Real Estate Terms You Should Know
You have done this before. Maybe twice. Maybe nine times. You have sat across the table from a broker, a title officer, or a lender, and heard a word you did not recognize, and done the thing that experienced buyers do: nodded confidently, made a small sound of agreement, and moved on hoping nobody asks you to elaborate.
We are not judging you. We have been selling real estate for over fifty years and we have watched incredibly intelligent, accomplished people smile and nod their way through entire transactions while privately wondering what an encumbrance is.
This post is for you. No judgment. No pretense that these terms are obvious. Just clear, plain-English explanations of the words that come up in every transaction and that nobody ever explains.
Before You Make an Offer
Easement An easement is the legal right of someone other than the property owner to use a specific portion of the land for a specific purpose. Utility companies have easements that allow them to access the lines running through your yard. A neighbor might have an easement that allows them to cross your property to reach theirs. You own the land the easement sits on but the easement holder has rights that limit what you can do with it. Your title commitment will list the easements on any property you are considering. Read them. Ask what they mean. This is exactly the kind of thing that surprises buyers after closing when they try to build something where the easement runs.
Encumbrance An encumbrance is anything that affects the title to a property or limits the owner’s use of it. Easements are encumbrances. Liens are encumbrances. Deed restrictions are encumbrances. Think of encumbrances as the things attached to a property that the new owner inherits, or the baggage that comes with the deed. A clean title means the encumbrances that exist are known, disclosed, and acceptable.
CC&Rs — Covenants, Conditions, and Restrictions CC&Rs are the rules that govern what you can and cannot do with your property in a community that has a homeowners association or a recorded declaration. They might specify what colors you can paint your house, whether you can park an RV in your driveway, how tall your fence can be, or whether you can run a business from your home. Every community with an HOA has them. Most buyers receive them and put them in a drawer. We recommend actually reading them before you close, because discovering after the fact that your CC&Rs prohibit the chicken coop you had planned is an unpleasant experience.
Ingress and Egress Ingress means the right to enter a property. Egress means the right to exit. You will see these words in easement language and in land descriptions, usually together. “Ingress and egress easement” simply means the legal right to access the property, to drive in and drive out. If you see this in a listing for a rural property, it is telling you that someone has the legal right to cross the land to reach another property or road. On residential suburban lots this is rarely complicated. On rural or agricultural land it can matter a great deal.
Lis Pendens Latin for “suit pending.” A lis pendens is a notice recorded in the public record that indicates there is a legal action pending that involves the property. If you see a lis pendens on a title search, it means someone is in a legal dispute about this property- a foreclosure, a divorce proceeding, a ownership dispute. Title companies will not insure over an active lis pendens without resolution. If your title search turns one up, pay attention.
Right of First Refusal A right of first refusal gives a specific person the right to match any offer a seller receives before the seller can accept it from someone else. If a property has a right of first refusal attached to it, often found in certain HOA communities, lease agreements, or partnership arrangements, the holder of that right must be given the opportunity to purchase the property on the same terms as any other buyer before the sale can proceed. This can complicate and slow down transactions when it applies.
During the Transaction
General Warranty Deed A general warranty deed is the gold standard of property conveyance. When a seller gives a buyer a general warranty deed, they are guaranteeing that they have clear title to the property and will defend the buyer’s ownership against any claims, including claims that arose before the seller owned the property. Most residential sales in Colorado use a general warranty deed. It is the broadest protection a buyer can receive from a seller.
Special Warranty Deed A special warranty deed is more limited. The seller warrants only against claims that arose during their period of ownership, not against claims from previous owners. Special warranty deeds are common in commercial transactions, bank-owned properties, and estate sales where the seller does not have full knowledge of the property’s history. Receiving a special warranty deed is not necessarily a problem, but it is a reason to make sure your title insurance is solid.
Quit Claim Deed A quit claim deed transfers whatever interest the grantor has in the property with no warranties whatsoever. It does not guarantee that the grantor actually owns the property or that the title is clear. Quit claim deeds are commonly used between family members, to add or remove a spouse from a title, or to clear up a specific title issue. Accepting a quit claim deed in a standard home purchase from an unrelated seller would be unusual and worth questioning.
