Real Estate Test Terms

securities

(1) In the widest sense, documents giving title to property or claims on income that may be lodged (e.g., as security for a bank loan). (2) Income yielding and other paper traded on the stock exchange or in secondary markets. Usually a synonym for stocks and shares.

cash ratio

(1) The ratio of a banks' cash holdings to its total deposit liabilities. Liquidity ratio; banking. (2) For an individual firm, the proportion of its current liabilities that are accounted for by cash in hand, including bank deposits and sometimes payments due from customers.

Proposition 99

(Homeowner and Private Property Protection Act) prohibits the taking of private property by eminent domain when the intention is to turn the property over to a private party rather than take it for public use.

contract of adhesion

A "take it or leave it" contract that takes unreasonable advantage of the party who did not prepare the instrument.

municipal mortgage enhancement

A Fannie Mae program in which AAA-rated mortgage-backed securities are exchanged for the underlying mortgage on a tax-exempt multifamily project, enabling the developer to secure money at the lowest rate; familiarly called a "Munie Mae."

personal loan

A bank loan made without collateral security to a private cus- tomer for specific purposes.

savings bank

A bank that accepts interest-bearing deposits of small amounts. The earliest savings banks were established in the private sector but later were set up or supported by governments to encourage individual savings. In the United States, savings banks are also called thrift institutions or savings and loans (S&L) associations, many of which are mutual companies.

Gantt chart

A bar-style chart commonly used in scheduling construction projects, in which project activities are shown on a horizontal time scale.

standard fire insurance

A basic form of insurance protecting a property against direct loss or damage.

industrial development bond

A bond that allows private investors to finance apartment and com-mercial developments by using tax-exempt, inexpensive funds. TRA '86 imposed severe restrictions on this financing technique.

kicker

A bonus paid to a lender as an enticement to make a below-market-interest rate loan.

mineral, oil, and gas (MOG) broker

A broker authorized to engage in transactions involving mineral, oil, and gas rights; options; leases; exchanges; and properties.

Buyer's broker

A broker who represents a buyer in a fiduciary capacity in a real estate transaction.

loan broker (mortgage loan broker)

A broker who solicits borrowers and investors for loans secured by real estate.

real property securities dealer

A broker whose license has been endorsed to sell real property securities.

incubator space

A building located in an industrial park and divided into small units of varying sizes to accommodate young, growing companies that want to combine office and industrial space at one location.

green building

A building that takes maximum advantage of environmentally friendly building design and components.

regression, principle of

A building's value will decline if the buildings around it have a lower value.

Fictitious business name (FBN)

A business name, other than the name of a person, under which the business is registered to conduct business.

fiscal year

A business or an accounting year as dis- tinguished from a calendar year.

resource-oriented industry

A business that locates near suppliers or raw materials necessary for its operations.

labor-oriented industry

A business that tends to locate near a low-cost labor pool.

market-oriented industry

A business that tends to locate near industrial users and consumers of its products.

Profit center

A business unit within a company that is expected to produce enough income to cover its cost of operation plus make a profit for the firm.

labor-intensive industry

A business with a high concentration of employees per acre.

labor-extensive industry

A business with a low concentration of employees per acre.

ready, willing, and able buyer

A buyer who wants and is prepared to purchase property, including being able to finance the purchase, at the agreedupon price and terms.

operating costs

A calculation of yearly costs of operation based on operating expenses from comparable properties and the maintenance needs of the subject property; used in preparing an annual operating budget.

