Abatement [1] An official reduction or invalidation of an assessed tax value after the initial assessment. [2] The termination of a nuisance. [3] The correction of an unlawful or unsafe building condition. Absorption Rate The rate at which properties offered for sale or lease are successfully marketed or anticipated to be sold - generally used in forecasting sales. Abstract (Of Title) A summary of the public records that identifies transfers, conveyances, and other facts used as evidence of title including documents, liens, or judgments that may impair title. If there are any title defects, they must be cleared before a buyer can purchase and receive marketable, insurable title. Acceleration Clause A clause in a mortgage note or loan contract that allows the lender to [1] speed up the rate at which your loan comes due -or- [2] to demand immediate payment of the entire balance of the loan in the event of default. Adjustable Rate Mortgage (ARM) A mortgage in which the interest rate is adjusted periodically based upon an index. Also referred to as the renegotiable rate mortgage or variable rate mortgage. Adjustment Interval On an adjustable rate mortgage, the time interval between changes in the interest rate and/or monthly payment. Agreement of Sale A contract in which a seller agrees to sell and a buyer agrees to buy, under specific written terms and signed by both parties. Usually referred to as a contract of purchase, purchase agreement, or sales agreement according to jurisdiction. Air Rights The property rights associated with the control, regulation, and use of air space above a tract of real estate. Amortization [1] The retirement of a debt and/or capital recovery through scheduled repayments. [2] Loan payment calculated to pay off the debt at the end of a fixed period, including interest on the outstanding balance. Annual Percentage Rate (APR) The cost of credit as a yearly rate. Appraisal An opinion of the value of property, made by a professional appraiser. Assemblage Combining two or more parcels into single ownership or use. Usually to increase highest and best use of the land. Assumption 1 The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt. Balloon (Payment) Mortgage Usually a short-term fixed-rate loan that is not fully amortized at maturity. Smaller initial payments are made with a large lump sum (balloon) payment due at maturity. Band Of Investment A technique used to derive a weighted average "rate of return" on a total investment. Uses the cash flow rates attributable to the components of a capital investment. Base Rent The minimum rent stipulated in a lease agreement. Binder or "Offer to Purchase" A preliminary agreement between a buyer and seller to purchase real estate. A binder with earnest money deposit, that secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, earnest money is forfeited unless the binder expressly provides for a refunded. Broker An individual who acts as an intermediary bringing together two or more parties in a market transaction. Bridge Loan Short term financing between the termination of one loan and the commencement of another. Examples: construction/permanent loans, temporary loans used for acquiring and rehabilitating properties prior to sell or conversion to a permanent mortgage. Building Capitalization Rate A rate that converts building income into value - the ratio of building income to value. Usually applied in residual or band of investment techniques. Building Line or Setback Distances from the front, rear, or sides of a lot beyond which construction may not extend. Setbacks may be established by a filed plat of a subdivision, restrictive covenants in deeds or leases, building codes, or by public zoning ordinances. Buydown A lump-sum payment to a lender that reduces the interest rate and/or payments of the borrower. Buyer's Market A market phenomenon that exists when prices are relatively low and buyers have an advantage; usually due to [1] an oversupply of properties or [2] limited buyer pool. Cap - (Interest) A limitation on the amount the interest rate (on an adjustable rate mortgage) may change per year and/or over the life of the loan. Cap - (Payment) 2 A limitation on the amount monthly payments (on an adjustable rate mortgage) may change. Capitalization A process of converting income to value. (See also direct capitalization and yield capitalization). Caveat Emptor Let the buyer beware - a maxim of common law stating that the buyer purchases at his/her own risk. Certificate of Title A certificate (issued by a title company or a written opinion provided by an attorney) of ownership stating that the seller has good marketable and insurable title to the property which he is offering for sale. The certificate of title offers no protection against hidden defects. The issuer of a certificate of title is liable only for damages due to negligence. Chain Of Title A historical record of all encumbrances and conveyances which affect a property title. Extends from the time original patent was granted (aka abstract of title). Closing The settlement/transfer between buyer, seller and lender where the property and funds legally change hands. Closing Costs Funds required for settlement - usually