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A
ABR
Accredited Buyer Representative Only 4,000 real
estate professionals on two continents who have
been awarded the ABR designation by the National
Association Of Realtors.
Abatement.
Stopping or reducing of amount or value, as when
assessments
for ad
valorem taxation
are abated after the initial assessment has been
made.
Absentee
landlord. An owner of an interest in
income-producing property who does not reside on
the premises and who may rely on a property manager
to oversee the investment.
Absolute
fee simple title. A title that is unqualified.
Fee simple is the best title that can be obtained.
(See also fee
simple)
Abstraction.
Method of finding land value in which all
improvement costs (less depreciation) are deducted
from sales price. Also called extraction.
Access.
A way to enter and leave a tract of land, sometimes
by easement over land owned by another. (See also
egress and ingress)
Accessibility.
The relative ease of entrance to a property by
various means, a factor that contributes to the
probable most profitable use of a site.
Accessory
buildings. Structures on a property, such as
sheds and garages, that are secondary to the main
building.
Accretion.
Land buildup resulting from the deposit by natural
action of sand or soil washed up from a river, lake
or sea.
Accrual
basis. In accounting, a system of allocating
revenue and expense items on the basis of when the
revenue is earned or the expense incurred, not on
the basis of when the cash is received or paid
out.
Accrued
depreciation. (1) For accounting purposes,
total depreciation taken on an asset from the time
of its acquisition. (2) For appraisal purposes, the
difference between reproduction or replacement cost
and the appraised value as of the date of
appraisal.
Accrued
expenses. Expenses incurred that are not yet
payable. In a closing statement, the accrued
expenses of the seller typically are credited to
the purchaser (taxes, wages, interest,
etc.).
Acquisition
appraisal. A market value appraisal of property
condemned or otherwise acquired for public use, to
establish the compensation to be paid to the
owner.
Acre.
A measure of land, 208.71 by 208.71 feet in area,
being 43,560 square feet, or 160 square rods or
4,840 square yards.
Actual
age. The number of years elapsed since the
original structure was built. Sometimes referred to
as historical or chronological age.
Adjustable-rate
mortgage (ARRI). A financing technique in which
the lender can raise or lower the interest rate
according to a set index, such as the rate on
six-month Treasury bills or the average cost of
funds of FDIC-insured institutions. (See also
amortized mortgage)
Adjustment.
Decrease or increase in the sales price of a
comparable property to account for a feature that
the property has or does not have in comparison
with the subject property.
Ad
Valorem. According to value (Latin); generally
used to refer to real estate taxes that are based
on assessed property value.
Adverse
land use. A land use that has a detrimental
effect on the market value of nearby
properties.
Aesthetic
value. Relating to beauty, rather than to
functional considerations.
Aggregate.
In statistics, the sum of all individuals.
Allocation
method. The allocation of the appraised total
value of the property between land and building.
The allocation may be accomplished either on a
ratio basis or by subtracting a figure representing
building value from the total appraised value of
the property.
Allowance
for vacancy and collection losses. The
percentage of potential gross income that will be
lost due to vacant units, collection losses or
both.
Amenities.
The qualities and state of being pleasant and
agreeable; in appraising, those qualities that are
attached to a property and from which the owner
derives benefits other than monetary; satisfaction
of possession and use arising from architectural
excellence, scenic beauty and social
environment.
Amortized
mortgage. A mortgage loan in which the
principal and interest are payable in periodic
installments during the term of the loan so that at
the completion of all payments there is a zero
balance.
Annuity.
A fixed, regular return on an investment.
Annuity
method. A method of capitalization that treats
income from real property as a fixed, regular
return on an investment. For the annuity method to
be applied, the lessee must be reliable and the
lease must be long term.
Appraisal.
An estimate of quantity, quality or value; the
process through which conclusions of property value
are obtained; also refers to the report setting
forth the process of estimating value.
Appraisal
Foundation. Nonprofit corporation established
in 1987 and headquartered in Washington, D.C.,
sponsored by major appraisal and appraisal-related
professional and trade groups.
Appraisal
methods. The approaches used in the appraisal
of real property. (See also cost
approach,
income
capitalization
approach,
sales
comparison
approach)
Appraisal
process. A systematic analysis of the factors
that bear on the value of real estate; an orderly
program by which the problem is defined; the work
necessary to solve the problem is planned; the data
involved are acquired, classified, analyzed and
interpreted into an estimate of value; and the
value estimate is presented in the form requested
by the client.
Appraisal
report. An appraiser's written opinion to a
client of the value sought for the subject property
as of the date of appraisal, giving all details of
the appraisal process.
Appraisal
Standards Board. Created by the Appraisal
Foundation and responsible for establishing minimum
standards of appraisal competence.
Appraised
value. An estimate by an appraiser of the
amount of a particular value, such as assessed
value, insurable value or market value, based on
the particular assignment.
Appraiser.
One who estimates value.
Appraiser
Qualification Board. Created by the Appraisal
Foundation and responsible for establishing minimum
requirements for licensed and certified appraisers
and licensing and certifying examinations.
Appreciation.
Permanent or temporary increase in monetary value
over time due to economic or related causes.
