REAL ESTATE

TERMS

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Glossary of Real Estate Terms

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Notice
This publication and the accompanying materials are designed to provide accurate and authoritative
information in regard to the subject matter covered in it. It is provided with the understanding that the
publisher is not engaged in rendering legal, accounting, or other professional opinions. If legal advice or
other expert assistance is required, the services of a competent professional should be sought. Reproduction
or translation of any part of the information contained herein, in any form or by any means, without the
written permission of the owner is unlawful.

Real Estate Terms

This publication and the accompanying materials are designed to provide accurate and
authoritative information in regard to the subject matter covered in it. It is provided with
the understanding that the publisher is not engaged in rendering legal, accounting, or
other professional opinions. If legal advice or other expert assistance is required, the
services of a competent professional should be sought. Reproduction or translation of any
part of the information contained herein, in any form or by any means, without the
written permission of the owner is unlawful. The educational training program provided
hereunder is not designed or intended to qualify students for employment. It is intended
solely for the avocation, personal enrichment, and enjoyment of students.
All forms contained herein are provided for educational purposes only. The provider does
not assert any warranty, express or implied, as to the legal effect and/or completeness of
the forms. The provider hereby disclaims any and all liability with respect to these forms.
The provider suggests that you contact an attorney to ensure that the forms are modified
to meet the laws of your state.
Disclosure and Foreclosure and Equity Sharing Techniques
The Foreclosure Training course or foreclosure content presented in other Company
trainings, products, and services are intended to provide broad-based experiential real
estate foreclosure and pre-foreclosure training techniques that are applicable in the
majority of geographic regions where we conduct our classes. This information is in no
way intended to provide legal advice or detailed guidance on how to properly conduct
foreclosure and/or pre-foreclosure activity in your state. As with any regulated activity,
we strongly recommend that you consult with an attorney.
There is currently a growing group of states1 which have enacted legislation that could
impact how you participate in foreclosure and/or pre-foreclosure activities in those states.
Generally speaking, such legislation may regulate both consulting/marketing activities
and activities where you in fact purchase the property and/or re-convey it back to the
owner. The laws tend to impose detailed contractual requirements and disclaimers along
with a right of cancellation for a mandated time period. It is not uncommon for these
laws to curtail certain conduct and limit the compensation/profit you may receive in
connection with foreclosure and/or pre-foreclosure activities. Finally, many of these laws
could be interpreted to prohibit you from taking an interest in a property under certain
circumstances, and as such, could hinder techniques we teach to protect the investor.
Violations of these laws typically result in both civil and criminal penalties, including
multiple damages, fines and terms of imprisonment.

As of August 11, 2008 we are aware of 23 states which have enacted legislation: CA, CO, District of
Columbia, FL, GA, HI, IA, ID, IL, IN, MA, MD, ME, MO, MN, NE, NH, NV, NY, OR, RI, VA and WA.

A
Accelerated Depreciation A method of cost write-off in accounting practice in which
allowances for depreciation of a wasting asset are greater in early years and decline
according to a formula.
Accelerated Capital Cost and Recovery System (ACRS) The methods for determining
depreciation allowances required by the Economic Recovery Tax Act of 1981.
Acceleration Clause A condition in a loan contract or a mortgage note that permits the
lender to require immediate repayment of the entire balance of the loan if the contract is
breached or conditions for repayment occur.
Accrual Accounting An accounting system where income is realized when earned, not
when received, and expenses are recorded when incurred, not when paid.
Adjustable Mortgage Loan (AML) A flexible mortgage instrument approved by the
Federal Home Loan Bank Board for use by federal savings and loan associations which
allows adjustment of the interest rate as often as monthly based upon changes on an
interest rate index.
Adjusted Basis The difference between the cost of the property and total depreciation
claimed in prior years.
Adjusted Net Operating Income Net operating income plus reserve for replacements.
Adverse Action The refusal to grant credit more or less on terms requested by the
applicant; or the refusal to increase the amount of credit available to an existing
borrower, when the borrower has requested an increase in accordance with standard
procedures.
Affidavit A statement or declaration reduced to writing and sworn or affirmed to be
before an officer who has authority to administer an oath or affirmation.
Agency The business of one entrusted to another.
Alias An assumed name; also known as (a.k.a.). From the Latin alias dictus,
otherwise called.
Alienation Clause A clause in a mortgage or charge of land that demands payment in
full upon sale of property. Similar to an acceleration clause.
Allotment An amount of money set aside by investors or institutions for future
investment in mortgages.

Real Estate Terms

Amortization The gradual reduction of a debt by means of periodic payments sufficient

to pay principal and thereby liquidate a debt.
Annual Loan Constant The total annual payments of principal and interest, annual debt
service, on a mortgage with level-payment amortization schedule, expressed as a
percentage of the initial principal amount of the loan.
Annuity Capitalization A process of capitalization in which the income from a property
is converted to a present value under the assumption that the income stream will consist
of a finite number of equal payments.
Appraisal A supported, defended, estimate of the value of property rights as of a given
date.
ASA The designation awarded by the American Society of Appraisers (ASA), to its
senior members who appraise various types of personal property as well as real property.
Assessed Valuation The valuation placed on real or personal property for the purposes
of taxation.
Assessment A charge made against a property by the state, county, city or other
authorized district.
Assignee The one to whom a mortgage and mortgagee note is transferred and assigned
(the purchaser).
Assignment A transfer of any current or future interest in property, real or personal.
Assignor The one who is transferring and assigning a mortgage and mortgage note (the
mortgagee).
Assumption A method of selling real estate wherein the property purchaser agrees to
take over the primary liability for payment of an existing mortgage.
Assumption and Release Agreement A written agreement releasing the mortgagor from
personal liability under the mortgage because a second party (the property purchaser) has
agreed to meet the mortgagors obligations.
Attachment A seizure of a defendants property as security for any judgment a plaintiff
may recover in the pending action.
Automated Clearinghouse (ACH) An electronic drafting system that debits a lenders
authorized bank account and electronically transfers funds to a designated payee account.