includes a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. Typical closing costs are 2 to 6 percent of the mortgage amount. Cloud (On Title) An encumbrance or outstanding claim that negatively affects the marketability of title. Collateral Property pledged as security for a loan that can be seized in event of default. Commission Compensation paid to a real estate agent or broker for finding a buyer and/or tenant and successfully completing the sale. Commitment Fee The fee a borrower pays to the lender who agrees to make a loan at some future date. Usually expressed as a percentage of the anticipated loan amount. Commitment - Loan A written agreement between lender and borrower to loan money at a future date subject to the stated conditions. Common Area Any area within a property that is available for common use by all owners, occupants, or their invitees and not designated for sale or rent. Examples include parking, side- walks, landscaped areas, exterior of buildings in condo projects, etc. Condemnation 3 [1] A determination by a governmental agency that a particular building is unsafe or unfit for use. [2] The act or process of enforcing the governments right of eminent domain. Condominium Individual fee simple ownership of a unit (in a multiunit development) and an undivided interest in the common areas and facilities which serve the project. Conservation Easement A restriction limiting the future use of a property to preservation, conservation, or a wildlife habitat. Consistent Use The concept that land cannot be valued on the basis of one use while improvements are valued on the basis of another. Example: a residential dwelling in a commercially zoned area - the land cannot be valued commercially then add the value the home as a dwelling. It must either be valued as a home and residential lot (interim use) or be valued as a commercial site offset by demolition costs. See Highest & Best Use. Construction Loan A short term interim loan for financing the cost of construction and usually repaid with the proceeds from a permanent mortgage. The lender advances funds to the builder as the work progresses. Contract Rent The actual rental payments specified in a lease. Conventional Loan A mortgage that is neither insured or guaranteed by an agency of the federal government. A conventional loan may be privately insured. Cooperative Ownership An apartment building or a group of dwellings owned by a corporation in which the stockholders are the residents. It is operated for the benefit of the residents by their elected board of directors. In a cooperative, the corporation/association holds title to the real estate. Residents purchase stock in the corporation thereby entitling them to occupy a unit in the building. Although residents do not own their units, they have an absolute right to occupy their unit for as long as they own the stock. Credit Ratio A ratio (expressed as a percentage) used by lenders to judge a borrower's repayment ability. Long term monthly payment obligations are divided by net income (FHA/VA loans) or gross monthly income (Conventional loans). Credit Scoring System A statistical system used to rate the credit worthiness of a loan applicant according to various characteristics. Curable Functional Obsolescence An element of accrued depreciation. A curable defect in the structure, materials, or design. Deed A formal written instrument that transfers title to real property from one owner to another. Parties include the grantor (seller) and grantee (buyer). The deed should contain the following: [1] a 4 complete legal description, [2] signatures of all parties holding an interest in the property and [3] witnesses to the conveyance. The conveyance becomes valid when executed and delivered at closing. (See deed of trust, general warranty deed , quitclaim deed , and special warranty deed.) Deed of Release A legal instrument by which the property securing a mortgage is absolved from the lien of the mortgage. Must be subscribed and acknowledged by the mortgagee (lender). Can be a partial or whole release. Deed of Trust A legal instrument that conveys property title to a trustee. In many states (including North Carolina) this document is used in place of a mortgage to secure the payment of a note. Deed Restriction A limitation that passes with the transfer of property title regardless of the owner. It usually limits the type or intensity of use of the property. Default Failure to repay a loan or otherwise meet the terms of your credit agreement. Deferred Interest See Negative Amortization. Deferred Maintenance Repairs that should be corrected immediately (curable, physical deterioration). Deficiency Judgment A judgment awarded in a suit initiated to recover the difference between a legally imposed indebtedness and the money received from a foreclosure sale of the debtor's assets. Delinquency Failure to make payments on time. May result in foreclosure. de minimis PUD A planned unit development (PUD) that has relatively minor common areas and improvements. A de minimis PUD [1] cannot include any multi-dwelling units that represent the security for a single mortgage; [2] cannot be a building conversion, [3] must not have any common areas other than