401(k) 403(b) - An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.

Abatement - Stopping or reducing of amount or value, as when assessments for ad valorem taxation are abated after the initial assessment has been made.

Absentee landlord - An owner of an interest in income-producing property who does not reside on the premises and who may rely on a property manager to oversee the investment.

Absolute fee simple title - A title that is unqualified. Fee simple is the best title that can be obtained. (See also fee simple)

Abstract of Title - A full summary of all consecutive grants, conveyances, wills, records and judicial proceedings affecting title to a specific parcel of real estate, together with a statement of all recorded liens and encumbrances affecting the property and their present status. The person preparing the abstract of title, called an abstracter, searches the title as recorded or registered with the county recorder, county registrar, circuit court and/or other official sources. Simplified Definition: A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Abstraction - Method of finding land value in which all improvement costs (less depreciation) are deducted from sales price. Also called extraction.

Acceleration Clause - A provision in a mortgage, trust deed, promissory note or contract for deed (agreement of sale) that, upon the occurrence of a specified event, gives the lender (payee, obligee or mortgagee) the right to call all sums due and payable in advance of the fixed payment date. (See Alienation Clause). The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender. Simplified Definition: Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.

Access - A way to enter and leave a tract of land, sometimes by easement over land owned by another. (See also egress and ingress)

Accessibility - The relative ease of entrance to a property by various means, a factor that contributes to the probable most profitable use of a site.

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

Accredited Buyer Representative - Only 4,000 real estate professionals on two continents who have been awarded the ABR designation by the National Association Of Realtors.

Accretion - The gradual and imperceptible addition of land by alluvial deposits of soil through natural causes, such as shoreline movement caused by streams or rivers. This added land upon a bank or stream, navigable or not, becomes the property of the riparian or littoral owner, and it also becomes subject to any existing mortgages.

Accrual basis - In accounting, a system of allocating revenue and expense items on the basis of when the revenue is earned or the expense incurred, not on the basis of when the cash is received or paid out.

Accrued depreciation - (1) For accounting purposes, total depreciation taken on an asset from the time of its acquisition. (2) For appraisal purposes, the difference between reproduction or replacement cost and the appraised value as of the date of appraisal.

Accrued expenses - Expenses incurred that are not yet payable. In a closing statement, the accrued expenses of the seller typically are credited to the purchaser (taxes, wages, interest, etc.).

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

Acquisition appraisal - A market value appraisal of property condemned or otherwise acquired for public use, to establish the compensation to be paid to the owner.

Acre - A measure of land, 208.71 by 208.71 feet in area, being 43,560 square feet, or 160 square rods or 4,840 square yards.

Actual age - The number of years elapsed since the original structure was built. Sometimes referred to as historical or chronological age.

Actual Damages - Real, substantial and just damages, or the amount awarded to a complainant in compensation for his actual and real loss or injury. (Black's Law Dictionary, 4th Ed.)

Ad Valorem - According to value (Latin); generally used to refer to real estate taxes that are based on assessed property value.

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

Adjustable-Rate Mortgage (ARM) - 1) A mortgage that allows the interest rate to be adjusted according to an index after a specific period of time. 2) A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.

Adjusted Taxes Basis - The original cost or other basis of property, reduced by depreciation deductions and increased by capital expenditures.

Adjustment - Decrease or increase in the sales price of a comparable property to account for a feature that the property has or does not have in comparison with the subject property.

Adjustment Date - The date the interest rate changes on an adjustable-rate mortgage (ARM).

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

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

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

Adverse land use - A land use that has a detrimental effect on the market value of nearby properties.

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

Aesthetic value - Relating to beauty, rather than to functional considerations.

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

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

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

Aggregate - In statistics, the sum of all individuals.

Aggrieved Party - One whose legal right is invaded by an act complained of. The word "aggrieved" refers to a substantial grievance, a denial of some personal or property right, or the imposition upon a party of a burden or obligation. (Black's Law Dictionary, 4th Ed.)

Agreement of Sale - Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

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

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

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

Allocation method - The allocation of the appraised total value of the property between land and building. The allocation may be accomplished either on a ratio basis or by subtracting a figure representing building value from the total appraised value of the property.

Allowance for vacancy and collection losses - The percentage of potential gross income that will be lost due to vacant units, collection losses or both.

Amenities - The qualities and state of being pleasant and agreeable; in appraising, those qualities that are attached to a property and from which the owner derives benefits other than monetary; satisfaction of possession and use arising from architectural excellence, scenic beauty and social environment.

Amortization - The gradual repayment or retiring of a debt by means of systematic payments of principal and/or interest over a set period, so that at the end of the period there is a zero balance. The principal is thus directly reduced or amortized over the life of the loan. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

Amortized mortgage - A mortgage loan in which the principal and interest are payable in periodic installments during the term of the loan so that at the completion of all payments there is a zero balance.

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

Annuity - A fixed, regular return on an investment.

Annuity method - A method of capitalization that treats income from real property as a fixed, regular return on an investment. For the annuity method to be applied, the lessee must be reliable and the lease must be long term.

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

Application - The form used to apply for a mortgage loan, containing information about a borrower's income, savings, assets, debts, and more.

Appraisal - An estimate of quantity, quality or value; the process through which conclusions of property value are obtained; also refers to the report setting forth the process of estimating value.

Appraisal Foundation - Nonprofit corporation established in 1987 and headquartered in Washington, D.C., sponsored by major appraisal and appraisal-related professional and trade groups.

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

Appraisal process - A systematic analysis of the factors that bear on the value of real estate; an orderly program by which the problem is defined; the work necessary to solve the problem is planned; the data involved are acquired, classified, analyzed and interpreted into an estimate of value; and the value estimate is presented in the form requested by the client.

Appraisal report - An appraiser's written opinion to a client of the value sought for the subject property as of the date of appraisal, giving all details of the appraisal process.

Appraisal Standards Board - Created by the Appraisal Foundation and responsible for establishing minimum standards of appraisal competence.

Appraised value - An estimate by an appraiser of the amount of a particular value, such as assessed value, insurable value or market value, based on the particular assignment.

Appraiser - An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.

Appraiser Qualification Board - Created by the Appraisal Foundation and responsible for establishing minimum requirements for licensed and certified appraisers and licensing and certifying examinations.

Appreciation - Permanent or temporary increase in monetary value over time due to economic or related causes. Approaches to value. Any of the following three methods used to estimate the value of real estate: cost approach, income capitalization approach and sales comparison approach.

Appurtenance - Anything used with land for its benefit, either affixed to land or used with it, that will pass with the conveyance of the land.

APR - An expression of the relationship of the total finance charge to the total amount to be financed as required under the federal Truth-in-Lending Act. Tables available from any Federal Reserve bank may be used to compute the rate, which must be calculated to the nearest one-eighth of 1 percent. Use of the APR permits a standard expression of credit costs, which facilitates easy comparison of lenders. Certain real estate brokerage activities have come under public scrutiny by the Federal Trade Commission. These activities include the fixing of general commission rates by local boards or groups of brokers and the exclusion of brokers from membership in local boards or in multiple-listing arrangements due to unreasonable membership requirements.

Arms-length transaction - A transaction in which both buyer and seller act willingly and under no pressure, with knowledge of the present conditions and future potential of the property, and in which the property has been offered on the open market for a reasonable length of time and there are no unusual circumstances.

