General Real Estate Terms

condemnation

1. A decree by a court or municipal authority that a parcel of private property is to be taken for public use under the power of eminent domain. 2. A government order that a particular property is no longer fit for use and must be demolished.

qualification

1. A mortgage underwriting procedure to determine the financial capabilities and credit history of a prospective borrower. 2. A listing and marketing procedure to determine the needs and urgency of a client or customer.

depreciation

1. A non-cash expense taken against the income of investment property that allows the owner to recover the cost of the investment through tax savings. 2. A loss of value to improved property.

underwriting

1. A process of investigating the financial capabilities and creditworthiness of a prospective borrower and granting credit to a qualified borrower. 2. The act of insuring or financing a party, business venture, investment.

interest

1. A right to real property. 2. A lender's charge for the use of the principal amount of a loan.

estate

1. A set of rights to real property that includes the right of possession. 2. The totality of one's personal and real property ownership.

reversion

1. A transfer of title from a life estate tenant back to the grantor. 2. Proceeds from the sale of a property at the end of a holding period in a cash flow analysis.

escrow

1. A trust or impound account used for the proper handling of funds and documents in the closing of a real property transaction. 2. An account that a lender requires a borrower to establish to ensure that adequate funds will be available for payment of taxes and insurance on a mortgaged property.

credit

1. An accounting entry on a closing statement indicating an amount a party has paid or is to receive. 2. Loan funds advanced to a borrower.

liability

1. An accounting entry representing a claim against the assets of a business by a creditor. 2. A condition of vulnerability to lawsuits seeking redress for potentially wrongful acts or statements.

market

1. Buyers and sellers exchanging goods and services through the price mechanism. 2. The totality of interactions between supply and demand for a specific set of products or services in a particular geographic area.

revocation

1. Cancellation of a contract. 2. Cancellation of a real estate license.

conversion

1. Changing real property to personal property, and vice versa. 2. An illegal act of appropriating escrow funds for payment of an agency's operating expenses.

security

1. Collateral for a loan. 2. A type of personal property investment, for example, bonds, stocks, and mutual funds.

license

1. Legal authorization to conduct business. 2. An individual's personal right to use the property of another for a specific purpose. Revocable at any time at the owners discretion. Does not attach to the properu and terminates upon the death of either party.

superior lien

1. One of a class of liens that by law have a higher priority than any junior lien; all are tax liens. 2. A junior lien whose priority is higher than that of another lien.

common elements

1. Portions of a condominium property that are owned by all unit owners, for example the grounds, parking facilities, lobby, and elevators. 2. Portions of a commercial property used by all occupants as well as the public, for which the tenants may have to share in the repair and maintenance costs.

principal

1. The employer in an agency relationship, to whom the agent owes fiduciary duties. 2. The loan balance to which interest charges are applied.

general warranty deed

A bargain and sale deed containing the assurance that the grantor will defend against any and all claims to the title.

law of agency

A body of law defining roles, duties and responsibilities of an agent and a principal. Laws also set forth standards of conduct agent and principal owe to a customer.

common law

A body of law developed by court judgments, decrees, and case decisions.

descent and distribution, laws of

A body of state-level laws that stipulates how an estate will be passed on to heirs in the absence of a valid will.

co-brokerage

A brokerage practice where agents and brokers outside of the listing broker's agency assist as subagents in procuring a customer in exchange for portions of the commission.

buyer representation agreement

A brokers listing with a buyer to locate a suitable property for purchase or lease

limited partnership

A business enterprise consisting of general and limited partners: general partners manage the affairs of the business while limited partners are silent investors.

sole proprietorship

A business entity with an individual as sole owner. The death of the owner terminates the business.

assemblage

A combining of contiguous parcels of real estate into a single tract, performed with the expectation that increased value will result.

executory contract

A completed agreement which enjoins one or both principal parties to perform certain actions in order for the contract to become fully executed.

marketable title

A condition of title to a property where there are no claims, liens, or encumbrances clouding title or impeding the property's transferability. design

contingency

A condition that must be satisfied for a contract to be binding and enforceable.

sale contract

A contract for the purchase and sale of real property containing all terms and provisions of the sale and describing the responsibilities of the parties.

bilateral contract

A contract where both parties by the other party. See promise to perform in exchange for performance unilateral contract.

severance

A conversion of real property to personal property through detachment of the item from the land.

stock sale

A conveyance of an incorporated business through the purchase of the stock. Entails the purchase of all liabilities as well as assets. See also asset sale.

proprietary lease

A cooperative owner's lease on a unit in the cooperative building. The lease runs concurrently with the owner's ownership interest in the cooperative.

judgment

A court decision resulting from a lawsuit. If a creditor sues to collect a debt, a favorable ruling is followed by a judgment lien against the defaulting borrower's property.

deficiency judgment

A court order enabling a damaged lender to attach a lien on the defaulted borrower's property for an amount equal to the difference between the debt and the proceeds of a foreclosure sale.

quiet title suit

A court proceeding to clear a property's title of defects, claims, and encumbrances.

probate

A court proceeding to validate and distribute a decedent's estate to creditors, tax authorities, and heirs.

judicial foreclosure

A court proceeding triggered by a foreclosure suit. Involves notice, debt acceleration, the termination of the owner's interests in the property, and a public sale where proceeds are applied to the debt.

strict foreclosure

A court proceeding which gives a creditor legal title to a liened property rather than cash proceeds from a court-ordered sale.

tax sale

A court-ordered sale of a property to satisfy unpaid real estate taxes.

lien

A creditor's claim against real or personal property as security for a property owner's debt. A lien enables a creditor to force the sale of the property and collect proceeds as payment toward the debt.

master deed

A deed used to convey land to a condominium developer.

tax deed

A deed used to convey title to property sold in a tax foreclosure.

quit claim deed

A deed which conveys one's possible ownership interests to another party. The grantor does not claim to own any interest and makes no warrants.

determinable fee

A defeasible fee estate where title automatically reverts to the grantor if usage conditions stated in the deed are violated.

color of title

A defective title transfer or the transfer of a defective title where the new owner is originally unaware of the defect. Color of title may be used as a grounds for adverse possession, which, if successful, would nullify the original defect.

legal description

A description of a parcel of property which accurately locates and identifies the boundaries of the subject parcel to a degree acceptable by local courts of law.

principal meridian

A designated meridian in the rectangular survey system that is used in conjunction with a base line to identify ranges, tiers, and townships.

utility

A determinant of the value of an item reflecting the item's ability to perform a desired function.

broker

A direct agent of the principal who is hired for compensation to perform a stated service such as procuring a customer.

