Exam Vocabulary
Real Estate Vocabulary Glossary: 80 Terms You Must Know for the Exam
The real estate exam is as much a vocabulary test as a knowledge test. Knowing exactly what each term means — and how it differs from similar terms — is the foundation of a passing score.
Agency & Relationships
Fiduciary
A person in a position of trust with legal duties of loyalty, confidentiality, disclosure, obedience, reasonable care, and accounting to the principal.
Principal
The party who authorizes an agent to act on their behalf. In real estate, the principal is typically the buyer or seller who hires the agent.
Express Agency
Agency created by a written or oral agreement explicitly establishing the relationship. Listing agreements create express agency.
Implied Agency
Agency created by the conduct of the parties rather than an explicit agreement. Occurs when an agent acts on behalf of a client without a signed contract.
Dual Agency
A single agent representing both buyer and seller in the same transaction. Legal in most states with informed written consent from both parties.
Designated Agency
Different agents within the same brokerage each represent the buyer and seller exclusively. Avoids the conflicts inherent in true dual agency.
Buyer's Agent
An agent who represents only the buyer's interests under a buyer-broker agreement. Owes full fiduciary duties to the buyer.
Subagent
An agent who represents the same principal as another agent. In traditional MLS cooperation, a selling agent who shows a listing is a subagent of the seller.
Contracts & Conveyance
Consideration
Something of value exchanged between parties. Required for a valid contract. Can be money, services, or a promise to act or refrain from acting.
Contingency
A condition that must be satisfied for the contract to become binding. Common contingencies include financing, inspection, and appraisal.
Earnest Money
A deposit made by the buyer to demonstrate good faith when an offer is accepted. Typically applied to closing costs or down payment at settlement.
Option Contract
A contract giving the buyer the right — but not the obligation — to purchase property at a specified price within a specified time period.
General Warranty Deed
The strongest form of deed. The grantor warrants title against all defects and encumbrances, even those predating the grantor's ownership.
Quitclaim Deed
Conveys only the grantor's current interest (if any) with no warranties. Often used to clear title defects or transfer between family members.
Statute of Frauds
A legal requirement that certain contracts — including real estate sales — must be in writing to be enforceable.
Novation
Replacing one party to a contract with a new party, releasing the original party from all obligations. Differs from assignment, which doesn't release the original party.
Finance & Math
Amortization
The process of paying off a loan through regular scheduled payments that include both principal and interest. Early payments are mostly interest; later payments are mostly principal.
Loan-to-Value (LTV)
The ratio of the loan amount to the property's appraised value. LTV = Loan ÷ Value. Higher LTV means more lender risk and often requires PMI.
Capitalization Rate
Net Operating Income (NOI) ÷ Property Value. Used to compare investment properties. A higher cap rate means higher yield (and usually higher risk).
Proration
Dividing ongoing costs (taxes, HOA fees, rent) between buyer and seller based on closing date. Calculated by day to ensure each party pays only their share.
Discount Points
Prepaid interest paid at closing to lower the mortgage interest rate. One point = 1% of the loan amount. Buying down the rate makes sense for long-term holds.
PMI
Private Mortgage Insurance. Required by conventional lenders when LTV exceeds 80%. Protects the lender, not the borrower. Cancelled once equity reaches 20%.
Gross Rent Multiplier
Property Price ÷ Gross Annual Rent. A quick metric for comparing rental investment properties. Lower GRM means faster payback from gross rents.
Depreciation
An IRS allowance for the wear and tear of income-producing real property. Residential property depreciates over 27.5 years; commercial over 39 years.
Property Rights & Land Use
Fee Simple
The highest form of ownership — absolute ownership with the right to use, sell, lease, or devise the property, subject only to government powers.
Easement
A right to use another's land for a specific purpose. An easement appurtenant benefits an adjacent parcel; an easement in gross benefits an individual or entity.
Encumbrance
Any claim, lien, charge, or liability attached to property that limits its use or transfer. Includes mortgages, easements, deed restrictions, and liens.
Adverse Possession
Acquiring title to another's property through open, notorious, continuous, hostile, and exclusive use for a statutory period (typically 5–21 years by state).
Eminent Domain
Government's power to take private property for public use with just compensation. The actual taking process is called condemnation.
Police Power
Government's authority to regulate land use to protect public health, safety, and welfare. The basis for zoning laws, building codes, and environmental regulations.
Riparian Rights
Water rights held by landowners whose property borders a river or stream. They can use the water but cannot unreasonably interfere with downstream owners.
Deed Restriction
A private limitation placed in a deed that controls how property may be used. Also called a restrictive covenant. Can run with the land and bind future owners.