real estate principles 4th edition glossary

7/24/2019 Real Estate Principles 4th Edition Glossary

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Glossary

Acceleration clause Clause that makes all future payments due upon a single default of aloan. Prevents lender from having to sue for each payment once asingle payment is late.

Accretion Growth in size by addition or accumulation of soil to land bygradual, natural deposits.

Accrued depreciation In cost appraisal, the identification and measurement of reductions inthe current market value of a property from todays reproductioncost.

Acknowledgment Confirmation that a deed reflects the intention and action of thegrantor.

Acre n important measure of land area !containing "#,$%& s'uare feet(.

Active income In ).*. income ta+ law, ta+able income earned from salaries, wages,commissions, fees, and bonuses.

Actual notice n assertion of real property interests that is open, continuous, andapparent to all who e+amine the property.

Ad valorem taxes Property ta+es that are based on the market value of the property.

Adaptive reuse conversion where the remodeling produces a creative reuse of the


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structure that is different from its original purpose.

Adjustable rate mortgage

(ARM)

lternative mortgage form where the interest rate is tied to an

inde+ed rate over the life of the loan, allowing interest rate risk to beshared by borrowers and lenders.

Adjusted basis 'ual to the original cost basis, plus additional real property orpersonal property capital e+penditures, minus the cumulative amountof ta+ depreciation taken since the property was placed in service.

Adjustment period -he number of initial years in which an / remains fi+ed beforethe interest rate is allowed to be ad0usted.

Adjustments dditions or subtractions from a comparable sale price or cost whichare re'uired to make the comparable property more directlycomparable to the sub0ect property.

Adverse possession Involuntary conveyance of real property rights by an individualdemonstrating a use that is !1( hostile to the interests of the owner,!2( actual, !#( open and notorious, !"( continuous, and !$( e+clusive.

Adverse selection *imilar to an agency problem, occurs when an adviser may have anincentive to filter the investment opportunities available, keeping themore promising ones and offering the investor the less promisingones.

Affordable housing

allocation re'uirement that encourages or mandates a 3reasonable and fair4component of new housing construction for lower5income families.

Affordable housing loans 6oan purchase programs offered to primary mortgage market lenders


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by 7annie /ae and 7reddie /ac e+clusively for low5 and moderate5income households.

After-tax cash flow -he residual claim on the propertys cash flow after the mortgagelender!s( and the state and federal government have collected theirshare.

After-tax equit

reversion-he before5ta+ e'uity reversion, defined as net selling price minusthe remaining mortgage balance, at the time of sale less ta+es due onsale.

Agenc problem 8ccurs when an investor !principal( relies in an uninformed manneron an adviser !agent( for advice when there may be an incentive forthe adviser not to act in the best interest of the investor9principal.

Agenc relationship relationship that empowers the property manager9agent to serve asthe owners fiduciary: thus, the managers words and actions arebinding on the owner.

Age-to-life method /ethod of estimating improvement value that involves estimatingthe ratio of the effective age of an improvement to its economic life,and multiplying the resulting age5to5life ratio by the structuresreproduction cost.

Agglomeration

economies-he emergence of specialized resources in a locality in response todemand from multiple industries. Generally associated with largecities.

Alt-A loan home loan for borrowers who fall short of 'ualifying for astandard !prime( home loan. -he use of the term varies. oughly, itrefers to loans better than subprime, but below prime in borrower'ualifications and loan terms. /ost lt5 loans differ from prime


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loans by the absence of complete documentation of borrowersincome assets.

Anchor tenant -he large and generally wellknown retailers who draw the ma0orityof customers to a shopping center.

Annual percentage rate n appro+imation of the mortgage loans annual effective borrowingcost in the absence of early payoff. -his measure includes the effectof up5front financing costs on the true cost of borrowing.

Appraisal n unbiased written estimate of the fair market value of a property.

Appraisal report -he document the appraiser submits to the client and contains theappraisers final estimate of market value, the data upon which theestimate is based, and the calculations used to arrive at the estimate.

Appraised value stimated price or value that the 3typical4 investor is likely to payfor a property.

Arm!s-length transaction transaction between two parties that have no relationship witheach other and who are negotiating on behalf of their own bestinterests. fairly negotiated transaction and reasonablyrepresentative of market value.

Assessed value -he value determined as the basis on which an owners property ta+liability is calculated, usually a percentage of market value.

Assessment lien 6ien assessment by local governments to ensure that those whoreceive the primary benefit of neighborhood improvements will becharged their 3fair share.4 !See Special assessments.(


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Asset manager -he representative of property owners responsible for overseeingproperty managers and advising owners on important strategic

decisions involving properties.

Assignment -he transfer of the original lessees rights under the lease contract toanother tenant. -he original lessee and the new tenant may be co5liable if rent payments are not made.

Assumable loan n e+isting loan that can be preserved by a buyer instead of being

repaid by the seller when title to the mortgaged property changeshands.

Assume liabilit -o become legally responsible for an obligation. -his occurs bysigning a contract, such as a financial note.

Attach -o place a lien on real property.

Automated underwriting loan underwriting approach that e+ploits the combination ofcyber5technology and the vast lending e+perience imbedded in thegiant loan portfolios of 7reddie /ac, 7annie /ae, and other largemortgage lenders.

Automated valuation

models6ong5distance, electronic appraisal substitutes used to reduce thecost and time associated with loan underwriting, particularly withrefinancing an e+isting loan. stimate values are based on statisticaltechni'ues, e+ploiting the massive data resources of 7annie /ae,7reddie /ac, and large banks.

"alloon loan 6oan characterized by an amortization term that is longer than the


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loan term. ;ecause the loan balance will not be zero at the end of theloan term, a balloon payment is necessary to pay off the remainingloan balance in full.

"alloon mortgage nother name for a balloon loan.

"and-of-investment

analsis*ee mortgage-equity rate analysis.

"ankruptc -here are three types of bankruptcy distinguished by their section in

7ederal *tatutes< Chapter =, li'uidation: Chapter 11, courtsupervised 3work5out4: Chapter 1#, 3wage5earners proceedings.4*ee individual entries.

"argain-and-sale deed deed that conveys the land itself rather than ownership intereststhrough warranties.

"ase rent mount paid by retail tenants in percentage leases regardless of thelevel of the sales generated by the tenants business.

"aseline point of reference that runs east and west and is a feature ofgovernment rectangular survey.

"efore-tax cash flows nnual net operating income less annual debt service.

"efore-tax equit

reversion-he net sale proceeds less the outstanding balance on the mortgageloan.


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"enchmark reference point used as a standard to 'uantify the relativeperformance of a specific asset or manager acting on behalf of aninvestor.

"id-rent model /odel of how land users bid for location that reveals the influenceson how density of land use is determined, how competing urban landuses sort out their locations, how urban land value is determined,and why land uses change over time.

"oard of adjustment In local zoning law, a board of citizens, appointed by the governingbody, to hear and make determinations on appeals for zoningvariances. -he board of ad0ustment is somewhat uni'ue in that its

determinations are final rather than merely recommendations to thegoverning body. -hey can be appealed only in court.

"reak-even cash throwoff

rationother name for the break5even ratio.

"reak-even ratio -he sum of operating e+penses, capital e+penditures, and debtservice divided by potential gross income, this ratio measures theability of a property to cover its obligations.

"roker license -he authority granted by a state for one to own and operate a realestate brokerage business: the most complete type of real estatelicense.

"uild-to-suit >ith this arrangement, the developer preleases to a financiallystrong tenant to build a structure to the tenants specifications. -hisarrangement assures the tenant that they will have the space theyre'uire when needed and it assures the owner9builder that the spacewill be fully leased upon completion.


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"uer agenc agreement contract for real estate brokerage services between a buyer and areal estate agent. -he broker receives compensation for successfullylocating a property for the buyer to purchase.

# #orporation Corporate ownership structure that provides limited liability, butsuffers from double ta+ation and does not enable losses to flowthrough to investors for current use.

#ancellation option 6ease clause that gives the tenant or the owner the right, but not theobligation, to cancel the lease before e+piration.

#apital expenditures +penditures for replacements and alterations to a building !orimprovement( that materially prolong its life and increase its value.

#apital gain tax rate ate of ta+ applied to the portion of the ta+able gain on sale that isdue to appreciation in the market value of the property.

#apital market -he financial sector of the economy that serves to allocate financialresources among households and firms re'uiring funds.