Government National Mortgage Association (Ginnie Mae)

A division of HUD which guarantees FNMA mortgages and securities backed by pools of VA- guaranteed and FHA-insured mortgages.

certificate of occupancy

A document confirming that a newly constructed or renovated property has fully complied with all building codes and is ready for occupancy and use.

certificate of title

A document expressing the opinion of a title officer or attorney that a property seller is in fact theowner of good title based on a review of title records.

appraiser

A duly trained and licensed professional authorized to perform appraisals for other parties.

title plant

A duplicate set of title records copied from public records and maintained by a title company

discrimination in housing

A failure to provide equal opportunity for persons to acquire or finance housing based on race, color, religion, national origin, sex, handicapped status, marital status, or family status.

Regulation Z

A fair financing law applying to residential loans; lenders must disclose financing costs and relevant terms of the loan to the borrower.

defeasible fee

A fee estate where ownership is perpetual, provided that usage restrictions or other conditions stated in the deed are upheld. If not, the fee reverts to the grantor either automatically (determinable fee) or by the grantor's actions (condition subsequent).

time share

A fee or leasehold interest in a property that is shared by owners who have use of the property at different times.

trust

A fiduciary relationship between a trustor and trustee. The trustor conveys legal title to property to the trustee, who holds and manages the estate for the benefit of another party, the beneficiary ( in a land trust, trustor and beneficiary are the same person).

agency

A fiduciary relationship between an agent and a principal where respective rights and duties are prescribed by laws of agency and by the agency agreement executed by the two parties. See universal agency, limited agency, and fiduciary.

general agency

A fiduciary relationship which authorizes the agent to conduct a broad range of activities for the principal in a particular business enterprise. May or may not include authority to enter into contracts.

universal agency

A fiduciary relationship which empowers an agent to perform any and all actions for a principal that may be legally delegated.

discounted cash flow analysis

A financial analysis to identify the discounted value of the cash flow of an investment over a given number of years. See discounting and cash flow.

contract for deed

A financial contract where a seller retains legal title to a property and gives the buyer equitable title and possession over a period of time. During the contract period, the seller finances all or part of the purchase price. If the buyer makes timely payments and abides by all contract provisions, the seller conveys legal title at the end of the contract period.

discounting

A financial practice of reducing the value of dollars received in the future by an amount that reflects the interest that would have been earned if the dollars had been received today. Performed to measure the present value of an investment's future income.

closing statement

A financial summary and settlement of a property transaction indicating sums due and payable by the buyer and seller.

monument

A fixed, artificial or natural landmark used as a reference point in a metes and bounds legal description.

trade fixture

A fixture necessary for the conduct of a business. Although affixed to the land, it is personal property.

general partnership

A for-profit business where two or more co-owners agree to share management responsibilities and profits. Does not involve silent partners, as in a limited partnership.

non-judicial foreclosure

A forced sale of mortgaged property without a formal foreclosure suit or court proceeding. Authorized through a "power of sale" clause in a mortgage or trust deed document.

joint tenancy

A form of real property ownership in which co-owners share all rights and interests equally and indivisibly; entails right of survivorship. Parties must establish tenancy at the same time and with a single deed.

survey

A formal measurement of the boundaries, dimensions, and elevations of a parcel of real estate performed by a professional surveyor. Required by lenders to identify possible encroachments, easements, and flood hazards.

life estate

A freehold estate that is limited in duration to the life of the owner or other named person. On the death of this person, legal title passes to the grantor or other named party.

tenancy

A freehold or leasehold estate held by a tenant.

remainder

A future freehold interest in a life estate held by a third party remainderman named by the grantor. When the life tenant dies, the estate passes to the remainderman. See also reversion.

Federal National Mortgage Association (Fannie Mae)

A government-sponsored agency in the secondary mortgage market which buys conventional, FHA, and VA loans, sells mortgage-backed securities, and guarantees payment of principal and interest on securities.

mechanic's lien

A junior lien enabling property builders, suppliers, and contractors to secure debt arising from labor and materials expended on a property. Distinguished by its order or priority, which is based on when the work was performed rather than when the lien was recorded.

home equity loan

A junior mortgage loan on a residence, secured by portions of the owner's equity in the home.

special exception

A land use in conflict with current zoning that is nevertheless authorized because of its perceived benefit to the public welfare.

variance

A land use that conflicts with current zoning but is authorized for certain reasons, including undue hardship to comply and minimal negative impact to leave it alone.

non-conforming use

A land use that is not consistent with the current zoning ordinance. May be legal or illegal.

suit for possession

A landlord's formal legal avenue for evicting a tenant.

statute of frauds

A law requiring certain contracts to be in writing in order to be enforceable. Examples are real property conveyances, listing agreements, and longterm leases.

statute of limitations

A law which restricts the period during which a damaged party may seek to rescind or disaffirm a contract or take other legal actions.

partition suit

A lawsuit requesting the court to alter or cancel the interests of a co-owner in a parcel of real property. Initiated when co-owners do not agree to make the change voluntarily.

escalator clause

A lease clause providing for an increase in rent.

ground lease

A lease of the land-only portion of a parcel of real property

full-service lease

A lease requiring the landlord to pay all of a property's operating expenses, including those that pertain to an individual tenant.

