abandonment The voluntary and permanent cessation of use or enjoyment with no intention to resume or reclaim one’s possession or interest. May pertain to an easement or a property.

abrogation Tenants cannot sign away their rights in advance of signing the lease.

abstract of title A condensed version of the history of title to a particular parcel of real estate as recorded in the county clerk’s records; consists of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property.

abutting The joining, reaching, or touching of adjoining land. Abutting parcels of land have a common boundary.

accelerated depreciation A method of calculating for tax purposes the depreciation of income property at a faster rate than would be achieved using the straight-line method. Note that any depreciation taken in excess of that which would be claimed using the straight-line rate is subject to recapture as ordinary income to the extent of gain resulting from the sale. See also straight-line method

acceleration clause A provision in a written mortgage, note, bond, or conditional sales contract that, in the event of default, the whole amount of principal and interest may be declared to be due and payable at once.

accretion An increase or addition to land by the deposit of sand or soil washed up naturally from a river, lake, or sea.

accrued depreciation The actual depreciation that has occurred to a property at any given date; the difference between the cost of replacement new (as of the date of appraisal) and the present appraised value.

acknowledgment A declaration made by a person to a notary public, or other public official authorized to take acknowledgments, that an instrument was executed by that person as a free and voluntary act

actual eviction The result of legal action originated by a lessor, whereby a defaulted tenant is physically ousted from the rented property pursuant to a court order. See also eviction.

actual notice Express information or fact; that which is known; actual knowledge.

adjustable-rate mortgage A mortgage in which the interest rate changes at predetermined intervals. The mortgage has caps, or a ceiling, that limits the amount it can change at the predetermined intervals.

administrator The party appointed by the county court to settle the estate of a deceased person who died without leaving a will.

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

adverse possession The right of an occupant of land to acquire title against the real owner, where possession has been actual, continuous, hostile, visible, and distinct for the statutory period.

affidavit A written statement signed and sworn to before a person authorized to administer an oath.

agent One who represents or has the power to act for another person (called the principal). The authorization may be express or implied. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be the owner’s agent.

agreement of sale A written agreement whereby the purchaser agrees to buy certain real estate and the seller agrees to sell, upon terms and conditions set forth in the agreement.

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

air rights The right to use the open space above a property, generally allowing the surface to be used for another purpose.

alienation The act of transferring property to another. Alienation may be voluntary, such as by gift or sale; or involuntary, such as through eminent domain or adverse possession.

alienation clause The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the mortgagee’s option if the property is sold by the mortgagor. In effect, this clause prevents the mortgagor from assigning the debt without the mortgagee’s approval.

alluvion New deposits of soil as the result of accretion.

amenities The tangible and intangible features that increase the value or desirability of real estate.

Americans with Disabilities Act The ADA is a federal law that became effective in 1992. It is designed

to eliminate discrimination against individuals with disabilities by mandating equal access to jobs,

public accommodations, public transportation, telecommunications, and government services. amortization The liquidation of a financial burden by installment payments.

amortized loan A loan in which the principal, as well as the interest, is payable in monthly or other periodic installments over the term of the loan.

antitrust laws The laws designed to preserve the tree enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition. Violations of antitrust laws in the real estate business generally involve either price fixing (brokers conspiring to set fixed compensation rates) or allocation of customers or markets (brokers agreeing to limit their areas of trade or dealing to certain areas or properties).

appraisal An estimate of the quantity, quality, or value of something. The process through which conclusions of property value are obtained; also refers to the report setting forth the process of estimation and conclusion of value.

appraised value An estimate of a property’s present worth.

appreciation An increase in the worth or value of a property due to economic or related causes that may prove to be either temporary or permanent; opposite of depreciation.

appurtenant Belonging to; incident to; annexed to. For example, a garage is appurtenant to a house. and the common interest in the common elements of a condominium is appurtenant to each apartment. Appurtenances pass with the land when the property is transferred.

arbitration A means of settling a controversy between two parties through the medium of an impartial third party whose decision on the controversy (it is agreed) will be final and binding.

assemblage The process of merging two or more parcels of real estate to create one parcel.

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

assignment The transfer in writing of rights or interest in a bond, mortgage, lease, or other instrument.

assumption of mortgage The transfer of title to property to a grantee wherein he assumes liability for payment of an existing note secured by a mortgage against the property. Should the mortgage be foreclosed and the property sold for a lesser amount than that due, the grantee-purchaser who has assumed and agreed to pay the debt secured by the mortgage is personally liable for the deficiency. Before a seller may be relieved of liability under the existing mortgage, the lender must accept the transfer of liability for payment of the note.

attachment The method by which a debtor’s property is placed in the custody of the law arid held as security pending outcome of a creditor’s suit.

attorney-in-fact The holder of a power of attorney.

attorney’s opinion of title An instrument written and signed by the attorney who examines the title, stating the attorney’s opinion as to whether a seller may convey good title.

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 removal of land by natural forces, such as an earthquake.


balloon payment The final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

bargain and sale deed A deed that carries with it no warranties against liens or other encumbrances, but that does imply that the grantor has the right to convey title. Note that the grantor may add warranties to the deed at his or her discretion.

base line One of a set of imaginary lines running east and west and crossing a principal meridian at a definite point, used by surveyors for reference in locating and describing land under the rectangular survey system (or government survey method) of property description.

bench mark A permanent reference mark or point established for use by surveyors in measuring differences in elevation.

beneficiary The person for whom a trust operates, or in whose behalf the income from a trust estate is drawn. Also refers to a lender who lends money on real estate and takes back a note and deed of trust from the borrower.

bequest A provision in a will providing for the distribution of personal property.

bilateral contract A contract in which each party promises to perform an act in exchange for the other party’s promise to perform.

bill of sale A written instrument given to pass title to personal property.

binder An agreement that may accompany an earnest money deposit for the purchase of real property as evidence of the purchaser’s good faith and intent to complete the transaction.

blanket mortgage A mortgage covering more than one parcel of real estate, providing for each parcel’s partial release from the mortgage lien upon repayment of a definite portion of the debt.

blockbusting The illegal practice of inducing homeowners to sell their properties by making representations regarding the entry, or prospective entry, of minority persons into the neighborhood.

blue-sky laws The common name for those state laws that regulate the registration and sale of investment securities.

branch office A secondary place of business apart from the principal or main office from which real estate business is conducted. A branch office generally must be run by a licensed real estate broker working on behalf of the broker operating the principal office.

breach of contract The failure, without legal excuse, of one of the parties to a contract to perform according to the contract.

broker One who buys and sells for another for a commission. See also real estate broker. brokerage The business of buying and selling for another for a commission.

budget loan or budget mortgage A loan in which the monthly payments made by the borrower cover not only interest and a payment on the principal, but also one-twelfth of such expenses as taxes, insurance, assessments, and similar charges. The monthly payment is called a PITI payment.

buffer zone A zone or space between two different use districts. An example of a buffer zone would be a park between a residential district and a commercial district.

building code An ordinance specifying minimum standards of construction of buildings for the protection of public safety and health.

building line A line fixed at a certain distance from the front and/or sides of a lot beyond which no structure can project; a setback line used to ensure a degree of uniformity in the appearance of buildings and unobstructed light, air, and view.

building restrictions The limitations on the size or type of property improvements established by zoning acts or by deed or lease restrictions.

bulk zoning Bulk zoning controls the density of the development on land to avoid overcrowding.

bundle of legal rights The theory that land ownership involves ownership of all legal rights to the land,

such as possession, control within the law, and enjoyment, rather than ownership of the land itself. buy-down mortgage A mortgage in which the interest rate is reduced by paying interest in advance. A

temporary buy-down is for the initial years of the loan. A permanent buy-down is for the life of the loan.


capacity of parties The legal ability of persons to enter into a valid contract. Most persons have full

capacity to contract, and are said to be competent parties.

capital gains A tax on the profits realized from the sale of a capital asset.

capital improvement Any improvement that is made to extend the useful life of a property or add to its value.

capital investment The initial capital and the long-term expenditures made to establish and maintain a business or investment property.

capitalization The process of converting into present value (or obtaining the present worth of) a series

of anticipated future periodic installments of net income. In real estate appraising, it usually takes the form of discounting. The formula is expressed as follows: Income = Rate = Value

capitalization rate The rate of return a property will produce on the owner’s investment.

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

casualty insurance A type of insurance policy that protects a property owner or other person from loss or injury sustained as a result of theft, vandalism, or similar occurrences.

caveat emptor A Latin phrase meaning “Let the buyer beware.” caveat venditor A Latin phrase meaning “Let the seller beware.”

certificate of eligibility A certificate given by the federal government to qualified veterans to show their remaining eligibility for a VA-guaranteed loan.

certificate of occupancy A certificate of occupancy is issued after the building is inspected to make sure it complies with building codes.

certificate of reasonable value A certificate issued by the Veterans Administration certifying the value, as determined by an approved VA appraiser, of property secured by a VA mortgage.

certificate of reduction A document issued by the lender to verify the loan balance.

certificate of sale The document generally given to a purchaser at a tax foreclosure sale. A cer­tificate of sale does not convey title; generally, it is an instrument certifying that the holder received title to the property after the redemption period had passed and that the holder paid the property taxes for that interim period.

certificate of title A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.

cession deed The type of deed used when land is donated to the government.

chain of title The succession of conveyances from some accepted starting point whereby the present holder of real property derives a title.

chattel Personal property.

