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Real Estate Vocab
All Real Estate Vocabulary
| Term | Definition |
|---|---|
| abstract of title | an abbreviated history of a property, including information on any transfers, grants, wills, conveyances, liens, and encumbrances |
| acceleration clause | a clause in a security instrument (mortgage/deed of trust) which makes the entire loan amount due immediately upon default |
| accession | the right to all that one's own property produces, including that which is added, either naturally or by human action, to the property already owned |
| accretion | the process that results in the gradual increase in land area through deposits of soil by natural forces |
| acre | a measurement of land equal to 43,560 square feet |
| actual eviction | the legal process by which someone is expelled from a property and prevented from re-entry |
| ad valorem taxes | a tax calculated according to the assessed value of a piece of real estate |
| adjustable-rate mortgage (ARM) | a mortgage with an interest rate that can be adjusted based on fluctuations in the cost of money |
| adverse possession | involuntary transfer of title from an owner who does not use or inspect their land for a number of years to another person who has some claim to the land and takes possession |
| affiliate broker | a licensee operating under the sponsorship, authority, and guidance of (and on behalf of) their principal broker in a brokerage environment |
| agent | an individual with authority to act on behalf of another; a state license is required to operate as an agent in real estate |
| alienation | the transfer of ownership (title) to real property; may be voluntary or involuntary L |
| alienation clause (due on sale) | a clause in the mortgage contract that triggers the right of the lender to demand payment in full of the loan upon the sale or conveyance of the property; aka, due on sale L1 |
| Americans with Disabilities Act (ADA) | a federal civil rights law passed in 1990 which prohibits discrimination against and creates standards for people with disabilities |
| amortization | the process of paying off a debt/mortgage in regular installments based on a fixed payment schedule |
| annual percentage rate (APR) | how much the borrower will pay in interest over the course of a year |
| antitrust laws | laws designed at preventing unfair or anti-competitive practices such as price fixing, collusion, monopolies, etc. |
| appraisal | an official valuation given to a property by a licensed appraiser |
| appraiser | an individual who is trained and licensed to perform appraisals, which estimate the value of real property |
| appreciation | the increase in value of a property |
| arrears | payment that occurs at the end of a period to compensate for charges accrued during that time |
| asbestos | a naturally occurring mineral fiber that is commonly used in insulation but if airborne or inhaled, can cause severe respiratory health issues |
| assemblage | the combining of multiple contiguous pieces of real property into a single tract of land, often resulting in an increase in value |
| assessed value | the value placed on a property by a governmental unit for use in calculating property taxes |
| assessment | the determination of the value of a property for tax purposes |
| assignment | the transference of rights and obligations in a contract from one party to another |
| assumption | the process of transferring the obligation of the mortgagor to another party who takes over the responsibility to pay the note |
| attachments | physical objects permanently attached to land (can be human-made or natural) |
| avulsion | the sudden loss of land by flood or when a stream or river changes course |
| balloon payment | a payment at the end of a loan period which includes the total outstanding balance of the loan |
| bargain and sale deed | a deed without any covenants or warranties against encumbrances that only implies the grantor has possession of the property and holds the right to convey title |
| baseline | a parallel used in reference to a meridian to identify ranges, tiers, and townships in the rectangular survey method of land description |
| basis | the cost of purchasing a property plus the cost of any improvements, minus the amount of depreciation |
| benchmark | permanent marker of known location and elevation above sea level as established by a government survey team (such as the USGS) |
| beneficiary | the recipient of advantage or gain from an act or instrument such as a trust, will, or insurance policy |
| bilateral contract | a contract wherein both parties are obligated to perform in an exchange of promises |
| blind ad | an ad in which a license holder attempts to promote or solicit real estate activity without disclosing the fact that they are a license holder |
| block and lot system | a system of legal land description that identifies a piece of platted property by referring to the section, lot, and block numbers in a subdivision; aka, recorded plat method |
| blockbusting | the illegal act of causing owners to sell their homes by creating fear that members of a protected class are moving into the area |
| branch office | any office where business is conducted other than the principal office |
| bridge loan | short-term loan used to transition from one loan to another; can connect borrower from construction loan to eventual mortgage loan (or current home to their new home) |
| broker | a licensee who holds a broker license and who engages in an activity enumerated in the license law for a commission or other valuable consideration |
| brownfield | real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant |
| building code | a set of regulations pertaining to building design, materials, safety, sanitation, and structure |
| bundle of rights | ownership of land with all of the legal rights of possession, control, quiet enjoyment, exclusion, transfer, and encumber |
| buydown | a loan for which more than one collateral property acts as security |
| buyer representation agreement | an agency agreement between a broker and a buyer wherein the broker represents the buyer in their effort to purchase or lease a property |
| capital expenditure | an expense paid in order to improve a property |
| capital gain | the increase in the value of an asset from the time it was purchased to the time it was sold |
| capital improvement | upgrades or improvements to a property that fall outside the scope of normal repair and maintenance, usually with the intention of increasing value |
| capitalization rate (cap rate) | a rate of return that calculates the percentage of expected annual income earned over a property's value; the present value for expected future income earned |
| cash flow | measures the amount of cash flowing in and out of a business |
