These are glossary of the words or terms used in a
real estate industry in Canada.
Absorption
Rate:
The
rate
(speed)
at
which
vacant
space
is
either
leased
or
sold
to
users
in
the
marketplace.
This
rate
is
usually
expressed
in
square
feet
per
year
or
in
the
case
of
multi-family
housing,
in
the
number
of
units
per
year.
Acknowledgment:
A
formal
declaration
before
a
duly
authorized
officer
(such
as a
notary
public)
by a
person
who
has
executed
an
instrument
that
such
execution
is
his
own
act
and
deed.
An
acknowledgment
is
necessary
to
entitle
an
instrument
(with
certain
specific
exceptions)
to
be
recorded,
to
impart
constructive
notice
of
its
contents
and
to
entitle
the
instrument
to
be
used
as
evidence
without
further
proof.
The
certificate
of
acknowledgment
is
attached
to
the
instrument
or
incorporated
therein.
Acre: A
measure of land equal to
43,560 square feet.
Amortization
The period of time required
to reduce a debt to zero
when payments are made
regularly. Amortization
periods are most often 15,
20, or 25 years long.
Anniversary
Most lenders allow borrowers
to make a payment on the
anniversary of the mortgage.
(For a mortgage assumed on
June 1, a payment can be
made every subsequent June 1
for the term of the
mortgage.) It is applied
against the principal and is
a good way of reducing a
loan.
Appraisal
A
process that determines the
market value of a property.
Appraised Value
An estimated value of a
property that is completed
by a certified appraiser for
mortgage financing.
Approved Lender
A
lending institution
authorized by the Government
of Canada to make loans
under the terms of the
National Housing Act. Only
Approved Lenders can
negotiate mortgages that
require mortgage insurance.
As-Is" Condition:
The acceptance by the buyer
of the existing condition of
the premises at the time
that a sale is consummated.
This would include any
physical defects.
Assumption
A
legal document signed by a
homebuyer that requires the
buyer to assume
responsibility for the
obligations of a mortgage by
the builder or original
owner.
Balanced Market
Where demand for property
equals the supply of
available property. Sellers
usually accept reasonable
offers and houses generally
sell in sufficient time
periods. Prices remain
stable and there is usually
a good number of homes to
choose from.
Balloon Payment:
A large principal payment
that typically becomes due
at the conclusion of the
loan term. Generally, it
reflects a loan amortized
over a longer period than
that of the term of the loan
itself (i.e. payments based
on a 25 year amortization
with the principal balance
due at the end of 5 years).
Bankrupt:
The
condition
or
state
of a
person
(individual,
partnership,
corporation,
etc.)
who
is
unable
to
repay
it's
debts
as
they
are,
or
become,
due.
Blended Payment
A
mortgage payment that
includes principal and
interest. It is paid
regularly during the term of
the mortgage. The payment
total remains the same,
although the principal
portion increases over time
and the interest portion
decreases.
Bridge
Loan:
A
loan
which
enables
a
buyer
to
purchase
a
property,
then
allow
for
time
to
rehab
and/or
increase
NOI
prior
to
placement
of
permanent
financing
or
enables
buyer
to
get
financing
to
make
a
down
payment
and
pay
closing
costs
before
selling
the
present
property.
Also
called
“gap”
financing.
This
type
of
financing
is
provided
by
real
estate
investment
banks
such
as
TD
Bank.
Building
Code:
The
various
laws
set
forth
by
the
ruling
municipality
as
to
the
end
use
of a
certain
piece
of
property
and
that
dictate
the
criteria
for
design,
materials
and
type
of
improvements
allowed.
Building Permit
A
certificate that must be
obtained from the
municipality by the property
owner or contractor before a
building can be erected or
repaired. It must be posted
in a conspicuous place until
the job is completed and
passed as satisfactory by a
municipal building
inspector.
Bullet
Loan:
Any
short-term,
generally
five
to
seven
years,
financing
option
that
requires
a
balloon
payment
at
the
end
of
the
term
and
anticipates
that
the
loan
will
be
refinanced
in
order
to
meet
the
balloon
payment
obligation.
