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Real Estate Glossary C [Part 4]
Completion bond
A surety bond given by a landowner or developer to ensure that a proposed development is completed in accordance with specifications, free and clear of all mechanics’ liens. A completion bond is distinct from a performance bond, which is granted to an owner by a contract party (often the contractor or subcontractor) to ensure contract performance, provided the party is paid.
The landowner or developer may have no underlying obligation to execute with a completion bond. As a condition of the county’s approval of a planned subdivision, most county subdivision ordinances require the sub-divider to pay a cash completion bond. Some lenders demand an owner to give a completion bond in addition to a performance bond from the contractor, ensuring the lender that the development (which serves as the loan’s security) would be completed whether or not the owner pays the contractor. The bond is drafted for the total construction cost and is only exercisable if the developer is unable to complete the project. If this occurs, the lender can use the bond revenues to finish the building and then sell it to recoup the interim loan monies.
A formal agreement that guarantees the completion of a property’s construction.
Compliance inspection
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A public official inspects a structure to ensure it complies with all building standards and specifications.
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Inspection of a building site or structure by a lending institution (for conventional mortgage loans) or a government agent (for FHA or VA loans) to confirm compliance with all relevant criteria before a mortgage or construction loan advances are granted.
Component depreciation
Previously, depreciating the components of a building individually was utilized to save money on taxes (in contrast to composite or unitary depreciation, where the entire asset depreciates at the same rate). Component depreciation has the advantage of allowing for a significantly faster depreciation deduction on structural elements with a much shorter life than the structure as a whole. The bigger the potential tax savings, the shorter the component’s life and the higher its cost in relation to the building as a whole. For example, a building’s useful life may be 40 years, while various component sections, such as air conditioning (10 years), elevator (15 years), wiring (15 years), plumbing (15 years), and roof (15 years), have shorter lives.
Component depreciation is normally not available for property placed in service after 1980 as a result of the Economic Recovery Tax Act of 1981.
Compound amount
The total of principle and compounded interest during a certain holding period.
Cost approach
An assessment approach that determines the worth of a property by adding the cost of reconstruction to the cost of land.
An appraisal approach in which an estimate of land value is added to the expected cost of recreating existing improvements on the land (net of accrued depreciation) to obtain a value estimate for the entire property.
A method of valuing property based on the cost of reproduction or replacement of the improvement. The cost approach is also known as the summation approach since it entails putting together the independently determined building and land values.
The main processes are to (1) estimate the land value, (2) estimate the new building replacement cost, (3) deduct all accrued depreciation from the replacement cost, and (4) add the estimated land value to the depreciated replacement cost.
The land is assumed to be unoccupied and available for development when estimating land value. The appraiser determines value by comparing sales of similar land. Although land does not deteriorate, its value is affected by its current use and external influences.
The comparative cost method is frequently used to estimate reproduction costs based on current market costs to construct buildings that are equivalent in design, type, size, and construction quality.
This reproduction cost is reduced by depreciation owing to physical deterioration, functional obsolescence, and external obsolescence. Finally, the anticipated land value is added to the building’s depreciated cost. The current replacement cost of the building plus the value of the land tends to establish the top limit of a property’s value because most individuals will not pay more for a property than it would cost to buy a similar site and erect a similar structure on it.
A method for determining the value of properties with negative cashflow.
A way to figure out how much a property is worth on the market by figuring out how much it would cost to make a property just like it.
Cost approach improvement value
The current cost of building a copy of or a replacement for the existing structure, minus an estimate of all causes of wear and tear.
Cost basis
The original price of an item, generally the purchase price, is utilized to calculate a capital gain.
Cost controlling
Keeping track of changes to the project’s budget.
Cost estimation
calculating the cost of resources required to fulfill project tasks
Cost of occupancy
Expenses incurred in assuming and maintaining occupancy of a space. Rent and/or mortgage payments, as well as recurring costs such as real estate taxes, repairs, operating expenses, and other outgoings directly related to the property’s use, are examples of such expenditures.
Comprehensive environmental response, compensation, and liability act (CERCLA)
The Superfund Amendments and Reauthorization Act of 1986 (SARA) reauthorizes a federal statute introduced in 1980 that holds owners, lenders, occupiers, and operators liable for environmental concerns uncovered on their site. The Superfund statutes establish a fund to clean up hazardous waste sites and respond to accidents and emissions on private property. In general, Superfund offers a method for identifying parties responsible for cleaning operations and allowing those parties to be reimbursed for cleanup costs.