| certificate of occupancy (CO) | legal document from a local authority that authorizes a building to be occupied; issued after the building has passed all required inspections |
| certificate of title | a document prepared by a title attorney detailing the chain of title and offering an opinion on the marketability of the seller's title |
| chain of title | the entire chronological record of a property’s ownership |
| chattel | a commonly used term for personal property in the world of real estate |
| Civil Rights Act of 1866 | under this Act, it is, without exception, illegal to discriminate in housing on the basis of race or color; became enforceable after Jones v. C Mayer (1968) |
| Closing Disclosure | a form used to itemize services and fees charged to the borrower by the lender when applying for a real estate loan; aka, closing statement |
| cloud | any claim to or encumbrance on the title to a property that affects transferability |
| collateral | property liened by a lender in order to assure payment of the loan and protect the lender's investment |
| collusion | an unlawful agreement between competitors to monopolize a market, disadvantage other competitors, or otherwise undertake activities in violation of fair trade laws |
| color of title | a title transfer that is defective in a way that is unknown to the new owner |
| commingling | the act of mixing personal funds with a client’s funds |
| common elements | portions of a shared ownership property not controlled by any one owner or tenant; examples include parking lots, lobbies, fitness centers, and elevators |
| community property | a system of property co-ownership, most commonly applied to married couples, which describes what is joint property and what is individual property |
| comparable (comp) | any property which has sold and is similar enough in features, location, and proximity in time to inform the value of a subject property |
| comparative market analysis (CMA) | a report that compares the prices of recently sold or listed homes ("comparables") in order to estimate the market value of a similar property (the "subject property") located in the same area |
| Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) | a federal law that provides broad authority to respond directly to releases or threatened releases of hazardous substances that may endanger public health or the environment; aka, the Superfund |
| condominium | property where each owner has a separate interest in their own unit and undivided interest in the common areas |
| consideration | something of value exchanged by the parties as evidence of agreement to the terms of a contract |
| constructive eviction | the termination of a lease in circumstances in which the landlord defaults and acts, or fails to act, in such a way that the premises become unusable |
| contingency | a provision within a contract that makes performance conditional upon the occurrence of a stated event |
| contract | a legally enforceable and binding agreement between parties wherein a promise to do or not do something is given in exchange for valuable consideration |
| contract for deed | a sales contract in which the buyer pays the seller for the property in multiple installments for a predetermined length of time, and the seller holds the title until the property has been fully paid for; aka, installment sales contract or land contract |
| contribution | the amount of market value added to a property by an addition or improvement to the property; not necessarily the same as the cost of the improvement |
| conventional loan | any loan that is neither insured by the government nor guaranteed by the government |
| conversion | the illegal act of appropriating trust account funds for payment of an agency's operating expenses |
| conveyance | an instrument that transfers a grantor’s interest in real property |
| cooperating brokerage | an agency arrangement in which two brokerages collaborate to achieve a real estate transaction for a specific piece of property |
| corrective maintenance | the repair of equipment after it has broken |
| correlation | the process in which an appraiser weighs the relevance of each approach to value for the subject property in order to come up with a final value estimate |
| cost approach | a method of estimating the value of a property by determining how much it would cost to replace the building or other improvements, minus the cost of depreciation, plus the value of the land itself |
| counteroffer | a contract proposal submitted in response to a previous offer, modifying the terms of the original offer; considered a rejection of the original offer |
| covenant of seisin | a protection in which the grantor states they hold the title conveyed in the deed |
| covenants, conditions, and restrictions (CCRs) | private restrictions similar to deed restrictions that dictate what the homeowner may do with their property |
| credit report | contains information regarding an individual's credit history (loan payments, etc. C) as well as the present credit status of all open credit accounts |
| credits | a sum of money that is received |
| customer | an individual with whom a license holder has no agency relationship nor fiduciary duties but to whom fairness and honesty are still required |
| datum | a designated base reference point to elevation used by surveyors to determine the elevations of land or property in an area |
| debits | a sum of money that is owed |
| debt service | amount of money spent on an investment property’s loans; includes both the portion spent on the principal and the interest of a loan |
| debt service coverage ratio | used to evaluate income-producing properties; is calculated by dividing the net operating income (cash flow after all expenses and debts are paid) by total debt service (current debt obligations) |
| debt-to-income ratio | used to measure a borrower's creditworthiness; calculated by dividing all debt (monthly payment + other debt) by monthly income |
| deed restriction | a provision in a deed that restricts the land use of a property |
| defeasance | a clause in a security document that indicates that the loan has been satisfied and that either the title will be conveyed to the borrower or the lien on the borrower's title will be removed |
| demise | transfer by lease |
| density | the number of people living in a square mile (or kilometer) of space |
| depreciation | a reduction in value for any reason |
| designated agent | the only licensee in a brokerage who has been designated by the principal broker to act as agent of a party in a transaction; no other licensees in the brokerage have that agency relationship |
| devise | the transfer of real or personal property through a will |
| disability | a physical or mental impairment that substantially limits one or more major life activities, the record of such impairment, or being regarded as having such an impairment |
