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11th
District Cost of Funds Index (COFI)
A measure of interest rates paid by savings institutions
in Arizona, California, and Nevada (11th Federal Home
Loan Bank District). The 11th District Cost of Funds Index
shows the cost of money to these savings institutions.
A monthly weighted average of interest rates make up the
11th District Cost of Funds Index. Released each month,
the 11th District Cost of Funds Index has several computation
factors, including interest on depositor accounts and
advances from the FHLB. The largest component of 11th
District Cost of Funds Index is interest paid on savings
accounts. As a result, the 11th District Cost of Funds
Index is a two-month lagging indication of market interest
rates. The 11th District Cost of Funds Index is used to
monitor the current cost of funds, to help establish lending
rates. Many adjustable rate mortgages (ARM) in the Western
U.S. are tied to the 11th District Cost of Funds Index.
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Adjusted Sale Price
The figure produced when the transaction price of a comparable sale is adjusted for elements of comparison.
Anticipation
The perception that value is created by the expectation of benefits to be derived in the future.
Acquisition
In a broad sense, an acquisition takes place when one corporation takes over controlling interest of another. An acquisition invariably results
in a merger of two companies. When an acquisition occurs, the company that is being acquired is dubbed a target company. Although the term acquisition
usually refers to a larger company consuming a smaller one, the outcome of an acquisition is always a formation of a single business entity
from assets and liabilities of two separate units. An acquisition can come in a form of a friendly merger between two corporations. It may also
come as a hostile takeover, in which the target company attempts to block the acquisition. By and large, acquisitions are sought to consolidate
market influence within given industries, as well as to advance profit opportunities. In effect, a successful acquisition is determined by whether
or not it has augmented the value of the acquiring company.
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Acquisition cost
The pretax amount of money it costs to gain title to any property. Acquisition cost usually applies to fixed assets. The acquisition cost
accounting amount is always calculated at the amount after all discounts, closing costs, transfer costs, and other adjustments are made. Used
in accounting, acquisition cost is also a term applied to IRA withdrawls for any tax penalty free amount applied to buy a first home. Acquisition
cost of a first home would, then, be the post-closing cost including any repairs. Acquisition cost adjustments also include financing costs,
so the IRA-eligible withdrawl amounts could include some of the mortgage fees required to close. Acquisition cost of a computer purchased for
business use is a common question for IRS expense rules: "The entire acquisition cost of a computer purchased for business use can be expensed
under Code section 179 in the first year if qualified, or depreciated over a 5-year recovery period." Acquisition cost is a required accounting
line item and calculation for any MACRS expenses deducted. Acquisition cost often appears in summaries of a company's cost to acquire customers.
Acquisition cost of a customer is really a sales expense in a customer acquisition context.
Adjustable Rate
Mortgage (ARM)
An adjustable rate mortgage (ARM) is a type of mortgage on which the interest rate is typically changed by
a lender after a predetermined initial time period. The term of the adjustable rate mortgage consists of two phases. During the early phase
of the term the adjustable rate mortgage has a fixed rate of interest. After that, the interest rate of the adjustable rate mortgage is altered
by the lender. Unlike a FRM (fixed rate mortgage), an adjustable rate mortgage interest stability is limited to ten years. Thus, a five year
adjustable rate mortgage will offer a fixed rate for five years. Although lenders are authorized to make rate changes in the adjustable rate
mortgage, they do so based on pre-selected interest rate indexes such as LIBOR. In the United States lenders have no discretion over rate changes
in ARMs, since every adjustable rate mortgage is tied to an index. Most lenders offer a low introductory rate. Therefore, the interest rate
of the adjustable rate mortgage is usually adjusted upward.
Adjusted Sale Price
The figure
produced when the transaction price of a comparable sale is adjusted for elements of comparison.
Adverse remortgage
or Adverse credit remortgage
An adverse remortgage or adverse credit remortgage is a mortgage refinance contract to an a
mortgage borrower with adverse credit. An adverse remortgage allows these borrowers to refinance even with an adverse credit rating. An adverse
remortgage borrower can have court judgements, defaults, or mortgage arrears and still obtain refinancing with an adverse remortgage. Adverse
remortgage loans are available in the US and UK where as many as 25% of prospective borrowers may need to apply for adverse remortgage based
on a poor credit history. Adverse remortgage loans are offered at rates above conventional remortgages. Sometimes called "bad credit mortgage
refinancing" adverse remortgage loans have become more widely available as the secondary market for sub-prime residential mortgages has
expanded during the early 2000s.
