Real Estate Broker License Exam Vocabulary (IL)

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A composite list of vocabulary terms and definitions.

Abstract and attorney's opinion of title

An opinion of title status based on a review of the abstract by an attorney. Similar to a certificate of title, the opinion of title does not protect against defects that cannot be discovered from the public records.

Abstract of title

The condensed history of a title to a particular parcel of real estate, consisting of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property and a certification by the abstractor that the history is complete and accurate.

Abstract of judgment, law

The summary of a court judgment that creates a lien against a property when filed with the county recorder.

Accelerated cost recovery system

A tax calculation that provides greater depreciation in the early years of ownership of real estate or personal property.

Accelerated depreciation

A bookkeeping method that depreciates property faster in the early years of ownership.

Acceleration clause

A provision that gives a lender the right to collect the balance of a loan if a borrower misses a payment.

Acceptance

The seller's written approval of a buyer's offer.

Accession

Acquiring title to additions or improvements to real property as a result of the annexation of fixtures or the accretion of alluvial deposits along the banks of streams.

Accretion

The gradual addition to the shore or bank of a waterway by deposits of sand or silt.

Accrued items

On a closing statement, items of expense that are incurred but not yet payable, such as interest on a mortgage loan or taxes on real property.

Acknowledgment

A written declaration affirming that a person acted voluntarily.

Acre

A measurement of land equal to 43,560 square feet.

Actual eviction

The legal process that results in the tenants being physically removed from the leased premises.

Actual notice

Express information or fact; that which is known; direct knowledge.

Addendum

An addition or change to a contract.

Additional principal payment

Extra money included in the monthly payment to help reduce the principal and shorten the term of the loan. This may activate a prepayment penalty clause.

Adjustable-rate mortgage (ARM)

A loan with an interest rate that is periodically adjusted to reflect changes in a specified financial index.

Adjusted cost basis

The cost of any improvements the seller makes to the property. Deducting the cost from the original sales price provides the profit or loss of a home when it is sold.

Ad valorem tax

A tax levied "according to value", generally used to refer to real estate tax. Also called the general tax.

Adjustment period

The amount of time between interest rate adjustments in an adjustable-rate mortgage.

Adjustable-rate mortgage (ARM)

A mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets.

Adverse possession

The acquisition of title to property through possession without the owner's consent for a certain period of time.

Adverse use

The access and use of property without the owner's consent.

Advisory Council

This five-member council is charged with considering applications for real estate licensing schools and instructors in Illinois. Prelicensing and continuing education (CE) course content is also supervised by this body. Members are appointed to 4-year staggered terms, with a 12-year lifetime limit.

Aeolian soil

Soil that is composed of materials deposited by the wind.

Affidavit of title

A written statement, under oath by a seller or grantor of real property and acknowledge by a notary public, in which the grantor identifies himself and indicates marital status, certifies that the title is without defects, and certifies he is in possession of the property.

Affiliated business disclosure

A disclosure that a company or individual referring settlement services has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1% in a provider of settlement services.

Agency

The relationship of trust that exists between sellers and buyers and their agents. The ______ is formed through a written contract.

Agency coupled with an interest

The agency relationship in which the agent is given an estate or interest in the subject of the agency.

Agent

A person licensed by the state to conduct real estate transactions.

Air lot

A designated airspace over a piece of land. An ______, like surface property, may be transferred.

Air rights

The right to use the open space above a property, usually allowing the surface to be used for another purpose.

Alienation

The act of transferring property to another. ______ may be voluntary, such as a by gift or sale, or involuntary, as through eminent domain or adverse possession.

Alienation clause

A provision that requires the borrower to pay the balance of the loan in a lump sum after the property is sold or transferred. This clause prevents the borrower from assigning the debt without the lenders approval.

Allocation of Customers or Markets

An agreement among real estate companies to divide their markets and refrain from competing for each other's business. This is Illegal under antitrust laws.

Allodial system

A system of land ownership in which land is held free and clear of any rent or service due to the government; commonly contrasted to the feudal system. Land is held under this system in the United States.

Alternative mortgage

Any home loan that does not conform to a standard fixed-rate mortgage.

Amendment

A change to an existing contract.

American Land Title Assoc. (ALTA) policy

A title insurance policy that protects the interest in a collateral property of a mortgage lender who originates a new real estate loan.

Americans with Disabilities Act (ADA)

A law passed in 1990 that outlaws discrimination against a person with a disability in housing, public accommodations, employment, government services, transportation and telecommunications.

Amortization

The process of paying the principal and interest on a loan through regularly scheduled installments.

Amortized loans

A loan with scheduled periodic payments of both principal and interest. This is opposed to loans with interest-only payment features, balloon payment features and even negatively amortizing payment features.

Annual Percentage Rate (APR)

The cost of the loan expressed as a yearly rate on the balance of the loan.

Anticipation

The appraisal principle that holds that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.

Annuity

The payment of a fixed sum to an investor at regular intervals.

Antitrust laws

Laws designed to preserve the free enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition.

Application fee

The fee that a lender charges to process a loan application.

