Real Estate Dictionary

Accelerated cost recovery system (ACRS): Method for claiming tax deductions for certain property purchased before 1987 in which it was possible to claim greater deductions in the early years of ownership, gradually reducing the amount deducted in each year of useful life.

American Land Title Association (ALTA) policy: A title insurance policy that protects the interest in a collateral property of a mortgage lender who originates a new real estate loan.

Americans with Disabilities Act (ADA) Act: addresses rights of individuals with disabilities in employment and public accommodations.

Appraiser Independence Requirements (AIR) Regulations: issued by Fannie Mae that must be followed by appraisers to ensure accurate and objective appraisals.

abstract of title: The condensed history of the recorded ownership of a particular parcel of real estate, consisting of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property and a certification by the abstractor that the history is complete and accurate.

acceleration clause: The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other obligation.

accretion: The increase or addition of land by the deposit of sand or soil washed up naturally from a river, lake, or sea.

accrued depreciation: Loss in a property’s value resulting from physical deterioration, external depreciation, and functional obsolescence.

accrued items: On a closing statement, items of expense that are incurred but not yet payable, such as interest on a mortgage loan or taxes on real property.

acknowledgment: A formal declaration made before a duly authorized officer, usually a notary public, by a person who has signed a document.

acre: A measure of land equal to 43,560 square feet, 4,840 square yards, or 4,047 square meters.

action to quiet title: A court action that establishes ownership when ownership cannot be traced through an unbroken chain of title.

actual eviction: The legal process that results in a tenant’s being physically removed from leased premises.

actual notice: Express information or fact; that which is known; direct knowledge.

ad valorem tax: A tax levied according to value, generally used to refer to real estate tax. Also called the general tax.

addendum: Any provision added to an existing contract without altering the content of the original. Must be signed by all parties.

adjustable-rate mortgage (ARM): A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index.

adjusted basis: See basis

administrative law judge (ALJ): The official who presides over a hearing involving a government agency and someone affected by a decision of that agency. The ALJ hears evidence, including the testimony of witnesses, and renders a decision.

administrator: A court-selected person who assists with the settlement of an estate of a person who died without leaving a will. A woman might be called an administratrix, although administrator is the term used most often to refer to either a man or a woman.

adverse possession: The actual, open, notorious, hostile, and continuous possession of another’s land under a claim of title. Possession for a statutory period may be a means of acquiring title.

affidavit of title: A written statement, made under oath by a seller or grantor of real property and acknowledged by a notary public, in which grantors (l) identify themselves and indicate marital status, (2) certify that since the examination of the title, on the date of the contract no defects have occurred in the title, and (3) certify that they are in possession of the property (if applicable).

affiliated business arrangement (ABA): Practice of one company offering a package of services to consumers.

agency: The relationship between a principal and an agent wherein the agent is authorized to represent the principal in certain transactions.

agent: One who acts or has the power to act for another. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be his or her agent. A prospective property buyer may authorize a real estate broker to act as the buyer’s agent to find a suitable property.

air lots: Designated airspace over a piece of land. An air lot, like surface property, may be transferred.

air rights: The right to use the open space above a property, usually allowing the surface to be used for another purpose.

alienation: The act of transferring property to another. Alienation may be voluntary, such as by gift or sale, or involuntary, as through eminent domain or adverse possession.

alienation clause: The clause in a mortgage or deed of trust stating that the balance of the secured debt becomes immediately due and payable at the lender’s option if the property is sold by the borrower. In effect, this clause prevents the borrower from assigning the debt without the lender’s approval.

allodial system: A system of land ownership in which land is held free and clear of any rent or service due to the government; commonly contrasted to the feudal system. Land is held under the allodial system in the United States.

amendment: A change to the existing content of a contract (i.e., if words or provisions are added to or deleted from the body of the contract). Must be initialed by all parties.

amortized loan: A loan in which the principal, as well as the interest, is payable in monthly or other periodic installments over the term of the loan. 248

annexation: Process of converting personal property into real property.

annual percentage rate (APR): The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth in Lending Act.

anticipation: The appraisal principle holding that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.

antitrust laws: Laws designed to preserve the free enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition. Most violations of antitrust laws in the real estate business involve either price-fixing (real estate professionals conspiring to set fixed compensation rates) or allocation of customers or markets (real estate professionals agreeing to limit their areas of trade or dealing to certain areas or properties).

appraisal: An estimate of the quantity, quality, or value of something. The process through which conclusions of property value are obtained.

appraisal report: An opinion of a property’s market value given to a lender or client with detailed market information.

appraiser: An independent person trained to provide an unbiased estimate of value.

appreciation: An increase in the worth or value of a property due to economic or related causes, which may prove to be either temporary or permanent; opposite of depreciation.

appurtenance: A right, privilege, or improvement belonging to, and passing with, the land; “runs with the land.”

appurtenant easement: An easement that is annexed to the ownership of one parcel and allows the owner the use of the neighbor’s land.

area: A level surface or piece of ground; the size of a surface; the amount of a two-dimensional object.

area preference: People’s desire for one area over another, based on a number of factors such as history, reputation, convenience, scenic beauty, and location.

asbestos: A mineral once used in insulation and other materials that can cause respiratory diseases.

assemblage: The combining of two or more adjoining lots into one larger tract to increase their total value.

assessed value: The value set on property for taxation purposes.

assessment: The imposition of a tax, charge, or levy, usually according to established rates.

assessment equalization factor: A factor (number) by which the assessed value of a property is multiplied to arrive at a value for the property that is in line with statewide tax assessments. The ad valorem tax would be based on this adjusted value. An equalization factor may be applied to raise or lower assessments in a particular district or county.

assignment: The transfer in writing of interest in a bond, mortgage, lease, or other instrument.

associate licensee: A licensed real estate salesperson who is employed by or associated with the broker to perform brokerage activities on behalf of or for the broker.

assumption of mortgage: Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.

attachment: The act of taking a person’s property into legal custody by writ or other judicial order to hold it available for application to that person’s debt to a creditor.

attorney’s opinion of title: An abstract of title that an attorney has examined and has certified to be, in the attorney’s opinion, an accurate statement of the facts concerning the property’s ownership.

automatic extension clause: A listing agreement clause stating that the agreement will continue automatically for a certain period of time after its expiration date. In many states, use of this clause is discouraged or prohibited.

avulsion: The sudden tearing away of land, as by earthquake, flood, volcanic action, or the sudden change in the course of a stream.

balance: The appraisal principle stating that the greatest value in a property will occur when the type and size of the improvements are proportional to each other as well as the land.

balloon payment: A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

base line: The main imaginary line running east and west and crossing a principal meridian at a definite point; used by surveyors for reference in locating and describing land under the rectangular (government) survey system of legal description.

basis: The financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner’s basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. This new basis is called the adjusted basis.

benchmarks: Permanent reference marks or points established for use by surveyors in measuring differences in elevation.

beneficiary: (1) The person for whom a trust operates or in whose behalf the income from a trust estate is drawn.
(2) A lender in a deed of trust loan transaction.

bilateral contract: See contract.

binder: An agreement that may accompany an earnest money deposit for the purchase of real property as evidence of the purchaser’s good faith and intent to complete the transaction.

blanket loan: A mortgage covering more than one parcel of real estate, providing for each parcel’s partial release from the mortgage lien upon repayment of a definite portion of the debt.

blockbusting: The illegal practice of inducing homeowners to sell their properties by making representations regarding the entry or prospective entry of persons of a particular race or national origin into the neighborhood.

blue-sky laws: Common name for those state and federal laws that regulate the registration and sale of investment securities.

boot: Money or property given to make up any difference in value or equity between two properties in an exchange.

boycott: When individuals or businesses withhold their patronage to a business as a protest or to reduce competition.

branch office: A secondary place of business apart from the principal or main office from which real estate business is conducted. A branch office usually must be run by a licensed real estate professional.

breach of contract: Violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due.

bring down: A second title search that is made after the closing and before any new documents are filed.

broker: One who acts as an intermediary on behalf of others for a fee or commission.

broker protection clause: Clause in a contract that protects a broker from losing a commission in the event a transaction is not completed or is intentionally delayed until after the listing expires.

brokerage: The bringing together of parties interested in making a real estate transaction.

broker’s price opinion (BPO): An opinion of real estate value commissioned by a bank or an attorney and provided by a broker.

brownfields: Defunct, derelict, or abandoned commercial or industrial sites; many have toxic wastes.

budget comparison statement: Compares actual results with the original budget, often giving either percentages or a numerical variance of actual versus projected income and expenses.

buffer zone: A strip of land, usually used as a park or designated for a similar use, separating land dedicated to one use from land dedicated to another use (e.g., residential from commercial).

building code: An ordinance that specifies minimum standards of construction for buildings to protect public safety and health.

building permit: Written governmental permission for the construction, alteration, or demolition of an improvement, showing compliance with building codes and zoning ordinances.

bundle of legal rights: The concept of land ownership that includes ownership of all legal rights to the land— possession, control within the law, enjoyment, exclusion, and disposition.

buydown: A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or the seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.

buyer representation agreement: A principal-agent relationship in which the real estate professional acts on behalf of the buyer, usually as an agent, with fiduciary responsibilities to the buyer.

buyer’s agent: A real estate professional who is under contract to locate property for a buyer and represent the buyer’s interests in a transaction.

buyer’s broker: A residential real estate professional who represents prospective buyers exclusively.

buyer’s representative: A residential real estate professional who represents the prospective purchaser in a transaction, often through a sales associate of the broker. The buyer’s representative who acts as a buyer’s agent owes the buyer-principal the common-law or statutory agency duties.

CC&Rs: See covenants, conditions, and restrictions.

Civil Rights Act of 1866: An act that prohibits racial discrimination in the sale and rental of housing.

Closing Disclosure: The CFPB form that itemizes all charges that are normally paid by a borrower and a seller in connection with settlement, whether required by the lender or another party, or paid by the lender or any other person.