American Association of Individual Investors (AAII)
A
Chicago-based, investor education organization. James Cloonan, Ph.D., an educator turned market professional, founded it in 1978. American Association
of Individual Investors empowers individuals with investment education to outperform the major market indices. According to Mr. Cloonan, the
purpose of the American Association of Individual Investors is to "assist individuals in becoming effective managers of their own assets
through programs of education, information and research." The American Association of Individual Investors publishes The American Association
of Individual Investors Journal and conducts national educational events and research activities. The American Association of Individual Investors
website (www.aaii.com) provides instructions and tools under separate sections for stocks, mutual funds, taxation, financial planning, retirement
planning and portfolio management. American Association of Individual Investors' local chapters train members in investment management through
grassroots-level meetings.
Amortization
The repayment of a debt in small periodic installments
of principal and interest, as determined by an amortization schedule. Amortization is mainly used in calculating loan repayments, such as a
mortgage. Under the amortization repayment model, payments are distributed into equal sums over the life of a loan, making amortization a popular
model. In accounting, amortization is often used to write off an intangible asset (such as a copyright) over the period of its estimated useful
life or other pre-determined period. Amortization cannot be used if an intangible asset has an indefinite useful life. Amortization is often
confused with depreciation, which is the reduction of the value of a tangible asset over its estimated useful life, based on everyday wear and
tear and the affects of time. Amortization also differs from depletion, which is the process of decreasing the value of a taxable natural resource.
Annual Percentage Rate (APR)
The yearly interest due on a loan, including interest and other
fees, expressed as a percentage of the amount borrowed. Because the annual percentage rate incorporates all fees associated with the loan, the
annual percentage rate can be used to determine the true cost of borrowing a given amount of money. The annual percentage rate is important
as a standardized measure of the cost of borrowing money; the annual percentage rate allows for the comparability of interest rates across lenders.
In fact, lenders are required by law to tell borrowers what their annual percentage rate would be on a loan. The annual percentage rate is calculated
by multiplying the periodic interest rate by the number of periods in a year.
Anticipation
The perception that value is created by the expectation of benefits to be derived in the future.
APY - Annual
Percentage Yield.
The APY is the actual rate of interest paid, or earned, during a year, with compounding. APY is in contrast
to APR, or annual percentage rate, that is usually advertised. For example, a bank advertising a 3-month CD with an APR of 5.00% would have
an APY that's higher, due to compounding. If the 3-month CD were rolled over four times in the year, the APY would equal 5.00% divided by 4
and then compounded over 4 periods, which would equate to an APY of 5.09% (1.0125^4-1=5.09%). So if you purchased a CD with an APY of 5.09%,
on January 1st for $10,000 and rolled it over 4 times, your balance at the end of the year will be $10,509.45, not $10,500.00.
Arms
Index
A mathematic market meter designed to communicate the relationship between upward and downward moving stock prices
and trading volumes. Arms Index is a technical analysis indicator. Created in the late sixties by Richard Arms, the Arms Index was intended
to calculate the relationship between advancing and declining averages. Namely, the Arms Index illustrates the interaction of advancing and
declining issues with advances and declines of absolute volumes. Hence, the Arms Index measure can be arrived at by dividing the ratio of advance/decline
issues by the ratio of total upside to downside volume. A low Arms Index reading (i.e. below .95) is considered bearish while a high Arms Index
reading (i.e. above 1.65) is considered bullish. Arms Index is a short-term market figure also known as TRIN (TRading INdex).
Arm's
Length Transaction
A transaction between unrelated parties under no duress.
Assemblage
The combining of two or more parcels, usually but not necessarily contiguous, into one ownership or use.
Assessed
value
The assessment placed on real estate property by a public tax evaluator for purposes of taxation.
Asset
Can include anything that provides economic value to a company. An asset might be obvious - such as cash, stocks and bonds (securities), accounts
receivable or real estate. An asset could be something harder to measure - such as inventory, pre-paid expenses or office equipment. An asset
might also be the good name and reputation of a company. Patents and copyrights could also be considered an asset due to their potential earning
power. An asset such as the daily business activities of a company and work in progress might contribute to positive monetary value as well.
The term asset covers a broad range of both tangible and intangible items. In short, anything that is owned by a company, whether visible or
not, which has the possibility to provide financial gain is called an asset.
