Helpful Tools

RENTAL/LEASE AGREEMENT – Basic Rental Agreement or Residential Lease

EPA LEAD PAMPHLET – EPA’s lead based paint pamphlet

LEAD WARNING STATEMENT – Disclosure of Information on Lead-Based Paint and/or Lead-Based Paint Hazards



[1] An official reduction or invalidation of an assessed tax value after the initial assessment. [2] The termination of a nuisance. [3] The correction of an unlawful or unsafe building condition.

Absorption Rate

The rate at which properties offered for sale or lease are successfully marketed or anticipated to be sold – generally used in forecasting sales.

Abstract (Of Title)

A summary of the public records that identifies transfers, conveyances, and other facts used as evidence of title including documents, liens, or judgments that may impair title. If there are any title defects, they must be cleared before a buyer can purchase and receive marketable, insurable title.

Acceleration Clause

A clause in a mortgage note or loan contract that allows the lender to [1] speed up the rate at which your loan comes due -or- [2] to demand immediate payment of the entire balance of the loan in the event of default.

Adjustable Rate Mortgage (ARM)

A mortgage in which the interest rate is adjusted periodically based upon an index. Also referred to as the renegotiable rate mortgage or variable rate mortgage.

Adjustment Interval

On an adjustable rate mortgage, the time interval between changes in the interest rate and/or monthly payment.

Agreement of Sale

A contract in which a seller agrees to sell and a buyer agrees to buy, under specific written terms and signed by both parties. Usually referred to as a contract of purchase, purchase agreement, or sales agreement according to jurisdiction.

Air Rights

The property rights associated with the control, regulation, and use of air space above a tract of real estate.


[1] The retirement of a debt and/or capital recovery through scheduled repayments. [2] Loan payment calculated to pay off the debt at the end of a fixed period, including interest on the outstanding balance.

Annual Percentage Rate (APR)

The cost of credit as a yearly rate.


An opinion of the value of property, made by a professional appraiser.


Combining two or more parcels into single ownership or use. Usually to increase highest and best use of the land.


The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt.

Balloon (Payment) Mortgage

Usually a short-term fixed-rate loan that is not fully amortized at maturity. Smaller initial payments are made with a large lump sum (balloon) payment due at maturity.

Band Of Investment

A technique used to derive a weighted average “rate of return” on a total investment. Uses the cash flow rates attributable to the components of a capital investment.

Base Rent

The minimum rent stipulated in a lease agreement.

Binder or “Offer to Purchase”

A preliminary agreement between a buyer and seller to purchase real estate. A binder with earnest money deposit, that secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, earnest money is forfeited unless the binder expressly provides for a refunded.


An individual who acts as an intermediary bringing together two or more parties in a market transaction.

Bridge Loan

Short term financing between the termination of one loan and the commencement of another. Examples: construction/permanent loans, temporary loans used for acquiring and rehabilitating properties prior to sell or conversion to a permanent mortgage.

Building Capitalization Rate

A rate that converts building income into value – the ratio of building income to value. Usually applied in residual or band of investment techniques.

Building Line or Setback

Distances from the front, rear, or sides of a lot beyond which construction may not extend. Setbacks may be established by a filed plat of a subdivision, restrictive covenants in deeds or leases, building codes, or by public zoning ordinances.


A lump-sum payment to a lender that reduces the interest rate and/or payments of the borrower.

Buyer’s Market

A market phenomenon that exists when prices are relatively low and buyers have an advantage; usually due to [1] an oversupply of properties or [2] limited buyer pool.

Cap – (Interest)

A limitation on the amount the interest rate (on an adjustable rate mortgage) may change per year and/or over the life of the loan.

Cap – (Payment)

A limitation on the amount monthly payments (on an adjustable rate mortgage) may change.


A process of converting income to value. (See also direct capitalization and yield capitalization).

Caveat Emptor

Let the buyer beware – a maxim of common law stating that the buyer purchases at his/her own risk.

Certificate of Title

A certificate (issued by a title company or a written opinion provided by an attorney) of ownership stating that the seller has good marketable and insurable title to the property which he is offering for sale. The certificate of title offers no protection against hidden defects. The issuer of a certificate of title is liable only for damages due to negligence.

Chain Of Title

A historical record of all encumbrances and conveyances which affect a property title. Extends from the time original patent was granted (aka abstract of title).


The settlement/transfer between buyer, seller and lender where the property and funds legally change hands.

Closing Costs

Funds required for settlement – usually includes a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. Typical closing costs are 2 to 6 percent of the mortgage amount.

Cloud (On Title)

An encumbrance or outstanding claim that negatively affects the marketability of title.


Property pledged as security for a loan that can be seized in event of default.


Compensation paid to a real estate agent or broker for finding a buyer and/or tenant and successfully completing the sale.

