Real Estate Terms

Absorption: the rate at which available space in a trade area is leased during a predetermined period of time.

ADA: the Americans With Disabilities Act, passed by Congress in 1994, is intended to provide persons with disabilities accommodations and access equal to or similar to that of the general public

Appraisal: written assessment of a property’s fair market value. A professional appraiser, who may work independently or with a lender, bases the appraisal primarily on an analysis of comparable sales of similar real estate in the neighborhood.

Assessed value: a value placed on a property by an agency of the government for taxation and other purposes.

Assignment: a transfer to another of any property, real or personal, or any rights or estates in said property. Common assignments are of leases, mortgages and deeds of trust, but the general term encompasses all transfers of title.

Automated valuation model (AVM): an analytical process that produces real estate valuation estimates. An AVM combines sales history, comparable real estate data, any available proprietary appraisal information and certain economic factors to determine market conditions and their impact on home values. Appraisers and lending institutions use AVMs to calculate probable selling value of residential real estate. A valuation estimate produced by an AVM is not the same as an appraisal report prepared by a licensed professional appraiser.

Availability Rate: the ratio of available space to total rentable space, calculated by dividing the total available square feet by the total rentable square feet.

Basement: the lowest habitable story of a building, usually more than 50 percent below adjacent grade level. A walkout basement has at least one side whose floor is at grade level, with an exit. Lower level is an area that is not more than 50 percent below adjacent grade level.

Bathroom: a full bathroom is a room with a toilet, a sink and a bathtub. A three-quarter bathroom has a toilet, a sink and a shower. A half-bathroom, also called a powder room, has a toilet and a sink.

Bedroom: in general, a bedroom is a sleeping area with a door, a window and a closet that is part of the property’s main structure. The definition of bedroom varies by location, and there is no legal definition. Some MLS organizations define the term bedroom for listing purposes.

Commercial Information Exchange (CIE): an Internet-based commercial property listing service that is operated by a local association to serve the local market. A CIE is the commercial real estate equivalent of the residential Multiple Listing Service. CIEs help commercial real estate professionals (brokers, property owners, developers, investors, tenants, etc.) share information about commercial property, recent sale or lease transactions, market statistics and contacts. CIEs tend to exist in larger markets with a more developed, more organized commercial real estate industry. There are less than 100 CIEs in the United States.  

Comparables: properties similar to a specific parcel of real estate that are used to help estimate the value of that real estate. Also referred to as “comps.”

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

Deed: written document that when executed and delivered conveys title to real property.

Deed of trust: document resembling a mortgage that conveys legal title to a neutral third party as security for a debt. Also called a trust deed or deed in trust.

Deed restrictions: provisions placed in deeds to control how future landowners may or may not use the property. Also called deed covenants.

Default: breach of a contract’s terms or failure to meet a legal obligation. Nonpayment of a mortgage beyond a certain number of payments is considered a default.

Deficiency judgment: judgment issued against a borrower when the sale of foreclosed property does not bring in enough to pay the balance owed on the mortgage.

Encumbrance: any impediment to a clear title. It can be a claim, lien, zoning restriction, or other legal right or interest in land that diminishes its value. The report of the title search usually shows all encumbrances.

Equity: value an owner has in a piece of property less the debt against it. For example, if the market value of a house is $150,000 and the owner has paid off $10,000 of a $75,000 mortgage, the owner has $85,000 equity.

Fair market value: the highest price that a willing buyer would pay, and the lowest price a willing seller would accept.

First mortgage: mortgage on a property that is superior to any other. It is the first to be paid in the event of foreclosure.

Foreclosure: legal action instigated by a lender to end all ownership rights when mortgage payments have not been kept up (known as defaulting). The owner’s right to the property is terminated, and ownership of the property transfers to the institution, which then usually sells it at public auction and applies the proceeds to the mortgage debt.

Fully Serviced Lease: a lease in which the stated rent includes the operating expenses and taxes for the building.

Improvement: any form of land development or man-made addition, such as the erection of a building or fence, to enhance the value of private property; also an improvement to publicly owned structures, such as a sewer or road.

Lease Term: the specific period of time in which the Landlord grants to the tenant the right to possession of real estate.

Lien: a debt on a property that encumbers it until the obligation is paid; a mortgage, back taxes or other claim.

Living area: a measurement of the interior space of a home, in square feet. The total excludes the garage and other non-living spaces. Finished basement space is factored into a property's square footage only when that information is known in the property's public record.