Asset-Backed Security (ABS)
A bond backed by a pool of financial assets which may include credit card payments, trade receivables and a variety of loans. A special
class of asset-backed security are mortgage-backed securities. The utility of an asset-backed security is that it enables holders of illiquid
assets, such as commercial banks, to bring them to market. An asset-backed security is synthesized in a process called securitization. An asset-backed
security is created as the underlying mortgages, loans etc... are sold off to an investment vehicle, which in turn issues the asset-backed security
representing those obligations in the form of a bond. The benefit of an asset-backed security is that it enables the issuer to transfer any
risk inherent to the underlying pool of funds to whomever buys the ABS. Additionally, an asset-backed security can enable the issuer to borrow
funds more cheaply than by issuing a traditional bond. This is because an asset-backed security derives its credit rating from the creditworthiness
of the underlying assets, not the financial solvency of the issuing firm, as with traditional bonds.
Auction
A method of asset sale by competitive bidding. An auction is most useful when the potential price of the asset to be sold is uncertain. Different
auction formats exist, varying according to how prices are quoted and bids tendered. The most commonly known of these is the English Auction,
which is commonly used for artworks and wine. This auction is also called the ascending price or open-outcry auction. The best known auction
houses, Sotheby's and Christie's, were founded in the eighteenth century, but written records of auctions go back to ancient times. Economists
specializing in game theory have investigated the theory of bidding strategies for an auction, and how these strategies depend upon the rules
and procedures of the auction. In the business arena, these experts are sometimes hired as consultants for important auctions, such as when
the Unites States government sold wireless spectrum licenses by auction.
Auction Market
A market wherein buyers and sellers both enter simultaneous bids. Unlike a typical auction, an auction market features many buyers and sellers
who transact through brokers who bid competitively for the best price. A security's price for a transaction in an auction market is determined
when a buyer's "bid" price meets a seller's supply, or "ask" price. The New York Stock Exchange and Chicago Board of Trade,
the US futures exchange, are examples of an auction market. However, the bond market, which is an over-the-counter market, is not an example
of an auction market. In order to be considered an auction market, the market must be centrally located, and involve physical interaction between
buyer and seller. |
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Bait
and switch
A deceptive means of sales where a product is advertised
at an attractive price (bait) then the price or product
is altered to the advantage of the advertiser (switch).
The bait and switch tactic is often fraudulent and illegal,
but sometimes a bait and switch can be performed in a more
subtle and therefore technically legal manner. Often the
consumer will grudgingly accept the bait and switch offer
after investing considerable time and money on a particular
purchase. For example, the bait and switch tactic may be
used in mortgage sales when one interest rate is promised,
but a higher rate is offered at closing. Not every counter-offer
should be construed as a bait and switch.
Balance
The principle that real property value is created and sustained
when contrasting, opposing, or interacting elements are
in a state of equilibrium.
Bankrupt
A person who is unable to repay its debts is recognized
as bankrupt, it could be due to any state of that person.
Bill of sale
It is a written document, which transfers title to personal
real estate property. For instance, when selling an automobile
to get funds that could be used as a source of down payment,
the lender would generally require the bill of sale to assist
document this source of funds.
Broker
Broker is a person who acts as an intermediary on behalf
of others for a fee or probably on a commission basis.
Binder
It is a preliminary contract secured by the payment of an
intense value deposit under, which a buyer offers to buy
real estate property. |
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Capital
Capital could have different meaning: it is the money used to generate income, either as an investment
real estate or in the firm. On the other hand, it could be the money comprising wealth owned or used
by a person or business enterprise. Capital is also accumulated wealth of person.
Capital
Gain
It is a profit gained from the sale of an asset, where the sales price was
higher than the accustomed basis.
Capitalization Rate (Cap Rate)
Any expected rate of return on investment property. It is a ratio of income to value.
Capital Recovery
The return to investors of that portion
of their property investment expected to be lost over the income projection period.
Capital
Recovery Rate
The return of invested capital, expressed as an annual rate; often
applied in a physical sense to wasting assets with a finite economic life.
Cash
Equivalency Analysis
The procedure in which the sale prices of comparable properties
sold with atypical financing are adjusted to reflect typical market terms.
Cash
out
A type of mortgage refinancing where the property owner receives cash by taking
on additional debt secured by accumulated equity in the real property, hence the phrase cash out. Low
and falling mortgage interest rates encourage cash out refinance, or refi mortgages. Falling rates make
it worthwhile to replace an existing mortgage having a higher interest rate with one at a lower prevailing
rate, whether including cash out or not. Low interest rates support property appreciation, which increases
the accumulation of owner equity necessary to support a cash out transaction. As a category, cash out
mortgages have historically been a minority of refi volume even in the most favorable circumstances.
As long as the borrower does not default, cash out refinancing increases lender profits, because of
the additional interest income generated by the increased principal balance. The home equity loan and
home equity line of credit are alternatives to the cash out refinance transaction.