B
Balloon Mortgage A mortgage that has level monthly payments that willfully amortize
it over a stated term, but which provides for a balloon payment to be due at the end of an
earlier specified term.
Balloon Payment The remaining balance of a mortgage that must be paid in a lump sum
at the end of a mortgage term. The amount may represent slightly more than a monthly
payment or may be substantial. It occurs because the fixed installment did not fully
amortize the mortgage, either accidentally or intentionally.
Band of Investment Analysis A method of deriving an overall rate based on the relative
proportion of debt and equity represented in similar transactions.
Bankruptcy A proceeding in federal court in which a debtor, who owes more than his or
her assets, can relieve the debts by transferring his or her assets to a trustee. This affects
the borrowers personal liability for a mortgage debt, but not the lien of the mortgage.
Basic (Export) Activity Exchange of goods produced locally for money earned outside
the community or metropolitan area.
Basis Point 1/100 of 1%. For example, 7-1/2 basis points equals 0.075% or 0.0075.
Basket Clause A regulatory provision allowing financial institutions to make a certain
proportion of loans or investments that would otherwise be illegal.
Beneficiary The person designated to receive the income from a trust estate or trust
deed.
Biweekly Mortgage Payment A mortgage that requires payments to reduce the debt
every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly
27) biweekly payments are drafted from the borrowers bank account.
Blanket Insurance Policy A single policy that covers more than one piece or property
(or more than one person).
Blanket Mortgage A development in which several properties are secured by one
mortgage.
Boot An asset or liability transferred as part of an exchange of realty.
Broker One for whom a commission or fee brings parties together and assists in
negotiating contracts between them. In real estate transactions, the broker usually brings
together the buyer, the seller, and the mortgage lender.

Real Estate Terms

Bundle of Rights The concept of property ownership which recognizes ownership of

property as consisting of a number of rights or benefits. Included are the rights of use,
exclusion, and disposition. Also, the rights can be divided among a number of different
legal estates, such as reversions, life estates and leaseholds.

C
Call Option A provision in the mortgage that gives the lender the right to call the
mortgage due and payable at the end of a specified period for whatever reason.
Capital Gain The amount by which the net proceeds from resale of a capital item to
exceed the adjusted cost, or book value of the item.
Capitalization The process of converting into present value a series of anticipated future
installment of net income.
Cash Basis Accounting An accounting system where income is realized when collected,
not when earned, and expenses are recorded when paid, not when incurred.
Cash Break-even Ratio Operating expenses plus debt service minus replacement
reserves, divided by effective gross income. This ratio provides an investor with a
measure of all cash charges against effective gross income.
Cash Throw-off Net operating income less annual debt service; also known as before
tax cash flow and gross spendable income.
Certificate of Estoppel A statement of material facts or conditions upon which another
person can rely.
Closing The time or situation when title or real estate is conveyed from seller to the
buyer; full payment is made by the buyer to the seller; appropriate documents are
transferred, and prorationing of expenses occurs.
Cloud On Title A proceeding or instrument such as a deed, deed of trust, or mortgage,
or a tax or assessment, judgment, or decree, which, if valid, would impair the title to the
land.
Cognovit Clause Words in a mortgage note which authorize the lenders attorney to
obtain adjustment lien against the debtors real property.

Coinsurance Clause A clause in an insurance policy contemplating that the policyholder

will carry insurance to some named percentage of the value of the property covered. In
return for this, the policyholder benefits through a reduction in rate.
Collateral Stocks, bonds, evidence of deposit, and other marketable properties that a
borrower pledges as security for a loan. In mortgage lending, the collateral is the specific
real property that the borrower pledges as security.
Commercial Banks Lending institutions that primarily make short-term loans to
businesses and individuals. Banks create money through their affiliation with the
Federal Reserve System. In addition to short-term commercial loans, they make many
other types of loans, such as mortgage loans, and provide many financial services.
Commitment A pledge or engagement; a contract involving financial responsibility or a
contingent financial obligation to be performed in the future; a promise by a lender to
make a specific loan to a prospective borrower.
Comparable Sales Approach Method of appraising real estate by comparing sale prices
of properties that have sold recently to account for value differences in a property.
Conditional Sale Contract A contract for the sale of property, the property to be
delivered to the buyer; the seller to retain, however, the title thereof until the conditions
of the contract have been fulfilled.
Condominium A real estate project in which each unit owner has title to a unit in a
building, an undivided interest in the common areas of the project, and sometimes the
exclusive use of limited common areas.
Construction Loan A short-term loan made to a builder to finance the construction of a
building.
Contract of Deed or Land Contract An instrument by which a prospective buyer pays
for a property in installments. Legal title is conveyed in the future after payment of the
full price or an otherwise specified amount.
Contract Rent The periodic payment for the use of a property specified in the lease. It
may differ from the market rent and the rate that would be charged currently if the lease
were to be negotiated in the open market.
Contracts An agreement between two or more parties to do or not to do a particular
thing.
Conventional Mortgage A mortgage that is not insured or guaranteed by the federal
government.

