P.O Box 1534
West Chester, OH 45071-1534
Phone: 513-673-3800
Fax: 513-860-5516
Glossary of Real Estate Terms
Abstract of title - A condensed history of all the recorded instruments and proceedings which
affect the title to property.
Accelerated cost recovery system (ACRS) - Prior to 1986 tax law, appreciation rules allowed
greater depreciation deductions in the first years of an asset's period of use. ARCS can no
longer be applied to purchases, but it may be in use on buildings purchased prior to 1986.
Acceleration clause - A provision in a note, mortgage, or trust deed that allows the lender to
call due the entire debt when there has been a default by the borrower under the terms of the
contract. Such defaults may include: failure to pay principle, interest, or insurance payments;
lease a property for more than three years; selling and option to purchase the property; or sell
on land contract. Also called "Due on Sale" clause.
Accrued interest - Interest that has been earned but has not yet been paid or become payable.
Acquisition - Process by which a person obtains property.
Acre - A measure of land, approximately 209 foot x 209 foot. May be any shape totaling
43,560 square feet of land area.
Add-on interest - A method of computing interest whereby interest is charged on the entire
principal amount for the specified term, regardless of any periodic repayments of principal that
are made. Also called "Rule of 78".
Adjacent - Lying near to, but not necessarily in actual contact.
Adjoining - Touching; attached to; in actual contact.
Adjustable-rate mortgage (ARM) - A mortgage with an interest rate that can be adjusted
periodically in response to market conditions. Most often the rate is set at interest paid on
Federal note or bond plus some percent added. May be tied to rate that gives lender more
interest than Federal note rate. Also called a variable-rate mortgage (VRM).
Administrator - A person appointed by court to administer the estate of a deceased person
who left no will; that is, who died intestate.
Ad Valorem - Literally - "According to value". Used to describe a tax imposed on the value of
a property.
Adverse possession - The right of an occupant of land to acquire title to the property against
the real owner, where the occupant's possession of the land has been actual, open, continuous,
hostile, visible, and exclusive for some statutory period.
Affidavit - A statement or declaration in writing, and sworn or affirmed before an officer who
is authorized to administer an oath or affirmation.
Affirm - To confirm; to verify.
After-tax cash flow - The actual cash income and outgo for an investment project after taking
into account the effects of taxes.
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Agent - One who represents another from whom he has derived authority.
Agreement of sale - A written agreement between seller and purchaser in which the purchaser
agrees to buy certain property, and the seller agrees to sell upon terms and conditions set forth
therein.
Air rights - The right to use the open space above a property.
Alienation - A transferring of property from one person to another.
Allodial system - Ownership of real estate which is free and clear of any rent or service due
the government; the basis of the real property law in the U.S.
Amercement - A money penalty imposed on an offender at the discretion of the court.
Example: Penalty for bidding on a property at sheriff sale then defaulting on purchase.
Amortization - The systematic repayment of a debt by periodic installments, which normally
include principal plus interest, over a specified time period.
Amortization schedule - A table showing how a loan is systematically repaid during its term.
In a typical case the loan balance is reduced with every payment, arriving at zero when the
final payment is made. In some cases amortization may be negative in early years with loan
balance increased because interest is added to principal. Increased payments in later years
begin to pay off loan.
Annual percentage rate (APR) - The true annual interest rate, which must be disclosed under
the Federal Truth in Lending Act. This rate includes all costs required by lender. Examples,
closing costs, mortgage insurance, survey costs, points, etc.
Annuity - A sum of money or its equivalent that constitutes one of a series of periodic
payments. "Annuity Due" indicates payments made at the beginning of a period. "Ordinary
Annuity" indicates payments made at the end of a period.
Apportionment - Determination of who receives the income and pays the expenses on an
investment: usually computed to the date of closing of title. Generally, the seller pays all
expenses to that date, and the buyer assumes all expenses after that date.
Appraisal - An estimate of a property's valuation. Various methods and principles are:
1. Anticipation, principle of - Statement that the selling price of property is affected by
the expectation of its future higher or lower value.
2. Capitalization - estimating value by considering net annual income as a percentage of
a reasonable rate of return on an investment, i.e. Income/Rate = Value. Example:
Income $100 per year and rate 10%. Value = $100/.10 = $1000. In other words, an
investor looking for a 10% return would need to invest $1000 in capital to receive an
income of $100 per year. An investor looking for a 12% return would need to invest
only 100/.12=$833 to receive the same $100 per year.
3. Conformity, principle of - states that buildings should be similar in design,
construction, and age to other buildings in the area.
4. Contribution, principle of - states that any improvement to a property, whether to
vacant land or a building, is worth only what it adds to the property's market value,
regardless of the improvement's cost
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5. Cost approach - adds the estimated replacement cost of the building, less depreciation,
to the estimated value of the land.
6. Income approach - valuing an income-producing property by capitalization of its net
annual income.
7. Market data approach - valuing through examination and comparison of actual sales
of comparable properties. Also called "Comparative approach".
8. Substitution, principle of - market value of real estate is influenced by the cost of
acquiring a substitute or comparable property.
9. Summation, principle of - parts of a property are appraised separately then added
together to form a whole.
10. Appreciation - Any increase in value of property resulting from causes other than
improvements, such as inflation or the neighborhood "coming up".
Appurtenance - Something which is outside the property itself but belongs to the land and
adds to its greater enjoyment. Examples: gardens, garages, orchards etc.
Articles of partnership - Document describing the details of a partnership, including the
business to be pursued and the rights and responsibilities of the partners.
Assessed valuation - A valuation placed upon property by public taxation unit, as a basis for
taxation. In Ohio, assessed value is 35% of market value.
Assessment - A charge against real estate made by a unit of government to cover a
proportionate cost of an improvement, such as a street or a sewer.
Assessor - An official who has the responsibility of determining assessed values.
Assets - All things of value owned by a person, corporation, etc., whether encumbered or not.
Assignee - The person to whom an agreement or contract is assigned.
Assignment - The method or manner by which a right, agreement, or contract is transferred
from one person to another.
Assignment of Rents – A document used by mortgage companies which allows them to
collect the rents if the payments are not made. They may collect the rents prior to foreclosure.
Assignor - A party who assigns or transfers an agreement or contract to another.
Assumption of mortgage - The taking of title to property by a purchaser, wherein he assumes
liability for payment of an existing note or bond secured by a mortgage against a property and
becomes personally liable for the payment of such mortgage debt.
Attest - To witness to; to witness and sign a document.
Audit - Independent review by a certified public accountant of an accounting system and its
records for the purpose of determining if the accounting entity's financial statements fairly
represent the financial results and condition of the entity. "Tax Audit" - An audit by the IRS to
determine if taxes have been properly calculated.
Avulsion - A sudden and perceptible removal of land from one owner to another, as when a
stream suddenly changes its channel.
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Balloon payment - Final payment of a loan that is more than twice the required periodic
payments; results from the fact that the loan amount was not fully amortized. "Balloon note"
or "Balloon Mortgage" is a contract containing such a payment.
Bankruptcy - Proceedings under federal bankruptcy statutes to relieve a bankrupt debtor from
debt. The property is often sold, with the proceeds distributed by the court to the creditors to
satisfy all debts.
Bargain and sale deed - A deed in which the grantor makes no warranties about the quality of
the title. See "Quit Claim Deed"
Beneficiary - The person who receives or is to receive the benefits resulting from certain acts;
such as a will.
Bequeath - To give or hand down by will; to leave by will. Bequest - That which is given by
the terms of a will.
Bilateral contract - A contract between two parties in which each party has promised to carry
out some action.
Bill of sale - A written instrument given to pass title to personal property from one person or
entity to another.
Binder - An agreement given as evidence of good faith. In real estate the money given with an
offer to purchase, i.e. earnest money. In insurance the temporary agreement given by an agent
to bind the insurance company until the policy can be issued.
Blanket mortgage - A single mortgage which covers more than one piece of real estate. Often
requires pay off of the entire mortgage before any property can be released.
Blind pool - Group investment in which the property to be purchased is not identified at the
time investors are solicited.
Book value - All acquisition costs of an asset - including sales price, necessary improvements,
legal fees etc. - less any accrued depreciation.
Boot - Money or property used for the difference in value or equity between two properties
involved in an exchange. Example: the trade of a $150,000 building plus a $50,000 cash
"boot" for a $200,000 building. The "boot" portion is taxable.
Bona fide - Literally, "In good faith", without fraud.
Bond - The guarantee that money will be repaid; may be secured by a mortgage or other lien
on real estate.