City Planning Commission A local governmental organization designed to direct and control the development of land within a municipality.

cloud on title A claim or encumbrance that may affect title to land.

codicil An addition to a will that alters, explains, adds to, or confirms the will, but does not revoke it.

coinsurance clause A clause in insurance policies covering real property that requires the policyholder to maintain fire insurance; coverage is generally equal to at least 80 percent of the property’s actual replacement cost.

collateral Something of value given or pledged to a lender as security for a debt or obligation.

commercial property A classification of real estate that includes income-producing property, such as office buildings, restaurants, shopping centers, hotels, and stores.

commingled property That property of a married couple that is so mixed or commingled that it is difficult to determine whether it is separate or community property. Commingled property becomes community property.

commingling The illegal act of a real estate broker who mixes the money of other people with that of his or her own; by law, brokers are required to maintain a separate trust account for the funds of other parties held temporarily by the broker.

commission The payment made to a broker for

services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.

common elements Those parts of a property that are necessary or convenient to the existence, maintenance, and safety of a condominium, or are normally used in common by all of the con­dominium residents. All condominium owners have an undivided ownership interest in the common elements.

common law The body of law based on custom, usage, and court decisions.

community property A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage.

Community Reinvestment Act A part of the Housing and Community Development Act passed in 1977. The purpose of the act is to prevent the practice of redlining and disinvestment by lenders in certain areas of a city.

comparables The properties listed in an appraisal report that are substantially equivalent to the subject property.

competent parties Those persons who are recognized by law as being able to contract with others; usually those of legal age and sound mind.

condemnation A judicial or administrative proceeding to exercise the power of eminent domain, by which a government agency takes private property for public use and compensates the owner.

conditional-use permit A permit granted that allows the holder to build a special-purpose property that is inconsistent with zoning in the area. A conditional permit is generally issued to allow buildings for the good of the public, such as hospitals and houses of worship in a residential area.

condominium The absolute ownership of an apartment or a unit, generally in a multiunit building, based on a legal description of the airspace that the unit actually occupies, plus an undivided interest in the ownership of the common elements that are owned jointly with the other condominium unit owners. The entire tract of real estate included in a condominium development is called a parcel, or development parcel. One apartment or space in a condominium building, or a part of a property intended for independent use and having lawful access to a public way is called a unit. Ownership of one unit also includes a definite undivided interest in the common elements.

conformity The maximum value is achieved when the property is in harmony with its surroundings.

consideration Something of value that induces one to enter into a contract. Consideration may be valuable (money or commodity), or good (love and affection).

constructive eviction Acts done by the landlord that so materially disturb or impair the tenant’s enjoyment of the leased premises that the tenant is effectively forced to move out and terminate the

lease without liability for any further rent. Also refers to a purchaser’s inability to obtain clear title.

constructive notice  Notice given to the world by recorded documents. All persons are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property.

contingency A provision in a contract that requires completion or that a certain event must occur before the contract becomes binding.

contract An agreement entered into by two or more legally competent parties by the terms of which one or more of the parties, for a consideration, undertakes to do or to refrain from doing some legal act or acts. A contract may be either unilateral, where only one party is bound to act, or bilateral, where all parties to the instrument are legally bound to act as prescribed.

contract for deed A contract for the sale of real estate wherein the sales price is paid in periodic

installments by the purchaser, who is in possession, although title is retained by the seller until final payment. Also called an installment contract or a land contract.

contract for exchange of real estate A contract of sale of real estate in which the consideration is paid wholly or partly in property.

contract rent Rental income received under the current lease agreement. See also market rent. contribution The value of any part of the property is measured by its effect on the value of the whole.

conventional insured mortgage A mortgage (loan) wherein the borrower has less than a 20 percent down payment. The lender may require that the borrower purchase private mortgage insurance to reduce the lender’s risk.

conventional life estate A life estate created by the grantor rather than by law.

conventional mortgage A mortgage (loan) where real property is used as security for the payment of the debt and the loan is not insured through FHA or guaranteed by VA.

conventional uninsured mortgage A mortgage (loan) wherein the borrower has a 20 percent or greater down payment, and the lender accepts the creditworthiness of the borrower and the property as security for the loan.

conversion The process of changing from one form of ownership to another, such as apartment use to condo use.

conveyance A written instrument that evidences transfer of some interest in real property from one person to another.

cooperative A residential multiunit building whose title is held by a trust or corporation, which is owned by and operated for the benefit of persons living within the building, who are the beneficial owners of the trust or stockholders of the corporation, each having a proprietary lease.

corporation An entity or organization created by operation of law whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until dissolved according to legal procedures.

correction lines Used in the government survey to compensate for the curvature of the earth.

cost approach The process of estimating the value of a special purchase property. The formula is as follows: Reproduction or replacement cost — Depreciation + Land = Value

counseling The business of providing people with expert advice on a subject, based on the counselor’s extensive, expert knowledge of the subject.

counteroffer A new offer made as a reply to an offer received, having the effect of voiding the original offer, which cannot be accepted thereafter unless revived by the offeror’s repeating it.

covenant A promise to do or to refrain from doing an act. The covenants found in a general warranty deed are seisin, encumbrances, further assurance, quiet enjoyment, and warranty forever.

covenant of quiet enjoyment In a deed, this covenant ensures that the grantee and the grantee’s heirs have the right to the property free from interference from the acts or claims of third parties. In a lease. this covenant ensures the tenants’ right of possession without interference from the landlord or third parties.

cul-de-sac A dead-end street that widens sufficiently at the end to permit an automobile to make a U-turn.

curable depreciation When the cost of fixing the property does not exceed the value of the property.

curtesy A life estate, usually a fractional interest, given by some states to the surviving husband in real estate owned by his deceased wife. Many states have abolished curtesy.

cycle A recurring sequence of events that regularly follow one another, generally within a fixed interval of time. The cycle of real estate is growth, stability, decline, and restoration.


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

dba Doing business as.

debenture A note or bond given as evidence of debt and issued without security.

debt Something owed to another; an obligation to pay or to return something.

debt service A borrower’s periodic payment, comprising principal and interest, on the unpaid balance of a mortgage.

decreasing returns When adding improvements to the land does not produce a proportional increase in the property value.

deed A written instrument that, when executed and delivered, conveys title to, or an interest in, real estate.

deed in trust A three-party instrument in which the trustor conveys legal title to the trustee for the benefit of the beneficiary. That trustee has full power to sell, mortgage, and subdivide a parcel of real estate. The beneficiary controls the trustee’s use of these powers under the provisions of the trust agreement.

deed of re-conveyance The instrument used to re-convey title to a trustor under a deed of trust once the debt has been satisfied.

deed of trust An instrument used to create a mortgage lien by which the mortgagor conveys title to a

trustee, who holds it as security for the benefit of the note holder (the lender); also called a trust deed.

deed restrictions The clauses in a deed limiting the future uses of the property. Deed restrictions may impose a vast variety of limitations and conditions, such as limiting the density of buildings, dictating the types of structures that can be erected, and preventing buildings from being used for specific purposes or from being used at ail.

default The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.

defeasance A provision or condition in a deed or in a separate instrument that, being performed, renders the instrument void.

defeasible fee estate An estate in land in which the holder has fee simple title subject to being divested on the happening of a specified condition. Two categories: (1) fee simple determinable or special limitation, and (2) fee simple subject to a condition subsequent.

deficiency judgment A personal judgment levied against the mortgagor when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.

delinquent taxes Those unpaid taxes that are past due.

delivery The legal act of transferring ownership. Documents, such as deeds and mortgages, must be delivered and accepted to be valid.

delivery in escrow Delivery of a deed to a third person until the performance of some act or condition by one of the parties.

demand The willingness of a number of people to accept available goods at a given price; often coupled with supply.

density zoning The zoning ordinances that restrict the average maximum number of houses per acre that may be built within a particular area, generally a subdivision.

depreciation In appraisal, a loss of value in property due to all causes, including physical deterioration, functional depreciation, and economic obsolescence. In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property.

descent The hereditary succession of an heir to the property of a relative who dies intestate.

designated agent An agent who has been appointed by a broker to act for a specific principal or client. determinable fee estate A defeasible fee estate in which the property automatically reverts to the grantor upon the occurrence of a specified event or condition. Also known as special limitation.

devise A transfer of real estate by will or last testament. The donor is the devisor and the recipient is the devisee.

diminishing returns The principle of diminishing returns applies when a given parcel of land reaches its maximum percentage return on investment, and further expenditures for improving the property yield a decreasing return.