greenbelts, private streets & parking, tot lots & playgrounds, etc., and [4] must not be subject to additional phasing or annexation that would result in the inclusion of significant common areas. Department of Housing and Urban Development (HUD) The federal government's department responsible for major housing and urban development programs. (urban renewal, low rent public housing, mortgage insurance, metropolitan planning, etc.) Created in 1965, it replaced the Housing and Home Finance Agency. Department of Veterans Affairs (VA) An independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans. 5 Depreciation Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason. Direct Capitalization [1] A valuation method used to convert a single year's income expectancy (or an annual average of several year's income expectancies) into a value estimate. [2] A capitalization technique that utilizes capitalization (cap) rates and multipliers extracted from sales to provide a value estimate. Yield and value change are implied but not identified. Direct Costs Labor and materials costs necessary to construct a new improvement. Direct Reduction Mortgage A mortgage loan repaid in periodic (usually equal) installments that includes a repayment of part of the principal and interest due on the unpaid balance. Disclosures Information that must be provided consumers about their financial dealings. Discount Points Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000). Discount Rate [1] The term used to explain the compound interest rate used in the in approach to value to convert expected future cash flows into a present value. [2] A benchmark for interest rates - the rate charged by the Federal Reserve System on overnight loans to banks. An increase in the rate not only discourages borrowing, but it also serves as a signal to the money market that interest rates are probably going to increase. Accordingly, interest rates charged by banks to customers usually increase as a result of an increase in the discount rate. Discounted Cash Flow Analysis A valuation technique that specifies [1] the quantity, variability, timing, duration of periodic income, and [2] the quantity/timing of the reversion (sale of property) then discounts these cash flows at a specified yield rate to derive a present value estimate. Documentary Stamps A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State. Down Payment Money paid to make up the difference between the purchase price and mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on Conventional loans, and no money down up to 5 percent on FHA and VA loans. Downzoning A government action in which the allowable density for a development is reduced, e.g., fewer housing units, number or size of buildings, or changes from a high use to a lower use, e.g., multifamily to single family. 6 Due-On-Sale Clause A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home. This clause prohibits an assumption of the note by a new buyer. Earnest Money Money given by a buyer to a seller as part of the purchase price i.e., a monetary binder to or assure payment and completion of the sale. Easement A interest in real property that conveys use but not ownership of a portion of the property. An electric company or sewer line crossing private property is a common example. Easement By Prescription The right to use another's land established by exercising this right over a period of time. Not specifically granted but understood. (aka prescriptive easement) Easement In Gross An easement that does not attach or run appurtenant with the land. Economic Life The period of time that improvements contribute to value. Can be shortened by a change in zoning such as from residential to commercial e.g., commercial land values exceed the combined value of the land and home as a residential dwelling. (See Consistent use.) Effective Age The age indicated by the observed/perceived condition and utility of a structure (as opposed to chronological/actual age). Effective Gross Income Anticipated income from operation of the real estate after deduction for vacancy and collection loss. Effective Gross Income Multiplier A ratio that compares sale price or value to a single year's EGI (effective gross income) expectancy or an annual average of several years' EGI expectancy. EGIM = Sale Price/EGI. Efficiency Ratio The ratio between a building's net rentable area (tenant occupied space) and its gross area including the building core and common areas. Eminent Domain Government's right to take private property for public use upon payment of "just compensation". Encroachment An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line. Encumbrance A legal right (or interest in land) that affects a good or clear title and diminishes the land's value or use. Encumbrances include zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. Encumbrances do not 7 prevent the legal transfer of property. They are usually revealed through title search. Equal Credit Opportunity Act (ECOA) A federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. Equity The difference between the fair market value and any outstanding indebtedness against the property. Equity Capitalization Rate An income rate that