Even though the dictionary you are about to enter is complied from many different reliable sources; it is not intended to serve as legal advice to any real estate related matter. Please be advised that the use of this dictionary is entirely at your own risk with no warranty on the content or interpretation of individual words or phrases.

AAA TENANT A tenant with a top credit rating. To a real estate developer, attracting such a tenant is important since that ability to arrange both construction and permanent financing for a major commercial project, such as a shopping center or office building, is often dependent upon pre-leasing a certain amount of space to AAA tenant(s).

AAE Accredited Assessment Evaluator. A professional designation awarded by the International Association of Assessing Officers.

ABANDONMENT The voluntary release of a claim or right one has in a piece of property with the clear intention of terminating possession or interest and without giving this interest to anyone else. Abandonment includes both the intention to release any claim one has against the property as well as the actual act of "abandoning" the property.

ABATEMENT A decrease or reduction in the amount of a charge such as rent. For example, a tenant receives an abatement of rent during the time the leased space cannot be inhabited due to fire or flood.

ABLE A term referring to the financial capability of a purchaser. The word is often used in a phrase appearing in real estate listing agreements and sales contracts as "ready, willing and able."

ABNORMAL SALE A sale that is not typical within the context of what is happening in the marketplace.

ABODE A home or place of residence.

ABROGATE To repeal or cancel. For example, a law could be repealed (abrogated) by legislative action.

ABSENTEE OWNER The owner(s) of property who does not physically reside on the property. When this occurs both the rental as well as the upkeep of the property are normally done by someone other than the actual owner, such as a property manager.

ABSORPTION RATE The percentage of a particular type of real estate that can be sold or leased in a particular location during a certain period of time

ABSTRACT OF TITLE A condensed chronological history of all recorded instruments in the chain of title which affect the title.

ABSTRACTION (EXTRACTION) METHOD A method of estimating the value of the land by establishing a ratio of site value to total property value based on data from comparable improved properties. The ratio derived from comparable properties is then applied to the total value of the property being appraised to estimate the value of the land.

ABUT To border on or to share a common boundary. For example, a property owner could have land that "abuts" a highway, which means the two properties border each other.

ACCELERATED DEPRECIATION The method(s) of depreciation for income tax purposes which increases the write-off at a rate higher than under the straight-line method.

ACCELERATION CLAUSE A clause in a promissory note, mortgage or deed of trust giving the creditor (mortgagee) the legal right to demand immediate payment of all future payments due to the occurrence of some event such as the default on an installment payment or the failure to keep the property adequately insured.

ACCEPTANCE A voluntary expression by the person receiving the offer (the offeree, and quite often the seller of the property) to be bound by the exact terms of the offer in the manner requested or authorized by the person making the offer (the offeror, and quite often the potential buyer of the property). An acceptance must be unequivocal and unconditional.

ACCESS The right to enter upon and leave property. The owner of the land, which abuts or adjoins a road or highway normally has a vested right to come and go from his or her land to the highway without obstruction, subject to limitations imposed by the governing body.

ACCESSIBILTY The ease with which a person can either enter or exit a particular parcel of land. The accessibility of a particular parcel is a function of many things such as frontage to a road, traffic flow, and topography. Good accessibility will usually result in higher value; likewise, a parcel of land with poor accessibility will normally sell for less in the marketplace.

ACCESSION The legal right that entitles the owner of land to all that the soil produces or all that is added to the land either intentionally or by mistake.

ACCESSORY BUILDING A second building on a lot and one that is not considered to be the primary building. A storage shed or detached garage would be an accessory building.

ACCORD AND SATISFACTION An agreed-to substitution of a different performance for the original obligation, the accord being the agreement and the satisfaction the execution or performance.

ACCREDITED RESIDENTIAL MANAGER (ARM) A professional designation awarded by the Institute of Real Estate Management (IREM), an affiliate of the National Association of Realtors. The designation is intended for those persons specializing in the management of residential property.

ACCRETION The accumulation of land (soil) as a result of the gradual washing or motion of water (alluvion).

ACCRUED An accumulation over a certain period of time, such as accrued depreciation or accrued interest.

ACCRUED DEPRECIATION Any diminishment or loss of utility or value of a building from the time of initial construction to the present. Accrued depreciation is calculated as the difference between what it would cost to replace the building new and the current appraised value of the building.

ACCRUED INTEREST Unpaid interest that has already been earned.

ACKNOWLEDGEMENT A formal declaration to a public official by a person who has signed (executed) an instrument which states that the signing was voluntary.

ACQUISITION The act or process by which property ownership is achieved. The ways in which title to real property is transferred may be classified as (1) voluntary conveyance (deed), (2) transfer by devise (dying with a will) or descent (dying without a will), (3) transfer by adverse possession, (4) transfer by accession and (5) transfer by public action or by operation of law.

ACQUISITION COST The total cost of purchasing or acquiring title to real property. In addition to the sales price, additional costs could also include loan origination fees, appraisal fees, credit report fee, title charges, attorney fees and other normal closing costs.

ACRE A measure of land in whatever shape equal to 43,560 square feet, 4,840 square yards or 160 square rods. A square parcel of land measuring 208.71 feet on each side contains one acre. There are 640 acres on a section of land.

ACREAGE PROPERTY A large tract of land that has had few, if any, improvements made either "to" the land, such as roads or the platting of individual lots, or "on" the land, such as buildings.

ACTION OF QUIET TITLE A lawsuit filed by a person to remove cloud on title or clear the claims of others filed against a parcel of property. The objective of such action is to have a court rule that the claims against the property are invalid.

ACT OF GOD Any act of nature such as rain, lightning, floods or earthquakes. Many casualty insurance policies do not cover losses resulting from an "Act of God".

ACTUAL AGE The historical (chronological) age of a building, as for example a building constructed 10 years ago is ten years old in actual age. Actual age should not be confused with effective age which is the age of a building that is indicated by the condition and utility of the improvement. It should be clear that the amount of maintenance and care given to a building helps determine its effective age. For example, a ten-year-old building might have an effective age of twenty-five years because of poor or deferred maintenance.

ACTUAL AUTHORITY The power that a principal has expressly conferred upon an agent or any power that is incidental or necessary to carry out the express power of the agency. This power may be broad, general power or may be limited, special power.

ACTUAL CASH VALUE The monetary worth of a structure for insurance purposes. Actual cash value is calculated by taking the replacement cost of the property and then subtracting the value of the physical wear and tear of the property.

ACTUAL DAMAGES The compensation received by an injured party for the actual injuries or loss suffered by the party.

ACTUAL EVICTION The violation of any material breach of covenants by the landlord or any other act which wrongfully deprives the tenant of the possession of he premises.

ACTUAL POSSESSION The physical occupancy and control by someone of a parcel of real estate. For example, if John has clear title to his house and is living in the house then he is in actual possession of the house. A distinction should be made between actual possession and constructive possession which occurs when a person has the legal right to assume occupancy but does not actually occupy the space.

ADC LOAN A type of loan intended to cover the three phases of a project: (1) acquisition, (2) development, and (3) construction. Such loans, while considered more risky than some other types of real estate loans, are normally made with a variable interest rate and are expected to be repaid over a reasonably short period of time.

ADDENDUM Something that is added and thus made part of a document. Quite often a real estate listing agreement or sales contract is a pre-printed form and thus may not have the space within the document to include specific and detailed information that the parties to the contract wish to include.

ADD-ON-INTEREST A method of calculating the amount of interest due by taking the simple interest that would be charged if the loan principal amount was not amortized over the term of the loan. Periodic installments are thus calculated by dividing the sum of the add-on interest and original principal by the number of periods in the term.

ADEQUATE PUBLIC FACILITIES ORDINANCE A local government ordinance that requires that certain public facilities such as road and utilities be completed before any new real estate development can be permitted. This technique is used by municipalities to control growth and direct new development toward areas where adequate public facilities exist.

ADJACENT LAND Land lying close to or near another parcel, though the two parcels may not actually touch. The term should not be confused with adjoining land which exists when two parcels are actually joined to each other.

ADJUNCTION The process of adding or annexing a parcel of land to a larger parcel.

ADJUSTABLE RATE MORTGAGE (ARM) A type of real estate loan in which either the interest rate charged or the length of the loan, or both, can change. Adjustable rate mortgages became very popular during the 1980’s due primarily to the reluctance of lenders to quote a fixed interest rate loan to potential borrowers. By using an ARM, a lender is able to pass on the uncertainty of changes in interest rates to he borrower if rates change during the life of the loan. ARM’s are normally tied to some index such as government securities.

ADJUSTED COST BASIS The value of the property for accounting purposes used to determine the amount of gain or loss realized by the owner upon the sale of the property.

ADJUSTED SALES PRICE The estimated sales price of a comparable property after additions and/or subtractions have been made to the actual sales price for improvements and deficiencies when compared to the subject property being appraised.

ADJUSTMENTS The additions and subtractions made in the market data or comparable sales approach to value to account for differences in location, design, age, etc. between the properties being used as comparables and the subject property being appraised.

ADMINISTRATOR A person appointed by the court to administer or settle the estate of a deceased person who has died intestate (dying with out a will).

ADMINISTRATRIX Feminine form of administrator.

ADMINSTRATOR’S DEED A conveyance of property which is issued to a grantee (purchaser) who purchases property from an estate.

ADULT A person who has attained the age of majority and thus has the legal capacity to be bound under a contract. The age of majority varies from state to state.

AD VALOREM A Latin prefix meaning "according to value." Local and state governments levy taxes on real property based on the assessed value of the property. Two different pieces of property with the same assessed value have the same ad valorem tax.

ADVANCE The word has two common meanings in real estate finance: (1) to pay or advance money before it is due, and (2) to disburse working capital to a builder/developer through a construction loan. Under the first meaning, an owner might have both a first mortgage and a second mortgage on a parcel of real estate.

ADVERSE POSSESSION A method of acquiring title to real property by possession for a statutory period of time.

AESTHETIC VALUE The intangible value of property created when the property possesses unique characteristics or features that make it attractive.

AFFIANT The person who makes an affidavit.

AFFIDAVIT Latin meaning "has pledged his faith". A written statement of facts made voluntarily and sworn to under oath before a public official or other persons authorized to administer such an oath.

AFFIDAVIT OF TITLE A sworn statement by the seller of real estate that no defects of title other than those stated in the sales contract or deed exist in the title being conveyed.

AFFIRM Ratification of a voidable contract by the party who is to be bound under the contract.

AFFIRMATION A solemn and formal declaration attesting to the truth of some matter. In certain instances an affirmation is substituted for an oath, as for example, when a person for religious or personal reasons does not wish to take an oath.

AFFIRMATIVE FAIR HOUSING MARKETING PLAN Action taken with the intent of encouraging minority integration in housing. The Department of Housing and Urban Development (HUD) has required an affirmative fair housing marketing plan from all subdivisions, multi-family projects and mobile home parks of five or more units before these projects ate eligible for participation in various federal programs, including home mortgage programs.

AFTER ACQUIRED TITLE Legal ownership in real property acquired by someone who had previously transferred his or her legal interest in the property.

AFTER-TAX CASH FLOW The spendable cash from an income-producing asset, such as an office building or apartment complex, calculated by taking gross income and subtracting fixed and variable costs, replacement for reserves, debt service plus tax savings or minus tax liability.

AFTER-TAX EQUITY YIELD RATE The internal rate of return on the equity investment after considering federal income taxes.

AFTER-TAX PROCEEDS FROM RESALE The amount of money a property seller would receive from a property sale after subtracting transaction costs, capital gains taxes and other expenses. Generally, this figure is calculated by taking the selling price less the sum of the existing debt, the income or capital gains taxes, and the expenses of sale.

AGE-LIFE METHOD A method of estimating accrued depreciation by applying to the reproduction cost new of the property the ratio of the property’s effective age to its economic useful life.

AGENCY A relationship in which one party (known as the principal) authorizes another party (the agent) to act as the principal’s representative in dealing with third parties. Agency law generally involves rights and liabilities among these three parties.

AGENCY BY ESTOPPEL (Ostensible Agency) A type of agency relationship that occurs when the principal in a principal-agent relationship leads a third person to believe that someone is an agent. The principal may create the impression of agency either intentionally or negligently.

AGENCY BY NECESSITY An agency relationship in which authority to act is created by operation of law in an emergency. During such an emergency, it is generally unnecessary to gain consent from a principal in order for a person to act to protect property or person.

AGENCY BY RATIFICATION A type of agency relationship that occurs when a principal agrees to be bound by the acts of a person purporting to act as an agent, even though the person was not in fact an agent. The principal may also be bound if there are acts of an agent who acted beyond the scope of authority.

AGENT One who acts for and in the place of a principal for the purpose of affecting the principal’s legal relationship with third persons. The power of an agent to affect the principal’s legal relations for lawful purposes is called authority.

AG LAND Land zoned for agricultural use such as farmland or land used to raise livestock,

AGGRAVATION COSTS The annoyance and irritation to a driver or passenger during a linkage trip caused by congestion, bad weather, delay or other inconveniences.

AGREEMENT An expression of mutual assent, or a meeting of the minds, by two or more parties on a given proposition.

AGRICULTURAL PROPERTY Land zoned for agricultural or farming activities.

AIR RIGHTS The right to use, control and occupy the space above particular parcel of real estate.

ALC Accredited Land Consultant. A professional designation awarded by the Realtors Land Institute to people involved in the marketing and brokerage of land.

ALIENATION The voluntary transfer of property and possession of the land or tenements from one party to another.

ALIENATION CLAUSE A provision often included in a mortgage or deed of trust that legally permits the lender (mortgagee) to demand payment of all the outstanding principal if the property is sold or transferred by the borrower (mortgagor). Such a provision is also commonly known as a due-on sale clause.

ALLOCATION (ABSTRACTION) METHOD An appraisal technique used to estimate the value of the site (land) by deducting the value of the improvements from the total sales price of the property.

ALLODIAL SYSTEM The free and complete ownership of land by individuals. The allodial system is the system of property ownership in America today. The term allodial means free from the tenurial or vested rights in the king or feudal overlord.

ALLUVION The increase of soil, gravel or sand upon the bank of a stream or river or the shore of a sea due to the flow or current of the water. The actual act of the soil being added is known as accretion.

ALONSO, WILLIAM an urban economist who believed that urban sites are composed of both land and location. In his book, Location and Land Use, Alonso explained the trade-off that exists between land rent and the transportation cost incurred by individuals in determining where to locate within an urban area.

ALTERATION An unauthorized modification of a contract by one of the parties to the contract. The alteration is considered material when it affects the rights of the parties to the contract. If the alteration is intentional and material, it will be treated as fraud and the innocent party may void the contract at his or her option.

AMENITY A feature or benefit received from a particular parcel of property which increases the satisfaction received by the owner or user of that property. Amenities may be both natural, for example, location or scenic view, and manmade, such as a swimming pool or tennis courts. Both material an manmade amenities increase the desirability of a certain location or parcel of land and thus that particular land will normally have a higher value than a parcel of land without the amenities.

AMERICAN BANKERS ASSOCIATION (ABA) Membership in the American Bankers Association is comprised of persons employed in the commercial banking business.. The Association is headquartered at Connecticut Avenue, N. W. , Washington, D.C. 20036;(202) 663-5000.

AMERICAN ECONOMIC DEVELOPMENT COUNCIL (AEDC) The American Economic Development Council is an international organization whose mission is to advance the art and science of economic development. AEDC publishes a journal, Economic Development Review and awards the professional designation CIDICED (Certified Industrial or Economic Developer). The council’s address is Suite 22, 4849 North Scott Street, Schiller Park, Illinois 60176.

AMERICAN INSTITUTE FOR PROPERTY AND LIABILITY UNDERWRITER The American Institute for Property and Liability Underwriters is the main professional organization of property insurance agents. In addition to numerous educational programs and seminars, a professional designation, CPCU (Chartered Property Casualty Underwriter), is sponsored by the institute. the mailing address is Providence and Sugartown Roads, Malvern, Pennsylvania 19355; (215) 640-2100.

AMERICAN INSTITUTE OF ARCHITECTS The institute awards the designation AL4 and is the primary group for promoting architecture as a profession. Among the group’s activities is its national committee on housing which provides numerous services in an effort to improve the quality of the living environment. The institute is located at 1735 New York Avenue, N.W., Washington, D.C. 20006; (202)626-7300.

AMERICAN INSTITUTE OF HOUSING CONSULTANTS This organization works with nonprofit sponsors in developing low-income housing. The institute also serves as a spokesman for low-income housing.

AMERICAN LAND DEVELOPMENT ASSOCIATION (ALDA) The American Land Development Association is a trade organization comprised primarily of land developers. The association’s primary function is to represent the interstate land development industry in matters related to land development. The mailing address is 1200 L Street, N.W., Washington, D.C. 20005; (202) 371-6700.

AMERICAN LAND TITLE ASSOCIATION (ALTA) An association, founded in 1907, representing more than 2,100 title insurance companies, title insurance agents, and associate members. Since the role and responsibility of the title industry, and of its ALTA members, is to guarantee the safe, efficient transfer of real property, the ALTA membership functions cooperatively and effectively to provide protection for consumers and lenders alike. Members of the association use standardized title insurance forms developed by ALTA to provide uniformity within the industry. The ALTA staff represents specialists in the fields of government relations, public affairs, research and state governmental affairs. ALTA’s national headquarters is located at 1828 L Street, N.W., Suite 303, Washington, D.C. 20036; (202) 296-3671.

AMERICAN PLANNING ASSOCIATION (APA) A professional trade association comprised of both publicly and privately employed planners. APA was formed by the merger of the American Institute of Planners and the American Society of Planning Officials. The association is located at 1313 East 60^th Street, Chicago, IL., 60637; (312) 947-2560.

AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION (AREUEA) The principal professional organization of real estate education, AREUEA consist of both educators and professional practitioners. The association publishes a journal of articles dealing with land use, urban economics and related topics.

AMERICAN SOCIETY OF APPRAISERS An appraisal organization consisting of persons involved in the appraisal of both real and personal property. The society sponsors the designation ASA. The society’s address is Duller International Airport, P.O. Box 17265, Washington, D.C. 20041; (703) 478-2228.

AMERICAN SOCIETY OF CONSULTING PLANNERS A professional society whose membership is limited to private planning firms. The society offers various services to its members and serves as a spokesman for consulting planners. The address is Suite 647, 210 7^th Street, S.E., Washington, D.C. 20003; (202) 544-0035.

AMERICAN SOCIETY OF HOME INSPECTORS, INC. (ASHI) A professional trade organization whose membership specializes in the physical inspection of homes. ASHI publishes numerous pamphlets and proceedings, conducts seminars and provides a Standards of Practice. The society’s address is 7^th Floor, 3299 K Street, N.W., Washington, D.C. 20007; (202) 842-3096.

AMERICAN SOCIETY OF REAL ESTATE COUNSELORS (ASREC) As an affiliate with the National Association of Realtors, this society consists of real estate brokers, appraisers, and consultants involved in assisting people in the buying and selling of real estate. The professional designation CPE (Counselor, Real Estate) is awarded by the society. The mailing address is 430 North Michigan Avenue, Chicago, IL 60611; (312) 440-8091.

AMO Accredited Management Organization. A professional designation awarded by the Institute of Real Estate Management to companies involved in the management of property.

AMORTIZATION The repayment of a financial obligation over a period of time in a series of periodic installments. Specifically, this is the payback of the principal owed to the lender. The effect of amortization is to build up the paper value of the investor’s (owner’s) equity and to reduce the debt obligation. It should be noted that a portion of each payment consists of a blend of interest and amortization of principal. The interest portion is tax deductible, whereas the amortization is not.

AMORTIZATION RATE /The percentage of a periodic payment that is applied to the reduction of the principal; in a level-payment mortgage this corresponds to the sinking fund factor.

AMORITZATION TERM The time period over which the principal amount would be retired on the basis of the periodic installments paid.

AMORTIZED LOAN A financial obligation that is repaid over a period of time by a series of periodic payments.

ANACONDA MORTGAGE A type of mortgage in which a clause is included which states that the mortgage secures all debts of the mortgagor (borrower) that may bee due and payable to the mortgagee (lender). Such a provision is also referred to as Mother Hubbard clause.

ANALYST An individual who performs various studies and calculations to help make decisions or solve problems concerning real estate investments.

ANCHOR TENTANT A well-known commercial retail business such as a national chain store or regional department store strategically placed in a shopping center so as to generate the most amount of customers for all of the stores located in the shopping center.

ANNEXATION The act of adding, joining and attaching one thing to another. With respect to the annexing of land, from time to time municipalities legally incorporate into the existing town or city limits a certain amount of land or territory outside their legal boundary. This may be done to consolidate two governments into one or perhaps to increase property tax revenue for the municipality.

ANNUAL Occurring once a year.

ANNUAL DEBT SERVICE Total payments required in one year in regard to a loan. The amount of payment is affected by either a change in the interest rate or a change in the payback period.

ANNUAL LOAN CONSTANT A ratio of the annual debt payment on a loan to the original amount borrowed. The loan constant is also referred to as a mortgage constant.

ANNUAL PERCENTAGE RATE (APR) The actual yearly cost of credit stated to the nearest one-fourth of one percent. Any lender subject to the federal Truth-in-Lending Act must fully disclose the APR to the borrower.

ANUITY A series of payments made or received at even intervals either for life or for a fixed number of years.

ANNUITY IN ADVANCE An annuity in which payments are made at the beginnings of each period as contrasted with an ordinary annuity in which payments are made at the end of each period.

ANNUITY METHOD A means of capitalizing future income streams from an investment. The procedure uses compound interest formulas that treat the income stream as an annuity providing for both return "on" the investment and a return "of" the investment.

ANTICIPATION, PRINCIPAL OF A basic value principle, which states that value, changes in expectation of some future benefit or detriment affecting the property. For example, the value of a vacant parcel of land may increase if an office building is constructed next to it; likewise, use of land as an open dump may result in decreased values of surrounding residential properties.

ANTITRUST LAWS State and federal laws enacted to protect individuals and business entities from monopolies and unfair restrictions. For example, local real estate boards cannot require its members to charge a certain brokerage commission rate, since to do so would be in violation of federal antitrust laws.

APARTMENT BUILDING A type of property intended for permanent residents who lease a specific space or unit. Payment for use of the space is referred to as rent.

APPRENT AUTHORITY In agency law, such authority which a third person can reasonably assume that an agent has on the basis of actions or inactions of the principal. This is so despite the fact that the agent may not have actual authority.

APPEALS BOARD A means by which a property owner can formally protest a tax bill and seek a change in the assessed value of his or her property. Jurisdictions that have such a board normally require the property owner to have first met with the tax assessor prior to appealing the property tax.

APPOINTMENTS Items such as furniture or equipment found in building that may increase or decrease the intrinsic value of the property.

APPORTIONMENT A division or allocation of responsibility among two or more persons. In regard to the sale of real estate, the allocation is typically of a cost or expense such as property taxes between the purchaser and seller, or in the case of income producing property, the allocation of rental income between the purchaser and seller. Normally the seller is responsible for expenses up to and including the day of settlement or closing.

APPORTIONMENT CLAUSE A clause normally included in standard insurance policies to prevent financial gain by the insured as a result of insuring the same property with two or more companies and hoping to collect more than the loss.

APPRIASAL An estimate or opinion of value supported by factual information as of a certain date.

APPRAISAL FOUNDATION An educational self-regulatory organization which functions for the purpose of developing appraisal standards and appraiser qualifications. The Appraisal Foundation is comprised of member organizations representing various appraisal groups, users of appraisal services and the public at large. The address is 1029 Vermont Avenue, N.W., Suite 900, Washington, D.C. 20005; (202)347-7722.

APPRAISAL INSTITUTE A professional real estate appraisal organization whose members specialize in valuation and market analysis. The mailing address is 225 North Michigan Avenue, Chicago, IL 60611; (858) 732-7732.

APPRAISAL INSTITUTE OF CANADA An appraisal organization comprised of persons doing appraisal work in Canada. The institute offers membership to those appraisers in the United States who do appraisal work in Canada. The address is 177 Lombard Avenue, Winnipeg, Manitoba, Canada; (204) 942-0751.

APPRAISAL PRINCIPLES Economic concepts used to explain the rationale and process of market behavior. Appraisal principles include anticipation, change, competition, substitution, and supply and demand.

APPRAISAL PROCESS A systematic step-by-step analysis used by the appraiser to accurately reach an opinion of value. While each appraisal assignment varies according to the purpose of the appraisal and the approach(es) used, A well-done estimate of value will follow some standardized procedure.

APPRAISAL REPORT A written report submitted by the appraiser to support and document the opinion of value rendered by the appraiser. The form of the appraisal report can be a letter of valuation, a single page standard form or a more elaborate report.

APPRAISED VALUE An estimate of value based on the appraiser’s analysis of data within the context of the appraisal problem that the appraiser was employed to solve.

APPRAISER An individual who has the experience, training, and legal qualifications to appraise real or personal property. Effective July 1, 1991, appraisers must be state certified or licensed in order to appraise property involving a federally insures or regulated agency.

APPRECIATION An increase in an asset’s market value over its value at some previous point in time. The increase can be a result of inflation, increased demand or some other related cause. The term denotes the opposite of depreciation.

APPROACHES TO VALUE The various acceptable methods used by appraisers in deriving an estimate of value. There are three traditional approaches to value: (1) cost approach (2) sales comparison approach, and (3) income approach.

APPURTENANCE That which belongs to something else and thus passes with the property. Examples would include riparian rights, easements, barns and other outbuildings, gardens and orchards.

ARA An appraisal designation for Accredited Rural Appraiser awarded by the American Society of Farm Managers and Rural Appraisers.

ARM Accredited Resident Manager. A professional designation awarded by the Institute of Real Estate Management to individuals involved in the management of property.

