Appendix A

Glossary

abstract of title:
A report based on what was found in a title search, which is an investigation of the legal records concerning the title to a property.
acceleration clause:
A clause in a mortgage loan that allows the lender to declare the entire balance of the loan due immediately once the loan is declared in default after the borrower misses a certain number of payments.
accessory building:
A separate building on a property that supports or is related to the main use of the property, such as a free standing garage on a residential property.
accretion:
The gaining of land due to natural forces.
accrued depreciation:
The total loss in value of a building from all causes; part of the cost approach to value.
accrued item:
In terms of proration at a real estate closing, an item that is owed by the seller but paid by the buyer.
acknowledgement:
In a deed, shows proof of witnessing the signature of the grantor.
actual eviction:
Occurs when the landlord takes legal action, generally through a lawsuit, to re-possess the premises.
ad valorum:
Used in connection with real estate taxes that are based on the value of the property.
add on factor:
The percentage that is added to the useable space to arrive at the rentable space in a commercial building.
adjustable rate mortgage:
A mortgage loan in which the interest rate can change throughout the life of the loan.
adverse possession:
The claim of ownership of one person’s property by another based on how the encroaching person is using it and the length of time involved.
agency by estoppel:
An agency created when the principal doesn’t stop the agent from going beyond his normal duties thereby giving the impression that an agency relationship has been created.
agency by ratification:
An agency created by accepting the circumstances after the fact.
agency coupled with an interest:
An agency relationship where the agent has some kind of interest in the property being sold.
agency relationship:
The relationship between the agent and the client — in real estate, the broker and the buyer client or seller client. The salesperson is the subagent of the buyer client or seller client.
air rights:
Rights of a property owner to the infinite air space above her land that may be limited by government regulations regarding aircraft traffic.
alienation clause:
A clause in the mortgage loan that requires the loan to be paid off upon sale of the property. Also known as a due on sale clause, call clause, or resale clause.
amortized loan:
A type of mortgage loan in which the entire balance of the loan is paid off by the end of the term (period) of the loan. Also known as a direct reduction loan.
annual cap:
In an adjustable rate loan, the maximum amount the interest rate can be adjusted upward in any given year.
annual percentage rate (APR):
The real interest rate one is paying on a loan taking into account the interest rate charged for periodic payments as well as prepaid interest (points).
anti-trust laws:
Federal laws designed to protect the public from various unfair business practices.
anticipation:
The economic influence on value that indicates that present value is created by the valuation of future benefits.
appraisal:
An estimate or opinion of value or as being completed by an expert for a particular purpose. The term refers to both the activity and the report.
appreciation:
A rise in the value of a piece of property. Also called capital appreciation.
appurtenant easement:
An easement that benefits a neighboring property. Also called an easement appurtenant.
aquifer:
The location of an underground water supply.
area variance:
A one property exception from the zoning regulations due to a physical hardship on the property that allows for an exception to rules such as the location of the placement of the building on the property.
arm’s length:
A reference to a type of transaction where there is no relationship between the two parties, such as being members of the same family.
assemblage:
The act of putting together several properties into one larger property generally to create addition value (plottage).
assessed value:
The value of a property that is used to calculate real estate taxes. It may or may not be equal to the market value but is based on the market value.
assessment ratio:
The percentage by which the market value is multiplied to arrive at the assessed value for properly tax purposes.
assignment:
In contract terms someone else takes over (the assignee) the obligations and responsibilities of one of the parties to the contract.
associate broker:
A person, although holding a broker’s license, who has a status similar to that of a salesperson, in that the associate broker is allowed to perform certain real estate activities but only under the supervision of a real estate broker.
avulsion:
The sudden loss of land due to natural forces.
balance:
The economic influence on value that states that a relationship exists between the value of the land and the value of the buildings on the land.
balloon payment:
The amount remaining to be paid in a single payment at the end of a partially amortized loan.
bargain and sale deed:
Provides no warranties unless specifically inserted in which case it is referred to as a bargain and sale deed with covenant against grantor’s acts. Title by the grantor is implied.
basis:
The initial price paid for a property. Once capital improvements are added and depreciation (cost recovery) is subtracted, it becomes the adjusted basis.
beneficiary:
In a trust arrangement, the person on behalf of whom a property is administered by a trustee. In a mortgage loan situation, the lender who will receive the deed from the trustee in the event of a default.
bilateral contract:
An agreement that is created in which two parties each agree to do something, in effect exchanging promises.
binder:
An agreement in writing signifying the intention of the parties to move forward with the sale and containing the basic terms of the agreement. Also called an offer to purchase. The binder may be accompanied by a deposit or earnest money.
blanket mortgage:
A mortgage loan used to cover more than one piece of property. Sometimes used to buy multiple lots in a subdivision.
boot:
The additional cash or a thing of value other than real property paid to either party in a tax deferred exchange that will be taxed at the time of the exchange. Taxable to the person receiving it.
broker:
A person, licensed by the state, who is permitted to perform certain listed activities related to real estate transactions. A broker's license is required in order to perform these activities for another person for a fee. An individual may always perform these same activities on his own behalf without a license.
brownfield:
A former industrial, factory, manufacturing, or storage site that may have environmentally hazardous waste on or under it from previous use.
building code:
A regulation that establishes minimum standards for construction, electrical, and plumbing work.
building permit:
Usually issued by the local government in accordance with the building code allowing construction of a project to proceed.
bundle of rights:
The theory of ownership of land that incorporates the idea that various rights in the land can be separated, such as separating ownership and possession, by leasing the property.
buydown:
These points are pre-paid interest that are paid at the beginning of a mortgage loan in order to lower the interest rate on the periodic payments.
buyer agency:
The establishment of an agency relationship that allows the buyer to be represented by his own broker.
buyer default:
When the buyer in a real estate contract refuses to proceed with the purchase of a property.
