Barron's Real Estate Terminology

Apportionment

(1) Prorating property expenses, such as taxes and insurance, between buyer and seller. (2) The partitioning of property into individual parcels by tenants in common.

Closing

(1) The act of transferring ownership of a property from seller to buyer in accordance with a sales contract. (2) The time when a closing takes place.

Annexation

(1) The process by which an incorporated city expands its boundaries to include a specified area. The rules of annexation are established by state law. Importance: Annexation is generally sought by a city to expand its boundaries by taking in an area to which it may already be providing services. (2) Permanent attachment to property Importance: Personal property becomes a fixture (part of the real estate) depending, in part, on the method of annexation.

Condemnation

(1) The taking of private property for public use, with just compensation to the owner, under eminent domain, used by governments to acquire land for streets, parks, schools, and by utilities to acquire necessary property; (2) declaring a structure unfit for use.

Capitalization

A process whereby anticipated future income is converted to one lump sum capital value. Importance: Rental property evaluation is enhanced by the capitalization process. Income is divided by a capitalization rate to estimate value, using the following formula: Property Value = Rental Income less Operating Expenses / Capitalization Rate

Acceleration Clause

A provision in a loan giving the lender the right to declare the entire amount immediately due and payable upon the violation of a different loan provision, such as failure to make payments on time.

Blockbusting

A racially discriminatory and illegal practice of coercing a party to sell a home to someone of a minority race or an ethnic background and then using scare tactics to cause others in the neighborhood to sell at depressed prices.

Capitalization Rate (Cap Rate)

A rate of return used to convert anticipated future income into a capital value. The capitalization rate includes interest and principal recovery.

Ad Valorem

According to valuation. Importance: used in describing a property tax rate. See also, ad valorem tax

Accretion

Addition to land through processes of nature, such as deposits of soil carried by streams. See, Alluvium

Accession

Additions to property as a result of annexing fixtures or alluvial deposits.

Buyer's Broker

An agent hired by a prospective purchaser to find an acceptable property for purchase. The broker then represents the buyer and negotiates with the seller in the purchaser's best interest.

Binder

An agreement, accompanied by a deposit, for the purchase of real estate, as evidence of good faith on the part of the purchaser. Importance: Binders are seldom used in some states because of general agreement and requirements on brokers to use forms specially promulgated for their states.

Buyer's Agency Agreement

Contract or verbal understanding that creates the relationship between a potential buyer and a buyer's broker. Essentially, the broker who is the buyer's agent agrees to represent the interests of the buyer, and the buyer agrees to use the agent in any sales transaction occurring under the terms of the agreement. Although the buyer's broker represents the buyer, the commission is typically paid by the seller.

CC&Rs

Covenants, conditions, and restrictions. These are limitations on land use, usually in a deed, imposed in a subdivision. Protects homeowners by preventing certain uses and assuring uniformity.

Accelerated Depreciation

Depreciation methods, chosen for income or accounting purposes, that offer greater deductions in the early years. Straight-line depreciation, rather than accelerated depreciation, generally applies to buildings bought after 1986.

Certificate of Eligibility

Document issued by the Dept. of Veterans Affairs to indicate the recipient's ability to get a home loan guaranteed by the agency. The certificate may be obtained by submitting the proper forms to the agency or from a lender participating in the agency's automated certificate program.

Comprehensive Environmental Response Compensation and Liability Act (CERCLA)

Federal law, known as superfund, passed in 1980 and reauthorized by SARA in 1986. The law imposes strict joint and several liability for cleaning up environmentally contaminated land.

Base and Meridian

Imaginary lines used by surveyors to find and describe the location of land. Importance: In states that use a rectangular or government survey method, these lines are similar to latitude and longitude.

Before-And-After Rule

In an eminent domain award, practice followed by many jurisdictions of appraising the property both before and after the taking, considering enhancement or injury to the property that was the result of condemnation.

Basic Industry Multiplier

In economic base analysis, the ratio of total population in a local area to employment in basic industry. Basic industry is considered to be any concern that attracts income from outside the local area. The jobs added in basic industry may also contribute to the need for local service jobs (telephone operator, nurse, supermarket clerk, etc.); and, if the workers have families, additional new people may be brought to the area.

Bill of Assurance

Recorded restrictions affecting a subdivision and a part of all deeds to lots therein.