CDR
Counterparty Risk Index
A measure of credit risk associated with purchasing credit
derivatives. The CDR counterparty risk index is calculated based on the average credit spread of 5-year
credit default swap contracts traded by 15 major international financial institutions. The CDR counterparty
risk index was launched in June 2008 by Credit Derivatives Research, LLC. CDR reports that the firms
included in the CDR counterparty risk index trade about 90% of all credit default swap contracts which
makes the CDR counterparty risk index a benchmark for evaluating credit risk. Bank of America, Goldman
Sachs, Lehman Brothers, JPMorgan, Merrill Lynch and UBS are among those 15 firms included in the CDR
counterparty risk index. CDR counterparty risk index is reported in basis points. At the time the CDR
counterparty risk index was launched in June 2008, it was around 100 basis points. That was up from
the 25 basis points level the CDR counterparty risk index was at in June 2007, one year prior but down
from its 250 level during the Bear Sterns crisis of March 2008. The CDR counterparty risk index crossed
above 430 basis points following the bankruptcy of Lehman Brothers in September 2008.
CFA
- Chartered Financial Analyst
A professional designation given by the CFA Institute
to investment professionals. The CFA designation is geared toward asset valuation and portfolio management,
but the range of topics covered in the self-study curriculum also includes ethical and professional
standards, financial theory, probability and statistics, microeconomics and macroeconomics, accounting
and financial statement analysis, corporate finance, debt valuation, derivative analysis, and alternative
investments. The CFA candidate must pass three exams, most commonly by taking one per year for three
years. In addition to setting the CFA curriculum and administering the CFA exam, the CFA Institute also
publishes voluntary performance reporting standards for the investment industry. These CFA Institute
standards have practical importance because many institutional investors, such as corporate pension
funds, require their asset managers to report performance in compliance with the standards. Until 2004,
the CFA Institute was known as the Association for Investment Management and Research, or AIMR.
Closing
Closing could have different meanings. In some
states a real estate investment transaction is not deem to be "closed" until the credentials
record at the local recorders office. In others, the "closing" is a meeting where all of the
documents are been signed and money changes hands.
Comparables
A shortened term for similar property sales, rentals, or operating expenses used for comparison in the
valuation process.
Comparative Unit Method
A method
used to derive a cost estimate in terms of dollars per unit of area or volume based on known costs of
similar structures that are adjusted for time and physical differences.
Competition
The active demand for real estate by two or more market participants.
Consideration
The recorded price for which title to a property is transferred.
Conventional
Loan
A mortgage that is neither insured nor guaranteed by an agency of the federal
government, although it may be privately insured.
Cost Index
A multiplier used to translate a known historical cost into a current cost estimate.
Cost
To Cure
The cost to restore an item of deferred maintenance to new or reasonably
new condition.
Curable Functional Obsolescence
An
element of accrued depreciation; a curable defect caused by a flaw in the structure, materials, or design.
Curable Physical Deterioration
An element of accrued
depreciation; a curable defect caused by deferred maintenance. |
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Debt Coverage
The ability of a property to meet its debt service out of net operating income.
Debt/Equity Ratio
The ratio between an enterprise's loan capital and its equity capital.
Debt Service
The
periodic payment that covers interest on, and retirement of. the outstanding principal of the mortgage loan.
Deed
of trust
Some states, like California in United States, do not record mortgages. Instead, they record a deed of trust that
is fundamentally the same thing.
Default
In real estate term it is a general failure to
perform a legal or contractual duty or may be to discharge an obligation when it due.
Deferred Maintenance
Curable, physical deterioration that should be corrected immediately, although work has not commenced.
Deposit
It is a total sum of cash given to bind the sale of real estate property, or a sum of money given to make sure payment or an advance of funds
in the dealing out of a loan.
Depreciable Value
The starting point to determine how much
depreciation you can claim on a business asset is known as its "tax basis."
Usually, Tax Basis = Purchase Price - Any discounts
+ Real Estate taxes, Fees (legal, accounting,recording, title, surveys, etc.).
If you bought a property for $250,000, and paid 4% in
fees, the tax basis would be $260,000 and that's the maximum amount that you could claim as depreciation over the life of the asset.
If
you acquire property as a gift, the tax basis for depreciation will be the same as the donor's basis at the time of the gift.
If you convert
personal property to business use, the basis will be the lower of (a) the fair market value at the time of the conversion, or (b) the cost plus
any additions or improvements, and minus any deducted casualty losses, up to the time of the conversion.
Depreciation
1) In appraising, a loss in property value from any cause; 2) In regard to improvements, depreciation encompasses both deterioration and obsolescence.