net lease

A lease which requires a tenant to pay rent as well as a share of the property's operating expenses to the extent provided in the lease contract

periodic tenancy

A leasehold interest for a lease term where, in the absence of default, the term automatically renews itself until proper notice of termination is provided by either party.

lease

A legal contract and instrument of conveyance which transfers to the tenant, or lessee, a leasehold fee for a certain duration. The lease contract sets forth all tenant and landlord covenants, financial terms, and grounds for default. The landlord is referred to as the lessor.

listing

A legal contract that establishes and controls the dynamics of the agency relationship between principal and agent. The principal to the listing may be buyer, seller, landlord, or tenant.

prior appropriation

A legal doctrine granting a state the power to control and regulate the use of water resources within state boundaries.

mortgage

A legal document wherein a mortgagor pledges ownership interests in a property to a lender, or mortgagee, as collateral against performance of the mortgage debt obligation.

estoppel

A legal restraint to prevent a person from claiming a right or interest that is inconsistent with the person's previous statements or acts. An estoppel certificate documents the party's initial position or act, which cannot be contradicted later.

origination fee

A lender's charge for funding a loan.

credit evaluation

A lender's opinion of a borrower's ability to repay a loan in view of financial capabilities and past repayment patterns.

Loan commitment

A lender's written pledge to lend funds under specific terms. May contain deadlines and conditions.

salesperson

A licensed employee or independent contractor hired by a broker to perform authorized activities on behalf of the broker's client.

general lien

A lien against any and all property owned by a lienee.

special assessment lien

A lien against property to secure a tax levy for a specific public improvement, su as a new road or sewer. Only properties benefiting from the improvement are taxed and liened.

involuntary lien

A lien imposed by legal process irrespective of the owner's wishes or consent.

specific lien

A lien placed against a specific item of property rather than against all of an owner's property.

inferior lien

A lien whose priority is subordinate to that of a superior (tax) lien. Priority among inferior liens is established according to the time of recordation, with the exception of the mechanic's lien. Also called junior lien.

legal life estate

A life estate established by operation of law rather than by the actions or wishes of the property owners. Examples are homestead law, dower, curtesy, and elective share.

pur autre vie

A life estate where the grantee's interest endures over the lifetime of another party named by the grantor.

restriction

A limitation on the use of a property imposed by deed, zoning, state statute, or public regulation.

exclusive right to sell

A listing agreement which pays the listing broker a commission if anyone at all procures a customer.

exclusive agency

A listing agreement which pays the listing broker a commission if anyone other than the property owner procures a customer..

net listing

A listing which states a minimum sale or lease price the owner will accept, with any excess going to the broker as a commission. Professionally discouraged, if not illegal.

buydown

A loan arrangement where the borrower pays extra interest in advance for the future benefit of a lower interest rate over the loan term.

due on sale

A loan provision defining the lender's right to accelerate a note upon the transfer of collateralized property.

tax district

A local government entity authorized by state, county, or municipality to levy taxes for a particular purpose.

concurrency

A local, county, or regional planning policy that requires developers to correct foreseen negative impacts of a development construction period of the project itself rather than during the afterwards; for example, widening a road during construction to accommodate a future increase in traffic.

obsolescence

A loss of property value because of functional or economic (external) factors. See functional obsolescence and economic obsolescence.

economic obsolescence

A loss of value in a property because of external factors generally beyond the control of the owner, for example, a municipality's lack of funds to improve deteriorated roadways. Also called external obsolescence.

physical deterioration

A loss of value to property because of decay or natural wear and tear. Exacerbated by deferred maintenance, or the failure to repair or maintain property on a regular basis.

balloon payment

A lump sum payment on any loan which retires the remaining loan balance in full.

Federal Home Loan Mortgage Corporation (Freddie Mac)

A major secondary mortgage market organization which buys conventional, FHA, and VA loans and sells mortgage-backed securities.

plat

A map of one or more properties indicating each parcel's lot and block number, boundaries, and dimensions.

buyer's market

A market characterized by an excess of sellers over buyers.

seller's market

A market condition characterized by an excess of buyers over sellers.

density

A measure of the degree of residential land use within a given area for purposes of residential zoning and land use control.

vacancy

A measure of the unoccupied supply of exiting space in a building or market at any point in time. A vacancy rate is the amount of vacant space divided by the total amount of existing space.

closing

A meeting of principal parties where a seller transfers title and a buyer pays monies owed the seller and lender.

cost approach

A method for determining value that takes into account the cost of the land and the replacement or reproduction cost of the improvements net of estimated depreciation.

lot and block system

A method for legally describing property in a subdivision where lots are identified by block and number. A recorded metes and bounds or rectangular survey description of the subdivision underlies the lot and block system.

sales comparison approach

A method of appraising property that relies on the principle that a property is generally worth what other, similar properties are worth. See substitution.

income capitalization

A method of appraising the value of a property by applying a rate of return to the property's net income.

metes and bounds

A method of legally describing property which utilizes physical boundary markers and compass directions for describing the perimeter boundaries of a parcel.

rectangular survey system

A method of legally describing real property which uses longitude and latitude lines to identify ranges, tiers, and townships. Also called government survey system.

comparative market analysis (CMA)

A method used by brokers and salespeople for estimating the current value of a property using sale price data from similar properties. Not to be confused with a bona fide appraisal performed by a licensed appraiser.

adjustable rate mortgage

A mortgage loan having an interest rate that can be periodically raised or lowered in accordance with the movement of a financial index.

purchase money mortgage

A mortgage loan where a seller lends a buyer some or all of the purchase price of a property.

second mortgage

A mortgage loan whose lien priority is subordinate to a senior, or first, mortgage.

equity of redemption

A mortgagor's right to pay off a defaulted mortgage and reclaim the property, provided the redemption occurs before the completion of the foreclosure sale.

planned unit development (PUD)

A multi-use development project requiring special zoning and involving deed restrictions.