deed in trust A three-party instrument in which the trustor conveys legal title to the trustee for the benefit of the beneficiary. That trustee has full power to sell, mortgage, and subdivide a parcel of real estate. The beneficiary controls the trustee’s use of these powers under the provisions of the trust agreement.

deed of re-conveyance The instrument used to re-convey title to a trustor under a deed of trust once the debt has been satisfied.

deed of trust An instrument used to create a mortgage lien by which the mortgagor conveys title to a

trustee, who holds it as security for the benefit of the note holder (the lender); also called a trust deed.

deed restrictions The clauses in a deed limiting the future uses of the property. Deed restrictions may impose a vast variety of limitations and conditions, such as limiting the density of buildings, dictating the types of structures that can be erected, and preventing buildings from being used for specific purposes or from being used at ail.

default The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.

defeasance A provision or condition in a deed or in a separate instrument that, being performed, renders the instrument void.

defeasible fee estate An estate in land in which the holder has fee simple title subject to being divested on the happening of a specified condition. Two categories: (1) fee simple determinable or special limitation, and (2) fee simple subject to a condition subsequent.

deficiency judgment A personal judgment levied against the mortgagor when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.

delinquent taxes Those unpaid taxes that are past due.

delivery The legal act of transferring ownership. Documents, such as deeds and mortgages, must be delivered and accepted to be valid.

delivery in escrow Delivery of a deed to a third person until the performance of some act or condition by one of the parties.

demand The willingness of a number of people to accept available goods at a given price; often coupled with supply.

density zoning The zoning ordinances that restrict the average maximum number of houses per acre that may be built within a particular area, generally a subdivision.

depreciation In appraisal, a loss of value in property due to all causes, including physical deterioration, functional depreciation, and economic obsolescence. In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property.

descent The hereditary succession of an heir to the property of a relative who dies intestate.

designated agent An agent who has been appointed by a broker to act for a specific principal or client.

determinable fee estate A defeasible fee estate in which the property automatically reverts to the grantor   upon the occurrence of a specified event or condition. Also known as special limitation.

devise A transfer of real estate by will or last testament. The donor is the devisor and the recipient is the devisee.

diminishing returns The principle of diminishing returns applies when a given parcel of land reaches its maximum percentage return on investment, and further expenditures for improving the property yield a decreasing return.


economic obsolescence The impairment of desirability or useful life arising from factors external to the property, such as economic forces or environmental changes that affect supply and demand relationships in the market. Loss in the use and value of a property arising from the factors of economic obsolescence is to be distinguished from loss in value from physical deterioration and functional obsolescence, both of which are inherent in the property. Also referred to as locational obsolescence or environmental obsolescence.

emblements Those growing crops produced annually through the tenant’s own care and labor, and that can be taken away after the tenancy is ended. Emblements are regarded as personal property even prior to harvest, so if the landlord terminates the lease, the tenant may still reenter the land and remove such crops. If the tenant terminates the tenancy voluntarily, however, the tenant is not generally entitled to the emblements.

eminent domain The right of a government or municipal quasi-public body to acquire property for public use through a court action called condemnation, in which the court determines that the use is a public use and determines the price or compensation to be paid to the owner.

employee status One who works as a direct employee of an employer. The employer is obligated to withhold income taxes and Social Security taxes from the compensation of employees. See also independent contractor.

employment contract A document evidencing formal employment between employer and employee or between principal and agent. In the real estate business, this generally takes the form of a listing agreement or management agreement.

encroachment  A fixture, or structure, such as a wall or fence that invades a portion of a property belonging to another.

Encumbrance  Any lien, such as a mortgage, tax, or judgment lien, an easement, a restriction on the use of the land, or an outstanding dower right that may diminish the value of the property.

Equal Credit Opportunity Act The ECOA is a federal act that prohibits discrimination by lenders on the basis of race, color, religion, sex, national origin, age, or marital status in any aspect of a credit transaction.

equalization The raising or lowering of assessed values for tax purposes in a particular county or taxing district to make them equal to assessments in other counties or districts.

equitable lien A lien that arises out of common law, wherein the parties have agreed in writing that a certain property will be held as security for a debt.

equitable right of redemption The right of a defaulted borrower to redeem property before foreclosure upon full payment of the outstanding debt, as well as accrued interest and related costs prior to the foreclosure.

equitable title The interest held by a vendee under a contract for deed or a sales contract; the equitable right to obtain absolute ownership to property when legal title is held in another’s name; an insurable interest.

equity The interest or value that an owner has in a property over and above any mortgage indebtedness.

erosion The gradual wearing away of land by water, wind, and general weather conditions; the diminishing of property caused by the elements.

errors and omissions insurance An insurance that protects brokers from loss due to errors,

mistakes, and negligence.

escalation clause A clause found in a mortgage or lease that allows the payment to adjust over the life of the mortgage or lease.

escheat The reversion of property to the state in the event the owner thereof dies without leaving a will and has no heirs to whom the property may pass by lawful descent.

escrow The closing of a transaction through a third party, called an escrow agent or escrowee, who receives certain funds and documents to be delivered on the performance of certain conditions in the escrow agreement.

estate for years An interest for a certain, exact period of time in property leased for a specified consideration.

estate in land The degree, quantity, nature, and extent of interest that a person has in real property. estate in severalty An estate owned by one person.

estoppel certificate A legal instrument executed by a mortgagor showing the amount of the unpaid balance due on a mortgage and stating that the mortgagor has no defenses or offsets against the mortgagee at the time of execution of the certificate. Also called a certificate of no defense.

ethical Conforming to professional standards of conduct.

eviction A legal process to oust a person from possession of real estate.

evidence of title A proof of ownership of property, which is commonly a certificate of title, a title

insurance policy, an abstract of title with lawyer’s opinion, or a Torrens registration certificate. exchange A transaction in which all or part of the consideration for the purchase of real property is the

transfer of like-kind property (that is, real estate for real estate).

exclusive-agency buyer agency agreement A buyer brokerage agreement wherein the broker is entitled to a payment only if the broker locates the property the buyer purchases. The buyer can find property without the services of the agent.

exclusive-agency listing A listing contract under which the owner appoints a real estate broker as an exclusive agent for a designated period of time to sell the property on the owner’s stated terms for a commission. However, the owner reserves the right to sell without paying anyone a commission by selling to a prospect who has not been introduced or claimed by the broker.

exclusive buyer agency agreement An exclusive-agency agreement wherein the buyer is legally bound to compensate the agent whenever the buyer purchases a property of the type described in the contract. This is true even if the buyer finds the property.

exclusive-right-to-sell listing A listing contract under which the owner appoints a real estate broker as the owner’s exclusive agent for a designated period of time to sell the property on the owner’s stated terms and agrees to pay the broker a commission when the property is sold, whether by the broker, the owner, or another broker.

exculpatory clause A hold harmless clause that may be found in contracts excusing a party for injuries to another.

executed contract A contract in which all parties have fulfilled their promises and thus performed the contract.

execution The signing and delivery of an instrument. Also, a legal order directing an official to enforce a judgment against the property of a debtor.

executor The male designated in a will to handle the estate of the deceased.

executory contract A contract under which something remains to be done by one or more of the parties.

executrix The female designated in a will to handle the estate of the deceased. The probate court must approve any sale of property by the executrix.

expenses The short-term costs that are deducted from an investment property’s income, such as minor repairs, regular maintenance, and renting costs.

expressed contract An oral or written contract in which the parties state their terms and express their intentions in words.


familial status A protected class under federal fair housing law. A landlord cannot refuse to rent to a head of the household with minor children or to a pregnant woman.

Federal Fair Housing Act The term for Title VIII of the Civil Rights Act enacted in 1968 that prohibits discrimination based on race, color, sex, religion, or national origin in the sale and rental of residential property.

Federal Home Loan Bank System A system created by the Federal Home Loan Bank Act of 1932 to provide for a central reserve credit system for savings institutions engaged in home mortgage finance (predominantly savings and loans). The system is divided into 12 federal home loan bank districts with an FHLB in each district. The FHLBs maintain a permanent pool of credit to maintain liquidity of members or to provide means for mortgage lending when local funds are insufficient. Three sources of funds are available for the operation of the FHLB: (1) capital stock, (2) deposits of member institutions, and (3) consolidated obligations sold on the market. When member associations need funds, they obtain money by borrowing from FHLB. The FHLB Board supervises the system. The board is composed of three members appointed by the president of the United States with the advice and consent of the Senate.

Federal Home Loan Mortgage Corporation

A member of the secondary mortgage market that primarily buys conventional loans.

Federal Housing Administration (FHA) A federal administrative body created by the National Housing Act in 1934 to encourage improvement in housing standards and conditions, to provide an adequate home financing system through the insurance of housing mortgages and credit, and to exert a stabilizing influence on the mortgage market.

federal income tax An annual tax based on income, including monies derived from the lease, use, or operation of real estate.