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

Array - An arrangement of statistical data according to numerical size.

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

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

Assess - To make a judgment of value.

Assessed Value - The value placed on property, land and improvements by a public tax assessor for purposes of determining property taxes.

Assessment - The imposition of a tax, charge or levy, usually according to established rates. (See also special assessment)

Assessor - One who determines property values for the purpose of ad valorem taxation.

Asset - Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.

Assignment - The transfer of the right, title and interest in the property (ownership) of one person (the assignor) to another (the assignee). There are assignments of, among other things, mortgages, sales contracts, contracts for deed, leases and options. Simplified Definition: When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.

Assignment of Deed of Trust - The transfer of the right, title and interest in the property of one person (the assignor) to another (the assignee). There are assignments of, among other things, mortgages, sales contracts, contracts for deed, leases and options. Simplified Definition: A written document, that transfers the beneficial interest in a note and deed of trust from one to another.

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

Assumable Mortgage - A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.

Assumption - The term applied when a buyer assumes the seller's mortgage.

Assumption of Mortgage - An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability. In the assumption, the mortgagee's consent is usually required. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such an "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage." Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.

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

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

Attorneys Fee - The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs.

Average deviation - In statistics, the measure of how far the average individual, or variate, differs from the mean of all variants.

Backup offer - An offer to buy submitted to a seller with the understanding that the seller has already accepted a prior offer; a secondary offer. Sometimes the seller accepts the backup offer contingent on the failure of the sales transaction on the part of the first purchaser within a specified period of time. The seller must be careful how he or she proceeds, however, when the time for buyer's performance under the first contract has expired.

Balance - The appraisal principle that states that the greatest value of a property will occur when the type and size of the improvements are proportional to each other as well as to the land.

Balloon Mortgage - A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Balloon Payment - Under an installment obligation, a final payment that is substantially larger than the previous installment payments and repays the debt in full; the remaining balance that is due at maturity of a note or obligation.

Band of investment - A method of developing a discount rate based on (1) the rate of mortgage interest available, (2) the rate of return required on equity and (3) the debt and equity share in the property. A variation of this method is used to compute an overall capitalization rate.

Bankruptcy - A condition of financial insolvency in which a person's liabilities exceed assets and the person is unable to pay current debts. By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

Bargain and sale deed - A deed that contains no warranties against liens or other encumbrances but implies that the grantor has the right to convey title.

Base line - A reference survey line of the government or rectangular survey, being an imaginary line extending east and west and crossing a principal meridian at a definite point.

Base rent - The minimum rent payable under a percentage lease. Bench mark. A permanent reference mark (PRM) used by surveyors in measuring differences in elevation.

Basis - The dollar amount that the Internal Revenue Service attributes to an asset for purposes of determining annual depreciation or cost recovery, and gain or loss in the sale of the asset. The determination of basis is of fundamental importance in tax aspects of real estate investment. All property has a basis. If property was acquired by purchase, the owner's basis is the cost of the property plus the value of any capital expenditures for improvements to the property, reduced by any cost recovery depreciation actually taken or allowable. (See adjusted basis)

Benchmark - The standard or base from which specific estimates are made.

Beneficiary - A person who receives benefits from the gifts or acts of another, as in the case of one designated to receive the proceeds from a will, insurance policy, or trust; the real owner, as opposed to the trustee who holds only legal title. With a trust, the trustee holds the legal title, but the beneficiary enjoys the benefits of ownership.

Bid Authorization Letter - Your written authorization instructing the trustee to make the initial opening bid at the trustee's sale on the lender's behalf. This form will also advise our office of any additional amounts to be included in the opening bid, (total debt), such as funds advanced by you to pay delinquent real estate taxes, etc.

Bilateral Contract - A contract in which each party promises to perform an act in exchange for the other party's promise to perform. The usual real estate contract is an example of a bilateral contract in which the buyer and seller exchange reciprocal promises respectively to buy and sell the property. If one party refuses to honor his or her promise and the other party is ready to perform, the nonperforming party is said to be in default.

Bill of Sale - A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.

Binder or "Offer to Purchase" - A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.

Bi-weekly Mortgage - A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle.

Blanket Trust Deed or Mortgage - A trust deed secured by several properties or a number of lots. A blanket mortgage is often used to secure construction financing for proposed subdivisions or condominium development projects. The developer normally seeks to have a "partial release" clause inserted in the mortgage so that he or she can obtain a release from the blanket loan for each lot as it is sold, according to a specified release schedule.

Blended Rate - An interest rate offered by a lender that is a blended rate between a lower interest existing mortgage and a new mortgage with a higher rate. This is usually offered to convince a buyer to refinance a lower interest first mortgage along with a additional amount instead of taking a second mortgage.

Blind Ad - An advertisement that does not include the name and address of the person placing the ad, only a phone number or post office box address. Licensed brokers are generally prohibited by state license laws from using blind ads.

Blockbusting - An illegal and discriminatory practice whereby one person induces another to enter into a real estate transaction from which the first person may benefit financially by representing that a change may occur in the neighborhood with respect to race, sex, religion, color, handicap, family status or ancestry of the occupants, a change possibly resulting in the lowering of the property values, a decline in the quality of schools or an increase in the crime rate. Also called panic selling or panic peddling.

Bona fide - In or with good faith; honestly, openly, and sincerely; without deceit or fraud. Truly; actually; without simulation or pretense. Innocently; in the attitude of trust and confidence; without notice of fraud, etc. (Black's Law Dictionary, 4th Ed.)

Bond Market - Usually refers to the daily buying and selling of thirty year treasury bonds Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.

Book value - The value of a property as an asset on the books of account; usually, reproduction or replacement cost, plus additions to capital and less reserves for depreciation.

Boot - Money or other property that is not like-kind, which is given to make up any difference in value or equity between exchanged properties. Boot may be in the form of cash; notes; gems; the market value of an asset such as a mortgage, land contract, personal property, goodwill, a service or a patent offered in an exchange. The taxable gain in the like-kind exchange is recognized immediately to the extent of boot, whereas other gain from the exchange may be deferred until subsequent transfer.

Breach of Contract - Violation of any of the terms or conditions of a contract without legal excuse; default; nonperformance. The non-breaching party can usually seek one of three alternative remedies upon a material breach of the contract: rescission of the contract, action for money damages or an action for specific performance.

Breakdown method - (See observed condition depreciation)

Break-even point - That point at which total income equals total expenses.

Break-even ratio - The ratio of operating expenses plus the property's annual debt service to potential gross income.

Bridge Loan - An equity mortgage placed on presently owned real estate that is used to finance the down payment of newly acquired real estate. Bridge loans are often used by those who have not yet sold their previous property, but must close on a purchase property.

Broker - An experienced agent licensed by the state to supervise other licensed agents acting on behalf of others in a transaction.

Building capitalization rate - The sum of the discount and capital recapture rates for a building.

Building codes - Rules of local, municipal or state governments specifying minimum building and construction standards for the protection of public safety and health.

Building Line or Setback - Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Building residual technique - A method of capitalization using net income remaining to building after interest on land value has been deducted.

Bulk Transfer of Goods - Any transfer in bulk of a substantial part of the materials, supplies, merchandise, equipment or other inventory of an applicable enterprise that is not in the ordinary course of the transferor's business.

