Real Estate Term

Definition

Real-World Example

Escrow

Escrow refers to a financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a given transaction. It helps make transactions more secure by keeping the payment in a secure escrow account which is only released when all of the terms of an agreement are met as overseen by the escrow company.

When buying a home in Vancouver, the buyer places their down payment into an escrow account managed by a third-party company until all the conditions of the sale are met, ensuring both parties are protected during the transaction.

Amortization

Amortization is the process of spreading out a loan into a series of fixed payments over time. You pay off the interest and a part of the principal in each installment, which means the amount you owe decreases over the term of the loan.

If you have a 25-year mortgage for a property in Richmond, each payment you make includes a portion that goes toward reducing the principal amount borrowed and another portion that covers the interest on the loan. This process continues until the loan is fully paid off.

Contingency

A contingency in real estate is a condition or action that must be met for a real estate contract to become binding. A contingency becomes part of a binding sales contract when both parties, the buyer and the seller, agree to the terms and sign the contract.

In a home purchase in Tsawwassen, a buyer might include a financing contingency, which states that the purchase is contingent upon securing a mortgage. If the buyer cannot secure a mortgage, they can back out of the contract without penalty.

Capital Gains Tax

Capital Gains Tax is a tax on the profit realized on the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount realized on the sale. In real estate, it's the tax on the difference between the purchase price and the selling price of the property, provided the property was owned for more than a year.

If you purchased a home in White Rock for $500,000 and sold it later for $700,000, the $200,000 gained would be subject to capital gains tax, depending on your specific tax circumstances and any applicable exemptions.

Equity

In real estate, equity refers to the difference between the value of the property and the amount still owed on its mortgage. It represents the amount of money a property owner would receive after selling the property and paying off the mortgage.

If you own a home in Ladner that is valued at $800,000 and you have a remaining mortgage balance of $300,000, you have $500,000 in equity in the property.

Real Estate Term

Definition

Real-World Example

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage (ARM) is a type of mortgage loan where the interest rate adjusts over time based on a benchmark or index that reflects the borrowing cost on the credit markets. The initial rate is often lower, and adjusts periodically thereafter.

A homebuyer in Richmond chooses an ARM with a 5-year introductory rate of 3.5%. After five years, the rate could adjust annually depending on market conditions, potentially increasing or decreasing their monthly payments.

Closing Costs

Closing costs are the expenses over and above the price of the property that buyers and sellers normally incur to complete a real estate transaction. These costs can include transfer taxes, attorney fees, and title insurance.

When closing on a house in Tsawwassen, the buyer pays approximately 2-5% of the home’s purchase price in closing costs, covering items like appraisal fees, legal fees, and property transfer taxes.

Deed

A deed is a legal document that represents the ownership of real property. It is the official document that transfers ownership from one person to another.

Upon the sale of a property in Vancouver, the seller transfers the deed to the buyer during the closing process, legally transferring ownership.

Foreclosure

Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.

A homeowner in White Rock fails to make mortgage payments for several months, leading the bank to initiate a foreclosure process to sell the home and recoup the loan balance.

Lien

A lien is a legal right or claim against a property by a creditor. Liens are typically used as security for the repayment of a debt and must be paid off when the property is sold.

A contractor who wasn't paid for home improvement work on a Ladner property places a lien on it, meaning the homeowner must clear the debt before selling the house.

Refinancing

Refinancing is the process of replacing an existing mortgage with a new one, typically with better terms, such as a lower interest rate or a different loan term.

A homeowner in Richmond refinances their home loan to take advantage of lower interest rates, reducing their monthly mortgage payment and overall interest paid.

Title Insurance

Title insurance is a form of indemnity insurance that protects lenders and homebuyers from financial loss sustained from defects in a title to a property.

A buyer in Vancouver purchases title insurance to protect against any potential title defects that could challenge their legal ownership of the property.

Zoning

Zoning refers to municipal or local government laws that dictate how real property can and cannot be used in certain areas, including residential, commercial, industrial, and agricultural designations.

A real estate developer in Tsawwassen checks the zoning regulations before purchasing land to ensure they can build a new commercial complex.