Community Reinvestment Act of 1977 (CRA): Under the act, which was revised most recently in 2008, financial institutions are expected to meet the deposit and credit needs of their communities; participate and invest in local community development and rehabilitation projects; and participate in loan programs for housing, small businesses, and small farms.

Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA): A federal law administered by the Environmental Protection Agency that establishes a process for identifying parties responsible for creating hazardous waste sites, forcing liable parties to clean up toxic sites, bringing legal action against responsible parties, and funding the abatement of toxic sites, See also Superfund.

Comprehensive Loss Underwriting Exchange (CLUE): A database of consumer claims history that allows insurance companies to access prior claims information in the underwriting and rating process.

capital gain: Profit earned from the sale of an asset.

capitalization: A mathematical process for estimating the value of a property using a proper rate of return on the investment and the annual net operating income expected to be produced by the property.

capitalization rate: The rate of return a property will produce on the owner’s investment.

capping: The process of laying two to four feet of soil over the top of a landfill site and then planting grass on it to enhance the aesthetic value and prevent erosion.

carbon monoxide (CO): A colorless, odorless gas that occurs as a by-product of fuel combustion that may result in death in poorly ventilated areas.

cash flow: The net spendable income from an investment, determined by deducting all operating and fixed expenses from the gross income. When expenses exceed income, a negative cash flow results.

cash flow report: A monthly statement that details the financial status of the property.

caveat emptor: A Latin phrase meaning “let the buyer beware.”

certificate of occupancy: Permission by the municipal inspector to occupy a completed building structure after being inspected and having complied with building codes.

certificate of reasonable value (CRV): A form indicating the appraised value of a property being financed with a VA loan.

certificate of sale: The document generally given to the purchaser at a tax foreclosure sale. A certificate of sale does not convey title; normally, it is an instrument certifying that the holder received title to the property after the redemption period passed and that the holder paid the property taxes for that interim period.

certificate of title: A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.

chain of title: The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title.

change: The appraisal principle that holds that no physical or economic condition remains constant.

chattel: See personal property.

chlorofluorocarbons (CFCs): Nontoxic, nonflammable chemicals containing atoms of carbon, chlorine, and fluorine, such as air conditioners and refrigerators. CFCs are safe in application but cause ozone depletion.

client: The principal in an agency relationship or other form of representation.

closing: An event where promises made in a sales contract are fulfilled and mortgage loan funds (if any) are distributed to the buyer.

closing escrow: Process of settlement in which the buyer and the seller never meet; the paperwork is handled by an escrow agent.

closing statement: A detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made, and all cash paid out in the transaction, 336 cloud on the title Any document, claim, unreleased lien, or encumbrance that may impair the title to real property or make the title doubtful; usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title.

co-ownership: Title ownership held by two or more persons.

code of ethics: A written system of standards for ethical conduct.

codicil: A supplement or an addition to a will, executed with the same formalities as a will, which normally does not revoke the entire will.

collateral: Something having value that is given to secure repayment of a debt.

commingling: The illegal act by a real estate professional of placing client or customer funds with personal funds. By law, real estate professionals are required to maintain a separate trust or escrow account for other parties’ funds held temporarily by the real estate professional.

commission: Payment to a real estate professional for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.

common elements: Parts of a property that are necessary or convenient to the existence, maintenance, and safety of a condominium or are normally in common use by all the condominium residents. Each condominium owner has an undivided ownership interest in the common elements.

common law: The body of law based on custom, usage, and court decisions.

community association management: Provides a team of property managers, accounting staff, office staff, and property consultants to manage property.

community property: A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage. A holdover of Spanish law found predominantly in the western U.S. states; the system was unknown under English common law.

comparables: Properties used in an appraisal report that are substantially equivalent to the subject property.

comparative market analysis (CMA): A comparison of the prices of recently sold homes that are similar to a listing seller’s home in terms of location, style, and amenities.

competent party: A person who has the capacity to be engaged in a legal contract; being of sound mind and body.

competition: The appraisal principle stating that excess profits generate competition.

comprehensive plan: See master plan.

conciliation: A form of alternative dispute resolution in which a conciliator meets with each of the parties separately to help them settle their differences voluntarily, without the formality of a hearing or trial.

condemnation: A judicial or administrative proceeding to exercise the power of eminent domain, through which a government agency takes private property for public use and compensates the owner.

conditional-use permit: Written governmental permission allowing a use inconsistent with zoning but necessary for the common good, such as locating an emergency medical facility in a predominantly residential area.

condominium: The absolute ownership of a unit in a multiunit building based on a legal description of the airspace the unit actually occupies, or a separate dwelling unit in a multiunit development, plus an undivided interest in the ownership of the common elements in the building or development, which are owned jointly with the other condominium unit owners.

conformity: The appraisal principle holding that the greater the similarity among properties in an area, the better they will hold their value.

consent: Expressing or implying permission, approval, or agreement of an action or decision.

consideration: (1) That received by the grantor in exchange for the deed. (2) Something of value that induces a person to enter into a contract.

construction loan: See interim financing.

constructive annexation: The combination of items into real property that are not fixed or fastened to the property.

constructive eviction: Actions of a landlord that so materially disturb or impair a tenant’s enjoyment of the leased premises that the tenant is effectively forced to move out and terminate the lease without liability for any further rent.

constructive notice: Notice given to the world by recorded documents. All persons are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property.

consumer: An individual who purchases goods or services that are not for resale.

contingencies: Provisions in a contract that require a certain act to be done or a certain event to occur before the contract becomes binding.

contract: A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.

contract broker: See nonagent.

contribution: The appraisal principle stating that the value of any component of a property is what it gives to the value of the whole or what its absence detracts from that value.

controlled business arrangement: An arrangement that offers consumers a package of services (e.g., a real estate firm, title insurance company, mortgage broker, and home inspection company).

conventional loan: A loan that requires no federally sponsored insurance or guarantee.

conversion: The illegal use of money received on behalf of the principal.

conveyance: A term used to refer to any document that transfers title to real property. The term is also used in describing the act of transferring.

cooperating broker: See listing broker.

cooperative: A residential multiunit building whose title is held by a trust or corporation that is owned by and operated for the benefit of people living within the building who are the beneficial owners of the trust or shareholders of the corporation, each possessing a proprietary lease to a property unit.

corporation: An entity or organization, created by operation of law, whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures.

corrective maintenance: Correction of problems after they have occurred.

cost: The total amount of money incurred for products or services.

cost approach: The process of estimating the value of a property by adding to the estimated land value the appraiser’s estimate of the reproduction or replacement cost of the building, less depreciation.

cost recovery: An Internal Revenue Service term for depreciation.

counteroffer: A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror.

covenant: A written agreement between two or more parties in which a party or parties pledge to perform or not perform specified acts with regard to property; usually found in such real estate documents as deeds, mortgages, leases, and contracts for deed.

covenant of quiet enjoyment: The covenant implied by law by which a landlord guarantees that a tenant may take possession of leased premises and that the landlord will not interfere in the tenant’s possession or use of the property.

covenants, conditions, and restrictions (CC&Rs): Private agreements that affect land use. They may be enforced by an owner of real estate that benefits from them and can be included in the seller’s deed to the buyer.

credit: On a closing statement, an amount entered in a person’s favor—either an amount the party has paid or an amount for which the party must be reimbursed.

curtesy: A life estate, usually a fractional interest, given by some states to the surviving husband in real estate owned by his deceased wife. Most states have recognized other marital property rights and abolished curtesy.

customer: The third party or non-represented consumer for whom some level of service is provided.

Department of Housing and Urban Development (HUD): Federal agency that has established rules and regulations that further interpret the practices affected by federal law; for example, HUD distributes an equal housing opportunity poster.

Do Not Call Registry: A national registry, managed by the Federal Trade Commission, that lists the phone numbers of consumers who have indicated their preference to limit the telemarketing calls they receive.

datum: A horizontal plane from which heights and depths are measured.

debit: On a closing statement, an amount charged; that is, an amount that the debited party must pay.

debt to income (DTI): Information about an applicant’s gross income and total debt that lenders generally look at as a percentage to determine qualification for a loan.

decedent: A person who has died.

deed: A written instrument that, when executed and delivered, conveys title to or an interest in real estate.

deed in lieu of foreclosure: A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. If accepted by the mortgagee, this is a way for the mortgagor to avoid foreclosure.

deed in trust: An instrument that grants a trustee under a land trust full power to sell, mortgage, and subdivide a parcel of real estate. The beneficiary controls the trustee’s use of these powers under the provisions of the trust agreement.

deed of reconveyance: A document that a trustee uses to transfer the title back to the trustor (borrower) when the note is repaid.

deed of trust: See trust deed.

deed restrictions: Clauses in a deed limiting the future uses of the property. Deed restrictions may impose a vast variety of limitations and conditions—for example, they may limit the density of buildings, dictate the types of structures that can be erected, or prevent buildings from being used for specific purposes or even from being used at all.

default: The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.

defeasance clause: A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.

defeasible fee estate: An estate in which the holder has a fee simple title that may be divested upon the occurrence or nonoccurrence of a specified event. There are two categories of defeasible fee estates: fee simple on condition precedent (fee simple determinable) and fee simple on condition subsequent.

deficiency judgment: A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full. In some states, a deficiency judgment cannot be sought when the mortgage debt was used to purchase, and is secured by, the borrower’s principal residence.

delinquent taxes: Taxes that are unpaid and past due.

delivery and acceptance: When the title to property is delivered by the grantor and accepted by the grantee.

demand: The amount of goods people are willing and able to buy at a given price; often coupled with supply.

demographics: The study and description of a population.

denominator: The number written below the line in a fraction.

density zoning: Zoning ordinances that restrict the maximum average number of housing units per acre that may be built within a particular area, generally a subdivision.

depreciation: (1) In appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence, and external obsolescence. (2) In real estate investment, a deduction for tax purposes taken over the period of ownership of income property, based on the property’s acquisition cost.

descent: Acquisition of an estate by inheritance in which an heir succeeds to the property by operation of law.

designated agency: A process that accommodates an inhouse sale in which two different agents are involved. The broker designates one agent to represent the seller and one agent to represent the buyer.

