Word Watch · Full episode · 25:16

30 Real Estate Terms That Show Up on Every Exam

Learn 30 real estate terms with illustrated explanations, examples and quick checks. Watch the full Click2CE episode or choose a concept to review.

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  1. Start with the land.
  2. Add the house and its permanent improvements.
  3. Now add the ownership rights associated with that
  4. real estate.
  5. Together, we are describing real property.
  6. Look inside the kitchen.
  7. Built-in cabinets ordinarily form part of the real
  8. estate as fixtures.
  9. The movable cart ordinarily does not.
  10. The key distinction is not whether an item
  11. is valuable.
  12. It is how the item relates to the
  13. land and improvements, along with the relevant facts
  14. and agreement.
  15. Ownership rights can also be divided or limited.
  16. Quick check:
  17. does every object sitting inside a house automatically
  18. become real property?
  19. No.
  20. A movable item can remain personal property even
  21. when it is inside the home.
  22. Look at this kitchen cart.
  23. It sits in the house, but it can
  24. ordinarily move with its owner.
  25. Personal property, also called chattel, generally means property
  26. that is not real property.
  27. The cart is our example.
  28. Compare it with the built-in cabinets.
  29. An item that starts as personal property may
  30. become a fixture when incorporated into the real
  31. estate.
  32. Watch the classification change:
  33. a loose cabinet, then a built-in installation.
  34. But attachment alone is not the whole analysis.
  35. Consider adaptation, intention, the parties' relationship, and the
  36. agreement too.
  37. Quick check:
  38. is the movable cart automatically included just because
  39. the house is sold?
  40. No.
  41. Check the agreement instead of assuming every item
  42. stays.
  43. Look at these two items in the same
  44. kitchen.
  45. Built-in cabinets, and a cart on wheels.
  46. Both are useful.
  47. Both may be heavy.
  48. But they are not necessarily classified the same
  49. way.
  50. The cart is ordinarily personal property.
  51. It can be moved without becoming part of
  52. the building.
  53. The cabinets are ordinarily fixtures, incorporated into the
  54. kitchen.
  55. A fixture began as personal property but is
  56. treated as part of the real estate.
  57. Attachment and adaptation matter.
  58. So do intention, the parties' relationship, and their
  59. agreement.
  60. Do not decide from weight or appearance alone.
  61. Quick check:
  62. which item is more likely a fixture?
  63. The built-in cabinets.
  64. The key is how the item is incorporated
  65. into the property, considered with the facts and
  66. agreement.
  67. Owning a home means more than holding a
  68. key.
  69. Think of ownership as a bundle of rights.
  70. Possession:
  71. occupy the property.
  72. Control:
  73. decide how to use it within legal limits.
  74. Enjoyment:
  75. use its benefits.
  76. Exclusion:
  77. keep others out, subject to their legal rights.
  78. Disposition:
  79. transfer your interest.
  80. Now watch one right separate from the bundle.
  81. A lease can give a tenant possession for
  82. a period, while the landlord retains ownership.
  83. An easement can grant a limited use right.
  84. The rights are not unlimited.
  85. Laws, valid restrictions, and other people's interests still
  86. matter.
  87. Quick check:
  88. does granting a driveway easement automatically transfer ownership
  89. of the entire parcel?
  90. No.
  91. A limited use right can be granted separately.
  92. Watch this home's ownership move from one person
  93. to the next.
  94. Fee simple absolute is the broadest private ownership
  95. estate.
  96. It is potentially perpetual and inheritable.
  97. The current owner can transfer it, and an
  98. heir can inherit it.
  99. Notice that our timeline has no preset ending.
  100. Compare that with a life estate, which is
  101. measured by a specified person's life.
  102. And compare it with a defeasible fee, which
  103. may end when a specified condition occurs.
  104. The word absolute does not erase legal limits.
  105. Taxes, zoning, and valid liens can still apply.
  106. Quick check:
  107. does fee simple absolute mean an owner can
  108. ignore zoning?
  109. No.
  110. Broad ownership still operates within the law.
  111. One home.
  112. Two successive interests.
  113. In this example, Morgan holds a life estate
  114. measured by Morgan's own life.
  115. Riley holds the remainder.
  116. Morgan has the present right to possession.
  117. Riley's right to possession comes later.
  118. Watch the timeline.
  119. When Morgan's measuring life ends, the life estate
  120. ends, and Riley's remainder becomes possessory.
