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FAQ | Glossary

ACQUISITION COSTS - Costs of acquiring property other than purchase price: escrow fees, title insurance, lenders fees, etc.

ACRE - A measure, usually of land, equal to 160 sq. rods (43,560 sq ft.) in any shape.

ADDENDUM - Something added. A list or other material added to a document, letter, contractual agreement, escrow instructions, etc. (See also: Amendment).

ADJUSTED GROSS INCOME - Gross income of a building if fully rented, less an allowance for estimated vacancies.

ADVERSE LAND USE - A use which causes surrounding property to lose value, such as an industrial development in a residential area.

ADVERSE POSSESSION - A method of acquiring title by possession under certain conditions. Generally, possession must be actual, under claim of right, open, continuous, notorious, exclusive, and hostile (knowingly against the rights of the owner). Exact time (years) of possession and specific requirements (such as payment of property taxes) vary with the statutes of each state.

AGENCY - Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the latter. Agency involving real property should be in writing, such as listings, trusts, powers of attorney, etc.

AIR RIGHTS - The right to the use of the air space above property without the right to use the surface of the property. However, air rights may restrict surface rights, especially height of improvements.

A.L.T.A. (AMERICAN LAND TITLE ASSOCIATION) - An organization composed of title insurance companies, which has adopted certain insurance policy forms to standardize coverage on a national basis.

AMENDMENT - A change, either to correct an error or to alter a part of an agreement without changing the principal idea or essence.

AMORTIZATION - Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments.

ANCHOR TENANT - The most reliable, and usually the largest, tenant in a shopping center. The strength of the anchor tenant greatly effects the availability of financing for the shopping center. The term may also be used to describe a tenant in an office building, industrial park, etc.

ANNUAL PERCENTAGE RATE (A.P.R.) - The yearly interest percentage of a loan, as expressed by the actual rate of interest paid. For example: 6% add-on interest would be much more than 6% simple interest, even though both would say 6%. The A.P.R. is disclosed as a requirement of federal truth in lending statues.

ANNUM - Year.

APPRAISAL - An opinion of value based upon a factual analysis. Legally, an estimation of value by two disinterested persons of suitable qualifications.

APPRAISED VALUE - An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.

ARBITRATION CLAUSE - A clause in a lease calling for the decision of a third party (arbiter) regarding disputes over future rents based on negotiation. Also used in construction contracts, disputes between brokers, etc.

ARM'S LENGTH - Legal slang meaning that there existed no special relationship between the parties involved in any matter which would taint the result.

ARREARS - (1) Payment made after it is due is in arrears. (2) Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance, as is rent. Example: A rental payment made July 1 pays the rent to August 1. An interest payment made July 1 pays the interest to July 1.

"AS IS" CONDITION - Premises accepted by a buyer or tenant in the condition existing at the time of the sale or lease, including all physical defects.

ASSEMBLAGE - The acquisition of contiguous properties into one ownership for a specific use.

ASSESS  - To fix a value; to appraise. Most commonly used in connection with taxes.

ASSETS - Everything owned by a person or corporation which can be used for the payment of debts.

ASSIGNMENT OF LEASE - The transfer by a lessee to a third party of the exact interest of said lessee. Differs and should not be confused with sublease (see which). A lease may legally contain certain restrictions of assignment and/or subleasing.

AVERAGE DAILY TRAFFIC - The number of vehicles passing a given point in one day. Usually obtained by finding the number for several days and averaging.

BASE RENT - A specific amount used as a minimum rent in a lease which uses a percentage or overage for additional rent.

BASE YEAR - The year upon which a direct expense escalation of rent is based. [See also: Escalation Clause (3)].

BENCH MARK - Surveying mark made in some object which is permanently fixed in the ground, showing the height of that point in relation to sea level. Used in topographic surveys and tidal observations.

BID - (1) An offer, usually in competition with others, such as at auction. A builder may bid for the right to do construction (especially for a government contract). (2) Used in some states to describe an offer to purchase real estate.

BOUNDARY - A separation, natural or artificial, which marks the division of two contiguous properties.

BUILD TO SUIT - A method of leasing property whereby the lessor builds to suit the tenant (according to the tenant's specifications). The cost of construction is figured into the rental amount of the lease, which is usually for a long term.

CAPITALIZATION - Determining a present value of income property by taking the annual net income (either known or estimated) and discounting by using a rate of return commonly acceptable to buyers of similar properties. For example: Net income of a property is $10,000 per year. Capitalizing at a rate of 10%, the property would be worth $100,000.

CAPITALIZATION RATE - The percentage (acceptable to an average buyer) used to determine the value of income property through capitalization.