Appraisal

The process of estimating a property's market value based on established methods and professional judgment.

Appraisal fee

The fee that an ______ charges to estimate the market value of the property.

Appraisal report

A detailed written report on the value of a property based on recent sales of comparable sites in the area.

Appraised value

An opinion of the current market value of a property.

Appraiser

An independent person trained to provide an unbiased opinion of value in an impartial and objective manner.

Appreciation

An increase in the value of a home or other property.

Appropriation

The way a taxing body actually authorizes the expenditure of funds and provides for the sources of the funding.

Appurtenance

A right, privilege, or improvement belonging to, and passing with, the land.

Appurtenant easement

An easement that is annexed to the ownership of one parcel and allows the owner the use of the neighbor's land.

Arbitration

A method of resolving a dispute in which a third party renders a decision.

Article 15 of the Real Estate License Act of 2000

Provides legal definitions of real estate terms in Illinois.

As-is condition

purchase or sale of a property in its existing condition.

Asbestos

A fire-resistant mineral used for insulation and home products that has been found to pose a health hazard.

Asking price

A seller's initial price for a property.

Assemblage

The combining of two or more adjoining lots into one larger tract to increase their total value.

Assessed value

A tax assessor's determination of the value of a home in order to calculate a tax base.

Assessment

The estimated value of a piece of real estate or a levy placed on property in addition to taxes.

Assets

Items of value, which include cash, real estate, securities and investments.

Assignment

A transfer of rights or duties under a contract.

Assignor

A person who transfers rights and interests of a property.

Assumable mortgage

A mortgage that can be transferred to another borrower.

Assumption clause

A provision that allows a buyer to take responsibility for the mortgage from a seller.

Assumption fee

A fee the lender charges to process new records for a buyer who assumes an existing loan.

Attachment

The act of taking a person's property into legal custody by writ or other judicial order to hold it available for application to that person's debt to a creditor.

Attorney's opinion of title

An abstract of title that an attorney has examined and certified to be, in his opinion, an accurate statement of the facts concerning the property ownership.

Automated underwriting

Computer systems that permit lenders to expedite the loan approval process and reduce lending costs.

Automatic extension

A clause in a listing agreement that states that the agreement will continue automatically for a certain period of time after its expiration date. This is illegal in many states including Illinois.

Avulsion

The sudden tearing away of land, as by earthquake, flood,, volcanic action, or the sudden change in the course of a stream.

Back-to-back escrow

Arrangements that an owner makes to oversee the sale of one property and the purchase of another at the same time.

Balance

The appraisal principle that states that the greatest value in a property will occur when the type and size of the improvements are proportional to each other as well as to the land.

Balloon loan

A mortgage in which monthly installments are not large enough to repay the loan by the end of the term. As a result, the final payment due is the lump sum of the remaining principal.

Balloon payment

The final lump sum payment due at the end of a balloon mortgage.

Bankruptcy

A proceeding in which an insolvent debtor can obtain relief from payment of certain obligations. ______ remain on a credit record for seven years and can severely limit a person's ability to borrow.

Bargain and sale deed

A deed that carries with it no warranties against liens or other encumbrances but that does imply that the grantor has the right to convey title. The grantor may add warranties to the deed at his discretion. Granting clause example: "I, ______, grant, bargain, and sell..."

Base line

The main imaginary line running east and west and crossing the principal meridian at a definite point, used by surveyors for reference in locating and describing land under the rectangular (government) survey system of legal description.

Basis

The financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset.

Benchmark

A permanent reference mark or point established for use by surveyors in measuring differences in elevation.

Beneficiary

The lender who makes a loan, also called a mortgagee. The person borrowing money is the mortgagor.

Bequest

Personal property given to a person through a will.

Bilateral contract

A contract in which the parties involved give mutual promises. Also called "reciprocal" contracts.

Bill of sale

A document that transfers ownership of personal property.

Binder

A report issued by a title insurance company that details the condition of a home's title and provides guidelines for a title insurance policy.

Blanket insurance policy

A policy that covers more than one person or piece of property.

Blanket loan

A mortgage covering more than one parcel of real estate, providing for each parcel's partial release from the mortgage lien on repayment of a definite portion of the debt.

Blanket mortgage

A mortgage that covers more than one property owned by the same borrower.

Blind Ad

An advertisement whereby the sponsoring broker's name is not identified in the advertisement.

Blockbusting

The illegal practice of inducing home owners to sell their properties by making representations regarding the entry or prospective entry of persons of a particular race or national origin into the neighborhood.

Blue sky laws

Regulations on the sale of securities to prevent consumers from investing in fraudulent or high-risk companies without being informed of the risks.

Boot

Money or property given to make up any difference in value or equity between two properties in an exchange.

Boycott

Occurs when two or more businesses conspire against another business or agree to withhold their patronage to reduce competition.

Branch office

A secondary place of business apart from the principal or main office from which real estate business is conducted. A ______ usually must be run by a licensed real estate managing broker working on behalf of the sponsoring broker. Illinois requires ______ to hold separate licenses.