Chain of Title The chain of title is the complete sequence of ownership transfers from the original grant of land through every subsequent sale and conveyance to the present owner. A clean chain of title means every transfer was properly documented and recorded. A broken chain, caused by a missing deed, an improperly recorded transfer, or a gap in the record, is a title problem that needs to be resolved before closing. This is what the title search is examining. And this is what title insurance protects you from when the search misses something. Our post on title insurance in Colorado explains why this protection matters more than many buyers realize.
Abstract of Title The abstract of title is the written summary of the chain of title, the documented history of every recorded instrument affecting the property. In Colorado today most buyers receive a title commitment rather than a full abstract, but you may hear the term. Think of it as the property’s ownership biography.
Mechanic’s Lien A mechanic’s lien is a claim filed against a property by a contractor, subcontractor, or supplier who performed work or supplied materials and was not paid. In Colorado, a contractor who builds an addition to your home and does not get paid can file a lien against the property, even after you close on your purchase, if the work was performed before your closing. This is one of the real risks that title insurance covers. It is also why buyers of newly renovated or recently constructed properties should pay close attention to the title search and consider extended owner’s coverage.
Prorations Prorations are the calculations that divide ongoing expenses like property taxes, HOA dues, and utilities between the buyer and the seller based on the closing date. If you close on October 15, the seller owes property taxes for January through October 15, and you owe them from October 15 through December 31. These amounts are calculated, adjusted, and reflected on your closing disclosure as credits and debits to each party. You will see a line on your closing statement that says “proration” and now you will know what it means.
Per Diem Per diem is Latin for “per day.” In real estate you will encounter it in two main contexts. First, in loan documents where a per diem interest charge accumulates daily between closing and the end of the month. Second, in contracts where a per diem penalty may apply if a party fails to close by the agreed date, meaning they owe a specific dollar amount for each day they are late. If your contract includes a per diem clause, know what the daily rate is.
Subordination Clause A subordination clause in a mortgage or lien agreement establishes the priority of claims against a property. First mortgage lenders are typically in “first position,” meaning they get paid first if the property is foreclosed. A subordination clause allows a lender to agree to move to a lower priority position, which often comes up in refinancing situations where a second lender needs to agree to remain in second position rather than claiming first position rights. If you are refinancing and have a home equity line, your lender will likely require a subordination agreement from your HELOC lender.
Estoppel Certificate An estoppel certificate is a document, typically used in commercial transactions and some HOA situations, in which a party certifies certain facts as true, preventing them from later claiming those facts were different. In HOA transactions, a seller may be required to provide an estoppel certificate confirming the current status of dues, assessments, and any violations. It is the HOA’s official statement of account that the buyer can rely on.
Tenancy in Common vs Joint Tenancy These are the two primary ways multiple people can own real property together, and the difference matters quite a bit.
Tenancy in common means each owner holds a separate, divisible share of the property that can be sold, transferred, or inherited independently. If two people own a property as tenants in common and one dies, their share passes to their heirs, not automatically to the surviving co-owner.
Joint tenancy includes the right of survivorship. If two people own a property in joint tenancy and one dies, the surviving owner automatically inherits the deceased owner’s share, it does not go through probate. Married couples often hold property in joint tenancy for exactly this reason.
How you take title to a property has legal and estate planning implications worth discussing with an attorney, especially if your broker cannot explain it properly.
At Closing
HUD-1 vs Closing Disclosure The HUD-1 Settlement Statement was the standard closing document for decades. Since 2015, most residential transactions have used the Closing Disclosure, a standardized form that breaks down all the costs, credits, and financial details of the transaction for both buyer and seller. You will receive your Closing Disclosure at least three business days before closing. Read it. Compare it to your Loan Estimate. Ask about anything that has changed or that you do not recognize. Our brokers walk through the closing disclosure with every client because the surprises that show up there are almost always preventable.
Title Insurance You will pay for title insurance at closing and most buyers do not fully understand what they are buying. The short version: title insurance protects you from problems in your property’s ownership history that existed before you closed like liens, ownership disputes, recording errors, or fraud that the title search missed. There are two policies: the lender’s policy (protects the bank, required if you are financing) and the owner’s policy (protects you, not required in Colorado but strongly recommended). We always insist on the extended owner’s policy for every buyer we represent. Our full post on title insurance in Colorado covers everything you need to know.