ARBITRATION A procedure for resolving disputes out of court by an impartial third party chosen by the disputing parties who agree to abide by the decision of the arbitrator. While disagreements and disputes involving real estate often result in court action, disputing parties sometimes agree to settlement through arbitration.

"ARM’S LENGTH" TRANSACTION A transaction such as a sale of property or the lending of money in which all parties involved are acting in their own self-interest and are under no undue influence or pressure from the other parties. Such a situation is the basis for deriving fair market value, and if the transaction is not at arm’s length then the actual selling price will likely be less than or greater than the market value.

ARPEN(ARPENT) A French measurement term used to denote an equal to seven-eighths of one acre. (See Acre)

ARREARS Money which is not paid on time, as for example, if a borrower has not made the last two mortgage payments, he or she is said to be in arrears. In many political jurisdictions, property taxes are paid at the end of the year rather than at the beginning and are thus referred to as due in arrears, rather than in advance.

ARTERIAL STREET A major road designed to be a through street and to handle a large volume of traffic.

ARTIFICAL PERSON A person created and recognized by law as having rights, an example being corporation. Within a legal context, such a person should be distinguished from natural person.

ASA Senior Member, American Society of Appraisers. A professional designation awarded to individuals involved in the appraisal of both real and personal property.

AS IS A phrase included in a contract of sale disclaiming any warranty or guarantee on the part of the seller. A person purchasing real estate "as is" takes it in exactly the condition in which it is found and must trust his or her own inspection of the property.

ASKING PRICE The listed price of the property. Often such a price denotes a willingness on the part of the owner to sell the property for a lower price.

ASSEMBLAGE The combining of two or more adjoining lots into a single large lot. Often the purpose of bringing a number of lots together under one ownership is to allow a developer/investor to construct a large building or buildings on a single lot. By assembling the lots, the single value of the one large lot is often greater than the total single values of each of the smaller lots.

ASSESSED VALUE The worth or value of a piece of property as determined by the Taxing authority for the purpose of levying an ad valorem (property) tax. The assessed value of property is normally based on some percentage of market value. Property may be assessed at full market value or, as is more commonly the case, assessed at something less.

ASSESSMENT (1) A determination of the value of a parcel for the purpose of levying a property tax on that parcel. (2) The term also is used to denote the means by which local governments raise the money to pay for certain improvements which directly benefit property owners adjoining or adjacent to the improvements. For example, the cost of paving a previously unpaved road could be assessed to the land on each side of the road. The actual cost to a particular landowner would be based on his or her front footage as a percentage of the total footage being improved. (3) Joint forms of ownership such as condominiums and cooperatives allocate the expenses incurred for the maintenance and upkeep of the common areas and assess each unit owner for his or her proportionate share.

ASSESSMENT RATIO The ratio of assessed value to full market value as set by a taxing authority.

ASSESSMENT ROLL A list of all taxable property showing the assessed value of each parcel. Such information is public and is normally available in the tax assessor’s office or in the local land records.

ASSESSOR A public official either appointed or elected to appraise property and place an assessed value on that property for the purpose of levying a property (ad valorem) tax.

ASSETS An accounting term used to denote the real and personal property one possesses, as distinguished from debts and obligations which are known as liabilities. Assets minus liabilities equals net worth.

ASSIGN To transfer to another.

ASSIGNEE The person to whom a claim, benefit, or right in property is made.

ASSIGNMENT The transfer of a claim, benefit or right in property belonging to one person (the assignor) to another person (the assignee). Real estate instruments in which assignments occur include sales contracts, mortgages, options, and leases. Rights under contracts are valuable property rights which can ordinarily be assigned to third persons. The legal effect of assignment is to substitute the assignee for the assignor in the contractual relationship with the other original contracting party.

ASSIGNMENT OF LEASE A transfer by the tenant (leasee) of his or her interest in the lease to a third person. Both the lessor and lessee may transfer their respective interests in a lease to a third person, unless prohibited by the terms of the lease.

ASSOCIATE BROKER A person who has met the qualifications necessary for real estate broker’s license but who works jointly with and is employed by another broker.

ASSOCIATED GENERAL CONTRACTORS OF AMERICAN (AGCA) AGCA serves as a leading spokesman, for the construction industry. Four classifications of construction contractors are represented; buildings, heavy industrial, municipal utility construction, and highway. The association’s address is 1957 E Street, N.W., Washington, D.C. 20006; (202) 393-2040.

ASSUMPTION FEE A charge levied by a lender to a purchaser who takes title to property by assuming an existing mortgage. The charge can be a fixed amount; for example, $100, or perhaps a percentage of the outstanding balance, for example, one percent. The assumption fee is paid to the lender at the time of settlement or closing.

ASSUMPTION OF MORTGAGE Taking title to property which has an existing mortgage and agreeing to be personally liable for the payment of the existing mortgage debt. A distinction exists between ‘"assuming" a mortgage and taking title ‘subject to’ a mortgage. If the purchaser agrees to assume the mortgage, he or she becomes personally liable on any deficiencies, such as not making payments, occurring in a foreclosure sale. When a purchaser takes title subject to the mortgage, no personal liability is undertaken to the lender; thus, the purchaser could walk away from the mortgage and lose nothing but the equity already invested. In both situations the original borrower is liable to the lender unless specifically released in a novation. A mortgage may obtain a non-assumption clause or due on sale clause which prohibits an assumption without consent of the lender. Such consent is normally given for a fee and a possible jump in the interest rate if the contract is below the prevailing market rate.

AT-RISK RULE Apart of the Tax Reform Act of 1986 which limits the amount that an investor can claim as a loss suffered from a real estate investment.

ATTACHED HOUSING Two or more units that are physically attached but intended and designed for occupancy as individual housing units. Such units may be in the form of a duplex, triplex or fourplex as well as row houses which may extend for a complete city block. In contrast, most residential units are in the form of detached units.

ATTACHMENT The act of taking a person’s property into the legal custody of a court for the purpose of serving as security for satisfaction of a judgment which has been filed. The action itself is often called a writ of attachment and serves to create a lien against the property. As a result the property may not be sold free of the attachment unless the attachment has either been satisfied or released.

ATTESTATION The act of witnessing a person’s signing of a written instrument. Some states require that a deed be witnessed by at least two witnesses one of whom may need to be an official witness such as a notary. Without the attestation the deed is void in those states that have this requirement. Some deeds may require a witnessing in cases involving grantors who have not learned to write or are paralyzed. Such a grantor would be required to make a mark or at least a thumbprint which manifests intent to sign. Both the marking and the statement or declaration of intent by the grantor would need to be witnessed.

ATTORNEY AT LAW A person authorized to practice law in his or her respective state and thus permitted to give legal advice, draft legal instruments, and represent clients in courts of law.

ATTORNEY IN FACT A person authorized to act on behalf of another by virtue of a power of attorneys. Anyone of legal capacity may be an attorney in fact and depending on the desire of the person creating the relationship, the attorney in fact’s authority could be that of a universal, general, or specific agent.

ATTORNEY’S OPINION OF TITLE A statement issued by a attorney as to the quality of title after examining an abstract of title. Commonly referred to as "opinion of title".

ATTRACTIVE NUISANCE A potentially hazardous object, such as a swimming pool, or a condition, such as an open pit on a parcel of land, that is inviting and potentially dangerous to young children.

AUCTION The selling of real or personal property to the highest bidder by a person licensed and authorized to sell the property. The auctioneer is employed by the owner or seller of the property as an agent and normally receives a percentage of the sales price as his or her commission.

AUCTIONEER A person licensed or authorized to sell real or personal property belonging to someone else at public auction. In some states an auctioneer selling real property must be licensed as a real estate broker, whereas in others he or she is licensed as an auctioneer.

AUTHORITY The power of an agent to affect the principal in legal relations with third persons for lawful purposes. Authority may be classified into: (1) actual authority, (2) implied authority, (3) apparent or ostensible authority, (4) inherent authority, and (5) other authority which may be implied from particular circumstances. Generally, the authority of an agent is strictly construed by the courts.

AUTHORIZATION TO SELL A listing agreement entered into by the owner of property and a broker determining the rights and responsibilities of both parties in the selling of the property.

AVERAGE RATE OF RETURN A technique used to estimate a rate of return. To compute this rate, investment outflows are subtracted from total investment inflows. The result is divided by the number of years the investment was held, and that result is divided by the total investment to arrive at the average annual rate of return.

AVULSION A sudden loss or gain of land as result of action of water or a shift in a bed of a river which has been used as a boundary by property owners. If land is lost as a result of avulsion the riparian owner does not lose title to the land that has been lost; the boundary lines remain the same. This is not true when land is lost by erosion.

AXAIL THEORY OF GROWTH A pattern of land growth and development which takes the form of a star and occurs along the main transportation routes outward from a city. The city or central business district remains the center of the "star".

BACKFILL The replacement of excavated earth into a hole or against a structure.

BACKUP CONTRACT A contract to buy real estate that becomes effective if a prior contract fails to be consummated.

BALANCE, PRINCIPLE OF In real estate appraisal, there is an optimal mix of inputs that, when combined with land, will result in the greatest land value. Inputs, or factors of production, include labor, capital, and entrepreneurship.

BALANCE SHEET A financial statement in table form showing assets, liabilities, and equity, in which assets equal the sum of liabilities plus equity.

BALLOON MORTGAGE A mortgage with a balloon payment.

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

BAND OF INVESTMENT An income property appraisal technique where the overall interest rate is derived from weighting mortgage and equity rates.

BASELINE Part of the Rectangular Survey or Government Rectangular Survey method of land description.

BASE PERIOD A point of time that serves as a benchmark for reflecting the change in an index.

BASE RENT The minimum rent due under a lease that has a percentage or participation requirement.

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 which attracts income from outside the local are.

BASIS (TAX) The point from which gains, losses, and depreciation deductions are computed.

BASIS POINT One 100^th of 1%.

BEARER INSTRUMENT A security that does not indicate the owner; payable to whoever presents it.

BEDROOM COMMUNITY A residential community in the suburbs, often near an employment center, but itself providing few employment opportunities.

BEFORE-AND-AFTER-RULE In an eminent domain award, many jurisdictions appraise the property value before the taking, then the property value after the taking, considering enhancement of injury to the property that was the result of condemnation.

BEFORE-TAX CASH FLOW Cash flow prior to deducting income tax payments or adding income tax benefits.

BEFORE-TAX EQUITY REVERSION Same as after-tax proceeds from resale, except it does not consider income taxes.

BELOW-MARKET INTEREST RATE (BMIR) In some government-subsidized housing, the owner is charged a low interest rate with the requirement that savings be passed on to tenants in the form of reduced rent.

BENCHMARK A permanently affixed mark that establishes the exact elevation of a place; used by surveyors in measuring site elevations, or as a starting point for surveys.

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

BEQUEATH To specify by will the recipient of personal property. Compare devise.

BEQUEST That personal property given by the terms of a will.

BETTERMENT An improvement to real estate.

BIANNUAL Occurring twice a year. Same as semiannual. Contrast with biennial.

BIENNIAL Occurring every 2 years.

BILATERAL CONTRACT A contract under which each party promises performance.

BI-LEVEL A house built on 2 levels in which the main entrance is situated above the lower level but below the upper level.

BILL OF ASSURANCE The name given, in some states, to the total collection of restrictive covenants that apply to a group of contiguous lots.

BILL OF SALE A written instrument given to pass title of personal property from a seller to a buyer. Used when furniture and portable appliances are sold.

BINDER An agreement, accompanied by a deposit, for the purchase of real estate, to evidence good faith on the part of the purchaser.

BIWEEKLY LOAN A mortgage which 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 mortgage loan. As a result, the loan will amortize much faster than loans with monthly payments.

BLANKET MORTGAGE A single mortgage that covers more than one parcel of real estate.

BLEEDING A PROJECT 1. In new construction, overstating expenses and fees so as to divert a larger than normal amount of the project costs to the developer’s profit. 2. Managing an existing piece of real estate so as to obtain the highest possible current income from it, to the extent that many normal operating expenses are forgone.

BLENDED RATE An interest rate, applied to a refinanced loan, that is higher than the rate on the old loan but lower than the rate offered on new loans.

BLIGHTED AREA A section of a city in which a majority of the structures are dilapidated.

BLIND POOL An investment program in which monies are invested into an association without investors knowing which properties will be purchased.

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

BLUEPRINT A detailed set of plans used as the guide for construction of a building.

BLUE-SKY LAWS State laws requiring the offeror of securities to give full disclosure, and register the offering as required by federal and state law.

BOARD OF EQUALIZATION A government entity whose purpose is to assure uniform property tax assessments.

BOARD OF REALTORS A local group of real estate licensees who are members of the State and National Association of Realtors.

BOECKH BUILDING VALUATION MANUAL A book, frequently updated, that offers estimates of the replacement cost or reproduction cost for different types of buildings. Address: Boeckh 525 East Michigan, P.O. Box 664 Milwaukee, WI 53201-0664.

BOILER PLATE Standard language found in contracts. Preprinted material.

BOMA Building Owners and Mangers Association.

BONA FIDE In good faith, without fraud.

BOND A certificate that serves as evidence of debt and of the terms under which it is undertaken.

BOOK VALUE The carrying amount of an asset, as shown on the books of a company.

BOOT Unlike property included to balance the value of like properties exchanged.

BOTTOMLAND 1.Low land near a river, lake, stream, which is often flooded. 2. Land in a valley or dale.

BOUNDARY Same as property line.

BOY Beginning of year.

BREACH OF CONTRACT A violation of the terms of a legal agreement; default. Breach of contract allows the non-breaching party to rescind the contract, sue for damages, or sue for performance of the contract.

BREAK-EVEN POINT The amount of rent or the occupancy level needed to pay operating expenses and debt service. Also called default point.

BRIDGE LOAN Mortgagee financing between the termination of one loan and the beginning of another loan.

BROKER A state-licensed agent who, for a fee, acts for property owners in real estate transactions, within the scope of state law.

BROKERAGE 1. The business of being a broker. 2. The commission received by a broker for his services.

BROWNSTONE, BRICK ROW HOUSE, OR EASTERN TOWNHOUSE A nineteenth-century-style house, usually having 4 or 5 stories with a stoop leading up to the first floor. There are side walls with a house on either side.

BUDGET MOTGAGE A mortgage that requires monthly payments for taxes and insurance in addition to interest and principal.

BUFFER ZONE A transitional area between 2 areas of different predominant land uses.

BUILDERS AND SPONSORS PROFIT AND RISK ALLOWANCE (BSPRA) An amount above the cost of apartments that is allowed to be included in the project cost for purpose of determining the loan amount in certain government-sponsored programs.

BUILDER WARRANTY A guarantee on the quality of construction offered by the developer or building contractor.

BUILDING CAPITALIZATION RATE In appraisal, the capitalization rate is used to convert an income stream into one lump sum value. The rate for the building may differ from that for the land because the building is a wasting asset.

BUILDING CODES Regulations established by local governments describing the minimum structural requirements for buildings; includes foundation, roofing, plumbing, electrical, and other specifications for safety and sanitation.

BUILDING LINE A line fixed at a certain distance from the front and/or sides of a lot, beyond which the building may not project.

BUILDING LOAN AGREEMENT An agreement whereby the lender advances money to an owner at specified stages of construction.

BUILDING OWNERS AND MANAGERS ASSOCIATION (BOMA) An organization of practitioners who own and manage buildings, notably office space. Address: Building Owners and Managers Association 1221 Massachusetts Avenue NW, Washington DC 20005.

BUILDING PERMIT Permission granted by a local government to build a specific structure at a particular site.

BUILDING RESIDUAL TECHNIQUE An appraisal technique whereby income to land is subtracted from net operating income to result in the building income. Building income is capitalized into building value.

BUILDING RESTRICTIONS Provisions in building codes that affect the orientation, size, and appearance of a building.

BUILD TO SUIT An arrangement whereby a landowner offers to pay to construct on his or her land a building specified by a potential tenant, and then to lease land and building to the tenant.

BUILT-INS Appliances, machinery, and other equipment that are constructed as part of a building rather than left freestanding and moveable.

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.

BUNDLE OF RIGHTS THEORY The theory that ownership of realty implies a group of rights such as occupancy, use and enjoyment, and the right to sell, bequeath, give, or lease all or part of these rights.

BUNGALOW A small, early-twentieth-century-style, 1-story house that usually has an open or enclosed front porch.

BUREAU OF LAND MANAGEMENT An agency of the U.S. Department of the Interior that oversees the management of much of the land owned by the U.S. government, particularly national forests and other relatively undeveloped land.

BUSINESS DAY A standard day for conducting business. Excludes weekends and holidays.

BUY-BACK AGREEMENT A provision in a contract under which the seller agrees to repurchase the property at a stated price upon the occurrence of a specified event within a certain period of time.

BUY DOWN 1. The action to pay additional discount points to a lender in exchange for a reduced rate of interest on a loan. The reduced rate may apply for all or a portion of the loan term. 2. A loan that has been bought down by the seller of the property for the benefit of the buyer.

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.

BUYER’S MARKET A situation where buyers have a wide choice of properties and may negotiate lower prices. Often caused by overbuilding, local population decreases, or economic slump.

BUY-SELL AGREEMENT A pact among partners or stockholders under which some agree to buy the interests of others upon some event.

BYLAWS A set of regulations by which an organization conducts its activities.

CAPITAL Accumulated wealth. A portion of wealth, which is set aside for the production of additional wealth; specifically, the funds belonging to the partners or shareholders of a business, invested with the expressed intention of their remaining permanently in the business.

CAPITAL GAIN Taxable profit on the sale of an appreciated asset.

CAPS Caps are used on adjustable rate mortgages (ARM’s) to limit the interest rate and/or the payment. Most ARM’s have a periodic cap that is around 2% per year and a life cap of around 5%-6% over the life of the loan. "Payment only" caps sometimes create negative amortization where the principal balance of the loan increases rather than decreases over time

CAVEAT EMPTOR A legal term meaning, "let buyer beware"".

CERTIFICATE OF ELIGIBILITY A certificate obtained by a veteran from a Veteran’s Administration office, which states that, the veteran is eligible for a VA insured loan.

CERFITICATE OF OCCUPANCY A document issued by a local governmental agency that states a property meets the local building standards for occupancy.

CERTIFICATE OF REASONABLE VALUE (CRV) An appraisal of property for the purpose of insurance by the Veteran’s Administration.

CERTIFICATE OF TITLE A certification issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property, which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title, which an examination of the public records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.

CERTIFIED COPY A true copy attested to be true by the officer holding the original.

CESTUE QUE TRUST One having an equitable interest in property with the legal title being vested to the trustee.

CHAIN OF TITLE The chronological order of conveyance of a parcel of land from the original owner to the present owner.

CHATTEL Personal property.

CLIENT Person who employs the agent. Typically the seller is a client. The buyer can be a client (buyer’s broker) or customer (seller’s broker).

CLOSING Conclusion of a real estate sale where the title of the property is transferred to the new owners and funds are transferred to the appropriate parties (seller, old lender, real estate broker, etc.)

CLOSING AGENT A neutral third party that facilitates the closing of a real estate transaction. The closing agent can be an escrow company, title company or an attorney.

CLOSING COSTS Expenses incurred by the buyer/borrower and the seller in a real estate or mortgage transaction. There can be non-recurring costs that include a one time charge for points, appraisal fees, etc. or a proration of recurring costs such as taxes and insurance incurred while the new buyer/borrower owns the real estate.

CLOSING STATEMENT A statement prepared for the buyer and seller itemizing all of the costs of a real estate transaction.

CLOSING DAY The day on which the formalities of a real estate sale are concluded. The buyer signs the mortgage and closing costs are paid. The final closing merely confirms the original agreement.

CLOUD ON TITLE An outstanding claim or encumbrance which, if valid, adversely affects the marketability of title.

CODE OF ETHICS Standards subscribed to by members of the National Association of Realtors.

CO-MAKER Equally responsible for repayment as the borrower.

COMERCIAL PROPERTY Property intended for use by all types of retail and wholesale stores, office buildings, hotels, and service establishments.

COMMISSION Fee paid to a broker or other entity for services rendered. Real estate brokers and mortgage brokers receive a commission for the services they provide; a real estate broker secures a buyer for a property that is for sale and a mortgage broker secures a mortgage loan for the buyer to finance the purchase of a property. Commissions are generally paid as a percentage of the sales price in a real estate transaction or the loan amount in mortgage transaction.

COMMITMENT A written promise to make or insure a loan for a specified amount and on specified items.

COMMON LAW Rules based on usage as demonstrated by decrees and judgements from the courts.

COMMUNITY PROPERTY Property owned jointly by husband and wife.

COMPARABLES Properties which are similar in value to a particular property and are used as comparisons to determine the fair market value of a specified property.

CONDEMNATION The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government’s power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.

CONDITIONAL COMMITMENT A lenders promise to issue a loan subject to certain conditions. Generally, the lender will not fund the loan until the conditions have been met.

CONDITIONAL OFFER Purchase offer in which the buyer proposes to purchase property only after certain events (sale of another home, finding a loan commitment, etc.) occur.

CONDOMINIUM A structure of two or more units, the interior space of which are individually owned.

CONSIDERATION Anything of value given to induce another to enter into a contract. Earnest money deposit on a sales contract is consideration.

CONTRUCTION LOAN A short-term financing for real estate construction. Generally followed by long term financing called a "take out" loan issued upon completion of construction.

CONTINGENCY Condition that must be satisfied before the buyer can consummate the purchase of a property. Contingencies are generally outlined in the purchase contract between the buyer and seller.

CONTRACT OF PURCHASE An agreement between parties for the sale of real estate. In some states it is synonymous with a Purchase Agreement, Sales Agreement, or Land Contract. In Texas it is known as an Earnest Money Contract.

CONTRACT OF SALE A purchase transaction in which the buyer receives possession of the property, but the seller retains title.

CONTRACT SALES PRICE The full purchase price as stated in the contract.

CONVENTIONAL LOAN A mortgage loan that is not guaranteed or insured by the government. FHA and VA loans are not conventional loans.

CONVERTIBLE ARM’s ARM’s that have a provision allowing the borrower to convert the mortgage to a fixed rate term. The conversion feature is outlined in the mortgage note and has certain restrictions.

CONVENTIONAL MORTGAGE A loan neither insured by the FHA nor guaranteed by the VA.

COOPERATIVE HOUSING An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation, which entitles him to occupy a unit in the building or property, owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

COST PLUS CONTRACT A building contract setting the builder’s profit at a set percentage of actual cost of labor and materials.

COST BASIS Accounting figure that includes original cost of property plus certain expenses to purchase, money spent on permanent improvements and other costs, minus any depreciation claimed on tax returns over the years.

COUNTEROFFER A new offer made as a result of another offer, which cancels the original offer.

COUNTY A division within a state, usually encompassing one or more cities or towns.

COVENANT An agreement written into deeds and other instruments promising performance or nonperformance of certain acts or stipulating certain uses or nonuse of the property.

CUSTOMER Typically, the buyer (before buyer agency laws), as opposed to the principal (seller).

DAMAGES The court ordered payment a person receives when his or her personal rights or property rights have been violated or injured through an unlawful act or negligence on the part of another.

DATE The mention in a written instrument, such as a sales contract or deed, of the time (day, month, and year) when it was made or when a future event is to occur. Real estate contracts may have more than one date mentioned.

DATUM A level surface to which the elevations of points used in legal descriptions are referred. Besides the mean sea level datum some arbitrarily chosen datum such as a benchmark is often used in surveying work.

DEALER One who holds property for sale to customers. If a person is classified as a dealer for federal income tax purposes, any gain or loss on the exchange or sale of property is treated as ordinary gain or loss and not as capital gain or loss. Dealers also may not take advantage of tax-free exchange rules, which can be used by non-dealer investors.

DEAD END STREET A street with only one entrance, the other end being closed.

DEBENTURE (BOND) A long-term bond or note issued by corporations and governments and not secured by a mortgage or lien on any specific property. Since there is no specific property securing the debenture, the ability to repay the debt is based solely on the financial strength of the issuer.

DEBIT An amount due or owing, as compared to a credit which is an amount due or to be received. Debit entries are made on closing statements to reflect charges made to both parties.

DEBT An obligation of money, goods, or service either in the present or in the future from one person to another.

DEBT COVERAGE RATIO (DCR) The relationship between the annual net operating income (N.O.I.) of a property and the annual debt service of the mortgage loan on the property. Lenders and investors calculate the ratio to assist them in determining the likelihood of the property generating enough income to pay the mortgage payments. From the lender’s viewpoint, the higher the ratio, the better.

DEBT EQUITY RATIO The relationship between the total loan amount owed to the lender(s) and the invested capital of the owner(s). In real estate investments this ratio, also known as the leverage ratio, can be very high due largely in part to the loan security of real estate, thus real estate investments are often highly leveraged. Owner occupied residential real estate typically has a high debt-equity ratio, particularly homes recently purchased. A $100,000 home purchased with $20,000 cash and an $80,000 mortgage would have a debt-equity ratio of 4:1 ($80,000/$20,000).

DEBT FINANCING The use of borrowed funds, or other people’s money, to purchase real estate. Also known as debt capital as compared to equity capital, which is the amount of one’s own money used to purchase real estate.

DEBTOR One who owes debt.

DEBT SERVICE The periodic payment (monthly, quarterly, annually) necessary to pay the interest and principal on a loan which is being amortized.

DEBT-TO-INCOME RATIO The relationship between a person’s periodic (normally monthly) debt and his or her income. While lenders use various rules of thumb in determining the maximum amount of money a person can borrow, the ratio often used is that the total principal, interest, taxes, and insurance (PITI) due each month should not exceed 25 to 28 percent of the borrower’s monthly gross income.

DECEDENT A deceased person. One who is deceased with a will is known as a testator while a deceased person without a will is said to have died intestate.