Real Estate Terms

Convertible ARM A type of adjustable-rate mortgage that includes an option for the
mortgagor to change to a fixed-rate mortgage on one of its early interest rate adjustment
dates.
Corporation A legal entity featuring ownership by means of transferable shares, the
shares can be sold, of stock and limited liability.
Cost The expenditure of resources necessary to bring a good or product into existence.
Cost Depreciation Approach A method of appraising real estate by subtracting all
elements of accrued depreciation from the cost of reproducing the improvements and
adding to that result the value of the land as estimated separately.
Cost of Funds Index An index that is used to determine interest rate changes for certain
ARM plans. It represents the weighted-average cost of savings, borrowings and advances
of the 11th District members of the Federal Home Loan Bank of San Francisco.
Covenant An agreement between two or more persons, entered into by deed, whereby
one of the parties promises the performance or non-performance of certain acts, or that a
given state of things does or shall, or does not or shall not exist.
Credit Life Insurance A type of insurance often bought by mortgagors because it will
pay off the mortgage debt if the mortgagor dies while the policy is in force.
Curable Defect (physical or functional) A deficiency in a building, the correction of
which adds at least as much value as the cost to cure the defect.

D
Debt Service Coverage Ration The amount by which net operating income can decline
and still be adequate to cover a mortgage payment.
Declining Balance Depreciation A method of depreciating an asset by use of a fixed
percentage applied to the successive balances remaining after previously computed
amounts of depreciation have been deducted.
Deed An instrument in writing under seal, duly executed and delivered, containing a
transfer, a bargain, or contract, used in conveying the title to real property from one party
to another. There are two general types of deed: the quitclaim and the warranty. Under
the quitclaim deed, the seller conveys property to the purchaser, the title being only as
good as the title held by the seller, who conveys all claim, interest or right to the property
as far as his own title is concerned. Under a warranty deed, the seller also conveys all

claim, right, and title to the property, but also warrants the title to be clear, subject only to
such matters as may be shown in the deed. The warranty is recognized by law as the
subject for future restitution of loss to the purchaser if the seller conveys any defects in
the title. A seal is not required in some states; the term grant deed is used in place of
warranty deed in some states.
Deed Restrictions Limitations placed in a deed limiting or restricting the use of the
land.
Deed of Trust A sealed instrument in writing, duly executed and delivered, conveying
or transferring property to a trustee.
Default The failure to fulfill a contractual agreement.
Deficiency Judgment Judgment granted after a suit to recover a difference between a
legally imposed indebtedness and the dollars received from a foreclosure sale of the
debtors assets.
Depreciation A loss of utility and, hence, value from any cause.
Direct Capitalization The conversion of anticipated net income into present value by
dividing the income by an appropriate rate that reflects the prevailing relationship of net
income to selling price for comparable properties being sold in the open market.
Disclosure This is provided to clients; it is a summary of your loans and the costs
associated with them.
Discounting (Charging Points) Withholding a portion of a loan in order to adjust a
contract interest rate, nominal rate, to competitive market interest rates.
Disintermediation Withdrawal of funds from savings accounts in thrift institutions for
the purpose of investing them in higher yielding, short-term securities U.S. Treasury
certificates and notes. The process occurs during periods of high interest rates.
Due-On-Sale Provision A covenant in a mortgage that allows the lender to call the
mortgage due and payable if ownership of the mortgage property is transferred.

E
Easement A right or interest in the land of another that entitles the holder thereof to
some use, privilege or benefit such as to place pole lines, pipeline, road thereon or travel
over.

Real Estate Terms

Economic Base The economic activity of a community which results in the exporting of
goods and services to other areas and thus attracts income into the community from
outside its borders.
Economic Life The total period over which improvements to real estate contribute to
the value of the property.
Effective Age The years of age indicated by the condition and utility of a structure.
Effective Gross Income The estimated potential gross income less allowance for
vacancy and collection loss plus other income.
Eminent Domain Governmental power and authority to acquire private property within
its borders for public use upon payment of just compensation.
Encroachment An unlawful extension of ones right upon the land of another.
Equity Value in excess of a mortgage or deed of trust or value of an interest in a
contract of sale.
Equity Dividend Rate The ratio of annual cash throw-off to the original equity
investment.
Equity of Redemption A right which the mortgagor (borrower) of an estate has of
redeeming it, after it has been forfeited by law by the non-payment, at the time appointed,
of the money secured by the mortgage to be paid by paying the amount of the debt,
interest and costs.
Escalator Clause A phrase in an agreement providing for an adjustment of a price, rent
or interest rate.
Escrow Securities, instruments, or other property deposited by two or more persons or
parties with a third person or party, to be delivered on a certain contingency, or the
happening of a certain event; when used in the expression in escrow, in trust or
trust, the state of being so held. The subject matter of the transaction is the escrow; the
terms with which it is deposited with the third person or party constitute the escrow
agreement; and the third person or party is the escrow agent.
Execution A writ issued in the name of the people, under the seal of the court, and
subscribed by the clerk, or issued by a justice of the peace directed to a sheriff, constable,
marshal, or commissioner appointed by the court, to enforce a judgment against the
property or person of a judgment debtor.

Externalities Influences emanating from outside a property which affect it and other
properties, whether vacant land or improved property.
Equity Dividend Rate The ratio of annual cash throw-off to the original equity
investment.