Commitment Fee

The fee a borrower pays to the lender who agrees to make a loan at some future date. Usually expressed as a percentage of the anticipated loan amount.

Commitment – Loan

A written agreement between lender and borrower to loan money at a future date subject to the stated conditions.

Common Area

Any area within a property that is available for common use by all owners, occupants, or their invitees and not designated for sale or rent. Examples include parking, side- walks, landscaped areas, exterior of buildings in condo projects, etc.


[1] A determination by a governmental agency that a particular building is unsafe or unfit for use. [2] The act or process of enforcing the governments right of eminent domain.


Individual fee simple ownership of a unit (in a multiunit development) and an undivided interest in the common areas and facilities which serve the project.

Conservation Easement

A restriction limiting the future use of a property to preservation, conservation, or a wildlife habitat.

Consistent Use

The concept that land cannot be valued on the basis of one use while improvements are valued on the basis of another. Example: a residential dwelling in a commercially zoned area – the land cannot be valued commercially then add the value the home as a dwelling. It must either be valued as a home and residential lot (interim use) or be valued as a commercial site offset by demolition costs. See Highest & Best Use.

Construction Loan

A short term interim loan for financing the cost of construction and usually repaid with the proceeds from a permanent mortgage. The lender advances funds to the builder as the work progresses.

Contract Rent

The actual rental payments specified in a lease.

Conventional Loan

A mortgage that is neither insured or guaranteed by an agency of the federal government. A conventional loan may be privately insured.

Cooperative Ownership

An apartment building or a group of dwellings owned by a corporation in which the stockholders are the residents. It is operated for the benefit of the residents by their elected board of directors. In a cooperative, the corporation/association holds title to the real estate. Residents purchase stock in the corporation thereby entitling them to occupy a unit in the building. Although residents do not own their units, they have an absolute right to occupy their unit for as long as they own the stock.

Credit Ratio

A ratio (expressed as a percentage) used by lenders to judge a borrower’s repayment ability. Long term monthly payment obligations are divided by net income (FHA/VA loans) or gross monthly income (Conventional loans).

Credit Scoring System

A statistical system used to rate the credit worthiness of a loan applicant according to various characteristics.

Curable Functional Obsolescence

An element of accrued depreciation. A curable defect in the structure, materials, or design.


A formal written instrument that transfers title to real property from one owner to another. Parties include the grantor (seller) and grantee (buyer). The deed should contain the following: [1] a complete legal description, [2] signatures of all parties holding an interest in the property and [3] witnesses to the conveyance. The conveyance becomes valid when executed and delivered at closing. (See deed of trust, general warranty deed , quitclaim deed , and special warranty deed.)

Deed of Release

A legal instrument by which the property securing a mortgage is absolved from the lien of the mortgage. Must be subscribed and acknowledged by the mortgagee (lender). Can be a partial or whole release.

Deed of Trust

A legal instrument that conveys property title to a trustee. In many states this document is used in place of a mortgage to secure the payment of a note.

Deed Restriction

A limitation that passes with the transfer of property title regardless of the owner. It usually limits the type or intensity of use of the property.


Failure to repay a loan or otherwise meet the terms of your credit agreement.

Deferred Interest – See Negative Amortization.

Deferred Maintenance

Repairs that should be corrected immediately (curable, physical deterioration).

Deficiency Judgment

A judgment awarded in a suit initiated to recover the difference between a legally imposed indebtedness and the money received from a foreclosure sale of the debtor’s assets.


Failure to make payments on time. May result in foreclosure.

de minimis PUD

A planned unit development (PUD) that has relatively minor common areas and improvements. A de minimis PUD [1] cannot include any multi-dwelling units that represent the security for a single mortgage; [2] cannot be a building conversion, [3] must not have any common areas other than greenbelts, private streets & parking, tot lots & playgrounds, etc., and [4] must not be subject to additional phasing or annexation that would result in the inclusion of significant common areas.

Department of Housing and Urban Development (HUD)

The federal government’s department responsible for major housing and urban development programs. (urban renewal, low rent public housing, mortgage insurance, metropolitan planning, etc.) Created in 1965, it replaced the Housing and Home Finance Agency.

Department of Veterans Affairs (VA)

An independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans.


Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.

Direct Capitalization

[1] A valuation method used to convert a single year’s income expectancy (or an annual average of several year’s income expectancies) into a value estimate. [2] A capitalization technique that utilizes capitalization (cap) rates and multipliers extracted from sales to provide a value estimate. Yield and value change are implied but not identified.

Direct Costs

Labor and materials costs necessary to construct a new improvement.

Direct Reduction Mortgage

A mortgage loan repaid in periodic (usually equal) installments that includes a repayment of part of the principal and interest due on the unpaid balance.


Information that must be provided consumers about their financial dealings.

Discount Points

Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).