capital gain:
The profit realized from the sale of a property for more than one paid for it.
capital improvement:
A permanent improvement that usually adds value to the property, such as a new roof.
capitalization rate:
Similar to a rate of return, that is, the amount of income an investor hopes to receive from an investment as a percentage of the value of the investment. In the income capitalization approach to value it’s used to convert a stated amount of income into the value of the investment.
cash flow after taxes:
The amount of money left for the year from a property investment after all expenses including the mortgage and income taxes are paid. The same as after tax cash flow.
cash flow before taxes:
The amount of money left for the year from a property investment after all expenses including the mortgage are paid but before income taxes are paid. The same as before tax cash flow.
casualty insurance:
Covers losses caused by theft, vandalism, and burglary.
certificate of occupancy:
A document issued by the local government at the end of a project certifying that the building has been completed according to approved plans (building permit) and is ready for occupancy.
certificate of title:
An opinion about the validity of the title without a guarantee of title.
Civil Rights Act of 1866:
A federal law that prohibits discrimination in the purchase, sale, leasing, or conveyance of real and personal property on the basis of race or color. This law is important because unlike future laws there are no exceptions.
client:
The person you represent as an agent. Another term for principal.
closing in escrow:
The process of closing a real estate transaction that takes place through a third party who gathers all the paperwork and funds and distributes them to the proper parties.
cluster zoning:
A regulation that permits the same number of lots in a subdivision as regular zoning would allow but permits them to be grouped together on smaller lots.
co-ownership:
When more than one person owns the same piece of real estate. Also called concurrent ownership.
codicil:
An addition or change to an existing will made by the person for whom the will is written.
collateral:
Something of value that is used as security for a loan.
combination trust:
A real estate investment trust (REIT) that invests shareholders money in property equities and mortgage loans.
commingling:
Combining a client’s funds with your own business funds. Usually considered to be some type of violation even if the money is accounted for.
community property:
A legal life estate in which the spouse is entitled to a one-half interest in real property acquired during the marriage.
Community Reinvestment Act:
A federal law requiring banks to reinvest in their service area by making mortgage and other type of loans available.
comparable:
A property that has recently been sold that is very similar to the property being appraised (subject property). Based on the principle of substitution the comparable is a good indicator of the value of the subject property.
compensatory damages:
Moneys that may be paid in a default situation where one party (may be the buyer or seller) sues the other party for money they believe they have lost as a result of the default by the other party.
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980:
Federal legislation designed to identify sites of environmental pollution and provide funds, called the Superfund, for cleanup.
condominium ownership:
A form of group ownership where the owner receives a deed for the individual ownership of her unit as well as an ownership interest as a tenant in common for all common spaces.
conforming loans:
A type of mortgage loan that meets the requirements necessary for the loan to be sold on the secondary mortgage market.
consideration clause:
The mandatory words in a deed that indicate that something of value is being received in exchange for the title to the property.
construction loan:
A loan made to a builder to finance a construction project whereby the funds are released periodically during the life of the project.
constructive eviction:
When the landlord takes illegal actions that make the premises uninhabitable.
contract:
A voluntary agreement to do or not to do something.
contribution:
The economic influence on value that states that an improvement to a property is worth what the real estate market will pay, not what it cost.
conventional loans:
Mortgage loans that meet criteria set by the lender but which also often meet the criteria set by Fannie Mae in the secondary mortgage market.
corporation:
A legal entity that for property ownership purposes is treated as a single person that will own property in severalty.
cost approach:
One of the three approaches to value used to appraise properties, based on the cost of the various components of the building and property. Especially used for unique properties for which there aren’t many comparable sales.
cost recovery period:
The period of time, set by the government, over which an asset may be depreciated.
credit:
In terms of proration at a real estate closing, the amount that is owed to the buyer or seller or something for which they have already paid.
curable deterioration:
Damage or wear and tear to the property that is economically feasible to repair, that is, the increase in value of the property as a result of the repair exceeds the cost of the repair.
customer:
The third party to a transaction in which an agent is used. Example: If the agent represents the seller/client, the buyer is the third party/customer.
debit:
In terms of proration at a real estate closing, an amount that the buyer or seller owes.
debt service:
The mortgage payment.
dedication:
The voluntary transfer of ownership of property from an individual to the government without payment.
Deed:
The document that transfers title (ownership) to property from one person to another.
deed in lieu of foreclosure:
A deed signed by the owner giving the property to the lender to avoid foreclosure. Also called a friendly foreclosure.
deed restriction:
A limitation on the use of property that appears in the deed, put there by one owner and will affect all future owners unless there is an expiration time limit. May also be referred to as covenants, conditions, and restrictions (CCRs) or restrictive covenants.
default:
When a borrower doesn’t pay off the debt.
deficiency judgment:
A judgment rendered against a property owner after a successful lawsuit on the part of the lender requiring payment of the difference between the mortgage loan amount and the proceeds of a foreclosure sale.
density zoning ordinance:
A regulation that permits the same number of lots as the normal zoning would but allows for varying lot sizes.
depreciation:
In the cost approach to value, the loss in value to any structure due to various factors such as wear and tear.
depreciation (cost recovery):
The recovery of the cost of an asset that wears out; used for tax purposes.
devisee:
The person named in a will who will receive the title to the real property.
direct costs:
Those expenses directly associated with the actual construction of a building, such as labor and materials. Also called hard costs.
discharging a contract:
A term that describes the end of the contract in one of several ways.
discount rate:
The interest rate set by the Federal Reserve that member banks charge each other for loans.
doctrine of prior appropriation:
A state-specific right regarding use of water, especially where water is scarce.
dominant tenement:
As it applies to an easement, the person or property that receives the benefit of the easement. Also called the dominant estate.
dual agency:
A situation where both the buyer and seller are represented by the same agent. Sometimes called limited agency. May be illegal in some states.