  121. Now rewind.
  122. Suppose Morgan transfers the life estate to Casey.
  123. Casey receives only the interest Morgan had.
  124. The measuring life is still Morgan's.
  125. The transfer does not turn it into permanent
  126. ownership.
  127. A life estate can also be measured by
  128. another specified person's life.
  129. Quick check:
  130. can transferring a life estate extend it beyond
  131. the measuring life?
  132. No.
  133. The measuring life still sets its duration.
  134. Two homes.
  135. One access route.
  136. The rear owner needs to reach the public
  137. street.
  138. In this example, an access easement allows that
  139. owner to travel along this driveway, across the
  140. front parcel.
  141. Follow the route from the street to the
  142. rear home.
  143. The rear parcel receives the access benefit.
  144. The front parcel carries the burden of allowing
  145. that use.
  146. But watch what does not change.
  147. The front owner still owns the land beneath
  148. the route.
  149. The easement gives a right to use it
  150. for the permitted purpose.
  151. It does not transfer ownership of the strip.
  152. Quick check:
  153. does using a neighbor's driveway mean you own
  154. it?
  155. No.
  156. Remember the distinction:
  157. a right to use, not ownership of the
  158. land.
  159. Two neighboring properties.
  160. A shed near the boundary.
  161. The question is not simply where the fence
  162. or hedge appears to be.
  163. The question is where the actual property line
  164. lies.
  165. Look at this simplified plan.
  166. The dashed line represents the boundary.
  167. Part of the shed extends across it, into
  168. the neighboring lot.
  169. That physical intrusion is an encroachment.
  170. Compare it with an easement.
  171. An easement is a legal right to use
  172. another's land.
  173. An encroachment describes something physically crossing a boundary.
  174. One does not automatically create the other or
  175. transfer ownership.
  176. A survey can help locate the intrusion; documents
  177. and applicable law help determine the rights.
  178. Quick check:
  179. a shed crosses the property line.
  180. What describes the physical condition?
  181. Encroachment.
  182. Picture a debt connected to a property.
  183. A lien is a charge or claim against property that
  184. secures payment or performance of an obligation.
  185. Follow the connection:
  186. an obligation, a claim against the property, and possible enforcement
  187. if the obligation is not met.
  188. The lien is not the same thing as ownership or
  189. possession.
  190. A specific lien attaches to identified property.
  191. A general lien may reach a debtor's property within its
  192. lawful scope.
  193. Priority depends on the kind of lien and the governing
  194. rules, not a single rule for every situation.
  195. Quick check:
  196. is a lien itself the same as owning the property?
  197. No.
  198. It is a claim securing an obligation, with rights determined
  199. by the governing law.
  200. An owner can hold property that is also subject to
  201. someone else's claim or right.
  202. Encumbrance is the broader category for burdens or claims affecting
  203. property.
  204. Watch the category divide.
  205. A lien can secure a debt.
  206. An easement can give another person a limited use right.
  207. Both can affect the owner's property, but they do different
  208. jobs.
  209. A driveway easement is our example of a nonfinancial encumbrance.
  210. It allows the permitted use without automatically transferring ownership of
  211. the strip.
  212. Identify the actual right or restriction instead of assuming every
  213. encumbrance is a debt.
  214. Quick check:
  215. is every encumbrance a lien?
  216. No.
  217. A lien is one type of encumbrance.
  218. An easement is another.
  219. Look at this neighborhood as a map of permitted uses.
  220. Zoning divides land into districts and sets public rules for
  221. use and development.
  222. One district may allow homes.
  223. Another may allow commercial uses.
  224. Development standards can also control matters such as setbacks, height,
  225. or density.
  226. The actual ordinance supplies the details.
  227. Separate public rules from private restrictions.
  228. Zoning comes from government authority.
  229. Covenants, conditions, and restrictions are private controls.
  230. A variance is specific authorized relief, not an automatic change
  231. to the whole zoning district.
  232. Quick check:
  233. are setbacks commonly an example of zoning controls?
  234. Yes.
  235. Setbacks regulate development under public authority.
  236. Imagine an authorized government project acquiring private land for a
  237. public road.
  238. Eminent domain is the power behind that acquisition for public
  239. use, with just compensation.
  240. Follow the sequence from private property to the public-use taking
  241. and compensation.
  242. Condemnation is the legal process used to carry out that
  243. power.