designated agent: A real estate professional authorized by a broker to act as the agent for a specific principal in a particular transaction; also may be called assigned agent or appointed agent.

determinable fee estate: A fee simple estate providing that the property returns to the original grantor or heirs when a specified condition occurs, indicating that the property is no longer being used for the purpose prescribed.

developer: One who attempts to put land to its most profitable use through the construction of improvements.

development: The construction of improvements that benefit land.

devise: A transfer of real property by will. The decedent is the devisor, and the recipient is the devisee.

discharge: The act of terminating a contract or agreement; this may be done when it has been completely performed for by another party’s breach or default.

disclaimer: A statement indicating no legal responsibility for information; no warranties or representations have been made.

disclosure: Relevant information or facts that are known or should have been known.

discount point: A unit of measurement used for various loan charges; one point equals 1% of the amount of the loan.

discount rate: The interest rate set by the Federal Reserve that member banks are charged when they borrow money through the Fed.

divisor: A number or quantity divided into another.

dominant tenement: A property that includes in its ownership the appurtenant right to use an easement over another person’s property for a specific purpose. 56

dower: The legal right or interest, recognized in some states, that a wife acquires in the property her husband held or acquired during their marriage. During the husband’s lifetime, the right is only a possibility of an interest; upon his death, it can become an interest in land.

dual agency: See limited agency

due-on-sale clause: A provision in the mortgage stating that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property.

duress: Unlawful constraint or action exercised upon a person whereby the person is forced to perform an act against her will. A contract entered into under duress is voidable.

dwelling: Any building or part of a building designed for occupancy as a residence by one or more families.

Electronic Signatures in Global and National Commerce Act (E-Sign): An act that makes contracts (including signatures) and records legally enforceable regardless of the medium in which they are created.

Equal Credit Opportunity Act (ECOA): The federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age, marital status, or receipt of public assistance.

earnest money: Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but to be applied to the purchase price if the sale is closed.

easement: A right to use the land of another for a specific purpose, such as for a right-of-way or utilities; an incorporeal interest in land because it does not include a right of possession.

easement appurtenant: An easement that follows along with the land.

easement by prescription: An easement acquired by open, notorious, continuous, hostile and adverse use of the property for the period of time prescribed by state law.

easement in gross: An easement that is not created for the benefit of any land owned by the owner of the easement but that attaches personally to the easement owner. For example, a right granted by a property owner to a friend to use a portion of the property for the rest of the friend’s life would be an easement in gross.

economic life: The number of years during which an improvement will add value to land.

emblements: Growing crops, such as corn, that are produced annually through labor and industry; also called fructus industriales.

eminent domain: The right of a government or municipal quasi-public body to acquire property for public use through a court action called condemnation, in which the court decides that the use is a public use and determines the compensation to be paid to the owner.

employee: For tax purposes, someone who works as a direct employee of an employer and has employee status. The employer is obligated to withhold income taxes and Social Security taxes from the compensation of employees.

employment contract: A document evidencing formal employment between employer and employee or between principal and agent or representative. In the real estate business, this generally takes the form of the agreement between broker and sales associate, client representation agreement (including a listing agreement or buyer representation agreement), or property management agreement.

enabling acts: State legislation that confers zoning and other powers on municipal governments.

encapsulation: A method of controlling environmental contamination by sealing off a dangerous substance, such as asbestos.

encroachment: A building or some portion of it—a wall or fence, for instance—that extends beyond the land of the owner and illegally intrudes on the land of an adjoining owner or a public street or alley.

encumbrance: Anything—such as a mortgage, tax, or judgment lien; an easement; a restriction on the use of the land; or an outstanding dower right—that may diminish the value or use and enjoyment of a property.

enforceable contract: A contract that meets all the elements of a valid contract, including compliance with any applicable statute of frauds or other law that requires it to be in writing and signed by the parties.

environmental impact statement (EIS): A statement that details the impact a project will have on the environment.

environmental site assessment (ESA): An evaluation of property to show that due care was exercised in the determination of environmental impairments.

equalization: The raising or lowering of assessed values for tax purposes in a particular county or taxing district to make them equal to assessments in other counties or districts.

equalization factor: A factor (number) by which the assessed value of a property is multiplied to arrive at a value for the property that is in line with statewide tax assessments. The ad valorem tax would be based on this adjusted value.

equitable lien: See statutory lien.

equitable right of redemption: The right of a defaulted property owner to recover the property before its sale by paying the appropriate fees and charges.

equitable title: The interest held by a vendee (buyer) under a contract for deed or an installment contract in which title is not immediately transferred; the equitable right to obtain absolute ownership to property when legal title is held in another’s name.

equity: The interest or value that an owner has in property over and above any indebtedness.

equity buildup: That portion of the loan payment directed toward the principal rather than the interest, plus any gain in property value due to appreciation.

erosion: The gradual and sometimes imperceptible wearing away of the land by natural forces, such as wind, rain, and flowing water.

escheat: The reversion of property to the state or county, as provided by state law, in cases in which a decedent dies intestate without heirs capable of inheriting, or when the property is abandoned.

escrow: The closing of a transaction through a third party called an escrow agent who receives certain funds and documents to be delivered upon the performance of conditions outlined in the escrow instructions.

escrow account: The trust account established by a real estate professional under the provisions of the license law for the purpose of holding funds on behalf of the real estate professional’s principal or some other person until the consummation or termination of a transaction; trust account established by an escrow agent to hold funds pending distribution at the closing of a transaction.

escrow closing: Occurs when a disinterested third party is authorized to act as escrow agent (escrow holder) and to coordinate the closing activities on behalf of the buyer and the seller.

escrow contract: An agreement between a buyer, a seller, and an escrow holder setting forth rights and responsibilities of each.

escrow instructions: A document that sets forth the duties of the escrow agent, as well as the requirements and obligations of the parties, when a transaction is closed through an escrow.

estate (tenancy) at sufferance: The tenancy of a lessee who lawfully comes into possession of a landlord’s real estate but who continues to occupy the premises improperly after the lease rights have expired.

estate (tenancy) at will: An estate that gives the lessee the right to possession until the estate is terminated by either party; the term of this estate is indefinite.

estate (tenancy) for years: An interest for a certain, exact period of time in property leased for a specified consideration.

estate (tenancy) from period to period: An interest in leased property that continues from period to period – e.g. week to week, month to month, or year to year.

estate in land: The degree, quantity, nature, and extent of interest a person has in real property.

estate tax: Federal tax on a decedent’s real and personal property.

estoppel: Method of creating an agency relationship in which someone states incorrectly that another person is his agent and a third person relies on that representation. estoppel certificate A document in which a borrower certifies the amount owed on a mortgage loan and the rate of interest.

ethics: The system of moral principles and rules that becomes the standard for professional conduct.

eviction: A legal process to oust a person from possession of real estate.

evidence of title: Proof of ownership of property; commonly a certificate of title, an abstract of title with lawyer’s opinion, title insurance, or a Torrens registration certificate.

exception: The exclusion of a part of the property conveyed.

exchange: A transaction in which all or part of the consideration is the transfer of like-kind property (e.g., real estate for real estate).

exclusive agency listing: A listing contract under which the owner appoints a real estate professional as her exclusive agent for a designated period of time to sell the specified property, on the owner’s stated terms, for a commission. The owner reserves the right to sell the property without paying anyone a commission if the sale is to a prospect who has not been introduced or claimed by the real estate professional.

exclusive buyer representation agreement: Agreement in which the buyer works with only one broker, although the broker is free to represent other buyer clients.

exclusive right-to-sell listing: A listing contract under which the owner appoints a real estate professional as his exclusive agent for a designated period of time to sell the specified property on the owner’s stated terms and agrees to pay the real estate professional a commission when the property is sold, whether by the real estate professional, the owner, or another real estate professional.

executed contract: A contract in which all parties have fulfilled their promises and thus performed the contract.

execution: The signing and delivery of an instrument. Also, a legal order directing an official to enforce a judgment against the property of a debtor.

executor: An appointed person who carries out the directions of a will. A woman might be referred to as executrix, although executor is the term most commonly used to refer to either a man or a woman.

executory contract: A contract under which something remains to be done by one or more of the parties.

express agency: An agency relationship based on a formal agreement between the parties.

express agreement: An oral or written contract in which the parties state the contract’s terms and express their intentions in words.

express contract: See express agreement.

external depreciation: Reduction in a property’s value caused by outside factors (i.e. those that are off the property).

external obsolescence: Incurable depreciation caused by factors not on the subject property, such as environmental or economic factors.

FHA-insured loan: A loan insured by the Federal Housing Administration and made by an approved lender in accordance with FHA regulations.

Fair Housing Act: The federal law that prohibits discrimination in housing based on race, color, religion, sex, disability, familial status, and national origin.

Fair Housing Amendments Act of 1988: Expansion of the Fair Housing Act to include families with children and those with physical or mental disabilities.

Fannie Mae: A government-supervised enterprise established to purchase any kind of mortgage loans in the secondary mortgage market from the primary lenders.

Farmer Mac: The Federal Agricultural Mortgage Corporation—a privately owned and publicly traded company established by Congress to create a secondary market for agricultural mortgage and rural utilities loans and the portions of agricultural and rural development loans guaranteed by the U.S. Department of Agriculture (USDA).

Federal Deposit Insurance Corporation (FDIC): An independent federal agency established by Congress to examine and supervise financial institutions, manage receiverships, and insure deposits (currently up to $250,000 per depositor per financial institution).

Federal Emergency Management Agency (FEMA): A federal agency that is responsible for assisting the nation in preparing for, protecting against, responding to, and recovering from hazards.

Federal Home Loan Mortgage Corporation: See Freddie Mac.

Federal National Mortgage Association: See Fannie Mae.

Federal Reserve System (the Fed): The country’s central banking system, which establishes the nation’s monetary policy by regulating the supply of money and interest rates.

Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA): This act restructured the savings and loan association regulatory system; enacted in response to the savings and loan crisis of the 1980s.

