A
Accrued Depreciation
Total loss in value from all sources. The difference between the reproduction or replacement cost of the improvements and the market value of the improvements, as of a specific date.
Acre
A measure, usually of land, equal to 160 sq. rods (43,560 sq. ft.) in any shape.
Ad Valorem
According to value. A method of taxation using the value of the thing taxed to determine the amount of tax.
Addendum
Something added. A list or other material added to a document, letter, contractual agreement, escrow instructions, etc.
Adjustable Rate Mortgage (ARM)
Mortgage loan under which the interest rate is periodically adjusted to more closely coincide with current rates. The amounts and times of adjustment are agreed to at the inceptionof the loan.
Adverse Possession
A method of obtaining ownership rights by the open, notorious, exclusive, and hostile possession of private real property for a statutory period which varies from state to state (from 5 to 30 years).
Amortization
Payment of a debt in equal periodic installments of principle and interest.
Anchor Tenant
The most reliable, and usually the largest, tenant in a commercial property.
Annual Debt Service
Yearly amount of principle and interest payments of debt service
Annual Percentage Rate (A.P.R.)
The interest rate of a loan expressed as a yearly rate. The APR takes into account the interest rate, mortgage insurance, and loan origination fees (points). The A.P.R. is disclosed as a requirement of federal truth in lending statutes.
Appraisal
An analysis, opinion, or conclusion relating to the value or nature of specified interests in identified real estate. An estimate of value, or the process of estimating value, as of a specific date.
Appraisal Report
A written report by an appraiser containing an opinion as to the value of a property and the reasoning leading to this opinion.
Appreciation
An increase in property value, usually as a result of an excess of demand over supply.
Assessed Value
Value placed upon property for real estate tax purposes by the tax assessor.
Assessor
One who estimates the value of property for tax purposes.
B
Biweekly Accelerated Mortgage
A mortgage repaid in biweekly payments. A biweekly payment is equal to one-half the regular monthly payment. This reduced payment is then paid biweekly or 26 times per year. Under this accelerated plan, the borrower pays off more principal than a borrower making monthly payments.
Blanket Mortgage
A mortgage covering more than one property of the mortgagor, such as a mortgage covering all the lots in a subdivision.
C
Cash Flow
In investment property, the actual cash the investor will receive after deduction of operating expenses and debt service (loan payment) from gross income.
Closing
In real estate sales, the final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed.
Closing Costs
The expenses that are incidental to a sale of real estate in addition to the actual price of the property. Typical closing costs include an origination fee, taxes, title, insurance, credit report, appraisal fee, and document preparation fees, and are often between 4% and 6% of the mortgage amount.
Comparables
Properties used as comparisons to estimate the value of a specific property.
Condemnation
The taking of private property for public use without the consent of the owner, but only upon payment of just compensation.
Condominium Building
A structure of two or more units, the interior space of which is individually owned; the balance of the property (both land and building) is owned in common by the owners of the individual units, and typically cannot be mortgaged. Real estate taxes are levied on the individually owned units, and not on the building as a whole.
Cooperative Apartment Building
A structure of two or more units in which the right to occupy a unit is obtained by the purchase of shares of stock in the corporation which owns the building. Shares on the individual units can be mortgaged, as well as the entire building (called an “underlying mortgageâ€). Real estate taxes are levied on the entire building, and not on the individual units.
Cost Approach
An appraisal method based on the replacement or reproduction cost of a structure, less depreciation, plus land value.
Credit Report
A report of a borrower’s credit history compiled by a credit agency, resulting in a thorough history of payment records.
D
Deed
A written, legal instrument, given to convey title to real property upon sale.
Deed in Lieu of Foreclosure
A deed given by an owner/borrower to a lender to prevent the lender from bringing foreclosure proceedings.
Deferred Maintenance
Curable, physical deterioration that should be corrected. Repairs needed to restore a property to good condition.
Depreciation
Loss in real estate value from any cause.
Deterioration
Loss in value due to wear and tear, disintegration, or exposure to the elements.
Discounted Cash Flow
The estimated present value of future cash flow, determined by a given discount rate.
Distress Sale
A sale of property when the seller is under pressure to sell. Generally the property is sold for less than market value.
E
Easement
A right created by grant, reservation, agreement, prescription, or necessary implication, that conveys use but not ownership of a portion of a property. It is either for the benefit of land (appurtenant), such as right to cross A to get to B, or “in grossâ€, such as a public utility easement. An easement is typically written into the deed.