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

Business Opportunity - Any type of business that is for sale (also called business brokerage). The sale or lease of the business and goodwill of an existing business, enterprise or opportunity, including a sale of all or substantially all of the assets or stock of a corporation, or assets of partnership or sole proprietorship.

Buy Down - Usually refers to a fixed rate mortgage where the interest rate is bought down" for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower's payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower's monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A "lender funded buy down" is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buy down adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to "qualify" at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.

Buyers Agent - A broker and the agents under his or her supervision who have been formally appointed by a buyer to act on its behalf in a real estate transaction.

Buyers Broker - A broker who represents the buyer in a fiduciary capacity. Some buyer's brokers practice single agency, in which they represent either buyers or sellers, but never both in the same transaction. Some buyer's brokers represent only buyers and refer prospective sellers to other brokers. The broker is paid by the buyer, or through the seller or listing broker at closing, provided all parties consent.

Call Option - Similar to the acceleration clause.

Cap - Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as caps." Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.

Capacity of Parties - The legal ability of people or organizations to enter into a valid contract. A person entering into a contract will have full, limited or no capacity to contract: The inability of a person to enter into a valid contract under any circumstances. Such inability can arise when a person has been adjudicated insane or is an officer of a corporation who is not authorized to execute a contract in behalf of a corporation.

Capital recapture - The return of an investment; the right of the investor to get back the amount invested at the end of the term of ownership or over the productive life of the improvements.

Capitalization rate - The percentage rate applied to the income a property is expected to produce to derive an estimate of the property's value; includes both an acceptable rate of return on the amount invested (yield) and return of the actual amount invested (recapture).

Capitalized value method of depreciation - A method of computing depreciation by determining loss in rental value attributable to a depreciated item and applying a gross rent multiplier to that figure.

CAR California Association of Realtors - CRS Certified Residential Specialists, professional designation held by fewer than 5% of Realtors in the United States (GRI) Graduates of the Realtors'

Cash basis - A system of recognizing revenue and expense items only at the time cash is received or paid out.

Cash equivalency technique - Method of adjusting a sales price downward to reflect the increase in value due to assumption or procurement by buyer of a loan at an interest rate lower than the prevailing market rate.

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

Cash flow rate - (See equity capitalization rate)

Cash on cash rate - (See equity capitalization rate)

Cash-out refinance - When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a "cash out refinance."

Caveat emptor - Latin for "let the buyer beware." A buyer should inspect the goods or realty before purchase.

Census Tract - An area with a population that is at least 50 percent minority or an area that has a median family income at or below 80 percent of the median family income for the Metropolitan Statistical Area (MSA)

Certificate of Deposit - A time deposit held in a bank which pays a certain amount of interest to the depositor.

Certificate of Deposit Index - One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.

Certificate of Eligibility - A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan.

Certificate of reasonable value (CRV) - A certificate insured by the Veterans Administration setting forth a property's current market value estimate, based on a VA-approved appraisal. The CRV places a ceiling on the amount of a VA-guaranteed loan allowed for a particular property.

Certificate of Title - A statement of opinion prepared by a title company, licensed abstracter or an attorney on the status of a title to a parcel of real property, based on an examination of specified public records. This certificate of title should not be confused with the certificate of title that is issued to a titleholder of land registered under the Toreens system, or with a title insurance policy. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy, but it does certify the condition of title as of the date the certificate is issued, on the basis of an examination of the public records maintained by the recorder of deeds, the county clerk, the county treasurer, the city clerk and collector and clerks of various courts of record. The certificate also may include records involving taxes, special assessments, ordinances, zoning and building codes. Note that a certificate of title does not offer protection against "off -the-record" matters such as undisclosed liens, rights of parties in possession and matters of survey and location. Nor does it protect against "hidden defects" in the records themselves, such as fraud, forgery, lack of competency or lack of delivery. A title insurance policy, not a certificate of title, protects against certain off-the-record and hidden defects risks.

Chain - A surveyor's unit of measurement equal to four rods or 66 feet, consisting of 100 links of 7.92 inches each; ten square chains of land are equal to one acre.

Change, principle of - The principle that no physical or economic condition ever remains constant.

Chattels - Tangible personal property items.

Civil Rights Act of 1968 - In 1968, Congress enacted Title VIII of the Civil Rights Act, called the federal Fair Housing Act, which declared a national policy of providing fair housing throughout the United States (Reference Sections 3601-3631 of Title 42, United States Code). This law makes discrimination based on race, color, sex, familial status, handicap, religion or national origin illegal in connection with the sale or rental of most dwellings and any vacant land offered for residential construction or use.

Clear Title - A title that is free of liens or legal questions as to ownership of the property.

Client - One who hires another person as a representative or agent for a fee.

Close-of-Escrow - The consummation of a real estate transaction, when the seller delivers title to the buyer in exchange for payment by the buyer of the purchase price. Closing in some areas may not occur until the documents are recorded; however, under general rules of real estate law, transfer of title takes place upon delivery of the deed to the grantee.

Closing - This has different meanings in different states. In some states a real estate transaction is not consider "closed" until the documents record at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.

Closing Costs - Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.

Closing Day - The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.

Closing Expenses - Expenses not including the purchase price of a property, that are paid by the seller and buyer to other parties at closing.

Closing Statement - The computation of financial adjustments required to close a real estate transaction, computed as of the day of closing the sale; used to determine the net amount of money the buyer must pay to the seller to complete the transaction, as well as amounts to be paid to other parties, such as the broker or escrow holder. (See Settlement Statement)

Cloud (On Title) - An outstanding claim or encumbrance which adversely affects the marketability of title.

Cloud on Title - Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.

Co-Borrower - An additional individual who is both obligated on the loan and is on title to the property.

Code of Ethics - Rules of ethical conduct, such as those that govern the actions of members of a professional group. Community property. A form of property ownership in which husband and wife have an equal interest in property acquired by either spouse during the time of their marriage. Community property does not include property that each spouse owned prior to marriage or property received by gift or inheritance or as the proceeds of separate property.

Collateral - In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

Collection - When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to "collection." As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.

Commercial Real Estate - A classification of real estate that includes income-producing property such as office buildings, gasoline stations, restaurants, shopping centers, hotels and motels, parking lots and stores.

Commingling - Mixing deposits or moneys belonging to a client (trust funds) with one's personal money.

Commission - Most sales people earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction.

Common Area Assessments - In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.

Common Areas - Land or improvements in a condominium development designated for the use and benefit of all residents, property owners and tenants. Common areas frequently include such amenities as corridor or hall areas and elevators, and parks, playgrounds and barbecue areas, which are sometimes called green belts. In shopping centers, the common areas are parking lots, malls and traffic lanes.

Common elements - All portions of the land, property and space that make up a condominium property that include land, all improvements and structures, and all easements, rights and appurtenances and exclude all space composing individual units. Each unit owner owns a definite percentage of undivided interest in the common elements.

Common Law - An unwritten body of law based on general custom in England and used to an extent in some states. Common Law will prevails unless it is superseded by written law.

Community Property - A system of property ownership based on the theory that each spouse, in a marriage, has an equal interest in the property acquired by the efforts of either spouse during the marriage. This system stemmed from Germanic tribes and, through Spain, came to the Spanish colonies of North and South America. In states that maintain a community property system, such as California and other states with laws of Spanish origin, there are two classifications of property - separate property and community property. Separate property is property that either the husband or wife owned at the time of marriage or that was acquired by one spouse during marriage by inheritance, will or gift.