Loan-to-value ratio (LTV): the ratio between the amount of a mortgage and the appraised value of a property is the loan-to-value ratio. For instance, a $200,000 mortgage on a $275,000 home equates to an LTV of 73 percent. The higher the percentage, the riskier the loan; the lower the percentage, the more equity a homeowner has in the property. Lenders examine this ratio before approving a loan and may require a borrower to purchase mortgage insurance or charge more for the mortgage if the ratio is above 80 percent.

Market price: actual selling price of a property.

Market value: generally accepted as the highest price that a ready, willing and able buyer will pay and the lowest price a ready, willing and able seller will accept for a property.

Marketable title: good and clear title that is free from reasonable doubt as to who the owner is.

Multiple Listing Service (MLS): a local or regional service that compiles available real estate for sale by member brokers. Detailed information about properties is provided to brokers, agents and the public, generally online. Local MLS organizations have their own rules and systems for providing listing information.

Notice of Default (NOD): a reminder letter sent by the lender when a borrower’s mortgage payments are late. The letter may state a grace period and penalties. If the borrower remains delinquent, the lender may initiate foreclosure proceedings involving public sale of the property.

Notice of Foreclosure: a notification document to the public regarding foreclosure proceedings when a property is repossessed by the lender. In a foreclosure, the lender typically sells the property at public auction and applies the proceeds to the mortgage debt.

Operating Expenses: the cost of operating an office building, such as janitorial, management, utilities and similar day-to-day expenses, as well as taxes, insurance and a reserve for replacement of items which periodically wear out.

Pre-foreclosure: after a property owner has received a Notice of Foreclosure from a lender due to non-payment of the mortgage, the distressed property enters pre-foreclosure. During this period, the borrower can avoid foreclosure by paying off the amount owed to the lender or modify the terms of the loan.

Property tax: assessment levied by city and county governments on real and personal property to generate the bulk of their operating revenues to pay for such public services as schools, libraries and roads.

Real Estate Owned (REO): properties that revert to a lender, typically a bank, after an unsuccessful foreclosure auction are Real Estate Owned. Banks commonly become owners of foreclosed real estate because properties for sale at auctions often are worth less than the total amount owed to the bank via the mortgage. The minimum bid — the outstanding loan amount — is above market value. Banks try to sell REO properties at lower prices on their own or through an agent.

Request for Proposal (RFP): a document typically issued by a tenant's agent to an owner(s) of real property, inviting the owner(s) to submit a proposal to the tenant for the leasing of a vacant space. The RFP sets forth the specific areas of concern to the tenant, such as the space in question, the lease term, expansion and renewal options, rental rate, and tenant improvements and other allowances to be provided by the owner.

Right of First Refusal: a right, usually given by an owner to a tenant, which gives the tenant a first chance to buy the property or lease a portion of the property if the owner decides to sell or lease. The owner must have a legitimate offer which the tenant can match or refuse. If the tenant refuses, the property can then be sold or leased to the offeror.

Second mortgage: lien on property that is subordinate to a first mortgage. In the event of default, the second mortgage is repaid after the first. Also called a junior mortgage, and in some circumstances a home equity loan.

Semi-detached home: one structure containing two dwelling units separated vertically by a common wall, such as a duplex.

Sublease: a lease, under which the lessor is the lessee of a prior lease of the same property. The sublease may be different in terms from the original lease, but cannot contain a greater property interest.

Survey: an exact measurement of the size and boundaries of a piece of land by civil engineers or surveyors.

Tax basis: the price paid for a property plus certain costs and expenses, such as closing costs, legal counsel, and a commission paid to help find the property.

Tax rate: the rate at which real property is taxed in a tax district or county. For example, in a certain county, real property may be taxed at a rate of 55 mills (or 0.055) per dollar of assessed valuation.

Tax sale: a court-ordered sale of real property to raise money to cover delinquent taxes.

Title: actual ownership; the right of possession; also the evidence of ownership such as a deed or bill of sale.

Title report: a statement of the current condition of title for a parcel of land.

Title search: a professional examination of public records to determine the chain of ownership of a particular piece of property and to note any liens, encumbrances, easements, restrictions or other factors that might affect the title.

Trust deed: a document used in place of a mortgage in certain states; a third-party trustee, not the lender, holds the title to the property until the loan is paid out or defaulted. Also called a deed of trust.

Turnkey: referring to an owner making a property ready for a tenant to begin business by having the tenant furnish only furniture, phone and inventory.

Warranty deed: a deed in which the grantor guarantees that he or she is giving the grantee good title free of encumbrances. Considered to be the best deed a grantee can receive.