Zoning ordinance

A municipal land use regulation

Open listing

A non-exclusive listing which pays an agent a commission only if the agent is procuring cause of a ready, willing, and able customer.

range

A north-south area bounded by consecutive meridians.

meridian

A north-south line used in the rectangular survey system of legal descriptions.

landlocked

A parcel of property lacking legal access to a public thoroughfare; requires a court-ordered easement by necessity to relieve the condition.

amortization

A partial or complete reduction of a loan's principal balance over the loan term, achieved by periodic payments which include principal as well as interest. See negative amortization.

joint venture

A partnership created for a specific, pre- determined business endeavor, after which the joint venture is usually dissolved.

beneficiary

A party named to benefit identified in a trust, insurance policy, of from the yield or disposition of an asset will.

grantee

A party who receives a right, interest, or title to real property from another.

grantor

A party who transfers a right, interest, or title to real property to another.

procuring cause

A party who was first to obtain a ready, willing, and able customer, or a party who expended the effort to induce the customer to complete the transaction.

assessment

A periodic charge payable by condominium owners for the maintenance of the property's common elements.

conventional loan

A permanent long-term loan that is not FHA-insured or VA-guaranteed.

gross easement

A personal right to use another's property, granted by the owner; does not attach to the estate, and there are no dominant or servient tenements.

title insurance

A policy that protects the holder against loss arising from defects in title or documents conveying title.

contract

A potentially enforceable agreement between two or more parties who agree to perform or not perform some act. If valid, the contract is enforceable, with limited exceptions.

eminent domain

A power of a government entity to force the sale of private property for subsequent public use.

foreclosure

A procedure for forcing sale of a secured property to satisfy a lienholder's claim.

offer and acceptance

A process that creates a contract. Acceptance is the offeree's unequivocal, manifest agreement to the terms of an offer. The offer becomes a contract when the acceptance has been communicated to the offeror.

servient tenement

A property containing an easement that must "serve" the easement use belonging to a dominant tenement.

comparable

A property having similar characteristics to a subject property in an appraisal. The value or sale price of the comparable is used to estimate the value of the subject.

offer

A proposal to enter into a binding contract under certain terms, submitted by an offeror to an offeree. If accepted without amendment, an offer becomes a contract.

deed restriction

A provision in a deed that limits or places rules on how the deeded property may be used or improved.

lis pendens

A public notice in a foreclosure proceeding that the mortgaged property may soon have a judgment issued against it. Enables other investors to join in the proceeding if they wish to collect their debts.

demand

A quantity of a product or service that is desired for purchase, lease, or trade at any given time.

Federal Deposit Insurance Corporation

A quasi- governmental agency that insures deposits of depository institutions and otherwise develops regulations for the banking industry.

syndication

A real estate investment structure in which investors provide capital and organizers provide management expertise to develop or acquire and manage investment real estate for profit.

ad valorem tax

A real property's annual tax levied by taxing entities according to the property's assessed value.

operating expense

A recurring or periodic expense necessary for the operation of an income property. Examples include utilities, management, and ad valorem tax expenses. Excluded are debt service and the property's income tax liability.

benchmark

A registered marker denoting an official elevation above sea level; used by surveyors to identify other elevations in the area.

percentage lease

A retail property lease which requires a tenant to pay a minimum amount of rent plus an additional increment that reflects the sales achieved by the tenant.

escheat

A reversionary transfer of real property to the state or county when the legal owner dies without a will and without heirs.

acceleration

A right granted through a loan clause enabling the lender to call all sums immediately due and payable on a loan should the borrower violate certain provisions of the loan agreement.

elective share

A right of a surviving spouse to claim a prescribed portion of the decedent's real and personal property in place of the provisions of the decedent's will.

quiet enjoyment

A right of an owner or tenant to use a property without interference from others.

appurtenance

A right, interest, or improvement that attaches to such as an easement and transfers with a parcel of real property, or a riparian right.

asset sale

A sale of a business involving the transfer of assets as opposed to the liabilities or stock.

sale leaseback

A sale of a property executed simultaneously with a lease on the property from the buyer back to the seller as tenant.

independent contractor

A sales agent who works for a broker but is not legally an employee. The employer exerts only limited control over the contractor's actions, does not provide employee benefits, and does not withhold taxes from the contractor's pay.

bundle of rights

A set of rights associated with ownership of property, including the rights to possess, use, transfer, encumber and exclude.

littoral rights

A set of water rights defined by state law relating to properties abutting navigable bodies of water such as lakes and bays. Generally, a property owner enjoys usage rights but owns land only to the high water mark. See riparian rights and prior appropriation.

gross income multiplier

A shortcut method for estimating the value of an income property. The procedure involves multiplying the property's gross annual income times a multiplier that reflects the ratio between gross annual income and sale price that is typical for similar properties in the area.

gross rent multiplier

A shortcut method for estimating the value of an income property. The procedure involves multiplying the property's gross monthly rent times a multiplier that reflects the ratio between gross monthly rent and sale price that is typical for similar properties in the area.

negative amortization

A situation in which the loan balance of an amortizing loan increases because periodic payments are insufficient to pay all interest owed for the period. Unpaid interest is added to the principal balance.

building code

A specific standard of construction or maintenance of any aspect of an improved property established by local government officials.

datum

A standard elevation reference point used by surveyors to measure elevations of property in an area.

lien theory state

A state whose laws give a lender on a mortgaged property equitable title rather than legal title. The mortgagor in a lien theory state retains legal title. See title theory state.

title theory state

A state whose laws give legal title of a mortgaged property to the mortgagee until the mortgagor satisfies the terms and obligations of the loan. See lien theory state.

police power

A state's or local government's legal authority to create, regulate, tax, and condemn real property in the interest of the public's health, safety, and welfare.

misrepresentation

A statement or act, or failure to make a statement or act, that misleads a party in a transaction. May be intentional or unintentional. May warrant legal recourse or license revocation.