Company Dollar - The term "company dollar" is the amount left over after all commissions have been paid out.

Comparable Sales - Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps."

Comparative Market Analysis (CMA) - This is a term often used by real estate brokers in preparing a report for prospective sellers and buyers, indicating market trends in various neighborhoods, based on computer statistics generated from multiple-listing service data. Generally, these analyses are used for clients to determine a listing price for the sale of a home or for buyers to determine if a list price is reasonable for a given location.

Comparative unit method - (See square-foot method)

Competition, principle of - The principle that a successful business attracts other such businesses, which may dilute profits.

Compound interest - Interest paid on both the original investment and accrued interest.

Concurrent Ownership - Ownership by two or more persons at the same time, such as joint tenants, tenants by the entirety, tenants in common or community property owners.

Condemnation - The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.

Conditional use permit - Approval of a property use inconsistent with present zoning because it is in the public interest. For example, a church or hospital may be allowed in a residential district.

Conditions, covenants and restrictions (CC&Rs) - Private limitations on property use placed in the deed received by a property owner, typically by reference to a Declaration of Restrictions.

Condo - See "Condominium."

Condominium - The absolute ownership of an apartment or a commercial unit, generally in a multiunit building, by a legal description of the airspace that the unit actually occupies, plus an undivided interest in the ownership of the common elements, which are owned jointly with the other condominium unit owners.

Condominium Conversion - Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium Hotel - A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned. These are often found in resort areas like Hawaii.

Condominium Ownership - An estate in real property consisting of an individual interest in an apartment or commercial unit and an undivided common interest in the common areas in the condo project such as the land, parking areas, elevators, stairways, exterior structure and so on. Each condominium unit is a statutory entity that may be mortgaged, taxed, sold or otherwise transferred in ownership, separately and independently of all other units in the condo project. Units are separately assessed and taxed based on the combined value of the individual living unit and the proportionate ownership of the common areas. The unit also can be separately foreclosed upon in case of default on the mortgage note or other lienable payments. In effect, the condominium permits ownership of a specific horizontal layer of airspace as opposed to the traditional view of vertical property ownership from the center of the earth to the sky. Typically, the unit, the percentage of common interest and the limited common elements are appurtenant to each other and cannot be sold or transferred separately.

Conformity, principle of - The principle that buildings should be similar in design, construction and age to other buildings in the neighborhood to enhance appeal and value.

Conservator - A guardian, protector, preserver or receiver appointed by a court to administer the person and property of another (usually an incapable adult) and to ensure that the property will be properly managed. A conservator may not need a real estate license to sell the protected real estate, although the sale does require court approval.

Consideration - An act or the promise thereof, which is offered by one party to induce another to enter into a contract; that which is given in exchange for something from another; also the promise to refrain from doing a certain act, like filing a justifiable lawsuit (the forbearance of a right). Consideration, which distinguishes a contractual obligation from a gift, is usually something of value, such as the purchase price in and paid for a promise or it may be a return promise. Thus, the mere promise to pay money is sufficient consideration, so an earnest money deposit is not necessary for purposes of creating a binding contract.

Construction Loan - A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Constructive Fraud - Breach of a legal or equitable duty that the law declares fraudulent because of its tendency to deceive others, despite no showing of dishonesty or intent to deceive. A broker may be charged with constructive fraud for failing to disclose a known material fact when the broker had a duty to speak for example, if a listing broker failed to disclose a known major foundation problem not readily observable upon an ordinary inspection.

Contiguous - Adjacent; in actual contact; touching.

Contingency - A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

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

Contract of Purchase - See "Agreement of Sale."

Contract of Sale - A contract for the purchase and sale of real property in which the buyer agrees to purchase for a certain price and the seller agrees to convey title by way of a deed or an assignment of lease (for leasehold property). In addition to binding the parties to the purchase and sale of the property during the period of time required to close the transaction, the contract frequently serves as the initial directions to the closing agent or escrow company to process the mechanics of the transaction. In essence, the contract of sale is an executory contract to convey property, serving as the vehicle to get to the deed, which finally conveys title; it is the blueprint for the entire transaction. Some of the many names for this contract are sales contract, purchase agreement, deposit receipt, offer and acceptance, agreement of sale, offer to lease or purchase and sale agreement.

Contract rent - (See scheduled rent)

Contractor - In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.

Contribution, principle of - The principle that any improvement to a property, whether to vacant land or a building, is worth only what it adds to the property's market value, regardless of the improvement's actual cost.

Conventional loan - A mortgage loan, made with real estate as security, that is neither insured by the FHA nor guaranteed by the VA.

Conventional Mortgage - A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and State statutes. The mortgage rates may vary with different institutions and between States. (States have various interest limits.)

Conversion - The appropriation of property belonging to another. The conversion may be illegal (as when a broker misappropriates client funds), or it may be legal (as when the government condemns property under the right of eminent domain).

Convertible ARM - An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

Convey - When real property is transferred from one owner to another.

Conveyance - A written instrument, such as a deed or lease, by which title or an interest in real estate is transferred.

Co-Op - A residential unit in a property owned by a corporation. Ownership of stock in the corporation gives the shareholder the right to occupy a specific unit and obligates him or her to contribute to the corporation for required expenses.

Cooperative (co-op) - A type of multiple ownership in which the residents of a multi unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Cooperative Housing - An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit.

Corporation - An association of shareholders, created under law, having a legal identity separate from the individuals who own it. Correction lines. A system of compensating for inaccuracies in the rectangular survey system due to the curvature of the earth. Every fourth township line (24-mile intervals) is used as a correction line on which the intervals between the north and south range lines are measured again and corrected to a full six miles.

Correlation - (See reconciliation)

Cost - The amount paid for a good or service.

Cost approach - The process of estimating the value of a property by adding the appraiser's estimate of the reproduction or replacement cost of property improvements, less depreciation, to the estimated land value.

Cost index - Figure representing construction cost at a particular time in relation to construction cost at an earlier time, prepared by a cost reporting or indexing service.

Cost of Funds Index (COFI) - One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.

Cost service index method - (See index method)

Counteroffer - A new offer made in response to an offer received from an offeror. A counteroffer has the effect of rejecting the original offer, which cannot thereafter be accepted unless revived by the offeror's repeating it.

Covenant - An agreement written into deeds and other instruments promising performance or nonperformance of certain acts or stipulating certain uses or non-uses of property.

Credit - 1. Obligations that are due or are to become due to a person. 2. In closing statements, that which is due and payable to either the buyer or seller the opposite of a charge or debit. The credit appears in the right-hand column of the accounting statement.

Credit report - A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Credit Repository - An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Creditor - The person to whom a debtor owes a debt or obligation; a lender.

Cubic-foot method - A method of estimating reproduction cost by multiplying the number of cubic feet of space a building encloses by the construction cost per cubic foot.

Curable depreciation - A depreciated item that can be restored or replaced economically. (See also functional obsolescence-curable and physical deterioration-curable)

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

Debit - A charge on an accounting statement or balance sheet (appearing on the left-hand column); the opposite of a credit. Used in bookkeeping and in preparing the closing statement in a real estate transaction.

Debt - An amount owed to another.

Debt investors - Investors who take a relatively conservative approach, typically taking a passive role in investment management while demanding a security interest in property financed.

Debtor - One who owes money; a borrower, a maker of a note; a mortgagor.