Discount Rate

[1] The term used to explain the compound interest rate used in the in approach to value to convert expected future cash flows into a present value. [2] A benchmark for interest rates – the rate charged by the Federal Reserve System on overnight loans to banks. An increase in the rate not only discourages borrowing, but it also serves as a signal to the money market that interest rates are probably going to increase. Accordingly, interest rates charged by banks to customers usually increase as a result of an increase in the discount rate.

Discounted Cash Flow Analysis

A valuation technique that specifies [1] the quantity, variability, timing, duration of periodic income, and [2] the quantity/timing of the reversion (sale of property) then discounts these cash flows at a specified yield rate to derive a present value estimate.

Documentary Stamps

A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Down Payment

Money paid to make up the difference between the purchase price and mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on Conventional loans, and no money down up to 5 percent on FHA and VA loans.


A government action in which the allowable density for a development is reduced, e.g., fewer housing units, number or size of buildings, or changes from a high use to a lower use, e.g., multifamily to single family.

Due-On-Sale Clause

A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home. This clause prohibits an assumption of the note by a new buyer.

Earnest Money

Money given by a buyer to a seller as part of the purchase price i.e., a monetary binder to or assure payment and completion of the sale.


A interest in real property that conveys use but not ownership of a portion of the property. An electric company or sewer line crossing private property is a common example.

Easement By Prescription

The right to use another’s land established by exercising this right over a period of time. Not specifically granted but understood. (aka prescriptive easement)

Easement In Gross

An easement that does not attach or run appurtenant with the land.

Economic Life

The period of time that improvements contribute to value. Can be shortened by a change in zoning such as from residential to commercial e.g., commercial land values exceed the combined value of the land and home as a residential dwelling. (See Consistent use.)

Effective Age

The age indicated by the observed/perceived condition and utility of a structure (as opposed to chronological/actual age).

Effective Gross Income

Anticipated income from operation of the real estate after deduction for vacancy and collection loss.

Effective Gross Income Multiplier

A ratio that compares sale price or value to a single year’s EGI (effective gross income) expectancy or an annual average of several years’ EGI expectancy. EGIM = Sale Price/EGI.

Efficiency Ratio

The ratio between a building’s net rentable area (tenant occupied space) and its gross area including the building core and common areas.

Eminent Domain

Government’s right to take private property for public use upon payment of “just compensation”.


An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.


A legal right (or interest in land) that affects a good or clear title and diminishes the land’s value or use. Encumbrances include zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. Encumbrances do not prevent the legal transfer of property. They are usually revealed through title search.

Equal Credit Opportunity Act (ECOA)

A federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.


The difference between the fair market value and any outstanding indebtedness against the property.

Equity Capitalization Rate

An income rate that reflects the relationship between a single year’s cash flows (or an annual average of several year’s pre-tax cash flows) and the owner’s equity investment (aka equity dividend rate, cash on cash rate, or cash flow rate). Used in Direct Capitalization to convert cash flows into an equity value indication.

Equity Yield Rate

The annualized rate of return on equity capital. Includes “return on” and “return of” the investment.


Government’s right of titular ownership of property when its owner dies without a will or any known heirs.


Refers to a neutral third party who carries out the instructions of the buyer and seller to handle all the paperwork of settlement or “closing.” Escrow could also refer to an account held by a lender into which a homebuyer pays money for tax or insurance payments.

Fannie Mae – See Federal National Mortgage Association .

Farmers Home Administration (FmHA)

Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Mortgage Corporation (FHLMC)

Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured and uninsured depository institutions, HUD, and VA approved mortgage bankers.

Federal Housing Administration (FHA)

A government agency that promotes homeownership, renovations, and the remodeling of residences by issuing government guaranteed loans to homeowners. Its main activity is to insure residential mortgage loans made by private lenders and to set underwriting standards.

Federal National Mortgage Association (FNMA)

Also known as Fannie Mae. Created by Congress, it is a Corporation that purchases and sells conventional residential mortgages bought from banks, trust companies, S & L’s, mortgage companies, and insurance companies, as well as those insured by FHA or guaranteed by VA. FNMA facilitates liquidity in the market by providing funds for one in every seven mortgages.

Fee Simple

Absolute ownership not encumbered by any other interest or estate and subject only to the four powers of government; [1] taxation, [2] escheat, [3] eminent domain, [4] police power.

FHA Loan

An insured loan made by the Federal Housing Administration – open to all qualified home purchasers. FHA limits the size of loans but limits are usually sufficient to handle moderately priced homes most anywhere in the country.

FHA Mortgage Insurance

A fee (up to 3% of the loan amount) paid at closing or a portion added to each monthly payment of an FHA loan, to insure the loan with FHA. FHA mortgage insurance also requires an annual fee of 0.5 % of the current loan amount.

First Mortgage

A mortgage that has priority over all other liens.


A legal process in which a lender forces the sale of property to recover all or part of the defaulted loan proceeds.