Federal National Mortgage Association (FNMA) Fannie Mae is the popular name for this federal agency that creates a secondary market for existing mortgages. FNMA does not loan money directly, but rather buys VA, FHA, and conventional loans.

Federal Reserve banks The government controls banks located in each of the 12 Federal Reserve districts, established by the Federal Reserve Act of 1913. The Board of Governors, working closely with the president and the U.S. Treasury, controls the Federal Reserve. The Federal Reserve system (through the 12 central banks) supervises and examines members’ commercial banks; clears and collects checks drawn on commercial banks; and may influence the cost, supply, and availability of money.

fee simple absolute The highest form of ownership recognized by law. Also known as fee simple or ownership in fee.

fee simple defeasible with a special limitation Also known as a fee simple determinable estate. An estate created with a special limitation. Title would automatically revert back to the grantor or the grantor’s heirs if the estate ceased to be used for the special limitation.

fee simple estate The maximum possible estate or right of ownership of real property continuing forever. Sometimes called a fee or fee simple absolute.

fee simple subject to a condition subsequent A defeasible fee estate in which the grantor reserves right of reentry to the property when the condition of ownership is violated.

FHA appraisal A Federal Housing Administration (FHA) evaluation of a property as security for a loan. Includes study of the physical characteristics of the property and surroundings; the location of the property; the prospective borrower’s ability and willingness to repay a loan; and the mortgage amount and monthly payments.

FHA loan A loan insured by the FHA and made by an approved lender in accordance with the FHA’s regulations.

fiduciary relationship A relationship of trust and confidence, as between trustee and beneficiary, attorney and client, and principal and agent.

financing statement See Uniform Commercial Code.

first mortgage A mortgage that creates a superior voluntary lien on the property mortgaged relative to other charges or encumbrances against same.

fixture An article that was once personal property, but has been so affixed to real estate that it has become real property.

floor area ratio (FAR) The FAR indicates the relationship between a building area and land, or the relationship between the square footage of the building and the square footage of the land.

forcible entry and detainer A summary proceeding for restoring to possession of land one who is wrongfully kept out or has been wrongfully deprived of the possession.

foreclosure A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.

formal will A will written by an attorney, with two subscribing witnesses and with necessary language. Such a will may appoint the executor of the estate as independent agent and avoid the necessity of a bond.

fractional sections An oversized or undersized section that is not exactly one mile by one mile is a fractional section; used only in the government or rectangular survey.

fraud A misstatement of a material fact made with intent to deceive or made with reckless disregard of the truth and that actually does deceive.

freehold estate An estate in land in which ownership is for an indeterminate length of time, in contrast to a leasehold estate.

front feet A unit of linear measurement of the side of a property that faces the street.

functional obsolescence The impairment of functional capacity or efficiency. Functional obsolescence reflects the loss in value brought about by factors that affect the property, such as overcapacity, inadequacy, or changes in the design. The inability of a structure to perform adequately the function for which it is currently employed.

future interest A person’s present right to an interest in real property that will not result in possession or enjoyment until some time in the future, such as a reversion or right of reentry.


gap A defect in the chain of title of a particular parcel of real estate; a missing document or conveyance that raises doubt as to the present ownership of the land.

general agent A party authorized to perform all acts of the principal’s affairs within the continued operation of a particular job or business.

general contractor A construction specialist who enters into a formal construction contract with a landowner or master lessee to construct a real estate building or project. The general contractor often contracts with several subcontractors specializing in various aspects of the building process to perform individual jobs.

general lien A lien on all real and personal property owned by a debtor. general partnership See partnership. general tax See ad valorem tax.

general warranty deed A deed that states that the title conveyed therein is good from the

sovereignty of the soil to the grantee therein; no one else can claim the property.

GI-guaranteed mortgage See VA loan.

government lot Those fractional sections in the rectangular (government) survey system that are less than one full quarter-section in area.

Government National Mortgage Association (GNMA) Ginnie Mae, a federal agency and division of HUD that operates special assistance aspects of federally aided housing programs and participates in the secondary market through its mortgage-backed securities pools.

graduated lease A lease that provides for peri­odic step increases in the rental payments.

graduated payment mortgage A loan in which smaller payments are made in the early years and larger payments at some predetermined time. This may create negative amortization.

grant The act of conveying or transferring title to real property.

grant deed A type of deed that includes three basic warranties: (1) the owner warrants the right to convey the property, (2) the owner warrants that the property is not encumbered other than with those encumbrances listed in the deed, and (3) the owner promises to convey any after-acquired title to the property. Grant deeds are popular in states that rely heavily on title insurance.

grantee A person to whom real estate is conveyed; the buyer.

granting clause That portion of the deed that

states the grantor’s intention to transfer title and type of ownership interest conveyed.

grantor A person who conveys real estate by deed; the seller.

gross lease A lease of property under which a landlord pays all property charges regularly incurred through ownership, such as repairs, taxes, insurance, and operating expenses. Most residential leases are gross leases.

gross rent multiplier (GRM) A figure used as a multiplier of the gross rental income of a property to produce an estimate of the property’s value.

ground lease A lease of land only, on which the tenant usually owns a building or is required to build his or her own building as specified in the lease. Such leases are usually long-term net leases; a tenant’s rights and obligations continue until the lease expires or is terminated through default.

growing-equity mortgage A loan in which the monthly payments increase, with the increased amount being applied directly to the outstanding principal balance, thus decreasing the loan term.

guaranteed sale plan An agreement between broker and seller that if the seller’s real property is not sold before a certain date, the broker will purchase it for a specified price.

guardian One who guards or cares for another person’s rights and property. A guardian has legal custody of the affairs of a minor or a person incapable of taking care of his own interests, called a ward.


habendum clause The deed clause beginning to have and to hold that defines or limits the extent of ownership in the estate granted by the deed.

heir One who might inherit or succeed to an interest in land under the state law of descent when the owner dies without leaving a valid will.

highest and best use That possible use of land that will produce the greatest net income and thereby develop the highest land value.

holdover tenancy A tenancy whereby a lessee retains possession of leased property after the

lessee’s lease has expired and the landlord, by continuing to accept rent from the tenant, agrees to the tenant’s continued occupancy as defined by state law.

holographic will A will that is written, dated, and signed in the handwriting of the maker, and that does not need to be notarized or witnessed to be valid.

homeowners’ insurance policy A standardized package insurance policy that covers a residential real

estate owner against financial loss from fire, theft, public liability, and other common risks. homeowners warranty program An insurance program offered to buyers by some brokerages,

warranting the property against certain defects for a specified period of time.

homestead The land, and the improvements thereon, designated by the owner as the owner’s homestead and, therefore, protected by state law from forced sale by certain creditors of the owner.

HUD The Department of Housing and Urban Development, which regulates FHA and GNMA. hypothecation A pledge of property to the lender without giving up possession rights.


implied contract A contract under which the agreement of the parties is demonstrated by their acts and conduct.

implied grant A method of creating an easement. One party may be using another’s property for the benefit of both parties; for example, a sewer on a property.

improvement (1) Improvements on land—any structure, usually privately owned, erected on a site to enhance the value of the property; for example, buildings, fences, and driveways. (2)

Improvements to land—usually a publicly owned structure, such as a curb, sidewalk, or sewer.

income approach The process of estimating the value of an income-producing property by

capitalization of the annual net income expected to be produced by the property during its remaining useful life.

increasing returns When increased expenditures for improvements to a given parcel of land yield an increasing percentage return on investment, the principle of increasing returns applies.

incurable depreciation The cost of fixing the property will be more than the increase in value or the corrections are not physically possible.

indefeasible fee A title that cannot be defeated. Example: fee simple absolute.

indemnification An agreement to compensate someone for a loss.

independent contractor One who is retained to perform a certain act, but who is subject to the control and direction of another only as to the end result and not as to how he or she performs the act. Unlike an employee, an independent contractor pays for all his or her expenses, income and Social Security taxes, and receives no employee benefits. Many real estate salespeople are independent contractors.

index lease A lease in which the rental payment is tied to some agreed-on index, such as the Consumer Price Index or the Wholesale Price Index.

industrial property All land and buildings used or suited for use in the production, storage, or distribution of tangible goods.

installment contract See contract for deed.

installment sale A method of reporting income received from the sale of real estate when the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer can postpone reporting such income to future years when the taxpayer’s other income may be lower.

insurable title A title to land that a title company will insure.

insurance The indemnification against loss from a specific hazard or peril through a contract (called a policy) and for a consideration (called a premium).

intangible property Personal property that cannot be physically touched, such as stock or a lease.

interest A charge made or paid by a lender for the use of money.

interim financing A short-term loan usually made during the construction phase of a building project, often referred to as a construction loan.

inter vivos trust A living trust created by an owner during the owner’s lifetime.

intestate The condition of a property owner who

dies without leaving a will. Title to such property will pass to the owner’s heirs as provided in the state law of descent.

invalid In regard to contracts, it means having no legal force or effect.

invalidate To render null and void.

investment Money directed toward the purchase, improvement, and development of an asset in expectation of income or profits. A good financial investment has the following characteristics: safety, regularity of yield, marketability, acceptable denominations, valuable collateral, acceptable duration, required attention, and potential appreciation.

involuntary alienation The transfer of property against an owner’s will. Example: foreclosure. involuntary lien A lien that is placed on the property without the consent of the owner.

