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 For example, a law could be repealed (abrogated) by legislative action.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 cont