O
 

Obsolescence

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

Open-End Credit

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

Origination Fee

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

Overage Rent

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

Overall Capitalization Rate

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

Overhead Easement

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

Overimprovement

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

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P
 

Partial Interest

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

Partial Payment Factor

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

Partial Taking

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

Party Wall

A common, shared wall erected between adjoining properties.    

Passive Activity Loss

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

Pass Through

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

Percentage Lease

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

Permanent Loan

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

Perpetual Easement

An easement that lasts forever into perpetuity.

PITI

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

Plat

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

Planned Unit Development

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

Plottage

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

Point

See Discount Points

Police Power

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

Potential Gross Income

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

Prepaids

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

Prepayment

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

Prepayment Penalty

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

Principal

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

Private Mortgage Insurance (PMI)

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

Pro forma

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

Property Residual Technique

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

Purchase Money Mortgage

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

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Q

 

Quantity Survey Method

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

 

Quitclaim Deed

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

R
 

Radiant Heat Syatem

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

Radon

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

Real Estate Settlement Procedures Act (RESPA)

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

Recission

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

Refinancing

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

Residual Techniques

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

Restrictive Covenant

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

Reverse Annuity Mortgage (RAM)

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

Reversion

[1] the value of property at the expiration of a certain time period.  [2] the right of a lessor to possess leased property upon the termination of a lease. [3] REVERSIONARY INTEREST - the interest a person has in property upon the termination of the preceding estate. 

S
 

Safe Rate

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

Sale-Leaseback

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

Secondary Mortgage Market

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

Section 8 Housing

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

Security Interest

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

Servicing

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

Settlement

See Closing.

Settlement Costs

See Closing Costs.

Severance Damages

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

Shared Appreciation Mortgage (SAM)

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

Simple Interest

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

Special Assessment

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

Special Lien

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

 

Special Warranty Deed

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

Stabilized Occupancy

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

Sublease

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

Survey

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

T
 

Taking 

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

Tax Free Exchange

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

Tenancy

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

Tenancy At Sufferance

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

Tenancy At Will

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

Tenancy By The Entirety

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

Tenancy For Years

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

Tenancy From Period To Period

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

Tenancy In Common

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

Tenancy In Severalty

An estate held by one owner.

Terminal Capitalization Rate

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

Title

A document evidencing an individual's ownership of property.

Title Insurance

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

Title Search

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

Triple Net Lease (NNN)

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

Trustee

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

Truth-in-Lending

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

U

 

Underwriting

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

Undivided Interest

Fractional ownership without physical division of ownership into shares.
 

Undivided Partial Interest

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

Unity of Use

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

V

VA Loan

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

VA Mortgage Funding Fee

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

Value In Use

The value a property has for a specific use.
 

Verification of Employment

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

W

Wraparound

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

 

X  Y  Z

 

Yield, Yield Rate

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

Yield Capitalization

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

Zero Lot Line

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

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