duties of a property manager:
They are to maximize the income and maintain or increase the overall value of the property.
earnest money:
A relatively small amount of money given at the time the binder is signed to indicate good faith on the part of the purchaser to move ahead with the purchase.
easement:
The right of a person or entity to use someone else’s property for his own benefit.
easement by necessity:
A court-ordered easement usually associated with gaining access to a property.
easement by prescription:
An easement that is created by the actions of one person against the interests of another person. Also called a prescriptive easement.
easement in gross:
A type of easement that benefits another person rather than a property; for example a utility company easement.
economic life:
When speaking of a building, the length of time the structure contributes value to the land.
effective age:
When speaking of a building, an estimate of the age the structure appears to be, given wear and tear, maintenance, and upgrades.
effective gross income:
The income available for property expenses after deducting a vacancy and collection loss from potential gross income and adding in other income.
eminent domain:
The right of the government to take property against the owner’s will for a public purpose.
encroachment:
The unauthorized or illegal use of someone’s property by another person.
encumbrance:
A right or interest in a piece of real estate that belongs to someone other than the property owner. May be either a financial claim or a limitation on use.
environmental assessments:
The examination of a property for the presence of environmentally hazardous material. The four phases include document review, testing to determine the extent of hazardous materials, remediation recommendations, and management recommendations.
environmental impact statement:
A study of the potential environmental impacts of a project; often required as part of the approval process by the local government.
Equal Credit Opportunity Act:
A federal act prohibiting discrimination in the granting or arranging of credit.
equalization rate:
The rate used to equalize the differences between taxing units when calculating taxes to be paid to a higher authority.
equitable right of redemption:
As it relates to a tax sale for nonpayment of taxes or a foreclosure sale for nonpayment of a mortgage loan debt, the right to redeem a property by paying the taxes and penalties or the loan debt before the sale of the property.
equitable title:
Gives the holder of the equitable title the right to the transfer of title when all the conditions of a contract are met.
equity buildup:
The reduction of the mortgage loan debt by paying off the loan through the income of the property investment.
equity trust:
A real estate investment trust (REIT) that invests in a number of different types of real estate and sells shares to investors.
erosion:
The gradual loss of land due to natural processes.
escheat:
The process by which the government obtains property from those who die intestate (without a will) and without heirs.
escrow account:
An account maintained by the lender into which the borrower deposits money from which the lender pays the property taxes and insurance. These funds may also be called reserves, impounds, and trust account.
estate:
The extent and type of interest or rights that someone has in a piece of land. Also called estate in land.
estate at sufferance:
A situation where a tenant who had a legal right to occupy the premises continues to occupy the space after the right of occupancy has expired against the landlord’s will.
estate at will:
A situation where the landlord allows the tenant to occupy the premises, but there is no definite period of time when the arrangement will expire.
estate for years:
A lease agreement with a definite starting and ending date. Also called a tenancy for years.
estoppel certificate:
A statement of the amount of debt owed by one party to another. In the case of a mortgage loan, executed by the mortgagee (the lender). In the case of a lease, executed by the lessee tenant. Also called a reduction certificate.
exclusive agency buyer agency agreement:
Where the broker is the exclusive agent to the buyer and gets paid only if the broker finds the property the buyer ultimately purchases.
exclusive agency listing agreement:
Where a broker is given an exclusive right to market the property but is only paid if the broker sells the property. If the owner sells the property, no fee is paid to the broker.
exclusive buyer agency agreement:
Where the broker is the exclusive agent to the buyer and gets paid no matter who finds the property the buyer ultimately purchases.
executed contract:
A contract in which all the terms of the contract have been completed.
executor:
The person named to carry out the instructions in a will.
express agency:
An agency relationship established through an agreement.
express contract:
An agreement where the parties to the contract (the participants) clearly state in words what they agree to do or not to do.
external obsolescence:
A form of depreciation (loss in value) caused by factors external to the land itself.
Fair Housing Act of 1968:
Part of the 1968 Civil Rights Act, it prohibited certain discriminatory acts related to property transactions, identified protected classes, and defined exceptions.
Fair Housing Amendments Act of 1988:
This act added handicapped and familial status (presence of children) to the list of protected classes.
Fannie Mae:
The Federal National Mortgage Association, part of the secondary mortgage market that buys and sells mortgage loans.
Federal Housing Administration:
A federal agency under the Department of Housing and Urban Development that provides loan guarantees for mortgage loans.
fee simple condition precedent:
Ownership of the real estate that doesn’t pass until a certain condition is met.
fee simple condition subsequent:
Ownership that can be reclaimed by the grantor if a certain condition isn’t met by the new owner.
fee simple determinable:
Ownership of the property that remains with the new owner as long as the conditions of ownership are being met. Violation of the conditions results in automatic reversion of the ownership to the previous owner.
fee simple qualified estate:
A fee simple estate with some limitations. Also called fee simple defeasible estate.
fiduciary:
Describes the relationship between the broker and the client; meaning faithful service.
fixed expenses:
Expenses that aren’t dependent on building occupancy, when calculating net operating income. Fixed expenses are real estate taxes, property insurance, special assessments, and license fees.
fixed rate mortgage:
A mortgage loan where throughout the life of the loan the interest rate doesn’t change and the monthly mortgage payments remain the same.
fixture:
Personal property that becomes real estate usually by physical attachment.
foreclosure:
The involuntary loss of property due to nonpayment of a debt related to the property such as a mortgage loan or property taxes.
forfeiture:
The loss of property by disobeying some condition in the deed or not using the property for the purpose required in the deed.
forfeiture of the contract:
A buyer default, when the buyer formally declares the contract forfeited (ended).
fraud:
The intentional misrepresentation or lying about the property or important issues related to the transaction.
freehold estate:
Ownership in real estate that lasts for an indefinite or indeterminate period of time.