Certificate of Reasonable Value (CRV)

Required for a VA-guaranteed home loan, the CRV is based on an appraiser's estimate of value of the property to be purchased. Because the loan amount may not exceed the CRV, the first step in getting a VA loan is to request an appraisal. The form used is VA Form 26-1805, Request for Determination of Reasonable Value.

Americans with Disabilities Act (1990)

Requires owners and tenants of "places of public accommodation" to modify practices that discriminate against the disabled, to provide auxiliary aids to communication, and to remove architectural barriers (if removal can be readily achieved).

Alt-A Mortgages

Residential property-backed loans made to borrowers who have better credit scores than subprime borrowers but provide less documentation than normally required for a loan application.

Alluvium (Alluvion)

Soil deposited by accretion; usually considered to belong to the owner of the land to which it is added. See also, accession.

Appurtenance

Something that is outside the property itself but is considered a part of the property and adds to its greater enjoyment, such as the right to cross another's land (i.e., a right of way or easement)

Color of Title

That which appears to be good title but is not. Importance: A person can be fooled by believing he is receiving good title. An attorney or title company's input is essential.

Arms-Length Transaction

The "typical, normal transaction," in which all parties have reasonable knowledge of the facts pertinent to the transaction, are under no pressure or duress to transact, and are ready, willing, and able to transact.

Assignee

The person to whom an agreement or contract is sold or transferred. Importance: This legal term refers to the person who receives the contract.

Client

The person who employs a broker, lawyer, accountant, appraiser, and so on.

Beneficiary

The person who receives or is to receive the benefits resulting from certain acts.

Capture Rate

The portion of total sales in the real estate market that are sold by one entity or one project.

Assumption of Mortgage

The purchase of mortgaged property whereby the buyer accepts liability for the debt that continues to exist. The seller remains liable to the lender unless the lenders agrees to release him/her.

Assessment Ratio

The ratio of assessed value to market value. Example: A county requires a 40 percent assessment ratio on all property to be taxed. Property with a $100,000 value is therefore assessed at $40,000 (40 percent of $100,000), and the tax rate is applied to $40,000.

Access Right

The right of an owner to get to and from his property. The access rights gives an easement by necessity, which allows the owner of landlocked property to cross over adjacent property to reach a street.

Air Rights

The right to use, control, or occupy the space above a designated property. Importance: Most property ownership rights include air rights up to the skies; however, air rights may be limited to a certain height, or, conversely, air rights may be the only property owned, having a floor that begins a stated number of feet above the ground.

Avulsion

The sudden removal of land from one owner to another that occurs when a river abruptly changes its channel. Importance: If a stream or river is a boundary line, the boundary may change with the addition or removal of land.

Amortization Term

The time required to retire a debt through periodic payments; also known as the full amortization term. Many mortgage loans have an amortization term of 15, 20, 25, or 30 years. Some have an amortization schedule as a 30-year loan, but require a balloon payment in 5, 10, or 15 years.

Assessed Value or Valuation

The value against which a property tax is imposed. The assessed value is often lower than the market value due to state law, conservative tax district appraisals, and infrequent reassessment. It may also eceed market value. Importance: The assessed value of a property is typically a reasonable estimate by a tax assessor, who must periodically review all property in the jurisdiction. By contract, an appraisal of a single property is more likely to approximate its market value.

Capitalized Income

The value estimated by the process of converting an income stream into a lump-sum amount; also called capitalized value.

Commingle

To mingle or to mix, as by the deposit of another's money in a broker's personal account. Importance: Brokers generally must maintain all earnest money in an account that is separate from their personal funds.

Alienation

Transferring property to another, as the transfer of property and possession of lands, by gift or by sale, from one person to another. Importance: In some states, property may be transferred by voluntary alienation, as in a sale for cash, or involuntary, as in a condemnation.

Bullet Loan

Typically a loan with a 5 to 10 year term and no amortization. At the end of the term, the full amount is due.

Closing Costs

Various fees and expenses payable by the seller and buyer at the time of a real estate closing (also called settlement or transaction costs). The following are some closing costs: - Brokerage commissions - Lender discount points/other fees - Title insurance premium - Deed recording fees - Loan prepayment penalty - Inspection and appraisal fees - Attorney's fees A rough approximation of a homebuyer's closing costs is 2-4% of the purchase price. Similarly, a seller's closing costs may be 3-10% of the sale price. A brokerage commission of 3-7% is included, often paid by the seller.