Effective Age
Age of a structure as estimated by its condition and utility rather than actual age. Takes into account rehabilitation and maintenance (or lack thereof).
Effective Gross Income (EGI)
The total gross income from all sources, after allowing for vacancy and collection losses.
Eminent Domain
A governmental right to acquire private property for public use by condemnation, and the payment of just compensation.
Encroachment
Generally, construction or trespassing on the property of another, as of a wall, fence, building extension, etc.
Equity
The market value of real property, less the amount of existing liens.
Equity Loan
A loan ( mortgage) based on the equity in a property.
Eviction
A court action to remove one from possession of real property. Most commonly, the removal of a tenant.
F
Fannie Mae (Federal National Mortgage Association FNMA)
A quasi-governmental agency that purchases mortgages from banks, mortgage companies, savings and loan associations, etc. to distribute money for residential mortgages.
Federal Discount Rate
The interest rate charged to member banks borrowing from the Federal Reserve.
Fee Simple Estate
Absolute ownership unencumbered by any other interest or estate, subject only to government limitations. An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited.
Fixed Rate Mortgage
A mortgage having a rate of interest which remains constant for the life of the mortgage.
Floor Area Ratio
A term commonly used to indicate the allowable square footage of a building in proportion to land area, according to zoning requirements.
Foreclosure
A proceeding in or out of court, to extinguish all rights, title, and interest, of the owner(s) of property in order to sell the property to satisfy a lien against it.
Foreclosure Sale
A sale of property used as security for a debt, to satisfy said debt.
Freddie Mac ( Federal Home Loan Mortgage Corporation FHLMC)
An agency that purchases mortgages, and also facilitates secondary mortgages sponsored by the Veteran’s Administration and the Federal Housing Administration.
Functional Obsolescence
A type of depreciation (loss in value) to improvements due to outdated design, utility, and/or materials. When economically feasible to correct, it is called “curableâ€; when not feasible, “incurableâ€.
G
Graduated Payment Mortgage
A mortgage or deed of trust calling for increasingly higher payments over the term of the loan. This allows the buyer low beginning payments.
Grantee
A person or entity to whom property is transferred; the buyer.
Grantor
A person or entity who grants property or property rights; the seller.
Gross Income Multiplier
A figure which, when multiplied by the annual gross income, will theoretically determine the market value of a property. The ratio between the sale price of a property and its gross income.
Gross Rent Multiplier
The quotient of the sale price divided by the gross rent.
Ground Lease
A lease granting the right to use and occupy land.
H
Highest and Best Use
The most reasonable, probable and legal use of land or improvements which is physically possible, legally permitted, financially feasible, and results in maximum profit.
I
Income Capitalization Approach
In appraising, a method of estimating value based on income (cash flow). There are two basic methods available: direct capitalization, whereby value is estimated based on an analysis of a single year’s income stream. Direct capitalization takes into account the effect of financing on real estate transactions, and typical expected returns to the equity position. An alternate method, called Discounted Cash Flow analysis, estimates value based on the income stream over a specific time period, plus a reversion, and discounted at a specific yield rate.
Insurable Value
Value of real property for insurance purposes.
J
Joint Tenancy
An undivided interest in property, taken by two or more joint tenants. The interests must be equal, accruing under the same conveyance, and beginning at the same time. Upon the death of a joint tenant, the interest passes to the surviving joint tenant, rather than to the heirs of the deceased.
L
Lease
An agreement by which an owner of real property (lessor) gives the right of possession and use to another (lessee), for a specified period of time (term) and for a specified consideration (rent).
Lessee
The party to whom a lease (the right to possession) is given in return for a consideration (rent); tenant.
Lessor
The party who gives the lease (right to possession) in return for a consideration (rent); owner.
Lien
An encumbrance against property for money, either voluntarily or involuntarily.
Loan-to-Value Ratio (LTV)
The ratio between the principal balance of a mortgage on a property and the appraised value (or sale price) of the property. Example: if a home is appraised at $100,000 with an $85,000 mortgage, the LTV is 85%.
M
MAI
Professional designation as a member of the Appraisal Institute, a national professional organization of real estate appraisers. This designation is held by appraisers who are experienced in the valuation of commercial, industrial, residential, and other types of properties, and are also qualified as real estate investment consultants.
Market Value
The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably, and in their own self-interest, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from buyer to seller under specific conditions.
Mortgage Insurance
An insurance contract that protects the lender against loss resulting from the mortgagor’s default on a mortgage. On most loans that have a Loan-to-Value ratio below 80%, the bborrower is required to purchase private mortgage insurance (PMI). Mortgagee The party lending the money and receiving the mortgage.