friability:
The tendency of asbestos to break down and give off dust and fibers that can be dangerous if inhaled.
functional obsolescence:
Outmoded design in older structures or unacceptable design (by modern standards) in newer structures.
general agent:
Someone hired to represent a person in a range or group of transactions. In real estate, the usual agency relationship of a property manager.
general lien:
A lien attached to a number of properties.
general partnership:
A form of ownership by two or more people (partners) coming together for business purposes who share management responsibility, profits and losses, and liability.
general warranty deed:
Provides the greatest protection and warrantees for the grantee. Also called the full covenant and warranty deed.
grant deed:
A deed used in some states to provide limited warranties.
grantee:
The person receiving title (ownership) of a piece of property.
granting clause:
The words in a deed indicating that the grantor is conveying title (ownership) to the grantee.
grantor:
The person who is the current owner of the property who is conveying title (ownership) to someone else.
gross income multiplier:
A method for calculating the value of a property based on a multiple of the annual gross income.
gross lease:
A lease where the tenant pays the same rent each month and the landlord pays all the building’s expenses. This is the lease used in a typical residential lease arrangement.
ground lease:
A lease where a tenant rents a vacant piece of property specifically to build a building on the land. This is usually a long-term lease. Also called a land lease.
group boycotts:
In the case of real estate brokerages, when two or more brokerages agree not to work with another broker.
growing equity mortgage:
A fixed rate mortgage loan where the principal payment increases periodically to allow the loan to be paid off faster.
habendum clause:
A statement in the deed further defining the rights being granted to the grantee and characterized by the phrase “to have and to hold.”
highest and best use:
The economic influence on value that states that every property has a single use that results in the highest value for that property.
home equity:
The difference between the value of the property and the debt attributed to the property.
home equity loan:
A loan made against the equity in a property which allows withdrawal of all or part of the equity in the property.
homestead:
A legal life estate that grants the family home a certain level of protection from creditors during the owner’s lifetime.
honest and fair dealing:
One of the obligations that the broker has to the customer (third party).
Housing and Community Development Act of 1974:
Federal law that protects against gender (sex) discrimination in housing; added to the protected classes in the 1968 Fair Housing Act.
hypothecation:
The process of using property as security for a loan.
implied agency:
An agency relationship established by the actions of the parties rather than an expressed agreement.
implied contract:
A contract that is created by the actions of the parties rather than a formal agreement.
impossibility of performance:
In contract terms where the activity for which the contract was entered into can’t legally be performed.
in rem:
Results in the debt being tied to the property and obligating a future owner if it’s not paid before transfer of ownership. A term usually associated with real estate taxes.
income capitalization approach:
An appraisal method used for commercial properties that converts the net operating income into value using a capitalization rate.
incurable deterioration:
An economic term meaning that even if an item can be fixed, the cost of the repair exceeds the value it adds to the property.
independent contractor:
An independent contractor is self-employed and is the way most real estate agents work even though salespeople must work under the supervision of a broker.
index:
A rate, not under the control of either the lender or the borrower, used in calculating the interest rate for an adjustable rate mortgage loan.
indirect costs:
Those expenses not directly related to the physical construction process, such as permit fees and architectural costs. Also called soft costs.
infrastructure:
The physical facilities of a community that are important to the maintenance and growth of the community such as water lines, sewers, and roads.
interest rate lock:
A fee paid to the lender to maintain the interest rate of a mortgage loan in situations where there may be a significant period of time between loan approval and closing.
intermediate theory mortgage:
Where the borrower retains title to the property and the mortgage is a lien. Title is conveyed to the lender in the case of a default but the mortgagee (lender) must go through the foreclosure process before the property can be sold.
Interstate Land Sales Act:
A federal law governing the practice of offering land in one state for sale to buyers in another state, usually sight unseen.
intestate:
A situation where a person dies without a will.
involuntary alienation:
The loss of property against one’s will.
involuntary lien:
A lien placed on the property against the owner’s wishes.
joint and several liability:
A legal concept that in the case of environmental pollution says that if more than one person is responsible for the hazardous waste site, the law is enforceable on the group as well as each individual involved.
joint tenancy:
A form of co-ownership created by four unities: interest, possession, time, and title.
judgment lien:
A lien placed on property as a result of a court judgment. Also called judgments or money judgments.
judicial foreclosure:
The most common type of foreclosure where the court orders the property to be sold as a result of a foreclosure action brought by the lender.
kickback:
An undisclosed fee, usually paid for referring business to someone.
laches:
The loss of a right by not using it; connected to not enforcing deed restrictions.
land:
The unimproved surface of the earth.
land contract:
An agreement made to purchase property without immediately paying the full price, eliminating the need for a mortgage loan. The agreement generally requires a down payment and periodic installment payments thereafter. Also called an installment contract, conditional sales contract, contract for deed, and land sales contract.
landfill:
An area that is excavated, filled with solid waste, and then covered.
latent defects:
Problems with the property that may not be visible in a normal inspection.
laws of descent:
State laws governing the distribution of assets when one dies without a will. Also called statute of descent or law of descent and distribution.
leachate:
The liquid that comes out of the septic tank after the solids have settled.
lead:
A mineral widely used in various forms in residential and commercial construction. Under various conditions it’s considered a health hazard.