Breach of contract

The failure to perform provisions of a contract without a legal excuse.

Bridge loan

A short-term loan for borrowers who need more time to find permanent financing.

Broker

A person licensed by the state to deal in real estate.

Brokerage

The act of bringing together two or more parties in exchange for a fee or commission.

Brokerage agreement

A written or oral agreement between a sponsoring broker and a consumer for licensed activities to be provided to a consumer in return for compensation or the right to receive compensation from another. All exclusive ______ must be in writing.

Broker's price opinion (BPO)

The estimated value of a property as determined by a real estate broker or other qualified individual or firm. A ______ is based on the characteristics of the property being considered.

Broom clean

The ideal condition of a building when it is turned over to an owner or tenant.

Brownfields

Defunct, derelict, or abandoned commercial or industrial sites; many have toxic waste.

Brownfields legislation

Provides federal funding to states and localities to clean up brownfields sites.

Buffer zone

A strip of land, usually used as a park or designated for a similar use, separating land dedicated to one use from land dedicated to another use (e.g., residential from commercial).

Building code

A comprehensive set of laws that controls the construction or remodeling of a home or other structure.

Building inspector

A city or county employee who enforces the building code and ensures that work is correctly performed.

Building line or setback

Guidelines that limit how close an owner can build to the street or an adjacent property.

Building permit

A permit issued by a local government agency that allows the construction of a home or renovation of a house.

Bundle of rights

The concept of land ownership that includes ownership of all legal rights to the land. The five rights are possession, control, enjoyment, exclusion, disposition.

Buydown

A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.

Buyer agency agreement

A principal-agent relationship in which the sponsoring broker is the agent for the buyer, with fiduciary responsibility to the buyer.

Buyer's agent

A real estate licensee who represents the prospective purchaser in a transaction. They owe the buyer/principal the statutory agency duties.

Buyer's broker

A real estate licensee who represents prospective residential buyers exclusively. They owe the buyer/principal the common law or statutory agency duties.

CAN-SPAM Act of 2003

Establishes requirements for commercial e-mail, spells out penalties for e-mail senders, and gives consumers the right to have e-mailers stop sending e-mails to them.

Capital expenditure

The cost of making improvements on a property.

Capital gains

Profits an investor makes from the sale of real estate or investments.

Capital gains tax

A tax placed on the profits from the sale of real estate or investments.

Capital improvement

Any improvement that extends the life or increases the value of a piece of property.

Capitalization

A mathematical formula that investors use to compute the value of a property based on net income. Net income divided by rate is equal to value.

Capitalization rate

The percentage rate of return estimated from the net income of a piece of property.

Carbon monoxide

A highly poisonous, odorless, tasteless and colorless gas formed when carbon material burns with restricted access to oxygen.

Cash flow

The amount of cash a rental property investor receives after deducting operating expenses and loan payments from gross income.

Cash rent

In an agricultural lease, the amount of money given as rent to the landowner at the outset of the lease, as opposed to sharecropping.

Caveat emptor

A legal principle derived from Latin than means "let the buyer beware."

Certificate of reasonable value (CRV)

A form indicating the appraised value of a property being financed with a VA loan

Certificate of sale

A document issued at a judicial sale, which entitles the buyer to receive a deed after court confirmation of the purchase of the property.

Certificate of title

A written opinion on the status of a piece of property based on an examination of the public record.

Chain of title

The official record that details the ownership history of a piece of property.

Change

The appraisal principle that holds that no physical or economic condition remains constant.

Chattel

Personal property such as furniture, clothing or a car.

Chicago Bar Association, et al. v. Quinlan and Tyson

The 1966 Illinois supreme court decision placed certain limitations on real estate licensees in drafting a contract of sale. The court ruled that licensees are authorized only to fill in the blanks on printed form contracts that are customarily used in the real estate community.

Chlorofluorocarbons

Nontoxic, nonflammable chemicals containing atoms of carbon, chlorine, and fluorine. Most often used in air conditioners, refrigerators, paints, solvents, and foam-blowing applications.

Civil Rights Act of 1866

An act that prohibits racial discrimination in the sale and rental of housing.

Classified property tax

A tax that varies in rate depending on the use of the property.

Clear title

A property that does not have liens, defects or other legal encumbrances.

Client

A person who is being represented by a licensee; the principal.

Closing

The final procedure in which documents are signed and recorded, and the property is transferred.

Closing costs

Expenses incidental to the sale of real estate, including loan, title and appraisal fees.

Closing statement

A document which details the final financial settlement between a buyer and seller and the costs paid by each party.

Cloud on title

An invalid encumbrance on real property.

Clustering

The grouping of home sites within a subdivision on smaller lots than normal, with the remaining land used as common areas.

Co-signer

A second party who signs a promissory note and takes responsibility for the debt.

Code of ethics

A written system of standards for ethical conduct.

Codicil

A change to a will that adds or subtracts provisions or clarifies portions of the document.

Coinsurance clause

A clause in insurance policies covering real property that requires that the policyholder maintain fire insurance coverage generally equal to at least 80 percent of the property's actual replacement cost.

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