| discrimination | the unjust or prejudicial treatment of different categories of people, especially on the grounds of race, sex, religion, disability, or other classifications |
| disintermediation | removes the middle man, or the intermediary, from the transaction |
| doctrine of laches | a legal principle used to bar dated claims; used in conjunction with an unreasonable delay or negligence in asserting or defending one’s rights |
| Dodd-Frank Act | a law passed in response to the subprime mortgage crisis that created the Consumer Finance Protection Bureau |
| due diligence | a legal term used to describe the reasonable steps a person must take in order to satisfy a legal requirement |
| earnest money | funds paid to confirm or commit to a contract |
| easement | an interest in, or a right to use, another individual’s land or property, generally for a specific, limited purpose |
| easement by condemnation | an easement in which private property is taken for public use via eminent domain |
| easement in gross | an easement that applies to the person or entity, not the specific land |
| effective gross income (EGI) | the total annual income that a property produces; does not account for any expenses |
| emblements | crops (or the profit from crops) grown by a farmer that are considered personal property |
| eminent domain | the power of government to seize private property for public use; government must pay property owner just compensation for exercising power |
| encroachment | physical property that crosses the boundary into a neighboring landowner's property |
| encumbrance | non-possessory interest in a property that burdens the title |
| enforceability | possessing the essential elements necessary to be legally binding and obligate performance; used to describe the compelling nature of a valid contract |
| environmental assessment | a report prepared for a real estate holding that identifies potential or existing environmental contamination liabilities |
| Environmental Protection Agency (EPA) | the agency charged with enforcing federal environmental protection laws and taking other actions to protect the environment |
| Equal Credit Opportunity Act (ECOA) | a fair lending law that aims to bar discriminatory lending practices |
| equity | the portion of a property's total value owned outright by the holder to title |
| erosion | the gradual loss of land over time |
| escalation clause | a clause in a lease allowing payments to increase in relation to a specified factor or index |
| escheat | the legal doctrine by which the decedent’s property will pass to the state without their consent if that individual dies without a will, a surviving spouse, lineal descendants, or other known heirs |
| escrow | a process in which funds and/or financial documents are held by a disinterested third party on behalf of the other two parties in the real estate transaction until specific conditions are satisfied |
| estate at sufferance | a tenant’s occupancy of a property beyond their lease’s terms and without the landlord’s consent |
| estate at will | a tenant’s occupancy of a property with the landlord’s consent |
| estate for years | a lease with a specific starting and ending date; aka, tenancy for years |
| ethics | standards of conduct agreed upon and recognized by a particular group or culture |
| eviction | forced removal of a tenant due to a default under the terms of the lease |
| evidence of title | constructive or actual notice of real property ownership |
| exclusive agency | an agency arrangement in which one agent represents one party in a real estate transaction; the party may be either a seller or a buyer; aka, single agency |
| exclusive right to sell | a type of agreement in which the seller guarantees the named broker receives a commission if the property is sold, regardless of who brings the buyer |
| executory contract | a contract that has not yet been fully performed (both sides have not yet completed their obligations) |
| external obsolescence | loss of property value caused by negative forces outside the property which are beyond the control of the owner (unfavorable changes in the environment or market) |
| Fair Housing Act of 1968 | a federal law that prohibits discrimination in housing based upon race, color, religion, or national origin and was amended to include sex, disability, and familial status |
| familial status | under the Fair Housing Act, a protected class composed of families who have children under 18, pregnant women, and people in the process of obtaining legal custody of a child |
| Federal Deposit Insurance Corporation (FDIC) | independent agency that provides deposit insurance to depositors in U.S. banks |
| Federal Home Loan Mortgage Corporation (Freddie Mac) | a government-sponsored enterprise created in 1970 to further support the secondary mortgage market, and specifically, to support smaller thrift banks |
| Federal Housing Administration (FHA) | government agency charged with insuring mortgages |
| Federal National Mortgage Association (Fannie Mae) | the first government-sponsored enterprise, created in 1938, which buys and securitizes loans; specializes in buying loans from large, commercial banks |
| Federal Reserve System | centralized United States bank created to conduct monetary policy and stabilize the U.S. economy |
| fee simple defeasible | a property interest characterized by perpetual ownership on the condition that the property is used for a certain purpose or under specific conditions — ownership reverts back to the original owner if these stipulations are violated |
| fee simple estate | maximum ownership of real property; is of indefinite duration, freely transferable, and freely inheritable; aka, fee or fee simple absolute |
| FICO score | a credit scoring system created by the Fair Isaac Corporation |
| fiduciary | an individual upon whom is placed the highest levels of trust and confidence when acting on behalf of another |
| fiduciary duties | the full sum of obligations owed to the client in an agency relationship that ensures that the agent always acts in the best interest of the client |
| first substantive contact | the critical point at which agency disclosure is required by a license holder; generally occurs at the first face-to-face meeting with the customer and prior to the sharing of any confidential information |
| foreclosure | the legal process whereby a lender takes control of a property held by a borrower in default and sells it to recover the lender’s losses |
| fraud | wrongful or criminal deception intended to result in financial or personal gain |
| freehold estate | a form of ownership with an indeterminate length |
| functional obsolescence | loss of value because a property’s function or appearance has gone out of style or has been replaced by a more appealing or effective version |
| general agency | a form of agency relationship that authorizes an agent to manage all of a principal's affairs within certain specified areas; provides broader authority than that of special agency but less than that of universal agency |