DECLARATION OF TRUST Acknowledgement by a person who holds legal title to property that he or she is holding the property as trustee for someone else or for a specified purpose.

DECLINING-BALANCE DEPRECIATION An accelerated method of depreciation for tax purposes in which the remaining depreciable balance each year is the base for calculating the subsequent year’s depreciation. The result is a faster write-off in the early years than would be possible using a straight-line method of depreciation.

DECREASING ANNUITY A series of periodic payments or receipts that progressively decline over time.

DECREE A court order or declaration announcing the legal consequences of the facts.

DECREE OF FORECLOSURE A court order following the actions of a mortgagee who has a lien against a parcel of real property that states the amount of the outstanding debt and orders the sale of the property with the proceeds being used to satisfy the debt.

DEDICATION A donation of property by a property owner to a public authority such as a local government without payment and for a public use.

DEDUCTION Any ordinary and necessary expense paid or incurred in a taxable year which is related to business or the production of income. Such deductions are in addition to any other deduction Permitted by law and depend upon the accounting method used by the taxpayer. Except where specifically authorized by Congress, expenses for personal or family purposes are usually not deductible. A deduction has the effect of reducing the amount of taxable income and thereby reducing a taxpayer’s tax liability. If a person owns a house which serves as his or her personal residence, Congress permits mortgage interest, property taxes, and casualty losses as allowable deductions. In addition to these deductions, owners of real estate held for other purposes may be entitled to deductions for maintenance expenses, minor repairs, insurance premiums, and depreciation.

DEED A written instrument, usually under seal, conveying some property interest from a grantor to a grantee. A grantor is the person who conveys the property interest; the grantee is the person to whom the grant is made. In order for a deed to be effective in transferring title, it must be in proper legal form and executed as specified by the law in the state in which the property is located. The title is actually transferred the moment the deed is properly delivered to and accepted by the grantee. In order to protect the validity of the title from subsequent innocent third parties purchasing the same property from the original grantor, the deed must be recorded as required by the particular state’s recording statue. This also gives assurance to third parties that no one else has good title unless the title has been recorded. This gives constructive notice to third parties. When a deed is delivered, all prior oral and written agreements are merged into the deed and are collateral. This means that when a deed is delivered and accepted all prior agreements, which are inconsistent with the deed, are superseded and have no legal effect. An exception to this rule occurs in cases or fraud and mutual mistake. Another exception exists when the contract specifically provides that the obligations will survive the closing.

DEED BOOKS Part of the public records found in the county clerk’s or recorder’s office in which copies of deeds transferring real property in that jurisdiction are recorded. These books are also known as libers.

DEED IN LIEW OF FORCLOSURE A special purpose deed used by a borrower (mortgagor) who is in default to convey the property to the lender (mortgagee) in order to eliminate the need for a foreclosure.

DEED IN TRUST A special purpose deed for carrying out fiduciary purposes in which the real property is conveyed to a trustee in a land trust. The power to sell, lease, mortgage, and so forth are given to the trustee under the provision of the trust agreement.

DEED OF RECONVEYANCE A deed used to transfer title from the trustee back to the trustor (borrower) after the outstanding debt has been paid in full.

DEED OF RELEASE A special purpose deed given by lien holders, remaindermen, or mortgagees to relinquish their claims on the property.

DEED OF SURRENDER A special type of deed used to merge a life estate with a reversion or remainder.

DEED OF TRUST A deed to real property which serves the same purpose as a mortgage but instead of two parties, three parties are involved. The third party holds title for the benefit of the lender. The borrower under a note secured by a deed of trust or trust deed is called the trustor or in some states the grantor. The lender is called the beneficiary. Then a loan is made the borrower conveys naked title to a third party called the trustee who holds the title for the benefit of the lender although the instrument itself may remain in the lender’s possession. A state deed of trust act specifies who may act as a trustee. Some states have created the office of public trustee, while others allow individuals such as attorneys or brokers or entities such as title insurance companies or savings and loan associations to serve in that capacity. As with mortgages, states have title theory and lien theory deeds of trust.

DEED POLL A deed made by only one party who binds only him or herself to the deed.

DEED RESTRICTION DEFAULT The failure to perform a contractual obligation or duty. Since each party to a contract has a duty to perform as promised, the non-defaulting party has a number of alternative remedies from which to choose. Quite often real estate contracts such as sales agreements, leases, and mortgages specify the act(s) that will result in default as well as the remedies available to the innocent party.

DEFAULT JUDGMENT A judgment entered by a court against a person who fails to answer a complaint or appear in court at an appointed time.

DEFAULT RATIO A ratio used in financial analysis that compares the effective gross income (the rent collected from a project) to the operating expenses plus the debt service.

DEFEASANCE CLAUSE A provision found in a mortgage which "defeats" the passing of title to the lender (mortgagee) had the borrower (mortgagor) not met the terms and conditions specified in the mortgage. When the debt is repaid this clause nullifies any interest the lender may have had in the property. Typical wording of a defeasance clause would be as follows: "Provided, however, if the said mortgagor, his heirs, personal representatives, or assignees, shall make or cause to be made the payments, and perform and comply with the covenants and conditions herein mentioned on his part to be made and done, then this mortgage shall be void."

DEFEASIBLE Subject to be revoked or defeated upon the occurrence of a future event or the performance of a condition subsequent, generally used in regard to rights and interests in real estate.

DEFECT OF RECORD Any lien, claim or encumbrance on a particular piece of real estate that has been properly recorded in the public records. Recorded defects impair clear title and may result in the title being unmarketable.

DEFENDANT The person against whom a lawsuit has been brought or against whom recovery is sought by the plaintiff.

DEFERRED ANNUITY A series of periodic payments or receipts that begin at some point in the future.

DEFERRED CHARGES In accounting, expenditures for intangible assets, such as mortgage placement fees or property leasing commissions, that are to be written off over the life of the service provided.

DEFERRED INCOME Income to be received in the future.

DEFERRED INTEREST MORTGAGE A financing technique in which a lower interest rate and thus a lower monthly mortgage payment is charged. Upon the selling of the property the lender receives the deferred interest plus a specified fee for postponing the interest that would normally have been paid each month. This type of mortgage is particularly aimed at those people who only plan to keep the property for a short period of time.

DEFERRED LIABILITY A debt that need not be paid currently. Accelerated depreciation frequently causes a deferred income tax liability for income producing property.

DEFERRED MAINTENANCE Inadequate repair and upkeep of a building which results in physical depreciation and loss in value.

DEFICIENCY The lack of an item or its inadequate capacity.

DEFICIENCY JUDGMENT A personal claim based on a court order against a borrower (mortgagor) for difference between what is owed the lender (mortgagee) and the amount realized following a foreclosure on the property. The deficiency occurs when the prop fails to sell at foreclosure for a price which covers the outstanding mortgage amount. Some mortgages, particularly commercial loans, are written so that the lender recourse only against the property (non-recourse mortgage) and thus, if the prop fails to sell at foreclosure for the amount owed, no personal judgment can be brought against the borrower.

DEFLATION A decline in the general level of prices.

DEGREE A land surveying measurement denoting 1/360^th part of a circle. The term used in metes and bounds method of surveying and is denoted by the symbol… in 90’.

DELINQUENCY DATE A specified time after which a penalty is incurred for nonpayment of a debt. Real estate lending, promissory notes normally have a due date, typically the first of each month, and a delinquency date, normally sometime between the tenth and fifteenth.

DELINQUENCY RATIO A ratio used by commercial banks and other lenders to denote the number of overdue loans relative to the total loans being serviced.

DELIVERY The formal surrender of control or ownership of something to someone else. Legal documents such as deeds and mortgages do not become valid until they have been delivered and accepted. What constitutes delivery depends upon the intent of the parties. For a deed, there must be an objective intent on the part of the grantor to give up present control of the deed.

DEMAND An economic term commonly used to denote a qualified buyer(s) who is ready, willing, and able to make a purchase.

DEMAND DEPOSIT Funds on deposit with banks which are subject to immediate withdrawal by the depositor(s). Commonly known as checking accounts, demand deposits are different from time deposits, commonly referred to as savings accounts, which require the depositor to wait a specified period of time before withdrawing or else pay a penalty for early withdrawal.

DEMAND LOAN A loan that permits the lender to call the loan due and payable at any time. Normally, real estate loans are not demand loans.

DEMISE A conveyance of an estate to someone for life, for a certain number of years, or at will by means of a lease. The word demise is synonymous with ‘lease’ or ‘let’ and use of the word in a lease implies a covenant for quiet enjoyment which means the landlord (lessor) guarantees that the tenant (lessee) will not be disturbed by someone having superior claims against the property.

DEMISED PREMISES The part of a property which is leased to a tenant.

DEMOGRAPHY The study of populations with respect to density and distribution. Demographic information is of particular importance to people involved in market analysis and highest and best use analysis in determining potential land uses of a particular site.

DEMOLITION COSTS The total expenses incurred in tearing down and removing the improvements on a parcel of land.

DEMOLITION LOSS A tax deduction which may be taken under certain circumstances when an improvement is voluntarily demolished. No deduction may be taken if there was intent to demolish the building at the time the property was acquired. If the building is used in trade or business or for production, and a decision is made to demolish the building after acquisition, then the taxpayer will ordinarily be entitled to the demolition loss deduction.

DENSITY The number of buildings or persons occupying a certain area of land, generally an acre.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) A federal agency actively engaged in housing programs and related activities including urban renewal, model cities, block grants, public housing and subsidy programs. The Federal Housing Administration (FHA), the Government National Mortgage Association (GNMA), and the Office of Interstate Land Sales Registration are all under HUD’s jurisdiction.

DEPARTMENT STORE A large store divided into sections or departments selling a wide range and variety of products. Local department stores are often used as anchor tenants in shopping centers.

DEPENDENCY, PRINCIPLE OF An economic principle which states that the use and thus the value of a particular parcel of land can change as a result of modifications of other parcels of other changes in the land-use pattern or environment.

DEPLETION A tax deduction that may be taken by taxpayers that own property interests in extractive industries such as mines, oil, gas, or other natural deposits.

DEPOSIT Money offered by a prospective purchaser to indicate his or her good faith in entering into a sales contract. If the sale is completed then the deposit is credited to the purchaser and applied towards the purchase price. However, if the purchaser defaults then the deposit is normally kept by the seller as liquidated damages. Depending upon the terms of the listing agreement, the seller may split the deposit with the listing broker. Default by the seller results in all of the deposit being returned to the purchaser, with the broker having no legal claim to any of the money.

DEPOSIT INSURANCE ACT A federal act enacted during the Great Depression creating the Federal Deposit Insurance Corporation (FDIC) to insure deposits of member commercial banks.

DEPOSIT OF TITLE-DEEDS The placing of title-deeds to land in the hands of a lender for the purpose of securing a loan.

DEPOSITION The testimony of a witness taken outside of court for the purpose of using the testimony during a trial.

DEPOSITORY INSTITUTIONS DEREGULATION AND MONETARY CONTROL ACT (1980) A federal act that resulted in significant deregulation of federally chartered commercial banks and savings institutions. Included in the legislation were provisions to phase out ceilings on interest rates being paid by lenders (Regulation Q) and limitation over the type of loans savings institutions could make. The act also overrode state usury laws for all federally insured institutions.

DEPRECIABLE BASIS The amount on which depreciation deductions are based for income tax purposes. Allocation must be made between land and improvements, since ordinarily only the improvements to and on the land may be depreciated.

DEPRECIABLE LIFE The estimated economic useful life of a depreciable asset such as a building. Depreciable life is not a measure of how long the building will remain standing, but rather how long the improvements are expected to provide an economic return. As an analogy, automobiles may last for decades, but the cost and annoyance of repairs and the modern equipment of newer cars give most automobiles a short useful life. Improvements to real estate are long lasting, but without renovation, they steadily march to the junkyard.

DEPRECIATED COST In taxation, the cost new minus any depreciation taken.

DEPRECIATION (ACCOUNTING) A method of allocating the cost of a wasting asset over its estimated useful life. For income tax purposes, depreciation is a provision for the estimated wear and tear of an asset. Depreciation deductions can be claimed as a tax deduction on real estate improvement (not land), regardless of whether the market indicates an increase or decrease in the value of the property. To claim depreciation on an income tax return, a bookkeeping entry is required, not a cash payment. In many real estate investment situations, depreciation deductions are of significant value. The deductions reduce income taxes without a cash payment. However, there will be a day of reckoning. Ultimately, the tax implications catch up with the real economic situation. Depreciation deductions serve to reduce the adjusted tax basis of property, so, upon a resale, there will be a greater capital gain on which a tax is due. Most investors prefer to enjoy substantial amounts of current depreciation deductions in the face of a future tax because of (1) the time value of money, and (2) the possibility of lower tax rates upon resale. Lower tax rates may be due to more favorable capital gain rates, or planning the sale to occur in a tax year when ther are off-setting losses. The time value of money implies that taxpayers would rather pay taxes later than now. It is like getting an interest-free loan from the government.

DEPRECIATION/AMORTIZATION RATIO The relationship between depreciation deductions and mortgage payments for income-producing property. Depreciation claimed for income purposes allows a tax deduction without cash payment. Mortgage payments that apply toward principal reduction require an actual cash payment but are not deductible for income tax purposes, so they have an opposite effect. Since all other operating expenses such as maintenance and property tax are tax-deductible, the difference between the depreciation claimed for tax purposes and the mortgage payments is clearly reflected in taxable income. Thus, any excess of depreciation over mortgage principle payments in a taxable year will cause some of the before-tax cash flow (cash throw-off) to be tax-free.

DEPRECIATION (APPRAISAL) A loss in utility, and hence value, from any cause. In the cost approach to value, the depreciation factor attempts to make adjustments between the attributes of the selected building, as if it were new, and the subject property’s physical condition and economic setting. It is a way of adjusting the hypothetical new structure on which the cost estimate was based and distinguishing it from the subject property. An appraiser may estimate depreciation through observation and/or by applying a formula based on the effective age and remaining life of each component of the property. The indirect method of estimating depreciation is to subtract values for the property, estimated from the market or income approach (or both), from the reproduction cost of the subject property, plus the value of the land. The difference obtained is the total depreciation sustained.

DEPRECIATION METHODS Those methods allowed for depreciating real estate improvements (not the land) as prescribed by the Internal Revenue Code.

DEPRECIATION RECAPTURE A provision contained in the Internal Revenue Code that makes excess depreciation taken on real property subject to income tax upon the sale or disposition of the property.

DEPTH TABLE A table showing the percentage relationship between the depth of a lot being appraised and the value as compared to values indicated by a standard lot in the market. Such tables are sometimes used by appraisers and tax assessors in estimating the value of a particular parcel of land. Several rules of thumb for depth adjustment have been developed. Among the more common are the 4-3-2-1 rule, the Hoffman rule, the Hoffman-Neill rule, the parabolic formula, and the Milwaukee rule. Little reliance can be placed on these rules without first testing market behavior. In some markets very little price differentiation exists between different-sized lots within acceptable rates. In other markets prices may be affected by size. A much preferable approach is the use of linear or multiple regression. This is a statistical technique used to calculate the mathematical relationships between variables. It requires the use of large numbers of data points to provide reliability. Using one of many calculators currently available, the appraiser can use regression to determine the existence of a relationship between lot depth and sales price.

DERELICTION A process by which water gradually recedes, leaving dry land where water previously was.

DERIVATIVE CONVEYANCE A conveyance of property which presupposes that a conveyance of the property has previously occurred. Such a conveyance only serves to alter or confirm the interest originally conveyed.

DESCENT The transfer of title to property upon the death of the owner who has died without a will (intestate) to those heirs related by blood or marriage, whom the law designates. If a person dies intestate the disposition of the person’s property will pass as defined by state laws called statutes of descent and distribution. Real estate will pass directly to a person’s heirs as defined by the state law in which the real estate is located subject to the debts of the decedent.

A court in the state where the decedent lived will appoint a person called an administrator to dispose of the property of the estate. The administrator will collect the assets of the estate, pay debts and distribute the remainder. The administrator is usually required to put up a bond and may sell that real property which is necessary to pay off the estate’s debts if the sale of personal property produces insufficient proceeds. The real estate remains charged with debts of the estate until the state’s statute of limitations have run out. States have different rules as to who receives property of the decedent.

DESCRIPTION The part of a deed, mortgage, sales contract, or other such legal instruments which identifies the real estate involved in the transfer. When land is conveyed one party to another the instrument of conveyance needs to contain a legally sufficient description of the parcel. Courts have interpreted this to mean that property sufficiently described if a competent civil engineer or surveyor could locate subject property given the land description. Since no two parcels of land could be exactly alike in location, each parcel requires a unique description. A legal instrument, such as a deed, which does not have a legally sufficient description, is void and not enforceable.

DESIGNATED REAL ESTATE BROKER An officer of a corporation who has been designated by the corporation as its broker of record. The person so designated must meet the minimum qualifications for acquiring and maintaining a broker’s license and is responsible for the corporation’s real estate brokerage activities.

DESIGNATED REAL ESTATE INSTRUCTOR (DREI) A professional designation awarded by the Real Estate Educators Association to persons involved in real estate education.

DETACHED SINGLE-FAMILY HOME A freestanding structure designed for one family unit.

DETERIORATION A loss in value due to wear and tear by action of either the natural elements or use of the property.

DEVELOPER One who does whatever is necessary to transform an undeveloped tract of land into parcels ready for construction. This could mean acquiring a 100-acre tract of land from a farmer, subdividing the large parcel into one-half acre tracts, putting in roads, curbs, gutters, sewers, and water mains and then selling the individual lots to either builders or private individuals who in turn construct houses on the lots. I-and development can also involve commercial property such as the development of a large shopping district or industrial property such as an industrial park.

DEVELOPMENT LOAN A loan to fund the cost of converting an undeveloped tract of land into parcels ready for construction. Such loans intended to be short-term, are normally tied to the prime rate and are made by lenders expecting repayment when the improvements to the land are completed.

DEVELOPMENT RIGHTS The rights to improve or develop land that are sold or given by one property owner to another.

DEVISE Transferring title to real property by means of a will. In order to make a valid formal will a person must be of statutory age, generally eighteen or twenty-one in most states, although some states set the age as low as fourteen. In addition, the person must be of "sound mind’ at the time of the execution of the will. A formal will must be in writing, which may be typed, printed, or handwritten. Real estate must be described with sufficient certainty, but it is not required that a complete legal description be included. A formal will must be signed. In addition, states impose a strict requirement that the will be witnessed. Some states recognize non-witnessed wills called holographic wills. A holographic will is one that is entirely handwritten. Such a will is valid only in some jurisdictions and there only if it is free from suspicion of fraud or other defects. In addition many states recognize nuncupative wills. A nuncupative will is an oral will which a terminally ill testator or testraix declares before qualified witnesses. This will must be reduced to writing within a statutorily prescribed time period in order to be admitted into probate. Unlike a deed which cannot be changed or withdrawn by a grantor after it has been delivered and accepted, a will may be changed or revoked by the testator at any time during his or her lifetime. A will may be changed by making out a new will or by drafting a codicil to a will. A codicil is a supplement or addition to the original will and must be executed with the same formality. Any attempt to modify the original will by crossing out a provision will not ordinarily be effective. The courts may view such as alteration as a revocation of the will.

DEVISEE The person to whom real property is given by will.

DEVISOR A giver of real property by means of a will; also known as a testator.

DIMINISHING RETURNS, POINT OF The point in time or production where returns fail to increase in proportion to addition investments of labor, capital, management, or land.

DINK Double income, no kids. A term used to denote a working couple, often in the market for condominium ownership or other types of real estate investments.

DIPLOMAT CLAUSE A provision included in a lease allowing for immediate termination of the lease when the tenant, who is a diplomat of a foreign government, is transferred to another country.

DIRECT CAPITALIZATION A method of capitalizing income based on dividing net operating income by a rate of return derived by analyzing similar properties and comparing their net income to their selling price. Also know as the overall capitalization rate, this approach takes into account the unique operating characteristics of each property.

DIRECT COSTS Expenditures made in the construction of an improvement that can be directly attributable to the improvement. Also know as hard costs, direct costs include such items as labor, material, contractor’s overhead, and profit.

DIRECTIONAL GROWTH The direction towards which a city or area tends to be growing. Land values, and thus the uses to which land is put, are directly affected by the direction the growth takes.

DISAFFIRM To disclaim or refuse consent previously given.

DISASTER LOAN A loan either made or guaranteed by a governmental agency to owners property which has been damaged or destroyed as a result of such natural disasters as floods, riots, or earthquakes.

DISBURSEMENT A cash expenditure for the purpose of settling a debt.

DISCLAIMER Rejection or refusal of a legal claim, power, or property. In real estate, disclaimer would be the refusal by a party to accept an estate that had been conveyed to him or her.

DISCLOSED PRINCIPAL A kind of principal in a principal-agent relationship whose identity is made known to the third person before the third person enters into contractual relations negotiated by the agent. Under such a principal-agent relationship the agents considered liable under the contract in the absence of personal wrongdoing. No real estate transactions involve a disclosed principal.

DISCLOSURE STATEMENT A written statement required under the National Consumer Credit Protection Act referred to as the Truth-In-Lending Act, to be given by a lender to individual borrowers for certain types of consumer loans. All real estate lending transactions involving consumers are covered, as is all credit extended in five or more installments and not in excess of $25,000 for personal, family, household, or agricultural purposes. Two important disclosures included are the finance charge and the annual percentage rate (APR).

DISCOUNT The amount of money paid at the front end to acquire a loan. This amount is deducted from the principal at the time the loan is made and thus represents interest paid in advance. The discount is normally stated in terms of points or percent.

DISCOUNTED MORTGAGE A mortgage sold below the amount of the remaining principal balance in order to provide a satisfactory yield to the purchasing mortgage investor.

DISCOUNTING The process of converting investment inflows to a present value. Since money has a time value, one dollar to be received in the future is worth less than one now. How much less (the amount of discount) depends on: (1) the time span between the cash outflow and inflow, and (2) the necessary rate of interest discount.

DISCOUNT POINTS A fee charged by a lender at closing or settlement that results in increasing the lender’s effective yield (internal rate of return) on the money borrowed. One discount point represents a one-time charge by the lender equal to 1% of the principal. Often sellers pay these points to comply with government regulations. By law the buyer cannot pay discount points on VA mortgages. Why would third persons want to pay discount points if the loan is actually being given to the borrower and not to themselves? The third person usually stands to benefit from the loan indirectly.

DISCOUNT RATE The rate of interest charged by the Federal Reserve System to banks who borrow money from the Federal Reserve. An increase in the rate not only discourages from borrowing, but it also serves as a signal to the money market that interest rates are probably going to increase. Accordingly, interest rates charged by banks to customers usually increase as a result of an increase in the discount rate. The term is also used to explain the compound interest rate used in the approach to value or convert expected future cash flows into a present value.

DISCOUNT REAL ESTATE BROKER A licensed real estate broker who charges a lower sales commission than normally charged, in exchange for the seller performing some of the duties normally performed by the broker. A discount broker may charge as little as two percent commission if the seller agrees to, for example, be available to show the house to potential buyers and pay the advertising expenses normally incurred by the broker.

DISCRIMINATION Failure to treat all people equally. It is the stated policy of the government to eradicate discrimination in real estate markets.

DISINTERMEDIATION The withdrawing of funds from financial institutions by depositors who in turn invest directly into short-term financial instruments, such as treasury bills and commercial paper. Such activity occurs when the interest rate paid on these short-term instruments is higher than the rate(s) offered by savings and loan associations, mutual banks, and commercial banks. The result is less mortgage money available for loans, since the short-term instruments being purchased are normally not made available for real estate loans.

DISPOSSESS The removal of eviction of someone from real estate through legal action.

DISPOSSESS PROCEEDINGS Legal action undertaken by a landlord to remove a tenant and regain possession of the property for breaking a condition or term of the lease such as nonpayment of rent.

DISTRAINT The taking by a landlord or personal property belonging to the tenant to satisfy past-due rents. Under common law a landlord had the right to seize the tenant’s property on the premises and to sell or hold the property to satisfy a claim for rent. Today, a court action is required and the priority of the landlord’s lien will depend upon local law.

DISTRESS The common law right of a landlord to seize the personal property of a tenant to satisfy past-due rent.

DISTRESSED PROPERTY Real estate which must be sold due to a pending mortgage foreclosure.

DISTRICT A classification of neighborhoods in which the land uses are similar, such as commercial, multifamily, or industrial.

DOCUMENT An official paper establishing facts or giving instructions.

DOCUMENTARY STAMP A tax levied by some local and state governments at the time legal instruments such as deeds and mortgages are entered into public record. Prior to January 1, 1968, there was a requirement for U. S. revenue stamps on deeds at the rate of $.55 per $500.

DOG A parcel of real estate that is very difficult to sell due to location, condition, or design. Such property normally remains on the market for an extended period of time and may sell substantially below the listing price.

DOMICILE The legal residence of a person. A person has only one domicile, which is the place to which he or she intends to return, even though he or she may now reside someplace else.

DOMINANT ESTATE The tract of land that benefits as a result of an easement on a servient estate.

DONEE The recipient of a gift.

DONOR The giver of a gift.

DOUBLE-DECLINING BALANCE DEPRECIATION In accounting, an accelerated depreciation method restricted to certain qualified properties. The method calculates depreciation at twice the rate of the straight-line method on a balance that is reduced each year as the depreciation is taken.

DOUBTFUL TITLE A situation in which there exists some doubt as to the validity of title. A court will not force a purchaser to accept title. In contrast, a court will compel a purchaser to accept a marketable title when the purchaser has previously agreed to buy the property.