Essentially,
should
the
refinancing
not
be
available,
often
due
to
the
property
not
performing
as
anticipated,
the
borrower
is
"shot"
and
the
property
is
subject
to
foreclosure.
An
example
of
this
is
when
a
developer
borrows
to
cover
the
costs
of
construction
and
carry-costs
for
a
new
building
with
the
expectation
that
it
would
be
replaced
by
long-term
(or
"permanent")
financing
provided
by
an
institutional
investor
once
most
of
risk
involved
in
construction
and
lease-up
had
been
overcome
resulting
in
an
income-producing
property.
Buyer's Market
When there is a higher
number of homes to choose
from than buyers in
comparison. Prices of homes
tend to be lower and they
remain available for sale
longer. Buyers usually have
more leverage in negotiating
a purchase.
Capitalization Rate:
The rate that is considered
a reasonable return on
investment (on the basis of
both the investor's
alternative investment
possibilities and the risk
of the investment). Used to
determine and value real
property through the
capitalization process. Also
called "free and clear
return".
Closed Mortgage
A
mortgage loan that has a
locked-in payment schedule,
which does not vary over the
life of the closed term. A
buyer who uses a closed
mortgage will likely have to
pay the lender a penalty if
you fully repay the loan
before the end of the closed
term.
Closing Costs
Costs, in addition to the
purchase price of a home,
such as legal fees, transfer
fees, and disbursements,
that are payable on the
closing date. Closing costs
typically range from 2%-4%
of a home's selling price.
Closing Date:
The date on which the sale
of a property becomes final
and the new owner takes
possession.
.
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 all
Canadians. CMHC also creates
and sells mortgage loan
insurance products.
Collateral Mortgage
A
mortgage that secures a loan
by way of a promissory note.
The money borrowed can be
used to buy a property or
can be used for another
purpose, such as a home
renovation or a vacation.
Commitment Letter / Mortgage
Approval
Written notification from
the mortgage lender to the
borrower that approves the
advancement of a specified
amount of mortgage funds
under specified conditions.
Conditional Offer /
Conditions of Sale
An Offer to Purchase that is
subject to specified
conditions, for example, the
arranging of a mortgage.
There is usually a
stipulated time limit within
which the specified
conditions must be met.
Construction Loan:
A short-term, interim loan
for financing the cost of
construction. The lender
advances funds to the
builder at periodic
intervals as work
progresses. Typically a
recourse loan to the
borrower.
Construction
Management:
The
actual
construction
process
is
overseen
by a
qualified
construction
manager
who
ensures
that
the
various
stages
of
the
construction
process
are
completed
in a
timely
and
seamless
fashion,
from
getting
the
construction
permit
to
completion
of
the
construction
to
the
final
walk-through
of
the
completed
premises
with
the
buyer.
Cost
Approach:
A
method
of
appraising
real
property
whereby
the
replacement
cost
of a
structure
is
calculated
using
current
costs
of
construction.
Conventional Mortgage
A
mortgage loan up to a
maximum of 75% of the
lending value of the
property. Mortgage loan
insurance is not required
for this type of mortgage.
Covenant
A
clause in a legal document
which, in the case of a
mortgage, gives the parties
to the mortgage a right or
an obligation. For example,
a covenant can impose the
obligation on a borrower to
make mortgage payments in
certain amounts on certain
dates. A mortgage document
consists of covenants agreed
to by the borrower and the
lender.
Conveyancing
The transfer of ownership of
any property or real estate
from one person to another.
Debt
Service
Coverage
Ratio
(DSCR):
The
relationship
between
the
annual
net
operating
income
(NOI)
of a
property
and
the
annual
debt
service
of
the
mortgage
loan
on
the
property.
Both
Lenders
and
Investors
calculate
this
ratio
to
assist
them
in
determining
the
likelihood
of
the
property
generating
enough
income
to
pay
the
mortgage
payments.
From
the
lender's
viewpoint,
the
higher
the
ratio,
the
better.