| general lien | a lien for which the real estate AND personal property may be sold to satisfy the debt |
| general partnership | a business entity in which all co-owners actively share power, liability, responsibilities, and profit |
| general warranty deed | the transfer or claim of interest in the title free and clear of all liens and encumbrances to real property in public records per state law, aka, full covenant and warranty deed |
| goodwill | good consideration, such as love and affection, that can be exchanged for valuable consideration in a contract or agreement; the exchange of which is generally seen as a gift on the part of the party giving up the valuable consideration |
| Government National Mortgage Association (Ginnie Mae) | a government-owned entity created in 1968 to further support the secondary mortgage market; focuses on buying loans to help housing assistance and support programs |
| government survey system | a system of legal land description that uses the global lines of longitude and latitude to create a surveyed grid of meridians, baselines, townships, and ranges to describe a piece of land; aka, the rectangular survey system |
| graduated lease | a lease in which the rental rate increases over time in specific increments |
| grantee | the person who receives a conveyance of real property in a transaction |
| grantor | the person who conveys real property in a real estate transaction |
| gross lease | a lease in which the tenant will be responsible for the payment of a fixed monthly charge, while the landlord is responsible for paying all operating expenses; aka, full service lease |
| gross rent multiplier (GRM) | the ratio of the price of investment property to its annual rental income before considering expenses like taxes and insurance, etc. |
| ground lease | the lease of bare, undeveloped land; aka, land lease |
| habendum clause | a clause within a deed that clarifies the type and extent of interest conveyed by the granting clause |
| hazard insurance | insurance against loss or damage to real property improvements; often required by lenders |
| highest and best use | the use of a property which is legal, physically possible, financially viable, and produces the greatest yield |
| holographic will | a handwritten will created solely by the testator and not witnessed |
| home equity loan | a loan in which funds are borrowed using the homeowner’s equity for collateral; the funds can be used for any purpose |
| homestead laws | laws which protect a homeowner from loss of their principal residence from the claims of most creditors |
| illiquidity | the relative difficulty of converting an asset to cash without loss of value |
| implied agency | agency that is created by the actions, conduct, and words of either or both parties without ever being expressly requested |
| implied contract | a contract created by the actions of the parties rather than by express agreement |
| improvement | any non-natural structure built on or affixed to land |
| income capitalization approach | method of estimating the value of a property by applying a rate of return to the net income it produces |
| independent contractor | one who contracts to do work according to their own methods, and is responsible to their employer only as to the results of that work |
| informed consent | the principle that a client or customer must understand and agree to certain actions or agency relationships prior to implementation |
| instrument of conveyance | a tool that transfers a grantor’s interest in real property |
| interest rate | the percentage of the loan amount that the borrower must pay the lender each year |
| intermediation | the facilitation by a third party of a financial transaction between two parties |
| intestate | the name for conditions in which the owner of a property dies without having left a valid will |
| investment | the purchase of an asset with the intention of profiting from it in the future |
| involuntary alienation | transfer of title to property without the owner’s consent, usually carried out by operation of law |
| joint tenancy | co-ownership in which the parties have an equal and undivided interest in the property; includes the right of survivorship rather than inheritance |
| junior lien | a lien that has another (senior) lien superseding it in priority; aka, inferior lien |
| land | the surface of the earth, including all permanently attached natural features, extending downwards to the center of the earth and upwards to infinity |
| land-use control | regulations that specify how the owners of individual parcels of real estate in a given area may use property |
| latent defect | any structural defects that cannot be detected by ordinary inspection |
| law of agency | the body of laws affecting agency that have come about as result of custom and/or case law, as opposed to statutory law introduced at the state or federal level |
| laws of descent and distribution | a set of laws that sets out the process of passing an estate to heirs when the owner dies intestate |
| lead | a naturally occurring mineral that has been used in the manufacturing of paint and water pipes and is toxic to humans |
| lease | a contract in which one party conveys property to another for a specific predetermined period of time, generally in return for periodic payment |
| leasehold estate | an interest in the occupation of a property, established through a lease, aka, nonfreehold or less-than-freehold |
| leasehold interest | an interest in the occupation of a property established through a lease |
| legal description | a description of a property that is distinct and precise enough to distinguish it from all other properties |
| legal life estate | any life estate created by a function of law as opposed to the actions or desires of a property owner |
| lessee | the party to whom the lease is granted; aka, tenant |
| lessor | the party granting the lease; aka, landlord |
| lien | the claim made by a creditor against real or personal property pledged by a borrower as collateral |
| lien priority | the order in which liens against a property will be settled |
| lien theory state | state that employs security instruments allowing the borrower to retain title while the lender places a lien on the property to secure the loan |
| life estate | a type of estate limited to the duration of a measuring life |
| limited agent | an agent operating in agency relationship that constrains the agent to specific acts authorized by the principal; the vicarious liability of the principal for the agent's acts are equally limited to what was specifically authorized by the principal |
| limited partnership | a business entity composed of both general and limited partners — the general partners manage the business and limited partners are passive investors |
