Common Real Estate Terms in Alberta
Real estate can be difficult to understand, so we've gathered an extensive list of common terms. Our glossary has everything you need to know to feel more comfortable in the industry, whether you're looking to buy or sell a home-or if you're just curious!
A
Abstract of Title - A comprehensive summary of the historical legal records and documents affecting the title to a property.
Acceleration Clause - A provision in a loan agreement that allows the lender to demand immediate repayment of the entire loan balance if certain conditions are not met.
Acceptance - The agreement by all parties to the terms of a contract, making it legally binding.
Accrued Interest - Interest that has accumulated over time but has not yet been paid.
Add-on Interest - Interest calculated at the start of the loan and added to the principal, with the total then divided over the term of the loan for repayment.
Adverse Possession - The process by which one can legally claim ownership of land by occupying it for a certain period, under certain conditions, without the permission of the owner.
Agency - A relationship where one party (the agent) is authorized to act on behalf of another (the principal) in dealings with third parties.
Agent - A person authorized to act on behalf of another, typically in negotiating sales or transactions.
Agreement of Purchase and Sale - A legally binding contract between buyer and seller detailing the terms and conditions of a property sale.
Alberta Real Estate Association - An association of real estate industry members who belong to real estate boards in Alberta.
Appraisal / Appraisal Value - An estimate of a property's market value by a professional Appraiser; used by lenders in determining the amount of the mortgage.
Asking or List Price - The price placed on the property for sale by the seller.
Assessed Value - The value of a property, set and used by each municipality for the purposes of calculating property tax.
Associate/Agent - A real estate professional registered in Alberta to facilitate the sale, lease or exchange of a property.
Assumable Mortgage - A mortgage held on a property by the seller that can be taken over by the buyer, who then accepts responsibility for making the mortgage payments.
Attached Goods - An item which is attached to real property so as to form, in law, part of the land. Attached goods belong to the buyer and are also known as fixtures.
B
Backup Contract - A secondary agreement to purchase a property, activated if a prior contract falls through.
Balance Due on Completion - The remaining amount of money to be paid by the buyer to finalize a property purchase at closing.
Balanced Market - A real estate market condition where supply and demand are about equal, leading to stable prices.
Bare Trust - An arrangement where a trustee holds legal title to property solely for the benefit of the beneficiary, with no other duties.
Broker - A person licensed by the provincial or territorial government to trade in real estate. Real estate brokers may form companies or offices which appoint sales representatives to provide services to the seller or buyer, or they may provide the same services themselves. In parts of Canada, brokers are referred to as Associates or Agents.
Building Permit - Official authorization from a local government or regulatory authority to begin construction or renovation on a property.
Buyer - The individual or entity purchasing a property.
Buyer Brokerage Agreement - A written agreement between the buyer and the buyer's associate, outlining the agency relationship between the two parties and the manner in which the buyer's associate will be compensated. In Alberta, a buyer agency relationship arises automatically without a written agreement establishing the relationship.
Buyer’s Associate / Buyer's Agent - (also known as “Buyer’s Broker” or “Purchaser’s Associate”) - A person or firm representing the buyer. A buyer’s associate's primary allegiance is to the buyer. The buyer is the buyer associate's client.
Buyer’s Market - A market condition characterized by a surplus of properties for sale, giving buyers an advantage in terms of selection and negotiation.
C
Capital Improvement - Any structural addition or upgrade that increases the value of a property.
Capitalization Rate - A rate of return on a real estate investment property based on the expected income the property will generate.
Caveat Emptor - A Latin phrase meaning "let the buyer beware," indicating that the buyer assumes the risk of quality in a purchase.
Certificate of Charge - A document issued by a lender indicating a mortgage or lien on a property.
Certificate of Compliance - A stamp issued by the municipality which states the improvements comply with the local building bylaws and requirements.
Certificate of Title - A document that shows legal ownership of a property.