Debt Service:
The periodic
payment (monthly, quarterly,
or annually) necessary to
pay the interest and
principal on a loan which is
being amortized over a
longer term (usually 25-30
years).
Deed
In
Lieu
Of
Foreclosure:
A
deed
given
by
an
owner/borrower
to a
lender
to
satisfy
a
mortgage
debt
and
avoid
foreclosure.
Deed
A
legal document, which is
signed by both the vendor
and the purchaser
transferring ownership. This
document is registered as
evidence of ownership.
Default
Failure to abide by the
terms of a mortgage loan
agreement. A failure to make
mortgage payments,
defaulting on the loan, may
give cause to the mortgage
holder to take legal action
to possess (foreclose) the
mortgaged property.
Deposit
A
sum of money placed in trust
by the purchaser when an
Offer to Purchase is made.
The real estate
representative or lawyer
holds the sum until the sale
is closed, and then it is
paid to the vendor.
Depreciation:
Spreading
out
the
cost
of a
capital
asset
over
its
estimated
useful
life
or a
decrease
in
the
usefulness,
and
therefore
value,
of
real
property
improvements
or
other
assets
caused
by
deterioration
or
obsolescence.
Discharge of Mortgage
A
document signed by the
lender and given to the
borrower when a mortgage
loan has been repaid in
full.
Down payment
The portion of the house
price the buyer must pay up
front from personal
resources, before securing a
mortgage. It generally
ranges from 5%-25% of the
purchase price.
Easement
A
right acquired for access to
or over, or for the use of,
another person's land for a
specific purpose, such as a
driveway or public
utilities.
Encroachment:
The
intrusion
of a
structure
which
extends,
without
permission,
over
a
property
line,
easement
boundary
or
building
setback
line.
Encumbrance
A
registered claim for debt
against a property, such as
a mortgage.
Equity
The difference between the
price for which a home could
be sold and the total debts
registered against the home.
Equity usually increases as
the outstanding principal of
the mortgage is reduced
through regular payments.
Market values and
improvements to the property
also affect equity.
Escalation
Clause:
A
clause
in a
lease
which
provides
for
the
rent
to
be
increased
to
reflect
changes
in
expenses
paid
by
the
landlord
such
as
real
estate
taxes,
operating
costs,
etc.
This
may
be
accomplished
by
several
means
such
as
fixed
periodic
increases,
increases
tied
to
the
Consumer
Price
Index
or
adjustments
based
on
changes
in
expenses
paid
by
the
landlord
in
relation
to a
dollar
stop
or
base
year
reference.
Exclusive
Agency
Listing:
A
written
agreement
between
a
real
estate
broker
and
a
property
owner
in
which
the
owner
promises
to
pay
a
fee
or
commission
to
the
broker
if
specified
real
property
is
leased
during
the
listing
period.
The
broker
need
not
be
the
procuring
cause
of
the
lease.
Expense
Ratio:
A
comparison
of
the
operating
expenses
to
potential
gross
income.
This
ratio
can
be
compared
over
time
and
with
that
of
other
properties
to
determine
the
relative
operating
efficiency
of
the
property
considered
Fair Market Value:
The sale price at which a
property would change hands
between a willing buyer and
willing seller, neither
being under any compulsion
to buy or sell and both
having reasonable knowledge
of the relevant facts.
FHLI
First Home Loan Insurance -
This is a CMHC product of
particular interest to
people looking for their
first home. It allows
qualified first-time buyers
to purchase a home with as
little as 5% down. In these
cases, CMHC will insure
mortgages of up to 95% of
the home's purchase price or
the market value of the
property, whichever is less.
(Restrictions may apply.
Contact your local lender.)
Finance
Charge:
The
amount
paid
for
the
privilege
deferring
payment
of
goods
or
services
purchased,
including
any
charges
payable
by
the
purchaser
as a
condition
of
the
loan.
First
Mortgage:
A
mortgage
which,
by
reason
of
its
position,
has
priority
over
all
other
encumbrances.
The
holder
of
the
first
mortgage
has
a
priority
right
to
payment
in
the
event
of
default.