As Is

Without guarantees as to condition, as in a sale.

Constructive Notice

The legal presumption that everyone has knowledge of a fact when that fact is a matter of public record.

Agency

The legal relationship between a principle and his/her agent arising from a contract in which the principal employs the agent to perform certain acts on the principal's behalf. Importance: The law of agency governs the rights and obligations of a broker to the principal and of a licensed real estate salesperson to the broker.

Anchor Tenant

The main tenant in a shopping center, usually a department store in a regional shopping center or a grocery store in a neighborhood shopping center. Large shopping centers may have more than one anchor tenant. The anchor tenant attracts both customers and other tenants

Assignment

The method or manner by which a right or contract is transferred from one person to another. Importance: Contracts for the sale of real estate are generally assignable, except when financing must be arranged or certain conditions are imposed on a party. In a lease, an assignment gives all the rights of the original tenant to the new tenant.

Balloon Payment

The final payment on a loan, when that payment is greater than the preceding installment payments and satisfies the note in full.

Administrator

A person appointed by a court to administer the estate of a deceased individual who left no will. Importance: If a person dies leaving a will, an executor is usually named to carry out the provisions of the will. When there is no executor, an administrator is appointed by the court. The administrator receives a fee.

Agent

A person who undertakes to transact some business or to manage some affair for another, with the authority of the latter. Importance: An agent has certain duties to the principal, including loyalty. The agent is to act in the best interest of the principal, even when such action is not in the agent's best interest.

Adverse Possession

A means of acquiring title to real estate when an occupant has been in actual, open, notorious, exclusive, hostile, and continuous occupancy of the property for the period required by state law. Importance: A person can gain title to real estate (or lose title) by acting in a certain way for long enough. In some states, this process may take 3, 5, 10, or 25 years, depending on the circumstances.

Acre

A measure of land: 43,560 square feet. There are 640 acres in a square mile.

Certified Property Manager (CPM)

A member of the Institute of Real Estate Management.

Assumable Loan

A mortgage loan that allows a new home purchaser to undertake the obligation of the existing loan with no change in loan terms. Loans without due-on-sale clauses, including most FHA and VA mortgages, are generally assumable.

Conforming Loan

A mortgage loan that is eligible for purchase by FNMA or FHLMC.

Clawback

Provisions in a law or contract that limits or reverses a payment or distribution for specified reasons.

Adjustable-Rate Mortgage

A mortgage loan with an interest rate that is allowed to vary during the life of the loan; usually there are caps on the amounts by which the interest rate can change annually and over the life of the loan.

Biweekly Loan

A mortgage that requires principal and interest payments at two-week intervals. The payment is exactly half of what a monthly payment would be. Over a year's time, the 26 payments are equivalent to 13 monthly payments on a comparable monthly-payment mortgage. As a result, the loan will be amortized much faster than a loan with monthly payments.

Assessment

A charge against real estate made by a government to cover the cost of an improvement, such as a street or sewer line. See also, assessed valuation. Importance: Property buyers and owners need to recognize that they may have to pay assessments for municipal improvements that affect their property. Frequently. the owner has little or no influence on the decision.

Bilateral Contract

A contract under which each party promises performance. Contrast with unilateral contract.

Administrator's Deed

A deed conveying the property of a person who died without a will (intestate). Importance: If a person owned real estate and died without leaving a will, the administrator will give a deed. However, the administrator does not want the potential liability associated with a general warranty deed, so an administrator's deed is used.

Bargain and Sale Deed

A deed that conveys real estate, generally lacking a warranty. The grantor will thus claim to have ownership but will not defend against all claims. Importance: Sometimes a property owner does not wish to offer a warranty deed, but will give more assurance than is offered by a quitclaim deed. A bargain and sale deed is a compromise between those two.

Certified Commercial Investment Member (CCIM)

A designation awarded by the CCIM Institute, which is affiliated with the National Association of Realtors.

Amortization

A gradual paying off of a debt by periodic installments.

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.

Cap

A limit on the amount by which the interest rate on an adjustable rate mortgage may be changed; usually there are annual caps and lifetime caps.

Assignor

A party who assigns or transfers an agreement or contract to another.

Annuity

A series of equal or nearly equal periodic payments or receipts. Example: The receipt of $100 per year for the next five years constitutes a $100 five-year annuity.