IRS tax lien A general, statutory, involuntary lien on all real and personal property owned by a debtor.


joint tenancy The ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, that tenant’s interest passes to the surviving joint tenant or tenants by the right of survivorship.

joint venture The joining of two or more people to conduct a specific business enterprise. On the one hand, a joint venture is similar to a partnership in that it must be created by agreement between the parties to share in the losses and profits of the venture. On the other hand, it is unlike a partnership in that the venture is for one specific project only, rather than for a continuing business relationship.

judgment The official decision of a court on the respective rights and claims of the parties to an action or suit. When a judgment is entered and recorded with the county recorder, it usually becomes a general lien on the property.

judgment clause A provision that may be included in notes, leases, and contracts by which the debtor, lessee, or obligor authorizes any attorney to go into court to confess a judgment against the debtor for a default in payment. Also called a cognovit.

judicial sale A type of foreclosure in which the lender enforces the acceleration clause in the mortgage and files a suit to foreclose on the property.


laches An equitable doctrine used by courts to bar a legal claim or to prevent the assertion of a right because of undue delay, negligence, or failure to assert the claim or right.

land The earth’s surface extending downward to the center of the earth and upward infinitely into space.

land contract The seller finances the property instead of a traditional lender. The seller holds title until final payment is made.

landlocked Property that does not have access to a public road to enter (ingress) or leave (egress) the land. This situation may create an easement by necessity.

latent defect A hidden defect in the property.

law of agency See agent.

lawyer’s opinion of title See attorney’s opinion of title.

lease A contract between a landlord (the lessor) and a tenant (the lessee) transferring the right to exclusive possession and use of the landlord’s real property to the lessee for a specified period of time and for a stated consideration (rent). By state law, leases for longer than a certain period of time (generally one year) must be in writing to be enforceable.

leased fee interest The landlord’s retained interest in the leased property is the leased fee interest.

leasehold estate A tenant’s right to occupy real estate during the term of a lease, generally considered to be a personal property interest.

leasehold interest The tenant’s interest in the leased property is the leasehold interest.

lease option This lease gives the tenant the option right to purchase the property within or at the end of the lease.

lease purchase The tenant leases property for a period of time with the intention of purchasing it.

legal description A description of a specific parcel of real estate sufficient for an independent surveyor

to locate and identify it. The most common forms of legal description are rectangular survey; metes

and bounds; lot, block (plat), and subdivision.

legality of object An element that must be present in a valid contract. All contracts that have for their object an act that violates the laws of the United States, or the laws of a state to which the parties are subject, are illegal, invalid, and not recognized by the courts.

legal life estate A life estate created by law; dower, curtesy, and homestead.

legatee A person who receives personal or real property under a will.

lessee The tenant who leases a property.

lessor One who leases property to a tenant.

leverage The use of borrowed money to finance the bulk of an investment.

levy To assess; to seize or collect. To levy a tax is to assess a property and set the rate of taxation. To levy an execution is to seize officially the property of a person to satisfy an obligation.

license (1) A privilege or right granted to a person by a state to operate as a real estate broker or salesperson. (2) The revocable permission for a temporary use of land—a personal right that cannot be sold.

lien A right given by law to certain creditors to have their debt paid out of the property of a defaulting  debtor, usually by means of a court sale.

Lienee The party whose property is subject to a lien. lienor The party holding the lien right.

lien-theory state A state in which the mortgage gives the mortgagee the right to place a lien on the property and the mortgagor retains title to the property.

life estate An interest in real or personal property that is limited in duration to the lifetime of its owner or some other designated person.

life tenant A person in possession of a life estate.

liquidated damages An amount predetermined by the parties to a contract as the total compensation the aggrieved party will receive should the other party breach the contract.

liquidity The ability to sell an asset and convert it into cash at a price close to its true value.

lis pendens Latin for action pending, which is recorded to give constructive notice that an action affecting the property (lawsuit) has been filed, but a judgment has not been decreed. A lis pendens notice renders the property unmarketable.

listing agreement A contract between a landowner (as principal) and a licensed real estate broker (as agent) by which the broker is employed as agent to sell real estate on the owner’s terms within a given time, for which service the landowner agrees to pay a commission.

listing broker The broker in a multiple-listing situation from whose office a listing agreement is initiated, as opposed to the selling broker, from whose office negotiations leading up to a sale are initiated. The listing broker and the selling broker may, of course, be the same person. See also multiple listing.

littoral rights (1) A landowner’s claim to use water in large lakes and oceans adjacent to the landlord’s property. (2) The ownership’s rights to land bordering these bodies of water up to the high-water mark.

loan-to-value The relationship between the amount of a loan and the appraised value of a property. It is expressed as a percentage of the appraised value.

lock-in clause (1) The lender’s agreement to lock in an interest rate for a specified time period. (2) A condition in a promissory note that prohibits prepayment of the note.

lot-and-block description A description of real property that identifies a parcel of land by reference to

lot and block numbers within a subdivision, as identified on a subdivided plat duly recorded in the county recorder’s office.


management agreement A contract between the owner of income property and a management firm or individual property manager outlining the scope of the manager’s authority.

marketable title A good or clear salable title reasonably free from risk of litigation over possible defects; also called a merchantable title.

market-date approach That approach in analysis that is based on the proposition that an informed purchaser would pay no more for a property than the cost to him of acquiring an existing property with the same utility. This approach is applicable when an active market provides sufficient quantities of reliable data that can be verified from authoritative sources. The approach is relatively unreliable in an inactive market or in estimating the value of properties for which no real comparable sales data are available. It is also questionable when sales data cannot be verified with principals to the transaction. Also referred to as the market comparison or direct sales comparison approach.

market price The actual selling price of a property.

market rent Also known as economic rent; the rental income that real estate could command in the

market at any given time, versus contract rent, which is the income generated under the current lease contract.

market value The highest price that a property will bring in a competitive and open market under all conditions requisite to a fair sale. The price at which a buyer would buy and a seller would sell, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.

master deed A document that legally establishes the condominium regime. It is referred to as a condominium declaration and fully describes each unit and common elements, as well as specific essential elements of ownership that govern its operation.

master plan A master plan provides the guidelines for the future development of a community.

mechanic’s lien A statutory lien created in favor of contractors, laborers, and materialmen who have performed work or furnished materials in erecting or repairing a building.

metes-and-bounds description A legal description of a parcel of land that begins at a well-marked point and follows the boundaries, using direction and distances around the tract back to the place of beginning.

mill One-tenth of 1¢ (0.001). Some states use a mill rate to compute real estate taxes; for example, a rate of 52 mills would be 0.052 tax for each dollar of assessed valuation of a property.

millage rate A property tax rate obtained by dividing the total assessed value of all the property in the tax district into the total amount of revenue needed by the taxing district. This millage rate is then applied to the assessed value of each property in the district to determine individual taxes.

ministerial acts Acts performed by a licensee for a consumer that are informative in nature, but do not rise to the level of active representation, such as responding to inquiries about a property’s price range or providing other facts.

misrepresentation To represent falsely; to give an untrue idea of a property. May be accomplished by omission or concealment of a material fact.

money judgment A court judgment ordering payment of money rather than specific performance of a certain action. See also judgment.

money market Those institutions —such as banks, savings and loan associations, and life insurance companies —whose function it is to supply money and credit to borrowers.

month-to-month tenancy A periodic tenancy; the tenant rents for one period at a time. In the absence of a rental agreement (oral or written), a tenancy is generally considered to be month to month.

monument  A fixed natural or artificial object used to establish real estate boundaries for a metes-and-bounds description.

mortgage A conditional transfer or pledge of real estate as security for a loan. Also, the document creating a mortgage lien.

mortgage bankers A firm or individual who originates loans for sale to other investors.

mortgage broker A mortgage broker is a firm or person who brings borrowers and lenders together, and the finders’ fee is normally paid by the lender, but it could be paid by the borrower.

mortgage fraud The lender is provided with false or misleading information on a loan application, or with falsified documents in the loan process.

mortgagee The lender who receives a pledge from a borrower to repay a loan.

mortgage lien A lien or charge on a mortgagor’s property that secures the underlying debt obligations.

mortgagor One who, having all or part of title to property, pledges that property as security for a debt; the borrower.

multiple listing An exclusive listing (generally, an exclusive-right-to-sell) with the additional authority and obligation on the part of the listing broker to distribute the listing to other brokers in the multiple-listing organization.

municipal ordinances The laws, regulations, and codes enacted by the governing body of a municipality.

mutual rescission The act of putting an end to a contract by mutual agreement of the parties.