| liquid assets | assets that can be quickly converted to cash without losing their value |
| liquidated damages | damages established by the contract to be paid as compensation in the event of default |
| lis pendens | a document recording at the courthouse giving notice that a lawsuit is pending on a particular piece of property |
| living trust | a trust established by a living trustor in order to convey legal title of property to a trustee for the benefit of a named beneficiary |
| loan commitment | a lender's approval of a specific loan for a specific property; occurs upon completion of final loan approval step |
| loan estimate | combines and replaces the Good Faith Estimate and the initial Truth-in-Lending (TIL) statement; highlights the most important elements of the transaction |
| loan origination | the process through which a buyer obtains a mortgage loan from a lender |
| loan-to-value ratio | the amount of money being loaned compared to the value of the property |
| long-term debt | financial obligations often paid as installments over a predetermined time frame, which can extend for years |
| management agreement | a written contract between a property owner and a property manager to establish all duties of the property manager, including operation and leasing activities |
| management proposal | a plan that a property manager creates for managing the property that includes an analysis of the market along with the financial standing, operating budget, and other important factors of the property |
| marital status | refers to whether a person is married, single, divorced, or widowed; one of the Equal Credit Opportunity Act's protected classes |
| market allocation | a violation of antitrust laws in which competitors agree to divide markets amongst themselves |
| market value | the price for which a property will theoretically sell under typical conditions |
| marketable title | a title that is free from significant encumbrances or defects that might otherwise prevent a purchaser from enjoying or eventually selling the property |
| master plan | a written document created by the local planning board to guide the future growth and development of a community |
| material fact | a fact that, if known, could cause someone to take a different course of action or make a different decision regarding the property to be purchased |
| mechanic's lien | n a type of involuntary, specific lien that a mechanic or materialman can impose upon a property if the property owner fails to pay for materials or work done on the property |
| meridian | an imaginary line of longitude used to identify a certain area of the earth's surface along a north-south direction |
| metes and bounds | a land survey process in which a licensed land surveyor starts at a readily identifiable point of beginning and defines the boundaries of a property in terms of distances and compass directions, finally returning to the point of beginning |
| ministerial acts | an action performed for another according to established procedures or guidelines and without the need for discretion or individual judgment |
| misrepresentation | a statement, written or spoken, that is false or misleading |
| monument | a fixed landmark, whether natural or human-made, used as a reference point in a metes and bounds legal description |
| mortgage | a legal agreement between a creditor and borrower in which the creditor lends money with interest to the borrower for the purchase of property with the condition that the creditor takes ownership of the title if the borrower defaults in repayment of th |
| mortgage insurance premium (MIP) | borrower-paid insurance required for FHA loans, in order to insure the lender in case of borrower default/foreclosure |
| mortgagee | the organization or person who lends the money in a loan (the lender) |
| mortgagor | the person who takes out the loan (the borrower) |
| multiple listing service (MLS) | a database in which local member brokers share listings so that fellow member brokers can procure buyers for those properties and establish compensation for properties sold jointly |
| mutual consent | agreement by all parties to either create, amend, or terminate a contract |
| negative amortization | when a borrower's payment is not large enough to cover the interest due on a loan, the unpaid interest is added to the principal balance |
| negligent misrepresentation | misrepresentation that occurs when the licensee either knows or should have known that a material fact is not accurate, that certain information should be disclosed, or unknowingly makes a false statement that is not reasonable to believe |
| negotiable instrument | a note that is transferable and assignable |
| net lease | a lease in which the tenant pays a base rent rate plus all or part of the operating expenses |
| net listing | an agreement in which the seller names an amount they will accept for a property and if the sales price exceeds that amount, the broker receives the excess as commission; illegal |
| net operating income (NOI) | a property's annual income that remains after paying its operating expenses |
| non-conforming use | any property use that is inconsistent with the land use controls for that area, regardless of legality |
| notice of title | the duty of a real estate owner to make their claim or interest on a subject property publicly accessible |
| null and void | lacking legal or binding force; invalid |
| obsolescence | a property's loss of value due to economic or functional factors |
| offer | a proposition made by an offeror to an offeree to agree to the terms of a binding contract; becomes a contract upon acceptance |
| offer and acceptance | the mutual understanding and agreement of the parties of a contract to that contract's terms; process that changes an offer into a contract when the offeree communicates acceptance to the offeror |
| operating expenses | occasional or continuous expenses required for the operation of an incomeproducing property |
| opinion of title | the official opinion of an attorney regarding the condition of a property’s title |
| option | an agreement that gives one party the right to perform a non-obligatory action within a time period (ex: terminating a contract or the right of first refusal) |
| origination fees | fees charged by the lender to pay for the loan origination; aka, origination points |
| parallel | a line of latitude |
| parol contract | an orally created contract or the oral modification of a written contract; enforceability depends on circumstances surrounding creation |
| patent defect | any structural defects that are easily discoverable upon inspection |
| payment-to-income ratio | used to measure a borrower's creditworthiness; calculated by dividing monthly payment by monthly income |
| percentage lease | type of (usually commercial) lease in which the tenant pays a base rent amount and a percentage of their business profits to the landlord |