Break-even point - The point at which the gross income of an investment equals the fixed
costs plus variable costs.
Broker - An agent who brings parties together and arranges contracts. In real estate, brokers
are licensed by the state and must have certain specified qualifications.
Building codes - Regulations established by governments stating fully the minimum
requirements for building. Local codes may be stricter than state codes.
Building line - A line fixed at a certain distance from the front and/or sides of a lot, beyond
which no building can project.
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Building loan agreement - An agreement whereby the lender advances money to an owner at
various stages of construction. Also called interim or construction financing.
Buyer's Agent: an agent who works for the buyer. Her duty to the buyer includes keeping
information given by the buyer in strictest confidence unless otherwise instructed. It also
includes the duty to try to get the best possible price and terms for the buyer.
Buyers' market - A time or place where buyers find extra good deals because of market
conditions. High interest rates, or low property demand creates this condition.
Call clause - A provision in a note, mortgage, or trust deed that gives the mortgagee or
beneficiary the right to demand full payment of the debt on a certain date or upon the
occurrence of specified conditions. See Due on Sale clause.
Capital assets - Assets of a permanent nature used to produce income, such as machinery,
buildings, equipment, land, etc. Must be distinguished from inventory.
Capital - Money or goods used to acquire other money or goods.
Capital gain - Profit derived from the sale of a capital asset, i.e.: real estate, bonds, securities,
etc. Was taxed at a low rate prior to if held 12 months or more.
Capital loss - A loss derived from the sale of a capital asset.
Capitalization of income - Calculation of value of a capital asset by looking at the income
generated by the asset. Example: an asset produces $1,000 worth of income a year. How
much are you willing to pay for the asset if you want a return of 10% on your cash? Divide
$1,000 by .10. You get value of $10,000.
Capitalization rate - The required rate of return used in the income approach to appraising
income property. Determined by buyers who determine what rate they need before they will
buy a given property. Will always vary with mortgage note rate.
Cash flow - Net spendable income from an investment which is determined by deducting all
operating and fixed expenses from the gross income. If expenses exceed income, the result is a
"negative cash flow".
Caveat Emptor - "Let the buyer beware". The buyer must examine the goods or property and
buy at his own risk. Consumer protection laws are reducing legal standing. Seller may now be
required to reveal known defects.
Certified property manager (CPM) - A designation conferred by the Institute of Real
Property Management upon one who has completed certain required courses and has been
active in property management.
Certified public accountant (CPA) - Accountant who has met certain educational and
experience requirements and has passed a state licensing examination.
Chain - Unit of land measurement (66 feet). May still be found in older deed records.
Chain of title - A history of conveyances and encumbrances affecting a title from the time the
original patent was granted, or as far back as records are available.
Chattel - Personal property; such as household goods or removable fixtures.
Chattel mortgage - A mortgage on personal property.
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Class of property - The overall feeling of a neighborhood involving socioeconomic factors as
well as physical characteristics and proximity to desirable amenities, and facilities. Class I is
best possible area; class V is worst possible area.
Clause - A provision in an agreement which confers upon one or all of the parties to the
agreement the right to terminate his obligations upon the occurrence of the condition or
contingency set forth in the document.
Closing - The final process in which a purchase/sale or loan transaction is completed.
Closing costs - Expenses incurred in real estate transactions above the purchase price (in the
case of the buyer) or deducted from the proceeds of the sale (in the case of a seller).
Closing costs include loan fees and/or points, legal fees, appraisal fees, deed and mortgage
recording fees, transfer of real property taxes, etc. They may be divided between buyer and
seller in any manner called for in the purchase contract. Often inflated to give lender extra
profit.
Closing date - The date upon which the buyer takes over ownership of the property.
Cloud on the title - An outstanding claim or encumbrance which, if valid, would affect or
impair the owner's title.
Cognovit note - Note authorizing confession of judgment.
Coinsurance - Common provision in property insurance requiring the insured to bear part of
property losses if the property is not "fully" insured. In most cases you must have the property
insured for at least 80 percent of value to be paid in full for damages.
Collapsible Corporation - A prearranged use of a corporation to convert ordinary income into
capital gain - a situation prevented by certain IRS rules.
Collateral - Security pledged for the payment of an obligation.
Commercial leasehold insurance - An insurance available to developers guaranteeing rent
payments in the event of a rent default.
Commercial property - Real estate intended to be used for commerce, usually factories, retail
stores, offices, motels and hotels. Ohio law now defines residential property of more than four
units as commercial for tax purposes.
Commission - A sum due a broker or salesperson for services
Commitment - A pledge, promise, or agreement.
Common elements - Parts of a property that are normally in common use by all of the
residents of a condominium and are considered necessary or convenient to the existence,
maintenance and safety of the condominium. Condominium owners have an undivided
ownership interest in the common elements.
Common Law - Body of law that grew up from custom and decided cases - English law rather
than codified law (Statutory law).
Community property - A system of property ownership based on the theory that each spouse
has an equal interest in the property acquired by the efforts of either spouse during the term of
a marriage.
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Comparables - Properties sold recently that are similar in size and location to a property under
consideration for purchase. A comparable property is one factor used to gauge the fair market
value of the property under consideration. Comparables should be of similar size, physical
characteristics, type of construction, and location.
Comparative market approach - The appraisal method that bases estimates of value upon the
recent sale prices of comparable properties. Also called market data approach. See Appraisal.
Completion bond - A surety bond posted by a landowner or developer which guarantees that a
proposed development will be completed according to specifications, free and clear of all
mechanics' liens.
Component depreciation - A tax-saving method of depreciating the components of a building
separately. Generally not available on building itself since 1981 tax law. However, anything
not attached permanently such as appliances, light fixtures, carpets, etc. can be depreciated
separately.
Condemnation - Taking private property for public use, with compensation to the owner; the
exercise of the right of eminent domain.
Conditional sales contract - A contract for the sale of property stating that delivery is to be
made to the buyer with title to transfer when conditions of the contract have been fulfilled.
(Land contract).
Condominium - Fee simple ownership of an apartment or a unit, generally in a multi-unit
building, plus an undivided interest in the common elements.
Condominium by-laws - The legal document setting forth the rules and regulations of the
condominium association and its governing body or council.
Condominium governing board - A group of persons, usually elected from among the
property owners, with legal authority to exercise management and control over the property as
specified in the by-laws. Also known as the property owners' association.
Consideration - Anything of value given to induce entry into a contract: money, personal
services, or any item having value.
Construction loan - An open-end mortgage obtained to finance the actual construction of
building on a property. Usually a short term loan.
Constructive eviction - Arises when a landlord, while not actually depriving a tenant of
possession of the property, renders the premises unfit for occupancy. Example: a tenant who
leaves a premises because of the absence of heat or water has been constructively evicted.
Constructive notice - Information or knowledge imputed by law to a person who could have
discovered the fact by proper diligence and inquiry.
Consumer price index - Index published by the U.S. Department of Labor, Bureau of Labor
Statistics, that shows the cost of a typical "market basket" of consumer products and services.
Often used as a basis for adjusting lease payments.
Contingency - A specified event that must occur in order for a contract to become binding
(such as the obtaining of suitable financing for a property purchase).
Contract - An agreement to do or not to do certain things in exchange for a legal
consideration.
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Contract for deed - Contract to deliver a Deed if the specified conditions of the contract terms
are met. Also called "Conditional Sales Contract", "Land Contract" and "Trust deed".
Conventional loans - A fully amortizing level payment loan with a fixed interest rate. Also
any loan given by a lender that is not government insured.
Conventional mortgage - A mortgage loan made without any additional guarantees for
repayment, such as FHA insurance, a VA guarantee, or private loan insurance.
Conversion - Change from one character or use to another. (From single family to duplex,
home to business, etc.)
Conveyance - The legal paper transferring ownership of property.
Cooperative - A residential multi-unit building whose title is held by a trust or corporation,
which is owned by and operated for the benefit of persons living in the building. The residents
are beneficial owners of the trust or stockholders of the corporation, each possessing a
proprietary lease and having joint liability for the mortgage on the property.
Cooperative farm credit system - A national banking system which includes several types of
specialty banks, each owned by its members. This network was created to aid farm and ranch
owners, operators, and investors in financing their activities.
Cooperative ownership - A form of multiple ownership of real estate in which a corporation
or business trust holds title to a property and grants occupancy rights of particular units to
shareholders through proprietary leases.
Cooping Agent - An agent who is working for the seller without being the listing agent.
Although he or she may never have met the seller nor seen the property before, you MUST
ASSUME that, unless he or she has offered agency to you, the agent is working for the seller.