Cessation of Charge - The process of removing a mortgage or lien from the title of a property, often after the loan has been paid off.
Chain of Title - The sequence of historical transfers of title to a piece of property.
Chattel Mortgage - A loan secured by personal property rather than real estate.
Chattels - Personal property that is movable and not permanently fixed to real estate.
Client - The person being represented by an associate. The associate owes the client fiduciary duties including utmost care, integrity, confidentiality and loyalty.
Clear Title - A title that is free of liens or legal questions regarding ownership of the property.
Closing Costs - Expenses in addition to the purchase price for buying and selling a property.
CMHC - Canada Mortgage and Housing Corporation. A Crown corporation providing information services and mortgage loan insurance.
Commission - An amount agreed to by the seller and the real estate broker/associate and stated in the listing agreement. It is payable to the brokerage on closing and shared, if applicable, among those Associates involved in the sale.
Comparative Market Analysis (CMA) - The most widely used technique for REALTORS® to establishing the value of residential properties. It uses sales, competitive listings and expired listings to try to determine a probable selling price for the subject property. Used synonymously with Competitive Market Analysis.
Completion Day - The day from which all calculations of interest, tax adjustments, utility bill adjustments (if applicable), etc. are made to the credit of either the buyer or the seller. All legal and financial obligations are met on that day and the title to the property is transferred from the seller to the buyer. Completion day is usually (but not always) the same as the possession date.
Condition Precedent - A statement of a condition to be fulfilled before the contract will become firm and binding; must include a specific deadline for removal. May also be called a “subject to” clause.
Condominium Ownership - Shared ownership in a strata-titled property. Owners have title (ownership) to individual units and a proportionate share in the common property.
Conventional Mortgage - A mortgage loan which is 75 per cent or less of the loan-to-value ratio; and does not require insurance by CMHC or other private insurer.
Conveyance - The term used to describe the process of transferring the seller's title to the buyer and indicates all the necessary steps to complete the transfer. A conveyance lawyer is a lawyer responsible for the conveyance process.
Counter Offer - An offer made by the seller back to the buyer altering one or several terms and/or conditions of the offer as originally written.
CREA - The Canadian Real Estate Association. A national association representing the real estate industry on federal public policy matters, providing member services and education. CREA promotes adherence to a strict REALTOR® Code. CREA Code of Ethics - Rules of behaviour or conduct which provide a standard of fair, moral practice and a guide by which a REALTOR®'s behaviour or conduct is evaluated.
Customer - A person who receives valuable information and assistance from a real estate broker or associate, but is not represented by that individual.
D
Debt Service Ratio - The percentage of a borrower's income that can be used for housing costs.
Debt to Income Ratio - A measure used by lenders to determine a borrower's ability to manage monthly payments and repay debts.
Deed - A legal document that conveys ownership of property from seller to buyer.
Deed Restriction - A limitation written into a deed that restricts the use of the property in some way.
Default - Failure to meet the legal obligations of a loan, typically by not making the required payments.
Delinquency - Late or missed payments on a loan obligation.
Demand Note - A loan agreement that allows the lender to demand repayment at any time.
Deposit - A sum of money given in advance as security for the completion of a purchase or contract.
Discharge of Mortgage - The removal of a mortgage from the records, typically after the loan has been fully repaid.
Disclosure Statement - A document that outlines important information about a property or transaction.
Down Payment - The difference between a property's purchase price and the amount financed.
Dual Associate - A real estate brokerage which acts as associate for both the seller and the buyer in the same transaction. Both buyer and seller are the brokerage's clients.
E
Easement - A legal right to use or cross (right-of-way) another person's land for limited purposes. A common example is a utility company's right to run wires or lay pipe across a property.
Encroachment - An intrusion onto an adjoining property. Common examples are a neighbour's fence, storage shed, or overhanging roof line which partially (or even fully) intrudes onto your property.
Encroachment Agreement - An agreement which allows the encroachment to remain. The owner of the development which encroaches onto the adjoining property is granted the right to enter onto that property to maintain or repair the construction.