Lead Based Paint Hazard Reduction Act:
A 1992 federal law requiring homeowners of homes built before 1978 to fill out a lead paint disclosure form that is then provided to the buyer.
lease:
An agreement between two parties for possession and use of a particular space, usually for a certain length of time.
lease rent:
The rent that is being paid in accordance with a lease agreement; also referred to scheduled rent or contract rent.
leased fee estate:
The owner’s (lessor’s or landlord’s) interest in a property in a lease situation. Also referred to leased fee interest.
leasehold estate:
The tenant’s interest in the property in a lease situation. Also called leasehold interest.
leasehold interest:
See leasehold estate.
legal description:
The type of description of property boundaries and location that is acceptable for deed purposes to transfer ownership.
legal life estate:
A life estate created by state law.
legal title:
The title or ownership that normally transfers in a property sale.
leverage:
The use of borrowed money to increase the return on your investment by using less of your own funds.
liability insurance:
Insurance that covers losses due to negligence on the part of the building owner or property manager.
license:
The temporary right of one person to do something on another person’s property.
lien:
A financial claim against someone’s property.
lien theory mortgage:
Where the borrower retains legal title as well as equitable title to the property. The lender is granted a lien against the property.
life estate:
It grants possession and limited ownership of a property to a person for the duration of the recipient’s life or the life of another person.
life estate pur autre vie:
Life estate that lasts for the lifetime of a third party rather than the person actually receiving the life estate.
lifetime cap:
In an adjustable rate mortgage loan, it limits the upward adjustment of the interest rate over the life of the loan. Also called the ceiling.
Limited Liability Corporation (LLC):
A hybrid organizational structure that has elements of a partnership and a corporation.
limited partnership:
A form of ownership by two or more people where there is a general partner that manages the investment and limited partners who have no management responsibilities. The limited partners' liability is limited to their financial contribution.
liquidated damages:
A clause that deals with how much money the seller is entitled to in the event of buyer default.
liquidity:
The speed with which an investment may be turned into cash. Real estate isn’t considered a liquid investment.
listing agreement:
The agreement that establishes an agency relationship between an agent and a property seller.
littoral rights:
The rights commonly granted to owners of property that borders a bay, a large lake, the ocean, or sea.
loan to value ratio:
Known as the LTV, the percent of the property’s value that may be borrowed.
loss factor:
The percentage that is subtracted from the rentable space to arrive at the useable space.
lot and block system:
A system used for legally describing the boundaries of a property using a map showing individual lot lines often used in conjunction with a new subdivision. May also be called the recorded plat system, the recorded map system, the lot block tract system, the recorded survey system, and the filed map system.
margin:
In an adjustable rate mortgage loan, a set amount added to the index to arrive at the interest rate for the loan.
market allocation:
When different brokerages agree to not compete with one another by dividing up an area along geographic lines or according to some other division, for example price.
market rent:
The normal rent that is charged for a particular type of space in the market place.
market value:
The price a property will bring in a typical real estate transaction, subject to certain conditions such as the buyer or seller being free of undue influence. Appraisers are most often interested in this type of value.
marketable title:
A description of a title to the property where the title is free of any reasonable doubts as to who the owner is and is free from any defects.
master plan:
A plan for the future development of a municipality based on current conditions and future projections. Sometimes called a comprehensive plan.
material defects:
Important defects in the property that the average person would want to know about and usually must be disclosed.
mechanic’s lien:
A lien placed on the property for nonpayment of work done the on the property.
meeting of the minds:
The point at which a commission on the sale of a property is earned. The buyer and seller are in agreement on all terms and are prepared to complete the transaction. Also called mutual assent.
Megan’s Law:
The law regarding the registration of sex offenders.
metes and bounds:
The system for legally describing the boundaries of a piece of property using specific locations, distances, and compass directions.
mill rate:
The method of calculating taxes due based on a rate of one mill equals one-tenth of a penny. Also called millage.
mineral rights:
The right to extract minerals from the property. This right is often associated with subsurface rights.
mitigation measures:
The actions that may be taken to minimize the environmental impact of a project.
mortgage:
The document that the borrower (mortgagor) gives to the lender (mortgagee) creating a voluntary lien on a property that is being used as security for a loan.
mortgage assignment:
The transfer of the person or institution to whom the mortgage debt is owed from the current person or institution to a new one.
mortgage assumption:
The process of taking over of the obligations of a mortgage debt of one person by another person.
mortgage contingency:
A clause in the sales contract that allows time for the buyer to secure a mortgage loan to purchase the property and allows for the possibility of cancelling the contract if the loan isn’t approved.
mortgage lien:
A voluntary lien placed on the property as security for a mortgage loan.
mortgage trust:
A real estate investment trust (REIT) that uses shareholder’s money to buy and sell mortgage loans rather than properties.
mortgagee:
The lender, that is the one who receives the mortgage from the borrower.
mortgagor:
The borrower who gives the mortgage to the lender.
Multiple Listing System (MLS):
A marketing tool to allow brokers to share listings by acting as buyer’s agents or cooperating brokers.
negative amortization:
Additional moneys due at the end of an adjustable rate mortgage loan due to the effect of a payment cap.
negative cash flow:
A property investment situation in which the property’s expenses are greater than the property’s income.
negligent misrepresentation:
An agent’s failure to disclose information important to a buyer’s decision due to the agent not being aware of the information. In this case the information was either common knowledge or was something the agent, as an agent, should have known, such as the location of a new highway adjacent to the property.
net lease:
A lease where the tenant pays part of the building’s expenses in addition to the rent. This is a typical lease in commercial property rentals.
net listing:
A way to calculate the broker’s fee as well as establish a listing agreement where the broker is hired to sell the property at a certain price and is permitted to keep anything above that as the fee. Illegal in some states and discouraged in others.
net operating income:
The amount of annual income remaining after all building expenses except debt service (the mortgage payment) are deducted from potential gross income.
nonconforming use:
A structure or use of property that was once permitted but due to a change in the regulations wouldn’t now be permitted. Sometimes referred to as a grandfathered use or building.
nonconforming loan:
A mortgage loans that doesn’t meet the criteria of the secondary mortgage market.
nonjudicial foreclosure:
A procedure permitted in only some states that allows sale of property in the case of a default without going through a court proceeding.
novation:
In contract terms, where a new contract with different terms replaces the old one.