redemption period

A statutory period after a foreclosure sale during which the foreclosed owner may buy back the property by paying all sums due the lender. See also equity of redemption.

survivorship, right of

A surviving joint tenant's right to receive all rights and interests in the property enjoyed by another joint tenant in the event of the latter's death

community property

A system of property ownership established by law which generally defines rights of property ownership of spouses; community property Is co-owned by spouses, and separate property is owned by a single spouse. Generally, property acquired during the marriage with jointly held funds is community property.

asset

A tangible or intangible item of value.

documentary stamp

A tax stamp affixed to a property document or record as evidence that the owner has paid taxes related to the financing or transfer of real property.

binder

A temporary agreement to buy a property evidenced valuable deposit. Receipt of the deposit binds a seller to a good a by faith agreement to sell a property, provided a complete sale contract is executed within a certain period.

equilibrium

A theoretical market state in which the forces of supply and demand are in balance.

highest and best use

A theoretical use of a property that is legally permissible, physically possible, financially feasible, and maximally productive, usually in terms of net income generation.

Torrens System

A title recording system that registers title to property, as well as liens and encumbrances, on a title certificate. The certificate is the title and reflects everything there is to be known about the condition of the title.

facilitator

A transaction broker who assists principal parties in completing a transaction without acting as a fiduciary agent of either party.

sublease

A transfer by a tenant of portions of the rights and obligations of a lease to another party, the sublessee. The original tenant, who is sublessor in the sublease, is still lessee in the original lease and remains primarily liable to the landlord for fulfilling lease obligations.

assignment

A transfer of one's entire interest in an item of real or personal property. The assignor transfers the interest to the assignee.

devise

A transfer of real or personal property from the devisor to the devisee(s) by means of a will.

alienation

A transfer of title to real property by voluntary or involuntary means.

involuntary alienation

A transfer of title to real property without the consent or against the will of the owner, for example, eminent domain, foreclosure, and adverse possession.

living trust

A trust established during one's lifetime in which the trustor conveys legal title to property to a trustee and names another party as beneficiary. The trustee discharges management duties and the beneficiary receives all profit and gain net of the trustee's fees.

land trust

A trust in which a trustor conveys a fee estate to a trustee and names himself or herself as beneficiary. The beneficiary in turn controls the property and the actions of the trustee.

option

A unilateral contract in which an owner, or optionor, grants a buyer or tenant, the optionee, a future right to be exercised before a deadline, in exchange for valuable consideration. The terms of the right, such as a right to purchase or lease, must be clearly stated and cannot be changed during the option period.

public grant

A voluntary conveyance of property by a government entity to a private party.

private grant

A voluntary conveyance of property by a private party.

subordination

A voluntary or involuntary placing of a lien's priority below that of another. A mortgage lien, for example automatically subordinates to a real estate tax lien.

conveyance.

A voluntary transfer of real property interests.

dower

A widow's life estate interest in portions of her deceased spouse's real property.

curtesy

A widower's life estate claim to portions of his deceased spouse's real property. See also dower.

holographic will

A will prepared entirely in the testator's handwriting, complete with date and signature.

covenant

A written warrant or promise set forth in a contract or other legal document by one or both of the parties to the contract.

Abstract of Title

A written, chronological record of the title records affecting rights and interests in a parcel of real property.

evidence of title

Actual or constructive notice of real property ownership, including opinion of title, certificate of title, and title insurance.

notice of title

Actual or recorded public evidence of real property ownership. See actual notice and constructive notice.

personal property

All property that is not considered real property; all property that is not land or permanently attached to land, excepting trade fixtures and emblements.

debit

An accounting entry on a closing statement indicating an amount a party must pay.

straight-line cost recovery

An accounting method for deducting depreciation expense from income. Periodic cost-recovery charges are made in equal amounts over a depreciation period. For example, the straight-line cost recovery of a $5,000 item over 5 years would be $1,000 per year.

price fixing

An act of collusion where competitors agree to establish prices at certain levels to the detriment of customers or other competitors.

allocation of markets

An act of collusion where two or more competitors agree to limit competitive activity in portions of the market in exchange for reciprocal restrictions from the others.

recording

An act of entering into public title records any document or transaction affecting title to real estate. Recording gives constructive notice of one's rights and interests in a property and establishes the priority of inferior liens.

blind ad

An advertisement that does not contain the identity of the advertiser.

Federal Housing Administration

An agency of the Department of Housing and Urban Development which insures permanent long-term loans that meet certain qualifications.

subagency

An agency relationship between the client of a listing broker and other brokers and salespeople who have agreed to assist the broker in procuring a customer for the client. The assisting brokers are agents of the listing broker and subagents of the listing broker's client.

implied agency

An agency relationship that arises by implication from the actions and representations of either agent or principal.

limited agency

An agency relationship which restricts the agent's authorizations to a specific set of duties. The relationship usually terminates on performance of these duties, as in a real estate broker's listing agreement. Also called special agency.

marketing plan

An agent's design for procuring a customer for a client, including selling and promotional activities.

unilateral contract

An agreement in which only one party promises to perform, contingent on the other party's performance of an optional action.

void contract

An agreement that is null and cannot be enforced.

voidable contract

An agreement that is subject to being nullified because a party to the agreement acted under some legal disability. Only the disadvantaged party can take action to void the contract.

master plan

An amalgamated land use plan for a municipality, county, or region which incorporates community opinion, the results of intensive research, and the various land use guidelines and regulations of the state. Acts as a blueprint for subsequent zoning ordinances and rulings.

reserve allowance

An amount of money allocated from a property's income to cover future repair and maintenance costs.

substitution

An appraisal principle that holds that a buyer will pay no more for a property than the buyer would pay for an equally desirable and available substitute property. Forms the foundation for the sales comparison approach to value.

reconciliation

An appraiser's weighted blending of the results of different approaches to value into a final value estimate.

tier

An area between consecutive parallels, as defined in the rectangular survey system.

