Texas Principles of Real Estate I Page 1 of 46 Glossary Abstract of Title: A brief history of the title to a particular parcel of real estate. It is a summary of the public records that exist regarding that parcel and presents a compressed listing of the various events and changes that have affected the title to that parcel over time. It chronicles any transfers in ownership as well as any divisions of ownership interest. It also records liens and other encumbrances that may be associated with the property. Most abstracts are accompanied by a certificate that identifies the period of time covered by the abstract, but there are no standard forms or methods for presenting or creating an abstract. Acceleration Clause: (also called an “alienation clause”) A clause in the mortgage document that, if enforced, makes the entire balance of the mortgage due to the lender immediately upon default. Accrued Item: Accrued items are prorated costs that are owed by a seller (such as real estate taxes in states where these are not prepaid), but which will ultimately be paid by a buyer after he or she receives title to a property. That is to say, these expenses have been (or are being) incurred, but need not be paid at the time the sale closes. In an effort to ensure that these expenses are handled fairly, the seller generally pays the buyer for these items through credits at closing. For example, a seller might credit a buyer for the proportion of annual real estate taxes that were charged during the part of the year that the seller occupied the property. Action to Quiet Title: (also called “suit to quiet title” and “quiet-title action”) A legal proceeding that attempts to establish ownership when there is a real or potential defect in a title created by a lien or other encumbrance. Generally, the action aims to resolve difficulties created by the tension between the apparent or legally-recognized owner’s claim to a property and the rights or interests in that property that may have been acquired by creditors or other parties who are not (presently) the recognized, legal owners of the property.
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Texas Principles of Real Estate I
Page 1 of 46
Glossary
Abstract of Title: A brief history of the title to a particular parcel of real estate. It is a
summary of the public records that exist regarding that parcel and presents a
compressed listing of the various events and changes that have affected the title to that
parcel over time. It chronicles any transfers in ownership as well as any divisions of
ownership interest. It also records liens and other encumbrances that may be
associated with the property. Most abstracts are accompanied by a certificate that
identifies the period of time covered by the abstract, but there are no standard forms or
methods for presenting or creating an abstract.
Acceleration Clause: (also called an “alienation clause”) A clause in the mortgage
document that, if enforced, makes the entire balance of the mortgage due to the lender
immediately upon default.
Accrued Item: Accrued items are prorated costs that are owed by a seller (such as real
estate taxes in states where these are not prepaid), but which will ultimately be paid by
a buyer after he or she receives title to a property. That is to say, these expenses have
been (or are being) incurred, but need not be paid at the time the sale closes. In an
effort to ensure that these expenses are handled fairly, the seller generally pays the
buyer for these items through credits at closing. For example, a seller might credit a
buyer for the proportion of annual real estate taxes that were charged during the part of
the year that the seller occupied the property.
Action to Quiet Title: (also called “suit to quiet title” and “quiet-title action”) A legal
proceeding that attempts to establish ownership when there is a real or potential defect
in a title created by a lien or other encumbrance. Generally, the action aims to resolve
difficulties created by the tension between the apparent or legally-recognized owner’s
claim to a property and the rights or interests in that property that may have been
acquired by creditors or other parties who are not (presently) the recognized, legal
owners of the property.
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Actual Authority: The express or implied authority that a principal gives an agent in an
agency relationship.
Actual Damages: Compensation given to an injured party for proven injuries or losses
that resulted from another party’s actions or omissions.
Actual Notice: Some form of communication given directly to the individual being
alerted to the existence of the fact; it is notice he or she has received personally. One
can also gain “actual notice” on one’s own, without receiving any explicit communication
from another person. For example, one would have direct knowledge—that is, “actual
notice”—about a property after researching that property through public records or by
performing a property inspection.
Ad Valorem Taxes: General real estate taxes, calculated according to the assessed
value of individual properties. The term ad valorem is Latin for "according to value."
Adjusted Basis: The purchase price of real estate plus the cost of improvements, less
depreciation.