#apital structure risk -he risk associated with the financing package used by the investor.In particular, increased use of mortgage debt !financial leverage(increases the riskiness of the e'uity investors return.

#apitali$ation rate -he percentage that is obtained when the income produced by aproperty !or a specified interest in a property( is divided by the valueor sale price of the property !or the specified interest in theproperty(. !lso see overall capitalization rate.(

#entral place pattern location pattern in which similar economic entities, such as a


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particular type of convenience service or retail establishment, tend todisperse evenly over the market region.

#ertificate of occupanc Issued by the local building inspector certifying that a structure issafe to occupy.

#hain of title set of deeds and other documents that traces the conveyance of thefee, and any interests that could limit it, down from the earliest timeto the current owner.

#hange date -he date the interest rate on an / is recomputed.

#hapter % bankruptc -he traditional form of bankruptcy wherein the court simplyli'uidates the assets of the debtor and distributes the proceeds tocreditors in proportion to their share of the total claims.

#hapter && bankruptc court supervised 3work5out4 for a troubled business.

#hapter &' bankruptc *imilar to Chapter 11, but applies to a household, that allows thepetitioner to propose a repayment plan to the court.

#hecks component of a grid system, defined as an area of 2" miles by 2"miles, used in a government rectangular survey.

#ivil engineer n engineer specializing in the design and construction of publicworks such as roads, water systems, sewer systems, bridges, dams,and water retention systems.


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#losing vent at which possession and title to real estate normally aretransferred from seller to buyer.

#losing costs *ometimes called settlement costs, costs in addition to the price of aproperty, usually including mortgage origination fee, title insurance,attorneys fee, and prepayable items such as ta+es and insurancepayments collected in advance at closing and held in an escrowaccount until needed.

#oefficients -he calculated relationships between an independent variable and adependent variable in a regression e'uation. -he coefficient alsotakes into account the influence of other independent variables and

represents the marginal contribution of the e+planatory variable tothe predicted value.

#ollateral Property pledged as security for a debt.

#ommercial banks ?epository institutions primarily engaged in the business of makingshort5term loans to businesses for inventory financing and otherworking capital needs.

#ommingled real estate

funds collection of investment capital from various pension funds thatare pooled by an investment advisor9 fund manager to purchasecommercial real estate properties.

#ommission Payment a real estate salesperson receives for services rendered,usually e+pressed as a percentage of the property sale price and notusually paid until the transaction is closed.

#ommon area

maintenance (#AM)+penses associated with a commercial property typically includemaintenance and repair costs, the cost of security personal and alarmsystems, as well as fees for the management of the common area.


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#ommunit development

district (#) lien 'uasi5governmental unit with broad powers to finance, create,operate and maintain infrastructure and related services within a

private development or community. -he C?? can impose ta+es orassessments on the landowners, and can issue municipal, ta+5e+emptbonds. Its board is elected by the community landowners, and itsactivities are sub0ect to full public disclosure.

#ommunit propert -he automatic right of husband and wife in property ac'uired bytheir spouse during the marriage.

#ommunit Reinvestment

Act of &%% congressional act that encourages mortgage originators to activelylend in their communities and that re'uires financial institutions toevaluate the 3fairness4 of their lending practices.

#ommunit shopping

center larger version of a neighborhood shopping center, this type ofcenter is often anchored by a discount department store.

#omparable properties Properties similar to the sub0ect property used in the salescomparison approach to calculate a single indicated value for thesub0ect property.

#omparison activities Goods and services whose optimal location pattern is clustering.

#ompounding Calculation of future values, given assumptions about the amount oramounts invested and the interest rate that is paid on the investedamounts.

#omprehensive plan local governments general guide to a communitys growth anddevelopment based on the communitys goals and ob0ectives.


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#oncentric ring model /odel created by . >. ;urgess that offered a concentric ring modelof urban form in which the center circle is the central business

district. d0acent to it is a zone of transition which containedwarehousing and other industrial land uses. -his was followed by aring of lower5income residential land use, followed by a ring ofmiddle5and upper5income land use.

#oncessions 6ease clauses, such as free rent, that reduce the cost of the lease tothe tenant and therefore provide tenants with an incentive to leasethe space from the owner.

#oncurrenc -he re'uirement that public facilities and services, including roads,sewers, and schools, be available at the same time new developmentis completed.

#ondemnation -he legal procedure involved with eminent domain, the right ofgovernment to ac'uire private property, without the owners consent,for public use in e+change for 0ust compensation.

#ondominium n ownership form that combines a fee simple estate for ownershipof individual units and tenancy in common for ownership ofcommon areas@describes an ownership form not a type ofconstruction.

#ondominium blaws -he official rules and regulations that govern condominiumownership.

#ondominium

declaration-he master deed creating or establishing the condominiumcorporation.


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#onduits gencies and private companies that pool mortgages and sellmortgage5backed securities, using the pool of mortgages originatedor purchased as the collateral for the mortgage5backed security.

#onforming conventional

loan conventional loan that meets the standards re'uired for purchasein the secondary market by 7annie /ae or 7reddie /ac.

#onsideration nything of value given to induce another party to enter into acontract.

#onstant maturit rate common inde+ for / home loans. -he one5year constantmaturity rate, for e+ample, is the average of the market yield, foundby survey, on any outstanding ).*. -reasury debt having e+actly oneyear remaining to final repayment, regardless of original maturity.

#onstruction loans 6oans used to finance the costs associated with erecting the buildingor buildings.

#onstruction manager Person hired by developers to oversee day5to5day constructionactivities.

#ontract conditions *pecific re'uirements that must be satisfied by or for a party to acontract. !*ee contract with contingencies.(

#ontract for deed sales arrangement in which the actual delivery of the deedconveying ownership will not occur until well after the buyer takespossession of the property. -his allows the seller to finance the salethrough installment payments and to have recourse to the property incase of default by the buyer9 borrower.


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#ontract for sale -he legal document between a buyer and seller that states thepurchase price and other details of the transaction, and the detailedmanner in which ownership rights are to be transferred. Is generallyregarded as the most important contract in real estate.

#ontract rent -he rent specified in the lease contract.

#ontract terms -he detailed re'uirements of a fully enforceable contract, such as theprice, the down payment, any seller financing, provisions forinspections, type evidence of title, type of deed, dates, and otherdetails of the transaction process.

#ontract with

contingenciesn agreement for sale that makes the sale conditional on the buyersobtaining something such as financing or a favorable engineeringreport.

#onvenience activities Categorization of some types of urban services and products thatusers seek to obtain the good or service from the closest availablesource.

#onventional mortgages /ortgage loans that do not en0oy government backing in the form of7A insurance or a Beterans ffairs !B( guarantee.

#ooperative form of individual ownership of apartments, the property is ownedby a corporation, of which each resident is a shareholder entitled to aproprietary lease for a particular apartment.

#orrective maintenance -he ordinary repairs to a building and its e'uipment on a day5to5daybasis.


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#orrelated returns eturns on one or more assets that generally move together whenmarket conditions change.

#orrelation coefficient relative measure of the tendency of an assets return to vary withthat of another asset over time.

#orrespondent

relationship business relationship in which a large lender agrees to purchaseloans or to consider loan re'uests from a mortgage banker ormortgage broker.

#ost segregation n income ta+ strategy separating personal property from realproperty. 8wners often do this because personal property can bedepreciated at accelerated rates if it can be separated from the realproperty and other personal property.

#ost-of-funds index n inde+ for ad0ustable rate mortgages based on the weightedaverage of interest rates paid for deposits by thrift institutions!savings and loan associations and savings banks(.

#ovariance n absolute measure of the tendency of an assets return to vary withthat of the returns on another asset over time.

#ovenant against

encumbrances promise that the property is not encumbered with liens, easements,or other such limitations e+cept as noted in the deed.

#ovenant of quiet

enjoment promise that the property will not be claimed by someone with abetter claim to title.

#ovenant of sei$in promise that the grantor truly has good title, and that he or she has


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the right to convey it to the buyer.

#ovenants 6egally binding promises for which the grantor becomes liable.

#redit scoring -he statistical evaluation of borrower creditworthiness that haslargely replaced the use of credit reports and the sub0ectivee+amination of payment punctuality and debt balances.

#redit tenants Companies whose general debt obligations are rated 3investmentgrade4 by one or more of the ). *. rating agencies, such as *tandard

and Poors and /oodys.

