Glossary of Real Estate Terms E - K

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E

Easement. A right to use the land of another for a specific purpose, such as a right-of-way or utilities; a non-possessory interest inland. 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 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 is 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 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 user 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 the 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 than 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, indicates 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)

F

Federal Reserve Bank System. The central bank of the United States was 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 a fee or fee simple absolute.

Fee simple defeasible. Any limitation on property use could result in loss of the right of ownership.

Fee simple qualified. Ownership of property is limited in some way.

FHA. The Federal Housing Administration. Insures loans made by approved lenders in accordance with their 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 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 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 land so that it becomes part of the real estate.

Foreclosure. A court action initiated by a mortgagee or lienor to have the court order that the debtor's real estate be sold to pay the mortgage or other lien (mechanic's lien or judgment).

Form an appraisal report. Any of the relatively brief standard forms are 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 is a strip of land one-foot wide fronting on the street or waterfront and extending the depth of the lot. The value may be quoted per front foot.

Functional obsolescence. Defects in a building or structure that detract from its value or marketability, are usually the result of layout, design, or other features that are less desirable than features designed for the same functions in a 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 a relatively low cost.

Functional obsolescence-incurable. Currently undesirable physical or design features that are not easily remedied or economically justified.

G

GRI Graduate Realtors Institute The symbol is recognized nationwide. It shows clients that the holder has a solid grasp of real estate fundamentals. GRI consists of three, five-day programs.

• GRI I Residential Real
• GRI II Advanced Residential Real Estate
• GRI III Specialty Real Estate

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 is 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 the outside wall surface 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.

H

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. The 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 (HOA). 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.

I

Improved land. Real property is 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, are 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 the capitalization of the annual net operating income expected to be produced by the property during its remaining economic life.

Increasing returns, the 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 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 is used to estimate reproduction or replacement costs. 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 are not involved with either site preparation or building construction; for example, building permit, land survey, overhead expenses such as insurance, 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 can be placed on a property for insurance purposes. Interest. A percentage of the principal amount of a loan charged by a lender for its use is usually expressed as an annual rate.

Interest rate. Return on 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.

J

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.

K

Kilowatt (kw). One thousand watts. A kilowatt hour is the base unit used in measuring electrical consumption.

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