Affidavit of Title: A legal guarantee regarding the condition of a property’s title. In this
affidavit, the seller swears to his or her legal identity and marital status; the seller also
testifies that he or she has had no bankruptcies, divorces or legal judgments made
against him or her since the date of the title examination; i.e., that the title is in the same
condition as it was at the time of the examination. The affidavit also generally entails
that that there are no unrecorded deeds or contracts for the property and that the owner
has paid for all repairs and improvements that have been made recently or that were
stipulated as part of the sale.
Agency Relationship: A relationship created when one party designates another to
represent his or her interests in dealings with a third party.
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Agent: An individual authorized by a principal to make decisions on behalf of that
principal and represent his or her interests.
Air Rights: The right to use, control, and occupy the space above a particular parcel of
real estate, which is sometimes called an “air lot.”
Americans with Disabilities Act (ADA): This act prohibits discrimination against
individuals with disabilities. Specifically, it guarantees them access to employment,
public services, telecommunications, public accommodations, and commercial facilities.
Amortization: The repayment of a financial obligation over a period of time in a series
of periodic installments. Specifically, it is the payback of the principal owed to the
lender. Each payment should cover the interest accrued over the period for which
payment is made and a portion of the principal. The interest portion is tax deductible,
whereas the amortization is not.
Amortization Rate: The percentage of a periodic payment that is applied to the
reduction of the principal; in a level-payment mortgage this corresponds to the sinking
fund factor.
Amortization Term: The period over which the principal amount would be retired on
the basis of the periodic installments paid.
Amortized Loan: A financial obligation repaid over a period in a series of periodic
payments.
Apparent Authority: The authority created when the principal falsely represents an
agent to a third party, suggesting that the agent has significant authority when he or she
has no actual authority.
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Appraisal: The process by which the value of a piece of real estate is determined; any
value so determined is called the appraisal value.
Appraisal Report: An appraiser’s written or oral estimate of value submitted to a client
based on a specified definition of value for the subject property as of a specific date,
giving all details of the data utilized in the appraisal process.
Appraised Value: An estimate by an appraiser of the amount of a particular value, such
as market value, assessed value, or insurable value, based on the given assignment.
Appraiser: A person who engages in the procedure of estimating the value of real
property or personal property.
Appreciation: An increase in the value or worth of something due to economic or
related causes such as supply and demand, which may prove to be either permanent or
temporary. It is the opposite of depreciation.
Appropriation: The actual method by which a district imposes a real estate tax.
Area: The surface size of a two-dimensional figure such as a triangle or rectangle,
expressed in terms of square units, i.e., square feet or square yards. It is formulated by
the equation: length x width = area for rectangles; one-half base x height = area for
triangles; pi x radius squared = area for circles, etc.
Asbestos: Naturally occurring mineral fibers that are mined and processed into
materials used in building and other kinds of manufacturing. Asbestos is used to
strengthen materials, provide thermal and acoustical insulation on exposed surfaces,
and to fireproof a product or material. Asbestos fibers have been linked to cancer of the
lungs, stomach and intestines, as well as to a disease called asbestosis.
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Assessment Roll: A public record that provides information on properties in a specific
area or district, including legal descriptions, owners, and assessment values.
Assignment: A method of transferring the rights and obligations of a contract to a third
party without canceling the contract. Assignments vary as to what rights and obligations
are transferred and to what degree.
Association of Real Estate License Law Officials (ARELLO): An international
organization that promotes uniform standards for license law administration and
enforcement.
Assumption: Taking over the obligation or commitment of another, as in a loan,
insurance policy, etc.
Balance: The appraisal principle that states that the highest property values are
realized when improvements are proportional to one another and the land in size and
type.
Banker’s Year: An evenly based system used for calculations that assumes 12
calendar months, each containing 30 days, for a total of a 360 day year.
Banking Year: A 360-day year (or 12 months of 30 days each) that is often used in
banking and other financial practices.