Freddie Mac – See Federal Home Loan Mortgage Corporation.

Functional Obsolescence – See Curable functional obsolescence and Incurable functional obsolescence.

General Warranty Deed

A covenant/warranty in the deed that binds the grantor and heirs to defend the title against the lawful claims of all persons. It conveys not only all the grantor’s interests but also warrants that if the title is defective or has a “cloud” on it (tax liens, title claims, judgments, mortgages, mechanic’s liens, etc.) the grantee may hold the grantor liable.


A market phenomenon in which middle and upper class buyers purchase neighborhood properties and renovate or rehabilitate them.

Gift Deed

A deed given or conveyed without consideration.

Going-Concern Value

A value created by the proven/successful business operation. It is a separate entity valued with an established business.

Government National Mortgage Association (GNMA – Ginnie Mae)

Also known as Ginnie Mae. It provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA by subsidizing these mortgages and issuing mortgage backed federally insured securities.

Graduated Payment Mortgage (GPM)

A flexible-payment mortgage where payments increase for a specified period of time then level off. This type of mortgage can have include negative amortization.


The buyer or “recipient” in a deed or instrument.


The seller or “giver” in a deed or instrument.

Gross Building Area

Total floor area measured from the exterior walls – the most common standard of measure, especially in computing size of industrial buildings. (Excludes unenclosed areas).

Gross Income

Income produced from the operation/management of real estate. Usually stated on an annual basis. See effective gross income and potential gross income.

Gross Income Multiplier

See effective gross income multiplier (EGIM) or potential gross income multiplier (PGIM).

Gross Leasable Area

Total floor area designed for the occupancy/exclusive use of tenants (includes basements and mezzanines). It is the standard of measure usually used for shopping centers.

Gross Lease

A type of lease whereby the landlord receives rent and is obligated to pay all or most of the fixed and operating expenses from the real estate.

Gross Living Area

Total area of finished and “above grade” residential space. The standard usually used for determining the amount of habitable space in residential properties.

Gross Rent Multiplier

A ratio expressing the relationship between sale price or value and gross rental income.

Ground Rent

The rent paid for the right to use/occupy land.

Highest And Best Use

The most probable use of land or improved property that is; [1] legally possible, [2] physically possible, [3] financially feasible (and appropriately supportable ) from the market, and [4] which results in maximum profitability. HBU As Vacant – The use of a property as vacant or that which can be made vacant thru demolition. HBU As Improved – The use that should be made of an improved property as it exists. HBU “as vacant” is often different from HBU “as improved”. See Consistent Use.

Holdover Tenant

A tenant who remains in possession of the leased premises after lease expiration. In some states, a lease may be considered automatically renewed if the lessor accepts rent payment after expiration.

Home Equity Line of Credit

A form of open end credit in which the home is used as collateral.

Homestead Exemption

[1] The lawful withdrawal of real property occupied by the head of household, from attachment by the occupant’s creditors or forced sale for general debts. [2] The release from property tax/assessment or the application of a lower tax rate on property designated as a family homestead.

Housing Expenses-to-Income Ratio

A ratio that expresses the relationship between a borrower’s housing expenses and net effective income (FHA/VA loans) or gross monthly income (Conventional loans).


U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD that insures home mortgage loans and sets minimum loan standards.


That portion of a borrower’s monthly payments held by the lender (fiduciary) to pay for taxes, assessments, hazard insurance, mortgage insurance, lease payments, etc. as they become due (aka reserves).

Income Capitalization Approach

A valuation approach for income producing properties that converts the anticipated benefits (positive cash flows and reversion/resale) into a value estimate by one of two methods; [1] direct capitalization of a single year’s income estimate -or- an average of several year’s income estimates, and/or [2] by discounting all anticipated annual cash flows and the reversion (equity gain after loan payoff) to a present value estimate using a specified “yield” rate.

Income Rate

A measure of investment that reflects the ratio of a single year’s income (or average of year’s) to value, e.g., equity cap rate (Re), overall cap rate (Ro), mortgage constant (Rm). (aka cash flow rate). An income rate (single year measure) is not the same as a yield rate (measure of total return).

Increasing And Decreasing Returns

A valuation concept that successive increments of one or more of the agents of production added to fixed amounts of other agents will enhance income at an increasing rate until a maximum is reached. Then, income will cease to increase proportionately with expenditures. (commonly applies to over-improvements).

Incurable Functional Obsolescence

A defect caused by a deficiency or a superadequacy in materials, structure, or design (an element of accrued depreciation).

Incurable Physical Deterioration

A defect caused by physical deterioration that is impractical or not economically feasible to repair (an element of accrued depreciation).


[1] A benchmark interest rate (such as 1, 3, or 5-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by S & Ls, or the monthly average Costs-of-Funds incurred by S & Ls) used by lenders to determine pricing for adjustable rate mortgages. The spread between their rate charged and the base rate for other investments depends on market conditions. Rates may be adjusted up or down. [2] A lease that provides for periodic adjustments in the rent based on a specified index such as the cost-of-living index.