The Resource Conservation and Recovery Act of 1976 (RCRA), which was developed with the “cradle-to-grave” approach to the regulation of the licensing and notification requirements for individuals who generate, store, treat, or dispose of hazardous waste, is linked to the CERCLA and SARA regulations. RCRA requires a permit from the Environmental Protection Agency for the treatment, storage, and disposal of hazardous wastes (EPA). The Environmental Protection Agency (EPA) is in charge of enforcing CERCLA, SARA, and RCRA. Furthermore, many states have passed their own Superfund legislation governing hazardous waste cleanup, with each having its own government agency to enforce the legislation.
CERCLA holds the government or a private party liable for hazardous waste releases that result in response expenses. A spill, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaking, dumping, or dispersing into the environment is considered a release. Even for a prior release, the buyer could be held accountable. Failure to disclose a spill in a timely manner can result in serious civil and criminal fines.
Liability under CERCLA is based on strict liability rather than fairness or negligence. Current owners and operators of a hazardous substance facility, past owners and operators of a hazardous substance facility at the time of disposal, and persons who transport or arrange for the treatment or disposal of hazardous substances at the facility are all considered “potentially responsible parties” under Superfund.
Those considering selling, buying, leasing, or managing real estate should examine the Superfund liability implications. If the property is believed to contain dangerous substances, the real estate agent should always consider hiring environmental experts to inspect the property for concerns. One strategy to restrict responsibility is to show that the buyer made “all appropriate inquiry” prior to purchase by conducting a due diligence inspection of the property. The site, public records, and nearby properties are investigated by experts engaged to conduct a Phase I audit of the property. Remediation is the process of correcting or removing dangerous contaminants.
Commercial lenders are worried that if the property is found to contain hazardous substances, the security for their loan may be jeopardized, hence they frequently require at least a Phase I audit before providing a loan. Lenders are also concerned that if they take back a property in foreclosure or assist in the administration of the secured property, they may be held liable under CERCLA. As a result, lenders want substantial environmental paperwork.
Comprehensive loss underwriting exchange (CLUE)
LexisNexis® Risk Solutions created a database of consumer insurance claims that participating insurance firms use when underwriting or rating new policies. Owners (sellers) have the right to access and question the accuracy of claim information, the type of damage and amounts paid, and the description of the property covered under the Fair and Accurate Credit Transaction Act (FACT Act). The data is kept for a period of five years.
Most insurance companies will utilize this information to make judgments about issuing policies and pricing premiums since they have discovered a link between consumers’ historical loss history and their future insurance loss possibility. Buyers may find that their personal claims history makes obtaining affordable homeowners’ insurance difficult.
Comprehensive planning
The overall guidance to a community’s growth and development provided by a local government based on the community’s aims and objectives.
Long-term planning by a local or regional government that encompasses the entire territory of a community and incorporates all aspects of its physical development, such as housing, recreation, open space, and economic growth.
Compression web
Part of a truss system that provides downward support and connects the bottom and top chords.
Compressor
A mechanical device that raises the pressure of a gas in order to convert it to a liquid.
Computerized loan origination (CLO)
A computer network linked to a large lender that allows home loan applications to be started in agents’ offices across the country. Loan origination can be done by real estate brokers, insurance agents, lawyers, and others who earn a fee for doing so. HUD has authorized the practice as complying with RESPA as long as (1) the cost is fully disclosed, (2) numerous lenders are displayed on the computer screen to provide the borrower with a foundation for comparison, and (3) the fee is charged in dollars rather than as a percentage of the loan.
Concentration time
The amount of time it takes for a drop of rain to fall on the perimeter of a drainage basin and travel through the basin to the outflow.
Concentric circle theory
Cities tend to spread in concentric circles from their point of birth if there are no impediments, according to an economic theory of city growth. The central business area, a transition zone, a zone of independent working people’s dwellings, a region of better residences, and a collection of commuter zones make up the model city.
Concentric ring model
E. W. Burgess developed a concentric ring concept of urban design in which the centre circle represents the core business area. It is next to a transition zone that has warehouses and other industrial land uses. This was followed by a ring of lower-income residential land use, which was then followed by a ring of middle- and upper-income land use.