Cooping agents are rare now most large companies will do only buyer brokerage when
working with a buyer.
Corporation - An artificial person created by sovereign authority which is endowed with
rights, powers, and privileges.
Counteroffer - An offer, instead of an acceptance, made in response to an offer.
Covenants - Agreements written into legal documents; such as a deed.
Creative financing - Any financing arrangement other than the conventional level-payment
fully amortizing fixed-interest-rate mortgage loan, often including seller financing, wrap-
around mortgages or mortgage assumptions.
Credit bureau - Reporting agency that provides information on borrowers' loan payment
defaults and other actions harmful to lenders.
Credit union - An organization where members place money in savings accounts. May pay a
higher interest rate on savings than other savings institutions, and make loans to members at
lower interest rate.
Crop share lease - A farmland lease in which the lease payment is a specified share of the
crop proceeds.
Cubage - Front or width of building multiplied by depth of building and by the height, figured
from basement floor to the outer surfaces of walls and roof.
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Curtilage - Area of land occupied by a building and its yard and outbuildings, actually
enclosed or considered enclosed.
Damages - A sum of money awarded to a person who has sustained an injury through the act
or omission or negligence of another.
Decedent - One who is dead, especially one who is recently deceased.
Declaration of condominium - The legal document that details all of the important features of
the condominium property and its shared ownership.
Declining-balance method - Computing depreciation by multiplying the undepreciated cost of
a building by a fixed percentage rate.
Decree - Order issued by one in authority; an edict or law; a judicial decision.
Dedication - A setting aside of land by an owner to some public use, together with acceptance
for such use by or on behalf of the public.
Deed - An instrument in writing duly executed and delivered, that conveys title to real
property.
Deed restriction - An imposed restriction in a deed for the purpose of limiting the use of the
land.
Deed of trust - A security instrument conveying title in trust to a neutral third party for a
particular piece of real estate. In some states a deed of trust is used instead of a mortgage. In
case of default, the trustee may be instructed to sell the property to satisfy the loan. Also
known as a trust deed.
Deed of trust note - A promissory note in which the lender's security is in the form of a deed
of trust.
Default - Failure to fulfill a duty or promise, or to discharge an obligation.
Defendant - The party sued in a suit: the party against whom relief or recovery is sought in a
civil suit.
Deficiency judgment - A judgment given when the security for a loan does not satisfy the
debt. Example: imposition of a personal liability on a mortgagor for the unpaid balance of a
mortgage debt after a foreclosure sale has failed to yield the entire amount of the debt.
Defined benefit trust - A tax-free retirement savings plan approved by I.R.S. for corporations.
Similar to an I.R.A. except contribution can be more generous and owner can be trustee.
Demised premises - Property conveyed by a lease.
Demographics - Statistical information on the population of an area.
Department of Housing and Urban Development (HUD) - A federal cabinet department that
regulates FHA and GNMA.
Depreciable amount - The cost of an asset, minus its estimated salvage value. The amount of
depreciation expected to be recognized during the asset's period of use.
Depreciation - Loss of value in real property brought about by age, physical deterioration, or
functional or economic obsolescence.
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Depreciation recapture - The excess of the sale proceeds on property over the initial cost,
limited to the amount of accumulated depreciation taken on the property up to the time of the
sale. The amount of depreciation deducted for tax purposes that "didn't really happen" in an
economic sense as reflected by the sale price of the property.
Descent - Hereditary succession. Succession to the ownership of an estate by inheritance or
any act of law, as opposed to "purchase". When an owner of real estate dies intestate, his
property descends, by operation of law, to his heirs.
Devise - A gift by will or by testament.
Directional growth - The location or direction toward which the residential sections of a city
are determined to grow.
Direct mail advertising - Advertising in which the advertiser mails the advertising material
directly to individuals in the target population, often through the use of rented mailing lists.
Discount - The difference between the face amount of a note or mortgage and the price at
which the instrument is sold on the secondary market.
Discounted cash flow - The present value of an expected future cash flow, reduced by an
estimated discount rate to reflect the difference in the value of the money now and the value of
the money received at a later date.
Discounted cash flow analysis - Investment analysis method that makes use of present values
of future cash flows. The most commonly used types of discounted cash flow analysis are the
net present value method and the internal rate of return method.
Discount rate - The percentage rate used to compute the present values of future cash flows.
Usually chosen on the basis of the rates of return on available alternative investments.
Discretionary funds - Money available for investment.
Disintegration - A condition of declining value in the life cycle of a property.
Display advertising - Advertising that gets attention, such as a larger than usual ad with a box
around it in the classified section of the telephone directory or in a newspaper or magazine.
Dispossess proceedings - Summary process by a landlord to oust a tenant and regain
possession of the premises for breach of conditions of the lease or occupancy. Eviction
proceedings.
Distress - The right of a landlord to seize a tenant's personal property to satisfy nonpayment of
rent.
Diversification - Investing in different areas so that adverse results are minimized.
Documentary evidence - Evidence in the form of written or printed papers.
Dower - The right that a wife has in her husband's estate.
Drainage - The flow of water onto, around, and away from property.
Dual Agent: an agent who works for the buyer and the seller, or, more correctly, acts as an
intermediary between the buyer and the seller. This is not the ideal situation for either the
buyer or the seller, since the agent is not working in the best interests of either party. However,
it is sometimes unavoidable -as when your buyer's agent happens to list a property ideal for
your investment goals.
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Due-on-sale clause - A clause in a mortgage or trust deed which stipulates that a borrower
cannot sell or transfer the property without prior written consent of the lender. Also called an
"alienation clause".
Duplex - A single structure designed for two-family occupancy.
Duress - Unlawful constraint exercised upon a person whereby he is forced to perform some
act against his will.
Earnest money - Deposit made by a purchaser of real estate as evidence of good faith.
Easement - The right of use over the property of another.
Economic feasibility study - In-depth analysis of the potential of a real estate investment,
concentrating on economic and financial factors.
Economic life - A period over which a property may be profitably utilized.
Eminent domain - A right of the government to acquire property for public use by
condemnation. The owner must be compensated.
Encroachment - A building, part of a building, or obstruction which intrudes upon the
property of another.
Encumbrance - Any right to or interest in land that diminishes its value.
Endorsement - An act of signing one's name on the back of a check or a note.
Environmental Protection Agency (EPA) - A federal agency that sets pollution standards and
enforces environmental law.
Equilibrium - A condition of stable property values.
Equity - The interest or value which the owner has in real estate over and above the liens
against it.
Equity of redemption - A right of the owner to reclaim property before it is sold through
foreclosure proceedings, by the payment of the debt, interest, and costs.
Erosion - The wearing away of land through processes of nature, as by streams or winds.
Escalator clause - A loan clause which provides for increases in payments/interest based upon
a predetermined schedule or economic index, such as the cost-of-living index.
Escheat - The reversion to the state of property in event the owner thereof dies, without
leaving a will, and has no distributees to whom the property should pass by lawful descent.
Escrow - A written agreement between two or more parties providing that instruments or
property be placed with a third party to be delivered to a designated person upon the fulfillment
or performance of some act or condition.
Escrow agent - A neutral third party used by buyers and sellers of property to facilitate the
transaction.
Estate - The degree of interest which a person has in real property.
Estate for life - An estate or interest held during the terms of some certain person's life.
Estate for years - An interest in land which will endure to a date specified in the document.
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Estoppel certificate - A legal instrument signed by the mortgagee or the mortgagor setting
forth the present status and the balance due on the mortgage loan as of a certain date. The
estoppel certificate is used to protect the buyer's interest by preventing a potential purchaser of
the loan from claiming that the original borrower owes more than the actual stated
indebtedness.
Eviction - A legal proceeding by a lessor landlord to recover possession of real property.
Eviction, actual - Where one is either by force or by process of law, actually put out of
possession.
Eviction, constructive - Any disturbance of the tenant's possessions by the landlord, whereby
the premises are rendered unfit or unsuitable for the purpose for which they were rented.
Eviction, partial - Where the renter is deprived of a portion of rented property.
Exclusive agency or exclusive right to sell - An agreement of employment of a broker to the
exclusion of all other brokers.
Exclusive right to sell - Listing agreement in which a commission must be paid to the listing
broker if the property in question is sold within the stated time period, regardless of who is
responsible for effecting the sale transaction.
Exculpatory clause - 1. A clause that is used in a lease with the intent to relieve the landlord
from liability for tenants' personal injuries and property damage. 2. In a mortgage note, the
lender waives the right to a deficiency judgment against the owner's assets other than the
property mortgaged.
