Real Estate Glossary

abatement

1. A reduction or decrease. 2. The removal of a nuisance.

A, B, C, D paper

Mortage loans are rated as A, B, C, or D paper. "A" paper loans are the highest quality, lowest risk loans; "B" quality are loans where the borrower has minor credit problems; "C" quality are borrowers with marginal or poor credit; "D" quality indicates very high risk loans.

absorption rate

The total number of vacant square feet of office space divided by the square footage leased per year historically. Used to analyze demand of office space in a given market area.

abstract of title

A full summary of all consecutive grants, conveyances, wills, records and judicial proceedings affecting title to a specific parcel of real estate, together with a statement of all recorded liens and encumbrances affecting the property and their present status. The abstract of title does not guarantee or ensure the validity of the title of the property. Rather, it is a condensed history that merely discloses those items about the property that are of public record; thus, it does not reveal such things as encroachments and forgeries. (See abstracter, title insurance policy, certificate of title)

abstract of judgment

A full summary by the court of a judgment. It becomes a general lien on all of a debtor's property in the county where it is recorded. (See general lien, judgment)

abstracter

The person preparing the abstract of title. The abstracter searches the title as recorded or registered with the county recorder, county registrar, circuit court and/or other official sources. He or she then summarizes the various instruments affecting the property and arranges them in the chronological order of recording, starting with the original grant of title.

acceleration clause

A provision in a mortgage, trust deed, promissory note or contract for deed (agreement of sale) that, upon the occurrence of a specified event, gives the lender (payee, obligee or mortgagee) the right to call all sums due and payable in advance of the fixed payment date. (See alienation clause)

acceptance

An acceptance is a promise by the offeree to be bound by the exact terms proposed by the offeror. The acceptance must be communicated to the offeror. (See offeree, offeror)

accession

Acquiring title to additions or improvements to real property as a result of the annexation of fixtures or the accretion of alluvial deposits along the banks of streams.

accord and satisfaction

The settlement of an obligation. An accord is an agreement by a creditor to accept less than bargained for from a debtor. The creditor's acceptance of the accord constitutes satisfaction of the debt.

accounting

The agent must be able to report the status of all funds received from or on behalf of the principal. Most state real estate license laws require a broker to give accurate copies of all documents to all parties affected by them and to keep copies on file for a specified period of time. Most license laws also require the broker to deposit immediately, or within 24 to 48 hours, all funds entrusted to the broker (such as earnest money deposits) in a special trust or escrow account. Commingling such monies with the broker's personal or general business funds is strictly illegal.

accretion

The increase or addition of land by the deposit of sand or soil washed up naturally from a river, lake or sea. The gradual and imperceptible addition of land by alluvial deposits of soil through natural causes, such as shoreline movement caused by streams or rivers. This added land upon a bank or stream, navigable or not, becomes the property of the riparian or littoral owner, and it also becomes subject to any existing mortgages.

accrued depreciation

1. In accounting, a bookkeeping account that shows the total amount of depreciation taken on an asset since it was acquired; also called accumulated depreciation. (See depreciation) 2. For appraisal purposes, the difference between the cost to reproduce the property (as of the appraisal date) and the property's current value as judged by its "competitive condition." In this context, accrued depreciation is often called diminished utility.

accrued items

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

accusation

The first step in a disciplinary action against a licensee.

acknowledgment

A formal declaration made before a duly authorized officer, usually a notary public, by a person who has signed a document; also, the document itself. An acknowledgment is designed to prevent forged and fraudulently induced documents from taking effect.

acquisition cost

The amount of money or other valuable consideration expended to obtain title to a property. It includes the purchase cost, plus such items as appraisal fees, closing costs, finance charges, mortgage loan origination fees and title insurance. (See title)

acre

A measure of land equal to 43,560 square feet; 4,840 square yards; 4,047 square meters; 160 square rods; or 0.4047 hectares.

actual damages

Real, substantial and just damages, or the amount awarded to a complainant in compensation for his actual and real loss or injury.

actual eviction

The legal process that results in the tenant's being physically removed from the leased premises. (See eviction, constructive eviction, lease)

actual notice

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

addendum

Additional material attached to and made part of a document. If there is space insufficient to write all the details of a transaction on the sales contract form, the parties will attach an addendum or supplement to the document. The sales contract should incorporate the addendum by referring to it as part of the agreement. The addendum should refer to the sales contract and be dated and signed or initialed by all the parties.

add-on rate

Interest charged on a principal amount for specified term, regardless of any repayments of principal. The borrower is paying interest on the full principal sum for the entire loan period, even though the principal is being reduced each month.