#redit unions ?epository institutions that are restricted by their charters to servinga group of people who can show a common bond such as employeesof a corporation, government unit, labor union, or trade association.

#ustodial maintenance -he day5to5day cleaning and upkeep re'uired to maintain propertyvalue and tenants.

ealer propert )nder ).*. income ta+ law, real estate held for sale to others.

ebt coverage ratio

(#R) measure of the e+tent to which 8I can decline before it isinsufficient to service the debt, defined as net operating income overdebt service.

ebt ield ratio mortgage underwriting ratio for loans on income producingproperty. -he ratio is defined as property 8I divided by themortgage loan amount. It indicates the rate of cash flow to the loanamount should the lender become the owner.


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eclaration of covenants document recorded in the public records together with the platmap of a subdivision. It lists the restrictive covenants for thesubdivision.

edicate (dedication) -o convey certain lands of a subdivision to the local government.

edicated (propert) -he conveyance of property from a private owner to government forpublic use. Common e+amples are the dedication of streets, parks, orother areas to local government in the course of subdivisiondevelopment.

eed special form of written contract used to convey a permanentownership interest in real property.

eed of bargain and sale *ee bargain-and-sale deed.

eed of trust n instrument used instead of a mortgage in some states. -heborrower conveys a deed of trust to a trustee, who holds the deed onbehalf of both borrower and lender. If the loan obligation is paid offin accordance with the note, the trustee returns the deed to theborrower. ;ut if the borrower !trustor( defaults, the trustee e+erciseshis power of sale to dispose of the property on behalf of the lender.

eed restrictions 6imitations imposed on the use of land and structures by clauses in adeed.

eeds in lieu of

foreclosure legal instrument issued by defaulting borrowers that transfers allrights they have in a property to the lender. ?oes not necessarilyconvey a clean title, 0ust whatever interest the defaulting borrowerhas at the time of conveyance.


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efault -he conse'uence of prolonged delin'uency: the failure of aborrower to meet the terms and conditions of a note.

efeasance clause clause that may be contained in commercial mortgages to protectlenders from prepayments in a declining interest rate environment.>ith defeasance, a borrower who prepays must purchase for thelender a set of ).*. -reasury securities whose coupon paymentse+actly replicate the cash flows the lender will lose as a result of theprepayment of the mortgage.

efeasance prepament

penalt*ee 3?efeasance clause.4

eferral benefits -he gain to the ta+payer from delaying the payment of income ta+esuntil the property is sold. -his benefit is produced by the annualdepreciation deduction.

eferred maintenance 8rdinary maintenance not performed at the time a problem isdetected.

eficienc judgment -he legal right of lenders to file suit against borrowers when theproceeds from a foreclosure sale do not fully pay off an outstandingloan, as well as any late fees and charges.

eliver n observable, verifiable intent that the deed is to be given by thegrantor to the grantee.

emand clause right that permits the lender to demand prepayment of the loan.


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ependent variable -he variable being 3e+plained4 in a regression e'uation.

epreciable basis Generally, the value of the ac'uired property, also called the originalcost basis, less the value of the land.

epreciation nnual deduction that allows investors to reduce the amount ofta+able income they report by an amount that is intended to reflectthe wear and tear on the property over time.

epreciation recapture -he cumulative amount of depreciation that has been taken since theproperty was placed into service. -his amount is generally ta+ed atthe depreciation recapture ta+ rate when9if the property is sold.

epreciation recapture

rate-he ta+ rate that is applied to the depreciation recapture portion ofthe gain on sale when9if the property is sold.

esignated agent In case a brokerage firm is agent for both a seller and a buyer, thefirm sometimes designates one salesperson to serve the buyer andone to serve the seller. -he two salespersons are presumed tomaintain the privacy, and serve the interest of the party theyrepresent.

esign-build n approach to building large structures where the role of architectand general contractor are merged into one.

evised Conveyance or distribution of a decedents real property through awill.


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irect capitali$ation -he process of estimating the value of a property by dividing apropertys annual net operating income by an overall capitalizationrate.

irect market extraction /ethod of estimating the appropriate capitalization rate fromcomparable property sales.

iscount points )pfront financing costs charged by lenders to increase the yield on aloan.

iscounting -he process for e'uating the value of future benefits from a realestate investment to an e'uivalent current !present( value.

iscrimination in

housing7ederal and state laws prohibit discrimination in housing on thebasis of race, color, religion, national origin, se+, familial status, andhandicap.

isintermediation eference to the occurrence of conditions when the growth ofdeposits in banks and savings associations becomes negative, due toother, more attractive, direct investment opportunities.

iversifiable risk )nsystematic risk that can be eliminated from a portfolio by holdingsecurities and other investments with less than perfectly correlatedreturns.

iversification llocating portfolio resources among alternative investments toreduce the risk of the returns on the portfolio.

octrine of constructive

notice common law tradition stating that if a person is capable ofknowing about a claim or rule, then he or she can be bound by it.


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ominant parcel parcel that benefits from a servient parcel in an easementappurtenant.

ower common law provision that grants a wife a one5third life estate inall of the real property of a decedent husband.

ual agenc situation in which a person or firm has an agency and fiduciaryrelationship to both parties@seller and buyer@of a transaction.

ue diligence fter a buyer and seller have agreed on a purchase price, the buyer isprovided time to verify the information that has been provided bythe seller. 7or e+ample, the buyer will want to verify the magnitudeof certain operating e+penses, the current rent charged to tenants, thelack of environmental problems, etc. -his process of 3kicking thetires4 before final closing is the due5diligence process.

ue-on-sale clause -he clause in a mortgage document that re'uires the borrower to payoff the loan in full if the property serving as security for the loan issold.

*arl pament

mortgages6oans where the borrower makes additional payments to reduceoutstanding principal more 'uickly than scheduled.

*arnest mone cash deposit by a buyer at the time of the offer to establishcredibility of the offer, and to provide recourse to the seller if thebuyer reneges.

*asement -he right to use land for a specific and limited purpose. the sub0ect,or servient parcel may give use to an ad0acent, 3dominant4 parcel


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!easement appurtenant(, or it may give use to persons or anorganization !easement in gross(.

*asement appurtenant right of use that continues from owner to owner that involves arelationship between two parcels of land< a dominant parcel thatbenefits from a servient parcel.

*asement b estoppel -he right of use created if a landowner gives an ad0acent landownerpermission to depend on her land.

*asement bprescription -he ac'uisition of a right of easement by open, notorious, andcontinuous assertion of the right, hostile to the subservient landowners interest. -he amount of time re'uired to attain the right ofeasement by prescription varies by state.

*asement b prior use n implied right of use that allows the owner of a landlocked parcelthe right to use a previously e+isting path across another property foraccess and egress.

*asement in gross -he right to use land for a specific, limited purpose unrelated to anyad0acent parcel.

*asement of necessit created implied right of use that allows the owner of a landlockedparcel the right to use a path across another property for ingress andegress.

*conomic and

environmental impact

statements

*tudies of the effect that a new development will have on theeconomy or the environment of the region.


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*conomic base -he set of economic activities that a city provides for the worldbeyond its boundaries.

*ffective borrowing cost -he true borrowing cost, including the effect of all up5frontfinancing costs. Is similar to the annual percentage rate but allowsfor the effect of early payoff.

*ffective gross income -he total annual income the rental property produces aftersubtracting vacancy losses and adding miscellaneous income.

*ffective gross incomemultiplier -he ratio of the sale prices to the annual effective gross income ofthe income5producing property.

*ffective rent *ee equivalent level rent.

*ffective tax rate (income

taxes)-he percentage amount by which income ta+es reduce the going5inI on a property ac'uisition or development.

*ffective tax rate

(propert taxes)-he ta+ liability divided by the propertys market value or sale price.

*lective share Provision that gives a surviving spouse a share of most of the wealthof the decedent.

*lectrical engineer n engineer specializing in the design and construction of electricalsystems for production and distribution of power, and in electricalcircuitry generally.


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*lements of comparison -he relevant characteristics used to compare and ad0ust the saleprices of the comparable properties in the sales comparisonapproach.

*minent domain -he power of government in to take private property for a publicpurpose by paying the owner 0ust compensation.

*ncroachment )nauthorized intrusion of a building or other improvements ontoproperty owned by another.