F
Federal Deposit Insurance Corporation (FDIC) Governmental agency whose primary
functions are supervision and insurance of accounts.
Federal Home Loan Mortgage Corporation (FHLMC) A government related agency
that provides a market for those wishing to sell previously originated mortgage loans. It
primarily buys conventional loans from savings and loan associations.
Federal Housing Administration (FHA) An agency of the U.S. Department of Housing
and Urban Development (HUD) which insures private lending institutions against loss on
loans under various housing programs established by programs.
Federal National Mortgage Association (FNMA) A government-related agency that
provides a market for those wishing to sell previously originated mortgage loans. It deals
primarily in government-underwritten loans.
Federal Reserve System (FRS) An independent government agency consisting of a
Board of Governors and 12 regional banks that serve as a reservoir of funds for most of
the nations commercial banks. The system allows for the creation of money through
the system of reserves according to policy established by the Board of Governors.
Through various tools. The Fed can speed up or slow down increases in the supply of
money. These changes, in turn, are usually felt in increasing or decreasing interest rates.
Fiduciary One who holds a thing in trust for another, such as a trustee.
First Mortgage A mortgage that is first lien on the property pledged as security.
Fiscal Policy The taxation and spending plans and patterns of the U.S. Government.
Fiscal Year A corporations accounting year; it does not always start on January 1.
Fixed-rate Mortgage A mortgage that provides for only one interest rate for the entire
term of the mortgage. If the interest rate changes because of enforcement of the due-onsale provision, the mortgage is still considered a fixed-rate mortgage.
Forbearance The waiving of a term of a mortgage.

Real Estate Terms

Foreclosure The legal process by which a mortgagor of real or personal property or

other owner of a property subject to a lien is deprived of his interest therein. The usual
modern method is sale of the property by court proceedings or outside of court.
Form Report A special type of appraisal report that can be completed relatively quickly
and easily.
Fractions When dealing with mortgage notes, this term refers to a portion of the note.
Fully Amortized ARM An adjustable-rate mortgage that has a monthly payment
sufficient to amortize the unpaid principal balance (at the interest accrual rate) over the
mortgage term.

G
Gap Financing A loan obtained by a builder to cover the potential difference between a
permanent loan commitment and a construction loan, the amount of which is based upon
a specified occupancy rate.
Generative Function A product or service line of establishments that a customer intends
to patronize when a shopping journey begins.
Going Concern Value The value of a business considered as operating enterprise as
opposed to a collection of individual groups of assets and liabilities.
Government National Mortgage Association (GNMA) A governmental agency under
HUD that provides a secondary market for mortgages granted under special purpose
government programs.
Graduated Payment Adjustable Rate Mortgage (GPARM) A mortgage that combines
the features of a graduated payment mortgage and an adjustable rate mortgage. Payments
are increased yearly during the graduated payment period and do not necessarily reflect
changes in the interest rate during that period. At the end of any graduated payment
period, if there is no option for an additional graduated payment period, the mortgage
characteristics are those of a regular adjustable rate mortgage.
Graduated Payment Mortgage (GPM) A type of mortgage loan that allows lower
payments during the loans early years than would be the case with a standard fixed
payment mortgage. The payments rise by a specified percentage usually during the loans
first five to ten years.
Grantee He to whom a grant is made.

Grantor He by whom a grant is made. The seller of real property, i.e., the grantor in a
deed, gives up title.
Gross Income (Rent) Multiplier (GIM) The relationship between sale price (value) and
either Potential Gross Income or Effective Gross Income.

H
Hazard insurance A contract whereby, for an agreed premium, one party undertakes to
compensate the other for loss on a specific subject by specified hazards, such as acts of
God or war.
Highest and Best Use, Improved Property Existing improvements which remain the
highest and best use until a new use of the site generates sufficient value to justify
demolition of the existing improvements and construction of new improvements.
Highest and Best Use, Vacant Site That use of a site which results in maximum
productivity and return on investment.
High-ratio Loan A loan for more than 75% of the appraised value of a property;
according to federal law, it must be insured.
Home Bank Loan Act (1932) Created the Federal Home Loan Bank System.
Home Mortgage A residential mortgage on one-to-four family property.
Home Owners Loan Act (1933) Gave all savings and loan associations the opportunity
to apply for a federal charter.
Homestead Estate The rights of record of a head of a family or household in real estate,
owned and occupied as a home, which are exempt from seizure by creditors.

I
Income Capitalization Approach A method of appraising real estate by which a
propertys annual net operating income is divided by a rate reflecting a return on and of
the investment. The rate is obtained from market transactions of similar properties, and
the resulting number is an estimate of market value.

Real Estate Terms

Incurable Defect, Physical Deterioration An item which is worn out and costs more to
replace than the value added by the cure.
Incurable Functional Obsolescence Defects in a buildings basic design or layout; an
insufficient number of bathrooms and an inefficient traffic pattern are good examples.
The cost to cure such defects is greater than the value added by the cure.
Index A number derived from a formula used to characterize a set of data, which serves
as an indicator for determining interest rate changes on ARMs/GPARMs. Most standard
plans have used indexes based on Treasury bills.
Individual Investors Private investors, unaffiliated with any organizations or
institutions, who are purchasing a mortgage for their own profit. Sellers of real estate,
who hold the paper on the property they sold, are included in this category. The
regulations for licenses in any state are generally there to protect the private investor.
Installment Sale A transaction in which a portion of the selling price for property is
received in future periods.
Insurable Value The portion of the total value of an asset(s) that is acknowledged under
the provisions of an insurance policy.
Interest Accrual Rate The percentage rate at which interest accrues on the mortgage. In
most cases, it is also the rate used to calculate the monthly payment, although it is not
used for graduated payment mortgages and adjustable rate mortgages with payment
change limitations.
Interest-In-Advance Mortgage A mortgage for which the interest portion of each
months principal and interest payment covers the period between the first and last day of
that month (rather than of the preceding month).
Interest Rate Buy Down Plan An arrangement wherein the property seller (or any other
party) deposits money into an account so that it can be released each month to reduce the
mortgagors monthly payments during the early years of a mortgage. During the specified
period, the mortgagors effective interest rate is brought down below the actual mortgage
interest rate.
Interest Rate Change Date The date on which the mortgage interest rate changes for an
ARM/GPARM; the effective date that a new interest rate begins to accrue on an ARM
MBS pool.
Interim Financing A subordinated loan from a land seller to a developer during the
period the developer has a first-lien construction or development loan from an institution
lender.