ademption

Disposal by a testator in his or her lifetime of a specific property bequeathed in his or her will so the bequest is revoked. (See testator)

adjustable rate mortgage (ARM)

A broad term for a loan (mortgage or deed of trust) with rates and terms that can change. The adjustable rate loan has become commonplace, with allowable ranges as to time intervals, percentage of increase or decrease and total increases or decreases likely to change as market conditions change. (See caps, index rate, initial rate, rate cap, rate factor)

adjusted basis

The original cost basis of a property reduced by certain deductions and increased by certain improvement costs. The original basis determined at the time of acquisition is reduced by the amount of allowable depreciation or depletion allowances taken by the taxpayer, and by the amount of any uncompensated property losses suffered by the taxpayer. It then increases by the cost of capital improvements plus certain carrying costs and assessments. The amount of gain or loss recognized by the taxpayer upon sale of the property is determined by subtracting the adjusted basis on the date of sale from the adjusted sales price. (See basis, capital gain)

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.

adjustment period

In an adjustable rate mortgage (ARM), the "adjustment period," is the period of time (i.e., one month, three months, six months, one year, etc.) between changes in one interest rate charged and the next interest rate to be charged. (See adjustable rate mortgage (ARM))

administered price system

Federal National Mortgage Association securities purchasing procedure where required yields are adjusted daily to reflect financial market factors. (See Federal National Mortgage Association)

administrative agency

A government agency that makes rules and regulations to carry out the law. A state's real estate commission develops regulations to complement license law.

administrative order

A legal document signed by the EPA directing an individual, business, or other entity to take corrective action or refrain from an activity. The order describes the violations and action to be taken and can be enforced in court.

administrator

A male person appointed by the court to settle the estate of a person who has died intestate (leaving no will). Sometimes referred to as the personal representative. (See executor)

administratrix

A female person appointed by the court to settle the estate of a person who has died intestate (leaving no will). Sometimes referred to as the personal representative. (See executrix)

advance fee

A fee paid before any services are rendered. Specifically, it is a practice of some brokers to obtain a nonrefundable fee from the seller in advance to cover the advertising of properties or businesses for sale while giving no guarantee that a buyer will be found, which is often held to be improper conduct. Brokers must keep accurate records of expenditures.

advance fee addendum

An agreement specifying services for which an agent or broker will be compensated including a provision for payment of an advance fee. (See advance fee)

ad valorem

The Latin word for "according to value."

ad valorem tax

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

adverse action

A denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit either on the amount requested or on the terms requested.

adverse possession

The acquiring of title to real property owned by someone else by means of open, notorious, hostile and continuous possession for a statutory period of time. The burden to prove title is on the possessor, who must show that four conditions were met: 1. He or she has been in possession under a claim of right. 2. He or she was in actual, open and notorious possession of the premises so as to constitute reasonable notice to the record owner. 3. Possession was both exclusive and hostile to the title of the owner (that is, without the owner's permission and evidencing an intention to maintain the claim of ownership against all who may contest it). 4. Possession was uninterrupted and continuous for at least the prescriptive period stipulated by state law.

aesthetic zoning

Zoning for beauty. May regulate architectural styles, colors or signage. (See zoning)

affirmation

A formal declaration that an affidavit is true.

affirmative easement

Gives the owner of the dominant tenement the right to use the servient tenement. (See dominant tenement, servient tenement)

affidavit

A sworn written statement made under oath before a notary public or other official authorized by law to administer an oath. The term literally means "has pledged one's faith." The affiant (person making the oath, sometimes called the deponent") must swear before the notary that the facts contained in the affidavit are true and correct.

affidavit of title

A written statement, made under oath by a seller or grantor of real property and acknowledged by a notary public, in which the grantor 1. identifies himself or herself and indicates marital status, 2. certifies that since the examination of the title on the date of the contracts no defects have occurred in the title and 3. certifies that he or she is in possession of the property (if applicable).

after-acquired title

Title or interest acquired by the grantor after a property has been conveyed. (See grantor)

agency

A relationship created when one person, the principal, delegates to another, the agent, the right to act on his or her behalf in business transactions and to exercise some degree of discretion while so acting. An agency gives rise to a fiduciary relationship and imposes on the agent, as the fiduciary of the principal, certain duties, obligations, and high standards of good faith and loyalty. (See agent, fiduciary, dual agency, buyer's broker)

agency coupled with an interest

An agency relationship in which the agent is given an estate or interest in the subject of the agency (the property).