Direct Capitalization
A method used to convert an estimate of a single year's income expectancy
into an indication of value in one direct step, either by dividing the income estimate by an appropriate rate or by multiplying the income estimate
by an appropriate factor.
Discounted Cash Flow Analysis
The procedure in which a discount
rate is applied to a set of projected income streams and a reversion. The analyst specifies the quantity, variability, timing, and duration
of the income streams as well as the quantity and timing of the reversion and discounts each to its present value at a specified yield rate. |
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Earnest
money deposit
A deposit made
by the possible homebuyer to prove that he or she is serious about buying the house.
Earnest
money agreement
A document lists the price, condition and terms in which the buyer
is willing to but the real estate property.
Easement
An interest in real property that conveys use, but not ownership, of a portion of an owner's property.
Economic Age Life Method
A method of estimating accrued
depreciation in which the ratio between the effective age of a building and its total economic life
is applied to the current cost of the improvements to obtain a lump sum deduction.
Economic
Life
The period over which improvements to real property contribute to property
value.
Effective Age
The age indicated by the condition
and utility of a structure.
Effective Gross Income (EGI)
The anticipated income from all operations of the real property after an allowance is made for vacancy
and collection losses.
Effective Gross Income Multiplier
The ratio between the sale price (or value) of a property and its effective gross income.
Effective
Interest Rate
Interest per dollar per period; the nominal annual interest rate divided
by the number of conversion periods per year.
Embezzlement
It is a fraudulent appropriation for one’s own use or benefit of real estate property or money,
by an agent, or other person acting in a fiduciary capacity for another.
Equity
Equity is a financial interest in the real estate property. It is the difference between the fair market
value of the property and amount yet owed on the mortgage.
Equity Capitalization
Rate
An income rate that reflects the relationship between a single year's pretax
cash flow expectancy and the equity investment.
Equity Debt Ratio
The ratio of the equity value or equity capital invested in a property to the amount of debt incurred
on that property.
Equity Ratio
The ratio between
the down payment paid on a property and its total price; the fraction of the investment that is unencumbered
by debt.
Equity Yield:
The dollar return on equity
from all sources.
Escalation Clause:
A clause in
an agreement that provides for the adjustment of a price or rent based on some event or index.
Estate:
A right or interest in property. excess land. The
land not needed to accommodate the site's highest and best use.
Excess
Rent
The amount by which contract rent exceeds market rent at the time of the appraisal;
created by a lease favorable to the landlord.
Expense Ratio
The ratio of total expenses, excluding debt service, to either potential or effective gross income.
Externalities
The principle that economics outside a
property have a positive effect on its value while diseconomies outside a property have a negative effect
upon its value.
External Obsolescence
An element
of accrued depreciation; a defect, usually incurable, caused by negative influences outside a site and
generally incurable on the part of the owner, landlord, or tenant. |
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Fair
Market value
The peak price
that a buyer, keen but not bound to purchase, would pay, and the lowest a seller, keen but not bound
to sell, would accept.
Fee Simple Estate
Absolute
ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the
governmental powers of taxation, eminent domain, police power, and escheat.
Finance
charge
The amount paid for the privilege of deferring payment of goods or services
bought, comprising any charges owed by the purchaser as a condition of the loan.
First
Mortgage
It is a mortgage that carries priority over other mortgages.
Fixed
Expenses
Operating expenses that generally do not vary with occupancy and which
prudent management will pay whether the property is occupied or vacant.
Functional
Utility
The ability of a property or building to be useful and to perform the function
for which it is intended according to market tastes and standards; the efficiency of a building's use
in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms. |
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General
contractor
He is the prime contractor
that deeds for the construction of a whole building or project, other than just a portion of the work.
Grantee
A person to whom property is transferred by
deed or to whom property rights are granted by a trust instrument or other document.
Grantor
A person who transfers property by deed or grants property rights through a trust instrument or other
document.
Gross Building Area
The total floor area
of a building, including below grade space but excluding unenclosed areas, measured from the exterior
of the walls.
Gross Income:
The total income attributable
to real property at full occupancy before vacancy and operating expenses are deducted.
Gross
Income Multiplier
The ratio between sale price or value and potential or effective
annual gross income.
Gross Leaseable Area
The total
floor area designed for the occupancy and exclusive use of tenants.
Gross
Lease
Lease in which the landlord receives stipulated rent and is obligated to pay
all or most of the property's operating expenses and real estate taxes.
Gross
Rent Multiplier
The relationship or ratio between the sale price or value of a property
and its gross rental income.