Approaches
to value. Any of the following three methods
used to estimate the value of real estate: cost
approach, income
capitalization
approach
and sales
comparison
approach.
Appurtenance.
Anything used with land for its benefit, either
affixed to land or used with it, that will pass
with the conveyance of the land.
Arm's-length
transaction. A transaction in which both buyer
and seller act willingly and under no pressure,
with knowledge of the present conditions and future
potential of the property, and in which the
property has been offered on the open market for a
reasonable length of time and there are no unusual
circumstances. array. An arrangement of statistical
data according to numerical size.
Assemblage.
The combining of two or more adjoining lots into
one larger tract to increase their total
value.
Assessed
value. The value placed on land and buildings
by a government unit (assessor) for use in levying
annual real estate taxes.
Assessment.
The imposition of a tax, charge or levy, usually
according to established rates. (See also special
assessment)
Assessor.
One who determines property values for the purpose
of ad
valorem
taxation.
Asset.
Property that is owned and has value, such as cash
or real or personal property.
Average
deviation. In statistics, the measure of how
far the average individual, or variate, differs
from the mean of all variants.
Balance.
The appraisal principle that states that the
greatest value of a property will occur when the
type and size of the improvements are proportional
to each other as well as to the land.
Band
of investment. A method of developing a
discount rate based on (1) the rate of mortgage
interest available, (2) the rate of return required
on equity and (3) the debt and equity share in the
property. A variation of this method is used to
compute an overall capitalization rate.
Bargain
and sale deed. A deed that contains no
warranties against liens or other encumbrances but
implies that the grantor has the right to convey
title.
Base
line. A reference survey line of the government
or rectangular survey, being an imaginary line
extending east and west and crossing a principal
meridian at a definite point.
Base
rent. The minimum rent payable under a
percentage lease.
Bench
mark. A permanent reference mark (PRM) used by
surveyors in measuring differences in elevation.
Benchmark. The standard or base from which specific
estimates are made.
Beneficiary.
The person who is to receive the benefits from a
trust fund.
Book
value. The value of a property as an asset on
the books of account; usually, reproduction or
replacement cost, plus additions to capital and
less reserves for depreciation.
Breakdown
method. (See observed condition
depreciation)
Break-even
point. That point at which total income equals
total expenses.
Break-even
ratio. The ratio of operating expenses plus the
property's annual debt service to potential gross
income.
Building
capitalization rate. The sum of the discount
and capital recapture rates for a building.
Building
codes. Rules of local, municipal or state
governments specifying minimum building and
construction standards for the protection of public
safety and health.
Building
residual technique. A method of capitalization
using net income remaining to building after
interest on land value has been deducted.
Bundle
of rights. A term often applied to the rights
of ownership of real estate, including the rights
of using, renting, selling or giving away the real
estate or not taking any of these actions.
CAR
California Association of Realtors
CRS
Certified Residential Specialists, professional
designation held by fewer than 5% of Realtors in
the United States (GRI) Graduates of the Realtors'
Institute
Capital.
Money and/or property comprising the wealth owned
or used by a person or business enterprise to
acquire other money or goods.
Capitalization
The process employed in estimating the value of a
property by the use of an appropriate
capitalization rate and the annual net operating
income expected to be produced by the property. The
formula is expressed as Income/Rate = Value
Capitalization
rate. The percentage rate applied to the income
a property is expected to produce to derive an
estimate of the property's value; includes both an
acceptable rate of return on the amount invested
(yield) and return of the actual amount invested
(recapture).
Capital
recapture. The return of an investment; the
right of the investor to get back the amount
invested at the end of the term of ownership or
over the productive life of the
improvements.
Capitalized
value method of depreciation. A method of
computing depreciation by determining loss in
rental value attributable to a depreciated item and
applying a gross rent multiplier to that
figure.
Cash
basis. A system of recognizing revenue and
expense items only at the time cash is received or
paid out.
Cash
equivalency technique. Method of adjusting a
sales price downward to reflect the increase in
value due to assumption or procurement by buyer of
a loan at an interest rate lower than the
prevailing market rate.
Cash
flow. The net spendable income from an
investment, determined by deducting all operating
and fixed expenses from gross income. If expenses
exceed income, a negative cash flow is the
result.
Cash
flow rate. (See equity
capitalization
rate)
Cash
on cash rate. (See equity
capitalization
rate)
Chain.
A surveyor's unit of measurement equal to four rods
or 66 feet, consisting of 100 links of 7.92 inches
each; ten square chains of land are equal to one
acre.
Change,
principle of. The principle that no physical or
economic condition ever remains constant.
Chattels.
Tangible personal property items.
Client.
One who hires another person as a representative or
agent for a fee.
Closing
statement. The computation of financial
adjustments required to close a real estate
transaction, computed as of the day of closing the
sale; used to determine the net amount of money the
buyer must pay to the seller to complete the
transaction, as well as amounts to be paid to other
parties, such as the broker or escrow holder. (See
also settlement)
Code
of ethics. Rules of ethical conduct, such as
those that govern the actions of members of a
professional group.
Community
property. A form of property ownership in which
husband and wife have an equal interest in property
acquired by either spouse during the time of their
marriage. Community property does not include
property that each spouse owned prior to marriage
or property received by gift or inheritance or as
the proceeds of separate property.
