Exam Vocabulary
Exam Vocabulary: 32 Terms, Grouped by What They Govern
Definitions here follow general real estate principles, which is what the national portion tests. Where your state's license law defines a term differently or sets its own time period, the state portion follows your state. Check the statute and commission rules your jurisdiction publishes before treating any period or threshold as settled.
A large share of exam items turn on one word. The question describes a situation, four answer choices name four legal concepts, and the only thing separating a point from a miss is whether you know which concept the facts describe. That is a definition problem, not a reasoning problem.
The terms below are grouped by the part of a transaction they govern. Read across a group rather than down it. Almost every one of these words has a near neighbor that the exam will place beside it in the answer choices, and the neighbor is the reason the item exists.
How to Drill a Term List Without Wasting the Week
Reading definitions front to back produces recognition, and recognition is what collapses under four plausible options. Work the other direction instead: cover the term, read the definition, and name it. If the word does not arrive in a couple of seconds, it is not yet available to you under time pressure.
Then do the part most candidates skip. For each term, write down the term it is most easily confused with and one sentence on what separates them. An easement against an encumbrance, a quitclaim against a general warranty deed, novation against assignment. Those pairs are where items are written, because a pair is what makes a distractor plausible.
Agency: Who Represents Whom
Agency items describe a relationship and ask you to classify it. The facts that decide the answer are usually how the relationship was formed and whose interests the licensee is bound to advance.
Fiduciary
Someone who holds a position of trust and therefore owes heightened duties to the person they serve: undivided loyalty, confidentiality, full disclosure of material facts, obedience to lawful instruction, reasonable care and skill, and accounting for money and property received.
Principal
The person who grants authority to act on their behalf. On a listing the seller is the principal; under a buyer representation agreement the buyer is. The principal is the party to whom the fiduciary duties run, which is what most agency items are actually asking about.
Express Agency
Authority granted in words, spoken or written. A signed listing agreement is the standard illustration. Many states require the agreement to be written to be enforceable, so read an exam item's facts for what was actually signed.
Implied Agency
Authority inferred from how the parties behaved rather than from anything they agreed. It arises accidentally, when a licensee advises and advocates for someone to the point that the person reasonably believes they are being represented, and it carries the same duties as express agency.
Dual Agency
One licensee owing duties to both sides of the same transaction. The conflict is structural, since loyalty to one principal is inconsistent with loyalty to the other. Some jurisdictions permit it after written informed consent from both parties and some prohibit it outright, so confirm your own state's rule.
Designated Agency
A brokerage-level arrangement in which the broker assigns one licensee to the buyer and a different licensee to the seller in the same transaction. Each assigned licensee represents one side fully, which keeps individual loyalty intact even though the firm is on both sides.
Buyer's Agent
A licensee engaged to represent the purchaser, typically under a written buyer representation agreement. The full set of fiduciary duties runs to the buyer, including the duty to disclose anything material that bears on price or on whether to proceed.
Subagent
A licensee who works with one party but owes duties to the other party's principal. Under the older cooperative model a licensee showing a listing served the seller through the listing broker, despite dealing with the buyer day to day. Many jurisdictions have curtailed the practice because of how easily it misleads buyers.
Contracts and Getting Title Across
This group splits in two: what makes an agreement enforceable, and what a particular instrument actually promises about title. Exam items rarely mix the two, so know which half you are in.
Consideration
The value each side gives up for what it receives. Money is the obvious form, but a return promise, an act, or agreeing not to do something you are entitled to do all qualify. Without it on both sides an agreement is a gift promise, and a gift promise is not a contract.
Contingency
A stated condition that must be met before performance is owed, paired with a deadline and a remedy if it is not met. Financing, inspection and appraisal are the usual three. Miss the deadline and the protection generally lapses, which is why exam items about contingencies are usually items about dates.
Earnest Money
A deposit a buyer puts up on acceptance to show the offer is serious. It is normally held by a neutral party and credited toward what the buyer owes at settlement. Whether it must sit in a trust account, and how quickly it must be deposited, is set by state rule.
Option Contract
A paid right to buy on fixed terms within a fixed window, binding on the seller and not on the holder. The seller cannot sell elsewhere during the window; the holder may simply let it lapse. The option fee buys the right itself and is usually not refundable.
General Warranty Deed
The instrument that promises the most. The grantor stands behind the title against defects arising at any point in its history, including long before the grantor acquired it, and agrees to defend against claims. Buyers prefer it for exactly that reason.