section

An area defined by the rectangular survey system and consisting of 1/36th of a township, or one square mile.

township

An area six miles square, bounded by two consecutive parallels and two consecutive meridians in the rectangular survey system. Contains 36 sections.

opinion of title

An attorney's or title officer's opinion of the condition and marketability of title to a parcel of property based on a recent search of title records by a competent party.

power of attorney

An authorization granting a fiduciary behalf. Used to the power to perform specified acts on the principal's establish a universal agency relationship.

securities license

An authorization to broker securities. The Series 39 and 22 securities licenses authorize licensees to broker real estate securities.

equalization

An averaging of assessed valuations in an area to compensate for ad valorem tax inequities.

party wall easement

An easement appurtenant where owners of two adjacent properties share an improvement along the property boundary. The parties agree not to perform acts that would adversely affect the other party's interest in the shared improvement.

cloud

An encumbrance or claim on title to property impeding or diminishing its marketability.

condominium estate

An estate distinguished by fee simple ownership of the airspace of a unit plus an undivided interest with the other unit owners in the overall property's common elements.

tenancy in severalty

An estate in real property owned by a single party.

fee simple

An estate representing the highest form of legal ownership of real property, particularly the fee simple absolute estate.

leasehold estate

An estate that entails temporary rights of use, possession, and to an extent, exclusion, but not legal ownership. Compare freehold estate.

tenancy in common

An estate where each co-owner owns an electable share of the property and can transfer this share to any other party. Does not include right of survivorship; interests of deceased owners pass to heirs.

estate in land

An estate.

broker's opinion of value

An estimate of a property's value rendered by a party who is not necessarily licensed, objective, or qualified. The estimate may not be a complete appraisal.

homestead tax exemption

An exemption of a portion of the assessed value of a homeowner's principal residence from ad valorem taxation.

non-prorated expense

An expense incurred by buyer or seller in closing a real estate transaction that is not shared with the other party. Examples include attorney fees, documentary tax stamps, and lender fees.

base line

An imaginary latitude line within the rectangular survey system that is designated in relation to a principal meridian for purposes of identifying townships.

earnest money escrow

An impound account used for the safekeeping of a buyer's earnest money deposit; accompanied by specific instructions to the escrow agent for holding and disbursing the funds.

accretion

An increase in land caused by natural phenomena, for example a deposit of sand on a beachfront property due to a tropical storm.

appreciation

An increase in the value of a property generally owing to economic forces beyond the control of the owner.

plottage

An increment of value added by the assemblage of contiguous properties.

tax certificate

An instrument that gives the holder the right to apply for a tax deed after paying taxes on a property and after a statutory period.

deed of trust

An instrument used by a borrower to convey title to mortgaged property to a trustee to be held as security for the lender, who is the beneficiary of the trust.

deed in lieu of foreclosure

An instrument used to convey mortgaged property back to the lender rather than have the lender foreclose on the property.

deed in trust

An instrument used to convey real property to the trustee of a land trust. The trustor is also the beneficiary. See land trust.

private mortgage insurance (PMI)

An insurance policy, purchased by a borrower, that protects a lender against loss of that portion of a mortgage loan which exceeds the acceptable loan-to-value ratio.

goodwill

An intangible business asset valued at the difference between the sale price and the value of all other assets of the business.

price mechanism

An interaction of supply and demand that determines a price a buyer and seller agree is the value of a good or service to be exchanged. A quantification of value in a transaction.

easement

An interest in real property giving the interest holder the right to use defined portions of another's property. May or may not attach to the estate.

equitable title

An interest that gives a lienholder or buyer the right to acquire legal title to a property if certain contractual conditions occur.

encumbrance

An interest, right or intrusion that limits the freehold interest of an owner of real property or otherwise adversely effects the marketability of title.

real estate investment trust (REIT)

An investment in which owners purchase shares in a trust acquires real property. Investors receive income and which owns or gain on a per-share basis.

tax shelter

An investment that produces depreciation or other non-cash losses that a taxpayer can deduct from other income to reduce tax liability.

chattel

An item of personal property.

consideration

An item of tangible or intangible value, or one's promise to do or not do some act which is used as an inducement to another party to enter into a contract.

fixture

An item permanently attached to land so as to be defined as real property.

property

An item that has a legal owner, along with the attendant rights to legal ownership.

market value

An opinion of the price at which a willing seller and buyer would trade a property at a given time, assuming a cash sale, reasonable exposure to the market, informed parties, marketable title, and no abnormal pressure to transact.

appraisal

An opinion of value of a property developed by a professional and disinterested third party and supported by data and evidence.

parol contract

An oral agreement. Potentially enforceable if validly created.

multiple listing service

An organization of brokers who agree to cooperate in marketing the pooled listings of all members.

freehold estate

An ownership estate of indeterminable duration; contrasts with a leasehold estate.

encroachment

An unauthorized physical intrusion of one's real property into the real property of another.

debt coverage ratio

An underwriting equation reflecting how much debt service an investment property can reasonably afford to pay out of its net operating income; used to identify how large a loan the property can afford given an interest rate and loan term.

debt ratio

An underwriting equation that is used to determine how much debt an individual can reasonably afford in view of the party's or household's income.

income ratio

An underwriting ratio that relates a borrower's gross or net income and the debt service of a loan; used to determine how large a loan a borrower can reasonably afford.

loan-to-value ratio (LTV)

An underwriting ratio that relates the size of a loan to the market value of the collateral. The closer the loan value is to market value, the riskier the loan is for the lender, since the lender is less likely to recover the debt fully from the proceeds of a foreclosure sale.

collusion

An unlawful agreement between competitors to monopolize a market, disadvantage other competitors, or otherwise undertake activities in violation of fair trade laws.

commingling

An unlawful practice of mixing escrow funds with the agency's operating funds.

implied contract

An unstated or unintentional agreement that may be deemed to exist by implication because of acts or statements by any of the parties to the agreement.