Earnest money

A cash deposit made by a prospective buyer as evidence of good faith to perform on a sales contract. It is also known as deposit money, hand money, or a binder.

vested remainder

A certain interest after a life tenant dies.

downzoning

A change in zoning to a more restrictive use.

restrictive clause

A clause in a deed or lease that limits the way that the real estate ownership or possession may be used.

restrictive covenant

A clause in a deed that limits the way the real estate ownership may be used.

tax-stop clause

A clause in a lease providing that the lessee will pay any increase in taxes over a base or an initial year's taxes.

or more clause

A clause that allows debtor to increase payments without prepayment penalties.

due-on-encumbrance clause

A clause that makes the loan balance all due and payable should the owner put another encumbrance on the property.

recapture provision

A clause within an assignment and subletting lease clause giving the landlord the right to recover any space that the tenant is unable to occupy or sublease.

building-related illness (BRI)

A clinically diagnosed condition that is caused by toxic substances or pathogens that persists when an occupant leaves the building. Symptoms include hypersensitivity, pneumonitis, asthma, and certain allergic reactions.

radon gas

A colorless, odorless, tasteless radioactive gas that results from the natural breakdown of uranium in the soil and is harmful to people at high levels; in many cases, a mitigation system can reduce the radon level in a structure to a safe level.

formaldehyde

A colorless, organic chemical with a strong pronounced odor. One of the indoor air pollutants that contributes to sick building syndrome.

limited liability company

A company of one or more principals without personal liability for company actions.

Internal equity

A comparison of compensation plans within a company that prescribes that all people who work in the same class of jobs within an organization be paid at the same rates, and that people with greater experience or productivity, or who have specialized jobs, be compensated at higher rates.

financial statement

A compilation of a borrower's assets, liabilities, and earnings records.

Farm Credit System (FCS)

A complete national banking system for financing the activities of farmers and ranchers.

tax

A compulsory payment of a percentage of income, property value, or sales price for the support of services provided by a government.

right of prior appropriation

A concept in California and other states that the first user of riparian water obtains priority over later users.

lease assumption

A concession whereby a property owner agrees to take over the balance of payments on a prospective tenant's current lease if he or she rents space in the owner's property.

abstract

A condensed history of the title to a property, consisting of a summary of the original grant and all subsequent conveyances and encumbrances relating to the particular parcel of real estate.

prime contractor

A construction supervisor who contracts with the property manager to oversee a job and then sublets the work to various skilled tradespeople.

permanent trespass

A continuing trespass, such as an encroachment.

divisible contract

A contract consisting of separate agreements that are not dependent on each other.

installment contract

A contract for the sale of real estate by which the purchase price is paid in installments over an extended period of time by the purchaser, who is in possession, with the title retained by the seller until a certain number of payments are made. The purchaser's payments may be forfeited on default.

quasi contract

A contract implied by law, as a matter of equity, when no actual contractual agreement took place.

oral contract

A contract that is not in writing; because the statute of frauds requires a written agreement in certain cases, such as an agreement for the sale of real estate, an oral contract may not be enforceable.

industrial district or park

A controlled development zoned for industrial use and designed to accommodate specific types of industry, providing public utilities, streets, railroad sidings, and water and sewage facilities.

grant

A conveyance of real estate.

trust cooperative

A cooperative in which legal ownership of a building is held by a trust company.

domestic corporation

A corporation organized in California under California law.

foreign corporation

A corporation organized in a state other than California.

interpleader

A court proceeding that may be brought by someone, such as an escrow agent, who holds property for another, for the purpose of deciding who among the claimants is legally entitled to the property.

affirmative covenant

A covenant under which an owner is required to do something, such as build within a stated period of time.

Dun & Bradstreet

A credit reporting agency that publishes credit ratings for many corporations and businesses.

free trade zones

A customs-defined area in which goods or services may be processed or transacted without attracting taxes or duties or being subjected to certain government regulations.

growth cycles

A cyclic pattern in rates of economic growth rather than in the general level of economic activity reflected in business cycles.

deflation

A decrease in the general price level due to a decrease in total spend- ing relative to the supply of goods on the market. The immediate effect is to increase purchasing power.

special warranty deed

A deed in which the grantor warrants or guarantees the title only against defects arising during the grantor's ownership of the property and not against defects existing before the time of the grantor's ownership.