Foreclosure
A
legal procedure in which the
lender gets ownership of the
property if the borrower
defaults on the mortgage
loan.
General
Contractor:
The
prime
contractor
who
contracts
for
the
construction
of
an
entire
building
or
project,
rather
than
just
a
portion
of
the
work.
The
general
contractor
hires
subcontractors,
(e.g.,
plumbing,
electrical,
etc.),
coordinates
all
work,
and
is
responsible
for
payment
to
subcontractors.
Gross Debt Service Ratio
The percentage of the
borrower's gross income that
will be used for monthly
payments of principal,
interest, taxes, heating
costs, and half of any
condominium maintenance
fees.
Gross Absorption:
A measure of the total
square feet leased over a
specified period of time
with no consideration given
to space vacated in the same
geographic area during the
same time period.
Gross Lease:
A lease in which the tenant
pays a flat sum for rent out
of which the landlord must
pay all expenses such as
taxes, insurance,
maintenance, utilities, etc.
Guaranty:
Agreement whereby
the guarantor undertakes
collaterally to assure
satisfaction of the debt of
another or perform the
obligation of another if and
when the debtor fails to do
so.
Hard Cost:
The cost of actually
constructing the
improvements (i.e.
construction costs).
High-Ratio Mortgage /
Insured Mortgage Loan
A
mortgage loan in excess of
75% of the lending value of
the property. This type of
mortgage must be insured -
for example, by CMHC -
against payment default.
Highest and Best
Use: The use of
land or buildings which will
bring the greatest economic
return over a given time
which is physically
possible, appropriately
supported, financially
feasible.
Holdback
An amount of money withheld
by the lender during
construction of a house to
ensure that construction is
satisfactory at every stage.
A standard holdback is 10%
of the total cost of the
building project.
Improvements:
In the context of leasing,
the term typically refers to
the improvements made to or
inside a building but may
include any permanent
structure or other
development, such as a
street, sidewalks,
utilities, etc.
Interest
The cost of borrowing money
for a given period of time.
Interest is usually paid to
the lender in installments
along with repayment of the
principal loan amount.
Interest Adjustment Date
(IAD)
A
date from which interest on
the mortgage advanced is
calculated for regular
payments. This date is
usually one payment period
before regular mortgage
payments begin. Interest due
between the date the
mortgage is advanced and the
IAD is due on closing.
Interest Rate
The rate at which you pay
interest to the lender. For
example, when the mortgage
balance is $100,000, and the
interest rate is 6 per cent,
one single annual payment
will include $6,000
interest. More frequent
payments will result in
different amounts.
Indirect
Costs:
Development
costs,
other
than
material
and
labor
costs
which
are
directly
related
to
the
construction
of
improvements,
including
administrative
and
office
expenses,
commissions,
architectural,
engineering
and
financing
costs.
Internal
Rate
of
Return
(IRR):
The
true
annual
rate
of
earnings
on
an
investment.
Equates
the
value
of
cash
invested
with
cash
returns.
Considers
the
application
of
compound
interest
factors.
Joint
Venture
(JV):
An
agreement
by
two
or
more
individuals
or
entities
to
engage
in a
single
project
or
undertaking.
Joint
ventures
are
used
in
real
estate
development
as a
means
of
raising
capital
and
spreading
risk.
For
all
practical
purposes
a
joint
venture
is
similar
to a
general
partnership.
However,
once
the
purpose
of
the
joint
venture
has
been
accomplished,
the
entity
ceases
to
exist.
Judgment:
The
final
decision
of a
court
resolving
a
dispute
and
determining
the
rights
and
obligations
of
the
parties.
Money
judgments,
when
recorded,
become
a
lien
on
real
property
of
the
defendant.
Judgment
Lien:
An
encumbrance
that
arises
by
law
when
a
judgment
for
the
recovery
of
money
attaches
to
the
debtor’s
real
estate
Landlord’s
Lien
or
Warrant:
A
warrant
from
a
landlord
to
levy
upon
a
tenant’s
personal
property
(e.g.,
furniture,
etc.)
and
to
sell
this
property
at a
public
sale
to
compel
payment
of
the
rent
or
the
observance
of
some
other
stipulation
in
the
lease.