Comparables.
Properties that are substantially equivalent to the
subject property.
Comparative
unit method. (See square-foot method)
Comparison
method. (See sales
comparison
approach)
Competition, principle of. The principle that a
successful business attracts other such businesses,
which may dilute profits.
Compound
interest. Interest paid on both the original
investment and accrued interest.
Condemnation.
Taking private property for public use through
court action, under the right of eminent domain,
with compensation to the owner.
Conditional
use permit. Approval of a property use
inconsistent with present zoning because it is in
the public interest. For example, a church or
hospital may be allowed in a residential
district.
Conditions,
covenants and restrictions (CC&R's).
Private limitations on property use placed in the
deed received by a property owner, typically by
reference to a Declaration of Restrictions.
Condominium.
The absolute ownership of an apartment or a
commercial unit, generally in a multiunit building,
by a legal description of the airspace that the
unit actually occupies, plus an undivided interest
in the ownership of the common elements, which are
owned jointly with the other condominium unit
owners.
Common
elements. All portions of the land, property
and space that make up a condominium property that
include land, all improvements and structures, and
all easements, rights and appurtenances and exclude
all space composing individual units. Each unit
owner owns a definite percentage of undivided
interest in the common elements. Parcel. The entire
tract of real estate included in a condominium
development; also referred to as a development
parcel. Unit. One ownership space in a condominium
building or a part of a property intended for
independent use and having lawful access to a
public way. Ownership of one unit also includes a
definite undivided interest in the common
elements.
Conformity,
principle of. The principle that buildings
should be similar in design, construction and age
to other buildings in the neighborhood to enhance
appeal and value. contiguous. Adjacent; in actual
contact; touching.
Contract.
An agreement entered into by two or more legally
competent parties who, for a consideration,
undertake to do or to refrain from doing some legal
act or acts.
Contract
rent. (See scheduled rent)
Contribution,
principle of. The principle that any
improvement to a property, whether to vacant land
or a building, is worth only what it adds to the
property's market value, regardless of the
improvement's actual cost.
Conventional
loan. A mortgage loan, made with real estate as
security, that is neither insured by the FHA nor
guaranteed by the VA. Conveyance. A written
instrument, such as a deed or lease, by which title
or an interest in real estate is
transferred.
Cooperative.
A multiunit residential building with title in a
trust or corporation that is owned by and operated
for the benefit of persons living within it, who
are the beneficial owners of the trust or the
stockholders of the corporation, each possessing a
proprietary lease granting occupancy of a specific
unit in the building.
Corporation.
An association of shareholders, created under law,
having a legal identity separate from the
individuals who own it.
Correction
lines. A system of compensating for
inaccuracies in the rectangular survey system due
to the curvature of the earth. Every fourth
township line (24-mile intervals) is used as a
correction line on which the intervals between the
north and south range lines are measured again and
corrected to a full six miles.
Correlation.
(See reconciliation)
Cost.
The amount paid for a good or service.
Cost
approach. The process of estimating the value
of a property by adding the appraiser's estimate of
the reproduction or replacement cost of property
improvements, less depreciation, to the estimated
land value.
Cost
index. Figure representing construction cost at
a particular time in relation to construction cost
at an earlier time, prepared by a cost reporting or
indexing service.
Cost
service index method. (See index method)
Covenant.
An agreement written into deeds and other
instruments promising performance or nonperformance
of certain acts or stipulating certain uses or
non-uses of property.
Cubic-foot
method. A method of estimating reproduction
cost by multiplying the number of cubic feet of
space a building encloses by the construction cost
per cubic foot.
Curable
depreciation. A depreciated item that can be
restored or replaced economically. (See also
functional obsolescence-curable and physical
deterioration-curable)
Datum.
A horizontal plane from which heights and depths
are measured.
Debt
investors. Investors who take a relatively
conservative approach, typically taking a passive
role in investment management while demanding a
security interest in property financed.
Declaration
of restrictions. Document filed by a
subdivision developer and referenced in individual
deeds to subdivision lots that lists all
restrictions that apply to subdivision properties.
(See also deed restrictions)
Decreasing
returns, laws of. The situation in which
property improvements no longer bring a
corresponding increase in property income or
value.
Deed.
A written instrument that conveys title to or an
interest in real estate when properly executed and
delivered.
Deed
of trust. (See trust deed)
Deed
restrictions. Provisions in a deed limiting the
future uses of the property. Deed restrictions may
take many forms: they may limit the density of
buildings, dictate the types of structures that can
be erected and prevent buildings from being used
for specific purposes or used at all. Deed
restrictions may impose a myriad of limitations and
conditions affecting the property rights
appraised.
Default.
Failure to perform a duty or meet a contractual
obligation.
Demised
premises. Property conveyed for a certain
number of years, most often by a lease.
Demography.
The statistical study of human populations,
especially in reference to size, density and
distribution. Demographic information is of
particular importance to people involved in market
analyses and highest and best use analyses in
determining potential land uses of sites.
Depreciated
cost. For appraisal purposes the reproduction
or replacement cost of a building, less accrued
depreciation to the time of appraisal.
Depreciation.