Concentric zone model
Earnest W. Burgess created an urban economic model in the 1920s. The concentric zone concept was created to describe urban evolution by utilizing transitional zones.
Concessions
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A discount offered by landlords to potential tenants in order to get them to accept a lease. Concessions are negotiable points in a lease that are resolved in the prospective tenant’s favor. They can be found in both residential and commercial leases. Concessions affect the owner, thus every buyer of an income-producing property should review all current leases to see if any concessions exist that will lessen the amount of rent due in the future. Free cable TV, one month’s free rent each year for the duration of the lease, a renovation or customization allowance, or even the owner’s takeover of the prospective tenants’ lease in another property are all examples of concessions. If this is the case, the value of these concessions should be calculated to reduce the contract rent amount. The tenant should also provide an estoppel certificate. Some state regulations demand particular phrasing on a lease to indicate concessions.
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A lease of a section of property to operate a business on someone else’s property, such as a refreshment stand in a recreational facility.
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A governmental agency’s right to conduct business through a franchise.
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In appraising, extraordinary terms offered by a seller that may entice a buyer to pay a higher contract price for a property than if the seller had not offered the special terms.
A discount offered to potential tenants in exchange for signing a lease, generally in the form of free rent or cash for tenant upgrades.
Discounts are offered in a lease or sales contract to entice a party to sign the contract.
Lease terms, such as free rent, that decrease the tenant’s lease cost and thereby offer renters with an incentive to lease the space from the owner.
Conciliation agreement
An agreement reached as a result of a settlement or a compromise. The Department of Housing and Urban Development (HUD) works to reach a conciliation agreement with the respondent charged with a discriminatory practice under the Federal Fair Housing Act. The complainant and the general public must be protected by the conciliation agreement. HUD takes no further action if an agreement is reached. The agreement could oblige the respondent to perform affirmative acts, such as selling or renting to the complainant, or to refrain from discriminating behavior in the future. If HUD discovers a violation of the conciliation agreement, it can suggest that the attorney general pursue a lawsuit.
Concrete
Cement, sand, gravel, and water mixed together. Typically used for sidewalks, garages, basement floors, patios, and foundations, among other things. Steel rods are also included in the mix.
Concrete basement floor
Concrete is usually reinforced with steel bars embedded within the concrete. The foundation walls and piers, as well as the basement floor, offer structural support. Concrete is chosen because it is both moisture resistant and cost effective.
Concrete block
It’s a concrete brick.
Concrete board
As a tile backing material, a panel made of concrete and fibreglass is used.
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Concrete cover
A cover metre is used to measure the gap between the top of embedded reinforcement and the exterior of the concrete.
Concrete slab
Roofs, floors, and bridge decks are all examples of concrete structures.
Concrete slump
A test was performed to determine the effectiveness of new concrete.
Concurrence estates
Estates are parcels of land that have many owners.
Concurrency
The necessity that public facilities and services, such as roads, sewerage, and schools, be constructed at the same time as new development.
Concurrent lease
A lease that spans the length of an existing shorter-term lease, with the new lessee inheriting the prior lessee’s rights. In effect, the new lessee assumes control of the property and is entitled to the rentals until the first lease ends, at which point the new lessee has exclusive possession. The concurrent lease may cover the entire or a portion of the same premises as the previous lease.
Concurrent ownership
Joint tenants, tenants by the entirety, tenants in common, or community property owners are examples of ownership by two or more people at the same time.
Condemnation
The action of the government (federal, state, municipal, improvement district) to take private property for public use; a judicial or administrative proceeding to exercise the right of eminent domain. The condemnor is the entity that is taking the property, while the condemnee is the person whose property is being taken. A fee simple estate or any smaller right, such as an easement, may be acquired in the seizing of private property for public use. The taking of an owner’s access to a street entry when the county develops a roadway or dedicates the land for county use is a common example of condemnation.
The Fifth Amendment to the United Declares Constitution states that “no person shall be deprived of life, liberty, or property without due process of law; and no private property shall be seized for public use without just compensation.” Private property can be seized without the owner’s agreement, with the owner’s defense being that the land was not taken for a sufficient public purpose or, more commonly, that just compensation was not paid. The courts are increasingly defining the phrase “public use” broadly to encompass not only public facilities like highways, railroads, schools, and parks, but also property that provides intangible public advantages like scenic easements. In fact, the Supreme Court ruled in Keio v. New London in 2005 that local governments can condemn private property for private economic development if the municipality determines that such development will benefit the public, even if the property is not blighted and the new project’s success is uncertain.