oil/gas rights:
Rights conveyed by a lease giving the leaseholder the right to extract oil or gas from the property.
open buyer agency agreement:
Where the buyer is able to enter into agreements with any number of brokers and only pays the one who finds them the property they ultimately purchase.
open end mortgage:
A mortgage loan that can be reopened and borrowed against after some of it has been paid down.
operating statement:
A statement that tracks the actual income and expenses of an investment property for one year. Also called an income and expense statement.
option:
A unilateral agreement in which a seller agrees to sell property to a buyer at an agreed to price within a certain time frame if the buyer wants to purchase the property. In an option agreement the buyer can choose not to purchase the property.
option listing:
A clause in a listing agreement that permits the broker to purchase the property. May be illegal or highly regulated in some states.
ordinary life estate:
A life estate in which the length of time of the estate interest is the lifetime of the person receiving the life estate.
origination fee:
An administrative charge paid by the buyer related to processing the mortgage loan.
ownership in trust:
A type of ownership where a third party holds title for the benefit of another person, the beneficiary.
package mortgage:
A loan that covers both the real estate and the personal property being sold with the real estate.
partial performance:
In contract terms, when one party agrees to accept partial completion of the contracted obligations as fulfilling the contract.
partially amortized loan:
A combination of an amortized loan and a straight loan where part of the principal is paid during the term of the loan.
partitioning:
A legal proceeding that is undertaken to divide a single piece of property that is owned in shares (undivided ownership) by two or more people.
party wall:
The outside wall between two buildings that is shared by both buildings.
payment cap:
A limit on the amount the monthly payment may be raised in an adjustable rate mortgage regardless of the change in the interest rate. It may result in negative amortization.
percentage lease:
A lease sometimes used in retail commercial rentals where the tenant pays the same base rent each month plus a portion of their sales volume that may vary each month.
percolation test:
The test done to determine the capacity of the soil to absorb leachate and therefore to determine where a septic field can be located. Also known as a perc test.
periodic estate:
In a tenancy situation created when the original agreement doesn’t contain any definite period of time. Also called an estate from period to period or periodic tenancy.
personal property:
Anything that is portable, moveable, and not permanently attached to the real estate. Also called personalty.
physical deterioration:
The normal wear and tear that a building experiences as it ages; dependent on the quality of the original construction and the level of ongoing maintenance.
planned unit development:
A single development having mixed uses that may include different types of residential uses as well as nonresidential uses.
plottage:
The influence on value that states that the whole may be greater than the sum of its parts. Also refers to the additional value created by assembling various properties into one larger property (assemblage).
points:
Each point is one percent of the mortgage loan amount and is paid at the beginning of the loan to lower the interest rate that will apply to payments going forward. In this case they’re called discount points. Points may also be used to calculate such things as origination fees and interest rate locks.
police power:
The right of the state to pass laws for the protection of the public. The state’s right to limit the use of privately owned property.
positive cash flow:
A property investment situation in which the property’s expenses are less than the property’s income.
potential gross income:
The total annual income a building will generate at 100 percent occupancy, based on market rent, lease rent, or a combination of the two.
pre-payment penalty:
A fee charged by a lender when a mortgage loan is paid off earlier than the normal schedule.
prepaid item:
In terms of proration at a real estate closing, an item the seller has paid but from which the buyer benefits.
prescriptive easement:
See easement by prescription.
price fixing:
When business competitors meet to decide on common prices for their services.
primary mortgage market:
The place where a person will go to borrow money to buy a piece of property. Also called primary lenders.
principal:
The person you represent as an agent. Also called the client.
priority of liens:
Applies in the case of multiple liens and determines the order in which lien holders get paid in the event of a court ordered sale of the property. The government is usually the first in priority to be paid.
private mortgage insurance:
Commonly referred to as PMI, this insurance coverage, purchased by the borrower, protects the lender in case the borrower defaults on the mortgage loan.
pro forma:
A one-year potential income and expense projection for a property investment. Also called a reconstructed operating statement.
probate:
The process for making sure that a will is legal and valid, the deceased’s wishes are carried out, and the assets are actually in the estate.
promissory note:
An agreement to repay a loan according to certain terms and conditions.
proprietary lease:
The type of lease given to an owner in a cooperative building since the owner owns shares in the corporation owning the building rather than owning real estate.
proration:
The allocation or dividing of certain money items at the closing.
protected classes:
Those groups, defined by characteristic, such as race or religion, that are protected by the Federal Fair Housing Act and various state and local laws, from discrimination.
public grants:
The conveyance of property from the government to an individual.
puffing:
Exaggerating the virtues of a property. It isn’t illegal because the exaggeration is usually fairly simple to verify.
purchase money mortgage:
The mortgage that is used to purchase real estate. Sometimes specifically refers to a mortgage loan made by the seller directly to the buyer.
quitclaim deed:
Provides no warrantees to the grantee and gives no implication of how much or how good the grantor’s title to the property is.
radon:
An odorless, colorless, tasteless, radioactive gas produced by the decay of natural materials such as rocks that are radioactive. At certain levels considered hazardous.
real estate:
The land and all natural and artificial improvements permanently attached to it.
real estate exchange:
A process for exchanging one property for another that allows for taxes on capital gains to be postponed. Also called a 1031 exchange or a tax-deferred exchange.
real estate investment syndicate:
An ownership structure (rather than a legal form of ownership) in which a number of people join together to invest in a single project or property.
real estate investment trust (REIT):
A form of investment similar to stocks that pools the money of multiple investors to invest in real estate.