DOWER A legal life estate, recognized in some states, that a wife acquires in her husband’s fee simple property. Conventionally, this right was a life estate in one-third of all the property that the husband owned at any time during the marriage. While the husband was alive this right was inchoate or an expectancy. The husband could not defeat this expectancy by sale or mortgage. In order to convey property, which was freed from the dower interest, the wife had to sign a release. When the husband died, the wife’s interest was called consummate, and she was entitled to one-third of the property to be held in life estate, despite any will provisions which sought to dispose of the property otherwise. Most states have abolished dower because of the uncertainty this right has placed on title assurance. Other states have created substitutes such as community property or a statutory share in lieu of dower. Some states give the widow a one-year’s support, which could conceivably tie up all of the husband’s estate until the right was exercised. Other states give the widow 25 percent to 50 percent of the estate. However, if the husband sells his property before his death then there will be nothing for the wife to receive under the statutory share. In some states the husband as well as the wife is entitled to dower rights.

DOWN PAYMENT The amount of cash paid by a purchaser which when added to the mortgage amount equals the total sales price. At the time of closing this is referred to as the purchaser’s equity.

DOWNSIDE RISK The probability that an investor may lose the money he or she has invested in a particular venture.

DOWNZONING Action by a local government to reduce the allowable density for a parcel of land, as for example, from apartment to single-family residential.

DRAGNET CLAUSE A clause included in a mortgage instrument which extends the lien of the mortgage to any and all other debts, both past and future, of the borrower.

DRAIN A ditch or other means by which water flows off land. A landowner may not obstruct or divert the natural drain of water to the detriment of another landowner.

DRAW An advance of money, as for example the periodic receipt of money by a builder from a lender under the stipulations of a construction loan to pay for labor and materials. The term also refers to a practice by some brokers to advance money to certain salespersons with the money being repaid from future commissions.

DREI Designated Real Estate Instructor. A designation awarded by the Real Estate Educators Association to persons involved in real estate education.

DRY MORTGAGE A mortgage in which the lender has a lien on the property but does not have any recourse against the borrower in case of default. Such a mortgage is commonly known as a non-recourse loan.

DUALAGENCY Action by an agent in a principal-agent relationship resulting in the agent representing the third party and, thus, creating two principals. As such, the agent is in violation of agency law, which requires that he or she represent the principal, not the third party. A principal-agent relationship establishes a fiduciary relationship, which means that the agent owes his or her loyalty to the principal. In addition, in most states the real estate licensing law prohibits a licensee from representing both buyer and seller in the same transaction.

DUE DATE A date set on which a payment is to be paid. If the payment is not made on or before the due date, then it is past due. Most real estate loans carry with them a first of the month due date as well as a grace period up to fifteen days during which time the payment can be made without penalty. The last day of the grace period is known as the delinquency date and payment after that date normally must also include a past payment charge.

DUE-ON-SALE CLAUSE A clause included in may mortgages permitting the lender to require the borrower to repay the outstanding balance when the property is sold. Also known as a non-assumption clause, the effect is that mortgages with such a clause are non-assumable unless the lender permits the assumption. The lender may allow the mortgage to be assumed only after adjusting the interest rate to reflect current market conditions. All FHA and VA mortgages are assumable.

DUMMY Someone who buys or holds legal title to property on behalf of someone else. In certain instances, the true buyer wishes to keep his or her true identity hidden and thus someone else is used to purchase the property.

DUPLEX A house divided into two dwelling units with separate living facilities. The units may be side-by-side or one on top of the other.

DURESS The use of force or improper actions against a person or property in order to induce a party to enter into a contract. Examples of duress include blackmail, extortion, unlawful retention of property, a threat to bring criminal action or threats against family.

DWELLING The building in which a person lives.

DWELLING UNIT Used in zoning ordinances and building codes to denote the room or rooms joined for occupancy by a family and containing a kitchen.

EARNEST MONEY A deposit made by a purchaser of real estate to evidence good faith.

EASEMENT The right, privilege, or interest that one party has in the land of another.

EASEMENT BY NECESSITY The right of an owner to cross over another’s property for a special necessary purpose.

EASEMENT BY PRESCRIPTION Continued use of another’s property for a special purpose can ripen into a permanent use if conditions are met.

EASTLAKE HOUSE A Nineteenth-century-style house with three-dimensional ornamentation made with a chisel, gouge, and lathe rather than the scroll saw. Many of the parts of the ornamentation resemble furniture legs and knobs. This distinctive type of ornamentation is the major characteristics of this style and separates the Eastlake-style house from the Queen.

ECONOMIC BASE Industry within a geographic market area that provides employment opportunities that are essential to support the community.

ECONOMIC DEPRECIATION Loss of value from all causes outside the property itself.

ECONOMIC LIFE that remaining period for which real estate improvements are expected to generate more income than operating expenses cost.

ECONOMIC OBSOLESCENCE Same as economic depreciation.

ECONOMIC RENT 1. In economics, the cost commanded by a factor that is unique or inelastic in supply. 2. In appraisal, the market rent. Contrasts with contract rent.

EFFECTIVE AGE The age of a property based on the amount of wear and tear it has sustained. Contrast with actual age.

EFFECTIVE GROSS INCOME For income-producing property, potential gross income, less a vacancy and collection.

EFFECTIVE RATE The true rate of return considering all relevant financing expenses.

EFFICIENCY RATIO The proportion of a building’s area that is leasable space.

EFFICENCY UNIT OR APARTMENT A small dwelling unit, often consisting of a single room, within a multi-family structure. In most cases, kitchen and bath facilities are not complete.

EGRESS Access from a land parcel to a public road or other means of exit.

EHECTMENT Action to regain possession of real property, when there is no lease.

ELIZABETHAN OR HALF TIMBER STYLE An English-style 2 or 2 ½ story house, often with part of the second story overhanging the first. It has less tone work and is less fortlike than the Tudor. Stone and stucco walls with half timbers are most common.

ELLWOOD TECHIQUE In appraisal of mortgaged income property, a technique used to estimate the present value of the property. The appraiser determines and discounts to a present value the annual cash flow to the equity owner and the expected resale proceeds. Those amounts are added together to derive the equity value, then added to the mortgage balance to offer a property value estimate. The L.W. Ellwood provided capitalization rate tables that accelerate the process.

EMBLEMENT A growing crop. Annual crops are generally considered personal property.

EMINENT DOMAIN The right of the government or a public utility to acquire property for necessary public use by condemnation; the owner must be fairly compensated.

EMPTY NESTERS A couple, whose children have established separate households; important segment of the housing market, since empty nesters often seek to reduce the amount of housing space they occupy. Thus empty nesters are one source of demand for smaller housing units.

ENCROACHMENT A building, a part of a building, or an obstruction that physically intrudes upon, overlaps, or trespasses upon the property of another.

ENCUMBRANCE Any right to or interest in land that affects its value. Includes outstanding mortgage loans, unpaid taxes, easements, deed restrictions.

END LOAN Same as permanent mortgage.

ENDORSEMENT 1. The act of signing one’s name, as the payee, on the back of a check or note, with or without further qualification; the signature itself. 2. Offering support or credibility to a statement.

ENERGY EFFICIENT As applied to buildings, generally indicating the existence of extra insulation, weatherproofing, and/or special features and equipment designed to reduce the cost of energy for heating, and hot water.

ENERGY TAX CREDITS A reduction in income tax, generally based on the cost of installing insulation and other energy-saving devices. Note: At the federal level, energy tax credits generally expired before 1987 and were mot renewed by the 1986 Tax Act.

ENTITY The legal form under which property is owned.

ENTREPRENEUR An individual who generates business activity. A businessman or businesswoman. Often associated with one who takes business risks.

ENVIRONMENTAL IMPACT STATEMENT (EIS) An analysis of the expected effects of a development or action on the surrounding natural and fabricated environment. Such statements are required for many federally supported developments under the National Environmental Policy Act of 1969.

ENVIRONMENTAL PROTECTION AGNECY (EPA) An agency of the U. S. government established to enforce federal pollution abatement laws and to implement various pollution prevention programs.

EQUAL CREDIT OPPORTUNITY ACT A federal law, enacted in 1974, to discourage discrimination by lenders on the basis of sex or marital status. Amended in 1976 to prohibit discrimination on the basis of age, race, color, religion, national origin, or receipt of public assistance.

EQUALIZATION BOARD A government agency that determines the fairness of taxes levied against properties.

EQUITABLE CONVERSION A legal doctrine in some states in which, under a contract of sale, buyers and sellers are treated as though the closing had taken place in that the seller in possession has an obligation to take care of the property.

EQUITABLE TITLE The interest held by one who has agreed to purchase but has not yet closed the transaction.

EQUITY The interest or value that the owner has in real estate over and above the liens against it.

EQUITY BUILDUP The gradual increase in a mortgagor’s equity in a property caused by amortization of loan principal.

EQUITY DIVIDEND The annual cash flow that an equity investor receives.

EQUITY OF REDEMPTION The right of an owner to redeem property securing a loan that has been accelerated prior to fore closure.

EQUITY PARTICIPATION Same as participation mortgage.

EQUITY YIELD RATE The rate of return on the equity portion of an investment, taking into account periodic cash flow and the proceeds from resale. Considers the timing and amounts of cash flow after annual debt service, but not income taxes.

EROSION The gradual wearing away of land through processes of nature, as by streams and winds.

ERRORS AND OMMISSIONS INSURANCE Liability protection against professional malpractice, mistakes in business dealings by insured, etc.

ESCALATOR CLAUSE A provision in a lease that requires the tenant to pay more rent based on an increase in costs. Same as stop clause.

ESCAPE CLAUSE A provision in a contract that allows one or more of the parties to cancel all or part of the contract if certain events or situations do or do not happen.

ESCHEAT The revision of property to the state in the event the owner dies without leaving a will and has no legal heirs.

ESCROW An agreement between 2 or more parties providing that certain instruments or property be placed with a third party for safekeeping, pending the fulfillment or performance of a specified act or condition.

ESCROW ACCOUNT Same as trust account.

ESCROW AGENT Any person engaged in the business of receiving escrows for deposit or delivery.

ESCROW CLOSING Meaning the same as closing, especially in states where deeds of trust are used instead of mortgages.

ESTATE The degree, nature, and extent of interest that a person has in real property.

ESTATE AT SUFFERANCE The wrongful occupancy of property by a tenant after the lease has expired.

ESTATE AT WILL The occupation of real estate by a tenant for an indefinite period, terminable by one or both parties at will.

ESTATE FOR LIFE An interest in property that terminates upon the death of a specified person.

ESTATE FOR YEARS An interest in land allowing possession for a specified and limited time.

ESTATE IN REVERSION An estate left by the grantor for himself or herself, to begin after the termination of some particular estate grated by him or her.

ESTATE TAX A tax based on the value of property left by the deceased. Since 1987, the estate and gift tax laws exempt approximately $600,000 of property.

ESTOPPEL A doctrine of law that stops one from later denying facts which that person once acknowledged were true and others accepted on good faith.

ESTOPPEL CERTIFICATE A document by which the mortgagor (borrower) certifies that the mortgage debt is a lien for the amount stated. The debtor is thereafter prevented from claiming that the balance due differs from the amount stated.

ESTOVERS The legally supported right to take necessities from property. Contrast with waste.

ET AL Abbreviation of the Latin et alii "and others".

ET CON Abbreviation of the Latin et conjunx. Legal term signifying "and husband".

ET UX Abbreviation of the Latin et axor, which means "and wife".

EVAUATION A study of potential property uses, but not to determine its present value.

EVICTION A legal proceeding by a lessor (landlord) to recover possession of property.

EVICTION, ACTUAL Exists where one is removed from the property, either by force or by process of law.

EVICTION, CONSTRUCTIVE Exists when, through the fault of the landlord, physical conditions of the property render it unfit for the purpose for which it was leased.

EVICITON, PARTIAL Exists where the possessor of the property, such as a tenant, is deprived of a portion thereof.

EVIDENCE OF TITLE Documents, such as deeds, that demonstrate ownership.

EXAMINATION OF TITLE Research of the title to a piece of real estate; less thorough than a title search, usually concentrates on recent records.

EXCESS ACCELERATED DEPRECIATION The accumulated difference between accelerated depreciation claimed for tax purposes and what straight-line depreciation would have been Generally, excess accelerated depreciation is recaptured (taxed) as ordinary income upon a sale, instead of receiving more favorable capital gains treatment.

EXCESS RENT When the rent of an existing lease exceeds the rental rate on comparable existing space. Should the lease expire or the tenant break the lease, the new rate will probably be at market rate.

EXCHANGE Under Section 1031 of the Internal Revenue Code, likekind property used in a trade or business or held as an investment can be exchanged tax-free.

EXCLUSIVE AGENCY LISTING Employment contract giving only one broker for a specified time, the right to sell the property and also allowing the owner alone to sell the property without paying a commission.

EXCLUSIVE RIGHT TO SELL LISTING Employment contract giving the broker the right to collect commission if the property is sold by anyone, including the owner, during the term of the agreement.

EXCULPATORY CLAUSE A provision in a mortgage allowing the borrower to surrender the property to the lender without personal liability for the loan.

EXECUTE To sign a contract.

EXCUTED CONTRACT A contract whose terms have been completely fulfilled.

EXECUTOR A person named in a will to carry out its provisions for the disposition of the estate.

EXECUTORY CONTRACT A contract under which one or more parties has not yet performed.

EXECUTRIX A woman who performs the duties of an executor.

EXEMPTION An amount provided by law that reduces taxable income or taxable value.

EXPENSE RATIO A comparison of the operating expenses to potential gross income. This ratio can be compared over time and with that or other properties to determine the relative operating efficiency of the property considered.

EXPOSURE (MARKET) The advertising, whether free or paid, of property that is for sale.

EXTENDED COVERAGE Insurance that covers specific incidences normally excluded from standard insurance policies.

EXTENSION An agreement between 2 parties to extend the time period specified in a contract.

FAÇADE The exterior wall of a building.

FACE RATE OF INTEREST The stated interest rate in a promissory note. Also known as the contract rate or nominal rate, the face rate of interest will be less than the annual percentage rate (APR), if additional charges such as origination fees and discount points are charged by the lender.

FACE LIFT Changes other than structural that result in an improved appearance of a building. Such things as repairs, paint, new windows, and general cleaning all serve to improve the appearance of a building and thus, give it a face lift.

FACE VALUE The value of a debt such as a mortgage as stated in the instrument itself. If current interest rates are greater than the contract rate of interest, the market value of the debt instrument will be less than the face value since the instrument would have to be discounted to generate the market rate of interest. Conversely, if the contract rate of interest is greater than current market rates, the instrument, if sold, will sell for a premium and, thus, its market value will be greater than its face value.

FACTOR Any number or symbol that when multiplied by another forms a product; the reciprocal of a rate.

FACTORS OF PRODUCTION An economic principle which refers to the inputs necessary to create goods or services. There are four factors of production: (1) capital, (2) labor, (3) entrepreneurship or management, and (4) land. Each factor must be compensated in order for the owner(s) to be induced to part with the factor. Since land is the only immobile factor of production, it must attract the other three factors of production. As a result, land receives its payment only after the other factors have been compensated. This means that real estate is residual. Thus, the value of real estate is dependent upon how much compensation is left after the other three factors have been rewarded.

FAIR CREDIT REPOTRING ACT A federal act, which became effective April 1, 1971, and attempts to regulate the actions of credit bureaus that give out erroneous information regarding consumers. First, banks and credit companies must make a customer’s credit file available to the person in question. Further, the consumer, upon examining the file, has the right to correct any errors that may appear in the credit reports. Secondly, if a creditor denies a loan to an applicant, the applicant must be given the name address of the credit bureau that supplied the credit information to the creditor. Upon request the credit bureau must supply the consumer with the pertinent information contained in the applicant’s credit file. Finally, the act limits the access of the consumer's credit records to people who: (1) evaluate an applicant for insurance, credit or employment, (2) secure the consumer’s permission, or (3) secure court permission.

FAIR HOUSING AMENDMENT ACT OF 1988 A federal act, which amended the Federal Fair Housing Act of 1968 to include two new protected classes, the handicapped and the "familial" status, or those with children under eighteen. The amendment became effective March 12, 1989.

FAIR MARKET VALUE An economic concept denoting the price, in terms of money, at which a willing seller and willing buyer will agree when both parties are acting prudently, knowledgeably, and under no compulsion.

FANNIE MAE Nickname commonly used in reference to the Federal National Mortgage Association (FNMA).

FARMER’S HOME ADMINISTRATION (FMHA) An agency of the U.S. Department of Agriculture that provides credit to farmers, rural residences, and certain communities. Currently, FMHA administers two loan programs for rural housing; (1) a direct loan program, and (2) a guaranteed loan program. Properties securing such loans may not be located in urban areas and like FHA and VA, FMHA requires that the property meet certain minimum requirements. Although there is no statutory loan limit for such loans, the property must appraise for the contract sales price. Information on both loan programs is available from any office of the Farmer’s Home Administration.

FARMLAND A classification of land which denotes land primarily used for the raising of crops and or livestock.

FARM MORTGAGE A loan secured by agricultural real estate. Such loans are normally used by farmers to raise capital for the purchase and operation of their farms.

FASA Fellow American Society of Appraisers. A professional designation awarded by the American Society of Appraisers to individuals involved in the appraisal of both real and personal property.

FEASIBILITY The reasonable likelihood of satisfying certain investment objectives within the context of the market, finances, and other resources or constraints.

FEASIBILITY STUDY A detailed analysis of a real estate project to determine the most profitable use and the likelihood of the proposed use being a financial success. The study is often used by the promoter or developer to insure would-be-investors to participate in the venture and to assist lenders in making their decision whether or not to loan the necessary funds.

FEDERAL DEPOSIT INSURANCE CORORATION (FDIC) An independent agency functioning within the executive branch of the U.S. Government. FDIC was established following the run on banks that occurred prior to the Great Depression and its purpose was to insure the deposits of all banks who hold FDIC membership. As a result of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. FDIC currently insures both bank and thrift deposits. Thrift deposits are insures through the Savings Association Insurance Fund (SAIF) while commercial bank deposits are covered through the Bank Insurance Fund (BIF). This corporation insures deposits up to a statutory limit for both banks and thrifts.

FEDERAL FAIR HOUSING ACT OF 1968 A federal fair housing law which was passed as Title VIII of the Civil Rights Act of 1968. As originally passed, the act prohibited discrimination in the sale or rental of residential dwelling units or vacant land intended to be used as such on the basis of race, color, religion, or national origin. Discrimination on the basis of sex was prohibited by an amendment in the Housing and Community Development Act of 1974. The Fair Housing Amendment Act of 1988, which became effective March 13, 1989, added two new protected classes, the handicapped and the "familial" status, or those with children under eighteen.

FEDERAL HOME LOAN BANK BOARD (FHLBB) A board established by the Federal Home Loan Bank Act of 1932 which charted and regulated federal savings and loan associations. The purpose of the board in regard to savings and loans was much the same as that of the Federal Reserve System in regard to commercial banks. As part of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Office of Thrift Supervision (OTS) was established to replace the Federal Home Loan Bank Board for the purpose of chartering, regulating and supervising thrift institutions.

FEDERAL HOME LOAN MORTAGAGE CORPORATION (FHLMC) In 1970 under the Emergency Home Finance Act, the Federal Home Loan Mortgage Corporation (FHLMC) or "Freddie Mac" was created as a wholly-owned subsidiary of the Federal Home Loan Bank System. Freddie Mac was established as a secondary mortgage market for savings and loan associations who are members of the FHLBS. The creation of FHLMC was of added importance since S & L’s make such a high percentage of the total conventional residential mortgages and many of these lenders like to roll over their mortgages. While Fannie Mae deals heavily in FHA and VA mortgages, the majority of mortgages in Freddie Mac’s portfolio are conventional. In recent years, this agency has referred to itself as The Mortgage Corporation.

FEDERAL HOUSING ADMINISTRATION (FHA) A federal agency established as part of the 1934 National Housing Act that insures mortgages made by FHA approved lenders on real estate that meets FHA minimum standards. The establishment of the 1934 Housing Act immediately resulted in more construction jobs for the unemployed. This, in turn, helped to stimulate the depressed economy. In order to provide the means by which these new homes could be purchased, FHA established an insurance program to safeguard the lender against the risk of non-payment of people purchasing these homes. The result was that the majority of homes financed were FHA insured. Even though the percentage of homes insured under FHA coverage has continued to decrease, the standards and requirements under FHA programs have been credited with influencing lending policies and techniques in financing residential real estate.

FEDERAL LAND BANKS Regional banks established as part of the Farm Credit Administration which are a source of long-term mortgages to farmers. The Federal Land Banks make first mortgages though local federal land bank associations to farmers, ranchers, rural residents, and farm-related businesses. A majority of the funds used to make these loans come from the selling of securities by the Federal Land Banks to investors. Each of the banks is known as ‘the Federal Land Bank of’ and is located in the following twelve cities: Baltimore, Maryland 21203; Berkeley, California 94601; Columbia, South Carolina 24202; Springfield, Massachusetts 01101; Spokane, Washington 99204; St. Lois, Missouri 63166; St. Paul, Minnesota 55101; and Wichita, Kansas 67202.

FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) Commonly known as "Fannie Mae", the FNMA is the largest and best known buyer of existing mortgages. The Federal National Mortgage Association was originally organized by the federal government in 1938 to purchase FHA insured mortgages. The association was reorganized in 1968 as a quasi-private corporation whose entire ownership is private. Fannie Mae raises capital by issuing corporate stock which is actively traded on the New York Stock Exchange and by selling mortgages out of its portfolio to various investors. Over the past twenty years Fannie Mae has purchased may times more than it has sold. At the end of 1991 current mortgage holdings exceeded $100 billion, the majority being conventional mortgages.

FEDERAL RESERVE BANK One of twelve banks located in the twelve federal reserve districts throughout the United States.

FEDERAL RESERVE SYSTEM (FRS) The central bank of the United States which functions to control the money supply, availability of credit and interest rates. The FRS is comprised of twelve Federal Reserve Banks to which all nationally chartered commercial banks must belong and to which state chartered banks may choose to join. The system was created by Congress in 1913 and is governed by a seven-member Board of Governors each of whom are appointed for fourteen year terms by the President of the United States.

FEDERAL REVENUE STAMP A US. Revenue stamp which until January 1, 1968, was required to be placed on deeds prior to recordation. The rate was $.55 per $500 of consideration, and proof that the stamps had been purchased was evidenced by the actual placement of the stamps on the instrument being recorded. Since the end of this requirement in 1968, some states have passed their own requirements for revenue stamps.

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION (FSLIC) A corporation established in 1934 as an agency of the federal government which insured the deposits of member savings and loan associations. Federally chartered S & L’s had to maintain membership and state chartered associations could be members. As part of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, thrift deposits are now insured through the Savings Association Insurance Fund (SAIF) which is operated by the Federal Deposit Insurance Corporation (FDIC).

FEDERAL TAX LIEN A federal lien which attaches to the real property of a person when that taxpayer has violated either federal estate tax laws or federal income tax laws. When a person dies his her estate is subject to a federal estate tax. This tax causes a lien to attach on all real and personal property in the estate for a statutory period of ten years or until the tax is paid. If a person fails to pay federal income taxes, government may issue a tax warrant which, when recorded in the federal tax do in the county records, attaches a federal tax lien.

FEDERAL TRADE COMMISSION (FTC) An agency of the federal government created in 1914 that has as its function the promotion of free and fair competition in interstate commerce the prevention of unfair and deceptive trade practices. In addition, FTC enforces the Fair Credit Reporting Act and those parts of the Truth-in-Lending Act for real estate brokers.

FEE APPRAISER A person who charges a fee for rendering his or her opinion as the value a parcel of real estate. It is unethical for appraisers to charge a percentage of the derived value estimate as their compensation.

FEE SIMPLE The largest quantum of ownership recognized by law; also referred to as fee simple absolute or fee. The owner of the fee simple has unlimited power to dispose of the interests during his or her lifetime and upon death the property is automatically passed on to the owner’s heirs and devisees either by will or by descent. Ownership in this country is ordinarily in the fee simple form. The only restrictions on the use are those restrictions defined by the law of nuisance or those necessarily imposed by the law in order to protect the interests of society. A fee simple owner may convey lesser estates, sell easements, mortgage the property or do whatever else he or she wishes with the property so long as others are not harmed by the improper use of the property. The fee simple absolute is created by using the words to (name) and his heirs and assigns forever.

FEE SIMPLE DETERMINABLE A qualified fee simple estate created to exist only until the occurrence or non-occurrence of a particular event. The words, "so long as" are ordinarily used to create the estate.

FEE SIMPLE SUBJECT TO A CONDITION SUBSEQUENT A qualified fee estate which is subject to a power in the original grantor or the grantor’s heirs to terminate the estate upon the happening of an event. The termination is not automatic, since the party with the future interest called the right of reentry or power of termination must take steps to either enter upon the property or to bring a court action to recover the land.

FEE SIMPLE SUBJECT TO AN EXECUTORY LIMITATION A qualified fee simple estate which will automatically pass on to a third person upon the occurrence or non-occurrence of a stated event.

FEE TAIL An estate in land which was designed to restrict the conveyance of title to the descendants of the grantee. This estate is established by a grant in "N" following words of conveyance are used ‘to X and the heirs of his body’. Effectively the fee tail created a long series of successive life estates. This estate was to promote the landlord aristocracy in England by keeping property in the family.

FELONY A crime more serious than a misdemeanor.

FEUDAL SYSTEM A system of land ownership established in England after the Norman of 1066, in which all property theoretically resided in the king. In return for service or other duties the king would give a feud or fief to a lord.

FHA A common reference to the Federal Housing Administration.

FHA INSURANCE An insurance fee charged the borrower on all FHA mortgages. The insurance payment is retained by FHA for use in buying any mortgage in default that is held by a lender.