Executor - A person named in a will to carry out the provisions as to the disposition of the
estate.
Executrix - A woman appointed to perform the duties of an executor.
Extension Agreement - An agreement which extends the life of an agreement.
Fact sheet - One or more pages of data on a property offered for sale, used as a marketing tool.
Fannie Mae - See Federal National Mortgage Association.
Farm credit system - Twelve-district system established in 1916 to serve the unique financial
needs of farmers, ranchers, rural home owners, and owners of certain farm-related businesses.
Farmers Home Administration (FMHA) - A federal agency that provides low interest loans
to farmers and others who are unable to obtain financial assistance from other sources.
Farmland - Land devoted to agriculture pursuits.
Feasibility analysis - An in-depth study of an investment project's potential with respect to
market, financial, physical, environmental, economic, legal, and political factors.
Feasibility study - An analysis of a proposed subject or property with emphasis on the
attainable income, probable expenses, and most advantageous use and design.
Federal Deposit Insurance Corporation (FDIC) - A federal agency that provides insurance
for depositors' accounts and supervises the operations of qualified banks.
Federal Fair Housing Law - A federal law that prohibits discrimination in the sale or rental of
most types of housing.
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Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac) - Provides a
secondary market for mortgages issued by members of the FHLB system. Privately owned
organization with an operation similar to FNMA.
Federal Housing Administration (FHA) - A federal agency that insures loans made by
approved lenders to qualified borrowers in accordance with its regulations.
Federal intermediate credit banks - Banks established in 1923 to provide funds to local
lending institutions to meet the short-term credit needs of farmers and ranchers.
Federal land banks - Banks established in 1917 to provide low-cost financing to meet the
needs of rural America.
Federal National Mortgage Association (FNMA, Fannie Mae) - A privately owned
corporation, originally created as a federal agency, that provides a major secondary mortgage
market.
Federal Reserve System - The nation's economic manager.
Federal Savings and Loan Insurance Corporation (FSLIC) - A federal agency that provides
insurance for depositor accounts and supervises operations of member savings and loan
associations.
Fee; Fee simple; Fee absolute - Absolute ownership of real property. A person has this type
of real estate when he is entitled to the entire property with unconditional power of disposition
during his life and descending to his heirs.
FHA - See Federal Housing Administration.
Fiduciary - A person who, on behalf of or for the benefit of another, transacts business or
handles money or property not his own. Such relationships imply great confidence and trust.
Financial intermediary - Financial fiduciary institution that acts as an intermediary between
savers and borrowers.
Financial risk - Risk due to the use of borrowed money and the difficulty that will result if the
investors are unable to make the required payments on the debt.
First mortgage - A mortgage that has priority as a lien over all other mortgages.
Fixed expenses - Costs that are more or less permanent with little variation from year to year,
i.e.: taxes and insurance.
Fixtures - Personal property so attached to the land or improvements as to become part of the
real property.
Foreclosure - A procedure whereby property pledged as security for a debt is sold to pay the
debt in the event of default in payments or terms.
Forfeiture - Loss of money or anything of value by way of penalty due to failure to perform.
Franchise - A private contractual agreement to run a business using a designated trade name
and operating procedures.
Freddie Mac - See Federal Home Loan Mortgage Corporation.
Free and clear - Real property against which there are no liens, especially voluntary liens.
Freehold - An estate in fee simple or for life.
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Front foot - A standard of measurement used in assessing and apportioning the cost of public
improvements (such as sewers, sidewalks etc.) among several properties which will benefit
from them.
Full disclosure - Revealing all the known facts that may affect the decision of a buyer or
tenant. A broker must disclose known defects in the property for sale or lease. A builder must
give to a potential buyer the facts of his new development. A broker cannot charge a
commission to buyer and seller unless both know and agree.
Functional obsolescence - defects in a building or structure that detract from its value or
marketability (see Obsolescence).
Fully amortizing loan - A loan that has periodic payments sufficient to completely pay off the
balance during the specified term.
Future value - The future amount of money to which a specified present amount invested at a
specified interest rate grows.
General contractor - A contractor who takes full responsibility for a construction project and
hires all of the specialized workers required for the job.
General partner - A co-owner in a partnership who is fully liable for all partnership debts.
General warranty - A covenant in the deed whereby the grantor agrees to protect the grantee
against the world.
Ginnie Mae - See Government National Mortgage Association.
Government National Mortgage Association - A federal agency which participates in the
secondary mortgage market through its mortgage-backed securities pool. Created in 1968 to
take over special assistance and liquidation functions of FNMA.
Grace period - Additional time allowed to perform an act or make a payment before default
occurs.
Graduated leases - A lease which provides for a graduated change at stated intervals in the
amount of the rent to be paid. Graduated-payment mortgage (GPM) - Mortgage loan with a
monthly payment initially lower than a conventional level-payment loan but with payments
that increase over the length of the loan.
Grant - A term used to indicate a transfer.
Grant deed - A deed in which the grantor warrants only that the property is free from unstated
encumbrances arising during his period of ownership.
Grantee - The party to whom the title to real property is conveyed.
Grantor - The person who conveys real estate by deed; the seller.
Gross income - Total income from property before any expenses are deducted.
Gross lease - A lease of property wherein the lessee pays a flat sum for rent out of which the
lessor is required to pay all expenses such as taxes, water, utilities, etc.
Gross rent multiplier - A figure which, when used as a multiplier of the gross income of a
property, produces an estimate of value of that property.
Ground lease - A lease on vacant land or unimproved real property.
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Ground rent - Rent paid to the owner of land for use of the property, normally to construct
buildings on it.
Growing equity mortgage - A mortgage instrument permitting a home purchaser to pay off a
mortgage by making increasingly larger monthly payments, with all of the increase being
applied to the unpaid principal balance of the loan so that the mortgage may be paid in full in
10 to 15 years rather than 20 to 30 years.
Hereditaments - The largest classification of property, including lands, tenements, and
incorporeal property, such as rights of way. Anything capable of being inherited
Highest and best use - Use of land that will produce the greatest net income and thereby
develop the highest land value.
Holdover tenant - A tenant who remains in possession of leased property after the expiration
of the lease term.
HUD - See Department of Housing and Urban Development.
Hypothecate - To pledge property as security without the necessity of giving up possession of
it.
Improvement -
1. Improvement ON land - any structure erected on a site to add to the value, such as buildings,
fences, etc.(usually privately owned)
2. Improvement TO land - usually publicly owned, such as sidewalks, streets, etc.
Income approach - The appraisal method that bases estimated value upon the amount of
income that the property or other investment generates.
Income multiple - A number that, when multiplied by the annual income from income
property, gives an estimate of the property's value. Equal to one divided by the capitalization
rate or the required rate of return.
Income property - Property that produces income. Usually rental property.
Incompetent - A person who is unable to manage his own affairs by reason of insanity,
imbecility, or feeblemindedness.
Industrial development council-corporation - A group, typically local, that works to attract
industrial activity to the area.
Industrial district or park - A controlled park-like development designed to accommodate
specific types of industry, providing public utilities, streets, railroad sidings, water, etc.
Inheritance tax - Tax imposed on inherited property; paid by the heirs.
Injunction - A writ or order issued under the seal of a court to restrain one or more parties to a
suit or proceeding from performing an act.
Installment contract - A contract for the purchase of real estate wherein the purchase price is
paid in installments during which time the purchaser is in possession and the title is retained by
the seller until final payment is made. Upon default, the purchaser's payments may be
forfeited. (see Land Contract).
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Installment sale - A method of reporting income received from the sale of real estate when the
sales price is paid in two or more installments over two or more years. A taxpayer can
postpone reporting such income to future years if the sale meets certain requirements.
Instrument - A written legal document; created to define the rights of the parties.
Interest - A fee or charge levied by lenders for the use of their money. Also a right in
property.
Interest-only loan - A loan that required the borrower to pay only the interest during the term,
with the principal balance being due in full at the end of the term.
Interest rate - The percentage charged for the use of money.
Internal rate of return - The discount rate that produces a zero value for the net present value.
The internal rate of return can be interpreted as the rate of return on the investment. An
investment analysis technique utilizing discounted cash flow.
Interstate Land Sales Full Disclosure Act - A federal law that regulates interstate land sales
by requiring registration with HUD. The law requires full and accurate disclosure of
information regarding the property to prospective buyers before they decide to buy.
Intestate - Describes a person who dies having made no will, or leaves one which is defective.
Investment - Money directed toward the purchase, improvement, and development of an asset
in expectation of income or profits.