Encumbrance - A restriction which is either a monetary claim against the land (such as a lien, mortgage or lease), or a non-monetary one (such as an easement).
Equity - The difference between the price for which a property can be sold and the mortgage(s) on the property. Equity is the owner's stake in the property.
Escheat - The process by which unclaimed or abandoned property reverts to the state.
Escrow Account - An account where funds are held by a third party on behalf of the transacting parties until the completion of a transaction.
Estoppel Certificate - A written statement of a condominium unit's current financial and legal status.
F
Feasibility Analysis - An assessment of the economic viability of a proposed real estate development project.
Fee Simple - The most complete form of property ownership, which includes the rights to use, lease, or sell the property at will.
Fee Simple Estate - Ownership where the owner owns the land now and for all time in the future and the owner's rights are subject only to restrictions by the government.
Fiduciary Duty(ies) - The duties of loyalty, disclosure, confidentiality, obedience, reasonable care and diligence, and full accounting that are required by law of any associate relative to his or her principal.
First Mortgage - The first security registered on a property. Additional mortgages secured against the property are "secondary" to the first mortgage.
Foreclosure - A legal process by which the lender takes possession and ownership of a property when the borrower doesn't meet the mortgage obligations.
G
Gross Debt Service (ADS) Ratio - Gross debt service divided by household income. A rule of thumb is that ADS should not exceed 30%. It is also referred to as PIT (Principal, Interest and Taxes) over income. Sometimes energy costs are added to the formula, producing BITE, which moves the rule of thumb ADS to 32%.
Gross Income - The total income generated by a property before any expenses are deducted.
Gross Rent Multiplier - A figure that represents the ratio of a property's price to its gross rental income.
Guarantor - An individual or entity that agrees to be responsible for another's debt or obligations if the original party fails to meet their commitments.
H
High-Ratio Mortgage - A mortgage that exceeds 75 percent of the loan-to-value ratio; must be insured by either the Canada Mortgage and Housing Corporation (CMHC) or a private insurer to protect the lender against default by the borrower who has less equity invested in the property.
Home Inspection - A thorough examination of a property's condition, usually performed by a professional inspector before a sale.
J
Joint Tenancy - A form of ownership in which two or more individuals (often spouses) have an equal share in the ownership of a property. In the event of one owner's death, his or her share is automatically transferred to the surviving owner(s); and does not become part of the deceased's estate.
L
Land Acquisition Loan - Financing used specifically for purchasing land.
Land Transfer Tax - A tax paid to a local government on the transfer of land from one owner to another.
Land Value - The worth of a parcel of land itself, not including any buildings or structures on it.
Landlord - The owner of a property that is leased or rented to another party.
Legal Description - A detailed way of describing a parcel of land for legal documents, distinct from the street address.
Lien - Any legal claim against a property, filed to ensure payment of a debt.
Listing Associate - The REALTOR® who signs a contract (on behalf of the brokerage) with an owner to sell the property.
Listing Contract - The legal agreement between the listing brokerage and the seller, setting out the services to be rendered, describing the property for sale and stating the terms of payment. A commission is generally payable to the brokerage upon completion of a sale.
Loan Term - The duration over which a loan agreement is scheduled to be repaid.
Loan to Value Ratio - A ratio used by lenders to compare the amount of a loan to the value of the property securing the loan.
M
Market Absorption Rate - The rate at which available properties in a specific market are sold or leased.
Matrimonial Home - A property that is legally considered the primary residence of a married couple.
Maturity Date - The date on which a loan or bond comes due and is to be paid off.
Mortgage - A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt. Lenders consider both the property (security) and the financial worth of the borrower (covenant) in deciding on a mortgage loan. See below for more on mortgage terminology.
Mortgage Broker - A person or company having contacts with financial institutions or individuals wishing to invest in mortgages. The mortgagor pays the broker a fee for arranging the mortgage. Appraisal and legal services may or may not be included in the fee.