*qual #redit +pportunitAct (*#+A) -his act prohibits discrimination in lending practices on the basis ofrace, color, religion, national origin, se+, marital status, age, orbecause all or part of an applicants income derives from a publicassistance program.

*quitable title -he right of someone to obtain full, legal title to real estate, providedthe terms and conditions of the document creating e'uitable title!usually a contract for sale( are fulfilled.

*quit dividend rate -he 3capitalization rate4 for e'uity. It is derived by dividing thebefore5ta+ cash flow by the value of the invested e'uity capital.*ometimes referred to as the propertys dividend rate9yield, also the3cash5on5cash return.4

*quit of redemption period of time allowed by courts in every state that grantsdelin'uent mortgage borrowers the opportunity to make overduepayments and come current on the mortgage before foreclosure iscomplete.

*quit R*,s eal estate investment trusts that invest in and operate income5producing properties.


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*quivalent level rent -he fi+ed monthly payment that has the same present value as theactual lease payments after concessions or e+penses reimbursementrevenue over the same term.

*rrors and omission

insurance type of insurance that indemnifies professionals if they make anerror in their profession or if they omit something important fromtheir analyses.

*scrow -he status of real estate transactions that are closed through the helpand intercession of a third party, called an escrow agent. -he deed is

delivered to the escrow agent for delivery to the buyer onperformance of a condition !payment of the purchase price(.

*scrow account segregated account held by brokers for the deposit of earnestmoney !deposit( funds. lso, a trust account of a lender used to payfor property ta+es, hazard insurance, or other items on behalf of aborrower.

*scrow agent person or company that performs the closing function for a fee:escrow agents collect all needed documents and funds fordisbursement at the closing.

*scrow clause e'uires a mortgage borrower to make monthly deposits into anescrow account.

*state Interests in real property that include possession.

*stimated closing costs n estimate of all the costs to be incurred at a real estate closing./ost commonly, the estimate is provided by a lender, in accordancewith the re'uirements of the eal state *ettlement Procedures ct.


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*vidence of title *ubstantiation that demonstrates that good and marketable title isbeing conveyed as part of a real estate transaction. -wo main forms

accepted are abstract with attorneys opinion, and title insurancecommitment.

*xceptions and

reservations clause clause in a deed that can contain a wide variety of limits on theproperty interest conveyed.

*xcess deductions -he amount by which allowable ta+ deductions !including

depreciation( e+ceed the rental income generated by the property.

*xclusionar $oning Doning that tends to e+clude lower5income groups and is prohibited.

*xclusive agenc listing n agreement between a seller of property and a broker in which theseller agrees to pay a commission to the broker if anyone other thanthe owner finds a buyer, during the period of the agreement.

*xclusive right of sale

listingn agreement between a seller of property and a broker in which thebroker is assured of receiving a commission if the broker or anyoneelse, including the owner, finds a buyer during the period of theagreement.

*xculpator clause 6oan provision that releases the borrower from liability forfulfillment of the contract.

*xpansion option 6ease clause that obligates the property owner to find space for thetenant to e+pand the size of their leased space.


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*xpected value -he weighted average of a series of potential outcomes weighted bytheir associated probabilities.

*xpense stop clause often found in commercial leases that re'uires landlords topay property operating e+penses up to a specified amount andtenants to pay the e+penses beyond that amount. -he e+pense stop isusually stated in a per s'uare foot amount.

*xternal obsolescence 6osses of property value caused by forces or conditions beyond theborders of the property. -he losses are deducted from a buildingsreproduction cost in the cost approach to estimating market value.

*xternalities -he unaccounted effects that a land use imposes on surroundingparcels.

*xtraterritorial

jurisdictionControl by a community of an area larger than the community or0urisdiction for planning and zoning purposes, granted by the statelegislature, which allows local governments to plan and controlurban development outside their boundaries until anne+ation canoccur.

.allout risk -he potential loss of borrowers from the origination pipeline ifmortgage interest rates decline after the loan commitment, but beforethe closing of the loan, which results in borrowers choosing not toclose !3take down4( the loan.

.annie Mae Government5sponsored enterprise: one of the largest purchasers ofresidential mortgages in the secondary market.

.ast-track construction n approach to construction wherein actual construction beginsbefore design and building specifications are complete.


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.ederal /ousing

Administration (./A) government5sponsored housing finance agency that operates in theprimary market by providing a default insurance program, as well as

other housing programs and initiatives.

.ee simple absolute n estate in land that provides the owner with a complete set oflegal rights, limited only by the powers of government.

.ee simple conditional 8wnership that is sub0ect to a condition or trigger event.

.ee simple estate -he complete ownership of a property: may be either absolute orconditional.

./A mortgage insurance Government5sponsored mortgage insurance that protects lendersfrom any loss after foreclosure and conveyance of title to theproperty to the ).*. ?epartment of Aousing and )rban?evelopment !A)?(. Insurance premium is paid by the mortgageborrower.

.iduciar relationship -he special duties and obligations to a principal re'uired of an agent,including complete loyalty, confidentiality, obedience, disclosure,accounting, care, skill, and due diligence.

.inal adjusted sale price -he price paid for a comparable property in the sales comparisonapproach, ad0usted for all conditions and characteristics toappro+imate the sub0ect property and the current date.

.inancial intermediaries Institutions that bring together depositors and mortgage borrowers.


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.inancial risk -he risk 8I will be less than debt service.

.ixtures Personal property that becomes real property by virtue of itspermanent attachment to the realty.

.lat rent ?escribes a lease where the rental rate is fi+ed for the entire term.

.lex space Industrial space that is often built without fancy lobbies or fi+turesthat can be used for storage or for simple offices and that can be

converted from one use to another relatively ine+pensively.

.loating-rate mortgage debt instrument whose interest rate changes over the life of theloan based on a market inde+ such as the prime rate or 6I;8.

.loor loan In financing of large5scale building construction, a minimum level ofloan that is granted until certain progress points in construction andleasing are achieved. -hen the loan is increased.

.oreclosure process to force the public sale of property to satisfy the financialobligations of a delin'uent borrower to a lender. -he legal purpose isto terminate ownership claims, and any subordinate liens, so thattitle can go to a buyer.

.orward commitment contract binding a mortgage lender or investor to purchase or funda loan on predetermined terms at a future date.

.reddie Mac government5sponsored enterprise and, along with 7annie /ae, oneof the largest purchasers of residential mortgages in the secondarymarket.


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.reehold state interests in real estate having unlimited duration: titledinterests.

.unctional obsolescence 6osses in value of a building relative to its reproduction cost becausethe building is not consistent with modern standards or with currenttastes of the market.

.unds from operations

(..+)et !accounting( income, plus ta+ depreciation, plus amortization ofleasing commissions and tenant improvements. Is considered a

better measure of a I-s cash flow than accounting income.

.uture value -he value of money in some period beyond time zero.

0arden apartments -hese developments have a relatively low density of developmentand are located in suburban and nonurban areas where land is lesse+pensive than in urban areas.

0eneral agent 8ne who is empowered to represent a principal, often a businessfirm, in its business relationships. general agent can contract andbind the principal within the confines of the business or employmentrelationship.

0eneral contractor )sually a construction company that has responsibility for seeingthat all aspects of construction are completed on time and withinbudget.

0eneral lien security interest or lien that arises out of actions unrelated toownership of the property.


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0eneral partnerships n ownership form characterized by multiple owners, unlimitedliability for each e'uity holder, and flow through ta+ation of bothta+able income and cash distributions.

0eneral warrant deed Aighest form of deed in which the grantor becomes liable for allpossible covenants, or legal promises, assuring good title.

0eographical information

sstems (0,1)Computerized methods for analyzing data about communities usingvarious maps and combinations or layers of maps.

0oing-in cap rate -he overall capitalization rate: the ratio of the first5year netoperating income to the overall value !or purchase price( of theproperty.

0oing-out cap rate -he ratio of the estimated net operating income in the year followingsale to the overall value of the property at the time of sale. !See3-erminal capitalization rate.4(

0overnment 2ational

Mortgage Association

(02MA)

federal government agency that guarantees mortgage5backedsecurities issued by private 7A and B lenders.

0overnment-sponsored

enterprises term that refers to 7annie /ae, 7reddie /ac, and several otherless important government entities created by acts of Congress topromote an active secondary market for home mortgages.

0raduated rent ?escribes a lease that calls for prespecified increases in the contractrental rate.