Indirect Costs

Expenditures for items other than labor and materials (aka soft costs – financing costs, loan interest, taxes, builders risk/other insurance, marketing, sales, lease-up, administrative costs, professional fees, etc).


[1] In construction – utility lines, streets, curbing, i.e., the core development or source of utilities and support services. [2] In planning, term used to describe facilities and services that are integral to urban community life.


Entry into a site.

Inheritance Tax

A tax on the right to receive property by inheritance as opposed to estate tax.

Installment Contract

A purchase contract whereby payments are made to the seller. Title is generally not transferred/recorded until the contract is paid in full and installment payments are usually forfeited if the buyer defaults. (aka installment land contract).

Interim Use

A temporary use of a site/property in transition to it’s highest and best use.

Internal Rate Of Return – IRR

A rate of return on capital invested over the holding period. A measure of investment performance often used to measure profitability after income taxes, i.e., the after-tax equity yield rate – the rate of discount that equates the present value of the benefits (equity cash flows and net resale proceeds after loan payoff) to the present value of the initial investment by the buyer/owner.

Investment Value (Value Use)

Value/price to a particular investor based on his/her individual investment requirements; as distinguished from market value which is impersonal and detached.

Inwood Annuity Capitalization

A valuation technique that estimates value by discounting a stream of level income into a present value – uses a present value factor (PW of $1 per period).

Joint Tenancy

Ownership by two or more persons with right of survivorship.


A statutory lien on real/personal property of a judgment debtor; created by the judgment itself.

Judgment Creditor

A person/entity who has received a decree (judgment) from the court against the debtor for money due.

Judgment Debtor

A person/entity against whom a judgment has been issued by the court for money owed.

Jumbo Loan

A loan greater (more than $203,150) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans are not funded by these two agencies, they usually carry a higher interest rate.

Junior Lien

A secondary lien placed after a previous lien has been made/recorded.

Just Compensation

The amount a property owner is compensated when property is taken – generally held to be market value.

K Factor 

An income adjustment factor used to convert an income stream (that changes at a constant ratio) into its stable or level equivalent.

Land Capitalization Rate

[1] A ratio of land income to land value. [2] A rate used to convert income from land into a value estimate for the land itself. Used in appraisal residual techniques -or- in a band of investment, to value property.


A land parcel that has no legal access to a road or highway.

Leased Fee Estate

The ownership interest held by a landlord with use/occupancy rights conveyed to others.

Lease Rollover

The subsequent re-leasing of space after expiration of the initial lease.


A person who signs a lease to get temporary use of property.

Leasehold Estate

The tenants right to use/occupy real estate subject to the terms of the lease.

Leasehold Improvements

Improvements/upfits/additions to leased property made by the leasee (tenant).

Leasing Commissions

Fees paid to a real estate agent for successfully leasing property.

Legally Nonconforming Use

A use that was lawfully established but no longer conforms to the use regulations established by present zoning.


A company that provides temporary use of property usually in return for periodic payment.


A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Life Estate

Use/occupancy/control rights granted to a designated person until their death.

Loan Servicing

The administration and collection of periodic mortgage payments from homeowners usually performed by a bank acting for itself or the mortgagee.

Loan-To-Value Ratio

The relationship (%) that expresses the difference between the amount of the mortgage loan and the appraised value of the property.


The amount a lender adds to the index on an adjustable rate mortgage.

Market Value

The most probable price a property will sell [1] after reasonable market exposure in a competitive market, [2] under all conditions requisite to a fair sale, [3] buyer and seller acting knowledgeably/prudent and for their self-interest, [4] neither buyer or seller is under undue duress, [5] with cash, cash equivalent terms, or with typical market financing. Market value may is not always the price a property actually sells for nor is it the highest price paid. It is defined in the concept of a typical buyer and willing seller.

Marketable Title

A title that is free and clear of any objectionable liens, clouds, or title defects.

Mechanic’s Lien

A statutory lien granted against a property for those who perform labor or services or furnish materials to improve a property.

Metes And Bounds

A legal description that references a parcel’s boundaries – has a point of beginning, intermediate points or bounds, and courses or angular direction of each point, i.e. metes.


A lien or claim against real property pledged by the buyer to a lender as security for money borrowed. Under government-insured or loan-guarantee provisions, payments may include an escrow for taxes, hazard insurance, and special assessments.

Mortgage Commitment

A written notice provided by the bank stating it will advance mortgage funds to enable a buyer to purchase a home.

Mortgage Insurance

Fees paid to insure a mortgage when the down payment is less than 20 percent. See Private Mortgage Insurance (PMI) or FHA Mortgage Insurance .