Bargain and sale deed: A deed without warranties with which a grantor may transfer
all of his or her ownership interest to a grantee. A bargain and sale carries no
guarantees as to the condition of the title; however, the grantor does acknowledge that
he or she has the title to and possession of the interest to be conveyed.
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Basis: A taxpayer’s costs (used for tax purposes) for obtaining and maintaining a
property, less depreciation. “Basis” (also called “tax basis”) is essentially the taxpayer’s
investment in his or her property.
Bench Mark: A permanent reference point attached to a durable object (such as a
brass marker set into a sidewalk) that establishes a fixed location of known elevation.
These are often set by a government agency (such as the U.S. Geological Survey) and
are commonly used as references in the “metes and bounds” method of land location
and description. Notice that this term is distinct from the more general “benchmark,”
which simply indicates a general precedent or standard.
Bilateral Contract: An agreement in which both parties give consideration and promise
to perform the actions specified in a contract. This kind of contract creates reciprocal
obligations, in which each party is obliged to the other.
Black Mold: A slimy, black fungus that can create health problems for people when it is
allowed to flourish indoors. It has been linked to rashes, headaches, nausea, muscle
aches, and fatigue.
Block: A grouped or connected series of lots segmented from other lots by a series of
streets or major thoroughfares. A group of blocks generally makes up a subdivision
tract.
Blockbusting: The practice of inducing the panic selling of homes at below market
value, generally by raising fears that an influx of individuals belonging to a particular
minority group will decrease property values in a neighborhood and otherwise affect the
area negatively.
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Breach of Contract: Occurs when there is a violation of the terms of a legally binding
agreement. When a breach of contract occurs, the non-breaching party may be able to
seek recourse via an array of legal options, including rescinding the contract, suing for
damages or suing for performance of the contract. Contracts can be breached in
different ways and to varying extents.
Broker: A real estate agent acting as an agent or in a legally recognized non-agency
capacity by bringing parties together for specific purposes.
Broker: One who draws contracts, deals in or negotiates the sale, lease or purchase of
real estate for another in exchange or expectation of compensation; one who may
lawfully employ salespeople and own a real estate brokerage.
Brownfield: A “brownfield” is defined as a property, or part of a property, that has (or is
perceived as having) environmental contamination or hazards. This term is generally
applied to property that has active potential for reuse or redevelopment, both of which
may be complicated by the presence or potential presence of a hazardous substance,
pollutant, or contaminant.
Calendar Year: The standard practice of measuring a year based on 12 months with an
unequal number of days in each, totaling 365 days or 366 in a leap year.
Capital Asset: A usually long-term asset used in the regular course of business; for
income tax purposes, capital assets are all property except what a taxpayer holds for
regular sale to consumers.
Capital Gains: The capital an investor receives when he or she sells or exchanges an
asset, equal to the sale price of the property less the investor’s costs for obtaining and
maintaining that asset (i.e., less his or her basis).
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Capitalization Rate: The percentage used in the income capitalization approach to
appraisal that represents an annual rate of return on one's investment. (V=I/R) where:
V=Value, I=Net Operating Income, and R=Capitalization Rate.
CERCLA: An acronym identifying the Comprehensive Environmental Response,
Compensation, and Liability Act. This Act is also called “Superfund,” because it provides
money to clean up uncontrolled or abandoned environmental hazards, as well as other
environmental accidents and emergencies. CERCLA addresses many liability and
management issues regarding hazardous waste.
Chain of Title: The chain of title traces the history of who has owned a particular parcel
of land and when. The chain of title is effectively the lineage of ownership, showing the
history of transfers and divisions of interest, if any, and displaying the complete line of
property owners in chronological order. The term “chain of title” can also identify a part
of a title search that aims at finding this information.
Chattel: An item of personal property that is movable (as opposed to real estate) and
sold or exchanged via a bill of sale rather than by a conveyance instrument such as a
deed.
Civil Rights Act of 1964: A federal act that includes a prohibition against discrimination
by housing programs that receive any federal funding.
Civil Rights Act of 1968: This federal act prohibits discrimination in the sale or rental of
property on the basis of race, color, religion, or national origin. Later amendments
added prohibitions against discrimination on the basis of sex, handicap and familial
status.