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0rant deed deed containing an implied promise that the grantor actually hastitle and that it is not encumbered in any way, e+cept as described inthe deed. grant deed is very similar to a warrantee deed. It is thepredominant form of deed used in California.

0rantee -he recipient of a conveyance of a real property interest.

0rantor -he person or entity conveying the real property interest to thegrantee.

0ross floor area -he gross floor area of a shopping center is e'ual to the total grossleasable area, plus the s'uare footage of the common areas.

0ross leasable area -he standard for measuring retail space, the G6 is simply the sumof the space occupied by the tenant, and is therefore similar to theusable area of office tenants.

0ross lease 6ease in which the landlord pays all operating e+penses of theproperty.

0round lease 6eases of vacant land or of the land portion of an improved parcel ofreal estate.

0rowth moratorium temporary prohibition of further development in a community or0urisdiction.

/abendum clause Clause in a deed that defines or limits the type of interest beingconveyed.


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/ard costs mounts of capital committed in development pro0ects to materials,labor, and other tangible or nonservice inputs.

/ighest and best use -he use of a property found to be !1( legally permissible, !2(physically possible, !#( financially feasible, and !"( ma+imallyproductive.

/igh-rise apartment

buildings;uildings of at least 1& to 1$ stories.

/olding period 6ength of time an investment is held prior to sale or disposal.

/ome equit loans *econd mortgages, used to finance home improvements and otherpurchases, where homeowners can borrow against the accumulatede'uity in the home.

/ome Mortgage

isclosure Act of &%3n act of Congress that discourages lenders from avoiding, orredlining, certain neighborhoods in a manner related to minoritycomposition.

/ome +wnership and

*quit 4rotection Actn act of Congress that addresses abusive, predatory practices insubprime lending and sets a trigger annual percentage rate !P(and fee levels at which loans become sub0ect to the lawsrestrictions.

/omestead exemption provision in some states that allows specified ta+payers !usuallyowners of their principal full5time residences( to apply for adeduction of a certain amount from the propertys assessed value incalculating the annual property ta+ liability.


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/ospitalit propert Property classification that includes hotels, motels, and many typesof restaurants.

/ousing expense ratio ratio used to assess the ability of a borrower to pay debt: definedas the monthly payment of principal and interest on the loan plusmonthly payments into an escrow account toward property ta+es andhazard insurance divided by the borrowers gross monthly income.

/brid ARM n ad0ustable rate mortgage loan that provides for an initial periodof fi+ed interest charges, hence fi+ed payments, before the interest

rate becomes ad0ustable. -he fi+ed interest rate period typicallyranges from three to ten years.

,mpact fee fee charged by a community and paid by a developer that iscommensurate with the e+ternalities created by a development.Intended to cover the developments impact on such things as roads,sewer systems, schools, and police and fire protection.

,mplied easement right of use not created by an e+plicit deed or e+plicit clause in adeed. It often is created when a subdivision map is placed in thepublic records.

,mprovements on the

landny fi+ed structures such as buildings, fences, walls, and decks.

,mprovements to the

land-he components necessary to make the land suitable for buildingconstruction or other uses and includes infrastructure, such asstreets, walkways, utilities, storm water drainage systems, and othersystems that may be re'uired for land use.


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,ncome capitali$ation -he process of converting periodic income into a value estimate.

,ndependent variables Bariables in a regression e'uation that are believed to partially

e+plain variations in the dependent variable.

,ndex rate market5determined interest rate that is the 3moving part4 in anad0ustable interest rate.

,ndex rent *ee 3Inde+ed lease.4

,ndexed lease >ith an inde+ed lease, rent increases are tied to changes in aregularly reported inde+. 7or e+ample, the rental rate on a leaseinde+ed to the consumer price inde+ !CPI( may increase " percent inthe second year of the lease if the CPI rose " percent during the firstyear of the lease.

,ndicated value -he final value estimate for the sub0ect property resulting fromapplication of one of the ma0or approaches in the appraisal process.

,ndustrial propert Property classification that includes warehouses and structures thathouse light manufacturing.

,ndustr economies of

scale-he growth of an industry within a locality that creates specialresources and cost advantages for that industry.

,nflation risk -he risk that general inflation in the economy will be greater than orless than e+pected.


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,nstitutional-grade real

estate6arger, more valuable commercial properties, generally well overE1& million, targeted by institutional investors, such as pensionfunds and foreign investors. -hese investments are generally locatedin the $& to %& largest ).*. metropolitan areas.

,nsurance clause e'uires the borrower9mortgagor to maintain property casualtyinsurance acceptable to the lender, giving the lender 0oint control inthe use of the proceeds in case of ma0or damage to the property.

,ntangible assets onphysical assets such as patents and copyrights.

,ntercept -he base value estimate in a regression assuming that all of thee+planatory variables are set e'ual to zero.

,nterest ent or a charge paid for the use of money. Interest may also refer tothe bundle of rights held by owners of real property.

,nterest rate risk -he risk that changes in the general level of interest rates will affectthe pricing of all securities and investments.

,nterest-onl amorti$ing

mortgage mortgage loan that is interest only for some years, perhaps ten orfifteen, after which the payment increases to an amount sufficient tofully amortize the loan in the remaining term.

,nterest-onl balloon

mortgage mortgage loan that is interest only for its full term and then mustbe refinanced or paid off in full.

,nterest-onl loans 6oan alternative in which borrowers pay only interest over the life ofthe loan, and then completely repay the principal in one installmentat loan maturity.


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,nterlease risk -he risk associated with the replacement of a tenants first lease withanother lease of uncertain terms and conditions.

,ntermediaries In real estate investment, third party specialists who use theire+pertise and knowledge to invest and manage funds on behalf ofclients.

,nternal rate of return

(,RR)-he rate of interest !discount( that e'uates the present value of thecash inflows to the present value of the cash outflows: that is, the

rate of discount that makes the net present value e'ual to zero.

,nternal Revenue 1ervice

(,R1)Created by Congress to collect federal income ta+es and to clarifyand interpret ta+ rules and regulations.

,nternet marketing )se of the Internet to advertise real estate services, to marketproperties, and to provide information about specific properties.>hile few properties are sold e+clusively through the Internet, it hasbecome a central tool to real estate marketing today.

,ntestate Conveyance of a decedents property without a will.

,nverse condemnation suit by a landowner to force a government to resort to eminentdomain under the argument that regulation has effectively taken thefull value of a property.

,nvestment ny decision that involves incurring significant costs in the presentfor the right to receive future benefits. n outlay of money orsomething of value for uncertain income or profit.


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,nvestment-grade

propert*ynonymous with institutional5grade real estate, large, relativelynew and fully leased commercial properties located in ma0ormetropolitan areas, generally well over E1& million, targeted by

institutional investors, such as pension funds and foreign investors.

,nvestment propert sset, as defined in the ).*. Internal evenue Code, ownedprimarily for earning an investment return@especially capitalappreciation@as opposed to an asset that is held for use in onestrade or business. aw land and developed lots are real estatee+amples of investment properties.

,nvestment risk -he possibility that future cash flows or nonmonetary costs andbenefits will differ from e+pected values.

,nvestment value -he value of the property to a particular investor, based on his or herspecific re'uirements, discount rate, e+pectations, and so on.

,nvestment ield -he growth in the invested dollars of an investment. )sually statedas a percentage growth or return.

5oint tenanc form of co5ownership in which two or more owners hold e'ualshares and have e'ual rights of possession. -he surviving partnersdivide the interests of a deceased partner.

5oint venture Generally, an association of two or more persons or firms in order tocarry out a single business pro0ect. In real estate, often a businesspartnership formed between a lender and a developer or investor todevelop or purchase a specific property or properties.

5udicial deed deed issued through a court5ordered proceeding.


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5udicial foreclosure -he process of bringing the property of delin'uent borrowers topublic sale that involves court action. Proceeds from the foreclosure

sale are used to pay off, to the e+tent possible, the borrowerscreditors.

5umbo loans onconforming loans that e+ceed the ma+imum loan amount forpurchase by 7annie /ae or 7reddie /ac. ;ecause these loans cannotbe purchased by one of the G*s, they usually carry a slightlyhigher interest rate.

5ust compensation Payment to an owner for property taken in condemnationproceedings, usually the market value of the property taken by thegovernment.

6and Commonly used to refer to a parcel that does not include anystructures but may include some improvements to the land.