Freddie Mac: A government supervised enterprise established to purchase primarily conventional mortgage loans in the secondary mortgage market.

facilitator: See nonagent.

familial status: One or more individuals under age 18 living with a parent or guardian; also includes a woman who is pregnant and anyone who is in the process of assuming custody of a child under age 18.

federal funds rate: The rate recommended by the Federal Reserve for the member banks to charge each other on short-term loans. These rates form the basis on which the banks determine the percentage rate of interest they will charge their loan customers.

fee simple: The highest interest in real estate recognized by the law; the holder is entitled to all rights to the property.

fee simple absolute: The maximum possible estate or right of ownership of real property, continuing forever.

fee simple defeasible: See defeasible fee estate.

fee simple determinable: A fee simple estate qualified by a special limitation. Language used to describe the limitation includes the words so long as, while, or during.

fee simple subject to a condition subsequent: An estate carrying the limitation that, if it is no longer used for the purpose conveyed, it reverts to the original grantor by the right of reentry.

fee-for-service: Arrangement by which a consumer asks a real estate professional to perform specific real estate services for an agreed-upon fee.

feudal system: A system of ownership usually associated with precolonial England, in which the king or other sovereign is the source of all rights. The right to possess real property was granted by the sovereign to an individual as a life estate only. Upon the death of the individual, title passed back to the sovereign, not to the decedent’s heirs.

fiduciary: One in whom trust and confidence is placed; a reference to a real estate professional employed under the terms of a listing contract or buyer representation agreement.

fiduciary relationship: A relationship of trust and confidence, as between trustee and beneficiary, attorney and client, or principal and agent. 156

financing: The business of providing the funds that make real estate transactions possible.

first mortgage: A mortgage that has priority over all other mortgages.

fiscal policy: The government’s policy in regard to taxation and spending programs. The balance between these two areas determines the amount of money the government will withdraw from or feed into the economy, which can counter economic peaks and slumps.

fixture: An item of personal property that has been converted to real property by being permanently affixed to the realty.

foreclosure: A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of the parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale. Depending on the priority of the foreclosed mortgage, the property may be sold free of all other encumbrances incurred prior to the sale.

formal will/witnessed will: A document having written instructions of property disbursements upon the death of the owner. The document must be signed and witnessed.

formaldehyde: An air pollutant that is a colorless chemical used to manufacture building materials and many household products, such as particleboard, hardwood plywood paneling, and urea-formaldehyde foam insulation.

fraud: Deception intended to cause a person to give up property or a lawful right.

freehold estate: An estate in land in which ownership is for an indeterminate length of time, in contrast to a leasehold estate.

front footage: The measurement of a parcel of land by the number of feet of street or road frontage.

frontage: The length of property along the street or waterfront.

fully amortized loan: A loan consisting of equal, regular payments satisfying the total payment of principal and interest by the due date.

functional obsolescence: A loss of value to an improvement to real estate arising from problems of design or utility.

future interest: A person’s present right to an interest in real property that will not result in possession or enjoyment until sometime in the future, such as a reversion or right of reentry.

Ginnie Mae: A government agency that plays an important role in the secondary mortgage market. It guarantees mortgage-backed securities using FHA-insured and VA guaranteed loans as collateral.

Government National Mortgage Association: See Ginnie Mae.

gap: A defect in the chain of title of a particular parcel of real estate; a missing document or conveyance that raises doubt as to the present ownership of the land.

general agent: One who is authorized by a principal to represent the principal in a specific range of matters. 159 general lien The right of a creditor to have all of a debtor’s property—both real and personal—sold to satisfy a debt.

general partnership: See partnership.

general real estate tax: A tax that is made up of the taxes levied on the real estate by government agencies and municipalities.

general warranty deed: A deed in which the grantor fully warrants good, clear title to the premises. Used in most real estate deed transfers, a general warranty deed offers the greatest protection of any deed.

government survey system: See rectangular (government) survey system

government-sponsored enterprises (GSEs): Organizations created by the federal government (Fannie Mae, Freddie Mac, Farmer Mac, Ginnie Mae) to help increase loan opportunities for homebuyers.

graduated-payment mortgage: A loan in which the monthly principal and interest payments increase by a certain percentage each year for a certain number of years and then level off for the remaining loan term.

grantee: A person who receives a transfer of real property from a grantor.

granting clause: Words in a deed of conveyance that state the grantor’s intention to convey the property at the present time. This clause is generally worded as “convey and warrant”; “grant”; “grant, bargain, and sell”; or the like.

grantor: The owner transferring title to or an interest in real property to a grantee.

gross income multiplier (GIM): A figure used as a multiplier of the gross annual income of a property to produce an estimate of the property’s value; usually used for commercial property.

gross lease: A lease of property according to which a landlord pays all property charges regularly incurred through ownership, such as repairs, taxes, insurance, and operating expenses. Most residential leases are gross leases.

gross rent multiplier (GRM): The figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property’s value; usually used for single family residential property.

groundwater: Water that exists under the earth’s surface within the tiny spaces or crevices in geological formations.

growing-equity mortgage: A loan in which the monthly payments increase annually, with the increased amount being used to directly reduce the principal balance outstanding and thus shorten the overall term of the loan.

Home Mortgage Disclosure Act: A federal law, implemented at its creation by Regulation C of the Federal Reserve, that requires lenders to annually disclose the number of loan applications and loans made in certain areas to avoid the practice of redlining. On July 21, 2011, the rule-making authority of the law was transferred to the Consumer Financial Protection Bureau.

Housing for Older Persons Act of 1995 (HOPA): Amended the Fair Housing Act to provide that housing intended for persons aged 55 or older no longer needs to have significant facilities and services designed for the elderly.

habendum clause: That part of a deed beginning with the words “to have and to hold,” following the granting clause and defining the extent of ownership the grantor is conveying.

habitability: A property that is suitable for living in or on.

heir: One who might inherit or succeed to an interest in land under the state law of descent when the owner dies without leaving a valid will.

highest and best use: The legally permitted and physically possible use of a property that would produce the greatest net income and, thereby, develop the highest value.

holdover tenancy: A tenancy in which a lessee retains possession of leased property after the lease has expired and the landlord, by continuing to accept rent, agrees to the tenant’s continued occupancy as defined by state law. 352 holographic will A will that is written, dated, and signed in the testator’s handwriting.

home equity loan: A loan under which a property owner uses the property as collateral and can then draw funds up to a prearranged amount against the property. Also called a home equity line of credit, or HELOC.

home inspection: A thorough visual survey of a property’s structure, systems, and site conditions conducted by a professional.

homeowners insurance: Insurance that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks.

homestead: Land that is owned and occupied as the family home. In many states, a portion of the area or value of this land is protected or exempt from judgments for debts other than those secured by the property.

hydraulic fracturing (fracking): The process used to extract natural gas from the deep layers of rock in which it is embedded.

hypothecation: To pledge property as security for an obligation or loan without giving up possession of it.

Internal Revenue Service tax lien: A lien charged by the Internal Revenue Service for nonpayment of income taxes.

Internet Data Exchange (IDX) policy: Policy that allows all multiple listing service (MLS) members to restrict internet access to MLS property listings.

Interstate Land Sales Full Disclosure Act (ILSA): A federal law that regulates the sale of certain real estate in interstate commerce.

immobility: The fact that property cannot be relocated to satisfy demand where supply is low, nor can buyers always relocate to areas with greater supply.

implied agency: If the actions of the parties imply that they have mutually consented to an agency relationship, an implied agency relationship is formed.

implied agreement: A contract under which the agreement of the parties is demonstrated by their acts and conduct.

implied contract: See implied agreement.

implied warranty of habitability: A theory in landlord/ tenant law in which the landlord renting residential property implies that the property is habitable and fit for its intended use.

impound accounts: An account that the mortgage lender may require a borrower to have to accumulate funds to pay future real estate taxes and insurance premiums.

improvement: (1) Any structure, usually privately owned, erected on a site to enhance the value of the property (e.g., a building, fence, or driveway). (2) A publicly owned structure added to or benefiting land (e.g., a curb, sidewalk, street, or sewer).

income approach: The process of estimating the value of an income-producing property through capitalization of the annual net income expected to be produced by the property during its remaining useful life.

income property: Property held for current income as well as a potential profit upon its sale.

independent contractor: Someone who is retained to perform a certain act but who is subject to the control and direction of another only as to the end result and not as to the way in which the act is performed. Unlike an employee, an independent contractor pays for all expenses and Social Security and income taxes and receives no employee benefits. Most real estate sales associates are independent contractors, meeting the Internal Revenue Service definition for a qualified real estate agent.

index: An objective economic indicator to which the interest rate for an adjustable-rate mortgage is tied. 249 inflation The gradual reduction of the purchasing power of the dollar, usually related directly to increases in the money supply by the federal government.

inheritance taxes: State-imposed taxes on a decedent’s real and personal property.

installment sale: A transaction in which the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer can post” pone reporting such income until future years by paying tax each year only on the proceeds received that year.

interest: A charge made by a lender for the use of money.

interest-only loan: A loan that only requires the payment of interest for a stated period of time with the principal due at the end of the term.

interim financing: A short-term loan usually made during the construction phase of a building project (often referred to as a construction loan).

intermediary: See nonagent.

intestate: The condition of a property owner who dies without leaving a valid will. Title to the property will pass to the decedent’s heirs, as provided in the state law of descent.

intrinsic value: An appraisal term referring to the value of a property unaffected by a person’s personal preferences.

inverse condemnation: An action brought by a property owner seeking just compensation for diminished use and value of land because of an adjacent property’s public use.

investment: Money directed toward the purchase, improvement, and development of an asset in expectation of income or profits.

involuntary alienation: See alienation.

involuntary lien: A lien placed on property without the consent of the property owner.

joint tenancy: Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the decedent’s interest usually passes to the surviving joint tenant or tenants by the right of survivorship.

judgment: The formal decision of a court upon the respective rights and claims of the parties to an action or suit. After a judgment has been entered and recorded with the county recorder, it usually becomes a general lien on the property of the defendant.

judicial precedent: In law, the requirements established by prior court decisions within the jurisdiction of the dispute.

jumbo loan: See nonconforming loan.

junior lien: An obligation, such as a second mortgage, that is subordinate in right or lien priority to an existing lien on the same property.

