Definitions

A

ACCURED DEPRECIATION

Depreciation that has already occurred; it is the difference between the cost to replace the property and the property's current market value.

ACTUAL DEPRECIATION

The depreciation occurring as a result of physical, functional, or economic forces, causing loss in value to a building.

ADJUSTABLE RATE MORTGAGE (ARM)

Interest rates on this type of mortgage are periodically adjusted up or down depending on a specified financial index.

AMORTIZATION

A method of equalizing the monthly mortgage payments over the life of the loan, even though the proportion of principal to interest changes over time. In the early part of the loan, the principal repayment is very low, while the interest payment is very high. At the end of the loan, the relationship is reversed.

ANNUAL PERCENTAGE RATE

The actual finance charge for a loan, including points and fees, in addition to the stated interest rate.

APPRECIATION

An increase in worth or value of property over time.

APPRAISAL

An expert opinion of the value or worth of a property.

APPRAISAL PROCESS

An orderly systematic method to arrive at an estimate of value.

APPRAISAL REPORT

A written statement in which an appraiser gives his or her opinion of value.

APPRAISED VALUE

An appraiser's estimate of the amount of a particular value, such as assessed value, insurable value, or market value based on the particular assignment.

ASSESSED VALUE

Value placed on land and buildings by a public tax assessor as a basis for use in levying annual real estate taxes.

B

BALLOON PAYMENT

A large principal payment due all at once at the end of some loan terms.

BANK OWNED

Typically property which has been foreclosed by a lending institution and is now owned by it.

BOOK VALUE

The current value, for accounting purposes, of an asset expressed as original cost plus capital additions minus accumulated depreciation.

BROWNFIELD

An abandoned commercial or industrial site or underutilized neighborhood where redevelopment is complicated by actual or perceived contamination.

BUILDING RESTRICTIONS

Restrictions that limit the way a property can be used. They may appear in building codes or title documents.

BUYER'S MARKET

A market containing more supply than demand.

C

CAP

A limit on how much the interest rate can change in an adjustable rate mortgage.

CAPITAL

Money and/or property owned or used by a person or business to acquire goods or services.

CAPITAL GAIN

At resale of a capital item, the amount by which the net sale proceeds exceed the adjusted cost basis (book value).

CAPITALIZATION RATE

The rate of interest, which is considered a reasonable return on the investment, and is used in the process of determining value based on net income; it may also be described as the yield rate that is necessary to attract the money of the average investor to a particular type of investment.

CERTIFICATION

A signed and dated statement included in an appraisal report that the appraiser has performed an appraisal in an unbiased and professional manner and that all assumptions and limiting conditions are set forth in the report.

CLOSING

The deed to property is legally transferred from seller to buyer and documents are recorded.

CLOSING COSTS

The numerous expenses buyers and sellers normal incur in the transfer of ownership of real property.

CLOUD ON TITLE

A claim, encumbrance, or condition that impairs the title to real property until disproved or eliminated as, for example, through a quitclaim deed or a quiet title legal action.

CODE OF ETHICS

A set of rules and principles expressing a standard of accepted conduct for a professional group and governing the relationship of members to each other and to the organization.

COLLATERAL

The property subject to the security interest or anything of value a borrower pledges as security.

COMMISSION

A fee (usually a percentage of the total transaction) paid to an agent or broker for services performed.

COMMUNITY PROPERTY

All property acquired by a husband and wife during a valid marriage (excluding certain separate property).

COMPARATIVE MARKET ANALYSIS (CMA)

A survey of attributes and selling process of comparable homes on the market or recently sold; used to help determine a correct pricing strategy for a seller's property.

CONDITIONS OF SALE

Circumstances of the sale such as exposure time, marketing process, and buyer motivation. Unusual conditions may affect the final purchase price of a comparable sale and cause the sale price to reflect the market improperly.

CONDOMINIUM

A housing unit consisting of a separate fee interest in a particular specific space, plus an undivided interest in all common or public areas of development. Each unit owner has a deed, separate financing and pays the property taxes for the unit.

CONFORMING LOANS

Loans which conform to the Fannie Mae guidelines, which set loan limits to a certain amount.

CONTINGENCY

A condition in a contract that must be met for the contract to be binding.

CONTRACT

A binding legal agreement between two or more parties that outlines the conditions for the exchange of value (for example:money exchanged for title to property).

CONTRACT RENT

The rent established by agreement or contract.

CONVENTIONAL LOAN

An loan made by lenders without any government guarantees (FHA-insured or VA-guaranteed).