CASH FLOW - In investment property, the actual cash the investor will receive after deduction of operating expenses and debt service (loan payment) from his gross income.

CC&R'S (COVENANTS, CONDITIONS, AND RESTRICTIONS) - A term used in some areas to describe the restrictive limitations which may be placed on the property. In other areas, simply called restrictions.

CHAIN OF TITLE - The chronological order of conveyancing of a parcel of land, from the original owner (usually the government) to the present owner.

CLOUD ON TITLE - An invalid encumbrance on real property, which, if valid, would affect the rights of the owner. For example: A sells lot 1, tract 1, to B. The deed is mistakenly drawn to read lot 2, tract 1. A cloud is created on lot 2 by the recording of the erroneous deed. The cloud may be removed by quitclaim deed, or, if necessary, by court action.

COMMISSION - An amount, usually as a percentage, paid to an agent (real estate broker) as compensation for his services. The amount to a real estate broker is generally a percentage of the sale price or total rental.

COMMITMENT - (1) Title insurance term for the preliminary report issued before the actual policy. Said report shows the condition of title and the steps necessary to complete the transfer of title as contemplated by buyer and seller. (2) A written promise to make or insure a loan for a specified amount and on specified terms.

COMMON AREA - The area owned in common by the owners of condominiums or planned unit development homes in a subdivision.

COMMUNITY SHOPPING CENTER - An intermediate size shopping center. May contain a small department store and coordinated small shops. Larger than a neighborhood center and smaller than a regional center.

CONCRETE TILT-UP - An inexpensive method of constructing walls by pouring concrete into forms flat on the ground, allowing to harden, then raising the forms by a crane or block and tackle to a vertical position, thereby forming a wall.

CONDEMNATION - The taking of private property for public use without the consent of the owner, but only upon payment of just compensation.

CONTRACT - An agreement between two or more persons or entities which creates or modifies a legal relationship. Generally based upon offer and acceptance.

DEBT SERVICE - The amount of financing (mortgages or trust deeds) on a property.

DEED - Actually, any one of many conveyancing or financing instruments, but generally a conveyancing instrument, given to pass fee title to property upon sale.

DEED OF TRUST - An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), and reconveyed upon payment in full.

DEFEASANCE - A deed, made collaterally with a conveyancing deed, which imposes conditions which, if met, will defeat the conveyance.

DEFERRED MAINTENANCE - Repairs necessary to put a property in good condition. A concern of a purchaser. An owner may have an account for such maintenance.

DEMOGRAPHICS - Statistics. Commonly refers to statistical information required by certain businesses (especially chain stores) regarding a possible new location.

DISCOUNTED CASH FLOW - The present value of future cash flow, determined by a given discount rate.

DUAL AGENCY - The representation of opposing principals (buyer and seller) at the same time. In brokerage many states get around this by saying that the agent aids the buyer but is the agent of the seller only. A problem arises if both buyer and seller pay the broker. The full disclosure must be made. An escrow agent is the agent of buyer and usually paid by both. This is why an escrow agent must be neutral.

EASEMENT - A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another. It is either for the benefit of land (appurtenant), such as right to cross A to get to B, or "in gross", such as a public utility easement.

EASEMENT APPURTENANT - An easement for the benefit of another parcel of land, such as the right to cross parcel A to reach B. The easement will pass with the transfer of property to a new owner.

EASEMENT IN GROSS - An easement for the benefit of a person or company, rather than for the benefit of another parcel of land. Commonly, such easements as for public utilities.

EMINENT DOMAIN - A governmental right to acquire private property for public use by condemnation, and the payment of just compensation.

ENCROACHMENT - Generally, construction onto the property of another, as of a wall, fence, building, etc.

ENCUMBRANCE, INCUMBRANCE - A claim, lien, charge, or liability attached to and binding real property. Any right to, or interest in, land which may exist in one other than the owner, but which will not prevent the transfer of fee title.

ENVIRONMENTAL IMPACT REPORT - A report of the probable effect of a development on the surrounding area (environment). The report is prepared by an independent company to federal, state, or local guide lines.

EQUITY - (1) A legal doctrine based on fairness, rather than strict interpretation of the letter of the law. (2) The market value of real property, less the amount of existing liens.

ERRORS AND OMISSIONS INSURANCE - Insurance covering losses caused by errors and omissions of professions other than medicine. Used by banks, real estate companies, escrow companies, etc.