reflects the relationship between a single year's cash flows (or an annual average of several year's pre-tax cash flows) and the owner's equity investment (aka equity dividend rate, cash on cash rate, or cash flow rate). Used in Direct Capitalization to convert cash flows into an equity value indication. Equity Yield Rate The annualized rate of return on equity capital. Includes "return on" and "return of" the investment. Escheat Government's right of titular ownership of property when its owner dies without a will or any known heirs. Escrow Refers to a neutral third party who carries out the instructions of the buyer and seller to handle all the paperwork of settlement or "closing." Escrow could also refer to an account held by a lender into which a homebuyer pays money for tax or insurance payments. et al And others. Exclusive Right To Sell A contract to sell property that specifically states that the listing agent collects a commission regardless of who sells the property, including the owner. External Obsolescence A defect (usually incurable) outside the property that negatively affects value. (An element of accrued depreciation). Examples include heavy traffic on a residential street, commercial businesses encroaching into a residential neighborhood, etc. Fannie Mae See Federal National Mortgage Association . Farmers Home Administration (FmHA) Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere. Federal Home Loan Mortgage Corporation (FHLMC) Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured and uninsured depository institutions, HUD, and VA approved mortgage bankers. 8 Federal Housing Administration (FHA) A government agency that promotes homeownership, renovations, and the remodeling of residences by issuing government guaranteed loans to homeowners. Its main activity is to insure residential mortgage loans made by private lenders and to set underwriting standards. Federal National Mortgage Association (FNMA) Also known as Fannie Mae. Created by Congress, it is a Corporation that purchases and sells conventional residential mortgages bought from banks, trust companies, S & L's, mortgage companies, and insurance companies, as well as those insured by FHA or guaranteed by VA. FNMA facilitates liquidity in the market by providing funds for one in every seven mortgages. Fee Simple Absolute ownership not encumbered by any other interest or estate and subject only to the four powers of government; [1] taxation, [2] escheat, [3] eminent domain, [4] police power. FHA Loan An insured loan made by the Federal Housing Administration - open to all qualified home purchasers. FHA limits the size of loans but limits are usually sufficient to handle moderately priced homes most anywhere in the country. FHA Mortgage Insurance A fee (up to 3% of the loan amount) paid at closing or a portion added to each monthly payment of an FHA loan, to insure the loan with FHA. FHA mortgage insurance also requires an annual fee of 0.5 % of the current loan amount. First Mortgage A mortgage that has priority over all other liens. Foreclosure A legal process in which a lender forces the sale of property to recover all or part of the defaulted loan proceeds. Freddie Mac See Federal Home Loan Mortgage Corporation. Functional Obsolescence See Curable functional obsolescence and Incurable functional obsolescence. General Warranty Deed A covenant/warranty in the deed that binds the grantor and heirs to defend the title against the lawful claims of all persons. It conveys not only all the grantor's interests but also warrants that if the title is defective or has a "cloud" on it (tax liens, title claims, judgments, mortgages, mechanic's liens, etc.) the grantee may hold the grantor liable. Gentrification A market phenomenon in which middle and upper class buyers purchase neighborhood properties and renovate or rehabilitate them. Gift Deed A deed given or conveyed without consideration. Going-Concern Value 9 A value created by the proven/successful business operation. It is a separate entity valued with an established business. Government National Mortgage Association (GNMA - Ginnie Mae) Also known as Ginnie Mae. It provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA by subsidizing these mortgages and issuing mortgage backed federally insured securities. Graduated Payment Mortgage (GPM) A flexible-payment mortgage where payments increase for a specified period of time then level off. This type of mortgage can have include negative amortization. Grantee The buyer or "recipient" in a deed or instrument. Grantor The seller or "giver" in a deed or instrument. Gross Building Area Total floor area measured from the exterior walls - the most common standard of measure, especially in computing size of industrial buildings. (Excludes unenclosed areas). Gross Income Income produced from the operation/management of real estate. Usually stated on an annual basis. See effective gross income and potential gross income. Gross Income Multiplier See effective gross income multiplier (EGIM) or potential gross income multiplier (PGIM). Gross Leasable Area Total floor area designed for the occupancy/exclusive use of tenants (includes basements and mezzanines). It is the standard of measure