Blanket Mortgage

A single mortgage that includes more than one parcel of real estate as security. Importance: When one piece of property is insufficient collateral for a loan, the borrower may be able to satisfy the requirement by putting up more property as security. It is a good idea to negotiate release clauses, whereby each parcel can be released from the mortgage when a portion of the loan is paid off, without having to pay off the entire loan.

Abstract of Title

A summary of all the recorded instruments and proceedings that affect the title to the property. Usually an attorney or title insurance company prepares an abstract of title, based on documents in the county courthouse, to be certain of ownership; and only if title is good or marketable does that person buy or make the loan.

Condominium

A system of ownership of individual units in a multiunit structure, combined with joint ownership of commonly used property (sidewalks, hallways, stairs). Importance: A condo can be mortgaged by its individual owner, who must pay assessments for common area maintenance.

Ad Valorem Tax

A tax based on the value of the thing being taxed. Example: If the effective tax rate is 1 percent, the tax will be $1 per $100 of property value.

Clear Title

A title that is free and clear of all encumbrances.

Chain

A unit of land measurement, 66 feed in length.

Conditional Use Permit (CUP)

A variance granted to a property owner that allows a use otherwise prevented by zoning.

Agreement of Sale

A written agreement between seller and purchaser in which the purchaser agrees to buy certain real estate, and the seller agrees to sell, upon the terms and conditions of the agreement. Also called offer and acceptance contract of sale.

Agency Disclosure

A written explanation, to be signed by a prospective buyer or seller of real estate, explaining to the client the role that the broker plays in the transaction. The purpose of disclosure is to explain whether the broker represents the buyer or seller or is a dual agent (representing both) or a subagent (an agent of the seller's broker). This allows the customer to understand to which party the broker owes loyalty.

Bill of Sale

A written instrument that passes title of personal property from a seller to a buyer. Importance: A real estate sales agreement is prepared on an agreement of sale. A bill of sale is used when furniture and portable appliances are sold.

Conformity Principle

An appraisal principle that holds that property values tend to be maximized when the neighborhood is reasonably homogeneous in social and economic activity.

Comps

An appraisal term, short for "comparables," that is, comparable properties.

Comparative (or Competitive) Market Analysis (CMA)

An estimate of the value of property using only a few indicators taken from sales of comparable properties, such as price per square foot.

Constructive Eviction

An eviction existing when, through the fault of the landlord, physical conditions of the property render it unfit for the purpose for which it was leased.

Appreciation

An increase in the value of property. Importance: Appreciation is one of the most significant benefits from real estate ownership. Gains from inflation as well as real income are included.

Appraisal

An opinion or estimate of the value of a property.

Cloud on the Title

An outstanding claim or encumbrance that, if valid, will affect or impair the owner's title.

Consideration

Anything of value given to induce entering into a contract; it may be money, personal services, love and affection. Importance: A contract must have consideration in order to be legally binding.

Anticipation, Principle Of

In real estate appraisal, the principle that the value of a property today is the present value of the sum of anticipated future benefits. Importance: The anticipation principle serves as the basis for the income approach to appraisal

Attachment

Legal seizure of property to force payment of a debt

Basis Point

One 100th of 1%

Appraisal Approach

One of three methods used in estimating the value of property: income approach, sales comparison approach, and cost approach.

Base Line

Part of the government rectangular survey method of land description. The base line is the major east-west line to which all north-south measurements refer.

Buydown

Payment of discount points at loan origination in order to secure a lower interest rate; the rate may be bought down for only a few years or for the life of the loan. Importance: When offered low rate financing on property being bought, one should determine whether the buydown applies to just the first few years or the full term of the loan.

Bequest

Personal property that is given by the terms of a will.

Chattel

Personal property, including autos, household goods, and clothing.

Community Property

Property accumulated through joint efforts of husband and wife and owned by them in equal shares. The doctrine now exists in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, TEXAS, Wisconsin, and the state of Washington. Importance: Husband and wife must agree to all real estate transactions involving community property.

Annual Percentage Rate (APR)

The cost of credit, expressed as an annual interest rate, which must be shown in consumer loan documents, as specified by the Federal Reserve's Regulation Z that implements the federal Truth-in-Lending Act.

Closing Date

The date on which the seller delivers the deed and the buyer pays for the property; also called settlement date. Importance: The agreement of sale will reflect when closing is to take place. A buyer or seller may be considered to have defaulted on a contract if unable to close by the agreed upon date.