Decedent - A dead person, especially one who has died recently.

Declaration of restrictions - Document filed by a subdivision developer and referenced in individual deeds to subdivision lots that lists all restrictions that apply to subdivision properties. (See also deed restrictions)

Decreasing returns, laws of - The situation in which property improvements no longer bring a corresponding increase in property income or value.

Deed - A written instrument that conveys title to or an interest in real estate when properly executed and delivered.

Deed in Lieu of Foreclosure: - A deed to a lender given by an owner conveying mortgaged property in which the mortgage is in default. It is an alternative to a foreclosure action. Its main disadvantage to a lender is that the deed does not wipe out junior liens, as a foreclosure action would.

Deed of trust - Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he fails to pay the deed as agreed, the deed becomes valid, and the trustee will not have difficulty gaining possession of the real property. (See trust deed)

Deed restrictions - Provisions in a deed limiting the future uses of the property. Deed restrictions may take many forms: they may limit the density of buildings, dictate the types of structures that can be erected and prevent buildings from being used for specific purposes or used at all. Deed restrictions may impose a myriad of limitations and conditions affecting the property rights appraised.

Deed-in-Lieu - Short for "deed in lieu of foreclosure," this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.

Default - Failure to perform a duty or meet a contractual obligation.

Delinquency - Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a "late fee" for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.

Demised premises - Property conveyed for a certain number of years, most often by a lease.

Demography - The statistical study of human populations, especially in reference to size, density and distribution. Demographic information is of particular importance to people involved in market analyses and highest and best use analyses in determining potential land uses of sites.

Deposit - Money offered by a prospective buyer as an indication of good faith in entering into a contract to purchase; earnest money; security for the buyer's performance of a contract. An earnest money deposit is not necessary to create a valid purchase contract because the mutual promises of the parties to buy and to sell are sufficient consideration to enforce the contract. If the buyer completes the purchase, the deposit money is applied toward the purchase price.

Depreciated cost - For appraisal purposes the reproduction or replacement cost of a building, less accrued depreciation to the time of appraisal.

Depreciation - For appraisal purposes, loss in value due to any cause, including physical deterioration, functional obsolescence and external obsolescence. (See also obsolescence)

Depth factor - An adjustment factor applied to the value per front foot of lots that vary from the standard depth.

Development - (See neighborhood life cycle)

Devise - A transfer of real property under a will. The donor is the devisor, and the recipient is the devisee.

Direct capitalization - Selection of a capitalization rate from a range of overall rates computed by analyzing sales of comparable properties and applying the formula I/V = R to each.

Direct costs - Costs of erecting a new building involved with either site preparation or building construction, including fixtures.

Direct market comparison approach - (See sales comparison approach)

Disability - A physical or mental impairment that substantially limits one or more major life activities, such as walking, seeing, learning and working. Disability includes a record of such impairment or the fact of being regarded as having such impairment. The Americans with Disabilities Act (ADA) protects individuals with disabilities from various forms of discrimination in employment, public services, transportation, public accommodations and telecommunication services. A person abusing illegal drugs or alcohol is not covered, but a person who is rehabilitated in these areas may be protected under ADA. (See handicap)

Disclaimer - A statement denying legal responsibility, frequently found in the form of the statement, "There are no promises, representations, oral understandings or agreements except as contained herein." Such a statement, however, would not relieve the maker of any liabilities for fraudulent acts or misrepresentations. (See hold-harmless clause)

Disclosed Dual Agent - A broker and the agents under his or her supervision who represent both parties in a real estate transaction after obtaining the written informed consent of both parties.

Discount - To sell at a reduced value; the difference between face value and cash value.

Discount points - In the mortgage industry, this term is usually used only in reference to government loans, meaning FHA and VA loans. Discount points refer to any "points" paid in addition to the one percent loan origination fee. A "point" is one percent of the loan amount.

Discounting - To sell at a reduced value; the difference between face value and cash value. Some companies specialize in buying mortgages and real estate contracts (often referred to as paper) at a discount. Often the original lender, wanting to cash out on the loan, will thus sell the mortgage at the current published mortgage discount rate. If the discount rate is 12 percent, for example, the lender could sell a $100,000 mortgage at 88 percent of its worth ($88,000 or 12 percent below par).

Disintermediation - The process of individuals investing their funds directly instead of placing their savings with banks, savings and loan associations and similar institutions for investment by such institutions. This bypassing of financial institutions occurs when proportionately higher yields are available on secure investments (such as high-grade corporate bonds, money market funds and government securities) than can be obtained on savings deposits.

Divided Agency - Acting for more than one party in a transaction without the knowledge and consent of all parties thereto. This situation is considered unlawful and may be grounds for revocation or suspension of license under Section 10176(d) of the Business and Professions Code. (See dual agency)

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

Down Payment - An amount which in addition to the mortgage(s), equals the purchase price of a property.

Dual Agency - An agency relationship in which the agent acts concurrently for both principals in a real estate transaction. (See agency, agent, fiduciary)

Due-on-Sale-Clause - A form of acceleration clause found in some mortgages, especially savings and loan mortgages, requiring the mortgagor to pay off the mortgage debt when the property is sold, resulting in automatic maturity of the note as the lender's option. This clause effectively eliminates the possibility of the new buyer assuming the mortgage unless the mortgagee permits the assumption, in which case the mortgagee might increase the interest rate or charge an assumption fee.

Duplex - A structure that provides housing accommodations for two families and supplies each with separate entrances, kitchens, bedrooms, living rooms and bathrooms. A two-family dwelling with the units either side by side or one above the other.

Dwelling - Any building, structure or part thereof used and occupied for human habitation or intended to be so used, including any appurtenances. Many municipalities have adopted ordinances relating to the repair, closing and demolition of dwellings unfit for human habitation.

Earnest Money - The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Earnest Money Deposit - The deposit given to the buyer's agent or seller's attorney by the buyer as evidence of good faith and in consideration of his or her promise to purchase the property.

Easement - A right to use the land of another for a specific purpose, such as a right-of-way or for utilities; a non-possessory interest in land. An easement appurtenant passes with the land when conveyed.

Easement Rights - A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.

Easton vs Strassburger - The duty on the licensee to make a reasonable investigation of the property evolved from the case of Easton v. Strassburger (1984). As the leading case on this issue, the courts decision sent the message "loud and clear" to all real estate licensees that their responsibility does not stop at a mere disclosure of material facts known to the licensee. Easton filed suit against Strassburger, the real estate agency and others for fraudulent concealment and intentional misrepresentation regarding potential soil problems and a resulting slide on the property.

Economic age-life method of depreciation - A method of computing accrued depreciation in which the cost of a building is depreciated at a fixed annual percentage rate; also called the straight-line method.

Economic base - The level of business activity in a community-particularly activity that brings income into the community from surrounding areas.

Economic life - The period of time during which a structure may reasonably be expected to perform the function for which it was designed or intended.

Economic obsolescence - (See external obsolescence)

Economic rent - (See market rent)

Effective age - The age of a building based on the actual wear and tear and maintenance, or lack of it, that the building has received.

Effective demand - The desire to buy coupled with the ability to pay.

Effective gross income - Estimated potential gross income of a rental property from all sources, less anticipated vacancy and collection losses.