The Real Estate Settlement and Procedures Act (RESPA):
The federal act taken together with the Truth in Lending Act (TILA) that governs various paperwork and procedures to be followed before and at the closing where a mortgage loan is involved.
real property:
The land, natural and artificial improvements, and all the rights, benefits, and interests that go with owning a piece of land and the improvements.
reconveyance deed:
Used in a trust arrangement to convey title back to the trustor by the trustee when the debt is paid off.
rectangular survey system:
A system for legally describing the boundaries of a piece of property based on a system of lines throughout the United States forming squares and rectangles. Also called the U.S. Governmnet Survey System.
redlining:
A prohibited action whereby lenders deny mortgage loans based on location rather than an individual’s eligibility for the loan.
rent loss insurance:
Insurance that covers losses to the owner due to the building not being available to be leased due to damage such as from fire. Doesn’t covers rent losses due to normal vacancies. Also called business interruption insurance or consequential loss insurance.
rentable space:
The space the tenant pays for when renting nonresidential space, such as in an office building or shopping mall.
renunciation by the agent:
Where the agent in a real estate listing agreement dissolves the contract against the wishes of the seller or buyer.
replacement cost:
Used in the cost approach, the cost to construct a building with the same utility (usefulness) as a comparable structure using today’s materials and standards.
reproduction cost:
Used in the cost approach, the cost to construct an exact duplicate of the subject structure at today’s costs.
rescission:
In contract terms, when one party decides not to fulfill its obligations under the contract and considers the situation as if the contract never existed.
reserves:
Funds that are put aside by the owner of the building to pay for periodic expenses that don’t occur annually, such as replacing a stove in an apartment. Sometimes called reserves for replacement.
reverse mortgage:
A loan that allows the property owner to use the equity in his home without selling the home. The primary feature that differs from a regular home equity loan is the ability to delay repayment until the property owner leaves the home.
reversionary right:
The right of someone to get back her property automatically. In a lease situation the owner has a reversionary right to possess her property at the end of the lease term. Sometimes called leased fee estate with reversionary rights.
revocation by the principal:
Where the principal (client) in a real estate listing agreement dissolves the contract against the wishes of the agent.
right of quiet enjoyment:
The tenant to exclusive use of the premises for the term of the lease, without the landlord’s interference.
right of survivorship:
A characteristic of joint tenancy but not tenancy in common whereby the interest of a deceased member of the joint tenancy automatically goes to the remaining co-owners.
sale leaseback:
A situation where the owner of a property sells the property in order to obtain cash while remaining in the property as a tenant.
sales comparison approach:
The method most often used to appraise residential properties. Also called the market analysis approach and the market comparison approach.
salesperson:
A licensed person who is allowed to perform certain real estate activities but only under the supervision of a real estate broker.
sanitary waste:
The water that drains from such things as showers, toilets, sinks, and washing machines. Wastewater is often treated at sewage treatment plants.
secondary mortgage market:
A series of institutions that purchase mortgages from banks and other primary lenders in order to allow the primary lenders to replenish their funds to permit further loans.
section:
In the rectangular survey system, a subdivision of a township. There are 36 sections of one square mile each (640 acres) in a township.
seller default:
When the seller in a real estate contract refuses to proceed with the sale of a property.
seller incentive:
A situation where a seller will pay points (pre-paid interest) to lower the interest rate for the buyer. The cost of the points is usually added to the price of the property.
septic fields:
A part of an onsite septic system that absorbs the sewage into the ground. Also called leach fields or absorption fields.
septic system:
An on-site sewage disposal system usually for one house.
servient tenement:
As it applies to an easement, the property that is burdened by the easement.
shared equity mortgage:
Allows a portion of the profit made when selling a property to be shared with another party in return for that party’s financial help in purchasing the property.
sheriff’s deed:
A court-ordered deed used in the case of a foreclosure by a local government or bank. Individual states govern its use and form.
single agency:
When the agent represents only one party, the buyer or the seller.
special agent:
An agent hired to represent a client in a single transaction. The arrangement most common to a real estate sale/purchase.
special assessment:
Taxes that are levied against a specific group of properties rather than all of the properties in a municipality; usually to finance a local improvement such as sidewalks.
special assessment district:
An area designated in which the properties are subject to a special tax levy usually used to finance a local improvement such as sidewalks.
special permit use:
A type of variation from the zoning regulations that allows for a series of listed uses that may require extra control by the local government granting agency. Also called a special exception use permit, a conditional use permit, and a special use variance.
specific lien:
A lien attached to only one piece of property.
specific performance:
Occurs in a default situation when a lawsuit that is brought by a seller or buyer requires the other parry to go ahead with the sale.
statute of frauds:
A state law, found in all states, that governs various transactions. The law generally requires most real estate contracts to be in writing.
statutory right of redemption:
The right of the original owner to redeem a property that has been sold for back taxes after the sale has occurred.
steering:
Encouraging or discouraging people from buying or leasing property in a certain area as means of discrimination.
stigmatized property:
A property where something occurred that makes the property less desirable to some people.
straight line depreciation:
The cost recovery process used for tax purposes based on the concept that a building loses an equal amount of value each year over the cost recovery period.
straight line method:
In the cost approach to appraising property, a method of calculating depreciation that presumes that the structure deteriorates at the same rate each year. Also called the economic age life method.
straight loan:
Loan’s primary feature is that during the term of the loan, only interest must be paid. Also called a term loan.
strict foreclosure:
A process permitted in some states where the borrower must be given proper notice and a time frame established by the courts during which the borrower may pay off the debt.
strict liability:
In terms of environmental pollution, the owner of the property has no excuse with respect to his liability.
subdivision:
A single property divided into smaller pieces (lots, parcels) usually for sale or development.
sublease:
A situation where a tenant leases the space to another tenant (the subtenant). Provisions to allow or not allow subleasing are usually contained in the original lease.
subordinate lien:
Any lien that is in the line of payment after the lien in first position. Also called a junior lien.
subordination agreement:
An agreement that allows a new mortgage loan to be placed in first position ahead of previous loans, for repayment if a foreclosure become necessary.
substantial performance:
In contract terms, when the work under a contract is nearly completed and for one reason or another the determination is made to discharge (end) the contract. Monetary damages may be due to the injured party from the party who didn’t complete the work.
substitution:
The economic influence on value that states that a buyer will pay the least he can for a property that satisfies their needs.