Growing-Equity Mortgage (GEM)
A fixed-rate mortgage that offers listed payment increases over an identified period of time, with the
increased amount of the monthly payment applied directly toward reducing the remaining balance of the
mortgage. |
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Highest
and Best Use
The reasonably probable and legal use of vacant land or
an improved property, which is physically possible, appropriately
supported, financially feasible, and that results in the
highest value. The four criteria the highest and best use
must meet are legal permissibility, physical possibility,
financial feasibility, and maximum profitability.
Holding Period
The term of ownership of an investment.
Home inspection
Complete home inspection, which appraises the structural
and mechanical condition of a real estate property. A satisfactory
home inspection is usually included as a contingency by
the purchaser.
Home Owners Warranty
It is a special insurance policy, which covers some home
repairs for a particular amount of time.
Hold Over Tenant
A tenant holding belongings of the leased grounds after
the expiration of a lease.
HUD - 1 - Uniform Closing Statement
A closing statement or completion sheet, which outlines
all closing costs on a real estate investing transaction
or refinancing. |
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Income
property
Real estate that is possessed or operated to generate revenue.
Incurable Functional Obsolescence
An element of accrued depreciation; a defect caused by a
deficiency or superadequacy in the structure, materials,
or design, which cannot be practically or economically corrected.
Incurable Physical Deterioration
An element of accrued depreciation; a defect caused by physical
deterioration that cannot be practically or economically
corrected.
Inflation
It is an increase in the money amount or credit accessible
in relation to the amount of goods or services available,
which causes a boost in the general price level of goods
and services.
Installment
The regular cyclic payment, which a borrower agrees to make
to a lender.
Insurable Value
1) The portion of the value of an asset or asset group that
is acknowledged or recognized under the provisions of an
applicable loss insurance policy. 2) Valued used by insurance
companies as the basis for insurance.
Interim Use
The temporary use to which a site or improved property is
put until it is ready to be put to its future highest and
best use.
Internal Rate Of Return
The annualized yield rate of return or rate of return on
capital that is generated or capable of being generated
within an investment or portfolio over a period of ownership.
Inventory
Inventory refers to all space within some banned market
without regard to its accessibility or condition, and categories
could comprise all kinds of leased space such as office,
flex, retail and warehouse space. |
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Joint
Tenancy
Ownership by two or more people, which gives equal shares
of a piece of property. Rights pass to the existing owner
or owners.
Judgment
The final decision of a court solving a dispute and deciding
the rights and obligations of the parties. Money judgments,
when recorded, become a lien on real estate property of
the defendant.
Judicial foreclosure
It is a kind of foreclosure scheduled used in some states
that is handled as a civil lawsuit and carrying out completely
under the auspices of a court.
Just Compensation
It is a compensation that is fair to both the vendor and
the public when property is taken for public use through
condemnation (eminent domain). |
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Key
Tenant
He or she is major or primary tenant in a bureau building
or shopping centre. Generally such a tenant leases a major
amount of the available space.
Kickback
A payment made to someone for recommendation of a customer
or business. Generally speaking, kickbacks are against the
law because, unlike a fee, a kickback is made without the
customer's knowledge. |
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Land
to Building Ratio
The proportion of land area to gross building area.
Land Residual Technique
A capitalization technique in which the net operating income
attributable to the land is isolated and capitalized to
indicate the land's contribution to total property value.
Lease
A written document in which the rights to use and occupy
land or structures are transferred by the owner to another
for a specified period of time in return for a specified
rent.
Leased Fee Estate
An ownership interest held by a landlord with the rights
of use and occupancy conveyed by lease to others.
Leasehold Estate
The interest held by the lessee (the tenant or renter) through
a lease conveying the rights of use and occupancy for a
stated term under certain conditions.
Lessee
Any person leasing a real estate property.
Lessor
Any person who is the owner of a property, which is leased
to another person.
Loan to Value Ratio
The ratio between a mortgage loan and the value of the property
pledged as security; usually expressed as a percentage. |
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Margin
For an adjustable-rate mortgage (ARM), the amount that is
added to the index to set up the interest rate on each alteration
date, subject to any limits on the interest rate change.
Market Rent
The rental income that a property would most probably command
in the open market; indicated by the current rents paid
and asked for comparable space as of the date of the appraisal.
Market Value
A value at which a seller is satisfied to sell and a buyer
is keen to buy is called market value. Establishing any
market value is the aim of an appraisal.
Mortgage
A written document generating an interest in real estate
property and that offers security for the recital of a duty
or the payment of a debt. The borrower (i.e., mortgagor)
keeps ownership and use of the property.