ESCALATION CLAUSE - A clause in a lease providing for an increased rental at a future time. May be accomplished by several types of clauses, such as (1) Fixed increase - A clause which calls for a definite, periodic rental increase. (2) Cost of living - A clause which ties the rent to a government cost of living index, with periodic adjustments as the index changes. (3) Direct expense - The rent is adjusted according to the changes in the expenses of the property paid by the lessor, such as tax increases, increased maintenance costs, etc.

ESCROW - Delivery of a deed by a grantor to a third party for delivery to the grantee upon the happening of a contingent event. Modernly, in some states, all instruments necessary to the sale (including funds) are delivered to a third (neutral) party, with instructions as to their use.

ESCROW INSTRUCTIONS - Instructions which are signed by both buyer and seller, and which enable an escrow agent to carry out the procedures necessary to transfer real property, a business, or other assignable interest.

ESCROW OFFICER - An escrow agent. In some states, one who has, through experience and education, gained a certain degree of expertise in escrow matters.

ESTOPPEL - The prevention of one from asserting a legal right because of prior actions inconsistent with the assertion.

ET AL - And others.

ETHICS - With regard to professions, a code of professional standards, containing aspects of fairness and duty to the profession and the general public.

EXCESS CONDEMNATION - Taking, by right of eminent domain, more property than actually necessary for the intended purpose. This happens frequently, the excess property being sold at auction after completion of the property.

EXCHANGE - A reciprocal transfer of real property which has certain tax advantages over a sale. Definite procedures must be followed in order to qualify the transfer as an exchange.

EXCLUSIVE LISTING - A written contract between a property owner and a real estate broker, whereby the owner promises to pay a fee or commission to the broker if certain real property of the owner is sold during a stated period, regardless of whether the broker is or is not the cause of the sale. The broker promises to put forth his or her best efforts to sell the property, and may make specific promises as to advertising or other promotion in certain instances.

EXTENSION - A continuing under the same conditions, as opposed to a renewal, which implies new terms or conditions.

FACADE - The main face or front elevation of a building.

FACE VALUE - The value of notes, mortgages, etc., as stated on the face of the instrument, and not considering any discounting.

FAIR CREDIT REPORTING ACT - A federal law giving one the right to see his or her credit report so that errors may be corrected. A lender refusing credit based on a credit report must inform the buyer which company issued the report. The buyer may see the report without charge if refused credit, or for a charge if just curious.

FAIR MARKET VALUE - Price that probably would be negotiated between a willing seller and willing buyer in a reasonable time. Usually arrived at by comparable sales in the area.

FALSE ADVERTISING - In most instances when in connection with real estate, newspaper classified advertising which misrepresents the property, price, or terms. A broker may have his or her license suspended or revoked if the offense is prolonged or deliberately fraudulent.

FEASIBILITY SURVEY - A study of an area before construction of a project, to determine the probable financial success of the project.

FEE SIMPLE - An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. Commonly, a synonym for ownership.

FIDUCIARY - One acting in a relationship of trust, regarding financial transactions.

FINANCIAL STATEMENT - An accounting statement showing assets and liabilities of a person or company. Used generally for large loans or other instances when the credit report (history of payment of debts) in itself is not sufficient.

FIRE WALL - A wall to divide parts of a building, and prevent the spread of fire. Should rise from basement level to a minimum of three feet above roof level, and all openings through the wall should be protected by fireproof doors.

FIRST REFUSAL RIGHT - A right, usually given by an owner to a lessee, which gives the lessee a first chance to buy the property if the owner decides to sell. The owner must have a legitimate offer which the lessee can match or refuse. If the lessee refuses, the property can then be sold to the offeror.

FIXED ASSETS - Permanent assets, necessary for the operation of a business, such as buildings, heavy machinery, etc.

FIXTURES - Personal property which is attached to real property, and is legally treated as real property while it is so attached. Fixtures, not specifically excepted from an accepted offer to purchase, pass with the real estate.

FLOODPLANE - The extent of the land adjoining a river, which, because of its level topography, would flood if the river overflowed its banks.

FLOOR LOAD - The live load in pounds per square foot, which a floor is capable of holding safely.

FORCE MAJEURE (FRENCH) - A force which cannot be resisted. In other words, something beyond the control of the parties involved. Includes Acts of God and acts of man (riots, strikes, arson, etc.). Used primarily in insurance but may be extended to any type of performance contract, such as construction.

FORECLOSURE - A proceeding in or out of court, to extinguish all rights, title, and interest, of the owner(s) of property in order to sell the property to satisfy a lien against it.

FORFEITURE - The taking of an individual's property by a government because the individual has committed a crime. In the United States, private property cannot be taken, except by eminent domain upon payment of just compensation, or for nonpayment of taxes.