Investment trust - A trust designed to act as an investment conduit for small investors,
enabling them to pool their resources.
Involuntary lien - A lien imposed against property without consent of the owner, i.e. taxes,
special assessments.
I.R.A. - Individual Retirement Account. A tax-free account that must be deposited in a bank,
brokerage firm, insurance company, credit union, or other approved trustee. One of 3 tax
deferred savings plans for employees. However, a self-directed I.R.A. may allow owner to
purchase notes and real estate of his choice. See Keogh and defined benefit trust.
Irrevocable - Incapable of being recalled or revoked; unchangeable.
Jeopardy - Peril; danger.
Joint tenancy - Ownership of realty by two or more persons, each of whom has an undivided
interest with the "right of survivorship".
Joint venture - When two or more people join together in a specific business enterprise.
Similar to a partnership, except that the involved parties usually discontinue the association
upon completion of the project. An equity participation arrangement in which a lender (funds)
and a developer (expertise) become partners would be a common joint venture.
Judgment - Decree of a court declaring that one individual is indebted to another, and fixing
the amount of such indebtedness.
Junior mortgage - A second mortgage, third mortgage, etc.; a lien that is subordinate to a first
mortgage.
Keogh plan - A self-employed retirement plan similar to an I.R.A. Business owner may be his
own trustee.
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Land, tenements, and hereditaments - A phrase used to express all sorts of property of
immovable class.
Land bank - Land purchased and held for future development.
Land contract - A contract for the purchase of real estate wherein deed is delivered after terms
of the contract are met. Usually involves purchase on an installment basis. (see Contract for
Deed, Installment Contract).
Landlord - One who rents property to another.
Landlord Reference Bureau - Reporting agency similar to a credit bureau that provides
information on tenants' rent, defaults, and other action harmful to property owners. In Ohio
area Federal Adjustment Bureau is name of largest.
Land packaging - The assembly of several small land parcels into a larger one for a special
purpose such as an industrial park or a shopping center.
Latent defect (hidden defects) - Physical deficiencies or construction defects not readily
ascertainable from a reasonable inspection of the property, i.e. defective plumbing or wiring.
Lease - A rental agreement whereby one who is entitled to the possession of real property
transfers such rights to another.
Leasehold - The interest which a lessee of real estate has therein by virtue of his lease.
Leasehold mortgage - A mortgage loan secured by a tenant's leasehold interest in a property.
Lease insurance - Insurance that provides protection for property owners in case their tenants
are unable to pay their rent.
Lessee - A person to whom property is rented under a lease. Renter.
Lessor - One who rents property to another under a lease. Landlord.
Level-payment loan - A loan in which the periodic payments are the same, except for a slight
adjustment of the final payment to correct for mathematical discrepancies due to the rounding
off of intermediate amounts.
Leverage - Using borrowed money to finance the bulk of an investment. The property value
divided by the investor's own equity in the investment.
Liability - Any debt or legal obligation.
Lien - A legal right or claim upon a specific property which attaches to the property until a
debt is satisfied.
Lien, mechanic's - A notice filed with the County Clerk stating that payment has not been
made for an improvement to real property. Becomes a lien against the property.
Lien theory - The legal position (held by a majority of the states) that a mortgagee does not
have title to the mortgaged property, but only a lien in which terms become operative when a
default occurs.
Life, economic - The period over which it is more profitable to keep a property in use and in
repair than to scrap or reconstruct it.
Life estate - The conveyance of title to property for the duration of the life of the grantee.
Life tenant - The holder of life estate.
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Limited partner - A member of a limited partnership whose losses are limited to the amount
invested. Limited partners usually exercise no influence in making the investment or
management decisions.
Listing contract - An employment contract between principal and agent, authorizing the agent
to perform services for the principal involving the latter's property.
Litigation - The act of carrying on a lawsuit.
Living trust - An Arrangement in which legal title to a property is transferred by the owner
(trustor) to a third person (trustee) to be held and managed by the trustee for the trustor's
benefit, until specific goals have been attained.
Lock-in clause - A clause incorporated into a loan agreement that prevents the borrower from
repaying the loan prior to a specified date.
Lot - Any one of the marketable parcels into which a tract of land is divided upon platting;
applied especially to urban land.
Management agreement - The contract between the owner of property and a management
company.
Managing partner - In a limited partnership the managing partner makes the decisions and
bears a substantial amount of the risk in the investment venture.
Mandatory - Requiring strict conformity or obedience.
Marginal tax rate - The portion of your last dollar earned that must be paid in tax.
Market value - The highest price which a buyer, willing but not compelled to buy, would pay,
and the lowest a seller, willing but not compelled to sell, would accept.
Marketable title - A title which a court of law considers to be free from defect.
Mechanic's lien - A lien given by law upon a building or other improvement upon land, and
upon the land itself, to secure the price of labor done upon, and materials furnished for the
improvement.
Metes and bounds - A term used in describing the boundary lines of land, setting forth all the
boundary lines together with their terminal points and angles.
MGIC - See Mortgage Guarantee Insurance Corporation.
Mineral rights - Ownership rights to all minerals located on or under land and to the profits
realized from the sale of these minerals.
Miniwarehouse - Warehouse facility providing small storage areas for businesses and
individuals.
Minor - A person under a certain age specified by law.
Mobile home mortgage - A mortgage loan on a large mobile home that is considered to be
real property; usually drawn for a shorter period than a conventional real estate mortgage.
Monument - A fixed object and point established by surveyors to establish land locations.
Moratorium - An emergency act by a legislative body to suspend the legal enforcement of
contractual obligations.
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Mortgage - An instrument in writing, duly executed and delivered, that creates a lien upon real
estate as security for the payment of a debt.
Mortgage banker - A semifiduciary financial intermediary who originates new mortgage
loans, collects payments, inspects the collateral, and forecloses, if necessary.
Mortgage broker - A semifiduciary who acts as an intermediary between borrower and lender
for a real estate loan, thereby earning a placement fee.
Mortgage commitment - A formal indication by a lending institution that it will grant a
mortgage loan on property in a specified amount and on specified terms.
Mortgagee - The party who lends money and takes a mortgage to secure the payment thereof.
Mortgage factor - A number, often looked up in a financial table, which when multiplied by
the principal amount of a loan gives the amount of the periodic payment.
Mortgage guarantee - A promise that the balance under a mortgage loan will be paid in case
the original borrower is unable to do so. The makers of such promises (guarantors) are
typically government agencies such as the Federal Housing Administration or the Veteran's
Administration.
Mortgage Guarantee Insurance Corporation (MGIC) - An independent insurance
corporation that provides insurance for the top 5% to 25% of mortgage loans made by
approved lenders to qualified borrowers.
Mortgage insurance - Another name for a mortgage guarantee. May also be life insurance,
the proceeds of which are to be used to pay off a mortgage in the event of the borrower's death.
Mortgage loan - A loan secured by a mortgage.
Mortgage note - A promissory note in which the lender's security is in the form of a mortgage.
Mortgagee - A person who loans money and takes a mortgage to guarantee repayment.
Mortgagor - A person who borrows money and gives a mortgage on his property as security
for the payment of the debt.
Multiple listing - An arrangement among Real Estate Board of Exchange members, whereby
each broker presents his listings to the attention of the other members, so that if a sale results,
the commission is divided between the broker bringing the listing and the broker making the
sale.
Mutual savings bank - A financial institution established for the purpose of accepting
members' deposits and making real estate loans.
Neighborhood - A residential or commercial area with many similar types of properties;
defined by natural boundaries, such as highways, land use, average value and age of structures,
and income level of residents.
Net income - The difference between adjusted gross income and operating expenses. Three
different "Net" definitions are in use. So called "Broker's Net" is actually "Seller's Net". This
includes only a small part of operating expenses (Taxes, insurance, and utilities may be all that
is covered.) "Accountant's Net" includes all expenses such as replacement reserves for roof
repair, appliances, etc. "Investor's Net" is true net including value of investor's time, tax
shelter, and projected appreciation.
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Net lease - A lease requiring the tenant to pay rent as well as all the costs of maintaining the
building, including taxes, insurance, repairs, and other expenses of ownership.
Net listing - A price below which an owner will not sell the property, and at which price a
broker will not receive a commission. The broker usually receives the excess over and above
the net listing.
Nonconforming use - Use of property that is permitted to continue after a zoning ordinance
prohibiting it has subsequently been established for the area.
Notary Public - A public officer who is authorized to take acknowledgments to certain classes
of documents such as deeds, contracts, mortgages, and before whom affidavits may be sworn.
Must sign all documents to be recorded in most states.