agent

One authorized to represent and to act on behalf of another person (called the principal). Unlike an employee, who merely works for a principal, an agent works in the place of a principal. The main difference between an agent and an employee is that the agent may bind his or her principal by contract, if within the scope of authority, whereas an employee may not unless given express authorization. (See law of agency, principal)

agent property evaluation

A questionnaire filled out by real estate agents while reviewing a listed property. Often completed during the course of a caravan. (See caravan)

aggrieved party

One whose legal right is invaded by an act(s) of another. The word "aggrieved" refers to a substantial grievance, a denial of some personal or property right, or the imposition upon a party of a burden or obligation.

agricultural lease

Agricultural landowners often lease their land to tenant farmers, who provide the labor to produce and bring in the crop. An owner can be paid by a tenant in one of two ways: an agreed cash in advance rental amount (cash rents) or as a percentage of the profits from the sale of the crop when it is sold (sharecropping). (See cash rents, sharecropping)

AIDA

Attention, Interest, Desire, Action. In real estate advertising, creating ads that get the Attention of prospects, stimulating their Interest in a property, generating a Desire to purchase, and motivating the prospect to take Action.

AIDS

Persons with acquired immunodeficiency syndrome are protected under most federal and state discrimination laws. If buyers ask the real estate agent whether a prior occupant had AIDS, most agents point out that the law prevents responding one way or the other. Many states have emended their licensing laws to include that someone who has AIDS is not deemed a material fact, and therefore, does not form the basis for a claim that a broker concealed a material fact. Also protected are persons with AIDS-related complex (ARC) or human immunodeficiency virus infection (HIV).

air lot

A designated airspace over a piece of land. An air lot, like surface property, may be transferred.

air rights

Rights to the use of the open space or vertical plane above a property. Ownership of land includes the right to all air above the property. Until the advent of the airplane, this right was unlimited, but now the courts permit reasonable interference with one's air rights, such as is necessary for aircraft, so long as the owner's right to use and occupy the land is not lessened. Thus, low-flying aircraft might be unreasonably trespassing, and their owners would be liable for any damages. Governments and airport authorities often purchase air rights adjacent to an airport, called an avigation easement, to provide glide patterns for air traffic.

The air itself is not real property; however, air space is real property when described in three dimensions with reference to a specific parcel of land, as in a condominium unit. A Maryland case has decided that separate owners of the land and the air rights may be separately assessed for tax purposes. Air rights may be sold or leased and buildings constructed thereon, such as was done with the Pam Am Building constructed above Grand Central Station in New York City.

Air rights may also be transferred by way of easements, such as those used inconstructing elevated highways or in acquiring scenic easements or easements of light and air. Because of the scarcity of land, many developers are examining the possibilities for developing properties in the airspace above prime properties owned by schools, churches, railways and cemeteries. (See surface rights, subsurface rights)

air quality standards

The level of selected pollutants set by law that may not be exceeded in outside air. Used to determine the amount of pollutants that may be emitted by industry

alienation

The act of transferring ownership, title, interest, or estate in real property from one person to another. Property is usually sold or conveyed by voluntary alienation, as with a deed or assignment of lease. Involuntary alienation takes place when property is sold against the owner's will, as in a foreclosure sale or a tax sale. (See alienation clause)

alienation clause

A provision sometimes found in a promissory note or mortgage that provides that the balance of the secured debt becomes immediately due and payable at the option of the mortgagee upon the alienation of the property by the mortgagor. Alienation is usually broadly defined to include any transfer of ownership, title, interest, or estate in real property, including a sale by way of a contract for deed. Also called a due-on-sale clause. (See acceleration clause)

all-inclusive encumbrance

See wraparound mortgage

allodial system

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

Alquist-Priolo Special Study Zone

A California law requiring a real estate agent or owner to disclose to prospective buyers that a property is located within a special studies zone (geological hazard zone) and if the property contains or will contain a dwelling (a residentally zoned lot). "Special study zones" cover an area 660 feet on each side of fault lines and are indicated on maps prepared by the California Department of Mines and Geology.

ambient

Any unconfined portion of the atmosphere; open air; outside surrounding air.

amendment to the escrow instructions

A change to escrow instructions requiring the agreement of both buyer and seller. (See escrow instructions)

amendments

An amendment is a change to the existing content of a contract. Any time words or provisions are added to or deleted from the body of the contract, the contract has been amended.

amenity or amenities

The qualities and state of being pleasant and agreeable. In residential appraising, those peculiar and intangible benefits of home ownership such as satisfaction of possession and use arising from architectural excellence, scenic beauty, and desirable social environment.