FRANCHISE - (1) A statutory right which could not be exercised in the absence of the statue, such as the statutes enabling persons to form a corporation. Since a corporation is created by the statute, it could not be formed except by the grant of the legislature. (2) A combination of individual ownership and central control. One may own a fast food restaurant, hotel, hardware store, etc., yet use the name of a national company. Each individual owner pays for the name use, advertising, and may be required to make certain purchases (napkins, buns, etc.) from the national company. The individual benefits from the name and advertising. The real estate brokerage business was slow to use the franchise method, but now has many companies operating in this manner.

FREE AND CLEAR - Real property against which there are no liens, especially voluntary liens (mortgages).

FREEHOLD - An estate, at least of duration of a lifetime, or of fee.

FULL DISCLOSURE - In real estate, revealing all the known facts which may affect the decision of a buyer or tenant. A broker must give to a potential buyer the facts of his new development (are there adequate school facilities?; sewer facilities?; an airport nearby?; etc.). A broker cannot charge a commission to buyer and seller unless both know (disclosure) and agree.

FURNITURE AND FIXTURES - An entry in an accounting statement, referring to those items considered depreciable, as business fixtures and furniture, rather than real property.

GAIN - Profit. Important for tax purposes when realized from the sale of a capital asset.

GAP COMMITMENT - A commitment to loan the difference between the floor amount of a take out loan and the full amount. The commitment is issued to enable a construction lender to loan the full amount of a take out commitment, rather than only the floor amount.

GARDEN APARTMENTS - An apartment development consisting of two or more structures, surrounded by an abundance of lawns, plants, flowers, etc., giving a garden-like atmosphere.

GENERAL INDEX (G.I.) - A title insurance company term for the books used to find liens against individuals which may effect real property, but which are not recorded against the property being insured, such as liens against a buyer.

GENERAL LIEN - (1) A lien such as a tax lien or judgment lien which attaches to all property of the debtor rather than the lien of, for example, a trust deed, which attaches only to specific property. (2) The right of a creditor to hold personal property of a debtor for payment of a debt not associated with the property being held. Must be done under an agreement since against general precepts of law.

GENERAL PARTNER - A member of a partnership who has authority to bind the partnership and shares in the profits and losses. A partnership must have at least one general partner and may have more, as well as limited partners.

GENERAL PARTNERSHIP - A partnership made up of general partners, without special (limited) partners.

GOOD FAITH - Something done with good intentions without knowledge of fraudulent circumstances, or reason to inquire further.

GOOD WILL - A salable asset of a business, based on its reputation rather than its physical assets.

GRANDFATHER CLAUSE - The clause in a law permitting the continuation of a use, business, etc., which, when established, was permissible but, because of a change in the law, is now not permissible.

GROSS ACRE - An acre (43,560 sq. ft.). Distinguished from a net (usable) acre.

GROSS AREA - In building measurement, the outside dimensions determine the gross area, irrespective of the area inside actually usable or rentable.

GROSS INCOME - The scheduled (total) income, either actual or estimated, derived from a business or property.

GROSS LEASE - A lease which obligates the lessor to pay all or part of the expenses of the leased property, such as taxes, insurance, maintenance, utilities, etc.

GROSS RENT MULTIPLIER - A method of obtaining an approximate value of income property by using gross yearly rents. Commonly used in advertising. Example: An apartment building is advertised at 7X gross. If gross yearly rent is $10,000, the asking price is $70,000. The 7 represents the "going rate" for this type of building.

GROUND LEASE - A lease of vacant land, or land exclusive of any buildings on it. Usually a net lease.

GUARANTOR - One who makes a guaranty.

HARD MONEY MORTGAGE - A mortgage given in return for cash, rather than to secure a portion of the purchase price, as with a purchase money mortgage.

HAZARD INSURANCE - Real estate insurance protecting against loss caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

HEAVY INDUSTRY - Any industry designated "heavy industry" under a zoning ordinance. Usually connected with some type of pollution, such as air, water, or noise pollution.

HEIGHT DENSITY - A zoning term referring to the regulation of maximum building heights for structures in given areas.

HOLDING PERIOD - The time period used by the IRS to determine a long or short term capital gain. The period during which the taxpayer owns the capital asset.

IMPLIED AGENCY - An agency which is not expressly set out but must be deduced from the circumstances and other facts. It is an actual agency as opposed to an ostensible agency or agency by estoppel (see which).

INCOME APPROACH - An appraisal method to determine the value of rental property by use of the estimated net income over the life of the structure, discounted to determine its present value.