Lead-Based Paint Hazard Reduction Act (LBPHRA): Federal legislation requiring disclosure of the presence of any known lead-based paint hazards to potential buyers or renters. However, the law does not require that anyone test for the presence of lead-based paint.

Loan Estimate: A CFPB form that highlights the information that historically has been the most important to consumers. Interest rate, monthly payment, and total closing costs are clearly presented on the first page.

laches: An equitable doctrine used by courts to bar a legal claim or to prevent the assertion of a right because of undue delay or failure to assert the claim or right.

land: The earth’s surface, extending downward to the center of the earth and upward infinitely into space, including things permanently attached by nature, such as trees.

land contract: See installment sale.

land trust: A trust in which property is conveyed, and in which real estate is the only asset.

latent defect: A hidden structural defect that could not be discovered by ordinary inspection and that threatens a property’s soundness or the safety of its inhabitants. Some states impose on property sellers and real estate professionals a duty to inspect for and disclose latent defects.

law of diminishing returns: Point at which additional property improvements do not increase the property’s income or value.

law of increasing returns: Applies as long as money being spent on property improvements produces an increase in the property’s income or value.

lead: Used as a pigment and drying agent in alkyd oil-based paint in about 75% of housing built before 1978. An elevated level of lead in the body can cause serious damage to the brain, kidneys, nervous system, and red blood cells. Children younger than six are most vulnerable.

lease: A written or oral contract between a landlord (the lessor) and a tenant (the lessee) that transfers the right to exclusive possession and use of the landlord’s real property to the lessee for a specified period of time and for a stated consideration (rent). By state law, leases for longer than a certain period of time (generally one year) must be in writing to be enforceable.

lease option: A lease under which the tenant has the right to purchase the property at an agreed-upon price either during the lease term or at its end.

lease purchase: The purchase of real property, the consummation of which is preceded by a lease, usually long term, that is typically done for tax or financing purposes.

leasehold estate: A tenant’s right to occupy real estate during the term of a lease, generally considered a personal property interest, although a long-term lease may be eligible for treatment as real property for financing purposes.

legacy: A disposition of money or personal property by will.

legal description: A description of a specific parcel of real estate complete enough for an independent surveyor to locate and identify it.

legal life estate: A form of life estate established by state law, rather than created voluntarily by an owner. It becomes effective when certain events occur. See dower, curtesy, and homestead for legal life estates used in some states.

legally competent parties: People who are recognized by law as being able to contract with others; those of legal age and sound mind.

lessee: See lease.

lessor: See lease.

leverage: The use of borrowed money to finance an investment.

levy: To assess; to seize or collect. To levy a tax is to assess a property and set the rate of taxation. To levy an execution is to officially seize the property of a person in order to satisfy an obligation.

liability coverage: Feature of homeowners insurance that covers injuries or losses sustained within the home.

license: (1) In real estate practice, the privilege or right granted to a person by a state to operate as a real estate broker or salesperson. (2) The revocable permission for a temporary use of land—a personal right that cannot be sold.

lien: A right given by law to certain creditors to have their debts paid out of the property of a defaulting debtor, usually by means of a court sale.

lien theory: Principle in which the mortgagor retains both legal and equitable title to property that serves as security for a debt. The mortgagee has a lien on the property, but the mortgage is nothing more than collateral for the loan.

life estate: An interest in real or personal property that is limited in duration to the lifetime of its owner or some other designated person or persons.

life tenant: A person in possession of a life estate.

limited agency: Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in some states. Also known as dual agency.

limited liability company (LLC): A form of business organization that combines the most attractive features of limited partnerships and corporations.

limited partnership: See partnership.

linear measurement: Measurement in a straight line.

liquidated damages: An amount predetermined by the parties to a contract as the total compensation to an injured party should the other party breach the contract.

liquidity: The ability to sell an asset and convert it into cash, at a price close to its true value, in a short period of time.

lis pendens: A recorded legal document giving constructive notice that an action affecting a particular property has been filed in either a state or a federal court.

listing agreement: A contract between an owner (as principal) and a real estate professional (as representative of the owner) by which the real estate professional is employed to find a buyer for the owner’s real estate on the owner’s terms, for which service the owner agrees to Pay a commission or other form of compensation.

listing broker: The broker from whose office a listing agreement is initiated. 177

littoral rights: (1) A landowner’s claim to use water in large navigable lakes and oceans adjacent to her property. (2) The ownership rights to land bordering these bodies of water up to the high-water mark.

living trust: A trust that is created during the trustor’s lifetime.

loan origination fee: A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.

loan-to-value ratio (LTV): The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

lot-and-block (recorded plat) method: A method of describing real property that identifies a parcel of land by reference to lot and block numbers within a subdivision, as specified on a recorded subdivision plat.

Megan’s Law: Federal legislation that promotes the establishment of state registration systems to maintain residential information on every person who kidnaps children, commits sexual crimes against children, or commits sexually violent crimes.

Mortgage Disclosure Improvement Act (MDIA): Enacted in July 2008 as an amendment to the Truth in Lending Act (TILA) to require mortgage loan cost disclosures to consumers. Early disclosure (a good-faith estimate) of mortgage loan cost must be provided within three business days of receiving a consumer’s application for a mortgage loan; a creditor must wait seven business days after providing the early disclosures before closing the loan; and a creditor must provide new disclosures and wait an additional three business days before closing the loan, if a change occurs that makes the annual percentage rate quoted in the early disclosure inaccurate beyond a specified tolerance.

management agreement: A contract between the owner of income property and a management firm or individual property manager that outlines the scope of the manager’s authority.

management plan: A highly detailed plan that lays out the owner’s objectives for a property, as well as what the property manager wants to accomplish and how, including all budgetary information.

managing broker: The real estate professional who is responsible for supervision of the real estate professionals who act on behalf of the brokerage; may also be called a supervising broker.

manufactured home: A permanent installation built to federal specifications, providing a principal residence or a vacation home.

manufactured housing: Dwellings that are built off site and trucked to a building lot where they are installed or assembled.

margin: A premium added to the index rate representing the lender’s cost of doing business

market: A place where goods can be bought and sold, and a price established.

market data approach: Also known as the sales comparison approach. An estimate of value obtained by comparing property being appraised with recently sold comparable properties.

market value: The most probable price that a property would bring in an arm’s-length transaction under normal conditions on the open market.

marketable title: Good or clear title, reasonably free from the risk of litigation over possible defects.

master plan: A comprehensive government plan to guide the long-term physical development of a particular area.

master-planned community: A planned combination of diverse land uses, such as housing, recreation, and shopping, in one contained development or subdivision; also called a planned unit development (PUD).

mechanic’s lien: A statutory lien created in favor of contractors, laborers, material suppliers, and others who have performed work or furnished materials in the erection or repair of a building.

meridian: One of a set of imaginary lines running north and south and crossing a base line at a definite point, used in the rectangular (government) survey system of property description.

metes-and-bounds method: A method used to describe a parcel of land that begins at a well-marked point and follows the property’s boundaries, using directions and distances around the tract, back to the place of beginning.

mill: One-tenth of one cent. Some states use a mill rate to compute real estate taxes; for example, a rate of 52 mills would indicate a tax of 5.2% or $0.052 for each dollar of assessed valuation of a property.

minimum level of services: The services that real estate professionals must provide to clients, as prescribed differently by certain states; for example, assisting clients in negotiation and answering questions from clients about offers, counteroffers, and contingencies.

ministerial acts: The necessary paperwork and formalities involved in transferring ownership of real property.

minor: A person who has not reached the age of majority and, therefore, does not have legal capacity to transfer title to real property.

mixed use: Property that accommodates more than one use, such as commercial use and residential use.

modular home: A type of factory-built housing with components that are assembled at a building site on a prepared foundation.

mold: A form of fungus that can be found almost anywhere and can grow on almost any organic substance, so long as moisture and oxygen are present. Mold growth can gradually destroy what it is growing on, as well as cause serious health problems.

monetary policy: Governmental regulation of the amount of money in circulation through such institutions as the Federal Reserve Board.

month-to-month tenancy: A periodic tenancy under which the tenant rents for one month at a time. In the absence of a rental agreement (oral or written), a tenancy is generally considered to be month to month.

monument: A fixed natural or artificial object used to establish real estate boundaries for a metes-and-bounds description.

mortgage: A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien.

mortgage banker: A mortgage loan company that originates, services, and sell loans to investors.

mortgage broker: An agent of a lender who brings the lender and the borrower together. The broker receives a fee for this service.

mortgage insurance premium (MIP): The FHA insurance that is a percentage of the loan amount that the borrower is charged as a premium.

mortgage lien: A lien or charge on the property of a mortgagor that secures the underlying debt obligation.

mortgage servicing transfer statement: Disclosure required by the lender if the lender intends to sell or assign the right to service the loan to another loan servicer. The loan servicer must notify the borrower 15 days before the effective date of the loan transfer, including in the notice the name and address of the new servicer, toll-free telephone numbers, and the date the new servicer will begin accepting payments.

mortgagee: A lender in a mortgage loan transaction.

mortgagor: A borrower in a mortgage loan transaction.

multiperil policies: Insurance policies that offer protection from a range of potential perils, such as fire, hazard, public liability, and casualty.

multiple listing clause: A provision in an exclusive listing for the authority and obligation on the part of the listing agent to distribute the listing to other real estate professionals in a multiple listing organization.

multiple listing service (MLS): A marketing organization composed of member real estate professionals who agree to share their listing agreements with one another in the hope of procuring ready, willing, and able buyers for their properties more quickly than they could on their own. Most multiple listing services accept exclusive right-to-sell or exclusive agency listings from their member real estate professionals.

mutual assent: Requirement that there must be complete agreement between the parties about the purpose and terms of a contract.

National Association of REALTORS® (NAR): The largest real estate organization in the world; NAR members subscribe to a strict code of ethics. Active members are allowed to use the trademarked designation, REALTOR®.