Mortgage Cap Rate - Often a misnomer or confusion with "Capitalization Rate," but in some contexts, it could refer to the maximum interest rate of an adjustable-rate mortgage.
Mortgage Insurer - In Canada, high-ratio mortgages (those representing greater than 75% of the property value) must be insured against default by either CMHC or private insurers. The borrower must arrange and pay for the insurance, which protects the lender against default.
Mortgage Life Insurance - Insurance that pays off the mortgage debt should the insured borrower die.
Mortgage Payment - The regular installments made towards paying back the principal and interest on a mortgage.
Mortgage Prepayment Penalty - a fee paid by the borrower to the lender in exchange for being permitted to break a contract (a mortgage agreement); usually three months' interest, but it can be a higher or it can be the equivalent of the loss of interest to the lender.
Mortgage Terms Amortization - The number of years it takes to repay the entire amount of the mortgage.
Mortgagee - The person or financial institution lending the money, secured by a mortgage.
Mortgagor - The property owner borrowing the money, secured by a mortgage.
Multiple Listing Service® (MLS® System) - An MLS® System is a cooperative selling system operated and promoted by a Board or Association in association with the MLS® Marks. An MLS® System includes an inventory of listings of participating REALTORS®, and ensures a certain level of accuracy of information, professionalism and cooperation amongst REALTORS® to effect the purchase and sale of real estate.
N
Negative Cash Flow - A situation where the expenses associated with a property exceed the income it generates.
Net Operating Income - The total income from a property minus operating expenses, not including financing costs.
Non-Recourse Loan - A loan where the borrower is not personally liable beyond the collateral, typically the property itself.
O
Obligatory Advance - A loan or advance that a lender is obligated to make under the terms of a commitment.
Open Mortgage - A mortgage that can be prepaid or renegotiated at any time and in any amount, without penalty.
Open or Closed - Terms that refer to the status of a mortgage; an "open" mortgage can be paid off at any time without penalty, while a "closed" mortgage has restrictions on repayment.
Option Agreement - A contract granting the right, but not the obligation, to buy or sell a property at a specific price within a certain period.
Organized Real Estate - Refers to the various bodies or groups (CREA, AREA, local boards) who work together to bring about structure, standards and accepted practices in real estate.
Owner - The individual or entity that holds the title to a property.
P
Partnership - A legal arrangement where two or more parties agree to own and manage a business or property together, sharing profits and losses.
Portability - A mortgage feature that allows borrowers to take their mortgage with them without penalty when they sell their present home and buy another one.
Pre-Approved Mortgage - Tentatively approved by a financial institution for a specified amount, interest rate and monthly payment.
Prepayment Clause - A clause inserted in a mortgage, which gives the mortgagor the privilege of paying all or part of the mortgage debt in advance of the maturity date.
Price to Rent Ratio - A calculation used to compare the cost of buying to renting in a given area, determined by dividing the price of a home by the annual rent of a similar home.
Principal - The mortgage amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.
Property Taxes - The value of the property as determined by local municipalities affects this levy. Local government determines the rate of taxation. Property taxes are paid on an annual basis.
Purchase Contract - The document through which the prospective buyer sets out the price and conditions under which he or she will buy the property.
R
Rate - (Interest) The return the lender receives for advancing the mortgage funds required by the borrower to purchase a property.
Real Estate Board - A non-profit organization representing local real estate brokers and Associates which provides services to its members and maintains and operates the local MLS® System. It offers orientation and other continuing education courses to its members and represents local real estate matters at the municipal level.
Real Property Report - The legal outline of the property and location of all buildings and improvements on the land (formerly called the Surveyor's certificate).
REALTOR® - A trademark controlled by the Canadian Real Estate Association (CREA) that identifies real estate professionals who are members of CREA. REALTOR® refers to the standard of brokerage services provided by members of CREA. REALTOR® is synonymous with professionalism. And professionalism means at least three things -service, competence and ethics. All three are essential ingredients in the REALTOR® recipe.