negative amortization A loan in which the loan balance increases with each payment rather than decreasing because the payment amount is not sufficient to cover the interest.

negligence Carelessness and inattentiveness resulting in violation of trust. Failure to do what is required.

net income The gross income of a property minus operating expenses (not including debt service).

net lease A lease requiring the tenant to pay not only rent, but also all casts incurred in maintaining the property, including taxes, insurance, utilities, and repairs.

net listing A listing establishing a price, which must be expressly agreed on, below which the owner will not sell the property and at which price the broker will not receive a commission; the broker receives the excess over and above the net listing price as commission.

nonconforming loan A loan that does not meet secondary market standards.

nonconforming use A use of property that is permitted to continue after a zoning ordinance prohibiting it has been established for the area. Also, a use of property that is not conforming to current zoning because of a change in zoning, such as property being used for residential purposes, but currently zoned commercial.

non-disturbance clause A clause found in a lease that protects the tenant. If the landlord defaults on payments to the lender, the lender has the right to collect rent from the tenant. If the tenant pays the lender, the tenant cannot be evicted.

nonhomogeneity A lack of uniformity; dissimilarity. As no two parcels of land are exactly alike, real estate is said to be unique or nonhomogeneous.

nonjudicial foreclosure Also known as foreclosure by advertisement because it is a foreclosure procedure where the lender does not have to involve the courts.

nonrecourse loan A loan in which the property being pledged as collateral is the sole security for the loan. The borrower cannot be held personally liable for the note.

notarize To certify or attest to a document, as by a notary.

notary public A public official authorized to certify and attest to documents, take affidavits, take acknowledgments, administer oaths, and perform other such acts.

note An instrument of credit given to attest a debt.

notice of abandonment An instrument filed to release a recorded declaration of homestead. novation Substituting a new contract for an old one and the release of liability.


obligee/promisee The lender in the note.

obligor/promissor The borrower in a note.

obsolescence To be obsolete; as used in appraising the loss of value because it is outdated or less useful.

offer and acceptance The two components of a valid contract; a meeting of the minds.

officer’s deed A deed by sheriffs, trustees, guardians, and the like.

one hundred-percent-commission plan A salesperson compensation plan whereby the salesperson pays the salesperson’s broker a monthly service charge to cover the costs of office expenses and receives 100 percent of the commissions from the negotiated sales.

open buyer agency agreement A nonexclusive agency contract between a broker and a buyer wherein the buyer may enter into similar agreements with an unlimited number of brokers; the broker is paid who locates the property the buyer purchases.

open-end mortgage A mortgage loan that is expandable by increments up to a maximum dollar amount, all of which is secured by the same original mortgage.

open listing A listing contract under which the broker’s commission is contingent on the broker’s producing a ready, willing, and able buyer before the property is sold by the seller or another broker; the principal (owner) reserves the right to list the property with other brokers.

open mortgage An open mortgage is a mortgage without a prepayment clause. FHA-insured and VA-guaranteed mortgages are open mortgages.

option The right to purchase property within a definite time at a specified price. No obligation to

purchase exists, but the seller is obligated to sell if the option holder exercises right to purchase.

optionee The party that receives and holds an option. optionor The party that grants or gives an option.

ownership The exclusive right to hold, possess, or control and dispose of a tangible or intangible thing. Ownership may be held by a person, corporation, or political entity.


package mortgage A method of financing in which the loan that finances the purchase of a home also finances the purchase of certain items of personal property, such as a washer, dryer, refrigerator, stove, and other specified appliances.

participation financing A mortgage in which the lender participates in the income of the mortgaged venture beyond a fixed return, or receives a yield on the loan in addition to the straight interest rate.

partnership An association of two or more individuals who carry on a continuing business for profit as co-owners. Under the law, a partnership is regarded as a group of individuals, rather than as a single entity. A general partnership is a typical form of joint venture, in which each general partner shares in the administration, profits, and losses of the operation. A limited partnership is a business arrangement whereby the operation is administered by one or more general partners and funded by limited or silent partners who are by law responsible for losses only to the extent of their investment.

party wall A wall that is located on or at a boundary line between two adjoining parcels for the use of the owners of both properties.

patent defect A defect that can be found by normal inspection of the property. payee The party that receives payment.

payor The party that makes payment to another.

percentage lease A lease commonly used for retail property in which the rental is based on the tenant’s gross sales at the premises; often stipulates a base monthly rental plus a percentage of any gross sales above a certain amount.

periodic estate An interest in leased property that continues from period to period—week to week, month to month, or year to year.

personal property Those items, called chattels, that are not classified as real property; tangible and movable objects.

physical deterioration A reduction in utility resulting from an impairment of physical condition. For purposes of appraisal analysis, it is most common and convenient to divide physical deterioration into curable and incurable components.

plat A map of a town, section, or subdivision indicating the location and boundaries of individual properties.

plat book A record of recorded subdivisions of land.

plottage The value that is created when two or more tracts of land are merged into a single, larger one.

point A unit of measurement used for various loan charges. One point equals 1 percent of the amount of the loan. See also discount points.

point of beginning The starting point of the survey situated in one corner of the parcel in a metes-and-bounds legal description. All metes-and-bounds descriptions must follow the boundaries of the parcel back to the point of beginning.

police power The government’s right to impose laws, statutes, and ordinances to protect the public health, safety, and welfare, including zoning ordinances and building codes.

power of attorney A written instrument authorizing a person (the attorney-in-fact) to act on behalf of the maker to the extent indicated in the instrument.

premises The specific section of a deed that states the names of the parties, recital of consideration, operative words of conveyance, legal property description, and appurtenance provisions.

prepayment penalty A charge imposed on a borrower by a lender for early payment of the loan

principal to compensate the lender for interest and other charges that would otherwise be lost. prepayment privilege clause The statement of the terms upon which the mortgagor may pay the

entire or stated amount of the mortgage principal at some time prior to the due date.

prescription The right or easement to land that is acquired by adverse possession or squatter’s rights. It must be acquired under certain conditions as required by law.

prescriptive title A title that is acquired by an adverse possession claim.

price fixing See antitrust laws.

primary mortgage market The market where a person or business goes to negotiate a loan.

principal (1) A sum lent or employed as a fund or investment, as distinguished from its income or profits. (2) The original amount (as in a loan) of the total due and payable at a certain date. (3) A main party to a transaction—the person for whom the agent works.

principal meridian One of 35 north and south survey lines established and defined as part of the rectangular (government) survey system.

principle of conformity The appraisal theory stating that buildings that are similar in design, construction, and age to other buildings in the area have a higher value than they would in a neighborhood of dissimilar buildings.

principle of substitution The appraisal theory that states that no one will pay more for a property than the cost of buying or building a similar property; or, in the case of investments, the price of a substitute investment.

priority The order of position or time. The priority of liens is generally determined by the chronological order in which the lien documents are recorded; tax liens, however, have priority even over previously recorded liens.

private mortgage insurance (PMI) Insurance written by a private company (not government) that protects a lender against loss if a borrower defaults.

probate The formal judicial proceeding to prove or confirm the validity of a will.

procuring cause The effort that brings about the desired result. Under an open listing, the broker who is the procuring cause of the sale receives the commission.

progression When a small structure is placed in an area of larger more expensive structures, the value of the smaller structure will increase.

property management The operation of the property of another for compensation. Includes marketing of space; advertising and rental activities; collection, recording, and remitting of rents; maintenance of the property; tenant relations; hiring of employees; keeping proper accounts; and rendering periodic reports to the owner.

property tax Those taxes levied by the government against either real or personal property. The right to tax real property in the United States rests exclusively with the states, not with the federal government.

proprietary lease A lease given by the corporation that owns a cooperative apartment building to the shareholder, giving the shareholder (tenant) the right to occupy one of the units.

proration The proportionate division or distribution of expenses of property ownership between two or more parties. Closing statement prorations generally include taxes, rents, insurance, interest charges, and assessments.

prospectus A printed advertisement, usually in pamphlet form, presenting a new development, subdivision, business venture, or stock issue.

public utility easement A right granted by a property owner to a public utility company to erect and maintain poles, wires, and conduits on, across, or under the owner’s land for telephone, electric power, gas, water, or sewer installation.

puffing An exaggerated opinion, many times in regards to a property’s amenity.

pur autre vie A term meaning for the life of another. A life estate pur autre vie is a life estate that is measured by the life of a person other than the grantee.

purchase-money mortgage A note secured by a mortgage or deed of trust given by a buyer, as mortgagor, to a seller, as mortgagee, as part of the purchase price of the real estate.

pyramiding Obtaining additional investment property by borrowing against the equity of existing investments.


qualification The act of determining the prospect’s needs, abilities, and urgency to buy and then matching these with available properties.

quiet enjoyment A covenant in a deed that the title being given is good against third parties. quiet title lawsuit A suit to clear up any defects or clouds on a title.

quitclaim deed A conveyance by which the grantor transfers whatever interest the grantor has in the real estate without warranties or obligations.


range A strip of land six miles wide, extending north and south and numbered east and west according to its distance from the principal meridians in the rectangular survey system (government survey method) of land description.

ready, willing, and able buyer One who is prepared to buy property on the seller’s terms and is ready to take positive steps to consummate the transaction.

real estate Land; a portion of the earth’s surface extending downward to the center of the earth and upward infinitely into space, including all things permanently attached thereto, whether by nature or by man; any and every interest in land.

real estate broker Any person, partnership, association, or corporation that sells (or offers to sell), buys (or offers to buy), or negotiates the purchase, sale, or exchange of real estate, or that leases (or offers to lease) or rents (or offers to rent) any real estate or the improvements thereon for others and for compensation or valuable consideration. A real estate broker may not conduct business without a real estate broker’s license.

real estate investment trust (REIT) Trust ownership of real estate wherein a group of individuals purchases certificates of ownership in the trust, which purchases property and distributes the profits back to the investors free of corporate income tax.

