or title can transfer to a subsequent buyer. The liens that are a matter of public record on a property for sale appear on a property’s preliminary report.

Changes made to a mortgage agreement — such as lowering the interest rate or adding time to the end of a mortgage — that make a mortgage payment more affordable to the homeowner.

Interest charges paid upfront when a borrower closes on a loan.

A quick way for lenders to guesstimate how risky a mortgage may be. LTV is simply the loan amount divided by the property’s appraised value. For example, if you’re borrowing $150,000 to buy a home with an appraised value of $200,000, the loan-to-value ratio is 75 percent (your $150,000 loan divided by the $200,000 appraised value).

A box on a house for sale’s door that holds a key to enter the home. Newer, electronic lockboxes contain a computer chip that maintains a record of which agent’s lockbox card was used to open the box as well as the date and time the property was shown.

A mortgage lender’s written commitment to guarantee a specified interest rate to the mortgage borrower provided that the loan is closed within a set period of time. The lock-in should specify the number of points to be paid at closing. For the privilege of locking in the rate in advance of the closing of a loan, you may pay a slight interest rate premium.

An adjustable rate mortgage (ARM) index; an average of the interest rates that major international banks charge each other to borrow U.S. dollars in the London money market. Relative to other ARM indexes, LIBOR responds rapidly to changes in interest rates. This international interest-rate index is used on some mortgages because foreign investors buy American mortgages as investments.

An offer far below a property’s true Fair Market Value (FMV).

The amount that is added to the index in order to calculate the interest rate for an adjustable rate mortgage. Most loans have margins around 2.5 percent. Unlike the index (which constantly moves up and down), the margin never changes over the life of the loan.

When a loan becomes due and payable.

Written notes of important conversations regarding the sale or purchase of your home.

A word used by lenders to describe a formidable stack of legal documents borrowers must sign to get the money they need to refinance or buy real property.

Mortgage brokers buy mortgages wholesale from lenders, mark the mortgages up (typically from 0.5 to 1 percent), and sell them to buyers. A competent mortgage broker is often sought out by people who don’t want to shop around on their own for a mortgage or for people who have blemishes on their credit reports.

Insurance guaranteeing that the lender will receive its money if the borrower dies during the loan period.

A cooperative arrangement among real estate brokers in a particular area to share their property listings with each other. Usually a computer-based service, an MLS allows member brokers and agents to track all property listed for sale with cooperating brokers who participate in the MLS.

Occurs when an outstanding mortgage balance increases despite the fact that the borrower is making the required monthly payments. Negative amortization occurs with adjustable rate mortgages that cap the increase in the monthly loan payment but do not cap the interest rate. Therefore, the monthly payments do not cover all the interest that the borrower actually owes.

A notice sent from a lender to the homeowner after a mortgage payment is missed, stating that the loan is in default. This notice is typically sent 30 days or more after the due date in which a payment is missed.

An event where a house for sale is opened to the public for the purpose of a selling it.

A negotiable fee based on the amount a seller is willing to accept and the renter is willing to pay for an option to purchase a house.

The administrative process of setting up a mortgage, including the preparation of documents.

After the improvements to your house, you’ll own the most expensive house on the block, and you’ll have difficulty recouping the cost of the improvements in the form of a higher house sale price.

The principal, interest, taxes, and insurance that typically comprise a mortgage payment. Sometimes, the property taxes and homeowner's insurance are paid separately.

A percentage of the total loan amount (one point is equal to 1 percent of the loan amount). For a $100,000 loan, one point costs $1,000. Generally speaking, the more points that a loan has, the lower its interest rate should be.

A process — far more rigorous than prequalification — that mortgage lenders use to determine how much money they’d lend you based upon a thorough review of your financial situation. Getting a preapproval letter strengthens your negotiating position when you’re buying a home, because it shows the sellers your seriousness and creditworthiness.

A fee that discourages borrowers from making additional payments on their mortgage loan principal in order to pay the loan off faster.