Superfund Amendments and Reauthorization Act (SARA):
Passed in 1986, authorized more funding for the Superfund program, created stronger hazardous waste cleanup standards, and created innocent landowner immunity.
surety bond:
Insurance that pays for losses due to dishonest acts by employees such as the owner’s rent collector stealing the rents.
surface rights:
The rights of the owner to do whatever is legally permitted on the surface of the land.
surrogate’s court:
The court that handles the process of validating a will and distributing the assets. Also called probate court.
tacking:
As applied in the case of adverse possession, the ability to add periods of continuous use by different owners to achieve the required total period of continuous use.
tax base:
The total assessed valuation of taxable property within the community.
tax credit:
Subtracted from the taxes you owe.
tax deduction:
Subtracted from income to reduce your taxable income.
tax lien:
A financial obligation attached to a property based on taxes due.
temporary loan:
A type of loan used when funds are needed for a short period of time between real estate transactions. Also called interim financing, bridge loan, swing loan, and gap loan.
tenancy:
Having an interest in a piece of real estate. May refer to ownership as well as a leasehold interest.
tenancy by the entirety:
A form of ownership only available to married couples geared to protecting the interest of each of the partners.
tenancy in common:
A form of co-ownership with several distinct features one of which is the ability to leave the interest to heirs.
tenancy in severalty:
A form of ownership of real estate by one person. Also called sole tenancy.
tenant:
Someone seeking to rent space from the owner (landlord) of a property.
termination on sale clause:
A clause in a lease that, in the event the property is sold, allows the new owner to terminate the tenant’s lease otherwise the lease would remain valid.
tie-in arrangement:
When a customer who wishes to purchase one service or product is required to purchase another product or service as a condition of the sale. Also called tying agreement.
time share:
An arrangement where a person has either a fractional interest in a property or the right to use a property for a limited period of time each year or both.
title closing:
The point in time when a real estate transaction is finished and title (ownership) of a property is transferred from the grantor to the grantee.
title insurance:
An insurance policy that covers various defects in the title that may be discovered after closing.
title theory mortgage:
A mortgage lien theory that gives title of the property to the lender while the borrower retains equitable title. This theory makes it easier for the lender to claim the property in the event the borrower defaults.
townships:
In the rectangular survey system a division of a quadrangle and measuring six miles on each side.
transactional brokerage:
When the agent represents neither buyer nor seller but handles the transaction for both. Not available in all states.
triple net lease:
A lease where the tenant pays all of the buildings expenses. A typical lease in commercial property rentals.
trust deed:
Used to convey title by a trustor to a trustee for the benefit of a beneficiary as security for debt. Also called a deed of trust or a deed in trust.
trustee:
The person who holds the deed during the life of the loan in a trust deed situation.
trustee’s deed:
Used to convey (ownership) title of a property held in trust to someone else.
trustor:
The borrower who gives a deed for the property to the trustee as security for the loan in a trust deed situation.
The Truth in Lending Act (TILA):
The federal act taken together with the Real Estate Settlement and Procedures Act (RESPA) that governs various paperwork and procedures to be followed before and at the closing where a mortgage loan is involved.
unenforceable contract:
A contract that seems valid and may, in fact, have all the elements of a valid contract, but for one reason or another can’t be enforced by one party on another.
uniform commercial code (UCC):
A state law governing sales and contracts involving personal property.
unilateral contract:
A one-sided agreement in which only one party is obligated to do what is promised.
unity of interests:
A requirement for joint tenancy whereby each owner must have the same interest in the property.
unity of possession:
A requirement of joint tenancy whereby each owner has an undivided interest in the property.
unity of time:
A requirement of joint tenancy whereby all the owners must take ownership of the property at the same time.
unity of title:
A requirement of joint tenancy whereby the names of all owners must be on the same deed together.
universal agent:
Someone who acts on a client’s behalf in all transactions.
use variance:
A one property exception to the regulations of the zoning ordinance regarding use of the property.
useable space:
The space in a nonresidential property in which the tenant has exclusive use.
vacancy and collection loss:
A percentage number derived from the market place that reflects a loss of rent due to short-term periodic vacancies and nonpayment of rents.
vacancy rate:
The amount of a particular type of space that is vacant as a percentage of the total amount of that type of space in a given area.
valid contract:
A contract in which all the required elements are present.
value:
What something is worth usually in exchange for something else. Sometimes referred to as value in exchange.
value in use:
The value a property has to a specific person who may use it for a specific purpose that’s generally unavailable to the typical buyer.
variable expenses:
Property expenses that may vary with the occupancy of the building. All annual expenses that don’t fall into the fixed expense category or the reserves category. Sometimes called operating expenses.
variance:
A one property exception from the regulations of the zoning ordinance.
void contract:
A contract in which one or more of the required elements is missing.
voidable contract:
A contract that usually involves a situation in which one of the parties may not have the legal ability to enter into the contract but may confirm the contract at a later date.
voluntary alienation:
The voluntary transfer of ownership of a property from one person to another.
voluntary lien:
A lien in which the property owner willingly takes some action which allows a lien to be placed on the property, such as a mortgage loan.
wetland:
Land where the soil type and location allows for the extra absorption of water from natural sources such as rain. These areas act as sponges to help prevent flooding of other areas.
wraparound mortgage:
A mortgage loan where the seller retains the original mortgage loan, and the new mortgage loan includes payment of the new debt as well as payments on the original mortgage.
zoning district:
An area designated for a certain type of use by the zoning ordinance.
zoning ordinance:
A law, adopted by the municipality, that controls what property can be used for and the size and placement of structures on a property. Sometimes called a zoning code.
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