National Do Not Call Registry: See Do Not Call Registry.

negative amortization: Process by which the amount of the loan increases. The mortgagor sets a payment cap, or maximum amount for payments, but the difference between the payment made and the full payment amount is added to the remaining mortgage balance.

negligent misrepresentation: Occurs when the real estate professional should have known that a statement about a material fact was false.

negotiable instrument: A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee’s right to payment.

net lease: A lease requiring the tenant to pay not only rent but also costs incurred in maintaining the property, including taxes, insurance, utilities, and repairs.

net listing: A listing based on the net price the seller will receive if the property is sold. Under a net listing, the real estate professional can offer the property for sale at the highest price obtainable to increase the commission. This type of listing is illegal in many states.

net operating income (NOI): The income projected for an income-producing property after deducting anticipated vacancy and collection losses and operating expenses.

niche marketing: The target marketing of specific demographic populations, within the bounds of fair housing laws.

nonagent: An intermediary between a buyer and a seller, or a landlord and a tenant, who assists one or both pare ties with a transaction without representing either. Also known as a facilitator, transaction broker, transaction coordinator, and contract broker.

nonconforming loan: A loan that exceeds the Federal Housing Finance Agency (FHFA) loan limits; also called a jumbo loan.

nonconforming use: A use of property that is permitted to continue after a zoning ordinance prohibiting it has been established for the area.

nondisturbance clause: A mortgage clause stating that the mortgagee agrees not to terminate the tenancies of the lessees in the event the mortgagee forecloses on the mortgagor-lessor’s building.

nonhomogeneity: A lack of uniformity; dissimilarity. Because no two parcels of land are exactly alike, real estate is said to be nonhomogeneous.

notarization: Certification by a notary or other authorized official of the validity of a signature on a document.

note: See promissory note.

novation: Substituting a new obligation for an old one or substituting new parties to an existing obligation.

numerator: The number written above the line of a fraction representing the number to be divided by the denominator.

Office of the Comptroller of the Currency (OCC): Government agency which sets standards and regulations for fiduciary lenders.

obsolescence: The loss of value due to property features that are outmoded or less useful. Obsolescence may be functional or external.

occupancy permit: A permit issued by the appropriate local governing body to establish that the property is suite able for habitation by meeting certain safety and health standards.

offer and acceptance: Two essential components of a valid contract; a “meeting of the minds.” An offer is a promise made by the offeror, requesting something in exchange for that promise. Acceptance is a promise by the offeree to be bound by the exact terms proposed by the offeror.

offeror/offeree: The person who makes the offer is the offeror. The person to whom the offer is made is the offeree.

open listing: A listing contract under which the real estate professional’s compensation is contingent on the real estate professional producing a ready, willing, and able buyer before the property is sold by the seller or another real estate professional.

open-end loan: A mortgage loan that is expandable by increments up to a maximum dollar amount, with the full loan being secured by the same original mortgage.

operating budget: A property’s anticipated financial performance in the present and future. It gives the owner a sense of expected profit.

option: An agreement to keep open for a set period an offer to sell or purchase property.

P&I: Principal and interest.

PITI: The basic costs of owning a home—mortgage principal and interest, real estate taxes, and hazard insurance.

PITT: The four unities of tenants in a joint tenancy: possession, interest, time, and title.

package loan: A real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a new home that includes carpeting, window coverings, and major appliances.

panic peddling: The illegal practice of soliciting people in a neighborhood to sell their homes because of fear or alarm; also referred to as blockbusting.

partition: The division of cotenants’ interests in real property when the parties do not all voluntarily agree to terminate the co-ownership; takes place through a court procedure.

partnership: An association of two or more individuals who carry on a continuing business for profit as co-owners. Under the law, a partnership is regarded as a group of individuals rather than as a single entity separate from the individual owners. A general partnership is a typical form of joint venture in which each general partner shares in the administration, profits, and losses of the operation. A limited partnership is a business arrangement whereby the operation is administered by one or more general partners and funded, by and large, by limited or silent partners, who are by law responsible for losses only to the extent of their investments.

party wall: An exterior wall of a building that straddles the boundary line between two lots, or a commonly shared partition wall between two connected properties.

passing papers: When parties to a transaction sit around a table and exchange copies of documents as the documents are executed.

patent: A grant or franchise of land from the U.S. government.

payment cap: The limit on the amount the monthly payment can be increased on an adjustable-rate mortgage when the interest rate is adjusted. 249 payoff statement See reduction certificate.

percent: One part in a hundred.

percentage lease: A lease, commonly used for commercial property, whose rental is based on the tenant’s gross sales at the premises; it usually stipulates a base monthly rental plus a percentage of any gross sales above a certain amount.

percolation test: A test of the soil to determine whether it will absorb and drain water adequately to use a septic system for sewage disposal.

periodic tenancy: See estate from period to period.

personal property: Items, called chattels, that do not fit into the definition of real property; movable objects.

personalty: Personal property.

physical deterioration: A reduction in a property’s value resulting from a decline in physical condition; can be caused by action of the elements or by ordinary wear and tear.

planned unit development (PUD): A planned combination of diverse land uses, such as housing, recreation, and shopping, in one contained development or subdivision.

plat map: A map of a town, section, or subdivision indicating the location and boundaries of individual properties.

plottage: The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot.

point: A term used for a percentage of the principal loan amount charged by the lender. Each point is equal to 1% of the loan amount.

point of beginning (POB): In a metes-and-bounds legal description, the starting point of the survey, situated in one corner of the parcel; all metes-and-bounds descriptions must follow the boundaries of the parcel back to the point of beginning.

police power: The government’s right to impose laws, statutes, and ordinances, including zoning ordinances and building codes, to protect the public health, safety, and welfare.

polychlorinated biphenyls (PCBs): Used as an insulating material in dielectric oil. It can linger in the environment for long periods of time and can cause health problems.

possession: Owning or occupying a property.

power of attorney: A written instrument authorizing a person, the attorney-in-fact, to act as agent for another person to the extent indicated in the instrument.

prepaid items: On a closing statement, items that have been paid in advance by the seller, such as fuel costs and some real estate taxes, for which the seller must be reimbursed by the buyer.

prepayment penalty: A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.

preventive maintenance: Small repairs that help prevent bigger problems and expenses.

price: The amount of money paid for an item or service.

price-fixing: See antitrust laws.

primary mortgage market: The mortgage market in which loans are originated, consisting of lenders such as commercial banks, savings associations, and mutual savings banks.

principal: (1) A sum loaned or employed as a fund or an investment, as distinguished from its income or profits. (2) The original amount (as in a loan) of the total due and payable at a certain date. (3) A main party to a transaction—the person for whom an agent works.

principal meridian: The main imaginary line running north and south and crossing a base line at a definite point; used by surveyors for reference in locating and describing land under the rectangular (government) survey system of legal description.

prior appropriation: A concept of water ownership in which the landowner’s right to use available water is based on a government-administered permit system.

priority: The order of position or time. The priority of liens is generally determined by the chronological order in which the lien documents are recorded; tax liens, however, have priority even over previously recorded liens.

private mortgage insurance (PMI): Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.

probate: A legal process by which a court determines who will inherit a decedent’s property and what the estate’s assets are.

procuring cause: The effort that brings about the desired result. Under an open listing, the real estate professional who is the procuring cause of the sale receives the commission.

profit: Making a gain from an investment after subtracting expenses.

profit and loss statement: A general financial picture based on the monthly cash flow reports; does not include itemized information.

progression: An appraisal principle that the value of a lesser-quality property is favorably affected by the presence of a better-quality property.

promissory note: A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party).

property manager: Someone who manages real estate for another person for compensation. Duties include collecting rents, maintaining the property, and keeping up all accounting.

proprietary lease: A lease given by the corporation that owns a cooperative apartment building to a shareholder who has the right as a tenant to an individual unit.

prorations: Expenses, either prepaid or paid in arrears, that are divided or distributed between the buyer and the seller at the closing.

protected class: Any group of people designated as such by the Department of Housing and Urban Development (HUD) in consideration of federal civil rights legislation. Individual states and local jurisdictions provide such designation to additional groups as well.

public ownership: Government-owned property.

puffing: Exaggerated or superlative comments or opinions.

pur autre vie: “For the life of another.” A life estate pur autre vie is a life estate that is measured by the life of a person or persons other than the grantee.

purchase money mortgage: A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate.

purchase option: The process of acquiring additional property by refinancing property already owned and investing the loan proceeds in additional properties.

pyramiding: The process of acquiring additional property by refinancing property already owned and investing the loan proceeds in additional properties.

quiet title: A court action to remove a cloud on the title.

quitclaim deed: A conveyance that transfers whatever interest the grantor has in the specified real estate, without warranties or obligations.

quotient: The number resulting from dividing one number by another.

Real Estate Settlement Procedures Act (RESPA): The federal law that requires certain disclosures to consumers about mortgage loan settlements. The law also prohibits the payment or receipt of kickbacks and certain kinds of referral fees.

Regulation Z: Implements the Truth in Lending Act, requiring credit institutions to inform borrowers of the true cost of obtaining credit.