RESPA The Real Estate Settlement Procedures Act. A federal law that governs how lenders, brokers, and settlement service providers must disclose fees and business relationships in residential mortgage transactions. When your lender provides a Loan Estimate and a Closing Disclosure, they are doing so because RESPA requires it. When your broker discloses affiliated business relationships, same reason. You do not need to understand RESPA in detail, you just need to know it is the law that requires people to tell you what things cost and who is getting paid.
Amortization Amortization is the process of paying off a loan through regular payments over time. In a standard amortizing mortgage, each monthly payment covers both interest and principal, but early in the loan, the vast majority of each payment is interest. Over time, as the principal balance decreases, more of each payment goes toward principal. An amortization schedule shows you exactly how each payment is applied over the life of the loan. If you have ever wondered why your mortgage balance barely seems to move in the early years despite making payments faithfully, amortization is the answer.
Due Diligence Due diligence is the investigation and verification process a buyer undertakes before finalizing a purchase. In Colorado residential real estate, the due diligence period typically includes the inspection, title review, HOA document review, and any other investigation the buyer deems necessary. It is the period during which the buyer has the broadest rights to terminate the contract and receive their earnest money back. Taking due diligence seriously, like actually reading the HOA documents, actually attending the inspection, and actually reviewing the title commitment is one of the most valuable things a buyer can do.
Colorado-Specific Terms Worth Knowing
Transaction Broker Colorado allows a brokerage model where the broker assists both buyer and seller without representing either as a fiduciary. This is called a transaction broker. It is different from the exclusive buyer’s agent or seller’s agent model most people are familiar with from other states. At Legacy 100, we do not practice transaction brokerage as a general rule. Every Legacy 100 broker represents their client fully and exclusively. But you should understand the distinction when interviewing brokers. Our post on moving to Colorado covers this in detail.
Metropolitan District A metro district is a local government entity created by a developer to finance the infrastructure of a new community. Homeowners in metro district communities pay an additional property tax mill levy that is separate from HOA dues and can add thousands of dollars per year to their housing costs. Metro districts are common in newer Denver area developments and are one of the most misunderstood financial obligations buyers encounter. Our full post on what is a metro district in Colorado explains everything you need to know before buying in a community that has one.
CBS1 The Colorado Contract to Buy and Sell Real Estate- the standard purchase contract used in Colorado residential transactions. When you make an offer on a home in Colorado, you are using a version of the CBS1. It is a detailed, buyer-protective document with multiple contingency periods and termination rights. Understanding its structure, particularly the deadlines and what happens if they pass without action, is one of the most valuable things a buyer can learn. Our posts on can a buyer back out of a contract in Colorado and can a seller back out of a contract in Colorado cover the key provisions in plain English.
The One We Always End With
Earnest Money Earnest money is the deposit a buyer delivers after going under contract, typically one to three percent of the purchase price, is held in escrow as a demonstration of good faith. It is not your down payment, though it often gets applied toward your down payment at closing. It is not automatically at risk if something goes wrong. In Colorado, a buyer who exercises a valid contractual termination right gets their earnest money back. It IS at risk if a buyer defaults without a valid contractual basis. Understanding when your earnest money is protected and when it is not is one of the most important things to know before you make an offer.
We have been navigating these terms with buyers and sellers for over fifty years. If you walked away from a closing once having learned exactly nothing new, this post is our attempt to fix that, retroactively, for every transaction you have ever been in. If we missed one please reach out. No judgment, just help.
For more on what buying and selling in Colorado actually looks like, our buyer FAQ and seller FAQ cover the full picture in the same plain English we used here.
Our experience. Your legacy.
Related reading:
- Title Insurance in Colorado: What Every Buyer and Seller Needs to Know
- Can a Buyer Back Out of a Home Purchase Contract in Colorado?
- What Is a Metro District in Colorado?
- Moving to Colorado: 8 Things Out-of-State Buyers Should Know
- Do I Need a Real Estate Attorney in Colorado?
External Links:
- Colorado Division of Real Estate glossary resources: https://dre.colorado.gov/consumers
- Consumer Financial Protection Bureau mortgage glossary: https://www.consumerfinance.gov/consumer-tools/mortgages/