Understanding Real Estate Terms
The Designated Agency Relationship
REALTORS® work within a legal relationship called an agency. The agency relationship exists between you, the principal, and your brokerage, the company under which the individual representing you is licensed. The essence of the agency relationship is that the brokerage has the authority to represent the principal in dealings with others.
Brokerages and their licensees are legally obligated to protect and promote the interests of their principals as they would their own. Specifically, the brokerage has the following duties:
- Undivided loyalty. The brokerage must protect the principal's negotiating position at all times, and disclose all known facts which may affect or influence the principal's decision.
- To obey all lawful instructions of the principal.
- An obligation to keep the confidences of the principal.
- To exercise reasonable care and skill in performing all assigned duties.
- To account for all money and property placed in a brokerage's hands while acting for the principal.
You can expect competent service from your brokerage, knowing that the company is bound by ethics and the law to be honest and thorough in representing a property listed for sale. Both buyer and seller can be represented by their own brokerage in a single transaction.
When There is No Agency Relationship
You may also choose to use the services of a REALTOR® without having any kind of agency relationship. This might occur, for example, when you are being shown a property by the seller's agent.
The REALTOR® you choose to work within this manner has a legal and ethical duty to provide you with accurate, honest answers to your questions and can provide all these services:
- Explain real estate terms and practices
- Provide and explain forms used
- Assist you in screening and viewing properties
- Inform you of lenders and their policies
- Identify and estimate costs involved in a transaction
- Assist you in establishing your range of affordability
- Prepare offers or counter-offers at your direction
- Present all offers promptly
A REALTOR® who is not your agent cannot:
- Recommend or suggest a price
- Inform you of his/her principal's top/bottom line
- Disclose any confidential information about his/her principal unless otherwise authorized
You should not provide a REALTOR® who is not your agent with any information that you would not provide directly to his or her principal.
Members of the public are aware that in most cases properties offered for sale by members of the real estate profession have a commission or fee that the Seller has agreed to pay to the listing brokerage.
The listing brokerage traditionally shares this commission/fee with the cooperating brokerage. Commissions and fees may vary.
Glossary of Real Estate Terms
Adjustment Date: The day from which all calculations of interest, tax adjustments, utility bill adjustments (water, etc) are made to the credit of the buyer or the seller. This is usually but not always the same as the possession date.
Amortization: The total number of years it takes to pay off the entire amount of the mortgage.
Appraised Value: An estimate of a property's market value, used by lenders in determining the amount of the mortgage.
Assessed Value: The value of a property, set by the province's Assessment Authority, and used by local municipalities for the purpose of calculating property tax.
Closing Date: The real estate transactions completion, when the parties involved agree that all legal and financial obligations have been met and the deed to the property is transferred from the seller to the buyer.
Adjustment Date: The date used to calculate on a pro rata basis all cost pertaining to the property that will be paid by agreement between the seller and the purchaser.
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.
Easement: A legal right to use of cross (right of way) another person's property usually for limited purposes. A common example is a utility company's right to run wires or lay pipe across a property.
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.
Foreclosure: A legal process by which the lender takes possession and the ownership of a property when the borrower does not meet the mortgage obligations.
Lien: Any legal claim registered against the title both of a property as a notice to all of a claim filed to ensure payment of a debt or other money owed.
Mortgage: A contract between a borrower and a lender. The borrower pledges property as security to guarantee repayment of the mortgage debt.
Principal: The mortgage amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.
Property Condition Disclosure Statement: This form enables sellers to disclose known defects. If the seller decides not to complete a form and does not disclose known defects, he or she can still be held liable. The form also serves as a checklist for buyers enabling them to address concerns about the property condition on the spot.
Legal Fees: Since a lawyer or notary public is an essential part of your home buying team the work provided includes legal fees. Most legal fees include searching the title of the property, arranging a property survey if necessary and handling the disbursements as required.
Home Inspection: A professional home inspector knows what to look for and can confirm or add to the information you have gleaned from the realtor or your inspection.
Property Taxes: The value of the property as determined by BC Assessment affect this levy. Local government determines the rate of taxation. Property taxes are paid on an annual basis.
Rights of Way: Are indicated on the title at the Land Titles Office; often for use of utilities or city or municipality in order to make repairs to wires etc. no permanent structure may be built on a right of way.
Statement 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.
State of Title Certificate: A copy of the title which lists charges against the property, e.g. liens, mortgages, rights of way, etc.
Subject to the clause: Or condition precedent - A statement of a condition to be fulfilled before the contract will become firm and binding and must include a specific deadline for removal.
Title: The legal evidence of ownership in a property.
Title Search: A detailed examination of the ownership in a property.