Glossary of Real Estate Terms A - D

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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 the 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. An unqualified title. 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 is a factor that contributes to the probable most profitable use of a site.

Accessory buildings. Structures on a property, such as sheds, and garages, are secondary to the main building.

Accretion. Land buildup resulting from the deposit by the 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 based on when the revenue is earned or the expense incurred, not based on when the cash is received or paid out.

Accrued depreciation. (1) For accounting purposes, total depreciation was 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 the 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. Land use 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 a 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 after all payments there is a zero balance.

Annuity. A fixed, regular return on investment.

Annuity method. A method of capitalization that treats income from real property as a fixed, regular return on 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. A nonprofit corporation established in 1987 and headquartered in Washington, D.C., sponsored by a major appraisal, appraisal-related professionals, and trade groups.

Appraisal methods. The approaches used in the appraisal of real property. (See also cost approach, income capitalization approach)

Appraisal process. A systematic analysis of the factors that bear on the value of the 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 the 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 licensing, 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 are used to estimate the value of real estate: cost approach, income capitalization 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 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.

B

Balance. The appraisal principle 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.

Baseline. 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 is payable under a percentage lease.

Benchmark. A permanent reference mark (PRM) is 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 fewer reserves for depreciation.

The 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 a 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 build after interest on land value has been deducted.

Bundle of rights. A term often applied to the rights of ownership of the real estate, including the rights of using, renting, selling, or giving away the real estate or not taking any of these actions.

C

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 the buyer of a loan at an interest rate lower than the prevailing market rate.

Cash flow. The net spendable income from an investment is determined by deducting all operating, and fixed expenses from gross income. If expenses exceed income, negative cash flow is the result.

Cash flow rate. (See equity capitalization rate)

Cash on the cash rate. (See equity capitalization rate)

Chain. A surveyor's unit of measurement is 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, the principle of. The principle is 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 before 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. Competition, the principle of. The principle is 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 property use is 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 are 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 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 includes 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 the undivided interest in the common elements. Parcel. The entire tract of real estate is 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, the principle of. The principle is that buildings should be similar in design, construction, and age to other buildings in the neighborhood to enhance the appeal, and value. contiguous. Adjacent; in actual contact; touching.

Contract. An agreement entered into by two or more legally competent parties who, for consideration, undertake to do or to refrain from doing some legal act or acts.

Contract rent. (See scheduled rent)

Contribution, the principle of. The principle is 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, 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 multi-unit 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 the law, has 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. The figure representing construction cost at a particular time concerning 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-use 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)

D

Datum. A horizontal plane from which heights and depths are measured.

Debt investors. Investors who take a relatively conservative approach, typically take 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 limit the future use 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 is conveyed for a certain number of years, most often by a lease.

Demography. The statistical study of human populations, especially about the size, density, and distribution. Demographic information is of particular importance to people involved in market analyses, and the 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 is 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 either site preparation or building construction, including fixtures.

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