Lease:
An
agreement
whereby
the
owner
of
real
property
(i.e.,
landlord/lessor)
gives
the
right
of
possession
to
another
(i.e.,
tenant/lessee)
for
a
specified
period
of
time
(i.e.,
term)
and
for
a
specified
consideration
(i.e.,
rent).
Lease
Agreement:
The
formal
legal
document
entered
into
between
a
Landlord
and
a
Tenant
to
reflect
the
terms
of
the
negotiations
between
them;
that
is,
the
lease
terms
have
been
negotiated
and
agreed
upon,
and
the
agreement
has
been
reduced
to
writing.
It
constitutes
the
entire
agreement
between
the
parties
and
sets
forth
their
basic
legal
rights.
Lease
Commencement
Date:
The
date
usually
constitutes
the
commencement
of
the
term
of
the
Lease
for
all
purposes,
whether
or
not
the
tenant
has
actually
taken
possession
so
long
as
beneficial
occupancy
is
possible.
In
reality,
there
could
be
other
agreements,
such
as
an
Early
Occupancy
Agreement,
which
have
an
impact
on
this
strict
definition.
Leasehold
Improvements:
Improvements
made
to
the
leased
premises
by
or
for
a
tenant.
Generally,
especially
in
new
space,
part
of
the
negotiations
will
include
in
some
detail
the
improvements
to
be
made
in
the
leased
premises
by
Landlord.
Legal
Description:
A
geographical
description
identifying
a
parcel
of
land
by
government
survey,
metes
and
bounds,
or
lot
numbers
of a
recorded
plat
including
a
description
of
any
portion
thereof
that
is
subject
to
an
easement
or
reservation.
Letter Of Credit: A commitment by a bank or other person, made at the request of a customer, that the issuer will honor drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit. Letters of credit are often used in place of cash deposited with the landlord in satisfying the security deposit provisions of a lease.
Letter Of Intent: A preliminary agreement stating the proposed terms for a final contract. They can be "binding" or "non-binding". This is the threshold issue in most litigation concerning letters of intent. The parties should always consult their respective legal counsel before signing any Letter of Intent.
Lending Value
The purchase price or
appraised value of a
property, whichever is less.
Listing Agreement:
An agreement between the
owner of a property and a
real estate broker giving
the broker the authorization
to attempt to sell or lease
the property at a certain
price and terms in return
for a commission, set fee or
other form of compensation.
Loan-to-Value Ratio
The ratio of the loan to the
lending value of a property
expressed as a percentage.
For example, the
loan-to-value ratio of a
loan for $25,000 on a home
which costs $100,000 is 25%.
Lien (Mechanics)
A
claim against a property for
money owing. A lien may be
filed by a supplier or a
subcontractor who has
provided labour or materials
but has not been paid. A
lien must be properly filed
by a claimant. It has a
limited life, prescribed by
statutes that vary from
province to province. If the
lien holder takes action
within the prescribed time,
the homeowner may be obliged
to pay the amount claimed by
the lien holder.
Alternatively, the lien
holder may force a sale of
the property to pay off the
debt.
Low Rise: A
building with fewer than 4
stories above ground level.
Market
Rent:
The
rental
income
that
a
property
would
command
on
the
open
market
with
a
landlord
and
a
tenant
ready
and
willing
to
consummate
a
lease
in
the
ordinary
course
of
business;
indicated
by
the
rents
that
landlords
were
willing
to
accept
and
tenants
were
willing
to
pay
in
recent
lease
transactions
for
comparable
space.
Market
Study:
A
forecast
of
future
demand
for
a
certain
type
of
real
estate
project
that
includes
an
estimate
of
the
square
footage
that
can
be
absorbed
and
the
rents
that
can
be
charged.
Also
called
“Marketability
Study”.
Market
Value:
The
highest
price
a
property
would
command
in a
competitive
and
open
market
under
all
conditions
requisite
to a
fair
sale
with
the
buyer
and
seller
each
acting
prudently
and
knowledgeably
in
the
ordinary
course
of
trade.