Real Estate Settlement Procedures Act (RESPA) The federal law ensuring that the buyer and seller in a real estate transaction have knowledge of all settlement costs when the purchase of a one- to four-family residential dwelling is financed by a federally related mortgage loan. Federally related loans include those made by savings and loans, insured by the FHA or VA, administered by HUD, or intended to be sold by the lender to an agency.

reality of consent An element of all valid contracts. Offer and acceptance in a contract are usually taken to mean that reality of consent is also present. This is not the case if any of the following are present, however: mistake, misrepresentation, fraud, undue influence, or duress.

real property Real property, or real estate as it is often called, consists of land, anything affixed to it so as to be regarded as a permanent part of the land, that which is appurtenant to the land, and that which is immovable by law.

REALTOR® A registered trademark term reserved for the sole use of active members of local REALTOR® boards affiliated with the National Association of REALTORS®.

receiver The court-appointed custodian of property involved in litigation, pending final disposition of the matter before the court.

reconciliation The final step in the appraisal process, in which the appraiser reconciles the estimates of value received from the market-data, cost, and income approaches to arrive at a final estimate of market value for the subject property.

recording The act of entering or recording documents affecting or conveying interests in real estate in the recorder’s office established in each county. Until recorded, a deed or mortgage generally is not effective against subsequent purchases or mortgage liens.

recovery fund A fund established in some states from real estate license funds to cover claims of aggrieved parties who have suffered monetary damage through the actions of a real estate licensee.

rectangular survey system A system established in 1785 by the U.S. government, providing for surveying and describing land by reference to principal meridians and base lines.

redemption period A period of time established by state law during which a property owner has the right to redeem his or her real estate from a foreclosure or tax sale by paying the sales price, interest, and costs. Many states do not have mortgage redemption laws.

redlining The illegal practice of some institutions of denying loans or restricting their number for certain areas of a community.

regression When a large structure is placed in an area of smaller, less expensive structures, the value of the larger structure will decrease.

release To relinquish an interest in or claim to a parcel of property. reliction When water recedes, new land is acquired by reliction,

relocation service An organization that aids a person in selling a property in one area and buying another property in another area.

remainder The remnant of an estate that has been conveyed to take effect and be enjoyed after the termination of a prior estate, such as when an owner conveys a life estate to one party and the remainder to another.

remainder interest A third party who has a future ownership interest in the property upon the death of the life tenant. See also life estates.

rent A fixed, periodic payment made by a tenant of a property to the owner for possession and use, usually by prior agreement of the parties.

rent control The regulation by the state or local government agencies restricting the amount of rent landlords can charge their tenants.

rent schedule A statement of proposed rental rates, determined by the owner or the property manager or both, based on a building’s estimated expenses, market supply, and demand and the owner’s long-range goals for the property.

replacement cost The cost of construction at current prices of a building having utility equivalent to the building being appraised but built with modern materials and according to current standards, design, and layout. The use of the replacement cost concept presumably eliminates all functional obsolescence, and the only depreciations to be measured are physical deterioration and economic obsolescence.

reproduction cost The cost of construction at current prices of an exact duplicate or replica using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescences of the subject building.

rescission The termination of a contract by mutual agreement of the parties.

reservation in a deed The creation by a deed to property of a new right in favor of the grantor. Usually involves an easement, life estate, or a mineral interest.

restriction A limitation on the use of real property, generally originated by the owner or subdivider in a deed.

reverse mortgage A mortgage that allows senior homeowners 62 years of age or older to release a percent of the equity in their property without making monthly payments. The loan is repaid when the borrower no longer resides in the property.

reversion The remnant of an estate that the grantor holds after the grantor has granted a life estate to another person; the estate will return or revert to the grantor; also called a reverser.

reversionary right An owner’s right to regain possession of leased property upon termination of the lease agreement.

rezoning The process involved in changing the existing zoning of a property or area.

right of first refusal A potential buyer’s right to meet the terms of the sales contract.

right of survivorship See joint tenancy.

riparian rights An owner’s rights in land that borders on or includes a stream, river, lake, or sea. These rights include access to and use of the water.


sale and leaseback A transaction in which an owner sells his or her improved property and, as part of the same transaction, signs a long-term lease to remain in possession of the premises.

sales comparison approach Also known as the market approach to appraising. It is used to appraise residential property or vacant land that will be used for residential purposes. It is based on the principle of substitution.

sales contract A contract containing the complete terms of the agreement between buyer and seller for the sale of a particular parcel or parcels of real estate.

salesperson A person who performs real estate activities while employed by, or associated with, a licensed real estate broker.

sandwich lease The lessee’s interest in a sublease is the sandwich lease. satisfaction A document acknowledging the payment of a debt.

secondary mortgage market A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; also called the secondary money market.

section A portion of a township under the rectangular survey system (government survey method). A township is divided into 36 sections numbered 1 to 36. A section is a square with mile-long sides and an area of 1 square mile or 640 acres.

security deposit A payment made by the tenant that the landlord holds during the lease term and that may be kept wholly or in part on default or destruction of the premises by the tenant.

selling broker See listing broker.

separate property The real property owned by a husband or wife prior to their marriage.

servient tenement The land on which an easement exists in favor of an adjacent property (called a dominant estate); also called a servient estate.

setback The amount of space local zoning regulations require between a lot line and a building line. severalty The ownership of real property by one person only, also called sole ownership.

severance The process of changing real property to personal property.

shared participation mortgage A type of participation mortgage in which the lender shares in the appreciation of the mortgage property when the property is sold.

short sale. A lender process where the bank and seller agree to take less than the amount owed on the property.

situs The personal preference of people for one area over another, not necessarily based on objective facts and knowledge.

sole ownership See severalty.

special agent A party authorized to perform with limited authority given by the principal.

special assessment A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement, such as a street or sewer.

special warranty deed A deed in which the grantor warrants or guarantees the title only against defects arising during the period of the grantor’s tenure and ownership of the property and not against defects existing before that time, generally using the language, by, through, or under the grantor but not otherwise.

specific lien A lien affecting or attaching only to a certain, specific parcel of land or piece of property.

specific performance suit A legal action brought in a court of equity in special cases to compel a party to carry out the terms of a contract. The basis for an equity court’s jurisdiction in breach of a real estate contract is the fact that land is unique and mere legal damages would not adequately compensate the buyer for the seller’s breach.

sponsoring broker A duly licensed real estate broker who employs a salesperson. Under law, the broker is responsible for the acts of the broker’s salespeople.

squatter’s rights Those rights acquired through adverse possession. By squatting on land for a certain statutory period under prescribed conditions, one may acquire title by limitations. If an easement only is acquired, instead of title to the land itself, one has title by prescription.

statute of frauds The part of a state law that requires that certain instruments, such as deeds, real estate sales contracts, and certain leases, be in writing in order to be legally enforceable.

statute of limitation That law pertaining to the period of time within which certain actions must be brought to court.

statutory lien A lien imposed on property by statute, such as a tax lien, in contrast to a voluntary lien that an owner places on the owner’s own real estate, such as a mortgage lien.

statutory right of redemption In some states, defaulted borrowers have the statutory right of redemption, which allows them to buy back their property after the foreclosure sale by paying the sales price, interest, and costs.

steering The illegal practice of channeling home seekers to particular areas, either to maintain the homogeneity of an area or to change its character in order to create a speculative situation.

stigmatized property A property is considered stigmatized or undesirable because of events that have occurred on the property.

straight-line method A method of calculating depreciation for tax purposes, computed by dividing the adjusted basis of a property less its estimated salvage value by the estimated number of years of remaining useful life.

strict foreclosure A foreclosure procedure in which the lender secures title and all equity to the property.

subagent An agent of an agent. The broker is the agent of the principal. The salesperson is a subagent of the principal.

subcontractor See general contractor.

subdivision A tract of land divided by the owner, known as the subdivider, into blocks, building lots, and streets according to a recorded subdivision plat, which must comply with local ordinances and regulations.

subletting The leasing of premises by a lessee to a third party for part of the lessee’s remaining term. See also assignment.