6and acquisition loans 6oans to finance the purchase of raw land: perhaps the most risky ofreal estate loans.

6and development loans 6oans to finance the installation of the on5site and off5siteimprovements to the land that are necessary to ready the land forconstruction.

6and planner In land development, lays out the basic 3map4 for use of the land,including location of roads, utilities, structures, water retentionareas, and other elements.

6andscape architect n architect specializing in planning the arrangement of trees, other


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plantings, and placement of other harmonizing ob0ects on land.)sually the focus is designing the grounds for a building or group ofbuildings.

6ate fees 7ees assessed for standard home loans when payments are receivedafter the 1$th of the month the payment is due. lso found incommercial mortgages.

6aw of agenc -he legal rights, duties, and liabilities of principal, agent, and thirdparties as a result of the agency relationship between them.

6aw of descent -he laws and procedures controlling how a state will convey adecedents estate among the heirs if no will e+ists.

6eased fee estate -he bundle of rights possessed by the landlord in a leased property,made up primarily of the right to receive rental payments during thelease term and ultimately to repossess the property at the end of thelease term.

6easehold (estate) -he interest or rights of a lessee or tenant in a leased property,including the possessory interests that are a temporary conveyanceof the rights of e+clusion, use, and en0oyment, but not the right ofdisposition. -he tenant receives these rights in e+change for thepayment of rent.

6egal life estate life estate created by the action of law.

6egal title 8wnership of property: for real estate, a lawful claim, supported byevidence of ownership.


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6ender!s ield -he implied discount rate, or internal rate of return, on a loan@given all of the cash inflows and outflows on the loan to the lender.

6evel-pament mortgage fully amortizing loan with e'ual periodic payments.

6everage -he use of mortgage debt to help finance a capital investment.

6evered cash flows -he propertys net rental income after subtracting any payments duethe lender.

6,"+R common inde+ of interest rates for income producing property, the6ondon Interbank 8ffering ate is a short5term interest rate forloans among foreign banks based in 6ondon.

6icense -he permission to use anothers land for a specific and limitedpurpose.

6icensing laws *tate laws that authorize persons who meet specified 'ualificationsto engage in a business or profession.

6ien n interest in real property that serves as security for a loanobligation. In case of default the holder of the lien is entitled to havethe property sold to satisfy the debt.

6ien theor 6egal theory that interprets a mortgage as a lien rather then atemporary conveyance of title.

6ike-kind exchange popular method of deferring capital gain ta+es which allows


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owners, under certain circumstances, to e+change their properties foranother and avoid paying capital gain ta+es at the time of thetransaction.

6imited liabilit compan

(66#) hybrid form of ownership that combines the corporatecharacteristics of limited liability with the ta+ characteristics of apartnership.

6imited partnership partnership in which one party !the general partner( assumesunlimited liability in e+change for control of all material decisionmaking. -he limited partners en0oy liability that is limited to thee+tent of their e'uity contributions to the entity. ll parties involved

benefit from flow5through income and ta+ation: that is, thepartnership is not ta+ed.

6inkages -he attractions or important access needs that one land use has forother land uses.

6iquidit -he ability to sell an asset 'uickly for fair market value.

6iquidit risk -he risk that an owner will not be able to sell an asset 'uickly for itsfair market value.

6isting contract n agreement between an owner of real estate and a real estatebroker that obligates the broker to attempt to sell the property underspecified conditions and terms. It obligates the property owner topay a commission to the broker if the broker is successful inobtaining a ready, willing, and able buyer for the property on termsspecified or on terms acceptable to the seller.

6oad factor nother name for the ratio of rentable to usable area in an officebuilding. -he factor is multiplied by the tenants usable area to


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determine rentable area.

6oan balance -he outstanding principal balance on a loan. >ill always be e'ual to

the original balance if the loan is an interest5only loan. ?eclines overtime if the loan is self amortizing.

6oan commitment written agreement that commits the lender to make a loan to theborrower provided the borrower satisfies the terms and conditions ofthe commitment.

6oan constant -he annual debt service on a loan divided by the initial amount ofthe loan.

6oan servicing ll actions and activities associated with administering a mortgageloan, including collection of payments, monitoring insurance and ta+obligations, and notification of delin'uent borrowers. -his functionis often provided by an entity different from the entity that owns themortgage.

6oan underwriting Involves an analysis by the lender of the riskiness of the promisedmortgage payments. e'uires analysis of the potential borrowerswillingness and ability to make scheduled mortgage payments.

6oan underwriting

process-he process by which a prospective borrower submits a formal loanapplication and the lender analyzes all relevant information anddecides whether or not to commit to the loan.

6ocal economic activities ctivities in a city that serve the local businesses and households.

6ocation quotient -he ratio between the percentage of employees in a certain type of


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work or 0ob classification in a community and the percentage ofemployees in that same type of work or 0ob classification nationally.If the ratio e+ceeds 1 it indicates the activity is a base economicactivity.

6ockout provision mortgage clause or provision prohibiting prepayment of themortgage for a specified period of time after origination.

6ow-income housing Aousing targeted to households with low or moderate incomes.

6ump sum one5time receipt or e+penditure occurring in a given period.

Macroeconomic risk

factorsisk factors or variables that can potentially affect the values andreturns on all properties in all markets.

Management agreement -he agreement that forms the basis for the relationship between theproperty owner and the property management firm.

Management risk isk that a property will not be effectively managed, causing areduction in net cash flows and returns.

Margin -he 3markup,4 typically two to three percentage points, over andabove the inde+ rate, which is charged on ad0ustable rate mortgages.

Market conditions -he relationship between supply and demand for a particular type ofreal estate in a local market at a specified point in time.

Market parameters Critical summary features such as occupancy rates, rental rate


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growth, or sales rates, that characterize a real estate market.

Market rent -he rent that could be obtained by renting a property on the open

market.

Market risk factors isk factors or variables that cannot be diversified away. lso calledsystematic risk factors.

Market segmentation Identification and delineation of submarkets.

Market value -he price a property should sell for in a competitive market whenthere has been a normal offering time, no coercion, arms5lengthbargaining, typical financing, and informed buyers and sellers.

Marketabilit stud n analysis of how best to bring a product or service to the market.It considers characteristics of the product or service in relation to theneeds of potential customers and which marketing channels are mostlikely to produce the desired results.

Marketable title -itle to real property that is free of reasonable doubt.

Marketable title laws *tate laws intended to limit the number of years that title searchmust 3reach back4 through the title 3chain.4

Market-adjusted normal

sale price3ormal sale price4 ad0usted for changes in market conditionsbetween the date of sale and the date of appraisal of the sub0ectproperty.


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Maturit imbalance

problem*ituation faced by banks, thrifts, and other financial institutions inwhich long5term assets are funded with short5term liabilities.

Mechanical engineer n engineer specializing in the design and construction of heating,ventilating, and air5conditioning systems, and in other kinds ofmechanical systems.

Mechanics! liens 6iens that arise from construction and other improvements to realestate.

Metes and bounds /ethod of describing real estate in which a mete is a unit of measure!foot, mile( and a bound is a boundary marker. ssentially, ase'uence of directed distances that are the boundaries of theproperty.

Metropolitan statistical

area (M1A)n /* is comprised of one or more urban counties, identified as asingle labor market area, centered around a city with at least $&,&&&in population.

Me$$anine loans method of obtaining additional leverage on top of a traditionalfirst mortgage. -his debt is secured by the pledge of an e'uityinterest in the borrowers partnership or business@it usually is notsecured by a lien on the property.

Microeconomic risk

factorsisk that is specific to a particular property or local market and thatis controllable by the owner9 investor. -his risk can be diversifiedaway in a portfolio.

Midmonth convention -a+ rule that assumes the ac'uisition of an income producingproperty occurs on the 1$th day of the month, regardless of theactual ac'uisition date.


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Midrise apartment

buildingspartment buildings that range in height from four to nine stories.

Millage rate -he dollars of ta+ per E1,&&& of property value. 7or e+ample, amillage rate of 2& means that a person owning a property having anassessed value of E1&&,&&& would pay 2& F 1&& E2,&&& in ta+.

Mills )nits used to state the amount of property ta+ assessment: thenumber of dollars per E1,&&&. -wenty mills means E2& per eachE1,&&&.

Mineral rights ights to the subsurface, including rights to oil, gas, coal, and othersubstances that are mined, and can be separated from landownership.