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Civil Rights Acts of 1866 and 1870: These acts stipulate that all persons, regardless
of their race, color, or previous position of servitude, have the same legal right to make
and enforce contracts. Similarly, these Acts entitle all people to the full and equal benefit
of laws and proceedings for the security of persons and property.
Client: The person(s) or entity(ies) with whom a real estate broker or a real estate
broker’s firm has an agency or legally recognized non-agency relationship.
Closing: The finalizing steps of a real estate transaction, when the real property is
turned over to the purchaser on the closing date.
Closing Costs: (also called “transaction costs”) Various fees and expenses payable by
the seller and buyer at the time of a real estate closing, set out in the settlement
statement.
Closing Date: (also sometimes called the “settlement date”) The culmination of a real
estate transaction; it is date on which a seller delivers the deed to a property
(transferring title to the buyer) and the buyer pays for the property. This date is generally
specified in the purchase and sales agreement.
Closing Statement: (also sometimes called a “settlement statement”) A detailed,
comprehensive document that summarizes each party’s debits and credits, as well as
the funds that each party has contributed to the transaction thus far. This document is
also often used to calculate the total amount that the buyer must bring to the settlement.
Cloud on Title: A real or potential flaw in a title, created by a lien or other encumbrance
associated with the property. These defects can be problematic because they create a
tension between the legally-recognized owner’s claims to the property and the rights or
interests that may have been acquired by creditors or other parties who are not the
recognized, legal owners of the property.
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Common Enemy Doctrine: This doctrine gives individual property owners an absolute
right to dispose of surface water. Its name arises from the common law idea that
unregulated surface waters are the common enemy of property owners, each of whom
may manage them as he or she thinks best. This includes using retention, diversion,
repulsion, and course alteration to control the water. Because property owners have this
right, there is not cause for legal action even if the chosen water management method
causes injury or damage. It is worth noting, however, that all property owners are legally
required to use their property in a reasonable way that does not cause unnecessary
damage to other people or other people’s property.
Comparables: Properties that are the same in many ways as the property being
appraised (subject property). They can therefore be used to estimate the value of the
subject property.
Comparative Market Analysis (CMA): (sometimes also called a “competitive market
analysis”) An informal system for establishing the value of real property, which works by
comparing the prices of recently sold, pending and currently-for-sale homes that are
similar in size and features to the subject property (the property listed for sale). A CMA
is prepared by a real estate professional prior to (or in conjunction with) obtaining a
listing, as part of helping a seller to determine an initial asking price for a property.
Competent Parties: People who are legally capable of entering a contract. To be
competent in this sense, an individual must be of majority age and be mentally
competent.
Consideration: Something of value, such as money or a promise, given to show
acceptance or acknowledgement of a contract.
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Constructive Notice: A kind of notice that an individual is presumed to have—there is
no explicit communication of a fact, but the facts involved are such that the individual
can reasonably be expected to have this information. For example, the act of publicly
recording the documents related to real estate conveyance makes this information
accessible to others, such that in some cases they might reasonably be presumed to
have constructive notice of the facts contained in those documents.
Contract: A legally enforceable document made between two or more parties who
promise either to engage in or to refrain from doing some legal action for consideration.
Contract for Deed: A conditional type of agreement in which the seller holds the title
until the buyer has paid in full. This is also known as an installment contract, an
installment land contract, or a contract sale.
Cost: The money provided for materials, labor, land, and profits necessary to bring a
property into existence.
Cost Approach: A method of appraising property based on the depreciated
reproduction cost (new) of all improvements, plus the market value of the site.
Cost of Credit: The amount one pays on borrowed money; an interest rate.
Counteroffer: A rejection of an offer to buy or sell, tendered with a simultaneous
substitute offer.
Credit: A positive balance or a positive amount. For our purposes, it is a figure entered
in a party’s favor when determining the overall costs associated with a transaction. On
closing statements, credits reflect expenses that have been paid by a particular
individual or expenses that are owed to that individual. Credits stand in contrast to
debits.