Effective Interest Rate - The actual rate or yield of a loan, regardless of the amount stated on the debt instrument. (See Nominal Interest Rate)

Egress - A way to leave a tract of land; the opposite of ingress. (See also access)

Embezzlement - The fraudulent appropriation to his or her own use or benefit of property or money entrusted too him/her by another, by a clerk, agent, trustee, public officer, or other person acting in a fiduciary character.

Eminent domain - The right of a federal, state or local government or public corporation, utility or service corporation to acquire private property for public use through a court action called condemnation, in which the court determines whether the use is a necessary one and what the compensation to the owner should be.

Encroachment - A building, wall or fence that extends beyond the land of the owner and illegally intrudes on land of an adjoining owner or a street or an alley.

Encumbrance - Any claim, lien, charge or liability attached to and binding on real property that may lessen its value or burden, obstruct or impair the use of a property but not necessarily prevent transfer of title; a right or interest in a property held by one who is not the legal owner of the property. There are two general classifications of encumbrances: those that affect the title, such as judgments, mortgages, mechanics' liens and other liens, which are charges on property used to secure a debt or obligation; and those that affect the physical condition of the property, such as restrictions, encroachments and easements. (See Easement)

Endorsement - A method of transferring title to a negotiable instrument, such as a check or promissory note, by signing the owner's name on the reverse side of such instrument. A blank endorsement guarantees payment to subsequent holders. An endorsement that states that it is without recourse does not guarantee payment to subsequent holders. A special endorsement specifies the person to whom or to whose order the instrument is payable.

Enjoin - 1. to direct or order (someone) to do something. 2. to prescribe (a course of action) with authority or emphasis. 3. to prohibit or restrain by an injunction. (See Injunction)

Entrepreneurial profit - The amount of profit attributable to the development function.

Environmental obsolescence - (See external obsolescence)

Equal Credit Opportunity Act (ECOA): - Federal legislation passed in 1974 to ensure that the various financial institutions and other firms engaged in the extension of credit exercise their responsibility to make credit available with fairness and impartiality and without discrimination on the basis of race, color, religion, national origin, sex or martial status, age, receipt of income from public assistance programs (food stamps, social security), and ensure good-faith exercise of any right under the Consumer Credit Protection Act (creditor must state reasons for denial of credit). The act applies to all who regularly extend or arrange for the extension of credit. A real estate licensee is considered a creditor if the licensee routinely assists sellers in determining whether a proposed buyer in a land contract or purchase-money mortgage is creditworthy.

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.

Equilibrium - (See neighborhood life cycle)

Equity - The interest or value that an owner has in real estate over and above any mortgage or other lien or charge against it.

Equity capitalization rate - A rate that reflects the relationship between a single year's before tax cash flow and the equity investment in the property. The before-tax cash flow is the net operating income less the annual debt service payment, and the equity is the property value less any outstanding loan balance. The equity capitalization rate, when divided into the before tax cash flow, gives an indication of the value of the equity. Also called cash on cash rate, cash flow rate or equity dividend rate.

Equity dividend rate - (See equity capitalization rate)

Equity investors - Investors making use of what is termed venture capital to take an unsecured and thus relatively risky part in an investment.

Erosion - The gradual loss of soil due to the operation of currents, tides or winds.

Escalator clause - A clause in a contract, lease or mortgage providing for increases in wages, rent or interest, based on fluctuations in certain economic indexes, costs or taxes.

Escheat - The reversion of property of a decedent who died intestate (without a will) and without heirs to the state or county as provided by state law.

Escrow - An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

Escrow Account - Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner's insurance when they come due. The lender pays them with your money instead of you paying them yourself.

Escrow Analysis - Once each year your lender will perform an "escrow analysis" to make sure they are collecting the correct amount of money for the anticipated expenditures.

Escrow Disbursements - The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow Instructions - In a sales transaction, a writing signed by buyer and seller that details the procedures necessary to close a transaction and directs the escrow agent how to proceed. Sometimes the buyer and seller execute separate instructions and sometimes the contract of sale itself serves as escrow instructions.

Estate - The degree, quantity, nature and extent of ownership interest that a person has in real property. Estate in land. The degree, quantity, nature and extent of interest a person has in real estate.

Estate in remainder - The remnant of an estate that has been conveyed to take effect and be enjoyed after the termination of a prior estate; for instance, when an owner conveys a life estate to one party and the remainder to another. (For a case in which the owner retains the residual estate, see estate in reversion).

Estate in reversion - An estate that comes back to the original holder, as when an owner conveys a life estate to someone else, with the estate to return to the original owner on termination of the life estate.

Eviction - The lawful expulsion of an occupant from real property.

Examination of Title - The report on the title of a property from the public records or an abstract of the title.

Excess income - (See excess rent)

Excess rent - The amount by which scheduled rent exceeds market rent.

Exchange - A transaction in which all or part of the consideration for the purchase of real property is the transfer of property of "like kind" (i.e., real estate for real estate).

Exclusive Agency Listing - A written listing agreement giving a sole agent the right to sell a property for a specified time, but reserving to the owner the right to sell the property himself without owing a commission. The exclusive agent is entitled to a commission if he or she personally sells the property or if it is sold by anyone other than the seller. It is exclusive in the sense the property is listed with only one broker. The multiple-listing service must accept exclusive-agency listings submitted by participating brokers.

Exclusive Listing - A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

Exclusive Right-To-Sell - A written agreement between the broker and the owner, whereby the owner promises to pay a fee or commission to the broker if his or her property is sold during the listing period.

Exclusive-Authorization-and-Right-to-Sell-Listing: - A written listing agreement appointing a broker the exclusive agent for the sale of property for a specified period of time. The listing broker is entitled to a commission if the property is sold by the owner, by the broker or by anyone else. The phrase "right-to-sell" really means the right to find a buyer; it does not mean that the agent has a power of attorney from the owner to sell the property.

Execute - The act of making a document legally valid, such as formalizing a contract by signing, or acknowledging and delivering a deed. In some cases, execution of a document may refer solely to the act of signing; in other cases it may refer to complete performance of the document's terms.

Executor - A male person named in a will to administer an estate. If no executor is named a person will be appointed by a testator to carry out the directions and requests in his or her last will and testament, and to dispose of his or her property according to the provisions of the will. State probate laws generally refer to this person as a "personal representative of the decedent." "Executrix" is the feminine form of Executor

Executrix - A female person named in a will to administer an estate. If no executor is named, a person will be appointed by a testator to carry out the directions and requests in his or her last will and testament, and to dispose of his or her property according to the provisions of the will. State probate laws generally refer to this person as a "personal representative of the decedent."

Expense - The cost of goods and services required to produce income.

Expense-stop clause - Lease provision to pass increases in building maintenance expenses on to tenants on a pro-rata basis.

External obsolescence - Loss of value from forces outside the building or property, such as changes in optimum land use, legislative enactment's that restrict or impair property rights and changes in supply-demand relationships.

Externalities - The principle that outside influences may have a positive or negative effect on property value.