For appraisal purposes, loss in value due to any
cause, including physical deterioration, functional
obsolescence and external obsolescence. (See also
obsolescence)
Depth
factor. An adjustment factor applied to the
value per front foot of lots that vary from the
standard depth.
Development.
(See neighborhood life cycle)
Direct
capitalization. Selection of a capitalization
rate from a range of overall rates computed by
analyzing sales of comparable properties and
applying the formula I/V = R to each.
Direct
costs. Costs of erecting a new building
involved with either site preparation or building
construction, including fixtures.
Direct
market comparison approach. (See
sales
comparison
approach)
Easement.
A right to use the land of another for a specific
purpose, such as a right-of-way or for utilities; a
non-possessory interest in land. An easement
appurtenant passes with the land when
conveyed.
Economic
age-life method of depreciation. A method of
computing accrued depreciation in which the cost of
a building is depreciated at a fixed annual
percentage rate; also called the straight-line
method.
Economic
base. The level of business activity in a
community-particularly activity that brings income
into the community from surrounding areas.
Economic
life. The period of time during which a
structure may reasonably be expected to perform the
function for which it was designed or
intended.
Economic
obsolescence. (See external
obsolescence)
Economic
rent. (See market rent)
Effective
age. The age of a building based on the actual
wear and tear and maintenance, or lack of it, that
the building has received.
Effective
demand. The desire to buy coupled with the
ability to pay.
Effective
gross income. Estimated potential gross income
of a rental property from all sources, less
anticipated vacancy and collection losses.
Egress.
A way to leave a tract of land; the opposite of
ingress. (See also access)
Eminent
domain. The right of a federal, state or local
government or public corporation, utility or
service corporation to acquire private property for
public use through a court action called
condemnation, in which the court determines whether
the use is a necessary one and what the
compensation to the owner should be.
Encroachment.
A building, wall or fence that extends beyond the
land of the owner and illegally intrudes on land of
an adjoining owner or a street or an alley.
Encumbrance.
Any lien (such as a mortgage, tax lien or judgment
lien), easement, restriction on the use of land,
outstanding dower right or other interest that may
diminish the value of property to its owner.
Entrepreneurial
profit. The amount of profit attributable to
the development function.
Environmental
obsolescence. (See external
obsolescence)
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.
Equilibrium.
(See neighborhood life cycle) equity. The interest
or value that an owner has in real estate over and
above any mortgage or other lien or charge against
it.
Equity
capitalization rate. A rate that reflects the
relationship between a single year's before tax
cash flow and the equity investment in the
property. The before-tax cash flow is the net
operating income less the annual debt service
payment, and the equity is the property value less
any outstanding loan balance. The equity
capitalization rate, when divided into the before
tax cash flow, gives an indication of the value of
the equity. Also called cash on cash rate, cash
flow rate or equity dividend rate.
Equity
dividend rate. (See equity capitalization
rate)
Equity
investors. Investors making use of what is
termed venture capital to take an unsecured and
thus relatively risky part in an investment.
Escalator
clause. A clause in a contract, lease or
mortgage providing for increases in wages, rent or
interest, based on fluctuations in certain economic
indexes, costs or taxes.
Escheat.
The reversion of property of a decedent who died
intestate (without a will) and without heirs to the
state or county as provided by state law.
Escrow.
The closing of a transaction through a
disinterested third person called an escrow agent
or escrow holder, who holds funds and/or documents
for delivery on the performance of certain
conditions.
Estate.
The degree, quantity, nature and extent of
ownership interest that a person has in real
property.
Estate
in land. The degree, quantity, nature and
extent of interest a person has in real
estate.
Estate
in remainder. The remnant of an estate that has
been conveyed to take effect and be enjoyed after
the termination of a prior estate; for instance,
when an owner conveys a life estate to one party
and the remainder to another. (For a case in which
the owner retains the residual estate, see estate
in reversion.
Estate
in reversion. An estate that comes back to the
original holder, as when an owner conveys a life
estate to someone else, with the estate to return
to the original owner on termination of the life
estate.
Excess
income. (See excess rent)
Excess
rent. The amount by which scheduled rent
exceeds market rent.
Expense.
The cost of goods and services required to produce
income.
Expense-stop
clause. Lease provision to pass increases in
building maintenance expenses on to tenants on a
pro-rata basis.
External
obsolescence. Loss of value from forces outside
the building or property, such as changes in
optimum land use, legislative enactment's that
restrict or impair property rights and changes in
supply-demand relationships.
Externalities.
The principle that outside influences may have a
positive or negative effect on property
value.
Feasibility
study. An analysis of a proposed subject or
property with emphasis on the attainable income,
probable expenses and most advantageous use and
design. The purpose of such a study is to ascertain
the probable success or failure of the project
under consideration.
Federal
Reserve Bank System. Central bank of the United
States established to regulate the flow of money
and the cost of borrowing.
Fee
simple. The greatest possible estate or right
of ownership of real property, continuing without
time limitation. Sometimes called fee or fee simple
absolute.
Fee
simple defeasible. Any limitation on property
use that could result in loss of the right of
ownership.
Fee
simple qualified. Ownership of property that is
limited in some way.
FHA.