capital improvement

An upgrading of improved property having sufficient magnitude to constitute an addition to the property's basis. Contrasts with repair and maintenance.

taxable income

Annual income from an investment property that is subject to taxation, generally equal to net operating income plus reserves minus depreciation and interest expense.

fair housing laws

Anti-discrimination legislation designed to ensure equal opportunity in housing to all home buyers.

fair financing laws

Anti-discrimination legislation designed to ensure that all parties have equal access to mortgage financing.

seller financing

Any financing arrangement where a seller takes a note and mortgage from the buyer for all or part of the purchase price of the property.

improvement

Any manmade structure or item affixed to land.

counteroffer

Any new offer or amended offer made in response to an offer. See offer.

proration

Apportionment of expense and income items at closing. Examples of items prorated between buyer and seller include interest, insurance, taxes, and rent.

taxable gain

Capital gain subject to taxation. See capital gain.

mutual consent

Consent by all principals to a contract to all provisions of the contract. A requirement for validity.

substantive contact

Contact between an agent and others that is deemed relevant to a transaction; used as a benchmark to define when an agent should disclose agency status to a prospective client or customer. If a contact is substantive, the agent must disclose agency status at the time of the contact.

disintermediation

Direct investment without the intermediation of a bank or other depository institution to make loans and other investments.

fiduciary duties

Duties of an agent to the principal in an agency relationship, including skill, care, diligence, loyalty, obedience, confidentiality, disclosure, and accounting.

usury

Excessive or illegal interest charged on a loan.

investment

Expenditure to purchase an asset with the expectation of deriving a future profit or benefit from the asset.

mortgage financing

Financing that uses mortgaged real property as security for borrowed funds.

specific performance

Forced performance of one's obligations in an agreement, to the letter of the agreement. A legal remedy for a damaged party to take against a defaulting party.

performance

Fulfillment of the terms of a contract.

legal title

Full legal ownership of property and the bundle of rights as they apply to it. Contrasts with equitable title.

liquidated damages

In a contract, a clause that expressly provides for compensation a defaulting party owes the damaged party. In the absence of such a clause, a damaged party may sue for unliquidated damages.

assumption

In a sale of real property, the transfer of the seller's mortgage loan obligations to the buyer. Requires, in most cases, the approval of the lender.

customer

In agency law, a party outside of the fiduciary relationship of client and agent. If an agent treats a customer as a client, an implied agency may result.

value

In general, the worth of an item as determined by its utility, desirability, scarcity, affordability, and other components and quantified as price.

blockbusting

Inducing property owners to sell or rent their holdings due to an impending downturn in their property values, often owing to a change in the area's ethnic or social composition.

hazard insurance

Insurance against loss or damage to real property improvements; required by most mortgage lenders to protect the collateral.

intermediation

Investment by a depository institution on behalf of depositors.

yield

Investment return expressed as a dollar amount or a percent of the original investment amount

actual notice

Knowledge given or received directly through demonstrable evidence. Actual notice of ownership: reading a bill of sale, inspecting a deed, searching title records. See also constructive notice.

constructive notice

Knowledge one could or should have, according to the presumption of law; a demonstration to the public of property ownership through title recordation, "for all to see." See actual notice.

real estate

Land and all manmade structures permanetly attached to it.

will

Last will and testament; written or verbal statement by a testator instructing how to distribute the testator's estate to heirs.

homestead laws

Laws that protect a homeowner against loss of the homeowner's principle residence to a sale forced by creditors to collect debts. Homestead laws also protect the interests of individual spouses by requiring both spouses to sign any conveyance of the homestead property.

intestate

Legal condition of a person who dies without leaving a will.

validity

Legal status of a contract that meets requirements of: competence of parties, mutual consent, valuable consideration, legal purpose, and voluntary good faith. A prerequisite for enforceability.

enforceability

Legal status of a valid contract or other document that a court of law will force to be performed.

antitrust laws

Legislation aimed at preventing unfair trade practices and monopoly, including collusion, price fixing, and allocation of markets.

primary mortgage market

Lenders and mortgage brokers who originate mortgage loans directly to borrowers.

secondary mortgage market

Lenders, investors, and government agencies who buy, sell, insure, or guarantee existing mortgages, mortgage pools, and mortgage-backed securities.

refinancing

Obtaining a new loan to replace an existing loan, usually to take advantage of lower interest rates, to obtain a longer-term loan, or to liquidate equity.

exclusion

One of the bundle of legal rights to real property enabling the owner to prevent others from entry or use.

mill

One one-thousandth of a dollar ($.001). Used to quantify the ad valorem tax rate in dollars.

point

One-percent of a loan amount, a lender's finance charge.

title

Ownership of real property as well as evidence of such ownership; legal title.

cooperative estate

Ownership of shares in a cooperative association which acquires a multi-unit dwelling as its primary asset. Shareholders also receive a proprietary lease on a unit for the duration of their share ownership.

arrears

Payment that occurs at the end of a payment term rather than at the beginning. Examples of items paid in arrears include taxes and interest.

debt service

Periodic payments of interest and/or principal on a mortgage loan.

emblements

Plants and crops considered personal property, since human labor is required for planting, growing and harvesting.

collateral.