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Cubic: A three-dimensional measurement based on the total volume of an object.
Customer: A party to a real estate transaction who receives information, services, or
benefits but has no contractual relationship with the real estate professional or the real
estate professional’s firm.
Debit: A negative balance or a negative amount. For our purposes, it is an amount due
from or owed by a particular individual when determining the overall costs associated
with a transaction. On closing statements, debits reflect charges made to the parties
involved in the transaction. Debits stand in contrast to credits.
Deceptive Trade Practices Act: A federal law that allows an individual to sue a
provider of goods or services for fraud or misrepresentation.
Deduction: An amount of money subtracted from income when calculating federal
income tax.
Deed: A written instrument used to transfer or convey a property owner’s right, interest
or title in a property. A deed is different from a title: A title is not an instrument of
conveyance, but a deed is.
Deed books: A collection of records in which copies of deeds are recorded, usually
located in the county clerk’s office or recorder’s office; these volumes of records are
also called “libers.”
Deed of reconveyance (also called a “release deed”): A deed used to transfer title
from the trustee back to the trustor (borrower) upon full repayment of a deed of trust
loan.
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Deed of trust: (also called a “trust deed”) A special purpose deed that conveys title to a
neutral third party, with the understanding that title will be returned to the original owner
once certain conditions are met. This type of deed can be used when property is offered
for security on an outstanding debt, creating a security device similar to a mortgage.
Default: The failure to make timely debt payments or to comply with other conditions of
an agreement.
Deficiency Judgment: A judgment against a debtor that pays off the remaining
balance of a defaulted loan, plus accrued interest and expenses, if a foreclosure sale
does not generate enough money to pay off a loan.
Depreciation (Accounting): A method of allocating the cost of an aging asset over its
estimated useful life. For income tax purposes, depreciation is a provision for the
estimated wear and tear of an asset. Depreciation deductions can be claimed as a tax
deduction on real estate improvements, not land, regardless of whether the market
indicates an increase or decrease in the value of the property.
Depreciation (real estate): An actual loss in value from wear, use or obsolescence
(disuse).
Disability: The federal government defines a disabled individual as a person who has a
physical or mental impairment that substantially limits one or more of that individual’s
major life activities. This legal definition also includes any individual who has a record of
having suffered from such impairment.
Disclosure: The act of revealing previously unknown information. Disclosure can be
compulsory or obligatory, in which case it becomes an obligation to reveal all the facts
of a transaction. In addition to its being required by law, disclosure might also be
required by a professional code of ethics. Full disclosure requires that one make known
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any adverse details that may affect the results of the transaction, even if sharing those
facts works against one’s own (or one’s client’s) interests.
Discrimination: Unfavorable or unfair treatment of a person or class of persons based
on race, sex, color, religion, national origin, familial status, or disability. The relative
favorability or fairness of treatment is judged by comparing it to the way the individual or
institution accused of discrimination interacts with people who are not members of the
class.
Double Exposure: When an agent breaches fiduciary duties to one or both parties due
to conflicting obligations created by pre-existing agency relationships with either party.
Dual Agency: The relationship created when an agent represents both the principal
and the third party in a transaction.
Dwelling: The Fair Housing Act defines a dwelling as any building, structure, or portion
of a building that is occupied as—or designed or intended for occupancy as—a
residence by one or more families. This definition also includes any vacant land offered
for sale or lease for the construction of a building, structure, or portion of a building that
is intended to be occupied as a residence.
Earnest Money: A deposit made by a real estate buyer to show an offer is serious and
it is being made in good faith. This money is also often used as a kind of “marker” to
reserve the property while the final contracts are being drawn up or the offer is being
considered.
Economic Fixity: An economic characteristic of land describing the commodity's
permanence as an investment; generally referred to as “fixity.”
Electromagnetic Fields (EMF): Also called “electromagnetic field radiation.” These
fields are created by the flow of current in anything powered by electricity, and can be