Fair Credit Reporting Act - A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fair Employment and Housing Act: - California's Fair Employment and Housing Act (FEHA) (Sections 12900-12996 of the Government Code) prohibits housing discrimination based on marital status as well as race, color, religion, sex, national origin or ancestry. The Department of Fair Employment and Housing enforces the law, which is based on the former Rumford Fair Housing Act. Example: Some years ago Len Lessor tried to evict Alice Tenant because Alice, an unmarried woman, was living with an unrelated adult male. Len was unsuccessful because his intended action violated what was then the Rumford Act. Len recently decided to require that each member of an unrelated couple living together in one of his apartments meet his rental financial requirements, even though married couples can aggregate their income to meet the financial requirements. Can Len do that? No. The Fair Employment and Housing Act bans discrimination based on marital status. Note: Discrimination under FEHA does not include refusal to rent part of a single-family, owner-occupied dwelling to only one individual. All notices and advertisements must comply with FEHA, except for those expressing a preference for applicants of one sex for the sharing of living in a single dwelling unit.

Fair Market Value - The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Familial Status - Familial status is defined as one or more individuals who have not obtained the age of eighteen (18) years, being domiciled with a parent or other person having custody, or anyone who is pregnant. It is therefore unlawful to refuse housing to anyone with children under the age of 18 or anyone who is pregnant, except when such housing meets the definition of housing for older persons.

Fannie Mae (FNMA) - The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company is the nation's largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see the Library. Fannie Mae's Community Home Buyer's Program is an income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Feasibility study - An analysis of a proposed subject or property with emphasis on the attainable income, probable expenses and most advantageous use and design. The purpose of such a study is to ascertain the probable success or failure of the project under consideration.

Federal Home Loan Mortgage Corporation (FHLMC) - Commonly known as "Freddie Mac," a federally chartered corporation established in 1970 for the purpose of purchasing mortgages in the secondary market. Freddie Mac was created as a part of the savings association system and, while it is not so limited, its loan purchase policies are designed to accommodate savings association needs. It functions with an independent board of directors but is subject to oversight by HUD.

Federal Housing Administration (FHA) - A federal agency of the U.S. Department of Housing and Urban Development (HUD), the FHA was established in 1934 under the National Housing Act 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. FHA was the government's response to a lack of quality housing, excessive foreclosures and a building industry that collapsed during the depression. its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

Federal National Mortgage Association (FNMA) - Popularly known as "Fannie Mae," an active participant in the secondary mortgage market. Fannie Mae was established as a federal agency in 1938 for the purpose of purchasing FHA loans from loan originators to provide some liquidity for government-insured loans in a depression-wracked economy when few lending institutions would undertake this type of loan.

Federal Reserve Bank System - Central bank of the United States established to regulate the flow of money and the cost of borrowing.

Federal Reserve System ("the Fed") - The nation's central bank created by the Federal Reserve Act of 1913. Its purpose is to help stabilize the economy through the judicious handling of the money supply and credit available in this country. The system functions through a seven-member Board of Governors (appointed by the President) and 12 Federal Reserve District Banks, each with its own president. The system sets policies and works with the privately owned commercial banks.

Fee Appraiser - A non-salaried appraiser who is paid a fee for the appraisal assignments he or she performs.

Fee simple - The greatest possible estate or right of ownership of real property, continuing without time limitation. Sometimes called fee or fee simple absolute.

Fee simple defeasible - Any limitation on property use that could result in loss of the right of ownership.

Fee Simple Estate - An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

Fee simple qualified - Ownership of property that is limited in some way.

Fee Title - The maximum possible estate one can possess in real property. A fee title estate is the least limited interest and the most complete and absolute ownership in land; it is of indefinite duration, freely transferable and inheritable. A "fee title" is sometimes referred to as "the fee." (See Fee Simple)

FHA - The Federal Housing Administration. Insures loans made by approved lenders in accordance with its regulations.

FHA Mortgage - A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan. (See Government Loan)

Fiduciary - A relationship that implies a position of trust or confidence wherein one person is usually entrusted to hold or manage property or money for another. The term fiduciary describes the faithful relationship owed by an attorney to a client or by a broker (and salesperson) to a principal. The fiduciary owes complete allegiance to the client. Among the obligations that a fiduciary owes to his or her principal and the duties of loyalty, obedience and full disclosure; the duty to use skill, care and diligence; and the duty to account for all moneys.

Final value estimate - The appraiser's estimate of the defined value of the subject property, arrived at by reconciling (correlating) the estimates of values derived from the sales comparison, cost and income approaches.

Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) - Federal legislation that mandates state licensing or certification for appraisers performing appraisals in certain federally related transactions.

Firm Commitment - A lender's agreement to make a loan to a specific borrower on a specific property.

First mortgage - A mortgage that has priority as a lien over all other mortgages.

Fixed expenses - Those costs that are more or less permanent and do not vary in relation to the property's occupancy or income, such as real estate taxes and insurance for fire, theft and hazards.

Fixed-rate mortgage - (See amortized mortgage)

Fixture - Anything affixed to land, including personal property attached permanently to a building or to land so that it becomes part of the real estate.

Flood insurance - Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Forbearance - The act of refraining from taking legal action despite the fact that payment of a promissory note in a mortgage or deed of trust is in arrears. It is usually granted only when a borrower makes a satisfactory arrangement by which the arrears will be paid at a future date.

Foreclosure - A court action initiated by a mortgagee or lienor for the purpose of having the court order that the debtor's real estate be sold to pay the mortgage or other lien (mechanic's lien or judgment).

Foreclosure (Definition 2) - The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Form appraisal report - Any of the relatively brief standard forms prepared by agencies such as the Federal Home Loan Mortgage Corporation and Federal National Mortgage Association and others for routine property appraisals.

Fraud - Any form of deceit, trickery, breach of confidence or misrepresentation by which one party attempts to gain some unfair or dishonest advantage over another. Unlike negligence, fraud is a deceitful practice or material misstatement of a material fact, known to be false, and done with intent to deceive, or with reckless indifference as to its truth, and relied on by the injured party to his or her damage.

Freddie Mac - Nickname for the Federal Home Loan Mortgage Corporation which buys and sells FHA, VA, and, conventional loans from the members of the Federal Reserve System and Federal Home Loan Bank System.

Freehold - An estate in land in which ownership is for an indeterminate length of time.

Frequency distribution - The arrangement of data into groups according to the frequency with which they appear in the data set.

Frivolous - Of little or no worth, or importance; not worthy of serious notice. (The Random House College Dictionary).

Front foot - A standard of measurement, being a strip of land one foot wide fronting on the street or waterfront and extending the depth of the lot. Value may be quoted per front foot.

Functional obsolescence - Defects in a building or structure that detract from its value or marketability, usually the result of layout, design or other features that are less desirable than features designed for the same functions in newer property.

Functional obsolescence-curable - Physical or design features that are no longer considered desirable by property buyers but could be replaced or redesigned at relatively low cost.

Functional obsolescence-incurable - Currently undesirable physical or design features that are not easily remedied or economically justified.

General Agent - One authorized by a principal to perform any and all acts associated with the continued operation of a particular job or a certain business of the principal. The essential feature of a general agency is the continuity of service, such as that provided by a property manager of a large condominium project. Most real estate brokers are treated as special agents. (See Agent, Special Agent)

General Warranty Deed - A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Going concern value - The value existing in an established business property compared with the value of selling the real estate and other assets of a concern whose business is not yet established. The term takes into account the goodwill and earning capacity of a business.

Goodwill - An intangible, salable asset arising from the reputation of a business; the expectation of continued public patronage; including other intangible assets like trade name and going concern value. When a business is sold, the sales price often reflects its goodwill value.