Property liened by a lender as security for a loan.

title records

Public records of real property documenting the history of ownership, claims, ownership, conveyances, legal descriptions, and surveys.

real property

Real estate and the bundle of rights associated with ownership of real estate.

land use control

Regulation of how individual owners use property in a municipality or planning district. Control patterns are generally in accordance with a master plan.

eviction

Removal of a tenant from a property because of a lease default.

dual agency

Representing both principal parties to a transaction.

subsurface rights

Rights and interests to whatever is beneath the surface of one's parcel of real property.

air rights

Rights in real property as they apply to the property's airspace, or all space above the surface within the parcel's legal boundaries.

water rights

Rights of a property that abuts a body of water to own or use the water. See littoral rights, riparian rights, and prior appropriation.

surface rights

Rights to the surface area of a parcel of real estate.

installment contract

See contract for deed.

land contract

See contract for deed.

gross lease

See full service lease.

junior lien

See inferior lien.

interval ownership

See time-share.

mineral rights

Separable subsurface rights to mineral deposits; transferrable by sale or lease to other parties.

unequal services

Services that differ in nature or quality from those normally rendered, with the alteration based on race, color, sex, national origin, or religion.

ethics

Standards governing proper and professional business practices.

chain of title

Successive property owners of record dating back to the original grant of title from the state to a private party.

equity

That portion of a property's value owned by the legal owner, expressed as the difference between the property's market value and all loan balances outstanding on the property.

effective gross income

The actual income of an investment property before expenses, expressed as total potential income minus vacancy and collection losses.

millage rate

The ad valorem tax rate of a taxing district, derived by dividing revenues required from taxpayers by the district's tax base. If the millage rate is 30, the tax rate is 3%, or $3.00 per $100 of assessed valuation (net of exemptions).

fiduciary

The agent in an agency relationship; receives the trust and confidence of the principal and owes fiduciary duties to the principal.

air space

The air portion of real property. In a condominium unit, the freehold space enclosed by the unit's outer walls, floor, and ceiling.

net operating income

The amount of pre-tax revenue generated from an income property after accounting for operating expenses and before accounting for any debt service.

taxable value

The assessed value of a property net of all exemptions.

adjusted basis

The beginning basis, or cost, of a property plus the costs of capital improvements, minus all depreciation expense.

business brokerage

The brokerage of a business enterprise in addition to any real property it may own or lease.

property management

The business of managing the physical and financial condition of an investment property for an owner.

brokerage

The business of procuring customers on behalf of clients for the purpose of completing a real estate transaction.

absorption

The consumption of available vacant property in a building or market.

replacement cost

The cost of constructing a functional equivalent of a property at current labor and materials costs using current construction methods.

reproduction cost

The cost of constructing a precise duplicate of a property, at current labor and materials prices.

scarcity

The degree of unavailability of a product or service in relation to demand for the product or service. A critical element of value.

liquidity

The degree to which an investment is readily marketable, or convertible to another form of asset. If immediately salable, an investment is liquid; the longer it takes to sell, the more illiquid the investment. Real property is relatively illiquid in comparison with other types of investment.

capital gain (or loss)

The difference between the net sales proceeds of an asset and its adjusted basis.

present value

The discounted value of an amount of money to be received in the future that accounts for the interest that would have been earned if the money had been received in the present.

adverse possession

The entry, occupation, and use of another's property without the consent of the owner or where the owner took no action to evict the adverse possessor. May lead to loss of legal title if the adverse possessor fulfills certain requirements.

redlining

The illegal lending practice of restricting loans by geographical area.

contribution

The increment of market value added to a property through the addition of a component or improvement to the property. Not to be confused with the cost of the component.

testate

The legal condition of a person who dies leaving a valid will.

potential gross income

The maximum amount of revenue a property could generate before accounting for vacancy, collection loss, and expenses. Consists of total rent with full occupancy at established rent rates, plus other income from any source.

lien priority

The order in which liens against a property are satisfied; the highest priority lien receives sale proceeds from a foreclosure before any other lien.

beginning basis

The original cost or market value of an acquired asset.

point of beginning (POB)

The origination and termination point in a metes and bounds legal description.

agent

The party in an agency relationship who is hired by the principal to perform certain duties. In so doing, the agent must also uphold fiduciary duties owed the principal.

interest rate

The percentage of a loan amount that a borrower must pay a lender annually as interest on a loan amount.

economic life

The period during which an improvement is expected to remain useful in its original use. Establishes the improvement's annual depreciation amounts in appraisal. Depreciation in tax accounting is determined by a property's cost recovery class, which is related to economic life.

depreciable basis

The portion of a property's total basis that may be depreciated, generally the basis of the improvements, since land cannot be depreciated.

Federal Reserve System

The principal regulator of the money supply as well as of the American banking system.

steering

The prohibited practice of channeling prospective buyers and tenants toward or away from a particular area..

dominant tenement

The property that benefits from the existence of an easement appurtenant. The holder of the easement is the dominant tenant. See servient tenement.

supply

The quantity of a product or service available for sale, lease, or trade at any given time.

internal rate of return

The rate at which inflows from an income property investment must be discounted in order for the total inflows over time to equal the initial outlay, expressed as a percent; may include projected proceeds from the future sale of the property as an inflow.

capitalization rate

The rate of return on capital an investor will demand from the investment property, or the rate of return that the property will actually produce.

leverage

The relationship between the yield rate of an investment and the interest rate of funds borrowed to finance the investment. If the yield rate is greater than the loan rate, positive leverage results. If the yield rate is less than the loan rate, negative leverage results.

cash flow

The remaining positive or negative amount of income an investment produces after subtracting all operating expenses gross and debt service from income.

land

The surface area of the earth, all natural things permanently attached to the earth, and everything beneath the surface to the earth's center and above the surface extending upward to infinity.

annual percentage rate (APR)

The total cost of credit to a borrower inclusive of finance charges and the stated interest rate, expressed as an annual rate of interest.

tax base

The total of the assessed valuations of real properties within a taxing jurisdiction, less the total of exemptions.

assessed value

The value of a property as established by assessors for the purpose of ad valorem taxation.

hypothecation

Use of real property as collateral for a mortgage loan.

deposit

Valuable consideration accompanying an offer to purchase real estate that signifies the offeror's good faith intention to complete a sale or lease contract.

riparian rights

Water rights of a property that abuts watercourse (stream, river).

null and void

Without legal force or effect. See void.

void

Without legal force or effect; unenforceable and null, such as an illegal contract.

note

note An agreement to repay a loan of an indicated amount under certain terms.

functional obsolescence

obsolescence A loss of value in an improved property because of design flaws or failure of the property to meet current standards. May be curable or incurable.