COOPERATIVE (CO-OP)

A form of legal ownership with each owner holding a stated ownership percentage in the cooperative association. The association owns the land and buildings, and grants each owner the permanent right to occupy the specific dwelling unit, as well as the right to the joint use of the common areas; a residential multifamily building.

COST BASIS

Original price paid for the property.

CREDIT

A bookkeeping entry on the right side of an account, recording the reduction or elimination of an asset or an expense or the creation of or addition to a liability or item of equity or revenue.

CURABLE DEPRECIATION

Items of physical deterioration and functional obsolescence which are economically feasible to repair or replace.

CYCLICAL MOVEMENT

The sequential and recurring changes in economic activity of a business cycle, moving from prosperity through recession, depression, recovery, and back again to prosperity.

D

DEBIT

A bookkeeping entry on the left side of an account, recording the creation of or addition to an asset or an expense or the reduction or elimination of a liability or item of equity or revenue.

DEED

A formal legal document that formally conveys ownership of the property from seller to buyer.

DEED IN LIEU OF FORECLOSURE

A deed to real property accepted by a lender from a defaulting borrower to avoid the necessity of foreclosure proceedings by the lender.

DEED OF RECONVEYANCE

Document used to transfer legal title from the trustee back to the borrower after a debt secured by a trust deed has been paid to the lender.

DEED OF TRUST

A security instrument that conveys naked legal title of real property.

DEED RESTRICTIONS

Limitations in the deed to a property that dictate certain uses that may or may not be made of the property.

DEPRECIATION

In appraisal terms, a loss in value from any cause. Other, a tax advantage of ownership of income property.

DOWN PAYMENT

A percentage of the purchase price that the buyer must pay in cash and may not borrow from a lender.

DOWN ZONING

A zone change from a high-density use to a lower density use. For example, a commercial zone to a light industrial zone.

DURESS

The use of force to get agreement in accepting a contract.

E

EASEMENT

A non-possessory right to enter or use someone else's land for a specified purpose.

EASEMENT APPURTENANT

An easement that is connected to a particular property and is transferred along with that property. Each easement appurtenant involves two properties--the servient tenement and the dominant tenement.

EASEMENT IN GROSS

An easement that is not appurtenant to any one parcel; for example, public utilities to install power lines.

EFFECTIVE GROSS INCOME

The amount of income that remains after vacancy and credit losses are deducted from gross income.

ELEMENTS OF VALUE

Four prerequisites that must be present for an object to have value: demand, utility, scarcity, and transferability.

ELEVATION SHEET

A labeled diagram or cutaway of a home detailing its features and building components, both interior and exterior.

ENCUMBRANCE

An interest in real property that is held by someone who is not the property owner.

EMINENT DOMAIN

The right of the government to take private property from an owner, for the public good, paying fair market value.

EQUITY

The value of the property actually owned by the homeowner: purchase price, plus appreciation, plus improvements, less mortgage and liens.

ESCROW

A fund or account held by a third-party custodian until conditions of a contract are met.

ESTATE

The ownership interest or claim a person has in real property; it defines the nature, degree, extent, and duration of a person's ownership in property.

ESTATE AT SUFFERANCE

A tenancy created when one is in wrongful possession of real estate even though the original possession may have been legal.

ESTATE AT WILL

A tenancy that may be ended by the unilateral decision of either party; there is no agreed-upon termination date, and either party must give 30 days notice before ending the tenancy.

ESTATE FOR YEARS

A leasehold estate with a definite end date; the lease must be renegotiated.

ESTATE FROM PERIOD TO PERIOD

A leasehold estate that does not need to be renegotiated upon each renewal.

ESTIMATE

A preliminary opinion of value; to appraise or determine value.

F

FEE SIMPLE ABSOLUTE

An estate in fee with no restrictions on use; it is the largest, most complete ownership recognized by law.

FEE SIMPLE ESTATE

The most complete form of ownership of real property, which can be passed by descent or by will after the owner's death; also known as estate of inheritance or estate in fee.

FIDUCIARY DUTY

The duty owed by an agent to act in the highest good faith toward the principal and not to obtain any advantage over the latter by the slightest misrepresentation, concealment, duress, or pressure.

FIXED RATE MORTGAGE

Interest rates on this type of mortgage remain the same over the life of the loan. Compare to "adjustable rate mortgage."

FIXTURE

A recognizable entity (such as a kitchen cabinet, drape or light fixture) that is permanently attached to property and belongs to the property when it is sold.

FORECLOSURE

The legal procedure by which mortgaged property is sold to satisfy a debt when the borrower has defaulted on the loan.

FRAUD

An act meant to deceive in order to get someone to part with something of value.