Intermediation The process of depositing funds in financial institutions, which serve as

intermediaries in the flow of funds for investment.
Internal Rate of Return The interest rate that discounts future cash flows and cash
reversion from a project equal to the initial investment.
Investment Entry Point (Urban Real Estate) Refers to the relative age of a property at
the time of purchase by an investor with respect to the propertys time line.

J
Junior Mortgage Any mortgage that provides a lien that is subsequent in priority to
another mortgage.

L
Leasehold Financing A loan for which a long-term leasehold serves as security.
Typically, there is a loan on the underlying fee simple interest, which must be
subordinated to the leasehold lender.
Lessee One who possesses the right to use or occupy a property under lease agreement;
the renter.
Lessor One who holds title to and conveys the right to use and occupy a property under
lease agreement; the landlord.
Letter Report An appraisal form used only for simple, straightforward appraisals.
Leverage The use of borrowed funds to finance the purchase of an asset, especially real
estate. The effect of leverage can be positive or negative depending upon whether the
interest rate on the debt is lower or higher than the rate of return remaining to the equity.
Positive leverage enhances the equity return, while negative leverage decreases.
Lien A hold or claim which one person has on the property of another as a security for
some debt or charge.
Lien Theory A modern approach to creating loan security in which the lender is
considered to hold an interest in, rather than a title to, the property for security of the
debt.

Real Estate Terms

Liquidation Value The estimated proceeds, net of liabilities, which would result from
either a normal or forced sale of an asset(s) if sold without being part of the business of
which it was originally a part.
Liquidity Relationship between a speedy sale price and the total number of dollars
invested in the property.
Loan The letting out, or renting, of a certain sum of money by a lender to a borrower to
be repaid with or without interest.
Loan Fee A separate charge added to the closing costs of the buyer.
Loan-to-Value Ratio The relationship of the loan amount to the price or value of a
property.
Locational (Economic) Obsolescence Decline in the value of a building caused by the
deterioration in the quality of its neighborhood.
Long-Lived Incurable Defect A defect that will last as long as the building.

M
MAl (Member Appraisal Institute) Designation awarded by the American Institute of
Real Estate Appraisers (AIREA) which signifies that an appraiser is qualified to appraise
all types of real property and meets high knowledge and ethical standards.
Margin The amount that is added to the index value to create a mortgage interest rate
for an ARM/GPARM.
Market Value The highest price that a buyer agreeing, but not forced to buy, would pay,
and the lowest a seller, agreeing, but not forced to sell, would accept.
Marketability Relationship between a speedy sale price and the current market value of
the property.
Market Rent Rental level ascertained by seeking out the rental rates for similar
properties in the relevant market area.
Market Risk The uncertainty associated with the decrease in the market price of an
investment in response to a rise in market rates of interest.
Market Segmentation The dividing of a large, more general market into smaller, more
specific submarkets.

Maturity Date The final day of a given period concerning a mortgage or a lien (e.g., a
mechanics lien or a builders lien).
Mechanics Lien A lien affixed to land records for a specified period of time, usually
on behalf of a tradesman for recapture of the unpaid costs of labor and materials.
Mechanics liens must be satisfied when property changes hands. They are also enforced
by court order.
MI Any one of the private or state mortgage insurance companies that insure against
loss in the event of a mortgagors default under a conventional mortgage.
Modification and Assumption Agreement A written agreement to change the interest
rate when the due-on-sale (or transfer) provision of the mortgage is enforced because of a
change of ownership. It also releases the previous mortgagor from personal liability
under the mortgage.
Monthly Fixed Installment The portion of the total monthly payment that is applied to
reduce the debt once a month.
Monthly Loan Constant The total monthly payments of principal and interest on a
mortgage having a level payment schedule, expressed as a percentage of the initial
principal amount of the loan.
Moratorium A period during which an obligor has a legal right to delay meeting an
obligation, especially such a period granted in an emergency as to debt or generally by a
moratorium law.
Mortgage A document providing written evidence of the right of a creditor to have
property of a debtor sold upon default and foreclosure.
Mortgage Assignment Occurs when a mortgagee sells a mortgage; the assignment is a
brief form stating that the mortgagee, the assignor, transfers and assigns the mortgage and
mortgage note to the purchaser, the assignee.
Mortgage-Backed Security (MBS) An investment security that represents an undivided
interest in a pool of mortgages.
Mortgage Banker Any person, firm or corporation engaged in the business of lending
money on the security of improved real estate and who publicly offers such security for
sale as a dealer. Usually takes title to loans.

