Real Estate Terms Glossary
Abstract of Title: A brief history of the transfers for a piece of land, including all claims that could be made against it.
Acceleration Clause: A provision in a lease stating that in the event of default, the lessor can declare all of the principal and interest immediately. Calling for acceleration may cause the borrower to cure the default or seek bankruptcy protection.
Addenda: Something added or to be added, especially a supplement to a contract.
Agent: One empowered to act for or represent another: a real estate agent
Agreement of Sale: An offer to purchase that the seller has accepted and holds as a binding contract.
Amortized Loan: A loan in which the principal and the interest are both payable in periodic payments over the loan term; usually monthly.
Annual Percentage Rate (APR): The annual percentage rate is the cost of credit paid to the lender, expressed as a simple percentage.
Appraisal: The classification of something according to its worth.
Appreciation: An increase in value. This could be caused by the economy or related causes. Opposite of depreciation.
Assessment: Imposition of taxes or charges going by established rates.
Assignment: The transfer of a claim, right, interest, or property from one to another.
Assumption of Mortgage: Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.
Balloon Payment: The final lump sum payment that is due at the termination of a balloon mortgage.
Bay Depth: The distance between column spacing in a building.
Binder: A payment or written statement making an agreement legally binding until the completion of a formal contract, especially an insurance contract.
Blanket Loan: A policy covering more than one parcel of real estate, providing for each parcel’s partial release from the mortgage lien upon repayment of a definite portion of the debt.
Breach of Contract: Violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due.
Broker: One that acts as an agent for others, as in negotiating contracts, purchases, or sales in return for a fee or commission.
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.
Buyer Agent: An agent is hired by a prospective purchaser or tenant to find an acceptable property for purchase. The broker/agent represents the buyer and negotiates with the seller or the seller’s agent for the sale or lease of the real estate acting in the purchaser’s best interest.
Build-out Allowance:
The amount of money allowed for tenant improvements to the space. This would
be given by the landlord and included in the stated rental rate.
CAM: Common Area Maintenance charges. These charges by the landlord for snow plowing, lawn and parking lot maintenance, sewer and water to name a few.
Capital Gain: A profit made from buying property and reselling it at a higher price.
Capitalization Rate: The rate of return a property will produce on the owner’s investment.
Cash Flow: A measure of a company’s financial health. Equals cash receipts minus cash payments over a given period of time; or equivalently, net profit plus amounts charged for deprecation, depletion, and amortization.
Certificate of Title: A written statement by an attorney or title company regarding the status of a property title.
Cloud on Title: Any encumbrance or claim that might invalidate a title to a property. Also known as ‘defect’.
Commission: A fee charged by a broker or agent for his/her service in facilitating a transaction.
Comparative Market Analysis (CMA):
A method of estimating a property’s value by comparing the sale prices of similar recently sold properties.
Consideration: Something of value, such as money or personal services, given by one party to another in exchange for an act or promise.
Constructive Notice: Notice given to the world by recorded documents. All people are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property.
Consumer Notice: A specific form created by the real estate commission in Pennsylvania describing permitted business relationships and agency procedures during real estate transactions. This notice is required at the initial interview of any consumer of real estate services.
Contingency: An event that may occur but that is not likely or intended; a possibility.
Contract: An agreement between two or more parties, especially one that is written and enforceable by law.
Cooperating Broker: A real-estate broker who finds a buyer or tenant for a property and initiates a negotiation and shares in a commission.
Core: The area of the building that often has the mechanical, electrical and plumbing that are non-revenue generating.
Cost Recovery: An Internal Revenue Service term for depreciation.
Counteroffer: A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the one who originally made it.
Covenant: A written agreement between two or more parties in which a party or parties pledge to perform or not perform specified acts with regard to property; usually found in such real estate documents as deeds, mortgages, leases, and contracts for deed.
Deed: A writing signed by a grantor (seller) transferring property from one person to another.
Deed Restrictions: Clauses in a deed limiting the future uses of the property. Deed restrictions may impose a vast variety of limitations and conditions; for example, they may limit the density of buildings, dictate the types of structures that can be erected, prevent buildings from being used for specific purposes, or from being used at all.
Default: The failure of the buyer to meet a condition in the contract.