The Federal Housing Administration. Insures
loans made by approved lenders in accordance with
its regulations.
Final
value estimate. The appraiser's estimate of the
defined value of the subject property, arrived at
by reconciling (correlating) the estimates of
values derived from the sales comparison, cost and
income approaches.
Financial
Institutions Reform, Recovery and Enforcement Act
of 1989 (FIRREA). Federal legislation that
mandates state licensing or certification for
appraisers performing appraisals in certain
federally related transactions.
First
mortgage. A mortgage that has priority as a
lien over all other mortgages.
Fixed
expenses. Those costs that are more or less
permanent and do not vary in relation to the
property's occupancy or income, such as real estate
taxes and insurance for fire, theft and
hazards.
Fixed-rate
mortgage. (See amortized mortgage)
Fixture.
Anything affixed to land, including personal
property attached permanently to a building or to
land so that it becomes part of the real
estate.
Foreclosure.
A court action initiated by a mortgagee or lienor
for the purpose of having the court order that the
debtor's real estate be sold to pay the mortgage or
other lien (mechanic's lien or judgment).
Form
appraisal report. Any of the relatively brief
standard forms prepared by agencies such as the
Federal Home Loan Mortgage Corporation and Federal
National Mortgage Association and others for
routine property appraisals.
Freehold.
An estate in land in which ownership is for an
indeterminate length of time.
Frequency
distribution. The arrangement of data into
groups according to the frequency with which they
appear in the data set.
Front
foot. A standard of measurement, being a strip
of land one foot wide fronting on the street or
waterfront and extending the depth of the lot.
Value may be quoted per front foot.
Functional
obsolescence. Defects in a building or
structure that detract from its value or
marketability, usually the result of layout, design
or other features that are less desirable than
features designed for the same functions in newer
property.
Functional
obsolescence-curable. Physical or design
features that are no longer considered desirable by
property buyers but could be replaced or redesigned
at relatively low cost.
Functional
obsolescence-incurable. Currently undesirable
physical or design features that are not easily
remedied or economically justified.
GRI
Graduate Realtors Institute The symbol is
recognized nation wide. It shows clients that the
holder has a solid grasp of real estate
fundamentals. GRI consists of three, five day
programs.
Going
concern value. The value existing in an
established business property compared with the
value of selling the real estate and other assets
of a concern whose business is not yet established.
The term takes into account the goodwill and
earning capacity of a business.
Grant
deed. A type of deed in which the grantor
warrants that he or she has not previously conveyed
the estate being granted to another, has not
encumbered the property except as noted in the
deed, and will convey to the grantee any title to
the property the grantor may later acquire.
Grantee.
A person who receives a conveyance of real property
from a grantor.
Grantor.
The person transferring title to or an interest in
real property to a grantee.
Gross
building area. All enclosed floor areas, as
measured along a building's outside
perimeter.
Gross
income. (See potential gross income)
Gross
income multiplier. A figure used as a
multiplier of the gross income of a property to
produce an estimate of the property's value.
Gross
leasable area. Total space designed for
occupancy and exclusive use of tenants, measured
from outside wall surfaces to the center of shared
interior walls.
Gross
lease. A lease of property under the terms of
which the lessee pays a fixed rent and the lessor
pays all property charges regularly incurred
through ownership (repairs, taxes, insurance and
operating expenses).
Gross
living area. Total finished, habitable,
above-grade space, measured along the building's
outside perimeter.
Gross
market income. (See potential gross
income)
Gross
rent multiplier. (See gross income multi-Ground
lease. A lease of land only on which the lessee
usually owns the building or is required to build
as specified by the lease. Such leases are usually
long-term net leases; the lessee's rights and
obligations continue until the lease expires or is
terminated for default.
Ground
rent. Rent paid for the right to use and occupy
land according to the terms of a ground
lease.
Growing
equity mortgage (GERI). A type of loan that
rapidly increases the equity in a property by
increasing the monthly payments a certain
percentage each year and applying those increases
to the principal.
Highest
and best use. The legally and physically
possible use of land that is likely to produce the
highest land (or property) value. It considers the
balance between site and improvements as well as
the intensity and length of uses.
Historical
cost. Actual cost of a property at the time it
was constructed.
Historical
rent. Scheduled (or contract) rent paid in past
years.
Holdover
tenancy. A tenancy in which the lessee retains
possession of the leased premises after the lease
has expired and the landlord, by continuing to
accept rent from the tenant, thereby agrees to the
tenant's continued occupancy.
Homeowners'
association. Organization of property owners in
a residential condominium or subdivision
development, usually authorized by a declaration of
restrictions to establish property design and
maintenance criteria, collect assessments and
manage common areas.
HUD.
Department of Housing and Urban Development.
Improved
land. Real property made suitable for building
by the addition of utilities and publicly owned
structures, such as a curb, sidewalk,
street-lighting system and/or sewer.
Improvements.
Structures of whatever nature, usually privately
rather than publicly owned, erected on a site to
enable its utilization, e.g., buildings, fences,
driveways and retaining walls.
Income
capitalization approach. The process of
estimating the value of an income-producing
property by capitalization of the annual net
operating income expected to be produced by the
property during its remaining economic life.