An informal process whereby lenders, based entirely upon the information you disclose about your financial situation, provide an opinion about the amount of money you may be able to borrow. This assessment is neither binding nor necessarily accurate, because the lenders haven’t verified any of your financial information.

The amount borrowed for a loan. If you borrow $100,000, your principal is $100,000. Each monthly mortgage payment consists of a portion of principal that must be repaid plus the interest that the lender is charging you for the use of the money. During the early years of your mortgage, your loan payment is primarily interest.

Insurance that protects the lender in case a borrower defaults on a mortgage. If your down payment is less than 20 percent of your home’s purchase price, you will likely need to purchase private mortgage insurance. The smaller the down payment, the more likely a homebuyer is to default on a loan. Private mortgage insurance can add hundreds of dollars per year to your loan costs. After the equity in your property increases to 20 percent, you no longer need the insurance.

Yearly tax (paid by the owner) assessed on a home. Property tax annually averages 1 to 2 percent of a home’s value, but property tax rates vary widely throughout different states and counties.

Price limits to simplify house hunting. Pricing quantums are initially expressed in nice, round, east-to-work-with numbers, such as $100,000 and $50,000 and then fine-tuned to $25,000 and $10,000 quantums.

A professional salesperson or broker who is licensed by the National Association of Realtors, a trade association whose members agree to its ways of doing business and code of ethics.

Involves giving a homeowner who is in foreclosure a chance to buy back their property after it has been sold at a foreclosure sale. Some states do not offer this option.

Lending industry jargon for taking out a new mortgage loan (usually at a lower interest rate) to pay off an existing mortgage (generally at a higher interest rate). Refinancing is not automatic, nor is refinancing guaranteed.

A county office that records legal documents related to the transfer of property. A good source for local foreclosure information and ideas for where to get help during the foreclosure process.

Occurs when a homeowner in default on a mortgage pays a lump sum that covers all missed or late loan payments (plus any fees and penalties), so that the mortgage can be reinstated; the remaining mortgage payments then resume as scheduled.

Enables sellers rent their house back from the buyers after escrow closes.

A loan that enables older homeowners to tap their home’s equity without selling their home or moving from it. The loan is made against the value of a home and can be paid out via several options.

A mortgage that ranks after a first mortgage in priority of recording. In the event of a foreclosure, the proceeds from the sale of the home are used to pay off the loans in the order in which they were recorded. You can have a third (or even a fourth) mortgage, but the further down the line the mortgage is, the higher the risk of default — hence, the higher interest rate on the mortgage.

When the demand from buyers exceeds the supply of property listed for sale.

The sale of a home or other property where the lender agrees to discount a loan balance, often in order to prevent a foreclosure.

Appointments to view houses for sale.

Preparing a house so that it’s appealing for the market.

Payments that you may deduct against your federal and state taxable income. The interest portion of mortgage payments, loan points, and property taxes are tax deductible.

The attractively low interest rate that most adjustable rate mortgages start with.

In a mortgage plan, the amount of time (typically 15 or 30 years) a lender gives a borrower to repay the loan.

Insurance that covers the legal fees and expenses necessary to defend your title against claims that may be made against your ownership of the property. The extent of your coverage depends upon whether you have an owner’s standard coverage or extended-coverage title insurance policy. To get a mortgage, you also have to buy a lender’s title insurance policy to protect your lender against title risks.

Short-term U.S.-government bonds. Some adjustable rate mortgage indexes are based on the interest rate that the government pays on the pile of federal debt. The most commonly used government interest rate indexes for adjustable rate mortgages are for 6-month and 12-month treasury bills. The treasury bill indexes tend to respond quickly to market changes in interest rates.

Loans made by the Department of Veterans Affairs (formerly the Veterans Administration). These mortgages help eligible people (those on active duty; qualified unmarried, former spouses of veterans; and veterans of the American military services) buy primary residences. The rules to obtain these mortgages are less stringent in certain respects than are the rules for conventional mortgages.

An online, room-by-room tour of a house for sale.