Depreciation: A decrease or loss in value because of age, wear, or market conditions.
Designated Agent: One or more licensees designated by a broker to act at the exclusive agent(s) for the principal to the exclusion of all other licensees within the company.
Developer: A person who develops real estate, especially by preparing a site for residential or commercial use.
Digital Elevation:
An architectural drawing of each side of the building, where one can see what it will look like once finished.
Dual Agent: The licensed broker and all licensees affiliated with the broker who by written agreement represent both parties (buyer/lessee and seller/lessor) in the same transaction.
Earnest Money (Security Deposit): Money given by a buyer/lessee to a seller/lessor to bind a contract.
Easement: A right, such as a right of way, afforded a person to make limited use of another’s real property.
Encroachment: To take another’s possessions or rights gradually or stealthily.
Encumbrance: One that encumbers; a burden or impediment.
Equitable Title: The interest held by a buyer under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another’s name.
Equity: The difference between the market value of a property and the claims held against it.
Escrow Account: The account in which money that is usually received from the buyer/tenant in relation to an event dealing with the property. It cannot generally be released without the seller/landlord’s consent.
Executed Contract: A contract that has been completely carried out or signed by the parties.
Fee Simple: An estate under which one owns a contract interest in the property and is entitled to the unrestricted enjoyment of the property, including the right to dispose of the property.
Fiduciary Relationship: A relationship of trust and confidence between two people in which one person (the fiduciary) holds much more power, knowledge, or skill than the other and is, therefore, held by the law to a higher standard of conduct.
Foreclosure: The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Front Footage: The linear measurement along the front of a parcel. That portion of the parcel which fronts the street or walkway.
Functional Obsolescence: The loss of use or value of an asset due to changes in the market demands. A property in Buffalo with no furnace may be considered to be functionally obsolete and, therefore, difficult to sell.
General Warranty Deed: A deed which conveys not only all the grantor’s interests in and title to the property to the grantee, but also warrants that if the title is defective or has a “cloud” on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic’s liens against it) the grantee may hold the grantor liable.
Gross Income Multiplier: A figure which, when multiplied by the annual gross income, will theoretically determine the market value. A general rule of thumb that varies with specific properties and areas.
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: Method of appraising the fair market value of property by multiplying the gross rents by a factor which varies according to the type, and location of the property.
Ground Lease: A long-term lease of land in which the tenant is allowed to improve the land and use it for the term of the lease at the end of which the land and all improvements revert to the control and occupancy of the owner.
Heir: A person who is entitled by law or by the terms of a will to inherit the estate of another
Highest and Best Use: The property use that at a given time produces the greatest net worth return.
Holdover Tenancy: When a real estate tenant continues to occupy the premises after the original lease or rental agreement expired without the landlord’s agreement. The rent may be substantially more then the previous year’s rent.
Impact Fees: Must be paid by developers of new homes and subdivisions to pay for town facilities, such as schools and parks.
Implied Agreement: An agreement where both parties have acted in such a way that it is understood a contract or agreement is in place, even if there is no written or expressed agreement in place.
Improvement: A structure or building on the property.
Income Approach: Method used by an appraiser to estimate the value of a property based on the income it generates.
Independent Contractor: A legal term for a person who is hired to do work for another person but who is not an employee or agent of that person. The hiring person is not responsible for the actions of the independent contractor nor does he/she owe that Independent Contractor the same legal duties owed by an employer to an employee under labor and employment laws.
Installment Sale: The sale of an asset in exchange for a specified series of payments (the installments).
Interest: A fixed charge for borrowing money; usually a percentage of the amount borrowed.
Joint Tenancy: A form of co-ownership that gives each tenant an equal undivided ownership in the property, including the right of survivorship.
Joint Venture: An agreement between two or more firms to undertake the same business strategy and plan of action.
Judgment: The legal document stating the reasons for a judicial decision.
Junior Lien: A lien that does not have first priority but is still being used as security for the payment of a debt or discharge of an obligation.
Latent Defect: An invisible problem in a piece of property such as bad wiring, termite damage or lead paint.
Lease: A contract granting use or occupation of property during a specified time for a specified payment.