Increasing
returns, law of. The situation in which
property improvements increase property income or
value.
Incurable
depreciation. A depreciated item that would be
impossible or too expensive to restore or
replace.
Independent
contractor. A person who contracts to do work
for another by using his or her own methods and
without being under the control of the other person
regarding how the work should be done. Unlike an
employee, an independent contractor pays all of his
or her expenses, personally pays income and social
security taxes and receives no employee benefits.
Many real estate salespeople are independent
contractors.
Index
method. An appraisal technique used to estimate
reproduction or replacement cost. The appraiser
multiplies the original cost of construction by a
price index for the geographic area to allow for
price changes.
Indirect
costs. Costs of erecting a new building not
involved with either site preparation or building
construction; for example, building permit, land
survey, overhead expenses such as insurance and
payroll taxes, and builder's profit.
Industrial
district or park. A controlled development
zoned for industrial use and designed to
accommodate specific types of industry, providing
public utilities, streets, railroad sidings and
water and sewage facilities.
Ingress.
The way to enter a tract of land. Often used
interchangeably with access. (See also
access)
Installment
contract. A contract for the sale of real
estate by which the purchase price is paid in
installments over an extended period of time by the
purchaser, who is in possession, with the title
retained by the seller until a certain number of
payments are made. The purchaser's payments may be
forfeited upon default.
Insurable
value. The highest reasonable value that can be
placed on property for insurance purposes.
Interest. A percentage of the principal amount of a
loan charged by a lender for its use, usually
expressed as an annual rate.
Interest
rate. Return on an investment; an interest rate
is composed of four component rates: safe rate,
risk rate, non-liquidity rate and management rate.
Management rate. Compensation to the owner for the
work involved in managing an investment and
reinvesting the funds received from the
property.
Interim
use. A temporary property use awaiting
transition to its highest and best use.
Intestate.
Dying without a will or without having made a valid
will. Title to property owned by someone who dies
intestate will pass to his or her heirs as provided
in the law of descent of the state in which the
property is located. investment value. The worth of
investment property to a specific investor.
Inwood
annuity table. A table that supplies a factor
to be multiplied by the desired yearly income
(based on the interest rate and length of time of
the investment) to find the present worth of the
investment.
Joint
tenancy. Ownership of real estate between two
or more parties who have been named in one
conveyance as joint tenants. On the death of a
joint tenant, the decedent's interest passes to the
surviving joint tenant(s) by the right of
survivorship.
Joint
venture. The joining of two or more people to
conduct a specific business enterprise. A joint
venture is similar to a partnership in that it must
be created by agreement between the parties to
share in the losses and profits of the venture. It
is unlike a partnership in that the venture is for
one specific project only, rather than for a
continuing business relationship.
Land.
The earth's surface in its natural condition,
extending down to the center of the globe, its
surface and all things affixed to it, and the
airspace above the surface.
Land
capitalization rate. The rate of return,
including interest, on land only.
Land
development method. (See subdivision
development method)
Landlocked
parcel. A parcel of land without any access to
a public road or way.
Landlord.
One who owns property and leases it to a
tenant.
Land
residual technique. A method of capitalization
using the net income remaining to the land after
return on and recapture of the building value have
been deducted.
Land
trust. A trust originated by the owner of real
property in which real estate is the only asset.
Because the interest of a beneficiary is considered
personal property and not real estate, a judgment
against the beneficiary will not create a lien
against the real estate. Thus land trusts are
popular when there are multiple owners who seek
protection against the effects of divorce,
judgments or bankruptcies of each other.
Latent
defect. Physical deficiencies or construction
defects not readily ascertainable from a reasonable
inspection of the property, such as a defective
septic tank or underground sewage system, or
improper plumbing or electrical wiring.
Lease.
A written or oral contract for the possession and
use of real property for a stipulated period of
time, in consideration for the payment of rent.
Leases for more than one year generally must be in
writing.
Leased
fee. The lessor's interest and rights in the
real estate being leased.
Leasehold
estate. The lessee's right to possess and use
real estate during the term of a lease. This is
generally considered a personal property
interest.
Legal
description. A statement identifying land by a
system prescribed by law. (See also lot and block
system, metes and bounds description and
rectangular survey system)
Lessee.
The person to whom property is leased by another;
also called a tenant.
Lessee's
interest. An interest having value only if the
agreed-on rent is less than the market rent.
Lessor.
The person who leases property to another; also
called a landlord.
Lessor's
interest. The value of lease rental payments
plus the remaining property value at the end of the
lease period.
Letter
of opinion. Report of property value that
states the appraiser's conclusion of value or a
range of values and provides only a brief summary
of the supporting data and appraiser's
analysis.
Letter
of transmittal. First page of a narrative
appraisal report, in which the report is formally
presented to the person for whom the appraisal was
made.
Levy.
To impose or assess a tax on a person or property;
the amount of taxes to be imposed in a given
district.
License.
(1) The revocable permission for a temporary use of
land--a personal right that cannot be sold. (2)
Formal permission from a constituted authority
(such as a state agency) to engage in a certain
activity or business (such as real estate
appraisal)
LID
Land improvement district. special tax or
assessment
passed on to home buyers to pay for roadwork and
improvements. can last up to 17 years or more, can
be billed, monthly, quarterly, or annually. Usually
becomes lien on property and is passed down to
future owners until paid off.