  244. Compare this with ordinary land-use regulation.
  245. Zoning usually regulates use rather than acquiring title.
  246. Some regulations can raise a takings issue, but not every
  247. reduction in property value automatically requires compensation.
  248. Quick check:
  249. which power underlies acquiring private land for a public road?
  250. Eminent domain.
  251. Remember the power, the condemnation process, and the just-compensation requirement.
  252. At this meeting, ask one question first:
  253. whom does the agent represent?
  254. Agency is a relationship in which a principal authorizes an
  255. agent to act on the principal's behalf.
  256. Follow the authority from the principal to the agent.
  257. Duties arise from that relationship.
  258. Providing services to someone does not, by itself, mean that
  259. person is the represented client.
  260. Now separate representation from payment.
  261. A seller might pay a buyer broker's fee, but that
  262. payment alone does not make the seller the broker's client.
  263. Identify the relationship, the agreement, and the governing rules.
  264. Quick check:
  265. does the source of a fee alone determine the client?
  266. No.
  267. Representation depends on the agency relationship, not just who writes
  268. the check.
  269. An agent serving a principal occupies a position of trust.
  270. A fiduciary must act for another's benefit within that relationship.
  271. Build the duty set:
  272. loyalty, lawful obedience, disclosure, confidentiality, accounting, and reasonable
  273. care.
  274. These duties guide the agent's conduct, not just the paperwork.
  275. Notice the word lawful.
  276. A client's instruction to discriminate unlawfully is not an instruction
  277. the agent must obey.
  278. Confidentiality also does not justify hiding a fact that the
  279. law requires the agent to disclose.
  280. Quick check:
  281. must an agent follow an unlawful discriminatory instruction from a
  282. client?
  283. No.
  284. Obedience applies to lawful instructions.
  285. Duties operate together within the law.
  286. Two people may receive help in a transaction without having
  287. the same relationship with the brokerage.
  288. A client is represented through an agency relationship.
  289. A customer may receive services without that representation.
  290. Picture the agent representing the seller while showing the property
  291. to an unrepresented buyer.
  292. In this example, the seller is the client and the
  293. buyer is a customer.
  294. Customer does not mean no protection.
  295. Duties required by law still apply.
  296. The key is to distinguish representation from assistance, and to
  297. explain the actual relationship rather than let someone assume they
  298. are represented.
  299. Quick check:
  300. does answering a buyer's question automatically establish that the agent
  301. represents the buyer?
  302. No.
  303. Identify the agency relationship and governing rules; assistance alone does
  304. not settle the question.
  305. Before a buyer makes an offer, the owner may engage
  306. a brokerage through a listing agreement.
  307. This contract defines the brokerage's employment and specified services.
  308. Follow the connection from owner, through the listing contract, to
  309. brokerage.
  310. Read the duration, services, and compensation terms.
  311. Fees and services are negotiable.
  312. Keep the listing separate from the purchase contract.
  313. The listing establishes the brokerage engagement.
  314. A buyer's purchase contract establishes the sale terms.
  315. Different listing types also use different compensation triggers.
  316. Quick check:
  317. does signing a listing agreement itself transfer the owner's title
  318. to a buyer?
  319. No.
  320. The listing creates the brokerage engagement; it is not the
  321. deed conveying title.
  322. Follow the buyer's good-faith deposit.
  323. Earnest money is held and disbursed according to the purchase
  324. contract and applicable requirements.
  325. The deposit moves into proper custody.
  326. At closing it may be credited as the contract provides.
  327. Holding the money does not make it the broker's operating
  328. cash.
  329. Now imagine a transaction that does not close.
  330. Do not jump straight to giving the deposit to either
  331. party.
  332. The contract and lawful release procedures determine the outcome.
  333. Earnest money is also different from the consideration supporting the
  334. bargain.
  335. Quick check:
  336. does a buyer's default automatically authorize immediate payment of the
  337. deposit to the seller?
  338. No.
  339. Follow the contract and lawful disbursement requirements.
  340. A contingency is a contract condition affecting a party's obligation
  341. to complete a transaction.
  342. An inspection or financing condition is a familiar example.
  343. Trace three checkpoints:
  344. what condition must be satisfied, when action is due, and
  345. what notice is required.
  346. These details determine how the contingency operates.
  347. An inspection concern does not automatically cancel every contract or
  348. guarantee a deposit refund.
  349. The agreement may require a timely notice, allow a response,
  350. or provide other options.