Lease Option: Agreement, specified in the lease, which provides the tenant the option to renew the lease for a given time period upon the expiration of the initial lease. Most lease options include the landlord’s right to increase the rent upon renewal.
Lease Purchase: Assists buyers in purchasing a property by allowing them to lease it while a portion of the monthly rental payment is credited to an account for use as a down payment.
Legal Description: A property description, recognized by law that is sufficient to locate and identify the property without oral testimony.
Lessee: The party to a lease agreement who is obligated to pay the rentals to the lessor and is entitled to use and possess the leased property during the lease term. Also known as tenant.
Lessor: A person who rents property to another under a lease. Also known as landlord.
Leverage: The use of credit or borrowed funds to improve one’s speculative capacity and increase the rate of return from an investment, such as real estate.
Liquidated Damages: The amount required to satisfy a loss resulting from breach of contract.
Lis Pendens: A written notice of a pending suit involving property usually filed in the appropriate office, (as a registry of deeds). Also called “notice of pendency”.
Listing Agreement: An agreement between the owner of a property and a real estate broker giving the broker the authorization to attempt to sell or lease the property at a certain price and terms in return for a commission, set fee, or other form of compensation.
Listing Broker: The real estate broker who is responsible for the listing of a property and who is to represent the interests of the seller or lessor.
Lot-and-Block (Recorded Plat) Description:
A method of describing real property that identifies a parcel of land
by reference to lot and block numbers within a subdivision as specified
on a recorded subdivision plat.
Market: The world of commercial activity where goods and services are bought and sold
Marketable Title: A title that is free and clear of objectionable liens, clouds or other title defects.
Market Value: The amount that a seller may expect to obtain for real estate in the open market.
Mechanic’s Lien: To secure payment for work and materials in erecting or repairing a building or other structure
Metes-and-Bounds Description: A legal description of a parcel of land that begins at a well marked point and follows the boundaries, using directions and distances around the tract, back to the place of beginning. Usually found in the deed for the property.
Month-to-Month Tenancy: A periodic tenancy where the tenant rents for one month at a time. In the absence of rental agreement (oral or written), a tenancy is deemed to be month-to-month.
Net Lease: A lease in which the costs of maintaining the asset, including common area charges, taxes, and insurance, are paid by the lessee.
Net Operating Income (NOI ): Income after deducting for operating expenses but before deducting for income taxes and debt service.
Nonconforming Use: The use of a property which does not conform to the zoning of an area.
Obsolescence: Being in the process of passing out of use or usefulness; becoming obsolete
Occupancy Permit: A permit issued by the appropriate local governing body to establish that the property is suitable for habitation by meeting certain safety and health standards
Offer and Acceptance:
Components of a contract, applicable to the real estate situation where
a purchaser or lessee may make an offer on a property and the seller
or lessor may accept that offer. Major elements of a contract.
Offeror: One who makes an offer.
Offeree: The one to whom the offer is made.
Option: A contract that permits the owner, depending on the type of option held, to purchase or sell an asset at a fixed price until a specific date. Depending on how an investor uses options, the risks can be quite high.
Percolation Test: A test which determines how fast water passes through soil. It is required when a septic tank is being considered for a property.
Planned Unit Development (PUD): A project or subdivision that includes common property that is owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owners.
Plat Map: A map of a town, section or subdivision indicating the location and boundaries of individual properties.
Power of Attorney: Legal document authorizing one person to act on behalf of another.
Principal: The amount of the entire mortgage loan, not counting interest.
Procuring Cause: That effort which brings about the desired result, as in producing the buyer for the listed property or the tenant for the listed space.
Promissory Note: A written promise to repay a specified amount over a specified period of time.
Purchase-Money Mortgage (PMM): Mortgage given by a borrower to the seller as a means of repaying the purchase price of the property.
Quiet Title: A court action brought to establish title; to remove a cloud on title.
Quitclaim Deed: A deed that transfers without warranty, whatever interest or title a grantor may have at the time the conveyance is made.
Rate Cap: A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.
Real Estate: A piece of land, including the air above it and the ground below it, and any buildings or structures on it. Also called realty.
Realtor: A real estate agent, broker, or associate that holds an active membership in a local real estate board that is affiliated with the National Association of Realtors.