FIDUCUARY A person who essentially holds the character of a trustee. Real estate brokers and salespersons are considered by law to be fiduciaries, thus they have a duty to act primarily for the principal’s (the person who employed them) benefit and not their own. A fiduciary must act with the highest degree of care and good faith in relations with the principal and on the principal’s business. The penalties for failing in fiduciary duties may be quite severe.

FIEF An interest in land given under a feudal system. The term "fee", as used to denote the extent of one’s interest in land, is derived from the term fief.

FIFTEEN-YEAR MORTGAGE A loan with a less than traditional payback period, specifically one of fifteen years. During the past thirty years, the vast majority of long-term residential loans have been made with twenty, twenty-five, and thirty year payouts. However, in recent years more and more homebuyers have opted for loans with shorter maturity periods, such as fifteen-year mortgages. The primary advantage of a early payout mortgage is the fact that considerably less interest is paid over the life of the mortgage since the principal is borrowed for a shorter period of time. However, offsetting this advantage is the fact that since the principal is borrowed for a less than normal period of time, the principal repayment each period is greater than with twenty-five and thirty-year mortgages. Thus, higher monthly payments eliminate many people from qualifying for fifteen-year mortgages.

FILTERING DOWN PROCESS the means by which housing once occupied by middle and upper income groups becomes available to lower income families. Normally the property has physically deteriorated and thus is less expensive than when originally occupied.

FINAL VALUES ESTIMATE The estimate of value reached after the appraiser has analyzed the data, reconciled the value indications provided by the application of the various approaches to value, and made a final judgment.

FINANCE CHARGES The total of all costs paid to the lender by the borrower directly or indirectly as an incident to the extension of credit. The Truth-in-Lending Act requires that consumers be told of the following charges: interest, finder and origination fees, discount points, service charges, credit report fees, and other such charges.

FINANCIAL FEASIBILTY The likelihood that a proposed project will attain a cash flow of a quantity, quality, and duration to allow investors to recover the capital invested and achieve the necessary and expected rate of return. Factors to be considered timing of inflows and outflows of cash, revenues, costs, debt service, and a sale or re-financing.

FINANCIAL INSTITUTION An organization that attracts funds through some type of deposit mechanism lends those funds to individuals or corporations in order to make an acceptable return. The major financial institutions involved in financing real estate are savings and loan associations, commercial banks, mutual savings banks, life insurance companies, credit unions, finance companies, and pension funds.

FINANCIAL INSTITUTIONS REFORM, RECOBERY, AND ENFORCEMENT ACT (FIRREA) Federal legislation enacted in 1989 that changed the regulatory framework of financial institutions in the United States. Commonly referred to as the "savings and loan bailout bill", FIRREA was a direct result of the insolvency problems: many savings and loan associations during the middle and late 1980’s. Included in the act was the creation of the Savings Association Insurance Fund (SAIF), which insures thrift deposits, and the Bank Insurance Fund (BIF) which insures commercial bank deposits. Both funds are administered by the Federal Deposit insurance (FDIC). FIRREA also established the Resolution Trust Corporation agency created to manage the assets and liabilities of savings and loan, that became insolvent both before and after the enactment of the act.

FINANCIAL INTERMEDIARY A financial institution that serves as a middleman between depositors and borrowers. Savings and loan associations, for example, attract many deposits from individuals. In turn, these deposits are made available to borrowers through a loan. The difference between what the financial intermediary pays to attract deposits and what charges on its loan is its gross profit.

FINANCIAL LEVERAGE The use of borrowed money to complete an investment transaction. If the asset purchased with borrowed money offers annual financial benefits at a rate in excess of the loan’s interest rate, leverage is said to be positive or favorable. The investor makes money by borrowing. Conversely, if an asset purchased with borrowed money fails to increase in value or if it fails to provide benefits in excess of the interest rate paid on the borrowed money, then leverage is negative. Leverage is neutral when the property earns at the same rate as the interest rate on borrowed money.

FINANCIALLY FEASIBLE A real estate project in which the economic objectives of the investor(s) are satisfied.

FINANCIAL MANAGEMENT RATE OF RETURN (FMRR) A modified internal rate of return model designed to remedy some of the deficiencies of the internal rate of return (IRR) technique. Two rates are considered by the FMRR: (1) a safe, liquid after-tax rate, and (2) a run of the mill reinvestment rate.

FINANCIAL RATIO ANALYSIS A means by which an investor / lender detects facets of a business or investment that are within norms as well as those that become unhealthy. An astute investor uses financial ratio analysis to compare potential acquisitions and select the ones offering the greatest potential. By monitoring constantly changing ratios, it is possible to detect areas of weakness for both management and capital employment in order to take steps necessary to bring ratios back to the desired balance level of safety and risk.

FINANCIAL RISK The uncertainty resulting from the financing of an investment.

FINANCIAL SOLVENCY The expected normal condition of a business present when current assets exceed current liabilities.

FINANCIAL STATEMENT A written statement of the financial position if a person or company, showing total assets and liabilities as of a certain date. Many lenders require a financial statement as part of a loan application.

FINANCIAL STRUCTURE The mix of equity and debt used in the purchase price of an asset.

FINANCIER A person or financial institution engaged in the lending and management of money.

FINANCING The difference between the purchase price and the down payment, commonly referred to as debt or the mortgage. One of the features distinguishing real estate from some investments is the ability to finance all or a significant part of the purchase price with borrowed dollars.

FINANCING PACKAGE The total of all loans used to develop and/or purchase a real estate project.

FINANCING STATEMENT A written notice filed in the public records by a creditor who has extended credit for the purchase of personal property. The purpose of filing the statement is to establish the creditor’s interest in the personal property which is the security for the debt but which may become a fixture when it is attached t real property.

FINDERS FEE a payment made by one party to another for locating a prospect. This payment is often used in the financing of real estate when a mortgage banker locates a lender willing to loan money to a borrower. In addition, in most states real estate brokers may legally split a real estate sales commission with another broker who was partly responsible for bringing about the sale. However, an unlicensed person may not legally accept a finder’s fee from a real estate broker since by doing so the unlicensed is brokering real estate without a license and is thus in violation of the licensing law. The term is also know as a referral fee.

FIRE AND EXTENDED COVERAGE INSURANCE A basic fire insurance policy protecting the insured against losses suffered from fire or lighting. In addition, the owner can receive extended coverage which insures against losses suffered due to windstorm, hail. Explosion, riot or civil commotion, aircraft, vehicles, smoke, theft, vandalism and malicious mischief. Coverage of these extra perils normally adds very little to the premium.

FIRM COMMITMENT An agreement by a financial institution to loan a specified sum of money for a specific time period and at a certain interest rate, provided all conditions set by the lender are met by the borrower.

FIRM OFFER An offer made by a potential buyer that will not be further negotiated.

FIRM PRICE A stated sales price that is fixed and thus, non-negotiable. While uncommon in real estate transactions, occasionally an owner will put his or her property on the market at a firm price and will instruct the listing sales broker not to accept any offer below the listed price.

FIRST LIEN A legal claim with the highest priority against a certain property; also known as a senior lien.

FIRST MORTGAGE A lien on property in which the lender’s claims are superior to the rights of subsequent lenders. Such a lien position means less risk to the lender and thus normally results in a lower interest rate charged to the borrower than that charged on second or junior mortgages. Certain lenders only make first mortgages due to regulatory requirements; others limit mortgages to these senior instruments due to company policy.

FISCAL YEAR A business year for accounting or tax purposes as compared to calendar year. The fiscal year of many governmental units, including the federal government runs from July 1 through June 30 of the following year. Whether or not a government operates on a fiscal or calendar year is particularly important in prorating property taxes between buyer and seller.

FIXED EXPENSES Expenditures such as property taxes, license fees, and property insurance not vary directly given changes in the occupancy rate. Fixed expenses are on items subtracted from effective gross income to determine the net operating of property.

FIXED RATE MORTGAGE A loan carrying a constant interest rate over the full life of the mortgage. Historically, fixed rate mortgages have been the norm in permanent financing, particularly residential real estate. Thus, when a borrower secures a fixed rate mortgage he or she knows that the lender cannot raise the interest rate regardless of what the market rate of interest is doing. However, in recent years lenders have in some instances been reluctant to loan money for a long period of time including in the loan provision a clause allowing them to vary the rate of interest and when market conditions change.

FIXING-UP EXPENSES The money spent to repair and/or refurbish real estate so as to improve marketability.

FIXITY OF LOCATION A physical characteristic of land, which makes it subject to the influence of surrounding land uses. Since real estate space is fixed in location it cannot be moved. While it is true that the various elements within the space may be moved, such as the topsoil or the minerals, the space itself remains in the same geographic location. This immobility leads to several legal and economic results. From a legal standpoint only the legal rights and not the asset itself can be physically transferred to a purchaser.

FIXTURE personal property which for some reason, such as the manner of the attachment, has become realty. Such property is also referred to as chattel real. Examples of fixtures include built-in cabinets in a kitchen, bathtubs, permanent bookcases, and other such objects.

FLAG LOT A parcel of land that is shaped like a flagpole and flag with the land being the "flag" and the only access being the "pole".

FLAT A floor or part of a floor in a building designed for occupancy by a single family for residential purposes.

FLAT LEASE A type of lease requiring the tenant to pay equal rent payment each period, be the period monthly or annually. Rental payments under this type of lease change during the term of the lease and thus because of expected inflation generally used by a landlord when the lease is for a significant period of time.

FLEA BAG An inexpensive, run-down rental property such as an apartment or hotel.

FLEA MARKET A large area either outdoors or under a roof in which individuals lease space for the purpose of selling merchandise. The merchandise sold is normally consumer oriented.

FLEXIBLE LOAN INSURANCE PROGRAM (FLIP) An innovative financing technique developed to overcome the negative amortization aspects of the graduated payment mortgage. The key to the FLIP mortgage is the use of the buyer’s down payment. Instead of being used as a down payment, the cash is deposited in a pledged, interest-bearing savings account where it serves as both a cash collateral for the lender and as a source of supplemental payments for the borrower during the first few years of the loan.

FLIP The near simultaneous buying and selling of a parcel of real estate at a price for the purpose of leveraging the transaction.

FLOAT The time period in which a person has free use of someone’s else’s money.

FLOATING RATE A finance term used to explain the spread on a variable interest rate loan. Developers and builders often borrow money at an interest rate tied to the prime rate, for example, ‘prime plus two’. This means that if the prime rate is 10% the builder pays 12% on the money borrowed. However, if the prime increases to 11%, then the interest rate charged by the lender floats upward to, in this case, 13%.

FLOOD INSURANCE Insurance that protects a property owner from damages resulting from flooding. Due to the high cost of flood insurance when written through a private insurance company; Congress enacted the National Flood Insurance Program in 1968. The intent of this legislation was to provide insurance coverage for those people suffering both real and personal property losses as a result of floods. Due to the lack of public interest in the program, Congress enacted the Flood Disaster Protection Act in 1975. Under this law, no real estate located in a floodplain area can be financed through a federally regulated lender unless flood insurance is purchased.

FLOODPLAIN The land bordering or surrounding a river or stream that can be under water when the river or stream are at their high-water mark.

FLOOR AREA The total of all the horizontal areas of all the floors in a building.

FLOOR AREA RATIO (FAR) The relationship between the floor area of a building and the total area of the land under the building. Minimum and maximum floor area ratios are often established as part of a zoning ordinance.

FLOOR DUTY A procedure used in many real estate brokerage offices in which one or more sales associates are responsible for answering all telephone inquiries and office visits during a specific period of time. The benefit to the company is the assurance that all inquiries will be handled, while the benefit to the person(s) on floor duty has the opportunity to acquire new clients that would otherwise not be known.

FLOOR PLAN The layout of a building showing the exact specifications as to size and shape of each room.

FLOOR-TO-CEILING LOAN A financing technique in which the total amount of the loan is a function of the projected net operating income of the project. The total amount of the loan is funded by the lender in two separate payments. The "floor loan" is made upon satisfactory completion of the project and may be as high as 50 to 75 percent of the total loan. The remainder of the loan, the ‘ceiling’, is funded only if certain predetermined occupancy and or net income requirements are met.

FLOW OF INCOME The total amount of income projected from a real estate investment as stated in either annual figures or the total flow over the economic life of the investment.

FOLIO Latin word for "page". When deeds, promissory notes, subdivision regulations and other legal instruments dealing with real estate are recorded in the public land records, they are assigned a liber (book) volume and a folio (page) number.

FORBEARNACE Refraining from action by a creditor against the debt owed by a borrower after the debt has become due.

FORECASTING An estimate of future events based on present knowledge, facts, theory, and judgement. Numerous real estate associations and organizations are constantly forecasting what lies ahead for their particular membership.

FORCED SALE The selling of an asset under less than favorable conditions in order to liquidate the asset such as the selling of mortgaged property through foreclosure by the lender.

FORECLOSURE A legal procedure by which mortgaged property has been in default on the part of the mortgager (borrower), is sold to satisfy the mortgage debt. The most common type of foreclosure in most states is foreclosure by sale. Foreclosure by sale takes two general forms: (1) foreclosure by judicial sale, and (2) foreclosure by power of sale (also known as foreclosure by advertisement). While procedures differ from state to state, under a foreclosure by judicial sale, a petition is usually filed with the court against the defaulting mortgager and all persons having junior lien interests in the property. The petition states the nature of the default, the amount due, and the property involved.

FOREIGN CORPORATION a corporation not incorporated or chartered in a particular state, yet doing business in that state. Even though it is not chartered in states where its doing business, a foreign corporation must consent to certain requirements and before it may legally operate in the state.

FORESHORE The part of a parcel of land lying between the high water mark and the water mark.

FORFEITURE Loss of property for some specified reason such as non-performance condition or legal obligation.

FORGERY Altering a written document with the intent to injure or defraud someone.

FORMAL CONTRACT A written contract under seal that is enforceable because of the way it is written and does not depend upon sufficiency of the consideration.

FORM REPORT A specific format established for use in presenting the results of an appraisal. Lenders, government agencies, and certain investors often require the use of a form report by appraisers in rendering an opinion as to the value of certain types of property such as single-family residential or condominiums.

FOR RENT BY OWNER (FRBO) Effort on the part of an owner of real estate to lease his or her space without employing the services of a property management firm. Owners of both residential rental property as well as income-producing property often manage the property themselves and thus they do not see the need for a professional management company.

FOR SALE BY OWNER (FSBO) An attempt by the owner of real estate to sell his or her property without using the services of a real estate broker. Quite often the owner believes that by selling the property with out employing a real estate broker the commission will be saved and therefore the owner will end up with more money.

FORWARD COMMITMENT An agreement by a lender or investor to either make or purchase a loan within a certain period of time into the future.

4-3-2-1 RULE A rule of thumb used by appraisers in estimating the value of land. The rule states that in a standard sized lot, 40 percent of the total value is allocated to the front (street frontage), quarter of the lot, 30 percent to the second quarter, 20 percent to the third quarter and 10 percent to the back quarter. Such an approach is nothing more than an approximation and should not be used if a more definitive estimate is desired.

FRACTIONAL APPRAISAL An appraisal of one component or legal interest of the whole property.

FRACTIONAL INTEREST A partial interest in real estate, such as an easement.

FRANCHISE A business arrangement undertaken for the purpose of marketing a product or service. One party (the franchiser) provides marketing and selling expertise for a fee to another party (the franchisee) who in turn sells the product or service in the marketplace.

FRAUD A misrepresentation of a material fact which is made with knowledge of its falsity and with intent to deceive a party who in fact relies on the misrepresentation to his or her detriment and injury. Fraud can result from words spoken or written, acts, or non-disclosure where there is a duty to inform. Fraud is a defense against the enforcement of a contract.

FREDDIE MAC A common name used to refer to the Federal Home Loan Mortgage Corporation.

FREE AND CLEAR Title to property which is unencumbered by any mortgages or other liens.

FREEHOLD An estate in real property which continues for an indefinite period of time. Freehold estates may be inheritable or non-inheritable. Inheritable estates include the fee simple absolute, the qualified fee, and the fee tail. Non-inheritable estates include various life estates which are created by a acts of parties, such as an ordinary life estate, or by operation of law, such as dower and curtesy.

FREEHOLDER one who owns a freehold interest in real property.

FREE MARKET SYSTEM AUCTION An auction process used by the Federal National Mortgage Association in which the association accepts bids from approved lenders as to the amount, price, and terms of existing mortgages that these lenders wish to sell to Fannie Mae. Upon deciding how much money it will spend during a given time period, Fannie Mae notifies the successful bidders (determined by those mortgages offered for sale will generate the highest yield to FNMA). These bidders have a certain period in which they can choose to deliver the mortgages. Once the mortgages have been delivered to Fannie Mae, the originator of the mortgage continues to service the loan (collect monthly payments, escrow property taxes, etc.) and for this service the originator receives a servicing fee.

FREE-STANDING BUILDING A building which contains only one business. Fast-food franchises and retail stores are often free-standing buildings.

FRONTAGE The linear distance of a parcel of land abutting a road or river.

FRONTAGE ASSESSMENT An assessment made by local governments to pay for improvements. Improvements such as roads or sidewalks can be paid for by assessing property facing or abutting the road based on the proportion of a property’s frontage to the total distance being improved.

FRONT-END FEE Charges made by a lender to a borrower for expenses incurred in determining whether or not a loan will be made. Such expenses would include credit report appraisal, survey, structural inspection, and various legal fees. The fee may be stated as a set amount or as a percentage of the requested loan. Such fees are not payment for he use of money and thus are not considered to be interest.

FRONT FOOT A property measurement for purposes of valuation that is measured by the footage on the street line. When the dimensions of a lot are given, such as 200 x 600, the first measurement, 200, normally refers to the front footage.

FRONT MONEY Money that must be raised by a builder/developer before obtaining financing in order to start a project. Front money is needed to pay for such options on the land, legal fees, feasibility, engineering studies, and drawings. The money, also known as seed money, is normally provided by the equity investor(s) since at this stage in the development of a project financing has not been finalized.

FULL DISCLOSURE The obligation to reveal all material facts. Under agency law a real estate broker or salesperson acting as an agent is required to fully disclose all material facts to a third party. Failing to do so may result in legal action against the agent. In addition, federal and state acts such as the Truth-in Lending Act and the Interstate Land Sales Full Disclosure Act require that certain information be made available to the consumer.

FULL PRICE OFFER An offer to purchase real estate at the exact price and with the exact conditions stated by the owner. Most real estate offers are not full price offers, although in some isolated markets, offers are made above the listing price due to the high demand and short supply of available property.

FULLY AMORITIZED MORTGAGE A loan that is fully repaid at maturity by periodic reduction of the principal. The first part of each payment covers interest on the outstanding debt as of the payment due date and the remainder of the payment reduces the outstanding debt.

FUNCTIONAL OBSOLESCENCE A loss in value within a structure due to changes in tastes, preferences, technical innovations, or market standards. The item in question may be curable, such as lack of air conditioning in Florida, or incurable, such as exceptionally low ceilings in a warehouse, depending on the costs of correcting the item as compared to the benefits expected if correction is made.

FUTURE ADVANCES Money loaned by a mortgagee (lender) to a mortgager (borrower) after the mortgage has been placed on the property and secured by the original security agreement. A construction loan often calls for future advances in which dollars are dispersed to the developer as various stages of construction are completed.

FUTURE BENEFITS The positive cash flows and/or increases in the value of property anticipated by an investor. Such anticipation is the foundation on which the income approach to value is based.

FUTURE INTEREST A present ownership interest or possibility of ownership in land with the right possession postponed into the future. Essentially a future interest is a present non-possessory right which will or may become a possessory right at some future date. Future interest may be classified as follows: (1) possibility of reverter, (2) right of re-entry or power of termination, (3) reversions, and (4) remainders.

FUTURE WORTH OF ONE A factor used to calculate how much a present sum will be worth in the future if it is held for a certain period of time and earns an interest rate that is compounded periodically.

FUTURE WORTH OF ONE PER PERIOD A factor used to calculate how much a series of equal sums deposited at the end of periodic compounding time intervals will be worth at the end of the total term.

GABLE ROOF One with a triangle, with the ridge forming an angle at the top and each eave forming an angle at the bottom.

GAIN An increase in money or property value.

GAMBREL ROOF One having two slopes on two sides with a steeper lower slope than the upper, flatter sections.

GAP LOAN One that fills the difference between the floor loan and the full amount of the permanent loan.

GARDEN APARTMENTS A housing complex whereby some or all tenants have access to a lawn area.

GENERAL CONTRACTOR One who constructs a building or other improvement(s) for the owner or developer. May retain a construction labor force or use sub contractors.

GENERAL LIEN A lien that includes all of the property owned by the debtor, rather than a specific property.

GENERAL PARTNER In a partnership, a partner whose liability is not limited. All partners in an ordinary partnership are general partners. A limited partnership must have at least one general partner.

GENERAL WARRANTY DEED A deed in which the grantor agrees to protect the grantee against any claim to title of the property and provides other promises.

GENTRIFICATION The displacement of lower-income residents by higher-income residents in a neighborhood. Generally occurs when an older neighborhood is rehabilitated or revitalized.

GEORGIAN A large, English-style, formal 2 or 3 story rectangular house that is characterized by its classic lines and ornamentation.

GIFT DEED A deed for which consideration is love and affection and no material consideration is involved.

GIFT TAX Federal tax upon a monetary gift to a relative or friend. Generally, each person may give up to $10,000 per year to each, done without the imposition of a federal gift tax. On higher gifts, there may be a gift tax, or the gift may affect the donor’s estate tax.

GI LOAN Same as VA loan.

GIM Gross income multiplier.

GINNIE MAE Nickname for Government National Mortgage Association.

GINNIE MAE PASS THROUGH A pass-through certificate secured by a pool of mortgage loans insured by the Government National Mortgage Association, an arm of the federal government. Ginnie Mae pass throughs often provide high yields with security to investors, although the returns may be affected by the pattern of loan repayments on the mortgages in the pool.

GOOD AND MARKETABLE TITLE Title to a piece of real estate that can be shown , usually by title search or abstract of title to be vested in the owner of record, and free of claims or liens that would impair its marketability.

GOOD AND MERCHANTABLE TITLE Same as good and marketable title.

GOOD FAITH An act done honestly.

GOODWILL A business asset of intangible value created by customer and supplier relations.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) A government organization to assist in housing finance. There are 2 main programs: 1. To guarantee payments to investors in mortgage backed securities. 2. To absorb the write down of low interest rate loans that are used to finance low-income housing.

GOVERNMENT RECTANGULAR SURVEY A rectangular system of land survey that divides a district into 24 square mile quadrangles from the meridian (north-south line) and the baseline (east-west line); the tracts are divided into 6 mile square parts called townships, which are in turn divided into 36 tracts, each 1 mile square, called sections.

GOVERNMENT-SPONSORED ENTERPRISE (GSE) A quasi-governmental organization that is privately owned but was created by the government and retains certain privileges not afforded totally private entitles.

GPM Graduated payment mortgage.

GRACE PERIOD The period during which one party may fail to perform without being considered in default.

GRADE Ground level at the foundation and/or to prepare a smooth surface on a site.

GRADED LEASE Same as graduated lease.

GRADIENT The slope or rate of increase or decrease in the elevation of a surface, usually expressed as a percentage.

GRADUATED LEASE A lese that provides for graduated changes, at stated intervals, in the amount of rent.

GRADUATED PAYMENT MORTGAGE (GPM) A mortgage requiring lower payments in early years than in later years. Payments increase in step each year until the installments are sufficient to amortize the loan.

GRADUATE REALTORS INSTITUTE (GRI) An educational program sponsored by the National Association of Realtors or State Boards.

GRANDFATHER CLAUSE When a law is changed or a new law is passed, those whose specific activity was legal under the previous law are often allowed to continue, by virtue of this provision.

GRANT A technical term used in deeds of conveyance of property to indicate a transfer.

GRANTEE The party who whom the title to real property is conveyed; the buyer.

GRANTOR Anyone who gives a deed.

GRANTOR /GRANTEE INDEX A reference kept with public records that cross-indexes grantors and grantees with one another and the properties they relate to.

GRI Graduate of the Realtors Institute, which is affiliated with the National Association of Realtors.

GRM Gross rent multiplier.

GROSS AREA The total floor area of a building, usually measured from its outside walls.

GROSS INCOME Total income from property before any expenses are deducted.

GROSS INCOME MULTIPLIER (GIM) Same as gross rent multiplier.

GROSS LEASABLE AREA The floor area that can be used by tenants. Generally measured from the center of joint partitions to outside wall surfaces. Contrast net leasable area.

GROSS LEASE A lease of property whereby the landlord (lessor) is responsible for paying all property expenses, such as taxes, insurance, utilities, and repairs.

GROSS POSSIBLE RENT Same as potential gross income.

GROSS PROFIT RATIO In an installment sale, the relationship between the gross profit (gain) and the contract price. The resulting fraction is applied to periodic receipts from the buyer to determine the taxable gain from each receipt.

GROSS RENT MULTIPLIER (GRM) The sales price divided by the contract rental rate.

GROUND RENT The rent earned by leased land.

GROWING-EQUITY MORTGAGE (GEM) A mortgage loan in which the payment is increased by a specific amount each year, with the additional payment amount applied to principal retirement. As a result of the added principal retirement, the maturity of the loan is significantly shorter than a comparable level-payment mortgage.

(TO) GUARANTEE (A LOAN) To agree to indemnify the holder of a loan all or a portion of the unpaid principal balance in case of default by the borrower.

GUARANTY An assurance provided by one party that another party will perform under a contract.

GUARDIAN One appointed by a court to administer the personal affairs or property of an individual who is not capable of such duties.

GUIDELINES LIVES Depreciable lives, for buildings and equipment, that are used in trade or business. Generally applies to assets bought before 1981. The accelerated cost recovery system applies to depreciable assets bought in 1981-1986. The modified accelerated cost recovery system applies to purchase after 1986.