usually used for shopping centers. Gross Lease A type of lease whereby the landlord receives rent and is obligated to pay all or most of the fixed and operating expenses from the real estate. Gross Living Area Total area of finished and "above grade" residential space. The standard usually used for determining the amount of habitable space in residential properties. Gross Rent Multiplier A ratio expressing the relationship between sale price or value and gross rental income. Ground Rent The rent paid for the right to use/occupy land. Highest And Best Use The most probable use of land or improved property that is; [1] legally possible, [2] physically possible, [3] financially feasible (and appropriately supportable ) from the market, and [4] which results in maximum profitability. HBU As Vacant - The use of a property as vacant or that which 10 [...]... continues in possession of the real estate after the estate has been terminated Tenancy At Will An estate in real property that has no fixed term and may be cancelled at will by the landlord or the tenant Tenancy By The Entirety An estate held by husband and wife by which neither party may dispose of their interest during their lifetime without joint action Tenancy For Years An estate that automatically... no legal access to a road or highway Leased Fee Estate The ownership interest held by a landlord with use/occupancy rights conveyed to others Lease Rollover The subsequent re-leasing of space after expiration of the initial lease Leasee A person who signs a lease to get temporary use of property Leasehold Estate 13 The tenants right to use/occupy real estate subject to the terms of the lease Leasehold... paid to a real estate agent for successfully leasing property Legally Nonconforming Use A use that was lawfully established but no longer conforms to the use regulations established by present zoning Lessor A company that provides temporary use of property usually in return for periodic payment Lien A claim upon a piece of property for the payment or satisfaction of a debt or obligation Life Estate Use/occupancy/control... which renews the interest for an additional period Tenancy In Common An estate held by two or more people with each having an undivided interest Tenancy In Severalty An estate held by one owner Terminal Capitalization Rate A rate used to convert income (NOI, cash flow) into a value indication at the end of the holding period Title A document evidencing an individual's ownership of property Title Insurance... Private mortgage insurance usually requires an initial premium payment of 1 to 5% of the mortgage amount and may require an additional monthly fee depending upon how the loan is structured Pro forma In real estate, a financial statement that projects gross income, operating expenses, and net operating income for a future period Property Residual Technique A capitalization technique that equates net operating... embedded in the floor slab or in side walls, to heat Hot air or water is distributed by forced circulation Radon A colorless, radioactive, naturally occurring inert gas formed by the decay of radium atoms Real Estate Settlement Procedures Act (RESPA) RESPA is a federal law that allows consumers to review information on estimated settlement costs Recission The right established by law that gives a homeowner... determine the value of the unknown component (Used for physical components such as land/building, financial components of mortgage/equity, and legal estates of the leased fee/leasehold interests) Restrictive Covenant A private restriction that limits use of real property Restrictive covenants are [1] created by deed, [2] "run with the land," and are binding all subsequent purchasers of the land, and/or... exchange ( not the sale) of real property [1] held for investment or [2] used in trade or business, for a similar property It potentially allows the property holders to defer capital gains (Hey, seek appropriate tax advice and get the facts) Tenancy [1] The right to use and occupy property as conveyed in a lease [2] The holding of property in any form of title Tenancy At Sufferance An estate whereby a person... are either guaranteed or insured by the federal government (Veterans Administration, Federal Housing Administration, etc.) or privately insured Nonrecourse Loan A clause in a debt agreement secured by real estate that states that the lender has no claim against the debtor if he/she defaults and may only recover the property Obsolescence A loss in value due to impaired desirability, lost utility, or rendered... use of the land upon which it is placed because it is too costly or too large and cannot develop the sites' highest possible land value Partial Interest An ownership right (divided or undivided) in real estate that is less than the whole See also undivided partial interest - (aka fractional interest) Partial Payment Factor A compound interest factor which represents the installment needed to repay . a buyer and seller to purchase real estate. A binder with earnest money deposit, that secures the right to purchase real estate upon agreed terms for a. a present value estimate. Documentary Stamps A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one