Recorder of Deeds: One who maintains a record of real estate transactions and ownership.
Remainder Interest: What is left from a life estate.
Replacement Cost: The cost to replace damaged personal property without a deduction for depreciation.
Reproduction Cost: The cost of reproducing a new replica property on the basis of current prices with the same or closely similar materials.
Restrictive Covenants: A covenant acknowledged in a deed or lease that restricts the free use or occupancy of property (as by forbidding commercial use or types of structures).
Sale and Leaseback: The sale of a fixed asset that is then leased by the former owner from the new owner. A sale and leaseback permits a firm to withdraw its equity in an asset without giving up use of the asset.
Sales Comparison Approach: Method of estimating value of a property by comparing similar properties that have been sold recently.
Satisfaction of Mortgage: The recordable instrument issued by the lender verifying full payment of a mortgage debt.
Security Deposit: Amount of collateral a customer deposits with a broker.
Selling Agent: Someone who sells real estate (on commission) for others.
Setback: A line within the property line; boundaries beyond which a permanent structure cannot be built.
Special Warranty Deed: Provides a warranty of title only for the period during which the grantor owned the property.
Straight-Line Method: Method of calculating depreciation by taking an equal amount of the asset’s cost as an expense for each year of the asset’s useful life.
Subagent: An agent who is appointed by another agent and for whom the principal agent is responsible or liable.
Subdivision: An area of real estate composed of subdivided lots.
Sublease: A lease that is given by a tenant or lessee to another party of part or all of the leased premises for a shorter term than that of the original lease and under which some interest is retained. The tenant or lessee is now the landlord – a sub-lessor.
Subletting: Property rented by a tenant to another party.
Subordination Agreement: An agreement by which one party subordinates its claim to that of another
Subsurface Rights: The right to ownership of everything beneath the surface of the property – underground.
Specific Performance: A legal action compelling a party to comply with contract terms.
Suit to Quiet Title: A court action intended to establish or settle the title to a particular property, especially when there is a cloud on the title.
Superfund Amendments and Reauthorization Act (SARA): Federal statute which designated funds for cleaning up abandoned waste disposal sites and leaking underground petroleum tanks.
Supply and Demand: Creating a rise in price by supplying a wanted product or service.
Surface Rights: Rights of ownership in a parcel that are limited to the surface of the property and do not include the air above it (air rights) or the minerals below the surface (subsurface rights).
Survey: To determine the boundaries, area, or elevations of land or structures on the earth’s surface by means of measuring angles and distances, using the techniques of geometry and trigonometry.
Tax Sale: The sale of an asset after a period of nonpayment of taxes by its owner.
Tenancy in Common: Type of asset ownership for two or more persons in which, upon the death of one owner, his or her share passes to heirs (if a will is left) or to the estate (if no will is left), rather than to the co-owners.
Tenant Improvements (TIs): Improvements made to the leased premises by or for a tenant.
Title: The means or right by which
one owns or possesses property.
Title Insurance: Insurance that compensates for loss from title defects or encumbrances (as liens) that were unknown but should have been discovered at the time the policy was issued.
Title Search: A search of public records to determine the condition of title to real property, usually that is the subject of a transaction.
Trade Fixture: An article installed by a tenant under the terms of a lease and removable by the tenant before the lease expires.
Transfer Tax: State or local tax payable when title passes from one owner to another.
Triple Net Lease: A lease providing that the tenant pay for all operating expenses, utilities, taxes, and insurance.
Trust Deed: A written instrument legally conveying property to a trustee, often used to secure an obligation such as a mortgage or promissory note.
Undivided Interest: Interest in property owned by tenants whereby each tenant has an equal right to enjoy the entire property.
Unenforceable Contract: A contract whereby neither party can sue the other for performance. However, an unenforceable contract may be valid between the parties by their mutual agreement.
Uniform Commercial Code (UCC ): Set of laws regulating commercial transactions, especially ones involving the sale of goods and secured transactions.
Valid Contract: A contract that contains all of the necessary elements and is enforceable in a court of laws.
Zoning Ordinance: Set of laws and regulations, generally at the city or county level, controlling the use of land and construction of improvements in a given area or zone.