American Institute of Real Estate Appraisers (AIREA)

A professional organization formerly affiliated with the National Association of REALTORS. AIREA promoted professional practice and ethics in the real estate appraisal industry and identified experienced, competent, ethical appraisers by awarding the MAI (Member Appraisal Institute) and RM (Residential Member) designations. In 1991, AIREA was merged with the Society of Real Estate Appraisers into the Appraisal Institute. The only designations awarded now are the MAI and SRA (Senior Residential Appraiser)

American Land Title Association (ALTA) policy

A title insurance policy that protects the interest in a collateral property of a mortgage lender who originates a new real estate loan. (See title insurance)

American Society of Appraisers (ASA)

A professional organization of appraisers engaged in the appraisal of both real and personal property. It confers the designations ASA and FASA (Fellow).

American Society of Real Estate Counselors (ASREC)

A professional organization, affiliated with the National Association of REALTORS, composed of individuals with proven success in real estate counseling who serve clients on a fee basis. The society offers its members exclusive use of the professional designation CRE (Counselor of Real Estate).

Americans with Disabilities Act (ADA)

On July 26, 1990, President Bush signed into law the Americans with Disabilities Act of 1990 ("ADA"), a federal law which prohibits discrimination against individuals with disabilities. The ADA addresses discrimination in four general areas:

1. Employment (Title I);
   
2. Public services (Title II);
   
3. Public accommodations and commercial facilities (Title III); and,
   
4. Telecommunications (Title lV).

The purpose of the ADA is to give individuals with disabilities civil rights protection against discrimination similar to hose afforded to individuals on the basis of race, color, national origin, sex, and religion.

amortization

The gradual repayment of a debt by means of systematic payments of principal and/or interest over a set period, so that at the end of the period there is a zero balance. The principal is thus directly reduced or amortized over the life of the loan. Some loans are not fully amortized, and require a balloon payment at the end of the term of the loan. (See balloon payment, fully amortized)

annexation

An addition to property by the act of joining or uniting one thing to another, as in attaching personal property to real property, thereby creating a fixture. For example, a sink becomes a fixture when it is annexed to the plumbing outlet.

annual debt service

Monthly loan payments (principal and interest, if any) times 12 months.

annual operating expenses

The actual costs it takes to run the property, such as property tax, insurance, maintenance, repairs, management fees, utilities, and supplies.

annual percentage rate (APR)

An expression of the relationship of the total finance charge to the total amount to be financed as required under the federal Truth-in-Lending Act. Tables available from any Federal Reserve bank may be used to compute the rate, which must be calculated to the nearest one-eighth of 1 percent. Use of the APR permits a standard expression of credit costs, which facilitates easy comparison of lenders. (See interest, Truth-in-Lending Act)

annuity

A sum of money recieved by an annuitant in a series of fixed periodic payments.

anticipation

The appraisal principle which holds that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property. (See appraisal)

antimerger clause

A clause in a mortgage or deed of trust specifying that the senior lienholder will retain lien priority in the event of a merger. (See merger)

antitrust laws

State and federal laws designed to maintain and preserve business competition. The Sherman Antitrust Act (1890) is the principal federal statute covering competition, which is defined by most courts as "that economic condition in which prices are determined by market forces without interference from private concerns and there is reasonable freedom of entry into most businesses."

Certain real estate brokerage activities have come under public scrutiny by the Federal Trade Commission. These activities include the fixing of general commission rates by local boards or groups of brokers and the exclusion of brokers from membership in local boards or in multiple-listing arrangements due to unreasonable membership requirements. As a result of court cases, local real estate boards no longer directly or indirectly influence fixed commission rates or commission splits between cooperating brokers. Moreover, in some states, clients must be specifically informed that the commission rates are negotiable between client and broker.

apartment building

A building having separate units for permanent tenants who rent or lease them. The owner of the building provides common facilities, such as lights, heat, elevator and garbage disposal services, and maintains common entrances and hallways.

appraisal

An estimate of the monetary value of a property on the open market; an estimate of a property's type and condition, its utility for a given purpose or its highest and best use. (See cost approach, income approach, index method, market-data approach, quantity survey method, sales comparison approach, square-foot method, unit-in-place method)

appraiser

An independent person trained to provide an unbiased estimate of value, such as a professional service performed for a fee.

appreciation

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

appropriation

Appropriation is the way a taxing body authorizes the expenditure of funds and provides for the sources of funding. Appropriation generally involves the adoption of an ordinance or the passage of a law that states the specific terms of the proposed taxation.