FREEHOLD ESTATE

An estate in real property which continues for an indefinite period of time; it differs from a leasehold estate, which allows possession for a limited time.

FRONT FOOT

Measurement in feet of the width of a property on the side facing the street.

FRONTAGE

The width of a property on the side facing a street.

G

GENERAL WARRANTY DEED

A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a cloud, the grantee may hold the grantor liable.

GIFT DEED

Used to make a gift of property to a grantee, usually a close friend or relative.

GOODWILL

An intangible, but salable, asset of a business derived from the expectation of continued public patronage.

GRADE

Ground level at the perimeter of the building.

GRADING

A process used when the level or elevation of the ground has to be changed or altered using bladed machines that scrape the earth.

GRANDFATHER CLAUSEA legal clause that keeps a law from being retroactive.

GRANT DEED

A deed in which the grantor warrants that he or she has not previously conveyed the property being granted, has not encumbered the property except as disclosed, and will convey to the grantee any title he or she may acquire afterwards.

GROSS INCOME

Total income from property before any expenses are deducted.

GROSS INCOME MULTIPLIER

A figure which, when multiplied by the annual gross income, will equal the property's market value; the amount of the GIM must be obtained from recent comparable sales since it varies with specific properties and areas.

GROSS LEASABLE AREA

Total space designed for occupancy and exclusive use of tenants, measured from outside wall surfaces to the center of shared interior walls.

GROSS LEASE

A lease agreement in which the tenant pays an agreed-upon sum as rent and the landlord pays any other expenses such as taxes, maintenance, or insurance.

GROSS RENT

Income (calculated annually or monthly) received from rental units before any expenses are deducted.

GROSS RENT MULTIPLIER

A figure which, when multiplied by the monthly rental income, will equal the property's market value; the amount of the GRM must be obtained from recent comparable sales since it varies which specific properties and areas.

H

HIGHEST AND BEST USE

The use, from among reasonably probable and adequately supported alternative uses, that is physically possible, legally permitted, economically feasible, and maximally productive.

HAZARD INSURANCECompensates for property damage from specified hazards such as fire and wind.

HOLDING PERIODThe length of time the property will be used as an investment.

HUD-1 STATEMENT

A standardized, itemized list, published by the U.S. Department of Housing and Urban Development (HUD), of all anticipated closing costs connected with a property purchase.

I

IMPROVEMENTS

Additions made to property to enhance value or extend useful life.

INCURABLE DEPRECIATION

Building defects or problems that would cost more to repair than the anticipated value increase from such repair.

INSPECTION

The examination of a property, its buildings, or other amenities.

INSURABLE VALUE

The highest reasonable value that can be placed on property for insurance purposes.

INTEREST

The cost of borrowing money, usually expressed as a percentage rate; or a legal share of ownership in property

J

JOINT TENANCY

A type of ownership interest in which two or more parties own real property as co-owners, with the right of survivorship.

JUMBO LOAN

Loans that exceed the maximum loan limit set by Fannie Mae and Freddie Mac.

JUNIOR MORTGAGE

A mortgage recorded subsequently to another mortgage on the same property or made subordinate by agreement to a later-recorded mortgage.

K

KEY LOT

A lot situated so that it is surrounded by the backyards of other lots.

L

LAND

The surface of the earth including airspace, surface rights, mineral rights, and water rights.

LATENT DEFECTAny defect in property which is not readily apparent, but which has an impact on the value; structural damage or termite infestation would be examples.

LEASEHOLD ESTATE

The tenant's interest in the leased property during the term of the lease; this type of estate has value if the agreed-on rent is less than the market rent.

LEGAL DESCRIPTION

A land description recognized by law which can be used to locate a particular piece of property; examples include: lot, block, and tract, government survey, and metes and bounds.

LIEN

A security claim on property until a debt is satisfied.

LIFE ESTATE

An estate that is limited in duration to the life of its owner or the life of another designated person.

LISTING CONTACT

An agreement whereby an owner engages a real estate company for a specified period of time to sell property, for which, upon sale, the agent receives commission.

LOAN CLOSING

When all conditions have been met, the loan officer authorizes the recording of the trust deed or mortgage.

M

MARKETABLE TITLE

Title that a reasonable purchaser, informed as to the facts and their legal importance and acting with reasonable care, would be willing, and ought, to accept.

MARKET PRICE

The actual price at which property is sold.

MARKET VALUE

The price that is established by present economic conditions, location and general trends.

MORTGAGE

Security claim by a lender against property until the debt is paid.

MULTIPLE LISTING SERVICE (MLS)

A system that provides to its members detailed information about properties for sale.