The actual appraised worth of the property at the time of the assessment is typically utilized to establish the amount of “'fair recompense.” Certain factors, such as loss of goodwill, relocation expenses, inconvenience, and the value of improvements made to the property after the taking, are not taken into account when evaluating the value of condemned property. This exclusion is particularly damaging to operational enterprises whose real estate worth is significantly lower than their value as a going concern.
All preexisting liens and encumbrances are eliminated after a property is condemned, and their claims must be claimed against the condemnation award. When the final verdict is rendered, the condemnee usually receives the condemnation reward. Because the listing broker did not negotiate the transaction, the listing broker is usually not entitled to a commission if the property is condemned.
Tenants may be entitled to a part of the condemnation award to compensate them for the loss of their leasehold estates under the terms of their lease. To avoid this, many lessors include a condemnation provision in the lease, which states that if the property is condemned, the lease will be canceled and the revenues will go to the lessor.
Condemnation also refers to a public agency’s decision that a property is no longer fit for use and must be closed or destroyed.
When a property is condemned or threatened with condemnation, the owner can defer any profit by classifying the sale as an involuntary conversion. Within three taxable years of the end of the tax year in which the conversion occurs, the owner must replace the converted property with property that is similar in use. Any revenues from the condemnation that exceed the cost of the new property are taxed."
A government action in which property is taken for public use and the owner is compensated.
The legal procedure involved in eminent domain, which is the government’s right to purchase private property for public use without the owner’s agreement in exchange for just compensation.
Condemnation proceeding
The result of a property owner’s reluctance to voluntarily relinquish ownership at a price set by a government body seeking to convert the land to public use.
Condensation
Water droplet found on a building’s exterior covering, usually during the winter. Louvers or attic ventilators reduce moisture condensation in attics.
Condensing unit
A portion of the cooling system is kept outside the structure. It produces heat by combining a compressor with a condensing coil.
Conditional sales contract
An executory contract is one in which the seller keeps title to the item sold but gives it to the buyers as long as they don’t break any of the contract’s terms. The seller has a security interest in the property and the buyer has an equitable interest in it under this type of contract.
A conditional sales contract is typically used to sell personal property (such as an air conditioner, a hot tub, or an appliance). A contract for deed is used when it involves real property. The seller must transfer legal title to the buyer after the buyer has fulfilled all of the criteria of the conditional sales contract. Under the Uniform Commercial Code, a security agreement has replaced the conditional sales contract that created a security interest in a fixture or an article that will become a fixture.
Conditional-use zoning
A zoning regulation that tentatively approves a specific land use and usually requires compliance with set standards. Such zoning might allow a hospital to operate in a residential zone but limit the types of services it can provide. Also referred to as special-use zoning.
Conditions
Certain terms in a contract on which the agreement’s fulfillment is contingent.
Conditions of engagement
The terms of the contract between the consultant and the client. In some professions, they are more correctly referred to as “terms of engagement.”
Conditions, Convenants, and Restrictions (CC and Rs)
The guidelines that specify how a property should be utilized, as well as the safeguards put in place by the developer for the benefit of all house owners in a subdivision.
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Condo
A frequent term for a condominium unit or development; can apply to a single unit or the complete structure.
Condominium
Ownership of a flat or unit, as well as the owner’s interest in parts of the property used by other owners, is an American concept that is starting to catch on in Australia.
A type of shared ownership and control of property in which specific volumes of space (for example, flats) are owned individually while the building’s common elements (for example, outside walls and lobbies) are owned jointly.
Individuals have fee-simple title to a specific unit in a multi-tenant building in this form of ownership. Each unit owner has their own mortgage and pays a portion of the property’s common area upkeep and operation costs.
A kind of ownership structure in which title to specific sections of a property vests in individual users but title to common areas vests in all users collectively.
An ownership form that combines a fee simple estate for ownership of individual units with tenancy in common for ownership of common areas-describes a form of ownership rather than a style of building.
A multifamily residential residence is a type of real estate ownership. Each occupant owns his or her apartment outright and shares ownership of shared areas like corridors, elevators, and plumbing.