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.
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.
Living
trust. An arrangement in which a property owner
(truster) transfers assets to a trustee, who
assumes specified duties in managing the asset.
After the payment of operating expenses and
trustee's fees, the income generated by the trust
property is paid to or used for the benefit of the
designated beneficiary. The living trust is gaining
popularity as a way to hold title and avoid probate
of trust assets.
Lot
and block system. Method of legal description
of an individual parcel of land by reference to
tract, block and lot numbers and other information
by which the parcel is identified in a recorded
subdivision map. Also called lot, block and tract
system and subdivision system.
Maintenance
expenses. Costs incurred for day-to-day upkeep,
such as management, wages and benefits of building
employees, fuel, utility services, decorating and
repairs.
Marital
property. (See community property and tenancy
by the entirety)
Markers.
(See monuments)
Market.
A place or condition suitable for selling and
buying.
Market
comparison approach. (See sales
comparison
approach)
Market
comparison method of depreciation. (See sales
comparison method of depreciation)
Market
data approach. (See sales
comparison
approach)
Market
extraction method of depreciation. (See series
comparison method of depreciation)
Market
price. (See sales price)
Market
rent. The amount for which the competitive
rental market indicates property should rent. An
estimate of a property's rent potential.
Market
value. The most probable price real estate
should bring in a sale occurring under normal
market conditions.
Mean.
The average of all items included within a group,
calculated by dividing the sum of the individual
items, or variates, by the number of
variates.
Mechanic's
lien A lien created by statute that exists in
favor of contractors, laborers or material men who
have performed work or furnished materials in the
erection or repair of a building. meridian. (See
principal meridian)
Metes
and bounds description. A method of legal
description specifying the perimeter of a parcel of
land by use of measured distances from a point of
beginning along specified boundaries, or bounds,
using monuments, or markers, as points of
reference.
Mile.
A measurement of distance, being 1,760 yards or
5,280 feet.
Mobile
home. A structure transportable in one or more
sections, designed and equipped to contain not more
than two dwelling units to be used with or without
a foundation system; does not include a
recreational vehicle. Also called a manufactured
home.
Monuments.
Natural or artificial objects used to define the
perimeter of a parcel of land using the metes and
bounds method of legal description.
Mortgage.
A conditional transfer or pledge of real property
as security for the payment of a debt; also, the
document used to create a mortgage lien.
Mortgagee.
The lender in a loan transaction secured by a
mortgage.
Mortgagor.
An owner of real estate who borrows money and
conveys his or her property as security for the
loan.
NAR
National Association of Realtors
Narrative
appraisal report. A detailed written
presentation of the facts and reasoning behind an
appraiser's estimate of value.
Neighborhood.
A residential or commercial area with similar types
of properties, buildings of similar value or age,
predominant land-use activities, and natural or
fabricated geographic boundaries, such as highways
or rivers.
Neighborhood
life cycle. The period during which most of the
properties in a neighborhood undergo the stages of
development, equilibrium and decline. decline.
Properties require an increasing amount of upkeep
to retain their original utility and become less
desirable. development (growth). Improvements are
made, and properties experience a rising demand.
equilibrium. properties undergo little change; also
called stability.
Net
income ratio. The ratio of net operating income
to effective gross income.
Net
lease. A lease requiring the tenant to pay rent
and part or all of the costs of maintenance
including taxes, insurance, repairs and other
expenses of ownership. Sometimes known as an
absolute net lease, triple net lease or net, net,
net lease.
Net
operating income. Income remaining after
operating expenses are deducted from effective
gross income.
Non-conforming
use. A once lawful property use that is
permitted to continue after a zoning ordinance
prohibiting it has been established for the area; a
use that differs sharply from the prevailing uses
in a neighborhood.
Non-liquidity
rate. A penalty charged for the time needed to
convert real estate into cash. risk rate. An
addition to the safe rate to compensate for the
hazards that accompany investments in real
estate.
Observed
condition depreciation. A method of computing
depreciation in which the appraiser estimates the
loss in value for all items of depreciation. (See
also incurable depreciation and curable
depreciation)
Obsolescence.
Lessening of value from out-of-date features as a
result of current changes in property design,
construction or use; an element of depreciation.
(See also external obsolescence and functional
obsolescence)
Occupancy.
Possession and use of property as owner or
tenant.
Occupancy
rate. The percentage of total rental units
occupied and producing income.
Operating
expense ratio. The ratio of total operating
expenses to effective gross income.
Operating
expenses. The cost of all goods and services
used or consumed in the process of obtaining and
maintaining income. (See also fixed expenses,
maintenance expenses and reserves for
replacement)
Operating
statement. The written record of a business's
gross income, expenses and resultant net
income.
Operating
statement ratio. Relationship of a property's
expenses to income, found by dividing total
operating expenses by effective gross
income.
Opportunity
cost. The value differential between
alternative investments with differing rates of
return.
Option.
A right given for a valuable consideration to
purchase or lease property at a future date, for a
specified price and terms. The right may or may not
be exercised at the option holder's (optionee's)
discretion.