Miniperm loan loan from an interim lender that provides financing for theconstruction period, the lease5up period, and for several yearsbeyond the lease5up stage.

Mixed-asset portfolio portfolio that contains a variety of types of assets: for e+ample,stocks, bonds, and real estate.

Monthl loan constant loan payment factor used to determine payments on a levelpayment, fi+ed rate loan.

Mortgage lien on real property as security for a debt. special contract bywhich the borrower conveys to the lender a security interest in themortgaged property.


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Mortgage assumption >hen buyers take over payments of mortgages of sellers andbecome personally liable by creating a note in their name.

Mortgage bankers 7ull5service mortgage companies that process, close, providefunding, and sell the loans they originate in the secondary mortgagemarket, and service loans for loan investors.

Mortgage brokers n intermediary between those who demand mortgage funds andthose who supply the funds. ;rokers arrange mortgage loans for afee, but do not originate or service the loans.

Mortgage insurance

premium (M,4))pfront insurance premium re'uired by 7A insured loans.

Mortgage joint venture relationship between developers and others who supply all or mostof the funds in the form of loans to develop properties that will beused in their business or enter their portfolios.

Mortgage menu -he many types of residential loans offered by originating lenders toresidential borrowers. -he menu includes the cost of the variousmortgage items, including the contract interest rate and number ofupfront discount points and origination fees.

Mortgage pipeline n originating lenders approved, but currently unfunded, loancommitments plus loans funded but unsold.

Mortgage R*,s eal estate investment trusts that purchase mortgage obligations andeffectively become real estate lenders.


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Mortgagee -he lender, who receives the mortgage claim.

Mortgage-equit rate

analsis

stimation of an overall capitalization rate by calculating a weighted

average of the capitalization rate for debt !mortgage constant( andthe capitalization rate for e'uity !e'uity dividend rate(. -he weight isdetermined by the percentage that each component !debt and e'uity(is of the total investment.

Mortgagor -he borrower or grantor of the mortgage claim.

Multifactor asset pricingmodel /odels for determining re'uired discount rates that assume there areseveral sources of macroeconomic !nondiversifiable( risk in theeconomy for which investors must be compensated in the form of ahigher going5in internal rate of return.

Multifamil propert esidential property classification that includes apartments.

Multinuclei cit Phrase coined by Aarris and )llman in a landmark study thatdescribed the effects of the motor vehicle, combined with newtechnologies of production, that released the city from its absoluteties to the C;?.

Multiple listing service

(M61)*haring of property sales listings by a number of real estate brokerswith an agreement as to how costs and commissions are to beshared.

Multivariate regression

analsis (MRA) statistical procedure used to e+amine the relationship between adependent variable and multiple independent, 3e+planatory,4variables.


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Mutual Mortgage

,nsurance .und-he depository for 7A insurance premiums and the source ofreimbursement for lenders in the case of foreclosure losses on 7A5insured properties.

2AR*, index value5weighted inde+ that tracks the total return patterns of alle+change listed I-s. Produced by the ational ssociation ofeal state Investment -rusts.

2ational Association of

Realtors principal trade or professional organization of real estate brokers./embers agree to abide by a code of ethics.

2atural vacanc rate -he proportion of potential gross income not collected when the use!rental( market is in e'uilibrium.

2#R*,. 4ropert ,ndex measure of the historical performance of income properties heldby pension funds and profit5sharing plans. Produced 'uarterly by theational Council of eal state Investment 7iduciaries.

2egative amorti$ation 8ccurs when the loan payment is not sufficient to cover the interestcost and results in the unpaid interest being added to the originalbalance, causing the loan amount to increase.

2eighborhood shopping

center6ocated for the convenience of a nearby resident population, thistype of center contains retail establishments offering mostlyconvenience goods. -ypically it is 3anchored4 by a supermarket.

2et asset value 'ual to total market value of a I-s underlying assets, lessmortgages and other debt.

2et income multiplier cash flow multiplier calculated as the ac'uisition price divided by


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the net operating income.

2et lease 6ease in which the tenant pays some or all of the operating e+penses

of the property in addition to rent.

2et listing -ype of contract in which sellers specify the amount they will acceptfrom the sale, with brokers keeping all proceeds in e+cess of thatamount.

2et operating income

(2+,)

-he type of income to a property used in direct capitalization,

calculated by deducting from potential gross income vacancy andcollection losses and adding other income to obtain effective grossincome. 7rom this amount all operating e+penses are subtracted,including management e+pense and a reserve for replacements, orcapital e+penditures, and other nonrecurring e+penses.

2et present value (247) -he difference between the present value of the cash inflows and thepresent value of the cash outflows.

2et sale proceeds -he e+pected selling price less selling e+penses.

2ew urbanism *chool of planning thought that seeks to revive residentialneighborhood features of the preautomobile era, includingsidewalks: houses with front porches located close to streets: narrow,grid pattern streets: and supporting nonresidential servicesinterspersed within neighborhoods.

2onamorti$ing 6oans that re'uire interest payments but no regularly scheduledprincipal payments.


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2onbasic emploment Hobs that are not involved in the production of goods or services thatwill be e+ported outside of a community. -hese are usually 0obsinvolved in serving local residents. +amples are barbers,beauticians, most retail, real estate and insurance salespersons, andlocal bankers.

2onconforming

conventional loan conventional loan that does not satisfy one or more underwritingstandards re'uired for purchase in the secondary market by 7annie/ae and 7reddie /ac.

2onconforming use land use inconsistent with current zoning classification, but whichis permitted to remain because it predated the current zoning. -o be

allowed to remain, the use must be uninterrupted, and the propertystructures cannot be substantially improved.

2onjudicial foreclosure process of bringing the property of defaulting borrowers to publicsale by the lender or a trustee, outside of the court system. It mustfollow statutory guidelines, particularly concerning public notices ofthe sale.

2onmonetar -he nonfinancial costs and benefits of an investment decision.

2onrealt items Items of personal property.

2onrecourse loans 6oans that relieve the borrower of personal liability but do notrelease the property as collateral for the loan.

2ormal sale price -he transaction price of a comparable property ad0usted fornonmarket financing and non5arms5length bargaining !conditions ofsale(.


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2ote -he document !contract( defining the e+act terms of a debtobligation and the liability of the borrower for the obligation.

+fficer!s deed *ame as definition of e+ecutors deed.

+pen listing greement between the seller of property and a broker that providesfor the broker to receive a commission if he or she sells the property.o e+clusive protection is provided to the broker.

+pen-end constructionloan situation in which a forward commitment has not been obtained torepay the construction loan.

+perating expense

escalation clause commercial lease clause in which increases in one or moreoperating e+penses, relative to a base year, become the financialresponsibility of the tenant.

+perating expense ratio measure of annual operating costs, defined as operating e+pensesdivided by effective gross income.

+perating expenses -he e+penses that are necessary to operate and maintain an incomeproducing property.

+pportunit cost -he return the investor is forgoing on an alternative investment ofe'ual risk in order to invest in the asset under consideration. *aiddifferently, it is the return the investor could earn on his ne+t bestalternative of similar risk.

+ption -he right, but not the obligation, to do something, such as buy aproperty, within a certain time.


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+ption ARM n ad0ustable rate mortgage loan that offered the borrower a varietyof payment choices. -he choices typically included a payment to

fully amortize !pay off( the loan in 1$ years, one to fully amortizethe loan in #& years, an interest5only payment, and a payment at anartificially low level such that unpaid interest was added to theoutstanding balance each month. -he loan often began with a belowmarket interest rate for a few months.

+ption contract *ets a time over which developers may buy property at a specifiedprice.

+rdinar annuit fi+ed amount of money received every period for some length oftime.

+rdinar life estate state in which the property owner retains all rights of e+clusivepossession, use, and en0oyment for life while a subse'uent ownerholds a remainder interest that follows the life estate.

+rdinar tax rate -he rate of ta+ applied to ta+able income that is not deemed to becapital gain income or depreciation recapture income.

+riginal cost basis -he total costs paid to ac'uire the property including land, building,personal property, and other ac'uisition costs such as lawyer fees,brokerage commissions, and so on.

+utlet center variation of specialty shopping centers that generally sell name5brand goods at lower prices.

+verall capitali$ation -he type of capitalization rate used in direct capitalization,


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rate calculated by dividing comparable properties net operating incomesby their selling prices.