| performance | the fulfillment of an obligation, duty, or contract |
| periodic estate | a leasehold estate which automatically renews until canceled by either party; aka, estate from period-to-period, periodic tenancy, estate from year to year |
| physical deterioration | n loss of value caused by physical wear and tear over time |
| planned unit development (PUD) | a subdivision that includes residential dwellings along with nonresidential real estate, departing from normal zoning and subdivision regulations; recreational facilities may be co-owned by PUD lot owners as tenants in common |
| plat | a map indicating the locations and dimensions of lots in a block and lot system |
| plottage | an increase in overall value resulting from the successful assemblage of multiple plots |
| point of beginning (POB) | the starting point for a metes and bounds legal description |
| points | fees that the borrower pays when they take out a loan; two kinds are origination points and discount points |
| police power | the government right to regulate and restrict land use in order to protect the public; right includes the power to enforce zoning and building codes |
| potential gross income (PGI) | the total rental income a property would receive if the property was 100% leased |
| preventative maintenance | conducting periodic inspections to catch minor issues before they become major failures |
| price fixing | any effort made by competitors to jointly establish a fixed rate, price, or commission; considered an antitrust violation |
| principal | the client of a broker in an agency relationship; the parties to a contract in a real estate transaction (as opposed to license holders, lenders, escrow agents, etc.); also, the amount borrowed in a loan from which interest is accrued |
| principal meridian | a meridian used in reference to a baseline to identify ranges, tiers, and townships in the rectangular survey method of land description |
| principal broker | a broker who leads the activities of a brokerage and who is accountable for the actions of affiliated licensees and the brokerage's adherence to licensing rules, regulations, and laws |
| private mortgage insurance (PMI) | insurance that protects the lender if a borrower defaults on a conventional loan; usually required when the borrower has less than 20% equity |
| probate | a process by which courts determine and grant the appropriate ownership interest of an estate to creditors, taxing entities, and heirs of an owner who dies intestate |
| procuring cause | the defining action or actions that brought a buyer or buyers to purchase a property |
| promissory note | a negotiable financial instrument that is evidence of a debt and a promise to pay that debt; aka, note |
| property inspection | an inspection conducted to discover material facts or defects that exist within a property |
| property management | the vocation of renting or leasing someone else's real property on their behalf in exchange for compensation and in accordance with a property management employee contract |
| proprietary lease | long-term and exclusive lease given to resident and stock owner of a cooperative |
| proration | the act of dividing or allocating expenses between buyers and sellers based on the actual period of usage of the item or service |
| protected classes | groups of people whom it is illegal to discriminate against, as provided by the Fair Housing Act, ECOA, and other acts |
| protection period | a limited time frame after an agency agreement ends where an agent can be owed compensation if certain situations occur |
| pur autre vie | a life estate characterized by ownership lasting only for the duration of a designated party's lifetime |
| purchase contract | a contract used in the sale of real property that outlines the responsibilities of the parties and terms of the sale |
| purchase money mortgage | instrument given by the purchaser to a seller who “takes back” a note for part or all of the purchase price |
| qualification | when a lender decides whether they want to give a loan to a hopeful borrower, and if so, what the terms of the loan would be |
| quiet enjoyment | a lessee's right to possess a property without interference from lessor, previous owner, or anyone else about the claim to the title |
| quiet title suit | a lawsuit brought with the purpose of removing any outstanding ownership claim, title defect, or encumbrance on a property |
| quitclaim deed | a type of deed that conveys any interest, title, or right to a parcel of land the grantor has at the time the deed is executed |
| radon | an odorless, radioactive gas produced by the decay of other radioactive materials in rocks under the surface of the earth; can cause lung cancer |
| range | the area of land between two consecutive range lines |
| real estate | land plus improvements |
| real estate investment trust (REIT) | a trust that invests in, owns, or acquires real property and is owned by investors who share the trust’s profits according to shares |
| real estate owned (REO) | bank-owned properties that have been through the foreclosure process |
| Real Estate Recovery Fund | purpose is to reimburse people who have been harmed by a licensee's conduct |
| Real Estate Settlement Procedures Act (RESPA) | legislation passed to eliminate kickbacks in lending and disclose the costs of closing a loan |
| real property | land from the surface to the center of the earth and upward into space, all attachments, and the bundle of legal rights of ownership |
| recording | the act of documenting any transfer or claim of interest in the title to real property in public records per state law |
| redlining | the illegal act of a lender refusing to issue mortgages in a specific area |
| refinancing | the process of obtaining a new mortgage in an effort to reduce monthly payments, lower interest rates, take cash out of a home for large purchases, or change mortgage companies |
| Regulation Z | the part of the Truth in Lending Act (TILA) that seeks to protect consumers by requiring proper disclosures and fair lending practices |
| reliction | a gradual increase in land area when water gradually withdraws |
| remainder interest | the interest in an estate that will pass to another party (other than the grantor) at the death of the person upon whom the life estate is based |
| replacement cost | the actual cost of replacement without regard to the depreciation of the property |
| reverse mortgage | a financial arrangement where a homeowner pledges equity to a lender in exchange for periodic payments of the pledged equity; essentially selling off equity in their home in exchange for monthly payments |
| reversionary interest | the interest in an estate wherein, upon the death of the life estate owner, full ownership reverts back to the original fee simple owner (grantor) |