Orientation.
Positioning a structure on its lot with regard to
exposure to the sun, prevailing winds, privacy and
protection from noise.
Overage
rent. Rent paid over a base amount in a
percentage lease.
Overall
capitalization rate. A rate of investment
return derived by comparing the net income and
sales prices of comparable properties.
Overall
rate. The direct ratio between a property's
annual net income and its sales price.
Over
improvement. An improvement to property that is
more than warranted by the property's highest and
best use and thus not likely to contribute its cost
to the total market value of the property.
Ownership
in severalty. Individual ownership of real
estate, not to be confused with the use of the word
several to mean "more than one"; also called
tenancy in severalty, sole tenancy or separate
ownership.
Paired
sales analysis. A method of estimating the
amount of adjustment for the presence or absence of
any feature by pairing the sales prices of
otherwise identical properties with and without the
feature in question. A sufficient number of sales
must be found to allow the appraiser to isolate the
effect on value of the pertinent factor (also
called paired data set analysis and matched pairs
analysis).
Parameter.
A single number or attribute of the individual
things, persons or other entities in
Population.
Partial
interest. Any property interest that is less
than full fee
simple
ownership of the entire property.
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.
Percentage
lease. A lease commonly used for commercial
property that provides for a rental based on the
tenant's gross sales at the premises. It generally
stipulates a base monthly rental, plus a percentage
of any gross sales exceeding a certain
amount.
Personal
property. Items that are tangible and movable
and do not fit the definition of realty;
chattels.
Physical
deterioration-curable. Loss of value due to
neglected repairs or maintenance that are
economically feasible and, if performed, would
result in an increase in appraised value equal to
or exceeding their cost.
Physical
deterioration-incurable. Loss of value due to
neglected repairs or maintenance of short-lived or
long-lived building components that would not
contribute comparable value to a building if
performed.
Physical
life. The length of time a structure can be
considered habitable, without regard to its
economic use.
Planned
unit development (PUD). A subdivision
consisting of individually owned residential and/or
commercial parcels or lots as well as areas owned
in common.
Plat.
A map representing a parcel of land subdivided into
lots, showing streets and other details or a single
site.
Plottage
value. The subsequent increase in the unit
value of a group of adjacent properties when they
are combined into one property in a process called
assemblage.
Point
of beginning. Place at which a legal
description of land using the metes and bounds
method starts.
Police
power. The right of the government to impose
laws, statutes and ordinances to protect the public
health, safety and welfare. Includes zoning
ordinances and building codes.
Possession.
The right of the owner to occupy property. When
property is occupied by a tenant, the owner has
constructive possession by right of title.
Potential
gross income. A property's total potential
income from all sources during a specified period
of time.
Prepaid
items of expense. Expense items, such as
insurance premiums and tax reserves, that have been
paid in advance of the time that the expense is
incurred. Prepaid expenses typically are prorated
and credited to the seller in the preparation of a
closing statement.
Price.
The amount of money set or paid as the
consideration in the sale of an item at a
particular time.
Principal.
(1) A sum lent or employed as a fund or
investment--as distinguished from its income or
profits; (2) the original amount (as of a loan) of
the total due and payable at a certain date; or (3)
a party to a transaction--as distinguished from an
agent.
Principal
meridian. One of 35 north and south survey
lines established and defined as part of the U.S.
government or rectangular survey system.
Profit-and-loss
statement. (See operating statement)
Property
residual technique. A method of capitalization
using the net income remaining to the property as a
whole.
Proration.
The adjustment of taxes, interest, insurance and/or
other costs on a pro-rata basis as of the closing
of a sale. (See also closing statement)
Purchase
money mortgage. A note secured by a mortgage or
trust deed given by the buyer, as mortgagor, to the
seller, as mortgagee, as part of the purchase price
of real estate.
Quantity
survey method. A method for finding the
reproduction cost of a building in which the costs
of erecting or installing all of the component
parts of a new building, including both direct and
indirect costs, are added.
Quit
Claim deed. A conveyance by which the grantor
transfers whatever interest he or she has in the
land, without warranties or obligations.
Real
estate. Land; a portion of the earth's surface
extending downward to the center of the earth and
upward into space including fixtures permanently
attached thereto by nature or by man, anything
incidental or appurtenant to land and anything
immovable by law; freehold estate in land.
Real
estate broker. Any person, partnership,
association or corporation that, for a compensation
or valuable consideration, sells or offers for
sale, buys or offers to buy, or negotiates the
purchase, sale or exchange of real estate, or who
leases or offers to lease, or rents or offers for
rent any real estate or the improvement thereon for
others. Such a broker must secure a state license.
For a license to be issued to a firm, it is usually
required that all active partners or officers be
licensed real estate brokers.
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 to the investors free
of corporate income tax.
Real
estate salesperson. Any person who, for a
compensation or valuable consideration, is employed
either directly or indirectly by a real estate
broker to sell or offer to sell, or to buy or offer
to buy, or to negotiate the purchase, sale or
exchange of real estate, or to lease, rent or offer
for rent any real estate, or to negotiate leases
thereof or improvements thereon. Such a salesperson
must secure a state license.
Real
property. The rights of ownership of real
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