Mortgage Insurance Premium

The insurance payment charged each year by the lender – usually for transmittal of the loan to HUD to help defray the cost of the FHA mortgage insurance program. It provides a reserve fund to protect lenders against loss in insured mortgage transactions. For FHA insured mortgages, this usually represents an annual rate of 1/2 % paid by the mortgagor on a monthly basis.

Mortgage Note

A written contract/agreement to repay a loan. It is secured by a mortgage, serves as proof of indebtedness, and states the [1] repayment terms and conditions, [2] amount borrowed, [3] interest rate, and other terms/conditions.

Mortgage (Open-End)

A mortgage that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions usually limit borrowing to no more than the original loan figure.


The lender.


The borrower or homeowner.

Negative Amortization

Occurs when loan payments are not sufficient to pay all the interest due on the loan. If interest continues to accrue faster that payments can retire the principal, then it is possible to owe more than the original amount of the loan.

Net Income Multiplier

A factor that expresses the relationship between price or value and net operating income; it is the reciprocal of the overall rate.

Net Income Ratio

The ratio of net operating income (NOI) to effective gross income (EGI); it is the complement of the operating expense ratio (OER).

Net Lease

A lease whereby the tenant pays all property charges in addition to the contract rent. See gross lease and triple net lease.

Net Operating Income (NOI) 

The net income left remaining after deduction of all operating expenses from effective gross income but before payment of debt service and deduction of book depreciation.

Non-Assumption Clause

A statement in a mortgage contract that prohibits the assumption of the mortgage without prior approval from the lender.

Nonconforming Use

A structure that was lawfully erected or altered but no longer conforms to present zoning because of subsequent changes in the ordinance.

Nonconventional Mortgage

Mortgages that are either guaranteed or insured by the federal government (Veterans Administration, Federal Housing Administration, etc.) or privately insured.

Nonrecourse Loan

A clause in a debt agreement secured by real estate that states that the lender has no claim against the debtor if he/she defaults and may only recover the property.

Exclusive Right To Sell

A contract to sell property that specifically states that the listing agent collects a commission regardless of who sells the property, including the owner.

External Obsolescence

A defect (usually incurable) outside the property that negatively affects value. (An element of accrued depreciation). Examples include heavy traffic on a residential street, commercial businesses encroaching into a residential neighborhood, etc.


A loss in value due to impaired desirability, lost utility, or rendered obsolete as a result of new inventions, preference changes, changes in design, or external factors that render a property less desirable. See also depreciation, curable functional obsolescence, incurable functional obsolescence, or external obsolescence.

Open-End Credit

A revolving line of credit such as a credit card, equity line, or overdraft account, that may be used over and over again.

Origination Fee

A fee charged by a lender to prepare loan documents, make credit checks, and process the loan. (Usually computed as a percentage of the loan amount).

Overage Rent

The amount of rent (usually expressed as a percent of sales) paid over and above a guaranteed base rent.

Overall Capitalization Rate

An income rate that reflects the relationship between either [1] a single year’s net operating income and value or, [2] an average of several years’ income expectancy to value. It is used to convert NOI (net operating income) into value. Ro = NOI/Value.

Overhead Easement

A right that conveys the use of air space above a certain distance over the surface of the land, e.g., air rights for aviation, power lines, building overhangs, etc.


A temporary or permanent improvement that does not represent the highest and best use of the land upon which it is placed because it is too costly or too large and cannot develop the sites’ highest possible land value.

Partial Interest

An ownership right (divided or undivided) in real estate that is less than the whole. See also undivided partial interest. – (aka fractional interest).

Partial Payment Factor

A compound interest factor which represents the installment needed to repay $1 with interest at a specified rate for a specified number of periods. It is the reciprocal of the level annuity or Inwood factor. Expressed annually, it is the mortgage constant or annual constant.

Partial Taking

The taking, under governments’ power of eminent domain, of any part of a real property interest for public use or benefit after payment of just compensation.

Party Wall

A common, shared wall erected between adjoining properties.

Passive Activity Loss

A loss incurred by an individual who has no regular, continuous, or substantial involvement in the business operation. The Tax Reform Act of 1986 disallowed the write off of passive activity losses until they are offset by positive income.

Pass Through

A form of rent escalation in which the tenant pays a direct share of operating expenses.

Percentage Lease

A lease in which the rent is tied to a specific percentage of volume of business, use achieved by the tenant, and/or productivity.

Permanent Loan

A loan used to finance the purchase of a completed structure. It is usually long term and distinct from a temporary construction loan.

Perpetual Easement

An easement that lasts forever into perpetuity.


Principal, interest, taxes, and insurance (aka the monthly housing expense).


A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.

Planned Unit Development

A development in which buildings are clustered or placed on small, individually owned lots but which share common areas. Individual properties are owned in fee with joint, undivided ownership of common areas.