| revocation | the termination of an agreement by the person who granted it, such as when a principal terminates an agency relationship or withdraws an offer |
| right of survivorship | the statutory principle of survivorship tenancy that provides that when one coowner dies, their ownership interest reverts to the surviving co-owners |
| routine maintenance | monitoring, assessing, and attending to the needs of a facility's most necessary features |
| scarcity | the economic characteristic that informs the economic principle of supply and demand |
| second mortgage | a mortgage loan whose lien priority is subordinate to a senior, or first, mortgage |
| section | one of 36 equal square miles in a township |
| security | the collateral for a loan |
| seller financing | a loan provided by the seller to the purchaser of the property |
| senior lien | a lien that comes first on the priority of liens, often a tax lien; aka, superior lien |
| severalty | undivided ownership of an estate, with an interest that is exclusive from other owners; often used in the context of ownership in severalty or tenancy in severalty |
| severance | the act of converting real property into personal property |
| Sherman Antitrust Act | a landmark law passed in 1890 that prohibits the formation of trusts, or monopolies, in the marketplace; this law governs business by regulating anticompetitive conduct to promote fair competition on behalf of American consumers |
| situs | the economic significance of a property's location |
| sole proprietorship | ownership of a business by a lone individual (or a married couple acting as a single person) |
| special agency | a form of agency relationship in which agents are limited in scope and are only authorized to perform acts permitted by their principal |
| special assessment lien | a lien placed against property to collect taxes for a specific improvement benefiting the property |
| special exception (use on appeal) | allows an out-of-zone use that benefits the community only with approval from a board of zoning appeals (BZA); is included as a permitted special use in a zoning ordinance |
| special warranty deed | a deed that only protects against defects that occurred while the grantor held title |
| specific lien | a lien that applies to a certain property only |
| specific performance | a legal remedy that requires the party in breach of contract to perform in accordance with the terms of the contract (as opposed to paying damages) |
| square foot | a unit of area measurement equal to a square measuring one foot on each side |
| statute of frauds | a law which requires certain types of contracts, including those conveying interest in real property, to be in writing and to be enforceable |
| statute of limitations | a legal concept that establishes time limits for bringing certain kinds of legal actions |
| steering | the illegal act of guiding prospective home buyers toward or away from certain neighborhoods because of their membership in a protected class |
| stigmatized property | property with suppressed market value unrelated to its physical condition or features; frequently as result of death of an occupant, murder, suicide, or suspected paranormal activity |
| straight-line cost recovery | an accounting method in which depreciation expenses are deducted from a property's income |
| subagency | a form of agency that arises when an agent enlists the use of other agents to accomplish a client's goal |
| sublease | a tenant’s transfer of part of their right of possession in a leased property to another person for a period of the lease term |
| subordination agreement | a contract that gives a mortgage recorded at a later date priority over a previously recorded mortgage |
| substitution | an economic principle stating that the value of a good or service is affected by the cost of getting a similar (substitute) item elsewhere |
| suit for possession | a legal action brought by a landlord to evict a tenant |
| Superfund Amendments and Reauthorization Act (SARA) | a federal law that amended CERCLA, designated more money to the Superfund trust, and established new environmental laws and regulations |
| survey | the process and physical product of finding and measuring the boundaries of a piece of real estate, including the location of improvements, encroachments, and easements |
| syndicate | a group of investors that get together and combine resources to make investments they wouldn't be able to make on their own |
| tax base | the total taxable assets available in a specific area |
| tax deed (treasurer's deed) | a deed used to convey the title to a property sold in a tax foreclosure sale |
| tax district | an area in which a taxing entity is authorized by the government to levy taxes |
| tax rate | the percentage of the value that is taxed |
| tax sale | the forced sale or auction of a property to cover outstanding debts |
| taxable value | the value placed on a property by a governmental unit for use in calculating property taxes, minus any exemptions |
| tenancy in common | co-ownership with individual, undivided interest in the property; includes rights of inheritance rather than survivorship |
| Tennessee Real Estate Commission | regulates the real estate industry in Tennessee in order to protect the public's interest; aka, TREC or the Commission |
| testate | the name for conditions in which the owner of a property dies having left a valid will |
| testator | the party who makes a will |
| tier | the area of land between two consecutive baselines |
| time is of the essence | communicates to parties of a contract that they must perform their contractual duties by a specific date and time in order to avoid a breach of contract |
| timeshare | a form of co-ownership where each owner has use of the property at a different prescribed period of time; aka, interval ownership |
| timeshare estate | a right of occupancy in a timeshare project, which is coupled with an estate in a real property |
| timeshare use | a license or contractual or membership right of occupancy in a timeshare project that is not coupled with an estate in the real property |
| title | the actual ownership of a real property that includes the bundle of rights in which a party may own a legal or equitable interest; not an actual document |
| title insurance | a policy that protects homeowners (and likewise, lenders) from certain financial losses due to title issues, such as defects, encumbrances, and liens |
| title theory state | state that conveys the title to the lender or, more commonly, to a third-party trustee (operating on behalf of the lender) for the life of the loan |
| Torrens system | a recording system used in some states in which the state holds all records of land and title ownership, evidenced by a certificate of title |
| township | a square area of land with sides of six miles each, consisting of 36 square-mile sections and identified in reference to a meridian and baseline in the government survey system |