Note - A signed instrument acknowledging a debt and promising repayment. Contains the
terms of repayment.
Obligee - The person in whose favor an obligation is entered into. The party to whom someone
else is obligated under contract.
Obsolescence - Lessening of value due to being out-of-date (obsolete) as a result of changes in
design and use; an element of depreciation i.e. Economic Obsolescence and Functional
Obsolescence.
Occupancy - The act of taking or holding possession and using a property.
Open-ended mortgage - A mortgage with a provision that the outstanding loan amount can be
increased on mutual agreement of the lender and the borrower, not to exceed the original
borrowing limit. NOTE: May allow lender to increase mortgage back to original amount and
still keep first position despite second mortgage!
Open listing - A listing given to any number of brokers without liability to compensate any
except the one who first secures a buyer ready, willing, and able to meet the terms of the
listing, or who secures the acceptance by the seller of a satisfactory offer; the sale of the
property automatically terminates the listing.
Open mortgage - A mortgage that has matured or is overdue and, therefore, is "open" to
foreclosure at any time.
Operating expenses - Periodic and necessary expenses that are essential to the operation and
maintenance of an income property.
Operating statement - The financial statement listing the income and expense amounts for
income property.
Opportunity cost - The amount of money that would be earned through alternative
investments.
Option - A right to purchase or lease a property upon specified terms within a specified time.
If the right is not exercised, the option holder is not subject to liability for damages; he only
loses the consideration paid for the right.
Option fee - The payment received by the owner of property in return for granting an option
on it to a potential future buyer.
Option price - The agreed-upon price of property under an option agreement.
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Ordinary annuity - A series of periodic money flows, the first occurring one period from the
present.
Origination fee - The fee charged by a lender to prepare loan documents, make credit checks,
inspect and sometimes appraise a property. The fee is usually computed as a percentage of the
face value of the loan.
Over-improvement - An improvement which is not the highest and best use for the site on
which it is placed by reason of excess in size or cost.
Partition - The division which is made of real property between those who own it in undivided
shares.
Partnership - The association of two or more individuals with the intent of carrying on a
continuing business for profit as co-owners. (1)GENERAL PARTNERSHIP is one in which
each general partner shares equally in the profits, losses, and administration of the operation.
(2)LIMITED PARTNERSHIP is usually an arrangement whereby the administration is
handled by one or more general partners and the funding by limited or silent partners. Legally,
limited partners can only be held responsible for losses to the extent of their investments.
Party wall - A party wall is a wall built along the line separating two properties, partly on
each, which wall either owner, his heirs, and assigns have the right to use; such right
constituting an easement over so much of the adjoining owner's land as is covered by the wall.
Percentage lease - A lease of property in which the rental is based upon the percentage of the
volume of sales made upon the leased premises. Usually provides for minimal rental.
Percentage with minimum lease - Commercial lease in which the tenant pays rent equal to a
specified percentage of gross sales or net income (or other agreed upon amount) with a
specified minimum lease payment.
Personal property - Any property which is not real property.
Planned Unit Development (PUD) - A planned combination of diverse land uses, such as
housing, recreation, and shopping, in one contained development or subdivision.
Plat book - A public record containing maps of land showing the division of such land into
streets, blocks, and lots and indicating the measurements of the individual parcels.
Plottage - Increment in unit value of a plot of land created by assembling smaller ownership's
into one ownership.
Points - Unit of measurement used for loan charges; one point equals 1% of the loan amount.
Police power - The right of any political body to enact laws and enforce them for the order,
safety, health, morals, and general welfare of the public.
Power of Attorney - A written instrument authorizing another to act in one's behalf as his
agent or attorney.
Premises - Lands and tenements; an estate; the subject matter of conveyance.
Prepayment clause - A clause in a mortgage that provides for a penalty to be levied against
the mortgagor (borrower) for repaying the loan before the specified due date.
Prepayment penalty - An amount set by a lender as a penalty to the debtor for paying off the
debt prior to its maturity. It is charged to recoup a portion of the interest that would have been
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earned if the loan had been carried to maturity. Often the prepayment penalty is specified in
the mortgage.
Present value - A sum of money which, if invested today at a specified interest (discount) rate,
would be worth a specified amount of money in the future.
Principal - (1) The employer of an agent or a broker; the broker's or agent's client (2) The
original amount of a loan, due and payable at a certain date.
Principal note - The promissory note which is secured by the mortgage or trust deed.
Private limited partnership - Limited partnership in which the shares are not offered to the
general public and thus has a relatively small number of partners. When less than 15 partners,
does not require registration with securities and exchange commission.
Property - The right or interest which an individual has in lands and chattels to the exclusion
of all others.
Proprietary lease - The type of lease used in cooperative buildings that defines the rights of a
tenant or shareholder to occupy a particular apartment.
Pro rata - Proportionately; distribution according to a particular rate, percentage, or
proportion.
Proration - A pro-rata adjustment of taxes, interest, insurance, etc., as of the closing of the
sale.
Prospectus - Document describing the details of an investment offering, such as shares in real
estate partnership.
Public limited partnership - Limited partnership in which the shares are offered to the public
at large and thus has a relatively large number of partners. Requires registration with proper
government commission.
Purchase and leaseback - Financial arrangement in which a real estate investor buys property
and then leases it back to the former owner, thus acquiring a source of regular income.
Purchase and sale contract - The formal agreement in which the seller agrees to sell and the
buyer agrees to buy property.
Purchase money mortgage - A mortgage given by a grantee in part payment of the purchase
price of real estate.
Pyramiding - A method of acquiring additional properties through refinancing existing
mortgages.
Quiet enjoyment - The right of an owner or a person legally in possession to the use of
property without interference of possession.
Quiet title suit - A suit in court to remove a defect, cloud, or suspicion regarding legal rights
of an owner to a certain parcel of real property.
Quit claim deed - A deed which conveys simply the grantor's rights or interest in real estate,
without any agreement or covenant as to the nature or extent of that interest, or any other
covenants. Usually used to remove a cloud from the title.
Rate of return - The annual percentage of return on investment of income property.
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Real estate - A portion of the earth's surface extending downward to the center of the earth and
upward into space, including all things permanently attached thereto by nature or man, and all
legal rights therein. Also termed realty and real property.
Real estate board - An organization whose members consist primarily of real estate brokers
and salesmen.
Real estate cycle - The idea that properties go through a series of states from pre-development
through growth, maturity and decline phases - and may experience a revitalization. The key to
the effective timing of real estate investments.
Real property - The rights of real estate ownership; often called the "bundle of rights."
Real Estate Investment Trust (REIT) - A group of investors who pool their funds for real
estate investing and who then become owners of shares in the trust.
REALTOR - A coined word which may only be used by an active member of a local real
estate board affiliated with The National Association Of Realtors. No requirements other than
state license requirements. There are eight affiliated societies, institutes, and councils as
follows; These require special education.
1. The American Institute of Real Estate Appraisers (AIREA) - Two designations.
MAI (Member of Appraisal Institute), and RM (Residential Member). The MAI and
RM designees are professional real estate appraisers with extensive experience in
property valuation.
2. The American Society of Real Estate Counselors (ASREC) - Rendered by qualified
experts on a fee basis. Each member is authorized to use the professional designation
CRE (Counselor of Real Estate).
3. The Farm and Land Institute (FLI) - Members who meet rigorous educational,
service and experience requirements earn the AFLM (Accredited Farm and Land
Member) designation.
4. The Institute of Real Estate Management (IREM) - Members hold the CPM
(Certified Property Manager) designation. Candidates must have extensive education
and five years of full-time decision-making experience in property management.
5. The Real Estate Securities and Syndication Institute (RESSI) - Must have the SRS
(Specialist in Real Estate Securities) designation. To obtain this designation,
candidates take a carefully planned course of study and must be involved in the real
estate securities industry.
6. Realtors National Marketing Institute (RNMI) - Requires membership with CCIM
(Certified Commercial Investment Member), CRB (Certified Real Estate Brokerage
Manager), CRS (Certified Residential Specialist), and Realtors National Marketing
Institute. These designations require extensive education.
7. The Society of Industrial Realtors (S.I.R.) - Requires at least seven years' experience
as an industrial property broker, subscribe to established ethical standards and pass a
rigorous examination after successfully completing the Society's industrial real estate
courses.
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8. The Women's Council of Realtors (WCR) - This is a support system within the
National Association. No designations are offered.
Realtor-associate - A licensed real estate salesperson who works under the direction of a
Realtor.
Recapture rate - The percentage of a property's original cost that is returned to the owner as
income during the property's remaining economic life.