HABENDUM CLAUSE The part of the deed defining the extent of the estate granted. Coming from the Latin phrase ‘habendum et tenendum’, which means ‘to have and to hold’. The habendum clause states the owner’s exact interest in the property, whether it be fee simple or some lesser interest.

HABITABLE Suitable for occupancy. Local building codes ensure that structures are habitable through requirements for building permits and certificates of occupancy. Anyone wishing to construct a new building or make a major addition to an old one must obtain a building permit which binds the builder to minimum standards of construction. Before a new structure can be occupied, the owner must obtain a certificate of occupancy to certify that the building has passed a final inspection by local officials. Though building codes differ from locality to locality, most areas have regulations regarding fireproofing structures, electrical wiring, and plumbing.

HALF-SECTION an area of land comprised of 320 acres. There are 72 half-sections is a township.

HAMLET A small village.

HANDYMAN’S SPECIAL A parcel of real estate, normally residential, that is in need of major work and repair in order to bring the property up to market standards. Normally, such property is on the market at a price significantly below current prices, reflecting the loss in value due to wear and tear.

HARBOR LINE An arbitrary line set by the appropriate authorities on navigable rivers, beyond which permanent structures may not be built.

HARD SELL Action by a salesperson that results in an aggressive sales presentation. Hard sell tactics are sometimes used with certain types of real estate such as time sharing and second home sites. In both instances, a substantial amount of time and money is often spent in attempting to bring about a sale.

HARRIS, CHAUNCEY D. An urban economist who, along with Edward L. Ullman, is credited with developing the multiple nuclei growth theory of urban development. The theory is used to explain how development of different types of land use occurs.

HAZARD INSURANCE An insurance policy on property to protect the insured against loss due to physical damage to the property.

HEAVY HITTER A real estate developer or investor who has substantial financial resources and or financial backing.

HEDGING The sale or purchase of mortgage future contracts by a mortgage banker or lender for the purpose of protecting cash transactions made at a future date.

HEIGHT ZONING A zoning technique used to establish height restrictions so as to protect the sunlight and flow of air to adjoining properties.

HEIR A person who is entitled to the real property of a deceased person who died intestate (left no will).

HEREDITAMENT Any property capable of being inherited, be it real, personal, corporeal, incorporeal, or mixed.

HETEROGENEOUS Different or diverse. Heterogeneity is one of the physical characteristics of real estate. Because no two parcels of land are the same, investors should carefully evaluate the characteristics of a particular site for suitability for proposed uses since a use that works on one parcel of land may fail for another. In addition, heterogeneity makes specific performance a viable remedy for breaches of contract involving real estate. If a person contracts for a particular parcel of land, receiving its value in money or receiving another similar parcel does not substitute for the original land.

HIDDEN AMENTIES Features of a property which, even though they may not be easily recognizable, add to the value of the property. Examples would include extra wall insulation, high quality paint, and better grade materials.

HIGHEST AND BEST USE The legal use of a parcel of land which, when capitalized, will generate the greatest net present value of income. Existing uses of land ate not always the highest and best use.

HIGHEST AND BEST USE STUDY A study of two or more possible uses of a particular parcel of land to determine which use will be the most profitable.

HIGH RISE A commonly used expression referring to a building, usually an apartment or condominium complex, that is high enough to require an elevator.

HIGH WATER LINE OR MARK The line or mark on a shore to which the water rises at high tide under normal weather conditions.

HIGHWAY A free and public road or street which anyone has the right to use.

HISTORICAL COST Actual cost of a project when it was first constructed.

HISTORIC DISTRICT A zoning classification which refers to a geographic area that has been identified as having historical significance. Quite often a local government will limit both the type and the extent of land use changes that occur in an area deemed a historical district.

HOFFMAN RULE A rule of thumb used by some appraisers in estimating the value of land. The rule states that the front half of a 100 foot deep lot is worth two-thirds of that lot’s value, with the back half being worth the remaining one-third.

HOFFMAN-NEILL RULE A rule of thumb used by appraisers and developers many years ago based on a set of depth factors published by henry H. Neill. These factors were an extension of similar factors developed by Judge Murray Hoffman which originally came to be known as the Hoffman Rule. Such set factors are not widely used today and reliance on these rule is highly questionable.

HOLDBACK That portion of a contractor’s draw under a construction loan that is withheld by the lender until all work is completed to the satisfaction of the lender. Quite often the amount withheld is equal to the contractor’s profit, which means that enough of the loan is dispersed so that the subcontractors can be paid.

HOLDER IN GOOD FAITH One who takes property without any knowledge of defective title.

HOLD HARMLESS CLAUSE An exculpatory clause freeing one from personal liability.

HOLDING COMPANY A company that is not actively involved in business operations but which owns enough stock in other companies so as to have control over their operation.

HOLDING PERIOD The period of property ownership, from the date of purchase to the date of sale.

HOLDOVER TENANT The retention by a tenant of possession after the lease on a property has expired. Holding over creates a tenancy at sufferance.

HOLOGRAPHIC WILL An entirely handwritten will which is not properly witnessed. Such a will is valid only in some jurisdictions and then only if it is free from suspicion of fraud or other defects.

HOME The place in which a person lives.

HOME EQUITY LOAN A loan secured by a second mortgage on a person’s home and characterized by an open line of credit based on the homeowner’s equity. As a result of the Tax Reform Act of 1986, consumer interest on credit cards, automobile loans, and similar purchases is not deductible when itemizing deductions for federal income tax purposes. However, the interest paid on a home equity loan is fully deductible as long as certain guidelines are met, namely that the amount borrowed must be used for home improvements, medical expenses, or education. Thus, home equity loans have become very popular in recent years. Adding to the popularity is the ease within which such a loan can be made. Most lenders will establish a line of credit to the homeowner up to a total loan-to-value ratio of 75 or 80 percent.

HOME IMPROVEMENT LOAN A loan made to a homeowner in which the home is used as collateral for the loan. In recent years one result of increased housing costs and higher market prices has been the relatively fast equity build-up for owners of real estate. To an owner this equity can become a source of capital that can be drawn out of the home for home improvements or personal or business reasons. Numerous commercial banks and finance companies make short-term (three to five years) junior mortgages based on a percentage of the homeowner’s equity. Since they are junior mortgages, such loans normally carry an interest rate three or four percentage points above that charged on senior instruments or first mortgages.

HOME INSPECTION SERVICE A professional service available to homebuyers normally undertaken prior to the transfer of title to the property. Quite often, particularly in the case of older homes, a buyer will make an offer contingent upon an inspection of the property being done by a qualified person and if the property does not pass the minimum inspection requirements, the offer is voidable. Home inspection services charge from one hundred to several hundred dollars, with the fee normally paid by the buyer.

HOME INSPECTOR A person who inspects real estate for the purpose of determining whether or not the property meets minimum structural and code standards. Such persons normally have engineering and or building backgrounds and are employed on a fee basis.

HOMEOWNER’S ASSOCIATION The organization in a condominium made up of all the unit owners and which is responsible for maintaining the common areas of the condominium. The homeowner’s association also decides on matters affecting the common areas, such as whether an individual unit owner may put up window boxes or plow a garden. Most homeowner’s associations have a fight of first refusal, or right to purchase a unit at market value before the owner seeks other purchasers. However, this right may not be used to discriminate against prospective buyers on the basis of race, color, creed, national origin, sex, handicap or families with children.

HOMEROWNERSHIP Owning the home in which one lives. One of the successes of the American economic system has been its ability to provide a decent home to a broad number of households. Approximately 60% to 65% of all occupied housing in the United States is owner occupied. Homeownership offers several advantages to an individual. It provides a sense of security and belonging to a community. There is a certain pride and satisfaction in controlling one’s own territory without being restricted by rules established by a landlord or having one’s privacy intruded upon by strangers. In a privately owned home, there is generally more living space, more rooms, more storage space, and more privately controlled outdoor space for the dollar spent. This is particularly important for large families with young children. Homeownership often gives a person a more social status and a better credit rating. In addition, there are certain financial benefits; monthly payments for a mortgage include a build-up of equity and tax deductible interest. There are other tax advantages as well. Property taxes are deductible, and capital gains on the sale may be deferred if a person reinvests in another house of same or greater price. Except for certain types of a variable rate mortgages, the mortgage debt service remains constant, providing protection against inflation while the asset generally appreciates in value. However, homeownership is not for everyone. It may lead to constraints on one’s ability to relocate.

HOMEOWNER’S INSURANCE A package insurance policy available to anyone who owns a one-family house, condominium, cooperative, mobile home, or who resides in an apartment. It is quite common for a homeowner to purchase and maintain insurance coverage for his or her residence. For a relatively small and certain amount of money the homeowner buys protection against a potentially large and unpredictable loss. Numerous type of policies are available. The homeowner can buy a standard fire insurance policy which insures only against fire and lightning, whereas for an additional premium, the coverage is broadened to include damage from wind, hail smoke, explosion, riot, vehicles, and falling aircraft. Or, one can purchase protection against burglary, injuries suffered by parties while on the property, and damages the policyholder causes to the property of others. Besides being able to purchase any number of separate policies, one can also purchase a package policy that includes all of the above mentioned risks. A homeowner’s policy can be purchased by anyone who owns and occupies either a one or two family residence. The advantages to purchasing such a policy are numerous: (1) only one policy is purchased, (2) only one premium has to be paid, (3) the coverage is for a wide variety of perils, and (4) the cost is considerably less than if the same perils were covered through individual policies. What properties are covered? First, the house or the dwelling is covered. In addition to the living quarters, this includes such structures as garages or other additions. Other structures referred to as appurtenant structures are covered such as a tool shed or a detached garage. However, buildings located on the property that are either rented to others or used for commercial purposes are not covered. Personal property including all household contents and personal belongings is covered. This would include losses both at home or away from home. Pets are not protected, nor are automobiles, which have their own special insurance. Another added feature of a homeowner’s policy is the coverage of additional living expenses. This is intended to cover the increase in living expenses incurred while a house cannot be occupied because of damages caused by an insured peril. What perils are insured against? The number of perils insured against under a homeowner’s policy depends upon what form is purchased. Three forms are available: (1) the Basic Form(HO-1), (2) the Broad Form (HO-2), or (3) the Comprehensive Form (HO-5). The Broad Form, which is the most common, insures against eighteen different perils. The Basic Form insures only against the first eleven, whereas the Comprehensive Form covers the eighteen perils, plus additional coverage. While the HO-5 is often referred to as an all-risk policy, it still has certain exceptions listed in the policy. Is there a policy for renters? For those who rent, the Tenant’s Form (HO-4) of the homeowner’s policy is available. It insures contents and personal property against the same perils included in the Broad Form. However, since a renter does not own either the dwelling or other private structures on the property the dwelling is not insured. Such a policy does, however, provide coverage for additional living expense.

HOMEOWNER’S ONCE-IN-A-LIFETIME TAX EXCLUSION A forgiveness of $125,000 in capital gains taxes for taxpayers 55 years or older who sell their principal residence. To qualify, a taxpayer must be at least 55 years old on or before the date of the sale. The house must have been the principal residence in at least three of the five years preceding the sale. If married, only one spouse must be 55 years old, both must join in making the election. If filing separately, each spouse is only allowed half the exclusion or $62,500. There are other more technical provisions which may require consultation with an attorney or tax accountant for an understanding of how the law applies in the situation of any particular individual.

HOMEOWNER’S (HOMESTEAD) TAX EXEMPTION The amount of the assessed value of property tax due to the fact that the taxpayer resides on the property and declares it as his or her homestead. Those states that provide for a homestead exemption normally require the homeowner to file for the exemption within a statutory period of time within the tax year.

HOMEOWNER’S WARRANTY (HOW) PROGRAM A ten-year warranty program administered by a subsidiary of the National Association of Home Builders and available from some builders of new homes. The program has strict building standards, and it requires the builder to give one-year warranty against defects in workmanship, a two-year warranty against defects in electrical and mechanical systems, and a full ten-year warranty against major structural and sanitary defects. The warranty is transferable to new owners and provides for arbitration in case of owner/builder disputes.

HOME RULE The power of local self-government given either by the state constitution or legislation to a municipal corporation. Home rule powers allow local governments to pass zoning ordinances and other land-use regulations.

HOMESTEAD EXEMPTION A statutory or constitutional right which gives a person who is defined as the head of a household protection from creditors for property known as the homestead. The homestead is ordinarily defined as the primary dwelling and surrounding land, and usually there must be a family which owns and occupies the dwelling. This exemption does not normally apply to rented premises. Many states define this exemption. Ordinarily, any recorded debts which existed before the declaration of the exemption are not affected. In some states homestead exists automatically by operation of law, while in other states the head of the household must file a declaration of homestead with the appropriate public official in the jurisdiction. Debts incurred to finance and to repair the homestead may or may not be affected by the exemption. The exemption may be waived and each state has its own requirements for what constitutes a waiver. Upon the death of the head of the household, the surviving spouse may be entitled to the exemption. In some states the homestead is also important in calculating property taxes. A certain statutory amount may be subtracted from the assessment of the homestead before the tax rate is applied.

HOMOGENEOUS Similar in type. Real estate is the opposite of homogeneous, since no two parcels of lad are exactly alike.

HORIZONTAL PROPERTY ACT The name, in some states, for legislation authorizing the creation of the condominium form of ownership. Before 1960, no such legislation existed, while today every state has some form of condominium legislation.

HOSKOLD FACTOR A factor used to value an annuity that is based on reinvesting capital recapture at a safe rate of interest, named after H. E. Hoskold.

HOSKOLD, H. E. An English mining engineer who originated the use of the ‘Hoskold’ method of valuing coal mines, timberland, and other types of real estate with depleting assets.

HOTEL A building offering its facilities as lodging to the public rather than to a limited private group.

HOT LISTING A listing on property that, in the opinion of the real estate broker acquiring the listing, is located in a market with much more demand than supply. In theory, hot listings do not remain on the market for a very long period of time.

HOUSEHOLD The total number of people who occupy a particular dwelling including people who may not be related to the householder.

HOUSE-POOR HOMEOWNER A homeowner who has bought more house than he or she can comfortably afford and thus, spends a more than normal percentage of his or her income on the mortgage payment. First home buyers who have financed a high percent of the purchase price are sometimes referred to as being "house poor".

HOUSING AFFORDABILITY INDEX A monthly index published by the National Association of Realtors showing the financial ability of the median income family to purchase the median-priced home with an 80 percent loan. An index greater 100 means that the median income family could qualify for more than the median-priced home with an 80 percent loan. A less than 100 index means that the same median income cannot qualify to buy the median-priced home, which is normally the case during times of inflation and higher than normal interest rates.

HOUSING AND URBAN DEVELOPMENT (HUD) An agency of the federal government which oversees many federal housing programs, including enforcement of fair housing laws.

HOUSING ASSISTANCE COUNCIL (HAC) The Housing Assistance Council is funded by the Department of Housing and Urban Development (HUD) and provides assistance, training, and loans for the development of low-income housing in rural areas. The mailing address is 1025 Vermont Avenue, N.W., Washington, D.C. 20005; (202) 842-8600.

HOUSING CODE Local government codes which specify minimum standards that a dwelling unit must meet.

HOUSING FINANCE AGENCY A state financing program that provides direct loans at a preferred interest rate to citizens of that state who, for various reasons, have been unable to obtain financing from private institutions. Applicants must be residents of the state for a specified period of time and under most programs may not own other real property. In recent years, cities and counties have also established mortgage funds in order to meet the needs of the housing market in their political jurisdictions.

HOUSING FOR THE ELDERLY A real estate project specifically built for elderly persons and normally, in addition to living accommodations, provides recreational facilities and nursing services.

HOUSING STARTS The number of housing units (including apartments) placed under construction during a specific period of time. Since the construction industry is such a vital component of the overall economy, the number of housing starts is an important barometer for how well the economy is doing.

HUNDRED PERCENT LOCATON The location which generates the highest per square foot revenues for a particular type of use in a geographic area. This particular location generally commands the highest rentals or cost per square foot.

HYBRID MORTGAGE A type of mortgage in which the lender is allowed to receive income generated from the property.

HYPOTHECATE The process of pledging something as security but retaining possession of it. The borrower who gives a mortgage to a lender but keeps possession of the mortgaged property has hypothecated the property.

IMPLIED CONTRACT A contract created by actions but not necessarily written or spoken.

IMPLIED WARRANTY One that is not written buy exists under the law. Contrasted with "expressed."

IMPROVED LAND Land that has some improvements. Land that has been partially or fully developed for use.

IMPROVEMENT RATIO The relative value of improvements to the value of unimproved property.

IMPROVEMENTS Those additions to raw land, such as buildings, streets, sewers, etc., tending to increase value.

IMPOUND ACCOUNT A fund set aside for future needs.

IMPUTED INTEREST Implied interest. In a mortgage that states an insufficient interest rate, the law will impute the rate is higher, and the principal is less.

INCHOATE Unfinished, begun but not completed. In real estate, this can apply to (lower or courtesy rights) prior to the death of a spouse.

INCOME The money or other benefit coming from the use of property, skill or business.

INCOME APPROACH A method of appraising real estate based on the property’s anticipated future income.

INCOME MULTIPLIER The relationship of price to income.

INCOME PROPERTY Real estate that generates rental income.

INCOME STREAM A regular flow of money generated by a business or investment.

INCOMPETENT One not legally capable of completing a contract. Includes the mentally ill, minors, and others considered incapable.

INCORPORATE To form a corporation under regulations provided by the Secretary of State.

INCORPOREAL PROPERTY Legal interests in real property that do not entail the right of possession.

INCURABLE DEPRECIATION A defect that cannot be cured or that is not financially practical to cure; a defect in the "bone structure" of a building. Compared to curable depreciation.

IOEMNIFY To protect another person against loss or damage. Or, to compensate a party for loss or damage.

INDENTURE A written agreement made between 2 or more persons having different interests.

INDEPENDENT APPRAISAL A value estimate provided by someone who does not participate in the income or value of the property.

INDEPENDENT CONTRACTOR A contractor who is self-employed.

INDEPENDENT FEE APPRAISOR One who estimates the value of property, has no interest in the property, and is not associated with a lending association or other investor.

INDEX 1. A statistic that indicates some current economic or financial condition. Indexes are often used to make adjustments in wage rates, rental rates, loan interest rates, and pension benefits set by long-term contracts. 2. To adjust contract terms according to an index.

INDEXED LOAN A long-term loan in which the term, payment interest rate, or principal amount may be adjusted periodically according to a specific index. The index and the manner of adjustment are generally stated in the loan contract.

INDEX LEASE A rental agreement that requires changes in rent based on a published record of cost changes. index.

INDIRECT COSTS Costs not directly associated with the structure, but incurred during the construction period. Also called soft costs. Contrast with direct costs.

INDUSTRIAL PARK An area designed and zoned for manufacturing and associated activities.

INDUSTRIAL PROPERTY Property used for industrial purposes, such as factories.

INFLATION A loss in the purchasing power of money; an increase in the general price level. Generally measured by the Consumer Price Index, published by the Bureau of Labor Statistics.

INFORMATION REPORTING Reports provided to the Internal Revenue Service (IRS), such as commissions earned by real estate sales agents and real estate transactions of home sellers, reported by the broker.

INFRASTRUCTURE The basic public works of a city or subdivision, including roads, bridges, sewer and water systems, drainage systems, and essential public utilities.

INHERITANCE TAX A tax, based on property value, imposed in some states on those who acquire property from a decedent. Compare to estate tax.

INJUNCTION An order issued under the seal of a court to restrain one or more parties in a legal proceeding, from performing an act deemed inequitable to another party or parties in the proceeding.

INNER CITY Generally the older and more urbanized area of a large city surrounding the central business district. The term often refers to densely populated blighted area characterized by low-income residents and a high proportion of minority, racial and ethnic groups.

IN REM Latin: "against the thing." A proceeding against the property directly, as distinguished from a proceeding against a person (used in taking land for nonpayment of taxes, etc.)

INSIDE LOT In a subdivision, a lot surrounded on each side by other lots, as opposed to a corner lot, which has road frontage on at least 2 sides.

INSPECTION A physical scrutinizing review of property or of documents.

INSTALLMENT CONTRACT Same as a land contract.

INSTALLMENTS Parts of the same debt, payable at successive periods as agreed; payments made to reduce a mortgage.

INSTALLMENT SALE When a seller accepts a mortgage for part of the sale, the tax on the gain is paid as the mortgage principal is collected.

INSTALLMENT TO AMORTIZE ONE DOLLAR A mathematically computed factor derived from compound interest functions that offers the level periodic payment required to retire a $1.00 loan within a certain time frame. The periodic installment must exceed the periodic interest rate.

INSTITUTE OF REAL ESTATE MANAGEMENT (IREW) A professional organization of property managers. Affiliated with the National Association of Realtors". Publisher

INSTIUTIONAL LENDER Financial intermediaries who invest in loans and other securities on behalf of their depositors or customers; lending and investment activities are regulated by laws to limit risk.

INSTRUMENT A written legal document, created to establish the rights and liabilities of the parties to it.

INSURABLE INTEREST An interest in a person or property that would cause one a loss if that person or property were injured. Must be present to collect from an insurance policy.

INSURABLE TITLE A title that can be insured by a title insurance company.

INSURABLE VALUE The cost of total replacement of destructible improvements to a property.

INSURANCE COVERAGE Total amount and type of insurance carried.

INSURANCE (MORTGAGE) A service, generally purchased by a borrower, that will indemnify the lender incase of foreclosure of the loan. Indemnification is generally limited to losses suffered by the lender in the foreclosure process.

INTANGIBLE VALUE Value that cannot be seen or touched. Example: The goodwill of an established business is an intangible value.

INTEREST 1. Cost of the use of money. 2. The type and extent of ownership.

INTEREST DEDUCTIONS (UNDER THE 1986 TAX ACT) Investment Interest. Investment interest deductions are limited to net investment income, which includes interest, dividends, long-term capital gains and income or loss from working interests in oil and gas interests. However, net investment income includes neither rental nor other passive activity income or loss, nor interest paid to buy an ownership in a passive activity.

INTEREST-ONLY LOAN A loan in which interest is payable at regular intervals until loan maturity, when the full loan balance is due. Does not require amortization. Contrast with self-amortizing mortgages.

INTEREST RATE 1. The percentage of a sum of money charged for its use. 2. The rate of return on an investment.

INTERIM FINANCING A loan, including a construction loan, used when the property owner is unable or unwilling to arrange permanent financing. Generally arranged for less than 3 years, used to gain time for financial or market conditions to improve.

INTERNAL RATE OF RETURN (IRR) The true annual rate of earnings on an investment. Equates the value of cash returns with cash invested. Considers the application of compound interest factors. Requires a trial-and-error method for solution.

INTERAL REVENUE CODE The law, passed by Congress, that specifies how and what income is to be taxed, and what may be deducted from taxable income.

INTERNAL REVENUE SERVICE (IRS) An agency of the federal government that is responsible for the administration and collection of federal income taxes. The IRS prints and distributes tax forms and audits tax returns.

INTERNATIONAL ARCHITECTURE An early-twentieth century-style houses whose design is very simple with no ornamentation. The windows appear to be continuous rather than appearing to be holes in the walls.

INTERNATIONAL ASSOCIATION OF ASSESSING OFFICERS (IAAO) A professional organization of property tax assessors. Awards the designation of Certified Assessment Evaluator (CAE). Publishes the quarterly Assessors Journal. Address: International Association of Assessing Officers 1313 East 60^th Street, Chicago, IL 60637.

INTERNATIONAL REAL ESTATE FEDERATION An organization with worldwide membership that is devoted to encouraging private rights to real estate. The international abbreviation is FIABCI; its American chapter is an affiliate of the National Association of Realtors.

INTERNATIONAL RIGHT OF WAY ASSOCIATION (IR/WA) An individual membership association (no corporate membership) that offers courses covering various phases of right-of-way work. Educational curriculum includes law, engineering, appraisal. Offers a designation, SR/WA, and a bimonthly magazine. Address: International Right of Way Association, 13650 S. Grammercy Place, Ste. 100 Gardena, CA 90249 (310) 538-0233.

INTERSTATE LAND SALES ACT A federal law, administered by the Department of Housing and Urban Development (HUD), which requires certain disclosures and advertising procedures when selling land to purchasers in other states.

INTERVAL OWNERSHIP Same as time-sharing.

INTER VIVOS During one’s life.

INTESTATE 1. (adj.) Having made no valid will. 2. (noun) A person who dies leaving no will or leaving one that is defective. Property goes to the legal heirs of the intestate.

INVENTORY Property held for sale or to be used in the manufacture of goods held for sale. Does not qualify for capital gains tax treatment.

INVERSE CONDEMNATION A legal procedure to obtain compensation when a property interest has been taken or diminished in value by a government activity.

INVESTMENT VALUE The estimated value of a certain real

INVOLUNTARY CONVERSION Condemnation or sudden destruction by nature.

INVOLUNTARY LIEN A lien imposed against property without consent of the owner.

INVESTMENT LIFE CYCLE The time span from acquisition of an investment to final disposition.

INWOOD ANNUITY FACTOR A number that, when multiplied by the periodic payment from a level payment income stream, indicates the present value of the income stream, based on a specific interest rate.

INWOOD TABLES A set of annuity factors for various interest rates and maturities.

IREM Institute of Real Estate Management.

IRR Internal rate of return.

IRREVOCABLE Incapable of being recalled or revoked; unchangeable.

J FACTOR A factor used in income property analysis to derive the change in net operating income that is required to realize a certain equity yield rate.

JOINT AND SEVERAL LIABILITY A situation in which a creditor may sue one or more of the parties separately, or all of them together.