INCOME PROPERTY - Property which produces income, usually from rental. May also include any property not entirely owner occupied.

INCUMBRANCE (ENCUMBRANCE) - A claim, lien, charge, or liability attached to and binding real property. Any right to, or interest in, land which may exist in one other than the owner, but which will not prevent the transfer of fee title.

INDEPENDENT CONTRACTOR - The term is most important as used to describe the relationship of broker and salesperson. The salesperson is either an employee or independent contractor. If an employee, the broker must withhold income tax and pay social security, provide workman's compensation when applicable, and may be liable for some negligent acts of the salesperson while on the job, such as automobile accidents. The broker avoids all of these responsibilities if the salesperson is an independent contractor. The greater the control over the salesperson, the more likely the salesperson will be considered an employee. Some examples of this control would be required office hours or attendance at regularly scheduled meetings, as well as payment or reimbursement by the broker for license fees, auto expenses, etc.

INSTALLMENT SALE - A tax term used to describe a sale which is usually accomplished by use of a land contract. If the seller receives less than 30% of the sale price in the year of the sale (not including interest), the tax on the profit (gain) from the sale may be paid over the installment period, provided the 30% rule is followed each year.

INSTITUTIONAL LENDERS - Banks, savings and loan associations, and other businesses which make loans to the public in the ordinary course of business, rather than individuals, or companies which may make loans to employees.

INTANGIBLE PROPERTY - Property which has value but cannot be physically touched, such as a patent, the goodwill of a business, etc.

INVESTMENT PROPERTY - Generally, any property purchased for the primary purpose of profit. The profit may be from income or from resale.

INVESTMENT TRUST - A company which sells its own stock and invests the money in stocks, real estate, or other investments.

INVESTMENT YIELD - The gain from an investment in real property, including both income and resale. Expressed as a percentage of the amount invested.

JUST COMPENSATION - In condemnation the amount paid to the property owner. The theory is that in order to be "just", the property owner should be no richer or poorer than before the taking.

LEASE - An agreement by which an owner of real property (lessor) gives the right of possession to another (lessee), for a specified period of time (term) and for a specified consideration (rent).

LEASEHOLD IMPROVEMENTS - Improvements made by the lessee. The term is used in condemnation proceedings to determine the portion of the award to which the lessee is entitled.

LEASE WITH OPTION TO PURCHASE - A lease under which the lessee has the right to purchase the property. The price and terms of the purchase must be set forth for the option to be valid. The option may run for the length of the lease or only for a portion of the lease period.

LEGAL DESCRIPTION - A method of geographically identifying a parcel of land, which is acceptable in the court of law.

LESSEE - The party to whom a lease (the right to possession) is given in return for the consideration (rent).

LESSOR - The party (usually the owner) who gives the lease (right to possession) in return for a consideration (rent).

LETTER OF INTENT - A formal method of stating that a prospective developer, buyer, or lessee, is interested in property. Not an offer and creates no obligation. However, a builder who wants to build an office building, for example, may influence a lender by showing letters of intent from major prospective tenants.

LEVERAGE - The use of financing to allow a small amount of cash to purchase a large property investment.

LIEN - An encumbrance against property for money, either voluntary or involuntary. All liens are encumbrances but all encumbrances are not liens.

LIKE IN KIND PROPERTY - A tax term used in exchanges. Property may be exchanged for like in kind property and the tax postponed. The term does not refer to the physical similarity of the properties but the purpose and intent (investment) of the taxpayer.

MARKET VALUE - The highest price a willing buyer would pay and a willing seller accept, both being fully informed, and the property exposed for the reasonable period of time. The market value may be different from the price a property can actually be sold for a given time (market price).

MISREPRESENTATION - A statement or conduct by a person which represents to another a fact which is not true. A seller, broker, or builder may have a duty to disclose certain defects in property to a buyer or tenant. Failure to disclose is also misrepresentation. The misrepresentation may be deliberate (known to be wrong), negligent (should have known), or innocent (reasonably believed to be true). Depending on the facts and extent of misrepresentation, there may be a suit for damages, recision of a contract, punitive action against the broker (loss of license), etc.

MORATORIUM - A period of suspension of legal rights or remedies. In real estate terms, most commonly used by governmental agencies (usually local) to suspend construction in certain areas until studies are completed to determine the best use for the land involved.

MORTGAGE-BACKED SECURITIES - Securities (certificates) which represent an interest in a pool of mortgages. The principal and interest is collected by the securities seller and distributed to the holders of the securities, minus a fee for administering the pool. Since the distributed funds simply pass through the hands of the administrator to the investors, the term "pass-through certificates" is also used.