Mortgage Broker
Any company or Individual that involves them selves in matching
lenders with prospective borrowers that in turns meet the
lender's criteria. The mortgage broker does not make the
mortgage, but receives payment (a percentage or "point")
from the lender for services offered.
Mortgage Constant
The capitalization rate for debt; the ratio of the annual
debt service to the principal amount of the mortgage loan. |
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Net
cash flow
The income that remains for an real estate investment property
after the monthly operating income is reduced by the monthly
home outlay that further includes principal, interest, taxes,
and insurance as well (PITI) for the mortgage, homeowners'
association dues, leasehold payments, and secondary financing
payments.
Net Lease
A lease in which the tenant pays all property operating
expenses in addition to the stipulated rent.
Net Operating Income
The actual or anticipated net income that remains after
all operating expenses are deducted from effective gross
income, but before mortgage debt service and book depreciation
are deducted.
Net worth
Any value of a person's possessions, comprising cash, minus
all liabilities.
Nominal Interest Rate
A stated or contract rate; an interest rate, usually annual,
that does not necessarily correspond to the true or effective
rate of growth at compound interest.
Notice of Default
An official written notice to a borrower that a defaulting
has occurred and further legal action might be taken. |
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Obsolescence
One cause of depreciation; an impairment of desirability and usefulness caused by new inventions, changes
in design, improved processes for production, or other external factors that make a property less desirable
and valuable for a continued use.
Occupancy Rate
The relationship or ratio between the income received from the rented units in a property and the income
that would be received if all the units were occupied.
Offer to Purchase
Any document that lists the price, conditions and other terms under that the buyer is keen to purchase
the property.
Operating Expense Ratio
The ratio
of total operating expenses to effective gross income.
Operating Expenses
The actual costs connected with operating a property including maintenance, repairs, supervision, utilities,
taxes and insurance.
Original Principal Balance
The total amount of principal allocated on a mortgage before any payments are made.
Overall
Capitalization Rate
An income rate for a total real property interest that reflects
the relationship between a single year's net operating income expectancy or an annual average of several
years' income expectancies and total property price or value; used to convert net operating income into
an indication of overall property value.
Owner financing
A real estate property purchase transaction in which the property seller offers all or part of the financing. |
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Paired
Data Analysis
A quantitative technique used to identify and measure adjustments
to the sale prices or rents of comparable properties; to
apply this technique, sales or rental data on nearly identical
properties are analyzed to isolate a single characteristic's
effect on value or rent.
Partial payment
A payment that is not enough to cover the planned monthly
payment on a mortgage loan.
Payment change date
It is a date when new monthly payment amounts come in to
effect on an adjustable-rate mortgage (ARM) or a graduated-payment
adjustable-rate mortgage (GPARM).
Principal
The amount borrowed or yet to be repaid. It is a part of
the monthly payment, which reduces the balance of the mortgage.
Public Housing
Government-owned housing made obtainable to low-income individuals
and families at zero cost or for nominal rental rates. |
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Quitclaim
Deed
A deed working as a release, which is planned to pass any
title, interest, or claim that the grantor might have in
the property, but not having any warranty or professing
that such title is valid.
Qualified Acceptance
An acceptance of an offer subject to a form or conditions
that must be met. This is fundamentally a counteroffer since
new conditions are included.
Qualified Buyer
A buyer who has contented a lender, which he or she is monetarily
able to qualify for a loan. Qualifying the buyer is one
of the initial steps taken by the lender as part of the
loan process.
Qualifying Ratios
Lenders calculate qualifying ratios to decide how much a
possible buyer can borrow. |
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Real
estate agent
A person licensed
to discuss and transact the sale of real estate property on behalf of the property owner.
Refinance
It is procedure of paying off one loan with the earnings from a new loan using the same real estate
property as security.
Remaining Economic Life
The
estimated period during which improvements will continue to contribute to property value.
REO
(Real Estate Owned)
Real estate that has come to be owned by a lender, comprising
real estate taken to satisfy a debt.
Replacement Allowance
An allowance that provides for the periodic replacement of building components that wear out more rapidly
than the building itself and must be replaced during the building's economic life.
Replacement
Cost
The estimated cost to construct, at current prices as of the effective appraisal
date, a building with utility equivalent to the building being appraised using modern materials and
current standards.
Residual Techniques
Procedures
used to capitalize the income allocated to an investment component of unknown value after all investment
components of known values have been satisfied.
Reversion
A lump sum benefit that an investor receives or expects to receive at the termination of an investment;
also called reversionary benefit.