Receiver - One who is appointed by a court of equity as its representative to manage property
owned by an insolvent debtor until the claims of creditors have been met, or to manage
property which is the subject of a lawsuit, pending its outcome.
Recognition clause - A clause included in a blanket contract for deed used to purchase a tract
of land for subdivision and development; provides for the protection of the rights of buyers of
small parcels in case of default by the developer/promoter.
Recording - The act of writing or entering in a book of public record instruments affecting the
title to real property.
Recreational property - Homesites with recreational amenities, which may include items such
as campsites and recreational vehicle parks or property that offers boating, fishing, skiing,
snowmobiling, hunting or other recreational activities.
Redemption - The right of a mortgagor to redeem the property by paying a debt after the
expiration date and before sale at foreclosure; the right of an owner to reclaim his property
after the sale for taxes.
Regulation Z - The truth-in-lending portion of the Consumer Credit Protection Act of 1968
which requires complete disclosure of the total costs involved in most credit activities.
Rehabilitation (rehabbing) - Renovating property for use or for resale, especially in an area
that is undergoing widespread revitalization.
REIT - See Real Estate Investment Trust.
Release - The act or writing by which some claim or interest is surrendered to another.
Release clause - A clause found in a blanket mortgage which gives the owner of the property
the privilege of paying off a portion of the mortgage indebtedness, and thus freeing a portion of
the property from the mortgage.
Remainder - An estate which takes effect after the termination of a prior estate, such as a life
estate.
Remainderman - The person who is entitled to receive the property after the death of a life
tenant.
REMT (Real Estate Mortgage Trust) - A business trust, similar to REIT, but investment is
made in mortgage securities, rather than real estate.
Renegotiable Rate Mortgages (RRM) - Mortgage loans with an interest rate that may be re-
negotiated periodically in response to market conditions. See Adjustable rate mortgages.
Rent - The compensation paid for the use of real estate.
Rent control - Regulation by governmental agencies restricting the amount of rent landlords
can charge their tenants.
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Repairs - General upkeep expenses of property that appear as expenses (deductions from
revenue) on the operating statement of income property.
Replacement cost approach - The appraisal method that bases estimates of value upon the
cost to replace property improvements.
Replacements - The removal of a significant component or portion of property and the placing
of a substitute component or portion in its place. These are shown as capital expenditures on
income property financial statements in contrast to repairs that are shown as expenses.
Representations - Statements made by the seller of property about the property's features and
characteristics.
Reproduction cost - Normal cost of exact duplication of a property as of a certain date.
Reserves - A portion of business earnings or bank assets set aside to cover possible losses or
withdrawals.
Residential property - Real estate intended to be used for living quarters.
Resort motel - Motel located in a vacation area with a possible seasonal business.
Restriction - A limitation placed upon the use of property contained in the deed or other
written instrument in the chain of title.
Restrictive covenants - Restrictions on the use of land set by former owners in their deeds of
conveyance or by the developer of a subdivision that prevent property uses that are detrimental
to property values and the enjoyment of property owners as a whole.
Reverse annuity mortgages (RAM) - A financial arrangement in which the lender makes
payments to the owner of a fully paid for house. This creates a debt that is paid off when the
house is sold, often after the death of a homeowner.
Reversion - The residue of an estate left to the grantor, to commence after the determination of
some particular estate granted out by him.
Reversionary interest - The interest which a person has in lands or other property upon the
termination of the preceding estate.
Revocation - An act of recalling a power of authority conferred, as the revocation of a power
of attorney, a license, an agency, etc.
Right of first refusal - The right of a person to have the first opportunity either to purchase or
lease a specific parcel of real property.
Right, littoral - Any right attaching to a parcel of land which appertains to standing water
bordering on such parcel.
Right of survivorship - Right of the surviving joint owner to succeed to the interests of the
deceased joint owner, distinguishing feature of a joint tenancy or tenancy by the entirety.
Right of way - The right to pass over another's land more or less frequently, according to the
nature of the easement.
Riparian owner - One who owns land bounding upon a river or watercourse.
Riparian rights - The right of a landowner to water on, under, or adjacent to his land.
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Risk - The possibility that the result of a course of action or an investment will not be as
expected.
Risk premium - An additional rate of return required by an investor or a lender due to the
presence of risk in an investment project or loan.
Risk-return relationship - The financial fact that an investment with little risk will generally
have a low rate of return. In order to have a chance at a high rate of return you must generally
take a higher level of risk.
Rollover loan - A loan that is refinanced periodically. May be a short term note that is
refinanced every 90 days or so. Could be a re-negotiable rate mortgage. Periodically
(typically every five years) the unpaid balance is refinanced at a new interest rate and the old
loan is actually replaced with a new one.
Rollover option - An option contract in which the potential buyer has the right to renew the
option one or more times upon the payment of a specified amount.
Sale-leaseback - A financial arrangement which usually involves an Investors purchasing real
estate from an owner, then leasing it back to the owner; may include a buy-back option.
Sales contract - A contract by which the buyer and seller agree to terms of sale.
Salvage value - The amount realized at the final sale of an asset at the end of its useful life.
Satisfaction of debt - An instrument for recording and acknowledging payment of an
indebtedness secured by a mortgage.
Savings and loan association - A financial institution established to accept members' deposits
and to make real estate loans.
Secondary market - A marketplace for mortgage loan originators to sell mortgages, thereby
releasing funds for more loans. i.e. GNMA, FNMA, private investors, etc.
Second mortgage - A lien on property used as security for a loan where there is already a first
mortgage on the property. Should mortgagor (borrower) fail to make payments, the first
mortgagee would get all money at foreclosure up to the full amount of his mortgage. Second
mortgagee would get any money left up to the value of the second mortgage. Mortgage being
first or second depends entirely on time recorded at the court house, unless mortgage states it is
subordinated to the rights of another mortgage holder.
Section - A unit of land approximately one mile square and normally containing 640 acres, as
laid out by the government survey.
Security - Something given, deposited, or pledged to make secure the fulfillment of an
obligation, usually the repayment of a debt.
Security deposit - Amount of money required to be paid by a tenant at the start of a lease to
cover damage to the leased property other than normal wear and tear.
Security instrument - A document that provides a lender with security for a loan. Something
to fall back on should the borrower default on payments. A mortgage.
Seisen (Seisin accepted as correct misspelling) (Seizin) - The possession of land by one who
claims to own at least an estate for life therein. Originally the completion of feudal investiture,
it has come to mean possession under a legal right (usually a fee interest).
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Sellers market - Market conditions in which property is in great demand. Usually a period
when interest rates are low and demand for and prices of property are high.
Sensitivity analysis - Performing multiple analyses on the same investment project by using
different assumptions each time, considering expected future cash flows and required rates of
return.
Set back - The distance from the curb or other established line, within which no buildings may
be erected.
Special assessment - An assessment made against a property to pay for a public improvement
by which the assessed property is supposed to be especially benefited.
Special warranty deed - A deed wherein the grantor limits his performance - a remedy in a
court of equity compelling a defendant to carry out the terms of an agreement or a contract.
Special performance - A remedy in a court of equity compelling a defendant to carry out the
terms of an agreement or a contract.
Speculation - Acquisition of property not for use but for resale at a profit, often after only a
short time period.
Speculator - One who analyzes and acquires properties with the expectation that prices will
greatly increase and the properties can be sold for a large profit at a later date.
Split fee - An equity participation program in which a lender purchases the land, leases it to a
developer, and finances the leasehold improvements, in return for a basic rental plus a
percentage of the profits.
Statute - A law established by an act of the Legislature.
Statute of frauds - State law which provides that certain contracts must be in writing in order
to be enforceable at law.
Stipulations - The terms within a written contract.
Straight line depreciation - A method of computing depreciation that assumes a level wearing
out process over a specified period; definite sum set aside annually from income to pay costs of
replacing improvements without reference to the interest it earns.
Subchapter "S" corporation - A corporation which, for tax purposes, has elected to be
treated as a partnership. Also called a "tax-option corporation".
Subdivision - A tract of land divided into blocks, building lots and streets by a recorded
subdivision plat; compliance with local regulations is required.
Subletting - A leasing by a tenant to another tenant a whole or part of his premises during
some part of his term as lessee.
Subordination clause - A clause which permits the placing of a mortgage at a later date which
takes priority over an existing mortgage.
Subscribing witness - One who writes his name as witness to the execution of an instrument.
Surety - One who guarantees the performance of another; guarantor.
Surrender - The cancellation of a lease by mutual consent of the lessor and the lessee.