Resolution Trust Corporation (RTC): Created in 1989 by the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) to liquidate the assets of failed savings and loan associations. In 1995, the responsibilities of RTC were transferred to the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation.

radon: A naturally occurring gas that is suspected of causing lung cancer.

range: A strip of land six miles wide, extending north and south and numbered east and west according to its distance from the principal meridian in the rectangular (government) survey system of legal description.

rate cap: The limit on the amount the interest rate can be increased at each adjustment period in an adjustable rate loan. The cap may also set the maximum interest rate that can be charged during the life of the loan.

ratification: Method of creating an agency relationship in which the principal accepts the conduct of someone who acted without prior authorization as the principal’s agent. ready, willing, and able buyer Person who is prepared to buy property on the seller’s terms and is ready to take positive steps to consummate the transaction.

real estate: Land; a portion of the earth’s surface extending downward to the center of the earth and upward infinitely into space, including all things permanently attached to it, whether naturally or artificially.

real estate broker: A person licensed to arrange the buying, selling, leasing, or exchange of real property for a fee.

real estate investment syndicate: See syndicate.

real estate investment trust (REIT): Trust ownership of real estate by a group of individuals who purchase certificates of ownership in the trust, which in turn invests the money in real property and distributes the profits back to the investors free of corporate income tax.

real estate license law: State law enacted to protect the public from fraud, dishonesty, and incompetence on the part of those they hire to represent them in the purchase and sale of real estate.

real estate licensee: In real estate practice, a person who has the skills and knowledge to be licensed as a real estate broker or salesperson.

real estate mortgage investment conduit (REMIC): A tax entity that issues multiple classes of investor interests (securities) backed by a pool of mortgages.

real estate recovery fund: A fund established in some states from real estate license revenues to cover claims of aggrieved parties who have suffered monetary damage through the actions of a real estate professional.

real property: The interests, benefits, and rights inherent in real estate ownership; often used as a synonym for real estate.
REALTOR® A registered trademarked term reserved for the sole use of active members of state and local REALTOR® associations affiliated with the National Association of REALTORS®.

reconciliation: The final step in the appraisal process, in which the appraiser considers the estimates of value received from the sales comparison, cost, and income approaches to arrive at a final opinion of market value for the subject property.

reconveyance deed: A deed used by a trustee under a deed of trust to return title to the trustor.

recorded plat: A map of a subdivision filed as a public record showing the location and boundaries of the individual parcels.

recording: The act of entering or recording documents affecting or conveying interests in real estate in the recorder’s office established in each county. Until it is recorded, a deed or a mortgage ordinarily is not effective against subsequent purchasers or mortgagees.

rectangular (government) survey system: A system established in 1785 by the federal government, providing for surveying and describing land by reference to principal meridians and base lines.

redemption: The right of a defaulted property owner to recover property by curing the default.

redemption period: A period of time established by state law during which property owners have the right to redeem their real estate from a foreclosure or tax sale by paying the sales price, interest, and costs. Many states do not have mortgage redemption laws.

redlining: The illegal practice by a lending institution of denying loans or restricting their number for certain areas of a community.

reduction certificate (payoff statement): The document signed by a lender indicating the amount required to pay a loan balance in full and satisfy the debt; used in the settlement process to protect both the seller’s and the buyer’s interests.

regression: An appraisal principle that the value of a better-quality property is affected adversely by the presence of a lesser-quality property.

release deed: A document, also known as a deed of reconveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid.

release of lien: A lien on a property that is now free from a mortgage.

remainder interest: The remnant of an estate that has been conveyed to take effect and be enjoyed after the termination of a prior estate, such as when an owner conveys a life estate to one party and the remainder to another.

renewal option: A clause in a lease that grants the lessee the privilege of renewing the lease.

rent: A fixed, periodic payment made by a tenant of a property to the owner for possession and use, usually by prior agreement of the parties.

rent schedule: A statement of proposed rental rates, determined by the owner or the property manager or both, based on a building’s estimated expenses, market supply and demand, and the owner’s long-range goals for the property.

replacement cost: The construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original.

representation: The role of a real estate professional acting on behalf of a client in a real estate transaction.

reproduction cost: The construction cost at current prices of an exact duplicate of the subject property.

rescission: The practice of one party canceling or terminating a contract, which has the effect of returning the parties to their original positions before the contract was made.

reservation: Something that is retained by the seller (i.e., a life estate or an access easement).

restrictive covenant: A clause in a deed that limits the way the real estate ownership may be used.

reverse mortgage: A loan by which a homeowner receives a lump sum, monthly payments, or a line of credit based on the homeowner’s equity in the property secured by the mortgage. The loan must be repaid at a prearranged date, upon the death of the owner, or upon the sale of the property.

reversionary interest: The remnant of an estate that the grantor holds after granting a life estate to another person.

reversionary right: The return of the rights of possession and quiet enjoyment to the lessor at the expiration of a lease.

revocation: Canceling or annulling licensed privileges or rights.

right of first refusal: A clause allowing the tenant the opportunity to buy the property before the owner accepts an offer from another party.

right of survivorship: See joint tenancy.

right-of-way: The right given by one landowner to another to pass over the land, construct a roadway, or use as a pathway, without actually transferring ownership.

riparian rights: An owner’s rights in land that borders on or includes a stream, river, or lake. These rights include access to and use of the water.

risk management: Evaluation and selection of appropriate property and other insurance.

routine maintenance: Day-to-day duties such as cleaning common areas, performing minor carpentry and plumbing adjustments, and providing regularly scheduled upkeep of heating, air-conditioning, and landscaping.

rules and regulations: Real estate licensing authority orders that govern real estate professionals’ activities, having the same force and effect as statutory law.

Safe Drinking Water Act: An act to protect public health by authorizing the EPA to set national health-based standards for drinking water.

Settlement Statement (HUD-1): The special HUD form, recently replaced by a new form created by the Consumer Financial Protection Bureau, that itemized all charges to be paid by a borrower and a seller in connection with the settlement of a real estate transaction. Also called the HUD-1 form.

Small Business Liability Relief and Brownfields Revitalization Act: Law that provides funds to assess and clean up brownfields, clarifies liability protections, and provides tax incentives toward enhancing state and tribal response programs (also known as Brownfields Law).

Superfund: Popular name of the hazardous-waste cleanup fund established by the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

Superfund Amendments and Reauthorization Act (SARA): An amendatory statute that contains h5er cleanup standards for contaminated sites, increased funding for Superfund, and clarifications of lender liability and innocent landowner immunity. See Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

sale-and-leaseback: A transaction in which the owner sells improved property and, as part of the same transaction, signs a long-term lease to remain in possession of the premises.

sales associate: A person who performs real estate activities while employed by a licensed real estate broker.

sales comparison approach: The process of estimating the value of a property by examining and comparing sales and listings of comparable properties.

sales price: The amount of money paid to a seller for the product sold.

salesperson: See sales associate.

satisfaction: Release or discharge when a note has been fully paid, returning to the borrower all interest in the real estate originally conveyed to the lender. Entering this release in the public record shows that the debt has been removed from the property.

satisfaction of mortgage: A document acknowledging the payment of a mortgage debt.

secondary mortgage market: A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages. Mortgages are first originated in the primary mortgage market.

section A: portion of a township under the rectangular (government) survey system. A township is divided into 36 sections, numbered 1 through 36. A section is a square with mile-long sides and an area of one square mile, or 640 acres.

security: See collateral.

security agreement: See Uniform Commercial Code.

security deposit: A payment by a tenant, held by the landlord during the lease term, and kept (wholly or partially) on default or on destruction of the premises by the tenant.

seller’s broker: The real estate broker who represents only the seller in transactions.

seller’s disclosure notice: Documents completed by the seller of a home listing any known issues of the property, including home improvements made.

separate property: Under community property law, property owned solely by either spouse before the marriage, acquired by gift or inheritance during the marriage, or purchased with separate funds after the marriage.

servient tenement: Land on which an easement exists in favor of an adjacent property, called the dominant tenement.

setback: The amount of space local zoning regulations require between a lot line and a building.

settlement and transfer: See closing.

severalty: Ownership of real property by one person only; also called sole ownership.

severance: Changing an item of real estate to personal property by detaching it from the land (e.g. cutting down a tree).

short sale: Sale of property in which the sales price is less than the remaining indebtedness

single agency: Agency relationship in which the agent represents only one party to a transaction.

situs: (Latin for “to place”) The location of land for legal purposes; the jurisdiction in which land is located.

special agent: One who is authorized by a principal to perform a single act or transaction; a real estate professional is usually a special agent authorized to find a ready, willing, and able buyer for a particular property, when representing a seller, or a special agent authorized to find a suitable property, when representing a buyer.

special assessment: A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement like a street or sewer.

special warranty deed: A deed in which the grantor warrants, or guarantees, the title only against defects arising during the period of the grantor’s tenure and ownership of the property and not against defects existing before that time, generally using the language, “by, through, or under the grantor but not otherwise.”

specific lien: A lien affecting or attaching only to a certain, identified parcel of land or piece of property.

specific performance: A legal action to compel a party to carry out the terms of a contract.

spot survey: A survey that shows the location, size, and shape of buildings on the lot, in addition to the lot’s legal description.

spot zoning: Granting a particular parcel a classification that differs from the classification of other land in the immediate area; may be considered illegal.

statute of frauds: That part of a state law that requires certain instruments, such as deeds, real estate sales contracts, and certain leases, to be in writing to be legally enforceable.

statute of limitations: That law pertaining to the period of time within which certain actions must be brought to court.

statutory lien: A lien imposed on property by statute— a tax lien, for example—in contrast to an equitable lien, which arises out of common law.

statutory right of redemption: The right of a defaulted property owner to recover the property after its sale by paying the appropriate fees and charges.

statutory year: A year composed of 12 months, with each month consisting of 30 days, for a total of 360 days in the year. Also called a banker’s year.

steering: The illegal practice of channeling home seekers to particular areas based on their race, national origin, religion, or other protected classification.

stigmatized property: A property that has acquired an undesirable reputation due to an event that occurred on or near it, such as violent crime, gang-related activity, illness, or personal tragedy. Some states restrict the disclosure of information about stigmatized properties.

straight loan: A loan in which only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment.

straight-line depreciation: Depreciation taken periodically in equal amounts over an asset’s useful life.

subagent: A sales associate acting as an agent of a broker and who therefore owes fiduciary duties to the broker’s client.

subdivision and development ordinances: Municipal ordinances that establish requirements for subdivisions and development.

subdivision plat: See plat map.

subject to: A clause in a contract specifying exceptions or contingencies of a purchase.

subject to: Buyer takes title of property and makes payments on the existing loan but is not personally obligated to pay the debt in full. Original seller might continue to be liable for debt.

subjective value: The perceived value of an item based on the benefits given to the owner.

sublease: See subletting.

subletting: The leasing of premises by a lessee to a third party for part of the lessee’s remaining term. See also assignment.

