If you’re involved in a real estate deal, you may encounter unfamiliar terms. Real estate agents, mortgage lenders, and real estate lawyers are so used to real estate terminology that they forget these words are not common in everyday language and may require some explanation. It’s important that you understand these terms to ensure you know what’s involved in your real estate transactions.
Real Estate Glossary: 9 Common Real Estate Term Definitions
These are the most common real estate terms we find our clients ask about. Our goal is to provide simple definitions to give you confidence in navigating your real estate deals.
Cash to Close
Also called “funds to close”, the cash to close is the total amount of money you need to pay to complete the property purchase transaction at closing. The term is misleading because it doesn’t refer to actual cash—a notarized cashier’s cheque is the most common form of payment required for this portion of the property purchase.
The cash to close is a part of the closing costs, but these terms are not interchangeable. Closing costs are the fees you pay to your mortgage lender to secure your mortgage. They encompass other fees, including your down payment and the cash to close.
You should know the exact cash to close amount in advance so you have time to prepare the necessary funds in time for closing.
Closing is the final stage of a real estate transaction. It happens after all conditions have been met (including the transfer of funds to the seller) and ownership of the property has been transferred to the new owner. On the closing date, the keys are handed over to the new owner and the real estate deal is complete.
In real estate, conditions are contractual requirements that protect the buyer and/or the seller. They make the real estate purchase contract conditional. In other words, if the conditions are not met, either party can legally back out of the deal without obligation. In essence, the contract becomes null and void.
Conditions mitigate risk. Buyers and sellers use conditions to protect themselves from a situation that may cause them to be unable or unwilling to proceed with the real estate transaction. For example, a buyer may include a condition for financing and/or property inspections. This allows them to back out of the deal if they don’t get the necessary financing or if property inspections reveal serious issues.
Although seller conditions are less common, they do exist. Examples of conditions a seller may use include:
- Subdivision of the property,
- Removing or amending a restrictive covenant, or
- Paying off all debt on the title.
An easement is a right to cross or use (but not own) someone else’s property for a specific purpose. For example, your property and your neighbour’s property might have an easement that allows you to share a driveway.
Easements are registered for land, not people. Your property has an easement, and that easement stays with your property. You, as the property owner, do not have the easement. So when you sell your property, the easement stays with the property. The only exception to this is when an easement is registered for companies (like phone or utility companies) instead of with the land.
An easement on your property can restrict your use of the land to which the easement belongs. For example, if an easement allows a utility company to pass a gas line through your property, there will be restrictions on how you can use that land because of safety concerns and the necessity of providing access to the utility company.
A holdback in real estate is the act of holding back funds in trust from the seller until they fulfill their contractual obligations. This protects the buyer and can serve as an effective tool to facilitate resolution between a buyer and seller. Some situations where a buyer might use a holdback include:
- When a Real Property Report shows the property is not in compliance with municipal bylaws
- Conditional renovations are not completed by the closing date
- Damage has occurred since the purchase agreement was signed and before the closing date—such as a broken window—and the buyer wants the seller to pay for the repair
A restrictive covenant in real estate is an agreement between the owners of two or more properties about how the property may be used and developed. It can be defined as private land use and development control because it typically puts restrictions on future property use and/or creates obligations for how the property is developed.
Restrictive covenants are commonly used by subdivision developers to ensure property fits within the vision for the community. For example, they may limit all homes to a minimum or maximum size and architectural style.
A property can be subject to more than one restrictive covenant.
TIPP is an acronym for Tax Installment Payment Plan. It’s simply a program put in place by the government that allows you to pay your property taxes on a monthly basis instead of one lump sum once a year (at the end of June). Your monthly TIPP payment is automatically withdrawn from your chequing account on the first day of each month. This simplifies budgeting and prevents late payments and penalty fees.
To learn more about TIPP in the City of Calgary, visit their website at https://www.calgary.ca/cfod/finance/property-tax/tax-instalment-payment-plan-tipp/tax-instalment-payment-plan-tipp.html .
Title insurance is a standard insurance policy that protects the property owner when future discoveries about the property threaten their property ownership or reveal legal defects. Here are a few examples of situations when title insurance would protect the property owner:
- The previous owner built on the property without a permit or in a way that’s against municipal bylaws. Title insurance covers the cost of correcting the issue.
- The previous owner placed a lien on the property title.
- Title defects (such as undisclosed heirs) make selling, leasing, or re-mortgaging the property difficult.
- Real estate fraud threatens property ownership.
- “Gap coverage” protects property buyers in the time period during which the title is being transferred—from the closing date to the date of the official registration of the title.
Typically, title insurance covers losses up to the purchase price of the home or the cost of a new home, if that becomes necessary due to the worst kind of title issues. Though not required by Alberta law, title insurance is often required by mortgage lenders.
Waiver of Conditions
Conditions are added to real estate contracts to protect a buyer or seller in specific predicted situations. The goal is to generate some type of benefit, such as financing for a buyer. But sometimes that benefit is attained through some other means not expressed in the contract. For example, maybe the buyer included the condition of obtaining a mortgage, but in the meantime, they receive a large inheritance and no longer require a mortgage.
A waiver of condition relinquishes the right to a condition as set out in the contract, allowing the contract to be upheld and completed without the fulfillment of that condition.
Understand the Terms of Your Real Estate Transaction
Are there still terms in your real estate contract you don’t understand? Do you have questions about a real estate deal? The real estate lawyers at Getz Collins and Associates will take time to ensure you completely understand your contract so you’re protected and know what you’re getting into. Contact us today for simple definitions of hard-to-understand real estate terminology.