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Surrogate's court (Probate Court) - A court having jurisdiction over the proof of wills, the
settling of estates, and citations.
Survey - The process by which a parcel of land is measured and its area ascertained; the
blueprint showing the measurements, boundaries, and area.
Syndication - Uniting a group of two or more people for the purpose of making and operating
an investment. A syndicate may operate as a corporation, general partnership, or limited
partnership.
Tax credit - A credit that is deducted dollar-for-dollar directly from taxes due.
Tax "free" exchange - An exchange of property for similar property of equal or greater value.
This exchange has no immediate tax effect, because the taxes are deferred.
Tax preference - A 15% minimum tax on items classified as tax preferences; designed to
counter the effects of the growing use of tax shelters.
Tax sale - Sale of property after a period of non-payment of taxes.
Tax shelter - A phrase often used to describe some of the tax advantages of real estate
investment, such as deductions for depreciation, interest, taxes, etc.
Tenancy - The act of using or occupying property, whose fee title is vested in someone other
than the occupant.
Tenancy, joint - A state of tenancy involving two or more persons owning undivided
possessory interests which have arisen out of a single conveyance, no one of the tenants being
free to create interests in the estate without the consent of the others, and the surviving tenants
acquiring the interest of any tenant who may die. Compare "Tenancy in Common"; "Tenancy
by the Entirety."
Tenancy in common - An ownership of realty by two or more persons, each of whom has an
undivided interest, without the "right of survivorship".
Tenancy by the entirety - An estate which exists only between husband and wife with equal
right of possession and enjoyment during their joint lives and with the "right of survivorship".
Tenancy in severalty - Ownership of property vested in one person alone. Also called
"several tenancy" or "sole tenancy".
Tenancy at sufferance - Tenancy of a lessee who lawfully comes into possession of a
landlord's real estate, but continues to occupy the premises improperly after his lease rights
have expired.
Tenancy at will - Gives the lessee the right to possession until terminated by lessee or as
stipulated in contract. The term of this holding is indefinite.
Tenant - One who is given possession of real estate for a fixed period or at will.
Testate - Describes a person who dies leaving a valid will.
Thrift institutions - A term applied to savings and loan associations and mutual savings banks
which originally pooled individuals' savings and made loans for purchase of homes.
Time is of the essence - A term used in a contract requiring that performance of certain acts be
completed within a stated period of time. Nonperformance within this time period, without a
written extension of time, can void the contract.
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Time sharing - A modern approach to communal ownership and use of real estate that permits
multiple purchasers to buy undivided interest in real property (usually in a resort condominium
or hotel) with a right to use the facility for a fixed or variable time period.
Title - Evidence that owner of land is in lawful possession thereof; evidence of ownership.
Title insurance - A policy of insurance which indemnifies the holder for any loss sustained by
reason of defects in the title.
Title search - An examination of the public records to determine the ownership and
encumbrances affecting real property.
Title theory - The legal position (held by a minority of the states) that a mortgagee actually
holds title to the mortgaged property until the mortgage loan has been repaid.
Topography - The features of the land surface, such as hills, valleys, mountains, etc.
Torrens title - System of title records provided by state law; it is a system for the registration
of land titles whereby the state of the title, showing ownership and encumbrances, can be
readily ascertained from an inspection of the "register of titles" without the necessity of a
search of the public records. Also called "registered land title".
Tort - A wrongful act, wrong, injury; violation of a legal right.
Townhouses - Individual living units built in rows with common walls to minimize
construction costs and maximize land use. Typically there are no living units above or below a
townhouse.
Tract - A parcel of land. Synonymous with a subdivision in some states.
Trade fixtures - Articles installed by a tenant under terms of a lease; removable by the tenant
before the lease expires. These remain personal property and are not true "fixtures".
Transfer tax - Tax stamps required (by state or local law) to be affixed to a deed when title is
transferred.
Triplex - A building composed of three dwelling units, each having a front and rear (or side)
door and yard.
Trust - An agreement whereby the owner of property transfers legal title to a second party (the
trustee), such property to be held, managed, or disposed of for the benefit of a third party (the
beneficiary) or the owner, or both, as set forth in the trust agreement.
Trustee - One who holds legal title to property under trust.
Trustee's deed - A deed executed by a trustee conveying land held in a trust.
Underwriting - The process of evaluating borrower credit, collateral value, and the risks
involved in making a loan.
Unearned increment - An increase in value of real estate due to no effort on the part of the
owner. Often due to increase in population or to inflation.
Unilateral contract - A contract in which one party agrees to perform some act without
receiving in exchange any promise or consideration from the other party.
Urban property - City property; closely settled property.
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Useful life - In appraisal for sale purposes, the true economic value of a structure in terms of
years of use to the owner.
Usury - On a loan, claiming a rate of interest greater than that permitted by law.
Utilities - Essential services, usually meant to include telephone, water, electricity, sewer, and
gas.
VA - See Veterans Administration.
Valid - Having force, or binding force; legally sufficient and authorized by law.
Valuation - Estimated worth or price; the act of valuing by appraisal.
Value - The power of an item to command other goods in exchange; the present worth of
future rights to income and benefits arising from ownership.
VA mortgage - A mortgage loan or trust made by a private lender and guaranteed by the
Veterans Administration (VA). These loans are designed to assist veterans in financing the
purchase of homes with small or no down payments at a comparably low rate of interest. They
may be assumed by anyone if originated before a certain date.
Variable-balance mortgage - A mortgage loan in which the balance may not always decline
as payments are made, but may increase, decrease, or stay the same, depending on
relationships involving the interest rate, the loan balance,and the amount of the monthly
payment.
Variable interest rate - A financing approach permitting a lender to alter the interest rate
based on a specific base index. This can increase or decrease monthly payments and/or extend
loan maturity.
Variable-rate mortgage (VRM) - A mortgage loan in which the interest rage can be adjusted
periodically in response to market conditions. See "adjustable-rate mortgage" (ARM).
Variance - An exception to or a change in zoning requirements without changing the zoning
itself.
Vendee - One who purchases; synonymous with "Buyer".
Vendee's lien - A lien against property under contract of sale to secure deposit paid by a
purchaser.
Vendor - One who transfers property by sale; synonymous with "Seller".
Verification - Sworn statements before a duly qualified officer to the correctness of the
contents of an instrument.
Veterans administration (VA) - A federal agency that guarantees the top portion of eligible
veterans' loans.
Violations - Act, deed, or conditions contrary to law or permissible use of real property.
Void - To have no force or effect; that which is unenforceable.
Voidable - That which is capable of being adjudged void, but is not void, unless action is taken
to make it so.
Waiver - The renunciation, abandonment, or surrender of some claim, right, or privilege.
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Warranty deed - A conveyance of land in which the grantor will protect the grantee against
all claims.
Will - The disposition of one's property to take effect after death.
Without recourse - Words used in endorsing a note or bill to denote that the future holder is
not to look to the endorser in ease of payment.
Wraparound encumbrance - A method of refinancing in which the new mortgage is place in
a secondary, or subordinate, position, i.e. a lender refinances a borrower by lending an amount
over the existing first-mortgage amount without disturbing the existence of the first mortgage.
(also known as an "all-inclusive trust deed").
Wrap-around mortgage - A mortgage that includes the balance due under the prior mortgages
as well as additional financing. The wrap-around mortgage lender collects payments based on
the full amount of all mortgages, and from the amount of those payments, continues to make
payments on the original mortgages, which are kept active. It is most often used when the
underlying mortgages have a lower interest rate than the new wrap mortgage, since the
mortgage under the wrap-around gains the difference between the two interest rates. Example:
first mortgage at 10% for $20,000. Wrap-around mortgage at 14% on $30,000 ($20,000 first
plus $10,000 second). Holder of the "Wrap" makes 4% on first mortgage plus 14% on
additional $10,000.
Writ of execution - A writ which authorizes and directs the proper officer of the court (usually
the sheriff) to carry into effect the judgment or decree of the court.
Yield - Income earned on an investment; usually used to refer to equity investments.
Zero lot line - The construction of a building on any of the boundary lines of a lot. Usually
built on the front line, such as a store built to the sidewalk.
Zero percent financing - A mortgage plan charging zero percent interest, with installment
payments all applied to the unpaid principal balance. Typically a large down payment of 20 to
30 percent is required, with the balance of the purchase price repayable in equal monthly
installments spread over a five-year to seven-year term, with no balloon payment.
Zone - An area set off by the proper authorities for specific use, subject to certain restrictions
or restraints.
Zoning ordinance - Act of city, or county, or other authorities specifying type and use to
which property may be put in specific areas.
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