subordination: Relegation to a lesser position, usually in respect to a right or security.

subordination agreement: A written agreement between holders of liens on a property that changes the priority of mortgage, judgment, and other liens under certain circumstances.

subrogation: The right acquired by the title company to any remedy or damages available to the insured when a title company makes a payment to settle a claim covered by a policy.

substitution: An appraisal principle that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution.

subsurface rights: Ownership rights in a parcel of real estate to the water, minerals, gas, oil, and so forth that lie beneath the surface of the property.

suit for possession: A court suit initiated by a landlord to evict a tenant from leased premises after the tenant has breached one of the terms of the lease or has held possession of the property after the lease’s expiration.

suit for specific performance: See specific performance.

suit to quiet title: A court action intended to establish or settle the title to a particular property, especially when there is a cloud on the title.

suit to quiet title: A court action intended to establish or settle the title to a particular property, especially when there is a cloud on the title.

supply: The amount of goods available for sale in the market. The term is often coupled with demand.

supply and demand: The appraisal principle that follows the interrelationship of the supply of and demand for real estate. Because appraising is based on economic concepts, this principle recognizes that real property is subject to the influences of the marketplace as with any other commodity.

surety bonds: An agreement by an insurance or bonding company to be responsible for certain possible defaults, debts, or obligations incurred by an insured party; in essence, a policy insuring one’s personal and/or financial integrity. In the real estate business, a surety bond is generally used to ensure that a particular project will be completed at a certain date or that a contract will be performed as stated.

surface rights: Ownership rights in a parcel of real estate that are limited to the surface of the property and do not include the space above it (air rights) or the substances below the surface (subsurface rights).

survey: The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions, and position of a house on a lot, including the determination of any existing encroachments or easements.

syndicate: A combination of people or firms formed to accomplish a business venture of mutual interest by pooling resources. In a real estate investment syndicate, the parties own and/or develop property, with the main profit generally arising from the sale of the property.

Torrens system: A method of evidencing title by registration with the proper public authority, generally called the registrar; named for its founder, Sir Robert Torrens.

Truth in Lending Act (TILA): Federal government regulates the lending practices of mortgage lenders through this act.

tacking: Concept providing that successive periods of continuous occupation by different parties may be combined to reach the required total number of years needed to establish a claim for a prescriptive easement.

taking: Process of land being taken from a property owner for public use through eminent domain with the requirement that the owner be compensated fairly.

tax basis: The point from which gains and losses are figured for tax purposes.

tax credit: An amount by which tax owed is reduced directly.

tax deed: An instrument, similar to a certificate of sale, given to a purchaser at a tax sale. See also certificate of sale.

tax levy: The formal action taken to impose a tax, usually by vote of a taxing district’s governing body.

tax lien: A charge against property, created by operation of law. Tax liens and assessments take priority over all other liens.

tax sale: A court-ordered sale of real property to raise money to cover delinquent taxes.

taxation: The process by which a government body raises monies to fund its operation.

tenancy by the entirety: The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. Upon the death of one spouse, the survivor becomes the owner of the property.

tenancy in common (TIC): A form of co-ownership by which each owner holds an undivided interest in real property as if each were sole owner. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have the right of inheritance.

tenant: One who holds or possesses lands or tenements by any kind of right or title.

tenant improvements (TI): Alterations to the interior of a building to meet the functional demands of the tenant. Also known as build-outs.

tenant’s insurance: Insurance on the personal belongings of tenants.

testamentary trust: A trust that is established by will after one’s death.

testate: Having made and left a valid will.

testator: A person who has made a valid will. A woman might be referred to as a testatrix, although testator can be used for either a man or a woman.

tie-in agreement: Agreement to sell one product only if the buyer purchases another product as well; also called a tying agreement.

tiers: Strips of land that are six miles wide, extending east and west and numbered north and south according to their distance from the base line in the rectangular (government) survey system of legal description.

time is of the essence: A phrase in a contract that requires the performance of a certain act within a stated period of time.

time-share: A form of ownership interest that may include an estate interest in property and that allows use of the property for a fixed or variable time period.

title: (1) The right to ownership or the ownership of land. (2) The evidence of ownership of land.

title insurance: A policy insuring a property owner or mortgagee against loss by reason of defects in the title to a parcel of real estate, other than encumbrances, defects, and matters specifically excluded by the policy.

title search: The examination of public records relating to real estate to determine the current state of the ownership.

title theory: Principle in which the mortgagor conveys legal title to the mortgagee (or some other designated individual) and retains equitable title and the right of possession. In effect, because the lender holds legal title, the lender has the right to immediate possession of the real estate and rents from the mortgaged property if the mortgagor defaults.

town house: A type of residential dwelling with two floors that is connected to one or more dwellings by a common wall or walls.

township: The principal unit of the rectangular (government) survey system. A township is a 6-mile square of 36 square miles.

township lines: All the lines in a rectangular survey system that run east and west, parallel to the base line and six miles apart.

township strips: See tier.

trade fixture: An article installed by a tenant under the terms of a lease that is removable by the tenant before the lease expires.

transaction broker: Helps both the buyer and the seller with paperwork and formalities in transferring ownership of real property, but who is not an agent of either party.

transfer tax: Tax stamps required to be affixed to a deed by state and/or local law.

triggering terms: Specific credit terms, such as down payment, monthly payment, and amount of finance charge or term of loan.

trust: A fiduciary arrangement whereby property is conveyed to a person or an institution, called a trustee, to be held and administered on behalf of another person, called a beneficiary. The one who conveys the trust is called the trustor.

trust deed: An instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a deed of trust.

trustee: One to whom something is entrusted and who holds legal title to property and administers the property for the benefit of a beneficiary. Can also be a member of a board entrusted with the administration of an institution or organization, such as a cooperative.

trustee’s deed: A deed executed by a trustee conveying land held in a trust.

trustor: A borrower in a deed of trust loan transaction; one who places property in a trust. Also called a grantor or settler.

Uniform Commercial Code (UCC): A codification of commercial law, adopted in most states, that attempts to make uniform all laws relating to commercial transactions, including chattel mortgages and bulk transfers. Security interests in chattels are created by an instrument known as a security agreement. To give notice of the security interest, a financing statement must be recorded. Article 6 of the code regulates bulk transfers—the sale of a business as a whole, including all fixtures, chattels, and merchandise.

Uniform Electronic Transactions Act (UETA): Sets forth rules for entering into an enforceable contract using electronic means.

Uniform Partnership Act: Law that provides for the continuation of an existing business if a partner in a general partnership dies, withdraws, or goes bankrupt.

Uniform Residential Appraisal Report (URAR): The appraisal form created by Fannie Mae and Freddie Mac that is required for most residential real estate transactions.

Uniform Standards of Professional Appraisal Practice (USPAP): A set of standards developed by the Appraisal Foundation that details information required for a property appraisal.

unbundling services: Offering only the real estate services that a client requires.

underground storage tanks (USTs): Commonly found on sites where petroleum products are used or where gas stations and auto repair shops are located, and subject to federal and state regulations. In residential areas, tanks are used to store heating oil. Over time, neglected tanks may leak hazardous substances into the environment.

undivided interest: See tenancy in common.

unenforceable contract: A contract that has all the elements of a valid contract, yet neither party can sue the other to force performance of it. For example, an unsigned contract is generally unenforceable.

unilateral contract: A one-sided contract wherein one party makes a promise to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise.

uniqueness: The idea that no matter how identical they may appear, no two parcels of real estate are ever exactly alike.

unity of ownership: The four unities that are traditionally needed to create a joint tenancy—unity of title, time, interest, and possession.

unity of possession: Co-owners of a tenancy in common are each entitled to possession and use of the entire property, even though each hold only a fractional ownership interest.

universal agent: A person empowered to do anything the principal could do personally.

urea-formaldehyde foam insulation (UFFI): Insulating foam that can release harmful formaldehyde gases. Formaldehyde causes some individuals to suffer respiratory problems, as well as eye and skin irritations.

usury: Charging interest at a higher rate than the maximum rate established by state law.

VA-guaranteed loan: A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the U.S. Department of Veterans Affairs in order to limit the lender’s possible loss.

valid contract: A contract that complies with all the essentials of a contract and is binding and enforceable on all parties to it.

value: The power of a good or service to command other goods in exchange for the present worth of future rights to its income or amenities.

variable rate mortgage: A mortgage loan in which the interest rate varies depending on market conditions.

variance: Permission obtained from zoning authorities to build a structure or conduct a use that is expressly prohibited by the current zoning laws; an exception from the zoning ordinances.

vendee: A buyer, usually under the terms of a land contract.

vendor: A seller, usually under the terms of a land contract.

vendor’s lien: A lien that belongs to a vendor for the unpaid purchase price of land, where the vendor has not taken any other lien or security beyond the personal obligation of the purchaser.

void contract: A contract that has no legal force or effect because it does not meet the essential elements of a contract.

voidable contract: A contract that seems to be valid on the surface but may be rejected or disaffirmed by one or both of the parties.

volume: The amount of space of a three-dimensional object.

voluntary alienation: See alienation.

voluntary lien: A lien placed on property with the knowledge and consent of the property owner.

warranty clause: A part of the deed in which the seller warrants the title conveyed to the buyer.

water rights: Common law rights held by owners of land adjacent to rivers, lakes, or oceans; includes restrictions on those rights and land ownership.

water table: The natural level at which the ground is saturated. The water table may be several hundred feet underground or near the surface.

will: A written document, properly witnessed, providing for the transfer of title to property owned by the deceased, called the testator.

workers’ compensation acts: State laws that require an employer to obtain insurance coverage to protect employees who are injured in the course of their employment.

wrap-around loan: A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender. In essence, it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount without disturbing the existence of the first mortgage.

writ of attachment: A document ordered by the court to have a sheriff enter a leased property to give possession back to the owner.

zoning: A regulatory tool that helps communities regulate and control how land is used.

zoning board of appeals: A board that must be formed when the local legislature adopts a new zoning law, to provide for

zoning ordinance: An exercise of police power by a municipality to regulate and control the character and use of property.

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