The increase in value that results when two or more sites are assembled to produce greater utility and a higher and better use.

Point – See Discount Points

Police Power

One of the four rights of government-specifically, the right under which property is regulated to protect public safety, health, morals, and the general welfare .

Potential Gross Income

The total income a property is capable of generating at full occupancy but before deduction of vacancy and operating expenses.


Expenses paid in advance in an escrow account to cover anticipated costs for items such as taxes, hazard insurance, private mortgage insurance and special assessments.


A clause in a mortgage that permits the borrower to make payments in advance of the due date.

Prepayment Penalty

An extra charge by the lender for early repayment of debt. Prepayment penalties are allowed in 36 states and the District of Columbia but they may not always be imposed.


The outstanding portion of debt, excluding interest, remaining on a loan.

Private Mortgage Insurance (PMI)

Insurance provided by a private mortgage lender to insure against loss resulting from borrower default. PMI is charged when the loan-to-value (LTV) ratio exceeds 80% (less than 20% down payment). Lenders will usually allow a down payment as low as 5 % to qualifying borrowers. Private mortgage insurance usually requires an initial premium payment of 1 to 5% of the mortgage amount and may require an additional monthly fee depending upon how the loan is structured.

Pro forma

In real estate, a financial statement that projects gross income, operating expenses, and net operating income for a future period.

Property Residual Technique

A capitalization technique that equates net operating income to the property as a whole, not the separate land and building components. In yield capitalization, it is the present value (PV) of the income stream added to the PV of the reversion at the end of the holding period (sale of the property).

Purchase Money Mortgage

A mortgage given by a buyer to the seller as partial payment for the purchase of real property.

Quantity Survey Method

A cost estimating method that applies cost figures to all materials and all categories of required labor.

Quitclaim Deed

A deed which transfers whatever interest the maker of the deed may have in a particular parcel of land but without warranty of title. A quitclaim deed is often used to clear the title when the grantor’s ownership interest in a property is questionable. By accepting such a deed the buyer assumes all the risks.

Radiant Heat System

A steam, electric, or hot water heat system that uses “concealed” pipes, usually embedded in the floor slab or in side walls, to heat. Hot air or water is distributed by forced circulation.


A colorless, radioactive, naturally occurring inert gas formed by the decay of radium atoms.

Real Estate Settlement Procedures Act (RESPA)

RESPA is a federal law that allows consumers to review information on estimated settlement costs.


The right established by law that gives a homeowner the opportunity to cancel a mortgage contract within three days after it has been signed, if the mortgage is secured by the borrowers primary home.


The process of paying off one loan with the proceeds from another loan.

Residual Techniques

A capitalization method that allocates income to an investment component of unknown value after other components with known value have been satisfied. The residual income is capitalized to determine the value of the unknown component. (Used for physical components such as land/building, financial components of mortgage/equity, and legal estates of the leased fee/leasehold interests).

Restrictive Covenant

A private restriction that limits use of real property. Restrictive covenants are [1] created by deed, [2] “run with the land,” and are binding all subsequent purchasers of the land, and/or [3] may be “personal” and binding only between the original seller and buyer. Restrictive covenants may limit development densities, regulate size, style or price range of buildings, or prevent particular business types from operating in a given area. (Covenants deemed discriminatory are unconstitutional and have been declared unenforceable by the U.S. Supreme Court.)

Reverse Annuity Mortgage (RAM)

A mortgage in which the lender makes periodic payments to the borrower using the borrower’s equity in the home as security for repayment.


[1] the value of property at the expiration of a certain time period. [2] the right of a lessor to possess leased property upon the termination of a lease. [3]

Reversionary Interest

the interest a person has in property upon the termination of the preceding estate.

Safe Rate

The rate obtainable on an investment with maximum safety and minimum risk.


A financing arrangement whereby a property is sold but its owner-user (the seller) continues to use the property and leases back from the buyer.

Secondary Mortgage Market

Markets created by government and private agencies for the purchase and sale of existing mortgages; these markets facilitate liquidity within lending institutions.

Section 8 Housing

A federal program that provides assistance for lower income households. HUD pays the difference between the HUD-established allowable rent and the occupants contribution to the project owner.

Security Interest

A creditor’s legal right to take property or a portion of property offered as security.


The services and operations performed by the lender to keep a loan in good standing to include collection of payments, payment of taxes and insurance, property inspections, etc.

Settlement Costs – See Closing Costs.

Severance Damages

In a partial taking involving condemnation, it is the decline in market value of the remainder.

Shared Appreciation Mortgage (SAM)

A mortgage in which a borrower receives a below-market interest rate in return for giving the lender a portion of the property’s future appreciation in value. May also apply to mortgages in which the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.

Simple Interest

Interest paid only on the original principal, not on any interest accrued.

Special Assessment

A special tax levied on property to pay for public improvements such as road construction, sidewalks, sewers, streetlights, etc.

