Review of Common Terms:

    Amortization: Paying off a debt, such as a mortgage, by installments. The conventional amortization period for a mortgage is anywhere between 15 and 25 years. The shorter the amortization period, the less interest you have to pay.

    Appraisal: An estimate of a property's value. Asking (list) price: The price placed on the property for sale by the seller. Blended payments: Payments consisting of principal and interest components, paid during the amortization period of a mortgage.

    Broker: A person licensed by the provincial or territorial government to trade in real estate. Real estate brokers may form companies or offices which appoint sales representatives to provide services to the seller or buyer, or they may provide the same services themselves. In parts of Canada, brokers are referred to as agents.

    Buyer's agent (also known as buyer's broker or purchaser's agent): A person or firm representing the buyer. A buyer's agent's primary allegiance is to the buyer. The buyer is the buyer agent's client.

Buyer brokerage agreement: A written agreement between the buyer and the buyer's agent, outlining the agency relationship between the two parties and the manner in which the buyer's agent will be compensated. In some provinces, buyer agency relationship arises automatically, without a written agreement establishing the relationship.

    Client: The person being represented by an agent. The agent owes the client the duties of utmost care, integrity, confidentiality and loyalty. Closing: The day the legal title to the property changes hands.

    CMHC: Canada Mortgage and Housing Corporation. A Crown corporation providing information services and mortgage loan insurance.

    Commission: An amount agreed to by the seller and the real estate broker/agent and stated in the listing agreement. It is payable to the broker/agent on closing and shared, if applicable, among those salespeople involved in the sale.

    CREA: The Canadian Real Estate Association. A national association representing the real estate industry on federal public policy matters, providing member services and education. CREA promotes adherence to a strict Code of Ethics and Standards of Business Practice.

    Customer: A person who receives valuable information and assistance from a real estate broker or salesperson, but is not represented by that individual. Debt-service ratio: The measurement of debt payments to gross household income which may include, in addition to the main wage earnerŐs salary, salaries of other wage earners, commissions, bonuses, overtime, etc.

    Dual agent: A real estate broker or salesperson who acts as agent for both the seller and the buyer in the same transaction. Both buyer and seller are the agentŐs clients.

    Equity: The difference between the value of the property and the amount owing (if any) on the mortgage.

    Financial institutions: Banks, credit unions, insurance or trust companies.

    GE Capital Mortgage Insurance Company: GE Capital Mortgage Insurance Company is the only private sector source of mortgage insurance to lenders in Canada. Gross debt service: The amount of money needed to pay principal, interest, taxes and, sometimes, energy costs. If the dwelling unit is a condominium, all or a portion of common fees are included, depending on what expenses are covered.

    Gross debt service ratio: Gross debt service divided by household income. A rule of thumb is that GDS should not exceed 30%. It is also referred to as PIT (principal, interest and taxes) over income. Sometimes energy costs are added to the formula, producing PITE, which moves the rule of thumb GDS to 32%.

    Listing agreement: The legal agreement between the listing broker and the seller, setting out the services to be rendered, describing the property for sale and stating the terms of payment. A commission is generally payable to the broker upon closing.

    Mortgage: A contract providing security for the repayment of a loan, registered against the property, with stated rights and remedies in the event of default. Lenders consider both the property (security) and the financial worth of the borrower (covenant) in deciding on a mortgage loan.

    Mortgage broker: A person or company having contacts with financial institutions or individuals wishing to invest in mortgages. The mortgagor pays the broker a fee for arranging the mortgage. Appraisal and legal services may or may not be included in the fee.

    Mortgage insurer: In Canada, high-ratio mortgages (those representing greater than 75% of the property value) must be insured against default by either CMHC or private insurers. The borrower must arrange and pay for the insurance, which protects the lender against default.

    Mortgagee: The person or financial institution lending the money, secured by a mortgage.

    Mortgagor: The property owner borrowing the money, secured by a mortgage.

The Canadian RealEstate Association


© 2002 Don Marland