Government Loan - A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

Government National Mortgage Association (Ginnie Mae) - A federal agency created in 1968 when the Federal National Mortgage association (FNMA) was partitioned into two separate corporations. Ginnie Mae," as it is popularly called, is a corporation without capital stock and is a division of HUD. The GNMA operates the special assistance aspects of federally aided housing programs and has the management and liquidating functions of the old FNMA. The FNMA is authorized to issue and sell securities backed by a portion of its mortgage portfolio, with the GNMA guaranteeing payment on such securities. GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)

Government Survey System - A system of land description that applies to much of the land in the United States, particularly in the western states; also called the geodetic or rectangular survey system. It is based on pairs of principal meridians and base lines, with each pair governing the surveys in a designated area.

Grant deed - A type of deed in which the grantor warrants that he or she has not previously conveyed the estate being granted to another, has not encumbered the property except as noted in the deed, and will convey to the grantee any title to the property the grantor may later acquire.

Grantee - A person who receives a conveyance of real property from a grantor.

Grantor - The person transferring title to or an interest in real property to a grantee.

GRI Graduate Realtors Institute - The symbol is recognized nation wide. It shows clients that the holder has a solid grasp of real estate fundamentals. GRI consists of three, five day programs. GRI I Residential Real GRI II Advanced Residential Real Estate GRI III Specialty Real Estate

Gross building area - All enclosed floor areas, as measured along a building's outside perimeter.

Gross income - (See potential gross income)

Gross income multiplier - A figure used as a multiplier of the gross income of a property to produce an estimate of the property's value.

Gross leasable area - Total space designed for occupancy and exclusive use of tenants, measured from outside wall surfaces to the center of shared interior walls.

Gross lease - A lease of property under the terms of which the lessee pays a fixed rent and the lessor pays all property charges regularly incurred through ownership (repairs, taxes, insurance and operating expenses).

Gross living area - Total finished, habitable, above-grade space, measured along the building's outside perimeter.

Gross market income - (See potential gross income)

Gross rent multiplier - (See gross income multi-Ground lease. A lease of land only on which the lessee usually owns the building or is required to build as specified by the lease. Such leases are usually long-term net leases; the lessee's rights and obligations continue until the lease expires or is terminated for default. Ground rent. Rent paid for the right to use and occupy land according to the terms of a ground lease.

Ground Lease - A lease of land alone, sometimes secured by improvements placed on the land. Also called a land lease, the ground lease is a means used to separate the ownership of the land from the ownership of the buildings and improvements constructed on the land.

Growing equity mortgage (GERI) - A type of loan that rapidly increases the equity in a property by increasing the monthly payments a certain percentage each year and applying those increases to the principal.

Guardian - A person, appointed by court or by will, given the lawful custody and care of the person or property of another (called a ward). The ward might be a minor, an insane person or even a spendthrift. The guardian may, upon court approval and without necessity of obtaining a real estate license, sell the ward's property, if it is in the best interest of the ward.

Handicap - As defined in the Fair Housing Act, a physical or mental impairment that substantially limits one or more major life activities (walking, seeing, learning, working) or a record of having such an impairment or being regarded as having such impairment. Handicap does not include current, illegal use of or addiction to a controlled substance. (See Disability)

Hazard Insurance - Protects against damages caused to property by fire, windstorms, and other common hazards.

Heir - A person who inherits under a will or a person who succeeds to property by the state laws of descent if the decedent dies without a will (intestate).

Highest and best use - The legally and physically possible use of land that is likely to produce the highest land (or property) value. It considers the balance between site and improvements as well as the intensity and length of uses.

Historical cost - Actual cost of a property at the time it was constructed.

Historical rent - Scheduled (or contract) rent paid in past years.

Hold-Harmless Clause - A contract provision whereby one party agrees to indemnify and protect the other party from any injuries or lawsuits arising about of the particular transaction. Such clauses are usually found in leases in which the lessee agrees to "indemnify, defend and hold harmless" the lessor from claims and suits of third persons for damage resulting from the lessee's negligence on the leased premises.

Holdover tenancy - A tenancy in which the lessee retains possession of the leased premises after the lease has expired and the landlord, by continuing to accept rent from the tenant, thereby agrees to the tenant's continued occupancy.

Holographic Will - A will that is written, dated and signed in the testator's handwriting, but not witnessed. Some states consider a holographic will to be valid even though it was not witnessed, presumably on the theory that the handwriting can be analyzed to verify authenticity and demonstrate competency.

Home Inspection - An examination of the physical structure and systems of a home and property.

Home Mortgage Disclosure Act (HMDA) - A federal law that requires lenders with federally related loans to disclose the number of loan applications and loans made in different parts of their service areas; designed to eliminate the discriminatory practice of redlining.

Homeowners association - Organization of property owners in a residential condominium or subdivision development, usually authorized by a declaration of restrictions to establish property design and maintenance criteria, collect assessments and manage common areas.

Housing Financial Discrimination Act of 1977 (Holden Act) - The Act prohibits financial institutions (banks, savings & loans, or other financial institutions, including mortgage loan brokers, mortgage bankers and public agencies) from engaging in discriminatory loan practices.

HUD - Department of Housing and Urban Development.

Impound Account - A trust account established to set aside funds for future needs relating to a parcel of real property. Many mortgage lenders require an impound account to cover future payments for taxes, assessments, private mortgage insurance and insurance in order to protect their security from defaults and tax liens. In the case of FHA loans, many lenders require a tax reserve of six months and an insurance reserve of one year. When the property is sold and the buyer assumes the seller's mortgage, the lender does not usually return the escrow account balance to the owner. The sum remains with the lender, and it is the responsibility of the buyer and seller to prorate the balance between them. Impound accounts are required for FHA loans, and although VA regulations do not require an impound account for taxes and insurance premiums on GI loans, many lenders customarily require that such accounts be established and maintained. Under RESPA, the amount of reserves in the impound account is limited to one-sixth of the estimated amount of taxes and insurance that will become due in the 12-month period beginning at settlement. Sometimes, part of the purchase price due the seller may be impounded or put aside by escrow to meet the postclosing expense of clearing title or repairing the structure. The issue of use of interest earned on reserve funds is frequently debated. Typically, lenders do not pay interest to borrowers on money held as reserves.

Improved land - Real property made suitable for building by the addition of utilities and publicly owned structures, such as a curb, sidewalk, street-lighting system and/or sewer.

Improvements - Structures of whatever nature, usually privately rather than publicly owned, erected on a site to enable its utilization, e.g., buildings, fences, driveways and retaining walls.

Income capitalization approach - The process of estimating the value of an income-producing property by capitalization of the annual net operating income expected to be produced by the property during its remaining economic life.

Increasing returns, law of - The situation in which property improvements increase property income or value.

Incurable depreciation - A depreciated item that would be impossible or too expensive to restore or replace.

Independent contractor - A person who contracts to do work for another by using his or her own methods and without being under the control of the other person regarding how the work should be done. Unlike an employee, an independent contractor pays all of his or her expenses, personally pays income and social security taxes and receives no employee benefits. Many real estate salespeople are independent contractors.

Index method - An appraisal technique used to estimate reproduction or replacement cost. The appraiser multiplies the original cost of construction by a price index for the geographic area to allow for price changes.

Indirect costs - Costs of erecting a new building not involved with either site preparation or building construction; for example, building permit, land survey, overhead expenses such as insurance and payroll taxes, and builder's profit.

Industrial broker - A real estate broker who specializes in brokering industrial real estate.