Mortgagor
The party who borrows the money and gives the mortgage.
N
Narrative Appraisal
The most detailed of the appraisal reports in which conclusions are supported and fully explained.
Negative Amortization
A condition created when a loan payment is less than the interest on the debt; unpaid interest is added to the outstanding balance, increasing the loan balance over time.
Net Operating Income
The actual or anticipated net income that remains after all fixed and variable operating expenses have been deducted from effective gross income, but before mortgage debt service is deducted.
O
Origination Fee
A fee paid to a lender which covers the cost of processing the loan application.
P
Physical Deterioration
A type of depreciation (loss in value) to improvements caused by wear and tear or lack of maintenance.
PI (Principal and Interest)
Indicates what is included in a monthly mortgage payment on real property, e.g., principle loan amount plus interest on the loan.
PITI
The typical components of a monthly mortgage payment, including loan Principal, Interest on the loan, real estate Taxes and hazard Insurance.
Planned (Unit) Development
A subdivision of individually owned lots with one or more areas owned in common. Homeowner’s Association dues are typically mandatory.
Points
A charge by the lender for originating a loan, which is expressed as a percentage of the loan amount (i.e., percentage point). For example, two points of a $100,000 loan is $2,000.
Potential Gross Income (PGI)
The total income from all sources at full occupancy, before deducting for vacancy and collection losses, and before deducting any operating expenses.
Private Mortgage Insurance
An insurance contract that protects the lender against loss resulting from the mortgagor’s default on a mortgage. On most loans that have a Loan-to-Value ratio below 80%, the borrower is required to purchase private mortgage insurance (PMI).
Purchase Money Mortgage (PMM)
A mortgage given from buyer to seller in lieu of cash, to secure all or a portion of the purchase price; this is an alternative to an institutional mortgage loan.
R
Rate Lock
An agreement by the lender to guarantee a specified interest rate for a certain period of time.
Real Estate
Physical land and anything permanently affixed to the land, such as buildings, fences, etc.
Real Property
All interests, benefits, and rights inherent in the ownership of physical real estate. Implies full ownership of the bundle of rights. Rights that can be separated without dividing the physical real estate.
Reverse Mortgage
A loan, secured by a first mortgage on the borrower’s residence, under which the lender makes periodic payments to the borrower which are repaid in one lump sum. The loan is available to senior citizens (62 and over) with FHA insurance.
S
Sales Comparison Approach
The process of deriving a value indication for the subject property by comparing market information for similar properties with the property being appraised, identifying appropriate units of comparison, and making qualitative comparisons with or quantitative adjustments to the sale prices of the comparable properties based on relevant, market-derived elements of comparison.
Short Sale
A sale of real property in which the proceeds from the sale fall short of the balance owed on a loan secured by the property. Lenders may agree to a short sale to avoid lengthy and costly foreclosure proceedings, and borrowers who cannot meet their mortgage obligations may agree to a short sale to satisfy their debt. See also deed in lieu; foreclosure.
Special Use Permit
Permission granted by a local zoning agency that authorizes a use as a special exception to the applicable zoning. A special use permit in a residentially zoned area might allow for construction of a church or hospital. Such uses are considered conditional uses, only permitted upon the approval of the zoning authority. Sometimes referred to as a conditional use permit. See also legally nonconforming use; zoning variance.
Surplus Land
Land that is not currently needed to support the existing improvement but cannot be separated from the property and sold off. Surplus land does not have an independent highest and best use and may or may not contribute value to the improved parcel.
U
Underimprovement
An improvement that is inadequate to maximize the return to the site, usually a structure that is of a lower quality or size than typical of competitive properties, or one designed for a use of lower intensity.
V
Valuation Process
A systematic procedure used in the valuation of real property.
Value in Use
The value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of the appraisal. Value in use may or may not be equal to market value but is different conceptual.
Z
Zoning
A public regulation of the use of private land through application of police power; accomplished by establishing districts or areas with uniform requirements relating to lot coverage, setbacks, type of improvement, permitted activities, signage, structure height, minimum lot area, density, landscaping, and other aspects of land use and development. Zoning regulations are established by enactment of a local (city, town, or country) zoning ordinance.
Zoning variance
A legally authorized modification in the use of property at a particular location that does not conform to the regulated use set forth in the zoning ordinance for the surrounding area; not an exception or change in the legally applicable zoning. See also legally nonconforming use.