Maturity Date
The last day of the term of
the mortgage agreement. On
this day the mortgage loan
must be paid in full or the
agreement renewed.
Mechanic’s
Lien:
A
claim
created
by
state
statutes
for
the
purpose
of
securing
priority
of
payment
of
the
price
and
value
of
work
performed
and
materials
furnished
in
constructing,
repairing
or
improving
a
building
or
other
structure,
and
which
attaches
to
the
land
as
well
as
to
the
buildings
and
improvements
thereon.
Mixed-Use:
Space
within
a
building
or
project
providing
for
more
than
one
use
(i.e.,
a
loft
or
apartment
project
with
retail,
an
apartment
building
with
office
space,
an
office
building
with
retail
space).
Mortgage
Security for a loan to
purchase property. It is the
purchaser's personal
guarantee to repay the loan
and a pledge of the property
as security for the loan.
Mortgage Life Insurance
Insurance to pay off your
mortgage in full if you die.
Many lenders offer this
insurance and add the
premium to your mortgage
payments. However, you may
want to compare rates for
equivalent products from an
insurance broker.
Mortgage Loan Insurance
Insurance required by
lenders for high-ratio
mortgages (more than 75% of
the purchase price). It is
available from CMHC or a
private insurer for a cost
of between 0.5% and 3% of
the amount of the mortgage.
Mortgage Payment
A
regularly scheduled payment
that is blended to include
both principal and interest.
Mortgagee
The lender who provides the
mortgage loan.
Mortgagor
The borrower who pledges the
property as security for the
loan.
Normal
Wear
and
Tear:
The
deterioration
or
loss
in
value
caused
by
the
tenant’s
normal
and
reasonable
use.
In
many
leases
the
tenant
is
not
responsible
for
“normal
wear
and
tear”.
Net Worth
A
person's total financial
worth, calculated by
subtracting total
liabilities from assets.
NHA Premium
Insurance required by
lenders for high-ratio
mortgages (more than 75% of
the purchase price). It is
available from CMHC or a
private insurer for a cost
of between 0.5% and 3% of
the amount of the mortgage.
The premium can be added to
your mortgage loan and paid
off as part of your regular
mortgage payments, or paid
off in a lump sum at the
time of purchase to save
interest charges on the
premium itself.
Offer to Purchase
A
written contract setting out
the terms under which the
buyer agrees to buy. If
accepted by the seller, it
forms a legally binding
contract subject to the
terms and conditions stated
in the document.
Open Mortgage
A
type of mortgage loan where
the borrower can make a
partial or full payment of
the principal amount at any
time, without penalty.
Operating
Expenses:
The
actual
costs
associated
with
operating
a
property
including
maintenance,
repairs,
management,
utilities,
taxes
and
insurance.
A
landlord’s
definition
of
operating
expenses
is
likely
to
be
quite
broad,
covering
most
aspects
of
operating
the
building.
Operating
Expense
Escalation:
Although
there
are
many
variations
of
operating
expense
escalation
clauses,
all
are
intended
to
adjust
rents
by
reference
to
external
standards
such
as
published
indexes,
negotiated
wage
levels,
or
expenses
related
to
the
ownership
and
operation
of
buildings.
Option Agreement
A
document stipulating that,
in exchange for a deposit, a
specified individual is to
be given the first chance to
buy a property at or within
a specified period of time.
An option holder who does
not buy at or within the
specified period loses the
deposit and the agreement is
cancelled.
Percentage
Lease:
Refers
to a
provision
of
the
lease
calling
for
the
landlord
to
be
paid
a
percentage
of
the
tenant's
gross
sales
as a
component
of
rent.
There
is
usually
a
base
rent
amount
to
which
"percentage"
rent
is
then
added.
This
type
of
clause
is
most
often
found
in
retail
leases.
Performance
Bond:
A
surety
bond
posted
by a
contractor
guaranteeing
full
performance
of a
contract
with
the
proceeds
to
be
used
to
complete
the
contract
or
compensate
for
the
owner’s
loss
in
the
event
of
nonperformance.