Quitclaim Deed
Transfers whatever interest the grantor happens to hold, which may be none, and promises nothing at all. Its normal use is housekeeping: releasing a possible claim, correcting an error in an earlier instrument, or moving an interest between relatives or spouses.
Statute of Frauds
The rule that certain agreements cannot be enforced unless they are in writing and signed. Contracts for an interest in land sit squarely inside it, which is why a spoken agreement to sell a house is generally unenforceable no matter how clearly it was made.
Novation
Substituting a new party or a new obligation for an old one with everyone's agreement, which discharges the original obligor completely. Compare assignment, where the rights move but the original party stays on the hook if the assignee fails to perform. That difference is the whole item.
Lending, Investment and the Arithmetic Behind Them
These terms carry formulas. Learn the formula with the definition, because the exam will ask for the concept in one item and the calculation in the next.
Amortization
Retiring a debt through level periodic payments that cover interest first and apply the remainder to principal. Because interest is charged on the balance outstanding, early payments are mostly interest and the principal share grows steadily as the balance falls.
LTV (Loan-to-Value Ratio)
The loan amount divided by value, where value means the lower of appraised value and price. It measures the lender's exposure: the higher the ratio, the thinner the borrower's cushion, and the more likely the lender is to require mortgage insurance or a better rate elsewhere.
Capitalization Rate
Net operating income divided by value, expressed as a percentage. It converts an income stream into a price and lets unlike properties be compared. Buyers read a higher rate as a higher return with more risk attached, and a lower rate as a safer, more expensive asset.
Proration
Splitting a recurring charge between seller and buyer according to who owned the property on which days. Taxes, association dues and collected rent are the common candidates. The method is always the same: find the daily amount, then count the days each party is responsible for.
Discount Points
Interest paid up front at closing to secure a lower rate for the life of the loan. One point costs one percent of the amount borrowed. Paying points pays off only if the borrower keeps the loan long enough for the monthly saving to exceed the up-front cost.
PMI
Private mortgage insurance, which conventional lenders require on higher loan-to-value loans. It covers the lender's loss on a default and gives the borrower nothing beyond access to the loan. Once enough equity has been built, federal rules govern when the borrower may request cancellation and when it ends automatically.
Gross Rent Multiplier
Price divided by gross rent, a rough screening tool for rental property. It uses gross income only, so it ignores vacancy, taxes, insurance and repairs. That makes it quick but crude, and it is reliable only when comparing similar properties in one market.
Depreciation
In tax terms, the write-off of the improvements on income-producing property over a recovery period fixed by federal law, with land excluded because land is not treated as wearing out. Residential rental property and nonresidential property use different periods, published by the Internal Revenue Service.
What You Own and What Limits It
Start from the interest a party holds, then ask what has been carved out of it. Private restrictions and government powers limit the same parcel through completely different mechanisms, and the exam tests whether you can tell which one is operating.
Fee Simple
The largest bundle of rights recognized in land: possession, use, exclusion, and the freedom to sell, lease, mortgage or leave it by will, lasting indefinitely. It is still subject to the government's underlying powers and to any private restrictions already attached to the parcel.
Easement
A right to use land belonging to someone else for a defined purpose, without any right of possession. One kind attaches to a neighboring parcel and passes automatically when that parcel is sold; the other belongs to a person or company, which is how utility corridors are held.
Encumbrance
The umbrella word for anything attached to a parcel that burdens it, whether or not it interferes with possession. Money claims such as mortgages and tax liens sit here alongside easements, recorded restrictions and encroachments.
Adverse Possession
A doctrine under which long-running occupation can ripen into ownership. The possession must be visible, continuous, exclusive, and without the owner's permission, and it must run for the period your state's statute sets. That period varies widely, so confirm it in your own jurisdiction's law rather than assuming a figure.
Eminent Domain
The government's inherent authority to take private property for a public purpose on payment of just compensation. The power is the concept; condemnation is the proceeding through which it is exercised. Exam items frequently test that the two words are not synonyms.
Police Power
The authority to regulate the use of land in the interest of public health, safety, morals and general welfare, exercised without compensating the owner. Zoning ordinances, building and housing codes, subdivision rules and environmental controls all rest on it.
Riparian Rights
The water rights of an owner whose land abuts a flowing watercourse such as a river or stream. Reasonable use is permitted, but not use that materially harms owners downstream. Land bordering a lake or other still body is governed by littoral rights instead.
Deed Restriction
A private limit on use written into the instrument of conveyance, also encountered as a restrictive covenant in a subdivision's recorded declaration. It binds later owners when it runs with the land, and where it is stricter than the zoning, it is the stricter limit that controls.