Real Estate Terms

Mortgage Broker An agent whose chief function is to originate real estate loans for
insurance companies, commercial banks and other investors. Usually does not take title to
loans.
Mortgagee The lender; the one to whom the property is pledged.
Mortgage Equity Analysis A procedure for deriving overall capitalization rates and or
valuing the debt and equity components.
Mortgage Insurance Insurance covering complete or partial losses of principal and
interest of a mortgage loan.
Mortgage Interest Rate The rate of interest in effect for the monthly installment due.
For fixed-rate mortgages or for adjustable rate mortgages that have an initial fixed-rate
period, it is the rate in effect during that period. For adjustable rate mortgages after any
initial fixed-rate period, it is the sum of the applicable index and the mortgage margin
(rounded as appropriate and subject to any per adjustment caps or lifetime interest rate
ceilings).
Mortgage Margin The amount that is added to the index value to establish the mortgage
interest rate for each interest rate change date (subject to any limitations on the interest
rate change) for an ARM.
Mortgage Note A negotiable promissory note secured by a mortgage on certain specific
real estate.
Mortgage Portfolio The aggregate of mortgage loans held by the lender.
Mortgagor The borrower; the one pledging the property as security for a debt.
Mutual Savings Banks Mutually owned thrift institutions operated for the benefit of
their depositors. They are located primarily in the Northeast and have wider investment
powers than the savings and loan associations.

N
Narrative Report An appraisal form that is a complete written explanation of the entire
valuation process for a specific property.
National Housing Act (1934) Established the Federal Savings and Loan Insurance
Corporation.

Negative Amortization A gradual increase in the mortgage debt occurs when the
monthly fixed installment is not sufficient for full application to both principal and
interest. Actually, there will be an insufficient interest application. This interest shortage
is added to the unpaid principal balance to create negative amortization.
Net Income The part of the gross income that remains after the deduction of all charges,
taxes or costs.
Net Operating Income (NOI) Effective gross income less all relevant expenses; NOI
includes only the income to the real estate.
Net Worth The equity of the owners in the business, i.e., the net assets determined by
subtracting all liabilities from the value of the assets.
Net Yield The yield of certain property, real or otherwise, clear of all charges and
deductions; that part of the gross yield which remains after the deduction of all charges,
taxes or costs.

O
Open-End Mortgage Mortgage, or deed of trust, written so as to secure and permit
additional advances on the original loan.
Open Market Operations One of the economic tools used by the Board of Governors
of the Federal Reserve System whereby the Fed purchases or sells government securities.
Open Mortgage A privilege given to the mortgagor, which allows pre-payment of the
principal at any time and in any amount.
Operating Business Risk The type of uncertainty primarily concerned with the variance
between budgeted and actual operating income and expenses.
Operating Expense Ratio Relationship between operating expenses and projected gross
income.
Operating Financial Risk The type of uncertainty primarily concerned with the ability
to pay operating expenses from funds provided from operations, borrowings, and equity
sources.
Overall Capitalization Rate The direct ratio between annual net operating income (NOI)
and value or sale price of a property.

Real Estate Terms

Over-Improvement An improvement that is not the most profitable use for the site on
which it is placed because of its excessive size or cost. It does not produce the maximum
possible land value.
Owner of Record The entity that appears in the public records as the owner of a
mortgage; usually the mortgage originator, unless the mortgage is subsequently assigned
to someone else and that assignment is recorded.

P
Package Mortgage A debt secured by pledge of both real property and personal
property such as range, refrigerator and furniture.
Participation Clause The clause in a lease that requires tenants to pay additional rent on
sales in excess of a certain amount.
Participation Mortgage (a) A mortgage held by more than one lender; (b) a mortgage
that calls for the lender to share in the operating income produced by the property.
Partnership An association of two or more persons for the conduct of an enterprise
other than in corporate form.
Payback Period The time required for the complete recovery from cash throw-off
equity funds invested in a project.
Payment Change Date The date on which the monthly payment changes for an
ARM/GPARM. It must fall within the month immediately following an interest rate
change date, unless an ARM or GPARM provides for the monthly payment to change
more frequently than the interest rate.
Payment Change Interval The period that elapses between the payment change dates for
an ARM/GPARM.
Payment Change Limitations A restriction on the amount that the monthly payment for
an ARM or GPARM can change on any payment change date.
Pension Funds The accumulated savings of individuals set aside during their working
lives for later use when retired.
Personal Property A chattel; an item of property that is neither the land nor is
permanently attached to the land.

POC Refers to the three most basic functions of management - planning, organizing,
controlling.
Portability Occurs when an owner takes a mortgage to another property when selling
their home. In this way they avoid payout penalties, and can enjoy the same terms and
interest rates for the life of the mortgage.
Potential Gross Income The income that a property will produce with one hundred
percent occupancy.
Power of Attorney Authorization given to someone to act on behalf of an owner, by the
owner and stated in written form.
Preoperational Those steps taken to insure the ability to control.
Prepayment Clause (Privilege) Mortgage contract clause permitting borrower to pay
loan amounts in advance of their due dates.
Prepayment Penalty Penalty for the payment of a debt before it actually comes due.
Price The quantity of one thing that is exchanged for another; the amount of money
paid; asked; or offered where sale is contemplated.
Principal The amount of the loan minus the interest. It begins as the amount the loan
was taken out for and gradually decreases as payments are made and interest is paid off.
Principal of Substitution A valuation principal that states that a prudent purchaser
would pay no more for real property than the cost of acquiring an equally desirable
substitute on the open market.
Promissory Note A signed document acknowledging the existence of a debt and
promising repayment.
Proprietorship Single ownership. The business and the owner are considered the same.
Pro-rating Allocation of costs or revenues between buyer and seller according to the
relative time each occupies the property.
Purchase Money Mortgage A mortgage given by a purchaser of real property to the
seller in part payment of the purchase price.

Real Estate Terms

Q
Quantity Survey A method of estimating building cost in which all elements of labor,
materials, and overhead are priced and totaled to obtain building costs.
Quitclaim Deed A deed of release. An instrument by which the grantor relinquishes all
right, title, or interest he may have in the property.