Condominium association
A condominium property’s non-profit governing organization. When you buy a condo, you instantly become a member of the association.
An organization made up of all persons who own a condominium unit and acts as a governing and controlling body, generally through an elected board of directors.
Condominium bylaws
Condominium ownership is governed by government rules and regulations.
Condominium conversion
Similar properties in terms of economics.
A method for converting a structure to a condominium ownership structure.
Condominium declaration
The authorizing document that allows for the formation of a condominium. The statement desires both individual and communal portions of the property and provides for owners to be assessed for the expenses of maintaining and insuring shared spaces.
The master deed that creates or establishes the condominium organization.
When recorded, this paperwork creates a condominium. A master deed is another term for it.
Condominium hotel
A condominium that is utilized as a hotel.
Condominium map
The layout, location, unit numbers, and measurements of condominium units on a comprehensive site plan for a condo complex. An architect, land surveyor, or engineer certifies the condominium map, which is then submitted for record alongside the condominium declaration. Also known as a condominium scheme.
Condominium owners’ association
A group of condominium unit owners, often operating as an unincorporated association, with the primary goal of controlling, regulating, and maintaining the condominium’s common features. The percentage of undivided interest each owner has in the condominium is commonly used to determine voting power in an association. The board of directors of the condominium association is empowered by the bylaws to govern and administer the condominium’s business, particularly in terms of common element maintenance and repair. The condominium association has the right to assess and collect sufficient funds to maintain the common areas and assure the condominium’s financial stability. If a unit owner fails to pay their monthly fees or special assessments, the association may place a lien on their apartment, which can be foreclosed to fulfill the debt.
If specific revenue and expenditure standards are met, the condominium owners’ association can elect to be regarded as a tax-exempt organization, which means it is not taxed on membership dues, fees, or assessments. At least 60% of the association’s gross income originates from dues, fees, or assessments; at least 90% of its expenditures go toward acquiring, managing, maintaining, or improving association properties; and nearly all of the units or lots owned by members are used as dwellings (although they need not be owner-occupied).
Investment income and income from trade or business (for example, rental income or payments from third parties for use of the association’s facilities) are nevertheless taxed as corporations.
Condominium ownership
An estate in real property made up of an individual interest in a unit (residential, commercial, or industrial) and an undivided common interest in the condo project’s common facilities, such as the land, parking lots, elevators, stairways, and external construction. Each condominium unit is a legal entity that can be mortgaged, taxed, sold, or otherwise transferred in ownership without affecting the other units in the building. The aggregate value of each individual living unit and the proportionate ownership of the common areas are used to assess and tax each unit separately. In the event of a default on the mortgage note or other lienable payments, the unit might be foreclosed on independently.
In effect, the condominium allows for the ownership of a specific horizontal layer of airspace rather than the usual idea of vertical property ownership from the earth’s centre to the sky.
The unit, the proportion of common interest, and the limited common elements are typically attached to one another and cannot be sold or transferred separately.
Condominium ownership is popular in many metropolitan and resort regions because of the shortage of good and useable property, as well as the tax and other benefits of fee ownership over apartment leases.
Many business and professional buildings, industrial plants, medical clinics, warehouses, recreational developments, and integrated apartment and office buildings use the condominium form of ownership in addition to residential condominiums. Condominium owners enjoy exclusive use of their unit, but they must still follow the declaration, bylaws, and house rules, which are in place for the protection and convenience of all condominium owners.
A condominium developer/owner is required by state law to execute and record a master deed, together with a condominium declaration, a true copy of the bylaws, a condominium map, floor plans, and elevations. The formation of a condominium is not an irreversible step; state regulations may allow all or most owners and lienholders to consent to the withdrawal of a building from condominium ownership. The voting power of unit owners is usually determined by a proportion of common interest (note that in a cooperative, each owner has one equal vote regardless of the unit size).
The right of first refusal of other owners may apply to the resale of a condominium. Resales, on the other hand, are not as restricted as they are in the cooperative type of common ownership.
Condominium units typically sell for less than single-family residences. However, a condominium’s lifetime cost (mortgage, utilities, maintenance, and condominium fees) may be comparable to, or even larger than, other types of property.
Conduction
Heat or electricity is transferred through a substance as a result of temperature differences between different sections of the substance.
Conductivity
The ability of a material to transfer heat.
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