REALTOR.ca - Carries property advertisements and consumer-related information supplied by individual real estate boards and associations across Canada.
REALTORS® Association of Edmonton - REALTORS® Association of Edmonton is a professional association of over 3,100 Brokers and Associates in the greater Edmonton area. The Association enforces a Code of Ethics, Standards of Business Practice and disciplinary action, when necessary, for its members. The Association provides professional education to its members, administers the Multiple Listing Service® and advertises property listings on the Internet atREALTOR.ca, as well as in the Real Estate Weekly for the benefit of REALTORS® and their clients.
Refinancing - The process of obtaining a new mortgage, usually at a lower interest rate, to replace the existing mortgage.
Rights of Way - Are indicated on title at the Land Title Office; often for use of utilities or city or municipality in order to make repairs to pipes, etc. No permanent structure may be built on a right of way.
S
Second Mortgage - A second financing arrangement, in addition to the first mortgage, also secured by the property. Second mortgages are usually issued at a higher interest rate and for a shorter term than the first mortgage.
Secondary Financing - Second, third, fourth, etc. mortgages, secured by a property "behind" the first mortgage.
Seller’s Associate / Seller's Agent - The seller's associate represents the seller as a listing associate under the listing contract. His or her primary allegiance is to the seller. The seller's associate does not represent the buyer.
Seller’s Market - A market condition characterized by a shortage of properties for sale, giving sellers an advantage in terms of pricing and negotiation.
Single Agency - The practice of representing either the buyer or the seller, but not both in the same transaction.
Statements of Adjustments - Closing statements in a real estate transaction which set out the sources of funds which make up the purchase price, adjustments to and from the purchase price, the final amount required from the purchase and the amount due to the seller. Lawyers will prepare a statement for the seller and the buyer.
T
Tenancy in Common - The owners each own a part of a common land. If one owner dies, the interest goes to his or her heirs rather than the other owner(s).
Term Mortgage - A non-amortizing mortgage under which the principal is paid in its entirety upon the maturity date. Sometimes called a straight loan.
Term - The actual life of a mortgage contract, from six months to ten years, at the end of which the mortgage becomes due and payable unless the lender renews the mortgage for another term (See Amortization).
Title - The legal evidence of ownership in a property.
Title Search - A detailed examination of the ownership documents to identify the owner and any liens or other encumbrances on the property.
Torrens System - Alberta's land registry system.
Total Debt Service (ADS) Ratio - the maximum percentage of a borrower's income that a lender will consider for all debt repayment (other loans and credit cards, etc.) including a mortgage.
Transaction Brokerage Disclosure - The information which a dual associate must disclose and explain to both buyer or a seller when he or she is acting as a dual associate.
U
Unattached Goods - Moveable personal property that goes with the seller (also known as chattels).
Underwriting - The process by which lenders assess the risk of lending to a borrower, based on their creditworthiness and the value of the property.
V
Vacancy Rate - The percentage of all available units in a rental property, such as an apartment complex, that are vacant or unoccupied at a particular time.
Variable-rate Mortgage - A mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of the payment goes to interest. If rates go down, a larger portion of the payment is applied to the principal.
Vendor Take-Back Mortgage - When sellers use their equity in a property to provide some or all of the mortgage financing in order to sell the property.
W
Weekly Payments - Mortgage payments made weekly or 52 times per year.
Witness - A person who observes the signing of a document and then signs it themselves to confirm its authenticity.
Wrap-Around Mortgage - A form of secondary financing where a new mortgage is created without paying off the first mortgage, usually at a higher interest rate.
Y
Yield - The income return on an investment, such as the interest or dividends received from holding a particular security, often expressed as an annual percentage.
Z
Zoning - Land Use Bylaw specifies in great detail every aspect of how property within a particular area of the municipality may be used.