+verall caps Caps on ad0ustable rate mortgages that limit interest rate changesover the life of the loan.

+verall rate (of return) nother common name for the overall capitalization rate.

+verall rate of direct

capitali$ationn overall capitalization rate estimated directly from actualtransactions for comparable properties.

+wnership structure

risk-he effect that the chosen form of ownership can have on the riskand return ultimately earned by the investors.

4ar value -he remaining balance, or outstanding principal amount of a debt.

4artiall amorti$ing loan alternative in which the outstanding principal is partiallyrepaid over the life of the loan, then fully retired with a larger lumpsum 3balloon4 payment at maturity.

4assive activit income I* classification of income that includes all income generated fromtrade and business activities such as rental real estate.

4assive activit loss

restrictionsI* rules that, in general, allow losses from passive activities, whichincludes all rental properties, to be used only to offset income fromother passive investments.

4atent *pecial type of deed that conveys title to real property owned by


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government to a private party.

4ament caps Protects the borrower against the shock of large payment changes: it

is possible for the interest rate to increase enough that the resultingpayment increase will not cover the additional interest cost.

4ension funds etirement savings accounts that now represent a ma0or source ofe'uity capital in commercial real estate markets.

4ercentage rent -he amount of rent paid by a retail tenant in addition to the base

rent. It generally is a percentage of tenant store sales above aprespecified threshold level.

4erformance standard n approach to land use control that addresses concerns for urbansystems such as traffic, watershed, green space, air 'uality or otheraspects of the environment through limits to detrimental activities.

4eriodic caps Provisions in ad0ustable rate mortgages that limit change in thecontract interest rate from one change date to the ne+t.

4eriodic tenanc ny lease agreement that automatically renews each period untileither party gives notice of termination.

4ermanence potential -he preference to lease residential units to households whose priorhistory indicates a probability of a long5term occupancy.

4ermanent loan 6ong5term mortgage financing.


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4ersonal liabilit 6iability assumed by borrowers that allows lenders to sue thempersonally for fulfillment of the contract.

4ersonal performance(contract) contract that re'uires a service or action on the part of one party.-his includes leases and mortgage loans, for e+ample, which re'uireregular payments. Generally, these contracts are not fully assignablein that the lessee or mortgagor remains liable for the obligation.

4ersonal propert 8b0ects that are moveable and not permanently affi+ed to the land orstructure, including furniture and tenant fi+tures that are oftenpurchased in con0unction with real property ac'uisitions.

4ersonal residence n owner5occupied housing unit.

4ersonal rights Personal freedoms derived primarily from the ;ill of ights andother amendments and clauses of the ).*. Constitution.

4hsical deterioration 6oss of value of a building from its reproduction cost, resulting fromwear and tear over time.

4iggback loan In home mortgage lending, a second mortgage loan createdsimultaneously with creation of a first mortgage loan, the latterhaving a loan5to5value ratio of no more than & percent. -he3piggyback4 second mortgage enables a buyer to achieve greaterthan & percent financing without incurring mortgage insurance onthe first mortgage.

4ipeline risk -he time between making a loan commitment and selling the loan.-he mortgage banker is e+posed to considerable risk during thisperiod.


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4,, -he monthly payment of principal and interest on a home mortgageloan, plus monthly payments into an escrow account toward annualproperty ta+es and hazard insurance.

4lanned unit development

(48) development pro0ect, often involving a mi+ture of land uses anddensities not permitted by normal zoning. It is allowed because theentire development is viewed as an integrated whole.

4lat books egister of recorded plat maps maintained by a city or county whichshows boundaries, shapes, and sizes of land parcels.

4lat lot and block

numbern unambiguous means to provide a description of property thatidentifies each parcel in a surveyed map of a subdivision.

4lottage value Balue added to land by assembling small parcels into larger tracts.

4olice power ight of government to regulate personal activity and the use ofproperty to protect the health, welfare, and safety of the population.

4olchlorinated biphenls

(4#"s)Cancer causing chemicals formerly used in the manufacture ofelectrical connectors and e'uipment.

4ortfolio income n I* classification of income generated from securities such asstocks and bonds. Income directly obtained from rental real estateactivities is not considered portfolio income.

4ortfolio lenders 7inancial institutions such as banks that fund mortgage loans andthen hold the loans as investments.


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4ortfolio perspective Biewing real estate investments in the conte+t of an owners otherassets and overall situation.

4otential gross income -he total annual income the property would produce if it were fullyrented and had no collection losses.

4ower of sale /ortgage provision that grants the authority to conduct foreclosureto either the lender or a trustee. nables non0udicial foreclosure.

4ower shopping center -hese centers typically contain three or more giants in hard goodsretailing !for e+ample, >al5/art and Aome ?epot(. -he dominatingfeature of a power center is the high ratio of anchor tenants tosmaller tenants.

4repament penalties Charges, designed to discourage prepayment, incurred when amortgage is repaid before maturity.

4resent value -he value of future cash flows at time zero.

4reventive maintenance program of regular inspections and care to avert potentialproblems.

4rimar mortgage

market-he loan origination market where borrowers and lenders negotiatemortgage terms.

4rime mortgage eferring to 3'ualifying4 home mortgages. -he specific use of theterm varies. *ome use prime to refer to loans where the borrower hasa 7IC8 score of %%& or higher. 8thers also include 7A and B


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mortgage loans. *till others distinguish prime by the type of lender.

4rincipal In brokerage, the person giving authority to an agent: in finance, the

amount borrowed and owed on a loan.

4rincipal meridian line of geographic reference that runs north and south in agovernment rectangular survey.

4rivate grants Conveyance of property from one private owner to another.

4rivate mortgage

insurance (4M,)Insurance offered by private companies that reimburses the lenderfor capital losses in the event of default by the borrower.

4ro forma cash flow forecast prepared to facilitate discounted cash flowanalysis.

4robabilit distributions -he distribution of all potential outcomes and their associatedlikelihood.

4robate *tate law that governs the disposition procedure of the conveyanceof real property upon the death of a property owner.

4romissor note note indicating the terms of a financial agreement.

4ropert nything that can be owned, or possessed. It can be either a tangibleasset or an intangible asset.


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4ropert adjustments 7ive sale price ad0ustments made to comparable propertytransactions prices< location, physical characteristics, economiccharacteristics, use, and nonrealty items.

4ropert management ?irection of the day5to5day operations of properties.

4ropert managers Individuals in charge of the day5to5day operations of a property.

4ropert rights ights in property that include !e+clusive( possession, use

!en0oyment(, and disposition.

4ropert tax lien utomatic lien placed by local governments to assure payment ofproperty ta+es.

4roprietar lease lease of indefinite length in which the lessee pays e+penses but notrent, associated with a cooperative.

4ro rata share n amount proportionate to the ownership interest of an investor.

4rorating llocation of costs and revenues between buyer and seller of realproperty at closing, based on the time of ownership by each party.

4schographics data intensive, multivariate statistical approach for sophisticateddetermination of market segmentation.

4ublic purpose In eminent domain cases, e+pansion by courts of the public useconcept, no longer re'uiring actual physical use by the condemning


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agency to 0ustify condemnation.

4ublic use In eminent domain, re'uirement of actual physical use by the

condemning agency to 0ustify condemnation.

4urchase-mone

mortgage mortgage created simultaneously with conveyance of ownership.-ypically, where the seller lends part of the purchase price of aproperty to the purchaser, but also used to refer to any mortgageused to finance a purchase.

9ualified mortgage 9M class of home mortgages created by the ?odd57rank ct aimed toassure very high ability to repay. Generally, J/s must be fullyamortizing within #& years, with limited fees. )nderwritingre'uirements include a ma+imum debt5to5income ratio and carefully'ualified income and assets. J/s afford the lender specialprotection against legal defenses in foreclosure.

9ualified residential

mortgage 9RM special class of Jualified /ortgages which financial institutionswill be able to securitize and sell without retaining a portion of thecredit risk. >ith non5J/, financial institutions will be re'uired toretain at least five percent of credit risk if the loans are securitizedand sold.

9uiet enjoment In leasing, once the owner has conveyed possession of the propertyto the tenant, the owner must provide the tenant with uninterrupteduse of the property without any interference that may threaten thetenants leasehold interest in the property. In conveyance of title, theassurance that no one holds a claim to

real estate principles 4th edition glossary

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