R
Real Estate Land, including its natural components such as minerals, water, and
buildings or improvements.
Real Estate Investment Trust (REIT) A passive investment vehicle whose distributed
earnings are taxed only to investors who receive them.
Realized Gain The difference between the net sale price and the adjusted basis of the
property.
Real Property The legal rights to possession, use and disposition of real estate.
Recapture Rate (capital recovery rate) - Represents the percentage annual return of the
capital invested in a depreciating asset.
Reconciliation The process by which an appraiser evaluates, chooses, and selects from
among two or more alternative conclusions or indications to reach a single answer (final
value estimate).
Reconstructed Operating Statement A statement of income and expenses prepared by
an appraiser to indicate the probable future net operating income of a property. The
forecast reflects the quantity and quality of services anticipated in the stabilized income,
based upon the historic experience of the property and the experience of other
competitive properties.
Redemption Period The specified period in which a mortgagor can reclaim foreclosed
property by making full payment of the mortgage debt, under a legally enforceable right
of redemption in some states.
Rehabilitation Mortgage A mortgage created to cover the costs of repairing, improving,
and sometimes acquiring an existing property.

Renegotiable Rate Mortgage (RRM) A series of automatically renewable short-term

loans secured by a long-term mortgage. The renewable rate may be adjusted at intervals
of three to five years.
Rental Value The estimated amount of rent that could be obtained for the use and
occupancy of a property.
Replacement Cost The cost of construction, at current prices, of a building having a
utility equivalent to the building being appraised, but built with modern materials and
according to current standards, design and layout.
Reproduction Cost The cost of construction, at current prices, of an exact duplicate or
replica using the same materials, construction or standards, design, layout, and quality of
workmanship, embodying all the deficiencies and obsolescence of the subject building.
Residential Home Mortgage A mortgage that covers a residential property, i.e. a
property that is designed as a dwelling used to provide living accommodations for one to
four families.
Residential Member (RM) Designation awarded by the American Institute of Real
Estate Appraisers (AIREA) that certifies that the individual is qualified to perform
appraisals on one-to-four family residences.
Residual Techniques Assignment of a portion of income to part of an asset, with the
remainder (or residual) flowing automatically to the rest of the asset.
Reverse Annuity Mortgage (RAM) A loan arrangement in which a lender makes
periodic payments to the borrower, with the borrowers equity interest in real estate
serving as equity for the loan. The borrower may occupy the property until a specified
loan-to-value ratio is reached.
Right of Redemption The right of the owner to reclaim title to his property if he pays
the debt to the mortgagee within a stipulated period of time after the foreclosure.
Risk The chance of loss on an investment or from a particular hazard, such as fire,
earthquake or wind.
Risk of Default The risk that promised payments of interest and repayment of principal
will not be met fully and on schedule.

Real Estate Terms

S
Sale and Contract-Back A financial arrangement in which an investor purchases real
estate owned and used by a business firm and agrees to buy back the property in a land
contract.
Sale and LeaseBack A financial arrangement in which an investor purchases real estate
owned and used by a business firm and the property is leased back to the firm by the
purchaser-investor.
Sales Agreement An agreement by which one of two contracting parties, called seller,
gives a thing and passes title to it in exchange for a certain price in current money to the
other party, called the buyer or purchaser, who on his part agrees to pay such a price.
Satisfaction A written instrument that evidences the payment in full of a mortgage debt,
and extinguishes the mortgage lien.
Scarcity Limitations on the available supply of an economic good relative to the desire
for it.
Seasoning (of the mortgage) The on-going value of the note by payments made on it.
The more seasoned the note, the more was paid on it. Investors tend to focus mainly on
seasoned notes, which are more secure because theyve had payments made on them and
thus have some money backing them.
Secondary Market A market composed of purchasers of mortgages from institutions
that originate mortgage loans to the individual users.
Second Mortgage A mortgage that has a lien position that is subordinate to the first
mortgage (see also Junior Mortgage).
Security/Security Instrument Something given, deposited, or pledged to make secure
the fulfillment of an obligation or the payment of a debt.
Senior Residential Appraiser (SRA) A designation given by the Society of Real Estate
Appraisers (SREA) to individuals having extensive technical training combined with long
and varied experience. The designation certifies that they are capable of appraising
complex properties and providing analytical services regarding real estate purchase and
ownership.
Senior Real Estate Analyst (SREA) A designation awarded by the Society of Real
Estate Appraisers (SREA) to general practice, professional appraisers who have
completed a program of professional training and experience in the appraisal of both
income and residential properties.

Senior Real Property Appraiser (SRPA) A designation awarded by the Society of Real
Estate Appraisers (SREA) to general practice, professional appraisers who have
completed a program of professional training and experience in the appraisal of both
income and residential properties.
Sensitivity Analysis The process of measuring the effects of different loan provisions
on mortgage payments and cash throw-offs.
Service Corporations Subsidiary companies to savings and loan associations that have
much wider lending and investment powers than the parent association.
Servicing Taking all steps necessary to make certain that loan provisions are carried
out.
Setback The distance from a lot line which by law, regulation, or restriction in the deed
must be left open; the linear distance between the lot line and the buildings or building
line.
Shared Appreciation Mortgage (SAM) A type of mortgage loan in which the lender
shares with the borrower-owner in the differential between sale price and purchase price
(appreciation) at the time the property is sold. In return the lender charges a lower interest
rate.
Short-Lived Incurable Defects Those defects that do not last as long as the major
portion of the building.
Sinking Fund Factor A multiplier used to compute periodic contributions to a sinking
fund that will grow with compound interest at a selected rate for a specified period of
time.
Special Assessment A special charge against real estate such as street assessment or
sewer assessment for installation of public improvements from which the property
benefits.
Special Assistance Function One of the functions of the Government National
Mortgage Association that involves a number of programs. These programs involve
making purchase commitments on certain types and categories of home mortgages which
otherwise would not be readily salable.
Special Forbearance A relief provision that provides for a period of reduced or
suspended payments, followed by another period of larger than normal payments, to
enable the mortgagor to cure the entire delinquency.