JOINT TENANCY A concurrent ownership by two or more persons with the fight of survivorship. This form of ownership is recognized by all but a small handful of states. Upon the death of a joint tenant, the interest does not pass to the joint tenant’s heirs or devisees, but to the other joint tenant(s). Effectively, when a joint tenant dies, his or her interest is automatically extinguished. As a result of this, no interest exists which may be passed on after death by will. Likewise, no dower or curtesy can attach. Further, all un-foreclosed liens of one of the joint tenant placed on the land are extinguished. The same result occurs to any easements or leases which were granted by one of the joint tenants without the conveyance by the other joint tenants. Because no interest passes after death, there in no need for probate; the surviving tenant(s) retain the property.

JOINTURE A freehold estate created for the life of a wife and to take effect upon the death of her husband. Under common law, such a provision as jointure was made prior to marriage and was made in lieu of dower.

JOINT VENTURE An agreement by two or more individuals or entities to engage in a single project or undertaking. Joint ventures are used in real estate development as a means of raising capital and spreading risk. For all practical purposes a joint venture is similar to a general partnership. However, once the purpose of the joint venture has been accomplished, the entity ceases to exist.

JUDGEMENT The final legal determination of rights between disputants, such as a mortgagor and a mortgagee, by a court of competent jurisdiction.

JUDGEMENT CREDITOR The party who gains under a judgement.

JUDGEMENT DEBTOR The person burdened by a judgement.

JUDGEMENT LIEN The charge upon the property of a debtor resulting from the decree of a court entered in the judgement docket. Once a certified abstract of the court judgement is recorded, it becomes a lien upon all of the judgement debtor’s real and personal property within the jurisdiction. The lien may be suspended by posting a bond until the time for final appeal has expired or an appeal has been turned down by the appellate court. This abstract is recorded in a judgement docket kept by the county clerk or other public official which is arranged alphabetically according to the names of judgement debtors. The abstract places a cloud on the title of all real property owned by the judgement debtor for the statutory time of the judgement lien or until the lien is satisfied. When a judgement is a lien on all the property of the judgement debtor, it is called a judgement in personam as contrasted to a judgement in rem, which applies only to a specific property. The statutory time period is set by state law, in most states ten years.

JUDICIAL FORECLOSURE A means of selling property through a court procedure to satisfy a lien.

JUNIOR LIEN An encumbrance second in priority to a previously recorded lien or to a lien to which the encumbrance has been subordinated.

JUNIOR MORTGAGE A mortgage which has a lower priority or lien position than a first mortgage. A third or even a fourth mortgage is also classified as a junior mortgage. What establishes a mortgage as being a junior mortgage is that is was recorded after the first mortgage was recorded and thus its lien position is inferior to the first mortgage.

JURISDICTION The extent of authority of a court to render legal decision over person or subject matter.

JUST COMPENSATION Fair and reasonable compensation to both owner and the public when property is taken for public use through condemnation. Protection is provided to property owners under the U.S. Constitution for the taking of land. The Fifth Amendment provides that "just compensation" must be made.

KEY LOT A parcel of land that because of its location must be acquired in order to assemble several parcels into one large parcel. The key lot may be a corner lot or it could be an interior lot.

KEY TENANT A major or primary tenant in an office building or shopping center. Generally such a tenant leases a significant amount of the net leasable space.

KICKBACK Payment made to someone for referral of a customer or business. Generally speaking, kickbacks are illegal. The reason is that, unlike a commission, a kickback is made without the customer’s knowledge; thus, the referral could have been made without the customer’s best interest at heart. Secret kickbacks to a lender from a provider of a service are specifically prohibited by the Real Estate Settlement Procedures Act.

KICKER The right of a mortgage lender or other investor to share in income, in addition to principal and interest receipts. Also known as equity-kicker and lender participation.

KIOSK A small freestanding structure located in a shopping center or mall from which merchandise is sold. The type of products marketed would include film, flowers, ice cream, or any item that is uniform in nature so that it can be purchased with little or no shopping. Typically, the operations pay a substantially high rent based on a percentage of sales.

LACHES Delay or negligence in one’s rights.

LAND CONTRACT See Agreement of Sale and Contract For Deed. CAUTION: Be absolutely sure which type of sale this term is referring to.

LATE CHARGE A penalty for failure to pay an installment on time.

LATENT DEFECT Hidden structural defects and flaws.

LEASE A contract between a landlord and a tenant conveying the use and/or occupation of the landlord’s property.

LEASE WITH OPTION TO PURCHASE A lease under which the lessee has the right to purchase the property. The option may run for the length of the lease or only for a portion of the lease period.

LEGAL DESCRIPTION A description of a specific parcel of real estate which is acceptable to the courts in that state, and which will allow an independent surveyor to locate and identify it. Usually it uses one of the following methods; government survey, metes and bounds, or recorded plat (lot and block number).

LENDER 1. A company, institution or person that loans money with the intention of a full repayment of the debt. Most commonly, this debt is repaid with interest. 2. A general term encompassing all mortgages, and beneficiaries under deeds of trust.

LESS FAVORABLE TREATMENT Any time a person is treated differently on the basis of race, sex, religion, color, familial status, disability, or national origin, either by action or inaction, in the selling or leasing of real property, it is a violation of the Fair Housing Laws. Also known as unequal treatment or different treatment.

LESSEE Tenant leasing property.

LESSOR One who leases property to a tenant.

LETTER OF INTENT A formal method of stating that a prospective developer, buyer or lessee is interested in property.

LEVERAGE The use of borrowed funds to finance an investment and to magnify the rate of return.

LIBER A Latin word for book.

LICENSEE A person licensed by the State Real Estate Commission to engage in real estate brokerage, either as a broker or as a salesman.

LIEN An encumbrance against property for money, either voluntary or involuntary.

LIEN THEORY STATE States where here legal title of mortgaged property resides with the mortgagor (borrower), with the mortgage as a lien against the property. Also see Title Theory State.

LIFE ESTATE An interest in real property for the life of a living person. The interest then reverts back to the grantor or on to a third party. Comment: This is useful for investors who want to purchase a property they believe will be more valuable in the future. The seller retains the right to live in or occupy the property until their death. The buyer pays less than the current market value for the property since they will not get possession of the property or collect any rent until the seller dies.

LIMITED PARTNERSHIP A partnership consisting of one or more general partners who conduct the business and are responsible for losses, and one or more special partners, contributing capital and liable only to the amount contributed.

LIS PENDENS A legal notice recorded to show pending litigation relating to real property and giving notice that anyone acquiring an interest is said property subsequent to the date of the notice may be bound by the outcome of the litigation.

LISTING AGREEMENT The legal agreement between the listing agent/broker and the vendor, setting out the services to be rendered, describing the property for sale, and stating the terms of payment.

LOAN PACKAGE The complete package of information given to the lender regarding the borrower and the property which the lender uses to evaluate the financial state of the borrower and the property.

LOAN-TO-VALUE RATIO (LOAN RATIO) The ratio of the mortgage loan amount to the properties appraised value (or the selling price whichever is less). If you purchase a property for $100,000 and make a $20,000 down payment the loan to value ratio will be 80%.

LOCK OR LOCK IN A commitment you obtain from a lender assuring you a particular interest rate or feature or a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and subsequently, close the loan.

LOYALTY One of the most fundamental fiduciary duties an agent owes to the principal. The duty obligates a real estate broker to act at all times, solely in the best interests of the principal, excluding all other interests, including that of the broker. An example of breach of loyalty is when a broker purchases a property listed with his/her firm, and immediately resells it at a profit. Such conduct is usually considered appropriate and lawful by persons who act at arms length, but a fiduciary would be considered to have stolen an opportunity for profit that rightfully belongs to the principal.

MAI Member, Appraisal Institute. A professional designation awarded by the Appraisal Institute to persons who have met minimum education, experience, and demonstration requirements in the areas of valuation and appraisal.

MAINTENANCE The act of keeping a building in general repair. Lack of proper maintenance will result in a loss in value.

MAINTENANCE COSTS The expenditure necessary to keep a building and grounds in general repair. Such costs appear on an income statement as an operating expense and are the responsibility of the property manager. While maintenance costs vary greatly from property to property, there is some degree of uniformity with like-like properties. As such, investors and lenders often examine the history of maintenance costs as an indication of how a specific property has been maintained.

MAINTENANCE FEE Payment made by the unit owner of a condominium to the homeowner’s association for expenses incurred in the maintenance and upkeep of the common areas. The fee is ordinarily collected monthly and failure to pay can lead to liens being placed on the individual unit, attachment, and foreclosure.

MALL Part of a retail shopping area set aside for pedestrian traffic.

MANAGEMENT AGREEMENT An employment contract between the owner of real estate and a property management firm that agrees to oversee the management of the property. As is true in any business agreement, the property manager or management firm and the owner of the property should enter into a formal contract. The management contract should include the responsibilities specified in the employment agreement, the term and period of the contract, the management policies to be followed, the power and authority of the property manager, and the compensation for the management services. Normally, a property manager’s compensation is an agreed-upon percentage of gross income. The range can vary from a very small amount, perhaps one percent on a large structure, to as much as ten or fifteen percent on a single-unit house.

MANAGEMENT FEE The agreed-upon compensation paid to a property management company for managing a real estate project. The fee is usually based on a percentage of effective gross income.

MANAGEMENT PLAN A written report of what the property management company hopes to accomplish and how it intends to do so. Before assuming the management of a piece of property, a long-range plan should be developed. However, before the plan can be developed, an analysis has to be made of the owner’s objectives. Certainly, the property manager has to be confident that these objectives can be met. A physical inspection of the property itself has to be made, and the property manager needs to understand existing market conditions regarding competition, rental structures and operating expenses.

MANUFACTURED HOUSING A housing unit primarily constructed in a plant or factory prior to transporting it to the lot where it is set. Manufactured housing can be delivered in various stages of production which offers the purchaser the flexibility of buying the "shell" up to and including purchase of a completely finished unit. Cost per square foot for manufactured housing is normally considerably less than comparable costs for stickbuilt structures.

MANUFACTURED HOUSING INSTITUTE This trade organization represents the manufacturers and dealers of mobile and modular homes throughout the United States. The institute’s headquarters is 1745 Jefferson Davis Highway, Arlington, VA 22301; (703) 979-6620.

MARGINAL LAND Land which for one or more reasons is incapable of producing much income given the costs that would be incurred to produce the income. Examples of deficiencies would include poor access, steep terrain, inadequate drainage, and odd shaped lots.

MARGINAL TAX BRACKET The rate of federal income tax that will apply to the next increment of taxable income.

MARGINAL UTILITY The addition to total utility of the last unit of a resource.

MARINA A docking and servicing for boats and equipped to provide repair service, gasing, and supplies.

MARKET The economic function of bringing buyers and sellers together through the price mechanism.

MARKETABLE TITLE Title to property which is free from reasonable doubts or objections and which the courts would compel a purchaser to accept under the terms of a sales contract.

MARKETING PLAN A report detailing the means by which a parcel(s) of real estate will be sold. The plan, if developed properly, will identify the target market, establish how and when the property will be shown and, generally, cover the total marketing of the property. Such a plan, while it may be used for a single parcel such as a home, is very commonly used in association with timesharing and second home sites. The marketing plan should be developed prior to the property being available for purchase.

MARKET PRICE The amount of money actually paid in a transaction.

MARKET RENT The rental income that a property is likely to command in the current market. Market rent, also referred to as economic rent, may be either higher or lower than what the property is actually renting for under the terms of a lease.

MARKET RENTAL RISK The probability that market rental rates will change, affecting the value of a property that is subject to fixed rent.

MARKET SEGMENTATION The identification and analysis of submarkets within a larger market.

MARKET STUDY An analysis of activities in a market in regard to such influences as location, demand, and competition which may or may not affect the value of property.

MARKET VALUE The price in terms of cash or its equivalent upon which a willing buyer and a willing seller will agree, where neither is under any undue pressure and both are typically motivated, have adequate knowledge, and are acting in their own best interest. This concept of value assumes that there is sufficient activity in the marketplace to generate enough buyers and sellers so that no one of them controls the price. Each party is also acting in his or her best interest and is fully informed as to market conditions. Finally, individual financing and taxation consequences are not considered, the property is exposed on the market for a reasonable period of time, and the seller is capable of conveying marketable title. Market value is an ideal standard which is very seldom achieved in real-world real estate markets; nevertheless, this is ordinarily the objective of most appraisals.

MARKET STUDY An analysis of activities in a market in regard to such influences as location, demand, and competition which may or may not affect the value of property.

MARKET VALUE The price in terms of cash or its equivalent upon which a willing buyer and a willing seller will agree, where neither is under any undue pressure and both are typically motivated, have adequate knowledge, and are acting in their own best interest. This concept of value assumes that there is sufficient activity in the marketplace to generate enough buyers and sellers so that no one of them controls the price. Each party is also acting in his or her best interest and is fully informed as to market conditions. Finally, individual financing and taxation consequences are not considered, the property is exposed on the market for a reasonable period of time, and the seller is capable of conveying marketable title. Market value is an ideal standard which is very seldom achieved in real-world real estate markets; nevertheless, this is ordinarily the objective of most appraisals.

MASS APPRAISING Simultaneously appraising a large number of parcels of real estate. Such a technique is sometimes done by appraisal firms employed by a local government to reappraise property for the purpose of estimating assessment values for property tax purposes.

MASTER AND SERVANT RELATIONSHIP A relationship between two people in which the employer is liable for actions or wrongdoing on the part of the employee. In a principal-agent relationship, the test to determine if a principal will be liable for the actions of an agent is whether the agent is a servant or an independent contractor. If the principal and agent are in a master-servant relationship, the law will impose vicarious liability on the master for torts committed by the servant while in the scope of the master’s employment.

MASTER LEASE The dominant or main lease in a building or development in which a sublease exists.

MASTER PLAN A program for the future development of a community which serves as the guidelines for capital expenditures.

MASTER POLICY An insurance policy that covers a number of parcels of real estate rather than one parcel, as is normally covered with an insurance policy.

MATERIAL BREACH A violation of a contract of such nature or importance that the innocent party may rescind the contract as well as recover damages.

MATERIAL FACT Any fact which, if known, would affect the judgement of one or more of the parties to a transaction.

MATURITY The date when a note or negotiable instrument is due and payable.

MAXIMUM LOAN AMOUNT The largest dollar figure in terms of how much money can be borrowed under a specific government program, such as a subsidized housing program or an project.

MEANDER LINES A measurement used in surveying to denote the boundary line of a stream showing the natural course of the stream.

MEAN HIGH TIDE The average of all the high tides as calculated over a long period of time.

MEAN SEA LEVEL A frame of reference assumed to be at zero elevation used in the surveying of land. Elevations above zero elevation are positive and those below zero elevation are negative.

MECHANICS AND MATERIALMAN’S LIENS Statutory liens levied on property by persons who are not compensated after providing labor (mechanic) or material (materialman) for the improvements to the property. Both types of liens are commonly referred to as mechanic’s liens. The mechanic’s lien is justified on the equitable theory that work or materials provided by contractors add to the value of the improvements and increase the value of the land. Because of this theory, work and materials must become permanently attached or incorporated into the land or improvements.

MEETING OF THE MINDS A mutual agreement or assent between the parties as to the terms and conditions of a contract. To form a contract there must be a "meeting of the minds".

MEGALOPOLIS A heavily populated urban area that runs continuously through numerous cities. An example would be the Eastern Seaboard of the United States starting with Washington, D.C., and continuing through Baltimore, Philadelphia, New York, Boston.

MENANCE A threat of force or improper action against a person or property in order to induce a party to act.

MERGER The absorption of one thing into another.

MERIDIANS Imaginary lines running north-south which intersect with base lines to form the reference points in the government survey method of land descriptions.

METER The basic unit of measuring length in the metric system. A meter equals 39.37 inches.

METES AND BOUNDS A method of land description in which the dimensions of the property are measured by distance and direction. This method is the primary means of legally describing land in some twenty states. To correctly use this method there must be a definite starting point. This starting point must be one that can be located by future surveyors, thus it is necessary that it be as precise as possible. Physical evidence of this point, referred to as a monument, is often an iron pipe set in concrete which in turn can be and often is referenced to a permanent reference point such as a bench mark. Bench marks are bronze discs permanently placed and precisely identified by government survey teams. Monuments, both natural and artificial, also include fences, rivers and streams, trees, wooden stakes and road intersections. However, none of these is as precise as bench marks. Once the point of beginning (POB) on the property has been established, boundary lines are identified and described until the land being surveyed has been "completely enclosed." Boundary lines measure distance and direction. Where two boundary lines cross, referred to as a comer, a monument is often used to identify the intersection. Distance is stated in terms of feet, normally to the nearest hundredth (for example, 212.65). Direction is given by its bearing, which shows the direction of one object with respect to another object. The bearing of a boundary line is the acute angle (an angle of less than 90 degrees) the line makes with a meridian (an imaginary line running north to south extending from the North Pole to the South Pole). In land description, the bearings are identified with reference to the quadrants on a compass and are expressed in terms of degrees, minutes, and seconds. A circle contains 360 degrees, 1 degree contains 60 minutes, and each minute contains 60 seconds. The circle is divided into four quadrants, each containing 90 degrees. The quadrants are identified by their boundary lines, namely Northeast (NE), Northwest (NW), Southeast (SE), and Southwest (SW). For each boundary line set in a metes and bounds description, the distance of the line, the direction of the line, and the monument used to mark the end of the distance should be clearly and precisely stated in the legal description.

METROPOLITAN AREA The land in and around a city. The area may cross both county and state lines, as for example, Washington, D.C., which includes parts of Virginia and Maryland.

METROPOLITAN STATISTICAL AREA (MSA) A reference to a geographic area which contains at least 50,000 residents within a total metropolitan population of at least 100,000. Historically, such an area has been referred to as a Standard Metropolitan Statistical Area (SMSA).

MIDDLEMAN A person who brings parties together for the purpose of entering into a contract such as the borrowing of money to finance a real estate project. Normally, the middleman is paid a fee, often referred to as a finder’s fee, if and when the parties enter into an agreement.

MILE A measure of length equaling 5,280 feet, 1,760 yards, 1,609 kilometers, or 8 furlongs. Such a measurement is a statue mile, whereas a nautical mile contains 6,080 feet.

MILITARY CLAUSE A clause included in a lease of residential property which allows the tenant to terminate the lease without penalty if and when the tenant is transferred to another location.

MILL One-tenth of one cent. Property taxes in many jurisdictions are stated in mills.

MILLAGE RATE A tax rate stated in tenths of a cent.

MINERAL DEED A conveyance by an owner of the subsurface rights to his or her property while reserving the surface and air rights to the property.

MINERAL LEASE An agreement entered into by an owner permitting another party to explore for and, if found, extract minerals in consideration of the payment of a rent or royalty.

MINERAL RIGHTS The right to share in the sale of minerals that may be extracted from one’s land.

MINIMALL A shopping area consisting of small specialty stores and absent of any anchor tenants, such as one of the national retailers.

MINIMUM-GUARANTEED PERCENTAGE LEASE A type of percentage lease that provides the lessor (landlord) a minimum rent regardless of the amount of sales. The minimum guarantee is referred to as a "floor", referring to the fact that the rent cannot fall below that amount.

MINIMUM LOT SIZE A provision of a zoning ordinance stipulating the minimum dimensions of a lot necessary for the construction of a building, for example, two-acre lots for each residence.

MINIMUM PROPERTY STANDARDS Minimum construction and location requirements that must be met before the Federal Housing Administration (FHA) will underwrite a loan for residential property.

MINIMUM RENT The least amount of rent due from a tenant under a lease with a varying rental schedule.

MINIWAREHOUSE A one-story structure partitioned into individual units for use by individuals and businesses to store personal belongings. Individual units are normally rented on a month-to-month basis with the rent charged varying with the unit size. Units vary in size from 50 or 60 square feet up to 500 square feet.

MINOR An infant or person who has not attained the age of majority and thus does not have the legal capacity to be bound by most contracts. Most contracts entered into by a minor are voidable at the minor’s option. However, a minor may choose to ratify a contract after achieving the age of majority. A minor or infant is bound to pay the reasonable value of necessities. Necessities include food, shelter, and clothing, which are appropriate for a person in the minor’s station of life.

MISDEMEANOR An offense or crime lower or less than a felony.

MISNOMER Mistake in name. Normally, when a mistake in names occurs in a deed, a correction deed, also known as a deed of confirmation, is used to correct the error.

MISREPRESENTATION An innocent or negligent misstatement of a material fact detrimentally relied upon by an innocent party. If a person makes a misrepresentation and later learns of the mistake, a duty then arises to inform the person who is detrimentally relying on the misrepresentation. Failure to do so is fraud.

MISTAKE An unintentional error or misunderstanding. Certain kinds of mistakes are grounds for rescinding a contract; others are not. Mistakes are classified as unilateral or mutual. A unilateral mistake is a mistake of a material fact involving a contract made by just one of the parties. If only one of the parties is mistaken as to a material fact, the mistake is not a defense unless the other party is chargeable with knowledge of the mistake. Whether or not the mistake is chargeable is judged by a "reasonable man" standard; that is, whether a reasonable person would believe that the other party made a mistake.

MIXED-USE COMMERCIAL PROJECT A real estate development that contains two or more different uses all intended to be harmonious and complementary. An example would include a high-rise building with retail shops on the first two floors, office space on floors three through ten, apartments on the next ten floors, and a restaurant on the top floor.

MOBILE HOME A manufactured unit constructed on a chassis and wheels and designed for permanent or semi-attached to land.

MOBILE HOME LOAN A loan acquired for the purchase of a mobile home. Certain lenders, although not all, make loans on mobile homes. Typically, the amount financed is for much less than the average residential loan, and the amortization period is much shorter, perhaps seven to ten years, even though longer terms are available under both FHA and VA financing. The amortization period is usually shorter since, unlike a permanent home, a mobile home normally depreciates in value, and thus, the lender wants to be repaid over a shorter period of time. A fear of some lenders is that since mobile homes are not permanently affixed to the land, the security for the loan, the mobile home can be moved by a dishonest borrower. Thus, not all lenders make mobile home loans.

MOBILE HOME PARK A parcel of land zoned and developed for use by occupants of mobile homes.

MODEL HOME A house built and used by a builder to demonstrate quality of construction, floor plans, styles, and amenities that are to be available in other homes available for sale by the builder. Quite often a builder will construct one or more model homes at the entrance to a subdivision. Once the other homes have been built and sold, the model homes are placed on the market and sold as residences.

MODULAR HOUSING A form of housing in which construction of the unit takes place at a factory, followed by the assembling of the house on the building site. Cost per square foot is considerably less due in part to the design, which allows for little waste of materials and provides efficiency during construction.

MONEY MARKET The short-term financial market which brings together investors who wish to invest in assets maturing in a short period of time and users of capital who wish to raise funds by selling short-term instruments. Treasury bills and commercial are examples of money market instruments.

MONUMENT Physical evidence, either natural or manmade, which has been established as the boundary(s) for a parcel of land. Land is sometimes described by monuments which serve to identify the boundaries of the subject parcel. This method, while quite common in older descriptions in rural areas, relies on the use of both natural and artificial monuments. Land description by monuments is considered less exact than a description by metes and bounds since the boundaries used are sometimes something not permanent, for instance, a river bed or a pile of rocks. Oftentimes reference is made to land owned by someone else, for instance, a neighbor’s farm.

MORATORIUM In regard to the development of land, a temporary suspension or delay in the granting or approval of building permits, sewer and water hookups, or rezoning requests. Such action may be initiated by a local government to allow time for a comprehensive growth management study which will be used to assist in formulating future growth plans.

MORE OR LESS Used in the legal description of land to denote that the total acreage given in the description is an approximation.

MORTGAGE An interest created by a person in regards to a particular property to secure the payment of a debt or performance of some other obligation. This interest may be a lien or a conditional title interest subject to defeasance when the debt is paid or the obligation fulfilled. A borrower who gives a mortgage is called a mortgagor and the lender who receives the pledge is called the mortgagee. It is important to realize that the mortgage is given by the borrower, not the lender. The term "mortgage" is derived from the Old French term "mort" meaning dead or "gage" meaning pledge. Thus, when a mortgage note is paid off, the pledge is canceled or becomes dead.

MORTGAGE-BACKED SECURITIES Securities purchased by investors that are secured by mortgages. Such securities are also known as pass-through securities since the debt service paid by the borrower is passed through to the purchaser of the security.

MORTAGE BANKER A financial middleman who, in addition to bringing borrower and lender together, makes loans, packages them, and sells the packages to both primary and secondary investors. If a mortgage banker is not financially strong enough to package the loan, financial help is sought from a lender, typically a commercial bank. The bank becomes a warehouse for mortgage money, and the mortgage banker draws on these funds until payment is received from the investors. Usually the mortgage banker continues to service the loan (collect debt service, pay property taxes, handle delinquent accounts, etc.) even after the loan has been packaged and sold. For this management service a small percentage of the balance paid to the investor goes to the mortgage banker. Obviously, the success of the mortgage banker depends upon the ability to generate new loans. In some geographic areas mortgage bankers are the primary source for financing real estate. All mortgage bankers try to stay in constant touch with investors and are aware of changing market conditions and lender requirements. Quite often the loan origination fee or finder’s fee charged the borrower is more than offset by a lower interest rate from a lender not directly accessible to the borrower. Mortgage bankers are involved in both commercial and residential financing and also carry out related activities, such as writing hazard insurance policies, appraising, and investment counseling. As with mortgage brokers, mortgage bankers are regulated by state law.

MORTGAGE BANKERS ASSOCIATION OF AMERICA (MBA) The Mortgage Bankers Association of America is the primary trade organization of the mortgage bankers and brokers in the United States. The association provides numerous seminars and publications for its membership and sponsors the designation CMB (Certified Mortgage Banker). The headquarters is 1125 15^th Street NW, Washington, D.C. 20005; (202) 861-6500.