NIMBY

"Not In My Backyard": a term that describes the tendency for some communities to resist affordable housing projects and other development that might lessen the value of a local property.

small business

A firm managed in a personalized way by its owners or part owners that has only a small share of its market and is not sufficiently large to have access to the stock exchange in raising capital.

fee simple absolute

A fee simple estate with no restrictions on its use.

division fence

A fence on a boundary line.

spite fence

A fence over ten feet in height maliciously erected or maintained to annoy a neighbor; a spite fence is considered a nuisance.

income and expense report

A financial report showing the property's net operating income subtracting depreciation and interest expense and adding back any capital improvement expenses.

shared equity mortgage

A financing instrument that provides for the lender to share in the property's appreciation.

affirmative fraud

A deliberate statement of a material fact that the speaker knows to be false and on which the speaker intends another person to rely to his or her detriment.

curable depreciation

A depreciated item that can be restored or replaced economically. (See also functional obsolescence—curable and physical deterioration—curable.)

incurable depreciation

A depreciated item that would be impossible or too expensive to restore or replace. (See also external obsolescence, functional obsolescence—incurable, and physical deterioration—incurable.)

function

A description of the relationship that governs the behavior of two or more related variables.

enterprise zone

A designated zone in a depressed, generally inner-urban area, in which firms located in the zone are given favorable taxation concessions and freedom from a number of planning constraints.

mixed-use development (MXD)

A development in the use of property combining retail, office-residential, or industrial-office residential development.

business park

A development or subdivision allocated to office-warehouse or similar use. Also known as an office park. An outgrowth of indus- trial parks.

Franchise Investment Law

A disclosure law admin- istered by the corporation commissioner to protect prospective purchasers of franchises.

Truth-in-Lending Act

A disclosure law that informs borrowers of credit costs. It provides a right of rescission when credit is secured by a borrower's residence.

real property securities dealer statement

A disclosure statement issued to purchasers of real property securities.

small claims court (California)

A division of the superior court. Jurisdiction is limited to $5,000 or less.

Policy and procedures manual

A document that tells people how they are to conduct business for the company. It includes the general business philosophy and business ethics, and prescribes procedures for handling a multitude of details of the company's operations.

equalization factor

A factor (number) by which the assessed value of a property is multiplied to arrive at a value for the property that is in line with statewide tax assessments. The ad valorem tax would be based on this adjusted value.

manufactured house

A factory-built house, available in one or more pieces, that is attached to a foundation after being transported to a building site; must meet HUD requirements.

Preemption Act

A federal act that gave purchase preference to occupants of land.

Federal Trade Commission (FTC)

A federal agency responsible for investigating and eliminating unfair and deceptive trade practices and unfair methods of competition.

Foreign Investment in Real Property Tax Act (FIRPTA)

A federal law that subjects nonresident aliens and foreign corporations to U.S. income tax on their gains from the disposition of an interest in real property.

Environmental Protection Agency (EPA)

A federal organization created by the National Environmental Policy Act. The EPA's purpose is to centralize government's environmental responsibilities.

Occupational Safety and Health Administration (OSHA)

A federal organization empowered to prescribe and legislate the use of potentially toxic chemicals and compounds, and other safety rules for the workplace.

Federal Insurance Contributions Act (FICA)

A federal regulation requiring employers to pay retirement fund taxes (Social Security) for employees.

Clayton Antitrust Act

A federal statute that prohibits price discrimination, exclusive dealing arrangements, and interlocking directives.

Section 8

A federal subsidized housing program administered by HUD whereby a tenant pays up to 30% of his or her adjusted monthly income and HUD pays the difference between that figure and market rent. Income requirements vary regionally, and owners are not required to participate.

Section 202

A federal subsidized housing program providing capital for new construction, rehab, or acquisition for very low-income elderly.

Federal Home Loan Mortgage Corporation (Freddie Mac)

A federally chartered corporation established in 1970 for the purpose of purchasing mortgages in the secondary mortgage market. Freddie Mac was created as a part of the savings association system and, while it is not so limited, its loan purchase policies are designed to accommodate savings association needs.

advance fee

A fee for rental information accepted in advance, or a promotional fee for a sale listing.

premium

A fee paid for an insurance policy.

finder's fee

A fee paid to a nonlicensee for introducing a party.