subordination A relegation to a lesser position, usually in respect to a right or security.

subrogation The substitution of one creditor for another, with the substituted person succeeding to the legal rights and claims of the original claimant. Subrogation is used by title insurers to acquire rights to sue from the injured party to recover any claims they have paid.

substitution An appraisal principle that states that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution.

suit for partition A legal action to divide the ownership interests in a property.

suit for possession A court suit initiated by a landlord to evict a tenant from leased premises after the tenant has breached one of the terms of the lease or has held possession of the property after the lease’s expiration.

suit for specific performance A legal action brought by either a buyer or a seller to enforce performance of the terms of a contract.

suit to quiet title A legal action intended to establish or settle the title to a particular property, especially when there is a cloud on the title.

summation appraisal An approach under which value equals estimated land value plus reproduction costs of any improvements, after depreciation has been subtracted.

supply The amount of goods available in the market to be sold at a given price. The term is often coupled with demand.

surety bond An agreement by an insurance or bonding company to be responsible for certain possible defaults, debts, or obligations contracted for by an insured party; in essence, a policy insuring one’s personal and/or financial integrity. In the real estate business, a surety bond is generally used to ensure that a particular project will be completed at a certain date or that a contract will be performed as stated.

survey The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions, and positions of buildings on a lot, including the determination of any existing encroachments or easements.

syndicate A combination of two or more persons or firms to accomplish a joint venture of mutual interest. Syndicates dissolve when the specific purpose for which they were created has been accomplished.


tacking Combining successive periods of property use; associated with adverse possession claims.

tangible property  Property that can be seen and touched.

taxation The process by which a government or municipal quasi-public body raises monies to fund its operation.

tax deed An instrument, similar to a certificate of sale, given to a purchaser at a tax sale. See also certificate of sale.

taxes A compulsory contribution required by the government from persons, corporations, and other organizations, according to a law, for the general support of the government and for the maintenance of public services.

tax lien A charge against property created by operation of law. Tax liens and assessments take priority over all other liens.

tax rate The rate at which real property is taxed in a tax district or county. For example, in a certain county, real property may be taxed at a rate of 560 per dollar of assessed valuation. tax sale A court-ordered sale of real property to raise money to cover delinquent taxes.

tax shelters Allow a taxpayer to reduce current tax liability by offsetting income from one source with losses from another source.

tenancy at sufferance The tenancy of a lessee who lawfully comes into possession of a landlord’s real estate, but who continues to occupy the premises improperly after the lessee’s lease rights have expired.

tenancy at will An estate that gives the lessee the right to possession until the estate is terminated by either party; the term of this estate is indefinite.

tenancy by the entirety The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. Upon the death of one spouse, the survivor becomes the owner of the property.

tenancy in common A form of co-ownership by which each owner holds an undivided interest in real property as if that owner was the sole owner. Each individual owner has the right to partition. Unlike a joint tenancy, there is no right of survivorship between tenants in common.

tenant One who holds or possesses lands or tenements by any kind of right or title. tenement Everything that may be occupied under a lease by a tenant.

termination (lease) The cancellation of a lease by action of either party. A lease may be terminated by expiration of term, surrender and acceptance, constructive eviction by lessor, or option when provided in lease for breach of covenants.

termination (listing) The cancellation of a broker-principal employment contract; a listing may be terminated by death or insanity of either party, expiration of listing period, mutual agreement, sufficient written notice, or the completion of performance under the agreement.

term mortgage A non-amortized loan in which the borrower makes periodic interest payments to the lender and the principal balance is due on maturity. Also known as a straight mortgage.

testamentary trust A trust created through a will after a property owner’s death.

testate Having made and left a valid will.

testator A male willmaker

testatrix A female willmaker.

time is of the essence A phrase in a contract that requires the performance of a certain act within a stated period of time.

time-share estate A fee simple interest in an interval ownership of property for a specified time period. The owner’s occupancy is limited to the time period purchased.

time-share use The right to use and occupy the property for a certain number of years. A time-share use may be conveyed by a lease or license.

title The legal evidence of ownership rights to real property.

title insurance Insurance that is designed to indemnify the holder for loss sustained for reason of defects in a title, up to and including the policy limits.

title-theory states A state in which a security instrument gives the mortgagee the title to the property.

Torrens system A method of evidencing title by registration with the proper public authority, generally called the registrar. Named for its founder, Sir Robert Torrens.

township The principal unit of the rectangular (government) survey system. A township is a square with 6-mile sides and an area of 36 square miles.

township lines The lines running at six-mile intervals parallel to the base lines in the rectangular (government) survey system.

trade fixtures The articles installed by a tenant under the terms of a lease and removable by the tenant before the lease expires. These remain personal property and are not true fixtures.

transaction broker A person who represents neither party in a transaction. Both parties are treated as customers.

transfer taxes Real estate transfer taxes or RETT are state, county, and/or municipal sales taxes most often used as general revenue.

trust A fiduciary arrangement whereby property is conveyed to a person or institution, called a trustee, to be held and administered on behalf of another person, called a beneficiary.

trust deed An instrument used to create a mortgage lien by which the mortgagor conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a deed of trust.

trustee One who as agent for others handles money or holds title to their land.

trustee’s deed A deed executed by a trustee conveying land held in a trust.

trustor A borrower in a deed of trust; a grantor in a deed in trust.

Truth-in-Lending Act Also known as Regulation Z, this act requires that the lender disclose the true cost of credit to individual borrowers for certain types of loans. It also regulates the advertisement of creditors.


unconventional mortgage An unconventional mortgage (loan) is backed by the government to

reduce the lender’s risk. Examples: FHA-insured loans and VA-guaranteed loans. unenforceable contract A contract in which neither party can sue the other to force performance, such as a contract missing the signature of the person authorized to perform.

undivided interest An interest in a property that cannot be physically divided. See also tenancy in common.

CHICAGO REAL ESTATE SCHOOL                                                                                               Glossary

Uniform Commercial Code (UCC) A codification of commercial law adopted in most states that attempts to make uniform all laws relating to commercial transactions, including chattel mortgages and bulk transfers. Security interests in chattels are created by an instrument known as a security agreement. Article 6 of the code regulates bulk transfers—the sale of a business as a whole, including all fixtures, chattels, and merchandise.

unilateral contract A one-sided contract wherein one party makes a promise in order to induce a

second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise.

unity of ownership The four unities that are traditionally needed to create a joint tenancy—unity of title, unity of time, unity of interest, and unity of possession.

universal agent An agent that represents a principal in all activities, such as someone given full power of attorney.

useful life In real estate investment, the number of years a property will be useful to the investors. usury The practice of charging more than the rate of interest allowed by law.


valid contract A contract that complies with all the essentials of a contract and is binding and enforceable on all parties to it.

valid deed An enforceable deed that has a competent grantor and grantee, consideration, conveyance, legal description of land, signature of grantor, acknowledgment, delivery, and acceptance.

valid lease An enforceable lease that has the following essential parts: lessor and lessee with contractual capacity, offer and acceptance, legality of object, description of the premises, consideration, signatures, and delivery. Leases for more than one year must also be in writing.

VA loan A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs to limit possible loss by the lender.

variance The permission obtained from zoning authorities to build a structure or conduct a use that is expressly prohibited by the current zoning laws; an exception from the zoning ordinances.

vendee The buyer or purchaser. vendor The seller.

voidable contract A contract that seems to be valid but that may be rejected or disaffirmed by one of the parties.

void contract A contract that has no legal force or effect because it does not meet the essential elements of a contract.

voluntary lien A lien that is created intentionally by the property owner, such as a mortgage.

voluntary transfer See alienation.


waiver The intentional or voluntary relinquishment of a known claim or right.

warranty deed A deed in which the grantor fully warrants good clear title to the premises. Used in most real estate deed transfers, a warranty deed offers the greatest protection of any deed.

warranty of habitability In a lease, this warranty requires that the landlord keep the property in good

condition; that is to maintain the property, equipment, and to comply with state and local codes.

waste An improper use or an abuse of a property by a possessor who holds less than fee ownership, such as a tenant, life tenant, mortgagor, or vendee. Such waste generally impairs the value of the land or the interest of the person holding the title or the reversionary rights.

will A written document, properly witnessed, providing for the transfer of title to property owned by the deceased, called the testator.

wraparound mortgage A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position. In essence, it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first-mortgage amount without disturbing the existence of the first mortgage.

writ of attachment Action taken by a creditor wherein the court retains custody of the property while a lawsuit is being decided, thus preventing the debtor from transferring unsecured real estate before a judgment is rendered. This ensures that the property will be available to satisfy the judgment.

writ of execution A court order that authorizes and directs the proper officer of the court (usually the sheriff) to sell the property of a defendant as required by the judgment or decree of the court.


year-to-year tenancy A periodic tenancy in which rent is collected from year to year.


zoning ordinance An exercise of police power by a municipality to regulate and control the character and use of property.

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