Special Lien

A lien that binds a specified piece of property as opposed to a general lien which levies against all property. It is a right to retain something of value belonging to another person as compensation for labor, material, or money expended to the individual.

Special Warranty Deed

A warranty clause in a deed in which the grantor [1] conveys title to the grantee and [2] agrees to protect the grantee against title defects or [3] any claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title of the property. In essence, the grantor guarantees to the grantee that nothing has been done during his/her ownership that would impair title.

Stabilized Occupancy

The optimum range of long term occupancy that a property is expected to achieve [1] under competent management, [2] after adequate market exposure for leasing, [3] after a reasonable time, [4] and at terms and conditions comparable to competitive offerings.


An agreement in which the original lessee conveys the right of use and occupancy to another, the subleasee.


A measurement of land, prepared by a registered land surveyor, showing the location of the land, buildings, dimensions, etc. with reference to known points.


[1] An acquisition of land through condemnation. [2] In land use law, it is the application of the police power restriction to a parcel of land that is so restrictive that any reasonable use is precluded.

Tax Free Exchange

The exchange ( not the sale) of real property [1] held for investment or [2] used in trade or business, for a similar property. It potentially allows the property holders to defer capital gains. (Hey, seek appropriate tax advice and get the facts).


[1] The right to use and occupy property as conveyed in a lease. [2] The holding of property in any form of title.

Tenancy At Sufferance

An estate whereby a person wrongfully continues in possession of the real estate after the estate has been terminated.

Tenancy At Will

An estate in real property that has no fixed term and may be cancelled at will by the landlord or the tenant.

Tenancy By The Entirety

An estate held by husband and wife by which neither party may dispose of their interest during their lifetime without joint action.

Tenancy For Years

An estate that automatically renews each year, provided the tenant does not default, and runs until the specified expiration date. The beginning and end of the state are clearly specified. (One of two recognized ways to describe the length of a relationship between a landlord and a tenant).

Tenancy From Period To Period

One of two recognized ways to describe the length of a relationship between land – lord and tenant. The length of the leasehold interest is not stated. The leasehold interest owner pays periodic rent which renews the interest for an additional period.

Tenancy In Common

An estate held by two or more people with each having an undivided interest.

Tenancy In Severalty

An estate held by one owner.

Terminal Capitalization Rate

A rate used to convert income (NOI, cash flow) into a value indication at the end of the holding period.


A document evidencing an individual’s ownership of property.

Title Insurance

A policy issued by a Title Insurance company that insures a homebuyer against errors in the title search. The cost of the policy is usually based on the value of the property.

Title Search

An examination of public records to determine the legal ownership of property.

Triple Net Lease (NNN)

A lease type whereby the landlord receives rent and tenant is obligated to pay all (excluding management) or most of the fixed and operating expenses from the real estate.


A party given legal responsibility to hold property for the best interest of or for the benefit of another. The trustee has a position of responsibility for another – a responsibility enforceable in a court of law.


A federal law requiring disclosure of the Annual Percentage Rate to homebuyers.


The decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

Undivided Interest

Fractional ownership without physical division of ownership into shares.

Undivided Partial Interest

A interest in property that that cannot be dealt with freely or at the will of the separate owners.

Unity of Use

A general rule that states that to be considered part of the remainder, a parcel of land must be devoted to the same use as the the parcel from which the taking has occurred.

VA Loan

A long-term loan guaranteed by the Department of Veterans Affairs that requires little or no down payment. It is restricted to qualified military personnel or other entitlements.

VA Mortgage Funding Fee

A premium (up to 2 percent depending on the size of the down payment) paid on a VA-backed loan.

Value In Use

The value a property has for a specific use.

Verification of Employment

A document signed by a borrower’s employer verifying his/her position and salary.


A mortgage loan that is subordinate to but inclusive of an existing mortgage. It results when an existing assumable loan is combined with a new loan, resulting in a blended interest rate somewhere between the old rate and the current market rate. Usually, a third party lender refinances the property and assumes the existing debt service “wrapping” a new, junior mortgage. The wraparound lender gives the borrower the difference between the outstanding balance of the existing loan and the face amount of the new mortgage.

Yield, Yield Rate

[1] A measure of investment return applied to a series of revenues (NOI) and reversion to obtain the present value of each (examples – interest rate, the discount rate, the internal rate of return, and the equity yield rate). [2] Yield to Maturity – The total return realized from an investment from purchase to sale.


Yield Capitalization

A capitalization method that derives a present value estimate by discounting each future benefit at an appropriate yield rate or by developing and overall rate that explicitly reflects the investment’s income pattern, value change, and yield rate. A valuation method that converts projected income into value and considers the equity return on investment.

Zero Lot Line

The location of a structure on a lot whereby one or more sides rest directly on the boundary line of the lot, i.e., there is no setback of the structure.


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