appropriative water rights

A water right favored in some states where an owner has the exclusive rights to take all the water for specific beneficial uses. (See correlative water rights, riparian rights)

appurtenant

Belonging to; adjunctive; appended or annexed to. For example, the garage is appurtenant to the house, and the common interest in the common elements of a condominium is appurtenant to each apartment. Appurtenant items run with the land when the property is transferred.

appurtenant easement

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

aquifer

An underground water-bearing layer of rock, including gravel and sand, that will yield water in usable quantity. Aquifers are sources of water for wells and springs.

arbitrage

Borrowing at one interest rate and investing at a higher rate.

arbitration

A nonjudicial method of resolving disputes by selecting a neutral party to make a final determination. This method was either previously agreed to by the disputing parties or stipulated by law.

arranger of credit

As defined under the federal Truth-in-Lending Law, a person who regularly arranges for the extension of consumer credit by another person if a finance charge will be imposed, if there are to be more than four installments, and if the person extending the credit is not a creditor. At present, the term does not include a real estate broker who arranges seller financing of a dwelling or real property. (See Truth-in-Lending Law)

arrears

1. The state of being delinquent in paying a debt. 2. At or after the end of the period for which expenses are due or levied; the opposite of in advance. Mortgage interest and real estate taxes are often paid in arrears.

Article 5

The part of the Business and Professions Code governing transactions in real property sale contracts and trust deeds.

Article 6

The part of the Business and Professions Code governing real property securities dealers.

Article 7

The part of the Business and Professions Code governing commissions, loan costs, and payment requirements in loan brokerage activities.

asbestos

A mineral once used in insulation and other materials that can cause respiratory diseases. Asbestos has been classified as carcinogenic. (See carcinogen)

asbestos containing material (ACM)

The EPA defines asbestos containing material as any material or product that contains more than one percent asbestos. Some states regulate smaller percentages of asbestos containing material.

Asbestosis

A disease associated with inhalation of asbestos fibers. The disease makes breathing progressively more difficult and can be fatal. (See asbestos)

as-is

Words in a contract intended to signify that no guarantees, whatsoever, are given regarding the subject property and that it is being purchased exactly as it is found. An "as-is" indicator is intended to be a disclaimer of warranties or representations. The recent trend in the courts to favor consumers tends to prevent sellers from using "as-is" wording in a contract to shield themselves from possible fraud charges brought on by neglecting to disclose material defects in the property.

assemblage

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

assessment

The imposition of a tax, charge or lein, usually according to established rates.

asset

An asset is something of value, encumbered or not, owned by a person, corporation or other entity. Assets are financial (cash or bonds), tangible or intangible, or physical (real or personal property).

asset management

The assembly, management and disposition of a portfolio of investment properties.

assignment

The transfer of the right, title and interest in the property of one person (the assignor) to another (the assignee). There are assignments of, among other things, mortgages, sales contracts, contracts for deeds, leases and options.

associate broker

A real estate license classification used in some states to describe a person who has qualified as a real estate broker but still works for and is supervised by another broker; also called a broker-salesperson, broker-associate or affiliate broker.

assumption of mortgage

The acts of acquiring title to property that has an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments. (See acceleration clause, due-on-sale clause, novation, subrogation)

assumption subject to

When a loan is taken "subject to," the seller agrees to remain liable and the buyer accepts no liability in the event of a deficiency on a foreclosure. (See assumption of mortgage, foreclosure)

attachment

The legal process of seizing the real or personal property of a defendant in a lawsuit by levy or judicial order, and holding it in court custody as security for satisfaction of a judgment. The lien is thus created by operation of law, not by private agreement. The plaintiff may recover such property in any action upon a contract, express or implied.

Attorney General

The chief law officer of the federal or state government, who appears for the people in criminal court.

attorney-in-fact

A competent and disinterested person who is authorized by another person to act in his or her place. In real estate conveyance transactions, an attorney-in-fact, who has a fiduciary relationship with his or her principal, should be so authorized by way of a written, notarized and recordable instrument called a power of attorney. (See power-of-attorney)

attorney's opinion of title

An abstract of title that an attorney has examined and has certified to be, in his or her opinion, an accurate statement of the facts concerning the property ownership. (See abstract of title)

attractive nuisance doctrine

An owner has a duty to reasonably protect children from injury when his or her property is likely to attract children.

auction

Selling property to the highest bidder.

automated underwriting

Computer systems that permit lenders to expedite the loan approval process and reduce lending costs.

automatic extension

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

avulsion

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