  351. Read the particular clause instead of assuming one universal result.
  352. Quick check:
  353. where do you find the steps for exercising an inspection
  354. contingency?
  355. In the contract:
  356. its language, deadlines, and notice requirements.
  357. These words look similar but describe different legal situations.
  358. A void agreement has no legal effect as a contract.
  359. An unlawful purpose is one possible example.
  360. A voidable contract generally operates unless a legally protected party
  361. properly avoids it.
  362. That party may instead affirm it.
  363. The right depends on the recognized defect and applicable rules.
  364. Watch the difference:
  365. void means no effective contract; voidable means a protected party
  366. has a choice.
  367. It does not mean either party can leave whenever they
  368. want.
  369. Time limits and exceptions matter.
  370. Quick check:
  371. does voidable mean either party can always cancel for any
  372. reason?
  373. No.
  374. The relevant rule identifies the protected party and the right
  375. to avoid.
  376. Ask what is exchanged to create the obligation.
  377. In a bilateral contract, one promise is exchanged for another
  378. promise.
  379. A buyer promises to pay, and a seller promises to
  380. convey, on the agreed terms.
  381. In a unilateral contract, the offer asks for an act
  382. in exchange for a promise.
  383. Think of a reward offered for returning a lost item.
  384. The requested performance is the key to acceptance.
  385. Do not count the number of people or signatures to
  386. decide the category.
  387. Compare promise for promise with promise for performance.
  388. Rules about beginning performance and revocation can depend on the
  389. circumstances and governing law.
  390. Quick check:
  391. buyer and seller exchange promises to buy and sell.
  392. Which pattern is that?
  393. Bilateral.
  394. Each side makes a promise.
  395. The mortgage and the note do different jobs.
  396. A mortgage pledges real property as security for an obligation.
  397. The note documents the promise to repay.
  398. Follow the direction:
  399. the borrower is the mortgagor, giving the mortgage.
  400. The lender is the mortgagee, receiving the security interest.
  401. Keep those roles separate from the repayment promise.
  402. Do not assume identical title consequences in every state.
  403. Lien-theory and title-theory systems differ, and some transactions use a
  404. deed of trust.
  405. For this concept, focus on the security function.
  406. Quick check:
  407. which document ordinarily contains the promise to repay, the mortgage
  408. or the note?
  409. The note.
  410. The mortgage is the security instrument.
  411. Open the promissory note.
  412. This document records the borrower's promise to repay the loan.
  413. It states terms such as the amount owed, interest rate,
  414. and payment requirements.
  415. Place the note beside the mortgage or deed of trust.
  416. The note addresses the debt and repayment.
  417. The security instrument connects the obligation to property securing it.
  418. Reading one does not replace reading the other.
  419. The documents work together, but their functions are different.
  420. Match the exam question to the document's job instead of
  421. treating all loan paperwork as one instrument.
  422. Quick check:
  423. are the promise to repay and the pledge of property
  424. the same function?
  425. No.
  426. The note documents repayment; the security instrument provides the property
  427. security.
  428. Watch a typical fixed-rate, level-payment loan over time.
  429. Amortization means scheduled payments reduce the loan's principal balance while
  430. also paying interest.
  431. Our bars show illustrative payment proportions, not a specific loan
  432. quote.
  433. Early on, more of the payment goes to interest.
  434. As principal falls, the interest portion usually shrinks and the
  435. principal portion grows.
  436. A fully amortizing loan reaches a zero balance at maturity
  437. if paid as scheduled.
  438. A partially amortizing loan leaves a balance to be paid
  439. at the end.
  440. Do not assume every scheduled payment goes entirely toward principal.
  441. Quick check:
  442. does the entire payment ordinarily reduce principal?
  443. No.
  444. Payments generally include both principal and interest.
  445. Loan-to-value compares the loan amount with the property value used
  446. by the lender.
  447. Start with our example:
  448. a two hundred forty thousand dollar loan and a three
  449. hundred thousand dollar value.
  450. Divide loan by value:
  451. two hundred forty thousand divided by three hundred thousand equals
  452. zero point eight.
  453. Multiply by one hundred to express it as eighty percent.
  454. The blue portion shows the loan relative to that value.
  455. Use the value basis specified in the problem.
  456. In many purchase-loan settings the lender uses the lower of
  457. price or appraisal.
  458. Mortgage insurance rules depend on the loan program, not the
  459. ratio alone.
  460. Quick check:
  461. what is the loan-to-value ratio in this example?