Real Estate Terms

Spread The difference between the cost of and yield on an investment.

Standard Payment Calculation The method used to determine the monthly payment
required to repay the unpaid principal balance of a mortgage in substantially equal
installments over the remaining term of the mortgage at the current mortgage interest
rate.
Static Risk Risk associated with unusual occurrences such as storms, fire or theft that
affect one property, but not all properties of the same class.
Straight-Line Depreciation The process of calculating a theoretical, uniform annual loss
of value of a wasting asset based upon the estimated useful life of the property when
acquired.
Strict Foreclosure In Florida, the courts give the mortgagor a period of time to cure the
default and during this grace period, the mortgagor has the right to remain in possession
of the property, unless otherwise agreed to in the mortgage agreement.
Subordination The act of a creditor acknowledging in writing that the debt due him by a
debtor shall be inferior to a debt due another creditor by the same debtor (see also Junior
Mortgage).
Sum-of-the-Years Digits A process by which a theoretical loss of value is calculated
for a wasting asset as a deduction for computation of federal income tax. The rate of
depreciation is very rapid in early years and more gradual in later years.
Surety One legally liable on default of another.
Suscipient Function A product or service line of establishments which attract passersby
who are attracted to the vicinity primarily by other establishments that merchandise more
basic goods or services.

T
Tandem Plan A two-part process in which the Government National Mortgage
Association (GNMA) makes a commitment to purchase a package of mortgages, usually
to the Federal National Mortgage Association (FNMA), at the current discount rate.
GNMA then resells the package to FNMA at current discount rates for less than the
original purchase price.
Tax Deferred Exchange When income producing real estate is exchanged for other
income producing real estate, termed like property, the realized gain on the exchange
need not be recognized.

Term Mortgage One having a specific term, usually not over a five-year maturity,
during which interest is paid but the principal is not reduced.
Title The means whereby the owner of the land has the just possession of his property.
Title Insurance A type of insurance that insures against defects in the title that were not
listed in the title report or abstract.
Title Search An effort to determine the state of a title through an examination of public
records.
Title Theory A concept of mortgages in which a mortgage is assumed to represent an
actual conveyance of title to mortgage.
Transfer of Ownership Any means by which the ownership of a property changes
hands.
Treasury Index An index that is used to determine interest rate changes for certain
ARM plans. It is based on the results of auctions that the U.S. Treasury holds for its
Treasury bills and securities.
Trust Deed An agreement in writing conveying property from the owner to a trustee for
the accomplishment of the objectives set forth in the agreement. Trust deeds are generally
used in many states rather than mortgages to secure loans on real property.
Trustee A person, real or juristic, holding property in trust.
Two-Step Mortgage An adjustable rate mortgage that provides for one interest rate for
the first five or seven years of the mortgage term and a different interest rate for the
remainder of the mortgage term.

U
Under-Improvement An improvement which is not adequate to develop the highest and
best use of a site; usually a structure which is of lesser cost, quality, and size than typical
neighborhood properties.
Unencumbered Property Property that is free and clear of any assessments, liens,
easements, or encumbrances of any kind. Also known as clear title.
Unit Comparison Method The reduction of properties to appropriate units in terms of
which comparisons of otherwise not directly comparable properties, can be made.

Real Estate Terms

Unit in Place Method A method of estimating construction costs which involve

estimating the unit cost of component sections of the structure installed in place. The
unit includes both materials and labor.
Utility The capacity of an economic good to satisfy human desires or needs.

V
Valuation The act of establishing the value of real property.
Value The quantity of one economic good which can be obtained in exchange for
another; value in a general sense is conceptual and means different things to different
people.
Variable Rate Clause (mortgage) A mortgage instrument carrying an interest rate that
varies with changes in market rates in general, such as the prime rate or the bond market
rate.
Vendee The person to whom a thing is sold.
Vendor Seller.
Vendor Take-Back Mortgage Also known as seller financing, it is when the buyer of a
property borrows the money from the seller as opposed to the bank. The seller then takes
small payments based on the payment period of the mortgage.
Veterans Administration (VA) Created as part of the Servicemens Readjustment Act of
1944 and authorized to guarantee a stated percentage of loans made to qualified veterans
by qualified lenders.

W
Waiver The relinquishment of a right or refusal to accept a right.
Warehousing An arrangement whereby an originator-mortgagee obtains short-term
interim credit secured by mortgages for the purpose of bridging the gap between the
completion of construction and eventual sale of the mortgage on the property to an
investor-mortgagee.

Warrant A covenant whereby the grantor of an estate and his heirs are bound to warrant
and defend the title (see also Deed).
Wraparound Mortgage In general, a third party lender refinances the property by
assuming the existing mortgage, and its debt service, and wraps around a new, junior
mortgage.

Y
Yield Return on an investment.
Yield to Maturity A percentage of funds borrowed that are returned to the lender
annually in consideration of the fact that the loan will be paid when it reaches maturity.

Z
Zoning Land use, determined by municipal authorities, to which property may be put to
in specific areas.