Reversion Facto
A compound interest factor that is used to discount a single future payment to its present worth, given
the appropriate discount rate and discount period.
Risk Factor
The portion of a given return or rate of return from capital invested in an enterprise that is assumed
to cover the risks associated with the particular investment. |
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Sale-Leaseback
An arrangement by which the owner occupant of a property
agrees to sell all or part of the property to an investor
and then lease it back and continue to occupy space as a
tenant. Although the lease technically follows the sale,
both will have been agreed to as part of the same transaction.
Sandwich Lease
A lease in which an intermediate, or sandwich, leaseholder
is the lessee of one party and the lessor of another. The
owner of the sandwich lease is neither the fee owner nor
the user of the property; he or she may be a leaseholder
in a chain of leases, excluding the ultimate sublessee.
Second mortgage
A mortgage, which has a lien position subsidiary to the
first mortgage.
Seller's Market
A hot real estate market in which sellers have the benefit
and further multiple offers are common.
Setback
The distance from reduce property line or other reference
point, within that building is prohibited.
Sublease
An agreement in which the lessee in a prior lease conveys
the right of use and occupancy of a property to another,
the sublessee.
Substitution
The appraisal principle that states that when several similar
or commensurate commodities, goods, or services are available,
the one with the lowest price will attract the greatest
demand and widest distribution.
Supply and Demand
In real estate appraisal context, the principle of supply
and demand states that the price of real property varies
directly, but not necessarily proportionately, with demand
and inversely, but not necessarily proportionately, with
supply.
Survey
The procedure by which a parcel is calculated and its boundaries
and contents ascertained. Done by a professional engineer,
Typically Lenders and Title companies require a current
survey. |
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Tax
base
The assessed evaluation of all real estate property, which
lies within a taxing authority's jurisdiction. When developed
by the tax rate, it decides the amount of tax due.
Tenant (Lessee)
A person who rents real estate property from another and
holds an estate by virtue of a lease.
Title
It is a legal document proving a person's right to or ownership
of a property.
Title Company
A company that focuses in evaluating and insuring titles
to real estate. |
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Under
contract
A particular period of time after a seller has received
a buyer's offer to buy a real estate investing property
and during which the buyer is able to do its due diligence
and finalize financing arrangements.
Under License
Early possession of the real estate property before conclusion
with the permission of the vendor. This generally involves
the payment of rent.
Underwriting
The procedure of appraising a loan application to determine
the risk involved for the lender. Underwriting comprise
an evaluation of the borrower's creditworthiness and the
excellence of the property itself.
Units Of Comparison
The components into which a property may be divided for
purposes of comparison; e.g., price per square foot, front
foot, cubic foot, room, bed, set, apartment unit.
Unsecured loan
Any loan that is not backed by collateral. |
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Vacancy
rate
The total sum of available space compared to the sum inventory
of space and articulated as a percentage.
Valuation
It is a written analysis of the predictable value of a real
estate property prepared by a qualified valuer.
Variable Expenses
Operating expenses that generally vary with the level of
occupancy or the extent of services provided.
Variance
Permission that permits a real estate property owner to
depart from the literal necessities of a zoning ordinance
that, because of special circumstances, causes a exceptional
hardship. Applicant should prove a need or fault.
Vendor
Vendor is a real estate property seller. |
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Write-off
The accounting process used when a benefit has been resolute
to be uncollectible and is therefore charged as a loss.
Weighted Average Rental Rates
The mean amount or medial amount made out of the uneven
rental rates in two or more buildings within a market area.
Work letter
A list of the building standard items, which the landlord
would add up as part of the tenant improvements.
Working Drawings
A set of plan to build or project that include the agreement
documents, which point out the precise manner in which a
project is to be built. |
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Yield
The interest earned or repaid by an investor on a real estate
investment, stated as a percentage of the amount invested.
Yield Capitalization
The capitalization method used to convert future benefits
into present value by discounting each future benefit at
an appropriate yield rate or by developing an overall rate
that explicitly reflects the investment's income pattern,
value change, and yield rate. |
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Zoning
It is a division of a city or town into zones and the claim
of regulations having to do with the functional design and
structural and intended uses of buildings within such zones.
Zoning ordinance
The set of laws and regulations managing the use of land
and construction of improvements in a given area or zone. |
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| DISCLAIMER:
Presentation of this glossary is for general purposes only.
No information on this page is to be viewed as legal advice
or as an official description of judicial process. These
terms are general and are displayed strictly as a service
to consumers. They are not intended to be all-inclusive
or to cover default situations in all states. Consumers
are advised to seek professional legal counsel in any default
proceeding. |
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