Real Estate License Exam: 7 Confusing Word Pairs
Before you take your real estate license exam, it's important that you understand the difference between similar-sounding terms. The following real-estate terms are the most often confused; get these memorized and you're well on your way to more correct answers.
Condominium/cooperative: A condominium owner actually owns real estate. This ownership is usually the air space and an interest as a tenant in common of the land. A cooperative owner owns shares in a corporation that owns a building. The shareholder also gets a proprietary lease, which enables the shareholder to occupy a unit.
Foreclosure/forfeiture: Foreclosure is the loss of property to pay off a debt. Forfeiture is losing the property because of disobeying a condition in the deed.
Grantor/grantee: The grantor gives, sells, or transfers the property to the grantee. The grantee receives the property.
Leasehold/leased fee: The leasehold interest is the tenant's interest in the property. The tenant holds the lease. The leased fee interest is the owner or landlord's interest.
Mortgagor/mortgagee: The mortgagor is the borrower. The mortgagee is the lender. The borrower gives a mortgage to the lender.
Replacement cost/reproduction cast: These terms are associated with the cost approach to valuing a property. Replacement cost is the cost to produce a structure that is essentially the same as the existing structure but using modern materials and standards. Reproduction cost is an estimate of the cost to produce exactly the same structure with the same materials.
Tax credit/tax deduction: A tax credit is subtracted from taxes due. A tax deduction is subtracted from income. If all things are equal, a tax credit generally is more valuable than a tax deduction of the same amount.