| trade fixture | personal property that is owned by and needed for a tenant’s business |
| transaction brokerage | a form of non-agency carried out by a broker who facilitates a transaction absent of any agency relationship with either party to the contract |
| transfer tax | one-time tax issued by the state that must be paid when a property is transferred from one owner to another |
| triple-net lease | a type of lease requiring the tenant to pay a prorated portion of ALL the operating expenses for the property |
| trust | a legal entity where control of some asset or property is transferred by a grantor (trustor) to a third party (trustee) to be held for the benefit of another (beneficiary) |
| underwriting | the process of determining the level of risk a lender is willing to take in extending a loan to a borrower |
| unilateral contract | a contract wherein one party makes a promise and is obligated to perform if a second party chooses to accept the offer and perform in exchange for that which was promised |
| universal agency | the most broad type of agency; gives agents the power to act AND make decisions on behalf of the principal in all business matters of concern; often granted via a power of attorney |
| usury | illegally lending money at unfair interest rates |
| utility | the measure of the degree to which something performs a desired function |
| VA entitlement | the amount of money that is guaranteed in a VA loan |
| validity | possessing accuracy and, in context of contractual status, being legally binding and enforceable |
| value | the price for which a property will theoretically sell under typical conditions; an estimate of monetary worth |
| variance | permission granted by the government so that property may be used in a manner not allowed by the current zoning |
| void | lacking legal or binding force; used to describe a contract that is either illegal or impossible to complete |
| void contract | a contract lacking legal or binding force; often used with phrase "null and void" |
| voidable contract | a contract wherein the wronged party has the option to perform, enforce, or void the contract |
| will | a written or verbal legal statement by an owner (testator) prescribes the method of distribution of the owner's estate to heirs |
| 1 point | 1 point = 1% of the loan principal |
| adjusted basis (investment property) | basis + cost of improvements + qualified closing costs – realized depreciation = adjusted basis (investment property) |
| adjusted basis (primary residence) | basis + cost of improvements + qualified closing costs = adjusted basis ( primary residence) |
| annual interest formula | principal x interest rate = annual interest |
| appraised value (using comps) | total comps ÷ number of comps = appraised value |
| capital gain | realized gain – adjusted basis = capital gain |
| cost ratio (comparing mortgages) | 30-year total loan cost ÷ 15-year total loan cost = cost ratio |
| debt-to-income ratio | (monthly payment + other debt) ÷ monthly income = debt-to-income ratio |
| depreciable basis | purchase price + acquisition costs + renovations – land value = depreciable basis |
| depreciation (%) | age of property ÷ total useful life = depreciation (%) |
| depreciation allowance | depreciable basis ÷ useful life = annual IRS depreciation deduction |
| discount point fees | principal balance x loan points = discount point fees |
| discount point strategy | discount point fee ÷ monthly payment savings = months in loan |
| debt service coverage ratio (DSCR) | net operating income ÷ total debt servce = DSCR |
| effective gross income (EGI) | property value + property income - vacancy cost = effective gross income (EGI) |
| gross rent multiplier (GRM) | property price ÷ annual rent income = gross rent multiplier (GRM) |
| housing expense (front end) ratio | monthly payment ÷ monthly income = payment-to-income ratio |
| interest | interest rate x principal = interest |
| loan-to-value ratio | loan amount ÷ purchase price = loan-to-value ratio |
| month 2 balance | original principal balance – P1 = month 2 balance |
| monthly income (using payment-toincome ratio) | monthly payment ÷ payment-to-income ratio = monthly income |
| monthly income (using debt-toincome ratio) | (monthly debt + other debt) ÷ debt-to-income ratio = monthly income |
| monthly interest formula | annual interest ÷ 12 months = monthly interest |
| monthly interest payment | interest rate x principal balance ÷ 12 months = monthly interest payment |
| monthly payment 1 | monthly income x payment-to-income ratio = monthly payment |
| monthly payment 2 | monthly income x debt-to-income ratio - other debt = monthly payment |
| net operating income | EGI - operating expenses = net operating income (NOI) |
| net to seller | seller's credits - seller's debits = net to seller |
| net worth | assets - debts = net worth |
| other debt | monthly income x debt-to-income ratio - monthly payment = other debt |
| payment-to-income ratio | monthly payment ÷ monthly income = payment-to-income ratio |
| part | total x percentage = part |
| percentage | part ÷ total = percentage |
| PITI payment | principal + interest + taxes + insurance = PITI |
| portion of first payment going towards interest | (interest rate x principal balance) ÷ 12 = I1 |
| portion of first payment going towards principal | monthly payment – I1 = P1 |
| portion of second payment going towards interest | (interest rate x month 2 balance) ÷ 12 = I2 |
| portion of second payment going towards principal | monthly payment – I2 = P2 |
| projected gross income (PGI) | contract rent + projected rent = projected gross income (PGI) |
| property taxes | taxable value x tax rate = annual property taxes due |
| property value | reproduction cost - depreciation + land value = property value |
| quarterly interest | annual interest ÷ 4 = quarterly interest |
| realized gain | sales price – selling costs = realized gain |
| solving for acreage | total square footage ÷ 43,560 square foot per acre = acreage |
| square footage | length x width = square footage |
| subject property value | comparable property sales ± adjustments = subject property value |
| tax base | total assessed value – total exemptions = tax base |
| tax rate | tax requirement ÷ tax base = tax rate |
| taxable value | assessed value – homestead exemptions = taxable value |
| total | part ÷ percentage = total |
| total cost of points | loan points x loan principal = total cost of points |
| total interest paid | total loan cost – original loan principal = total interest paid |
| total loan cost | monthly payment x number of payments = total loan cost |
| trianangular lots | 1/2 x base x height = area |
| VA entitlement | loan amount x 0.25 = guaranty amount |
| vacancy cost | vacancy percentage (%) x PGI = vacancy cost |
Created by:
jacqulynmortonlmt
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