MORTGAGE BOND PROGRAM A means of providing financing for real estate through the proceeds of issuing tax-exempt bonds. Since the bonds are tax-exempt, the interest rate paid when the bonds are sold is less than other bond rates. This, in turn, means that the money made available to the ultimate borrowers will be at a below-market rate of interest.

MORTGAGE BROKER A person who brings together a user of capital (borrower) and a supplier of capital (lender) and in return is paid a finder’s fee. A finder’s fee equal to one percent or so of the amount borrowed is normally paid by the borrower. Thus, the financial success of the mortgage brokerage firm depends upon the ability to locate available funds and to match these funds with creditworthy borrowers. Certain sources of funds, particularly insurance companies, do not always deal directly with the person looking for capital; rather, they work through a mortgage broker. Thus, if you wish to borrow from certain lenders you would need to go through a mortgage broker. Normally, the mortgage broker is not involved in servicing the loan once it is made and the transaction is closed.

MORTGAGE COEFFICIENT A multiplier used in certain income property appraisal techniques to compute a capitalization rate. In the Ellwood Technique for appraising property the mortgage coefficient is designated by the symbol "C".

MORTGAGE COMMITMENT An agreement whereby a mortgage lender agrees to fund a certain mortgage loan and a borrower agrees to comply with its requirements.

MORTGAGE CONSTANT The relationship between annual mortgage loan requirements and the initial mortgage loan principal, expressed as a decimal or percentage, for level-payment mortgage loans.

MORTGAGE CORRESPONDENT A person authorized to represent a financial institution in a particular geographic area for the purpose of placing loans.

MORTGAGEE A lender who receives a pledge of property to secure a debt.

MORTGAGEE IN POSSESSION A lender or creditor who has taken over property after default for the purpose of collecting rents and conserving the property until foreclosure.

MORTGAGE-EQUITY TECHNIQUE A technique for estimating the value of income-producing property based on the sum of the mortgage principal added to the discounted present value of the forecasted cash flow and the reversion to equity.

MORTGAGE GUARANTY INSURANCE CORPORATION (MGIC) A private insurance company which insures a certain percentage of a conventional loan, thus reducing the lender’s risk on a high loan-to-value ratio. MGIC, or ‘MAGIC" as it is commonly known, was established in 1957 to offer a borrower on a conventional loan what FHA offers on its insured loans.

MORTGAGE INSURANCE COMPANIES OF AMERICA A trade association comprised of the nation’s private mortgage insurance companies. The address is 1615 L Street NW, Washington, D.C. 20006; (202) 785-0767.

MORTGAGE INSURANCE PREMIUM (MIP) The charge paid by the borrower to cover the cost of a mortgage insurance policy under an FI-L4 insured mortgage. The insurance policy provides protection for all or a certain percentage of the loan amount to the lender in case of default by the borrower. Historically the premium was paid each month as part of the mortgage payment; but, in recent years it has been paid either in cash at closing or financed and repaid as part of the total amount borrowed.

MORTGAGE INTEREST DEDUCTION An allowable tax deduction for persons who itemize their federal and state income tax returns. Interest paid on a mortgage loan(s) up to the cost of one’s home plus the cost of any improvements is deductible. Any interest on debt above that amount is not deductible unless used for medical expenses, education, or home improvements.

MORTGAGE LIFE INSURANCE A decreasing-term life insurance policy purchased by a borrower which will pay off the outstanding balance in the event of the death of the borrower (mortgagor). The premium is paid as part of the monthly mortgage payment.

MORTGAGE LOAN SERVICING The process of collecting periodic mortgage payments and escrow funds, paying property taxes and insurance, and overseeing the administration of a loan over its life.

MORTGAGE LOAN UNDERWRITING The process of reviewing an application for a loan and making a recommendation as to the desirability and risk of the lender making the loan. The underwriting process is an integral part of the lending process.

MORTGAGE PORTFOLIO The total of all mortgages held by a lender.

MORTGAGE SECURITIES POOL A technique by which securities backed by the value of specific real estate mortgages are issued in the financial market for investment purposes. Such securities, because they are mortgage-backed, are more marketable and generally are issued with a lower rate of interest than if no such backing existed.

MORTGAGE VALUE The value of an asset for purposes of securing a mortgage loan. The term is also used to denote the market value of a mortgage loan.

MORTGAGING OUT Acquiring 100 percent of the funds necessary to acquire or develop a project; thus, the buyer/developer does not have to put up any upfront cash and has no equity in the property.

MORTGAGOR A borrower who pledges property through a mortgage to secure a loan.

MOST PROBABLE SELLING PRICE The likely price a property will bring, given current market conditions, buyer and seller motivations, and the financing terms that are likely to be employed.

MOTEL A facility which offers lodging for the general public.

MULTIFAMILY HOUSING A structure consisting of housing units for a number of different family units. Quite often zoning ordinances require a special zoning classification for multifamily housing.

MULTIPLE DWELLING A structure containing more than two units designed for accommodating households.

MULTIPLE LISTING SERVICE (MLS) A marketing service in which many brokers pool all of their listings and establish procedures for sharing commissions. Generally, multiple listing services (MLS) require that property owners sign an exclusive agency or exclusive right to sell listing with participating listing brokers in order to have access to the marketing pool.

MULTIPLE REGRESSION A mathematical technique used in estimating the amount of value for a subject property based on known variables and prices for comparable properties.

MULTIPLIER A rate to be multiplied by an amount.

MUNICIPALITY A local government, commonly referred to as a city or town.

MUNICIPAL ORDINANCE A law or rule such as a zoning ordinance or building code enacted by a municipality for the purpose of conducting the affairs of the municipality.

MUNIMENTS OF TITLE Written evidences of title such as a deed which an owner of land possesses and could use to prove his or her title to the land.

MUTUAL ASSENT The combination of the offer and acceptance which together form the terms of a contract.

MUTUAL RESCISSION A means of discharging a contract by which each party agrees to release the other party in exchange for his or her own release.

MUTUAL SAVINGS BANKS A source of financing real estate for residences. Located primarily in northeastern states, the mutual savings banks are an important supplier of real estate financing. As their name indicates, these banks are owned by their depositers, who receive interest on their deposits. All mutual savings banks are state chartered and typically are less regulated than their closest financing relative, the savings and loan association. The percentage of their assets invested in real estate mortgages is less than the average S&L, although a higher percentage of their total mortgage portfolio is FHA and VA loans. Most mutual banks have a relatively larger percentage of their mortgage loan portfolio invested in multi-family mortgages. Mutual banks also make personal loans and interstate loans, which can result in capital being moved from surplus areas to deficit areas. Over two-thirds of the mutual banks maintain membership in the FDIC. The remaining ones are insured by state savings insurance agencies. These state agencies exercise authority over both the type of investments and the amount of their assets mutual banks can invest in particular types of real estate.

NET LEASE A lease in which the tenant pays such expenses as taxes, insurance, repairs, utilities, etc. Also see Gross Lease.

NET LISTING A price, which must be expressly agreed upon, below which the owner will not sell the property and at which the broker will not receive a commission; the broker receives the excess over and above the net listing price as commission. The broker in this type of listing will have a very hard time maintaining his fiduciary responsibilities to his seller since his interests are potentially at odds with the interests of the seller.

NON-AGENT Limited form of agency used in Florida in which the agent does not represent the seller or the buyer. Comment: This form of agency offers a NO level of service and should never be considered unless you are very knowledgeable about real estate and the agent offers a drastically reduced rate of commission. Since you will be getting less than full service and no representation whatsoever, you should not have to pay full price.

NONCONFORMING USE A property which does not conform to the zoning of an area.

NOTE A written instrument of credit attesting to a debt and promise to pay.

OBEDIENCE An agent is obligated to promptly and efficiently obey all lawful instructions of his/her principal that conform to the purpose of the agency relationship. However, the duty does not include an obligation to obey unlawful instructions, such as instructions to not market a property to minorities or to misrepresent the condition of a property.

OBSOLESCENCE A loss in value of real property caused by changes either internal or external to the property. See Economic Obsolescence, Functional Obsolescence, and Physical Deterioration.

OPEN END MORTGAGE A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions, usually, as to the assets of the mortgage.

OPEN HOUSE An opportunity for prospective buyers to view a house in a low pressure environment.

OPEN LISTING A listing under which the principal (owner) reserves the right to list his property with other brokers.

OPTION The right to purchase property within a definite time at a specified price. There is no obligation to purchase, but the seller is obligated to sell if the option holder exercise the right to purchase. For the option to be valid, it must include consideration.

ORIGINATION FEE A fee or charge for work involved in the evaluation, preparation and submission of a proposed mortgage loan. Usually a percentage of the loan amount.

OWNERS TITLE POLICY Title insurance for the owner of property. Insurance to defend the owner against enforcement of any liens or encumbrances against the property that were in place prior to the issuance of the policy. CAUTION: Never purchase a property without obtaining an Owners Title Policy. The issuer of the policy will research the legal records for any existing liens or encumbrances prior to issuing the policy. Without this search and the issuance of the title policy you will be liable for the payment of any liens that exist on the property.

PACKAGE MORTGAGE Mortgage covering both real and personal property.

PAPER A mortgage, deed of trust, or land contract, which is given instead of cash.

PANIC PEDDLING The illegal practice of inducing panic selling in a neighborhood by making representations of the entry, or prospective entry, of members of a minority group, blockbusting. See Fair Housing.

PARISH In Louisiana, a division encompassing one or more cities or towns. In other states this division is known as a county.

PARTIAL RELEASE A release of a portion of property covered by a mortgage.

PARTICIPATING AGENT A real estate agent who sells a property. The selling agent may be (1) the subagent or listing agent of the seller; (2) a buyer’s agent; or (3) a dual agent. Also called a selling agent or cooperating agent.

PARTY WALL Wall erected on line between adjoining properties for the use of both properties.

PERCENTAGE LEASE Lease in which all or part of rental is a specified percentage of gross income from total sales made upon the premises.

PERMANENT MORTGAGE A mortgage on completed construction on the same property under one mortgage or trust deed.

PERSON An individual, a partnership, or a corporation, foreign or domestic.

PERSONAL PROPERTY Property which is tangible, movable, and not fixed to the land. Also called chattel and personalty. Also see Real property.

PERSONALTY Personal property; chattel. Also see Realty.

PHYSICAL DETERIORATION The loss of value to real property from all causes due to the action of the elements and old age. Physical deterioration can be either curable or incurable.

PITI Principal, Interest, Taxes and Insurance. The amount of the monthly payment including principal, interest, and an amount to be placed into the escrow (impound) account.

PLAT BOOK A record of recorded subdivisions of land.

PMI (PRIVATE MORTGAGE INSURANCE) Insurance similar to FHA or VA insurance, insuring part of the first mortgage or deed of trust, enabling a lender to make a conventional loan of a higher percentage of the property value.

POCKET LISTING Slang term used in the real estate business. Where an agent lists a property for sale and does not enter it into the MLS system for several days, keeping it in his "pocket" so other agents will not be aware the property is for sale. This allows him to show the listing to his customers without competition from other buyers.

POINTS Fees paid to induce lenders to make mortgage loans at a particular interest rate. Each point is equal to one percent (1%) of the loan principal. Same as discount points.

POLICE POWER The authority of a government to adopt and enforce law governing the use of real estate based on the need to promote public safety, health, and general welfare.

POWER OF ATTORNEY A written document authorizing another to act on his behalf as an attorney in fact. One does not need to be a licensed attorney to act as an attorney in fact but, power of attorney forms are powerful legal documents that should be used only under advice of a licensed attorney at law.

PREPAYMENT Paying off all or part of the mortgage before the scheduled date.

PREPAYMENT CLAUSE IN A MORTGAGE Statement of the terms upon which the mortgagor (borrower) may pay the entire or stated amount on the mortgage principal at some time prior to the due date.

PREPAYMENT PENALTY A fee paid to the lending institution for paying a loan prior to the scheduled maturity date.

PRIMARY MORTAGE MARKET Lenders who originate loans and makes funds available directly to the borrowers. Also see Secondary Mortgage Market.

PRIME RATE The interest, or discount rate charged by a commercial bank to its largest and strongest customers.

PRINCIPAL (FINANCE) The basic element of the loan as distinguished from interest and mortgage insurance premium. The original amount of money borrowed or the amount of the original money borrowed that has not been repaid.

PRINCIPAL (LEGAL) A person or other entity who employs an agent to represent them in a transaction.

PRINCIPLE OF CONFORMITY An appraisal principle which holds that the maximum value is realized when a reasonable degree of homogeneity (sameness) exists in a neighborhood.

PRIVATE MORTGAGE INSURANCE (PMI) Default insurance on conventional loans, normally insuring the top 20% of the loan and not the whole loan.

PROPERTY TAX Generally, tax levied on both real and personal property.

PRO-RATE To divide or distribute proportionally. At closing, various expenses such as taxes, insurance, interest, rents, etc. are prorated between the seller and buyer.

PUFFING Non-factual or extravagant statements and opinions made to enhance the perceived desirability of a property. There is a fine line between legal puffing and illegal misrepre-sentation, and puffing is best avoided. An example of puffing would be, "This home has the best view in the city".

PURCHASE MONEY MORTGAGE A Mortgage given by the buyer to the seller as part of the purchase consideration, as opposed to a "hard money" mortgage.

PURCHASE AGREEMENT See Agreement of Sale.

PURCHASE OFFER A document that lists the price, terms and conditions under which a buyer is willing to purchase a property.

QUALIFY To meet a mortgage lender’s approval requirements.

QUALIFYING RATIOS Comparisons of a borrower’s debts and gross monthly income.

QUIT CLAIM DEED A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor’s interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has. Often used in a Divorce settlement to relinquish one of the parties interest in a property.

READY, WILLING, AND ABLE A buyer who is prepared to buy on the seller’s terms and has the financial capacity to do so.

REAL ESTATE Land and improvements and the rights to own or use them. "A leasehold, as well as any other interest or estate in land, whether corporeal, incorporeal, freehold, or non-freehold, and whether the real estate is situated in this state or elsewhere." In popular usage, Real Estate is used interchangeabley with Real Property and Realty.

REAL ESTATE BOARD A non-profit organization representing local real estate agents/brokers and salespeople, which provides services to its members and maintains and operates the Multiple Listing Service in the community.

REAL ESTATE INSPECTOR Individual or company who holds themselves out to the public as being trained and qualified to inspect property.

REAL PROPERTY Refers to the right to own land and improvements. Commonly used interchangeably with Real Estate and Realty. Also see Personal Property.

REALTY Refers to land and buildings and other improvements from a physical standpoint. Real Estate and Real Property tend to be used interchangeably with Realty in everyday usage.

REASONABLE CARE AND DILIGENCE An agent is obligated to use reasonable care and diligence when pursuing the principal’s affairs. The standard of care expected of a buyer’s or seller’s real estate broker is that of a competent real estate professional. By reason of his/her license, a broker is considered to have skill and expertise in real estate matters superior to that of the average person. As an agent who represents others in their real estate dealings, a broker or salesperson is under a duty to use superior skill and knowledge while pursuing the principal’s affairs. However, no broker is expected to perform tasks or know information outside the scope of his/her real estate license. Real estate licensees are not expected to perform services normally provided by engineers, lawyers, accountants, or other professionals. If concerns arise outside the scope of a broker’s responsibility, the broker should acknowledge that and suggest that the principal seek assistance from a reliable outside source.

RECEIVER Court-appointed custodian who holds property for the court, pending final disposition of the matter before the court.

RECITAL Setting forth in a deed or other writing some explanation for the transaction.

RECORDED A written record that has been entered into the public records filed with the County Recorder’s office.

RECORDED PLAT A subdivision map filed with the county recorder’s office that shows the location and boundaries (lot and block number) of individual parcels of land. Also see Government Survey Method and Metes and Bounds.

RECORDING The act of entering in the public records, the written record of title to real property, thereby giving constructive notice to the public.

RECISION OF CONTRACT Annulling a contract and placing the parties to it in a position as if there had not been a contract.

RECOURSE The right of the holder of a note secured by a mortgage or deed of trust to look personally to the borrower or endorser for payment.

RECOVERY FUND A fund maintained by a state Real Estate Commission which upon court order is used to reimburse the public for monetary loss due to illegal acts of licensees.

REDLINING The illegal practice of refusing to originate mortgage loans, or limiting their number, in certain neighborhoods on the basis of racial or ethnic composition. See Fair Housing.

REFINANCING To apply for a new mortgage in order to gain better terms, usually either a lower interest rate or a different principal amount.

REGULATION ‘Z’ Truth in lending law developed by the Federal Reserve System which requires lenders to provide full disclosure of the terms of the loan, including interest rates expressed as an annual percentage rate (APR).

REISSUERATE A charge for a title insurance policy if a previous policy on the same property was issued within a specified period. Reissue is less than the original charge.

REIT (REAL ESTATE INVESTMENT TRUSTS) A method in investing in real estate in a group, with certain tax advantages.

RELA Real Estate License Act.

RELEASE To relinquish an interest or claim to a piece of property.

REMAINDER The future interest in an estate which takes effect after the termination of another estate, such as a life estate; what is left at the termination of a life estate.

RESERVATION A right reserved by a grantor in the sale or lease of a property. In a sale, the title of all property passes to the grantee, but the use may be reserved for the grantor. Also see Exception.

RESPA Real Estate Settlement Procedures Act is a federal law which deals with the procedures to be followed in a real estate closing, requiring disclosure of certain costs in the sale of residential improved property.

RESTRICTIONS Limitations on the use or occupancy of real estate contained in a deed or in local ordinances pertaining to land use.

RESTRICTIVE COVENANTS Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the U.S. Supreme Court.)

REVENUE STAMPS Formerly federal tax on a sale of real property. Canceled and replaced by state tax stamps.

RIPARIAN OWNER One who owns land bounding upon a river or water course (stream, creek, bayou, etc.).

SALES CONTRACT A written agreement stating the terms of the sale agreed to by both buyer and seller. See Earnest Money Contract.

SECONDARY FINANCING A loan secured by a mortgage or trust deed, which lien is subordinate to another mortgage or trust deed.

SECONDARY MORTGAGE MARKET Buying and selling of existing mortgage loans, designed to provide additional liquidity for lenders. Also see Primary Mortgage Market. The largest secondary mortgage market is the Federal National Mortgage Association (FNMA).

SECURITY Real or personal property pledged by a borrower, as additional protection for the lender’s interest.

SECURITY INTEREST An interest that a lender takes in the borrower’s property to assure repayment of a debt.

SELF AMORTIZED LOAN A loan which will retire the debt by systematic payments of principal and interest, so that at the end of the loan period, the balance will be zero.

SELLING AGENT A real estate agent who sells a property. The selling agent may be (1) the subagent or listing agent of the seller; (2) a buyer’s agent; or (3) a dual agent. Also called a cooperating agent or participating agent.

SEPTIC SYSTEM A sewage system, whereby waste is drained through pipes and a tile field into a septic tank.

SERVICING A LOAN The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.

SETBACK The distance a building must be set back from the property lines in accordance with local zoning ordinances or deed restrictions.

SET BACK ORDINANCE Regulates the distance from the lot line to the point where improvements may be constructed.

SETTLEMENT STATEMENT A statement prepared by broker, escrow, closing agent, title company, or lender, giving a complete breakdown of costs involved in a real estate sale.

SHERIFF’S DEED Deed given at sheriff’s sale in foreclosure of mortgage.

SIMPLE INTEREST Interest computed only on the principal balance. Also see Compound Interest.

SPECIAL WARRANTY DEED A warranty deed which, instead of warranting the title from sovereignty of the soil to the last grantee, merely warrants the title against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee’s title.

SPECIFIC LIEN A claim that only applies to or affects a certain property or group of properties. Also see General Lien.

SPECIFIC PERFORMANCE Carrying out of the precise terms agreed upon in a contract. Also see Suit for Specific Performance.

SPLIT AGENCY Also known as Appointed Agency, Designated Agency. Agency relationship where the Broker appoints one agent in the office to represent the seller and another agent in the same office to represent the Buyer. Caution: This is a relatively new concept and has not been tested in the Courts yet. Prior relationships or conversations between the 2 agents appointed could possibly create a conflict of interest. Example: Agent A (representing the buyer) tells Agent B (not involved at this point) that he has a Client that has financially qualified for up to $150,000. Later, the Buyer decides to make a $125,000 offer on a property listed by the same agency. The Broker appoints Agent B to represent the Seller. Since Agent B already knows the Buyer can qualify for $150,000 must he tell the Seller? Remember, he is obligated to reveal any information that he knows that would help the Seller.

SQUARE FOOT Area of measure, 1 foot on each side.

SQUARE FOOTAGE The number of square feet in a tract of land or building. CAUTION: The square footage of a house is normally calculated by using the outside dimensions. The "usable" square footage (the space available for usage) will be less. Depending on local custom, the square footage of a dwelling stated may or may not include space that is not considered living space, i.e.; garages, porches, storage rooms.

STATUTE OF FRAUDS The law which requires (among other things), that all contracts transferring real estate, or for the leasing of property for over one year, must be in writing to be enforceable.

STATUTORY LIEN An involuntary lien, includes tax liens, judgement liens, mechanic liens, etc.

STATUTORY YEAR A year composed of twelve months, each with thirty (30) days, for a total of 360 days in a statutory year. Also known as a banker’s year. Also see Calendar Year.

STEERING The illegal practice of directing members of minority groups to, or away from, certain areas or neighborhoods; channeling. See Fair Housing.

SUBAGENT An agent employed to act for another agent in performing functions undertaken for a principal. The subagent owes the same duties and responsibilities to the principal as the principal’s agent. Correspondingly, the subagent can create the same liabilities for the agent and principal that the agent can create for the principal herself.

SUBJECT TO MORTGAGE The buyer of an already mortgaged property makes the payments, but does not take personal responsibility for the loan. Should the mortgage be foreclosed and the property sold for a lesser amount than is owed, the grantee-buyer is not personally liable for the deficiency, but the grantor-seller is. Also see Assumption of Mortgage.

SUBPOENA A legal process ordering a witness to appear and give testimony or to present documents under penalty of law.

SUBSTITUTE OF TRUSTEE A document which is recorded to change the trustee under the deed of trust.

SUBSTITUTION, PRINCIPLE OF The principle which states that a buyer will pay no more for a property than the cost of an equally desirable alternative property.

SUIT FOR SPECIFIC PERFORMANCE A legal action brought by either a buyer or a seller to enforce performance of the terms of a contract.

TAX LIEN Lien for nonpayment of taxes.

TAX SALE Public sale of property at auction by governmental authority, after a period of nonpayment of property taxes.

TENANCY BY THE ENTIRETY A form of ownership by husband and wife whereby each owns the entire property. In event of death of one, the survivor owns the property without probate.

TENANCY IN COMMON A type of ownership in which two or more people have an undivided interest in property, without the right of survivorship. Upon death of one of the owners, his/her interest passes to his/her heirs or devises. Also see Joint Tenancy.

TENEMENT Everything that may be occupied under a lease by a tenant.

TERM The actual life of a mortgage, at the end of which the mortgage becomes due and payable unless the lender renews the mortgage.

TIME IS OF THE ESSENCE A clause, which if included in a contract, makes failure to perform by a specified date a material breach or violation of the contract.

TIMESHARE An arrangement under which a purchaser receives an interest in real property and the right to use an accommodation or amenities, or both, for a specified period and on a recurring basis. Used primarily for selling vacation properties.

TITLE Often used interchangeably with the word ownership. It indicates the accumulation of all rights in property by the owner and others.

TITLE COMPANY A company that provides title insurance policies. In Texas title companies also act as escrow agents, conduct title searches and hold closings.

TITLE INSURANCE An insurance policy which protects the insured (purchaser and lender) against loss arising from defects in title.

TITLE SEARCH Checks all the records relating to the property to determine whether the seller can sell the property, and can do so free of liens.

TITLE THEORY STATE The system in which the lender has legal title to the mortgaged property and the borrower has equitable title. Also see Lien Theory State.

TORRENS SYSTEM A system of land registration in which clear title is established with a governmental authority, which issues title certificates to owners.

TOWNHOUSE A dwelling unit usually with two or three floors, and shared walls. It can be individually owned, a condominium, a cooperative, or rental property.

TRANSACTION BROKER A broker who acts as a Transaction Broker in a transaction does not represent either party. He may not do anything that would give any party to the transaction an advantage over any other party. Extremely limited in services he can offer to either party. Also know as Facilitator, Intermediary, Mediator, or Non-Agent. Caution: This form of agency offers a reduced level of service and should never be considered unless you are very knowledgeable about real estate. Also see Dual Agency, Non-Agent and Exclusive Agency.

TRANSACTION FEE A fee which may be charged each time you draw on a home equity credit line.

TRUSTEE A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.

VA The Veterans Administration, a federal agency which guarantees loans made to qualified veterans on approved property.

VAR A measurement of length of 33 1/3 inches.

VARIABLE RATE An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

VENDEE Purchaser.

VENDOR Seller.

VOID Having no legal force or effect; legally invalid.

VOIDABLE A contract which appears valid and enforceable on the surface, but may be declared invalid by one of the parties, such as a contract entered into by a minor.

WAIVER The intentional or voluntary relinquishment of a known claim or right.

WRAP (WRAP AROUND LOAN) A technique which permits an existing loan to be refinanced at an interest rate between the original loan rate and the currently prevailing market rate.

WRIT OF EXECUTION A court order which authorizes and directs the proper officer of the court (usually the sheriff) to carry into effect the judgement or decree of the court.

ZERO LOT LINE A term generally used to describe the positioning of a structure on a lot so that one side rests directly on the lot’s boundary line (no set back). Where allowed by zoning and/or deed restrictions, it is used for "garden homes".

ZONING Exercise of police power of city in regulating and controlling the character or use of property.