  462. Eighty percent.
  463. Escrow places money or documents with a third party to
  464. be held until specified conditions are met.
  465. In a real estate transaction, the escrow holder follows the
  466. applicable instructions and requirements.
  467. Watch the funds enter custody, remain held while conditions are
  468. checked, and move only when release is authorized.
  469. Custody does not make the funds the holder's own money.
  470. The word also appears in mortgage servicing.
  471. A mortgage escrow account can collect amounts for property taxes
  472. and insurance.
  473. That ongoing account is a different use from holding transaction
  474. funds pending closing.
  475. Quick check:
  476. may an escrow holder treat the buyer's deposit as personal
  477. spending money?
  478. No.
  479. The holder must follow the applicable instructions and rules.
  480. Title is the ownership interest.
  481. A deed is the written instrument used to convey an
  482. interest in real property.
  483. The paper and the interest are related, but they are
  484. not the same thing.
  485. Follow the transfer from grantor to grantee.
  486. The grantor conveys; the grantee receives.
  487. Effective delivery and acceptance are central to the transfer.
  488. Recording concerns public notice and priority.
  489. It is not a substitute for every other requirement of
  490. a valid conveyance.
  491. Execution requirements and legal effects depend on the governing rules.
  492. Quick check:
  493. who receives the interest conveyed by the deed, the grantor
  494. or the grantee?
  495. The grantee.
  496. Remember:
  497. title is the interest; the deed is the instrument.
  498. An appraisal is a professionally developed opinion of value supported
  499. by analysis.
  500. It is not simply the seller's asking price or an
  501. unsupported guess.
  502. Follow the work:
  503. gather property facts, analyze relevant market evidence, and develop a
  504. supported value opinion.
  505. The assignment and property determine the appropriate analysis.
  506. A comparative market analysis from a real estate licensee can
  507. also discuss pricing, but it is not automatically an appraisal.
  508. The products have different purposes and requirements.
  509. A C M A is not a substitute where an
  510. appraisal is required.
  511. Quick check:
  512. does discussing value make every market analysis an appraisal?
  513. No.
  514. Identify the product, its purpose, and the applicable requirements.
  515. Capitalization rate connects annual net operating income with property value.
  516. For direct capitalization, value equals net operating income divided by
  517. the capitalization rate.
  518. Use our example:
  519. thirty thousand dollars of annual net operating income divided by
  520. zero point zero six equals five hundred thousand dollars.
  521. Convert six percent to a decimal before dividing.
  522. Hold income steady and raise the rate to eight percent.
  523. The indicated value falls to three hundred seventy-five thousand dollars.
  524. Also remember that net operating income is calculated before debt
  525. service; do not subtract mortgage payments to find it.
  526. Quick check:
  527. with the same income, does a higher cap rate produce
  528. a higher indicated value?
  529. No.
  530. A higher rate produces a lower indicated value when income
  531. stays the same.
  532. Proration divides an expense or income item between parties for
  533. their respective periods of responsibility.
  534. Start with a simple stated example:
  535. a three hundred dollar charge for a thirty-day period.
  536. The problem assigns ten days to the seller and twenty
  537. days to the buyer.
  538. Three hundred divided by thirty is ten dollars per day.
  539. The seller's share is one hundred dollars; the buyer's share
  540. is two hundred dollars.
  541. The allocation is only part of the closing entry.
  542. Whether the item was paid ahead or remains unpaid affects
  543. the debit and credit.
  544. Use the stated day-count basis and closing-day convention instead of
  545. assuming one universal method.
  546. Quick check:
  547. in this example, what is the seller's ten-day share?
  548. One hundred dollars.
  549. Ten days times ten dollars per day.
  550. Closing, or settlement, brings the transaction's documents, funds, and required
  551. conditions together.
  552. Think of coordinated steps, not merely a ceremonial handover of
  553. keys.
  554. The parties review and sign the required documents.
  555. Funds and conditions are checked.
  556. Authorized disbursement, conveyance, and recording occur through the applicable
  557. closing process.
  558. Their exact order can vary.
  559. Keep each document's role clear:
  560. the deed conveys an interest, the note promises repayment, and
  561. the security instrument secures the obligation.
  562. The Closing Disclosure reports final loan terms and costs for
  563. covered transactions; it does not itself convey title.
  564. Quick check:
  565. is the Closing Disclosure the deed transferring ownership?
  566. No.
  567. Different closing documents perform different functions.

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