Continued from…
Real Estate Glossary C [Part 6]
Compound interest
The aggregate of interest paid on principal and interest accrued
Interest is paid on both the original principle and the accumulated interest that has not been paid.
Interest revenue derived from previously accumulated interest held on deposit.
Interest is calculated on the principal amount plus interest already paid. All interest is added to the principal at the start of each new interest period, resulting in a new principal amount on which interest is calculated. Each interest period—interest accumulating daily, monthly, semiannually, or annually—this process repeats itself. For example, on a $1,000 savings account earning 5% yearly compound interest, the first year’s interest is $50. The new principle sum in the second year is $1,050, making the second-year interest $52.50.
Some states specifically ban (as usurious) attempts to recover compound interest on loans, preventing the enforcement of contracts charging interest on interest. Simple interest, on the other hand, may be contracted for and collected under a new specific arrangement after it has become due.
Interest based on the original principal and the interest that has already been paid.
Compounding
Future value calculation based on assumptions about the quantity or amounts invested and the interest rate paid on the invested amounts.
A type of math where the interest earned is put back into the account and earns more interest.
Contract of sale
An agreement in writing that lays out the terms and conditions for buying or selling a piece of land.
A contract for the acquisition and sale of real estate in which the buyer agrees to pay a particular sum and the seller agrees to surrender title by deed or lease assignment (for leasehold property). The contract frequently serves as the initial guidance to the closing agent or escrow business to complete the mechanics of the deal, in addition to binding the parties to the purchase and sale of the property for the time required to close the transaction. All essential closing elements, such as who pays the various expenditures of the sale, who bears the risk of loss, the date of occupation, and the proration date, must be agreed upon in the contract. In essence, the contract of sale is an executory contract to convey property, acting as a conduit to the deed, which ultimately passes ownership. The remainder of the transaction is essentially mechanical once the sales contract is signed.
This contract is also known as a sales contract, a purchase agreement, a deposit receipt, an offer and acceptance, an agreement of sale, an offer to lease, or a purchase and sale agreement.
The contract of sale must be in writing, signed by both parties, contain the buyer’s and seller’s names, an acceptable description of the property (a full legal description is recommended in the sale of unimproved land), identify the sales price, and have a valid purpose in order to be enforceable. A married seller’s spouse should also sign the contract so that the spouse is bound to renounce all marital rights (if any) when the deed is given. For example, if a wife does not sign, the contract is still valid and enforceable against her husband; nevertheless, she must be willing to participate in the deed in order to renounce her dower and/or homestead rights.
Unless the parties anticipate a particularly extended period of time to conclude the transaction, most contracts of sale are not recorded. A contract for deed, on the other hand, should be recorded to protect the buyer because it may be years before the buyer pays off the contract and gains legal title to the property.
If the buyer fails to complete the purchase under the terms of the agreement, the seller can keep the deposit as liquidated damages, sue the buyer for money damages, or sue the buyer to complete the purchase under the terms of the agreement. This final remedy of specific performance is available only in the rare case where monetary damages are insufficient to compensate the seller for the loss. If the seller defaults, the buyer may revoke the agreement and receive a refund of the deposit money, or the buyer may sue the seller for specific performance, which will compel the seller to sell the property on the agreed-upon conditions.
A standard, preprinted contract of sale form is often used by a broker. A broker who does not charge a separate fee for completing this form is not involved in the unlawful practice of law under most state statutes. This service is legal as long as it is performed incidentally to representing the client in the purchase or sale of real estate.
A property sale agreement that expresses the terms and conditions of the sale.
Contract price
An accounting phrase for the gain earned on an installment sale. The contract price is the selling price of a property minus any mortgages acquired or taken subject to by the buyer, plus any excess (if any) of any such liens collected, plus the seller’s adjusted basis at the time of sale. The contract price is essentially the seller’s equity in the property.
One of the benefits of a contract for deed for the seller is that it allows the “contract price” to be the same as the selling price, deferring taxes considerably more effectively than if the buyer accepted or took subject to the mortgage. Example: A taxpayer sells a property for $100,000 with a basis of $70,000 and a gain of $30,000; the down payment is $20,000 with an assumption of an existing $60,000 first mortgage and a purchase-money second mortgage of $20,000; the down payment is $20,000 with an assumption of an existing $60,000 first mortgage The contract price is merely $40,000, despite the selling price of $100,000. Thus, the gain ($30,000) represents 75% of the total amount the seller will receive ($40,000). As a result, just 25% of the down payment and each principal payment on a purchase-money mortgage is considered nontaxable return of basis, while the remaining 75% is.
If the property is sold under a contract for deed, the entire $100,000 selling amount becomes the contract price. As a result, just 30% of the upfront payment would constitute profit. The remaining gain is made up of 30% of the principal payments received under the contract for deed, which would be taxed only when they are received.
The amount for which a property is purchased.
Total selling price less any prior mortgage to which a property would be subject when sold under conditions that allow the transaction to be recorded for tax purposes using the installment sales technique. If the previous mortgage is greater than the seller’s adjusted basis in the property, the difference must be added to the contract price.
Contract rent
The amount of rent that is agreed upon by the people who sign a lease. Appraisers often compare this to the market rent, which is how much the property would rent for if it were empty and on the open market.
The rent stipulated in the leasing agreement.
The total amount of rent due, written out in dollars in a lease. The same thing as base rent. (Standards for Real Estate Information)
Contract terms
The specific needs of a completely enforceable contract, such as the price, down payment, any seller financing, inspection provisions, kind of evidence of title, type of deed, dates, and other transaction process elements.
Contract with contingencies
A purchase agreement that makes the purchase contingent on the buyer securing something, such as finance or a good engineering report.
Contractor
A person who enters into a contract or a covenant with a public body or a private party to build works or erect buildings for a certain price. A contractor is typically thought of as someone who agrees to provide labor and supplies for particular projects under the terms of a contract with an owner or principal. A general contractor is one whose business operations necessitate the use of more than two unrelated building trades or crafts, the work of which the contractor supervises or performs in whole or in part; the term does not apply to an individual who performs all work himself without the assistance of employees or other “specialty contractors.” A contractor can either contract for the entire task as a prime contractor or work as a subcontractor for a general contractor.
A person who enters into a contract to deliver products or services.
A licensed organization or individual that enters into a contract for the construction of a building, road, or other facility with another organization or individual (the owner).
Someone who is qualified to work on construction projects.
Contractor, general
In charge of a project’s implementation, supervision, and overall supervision.
Contractor, remodeling
A general contractor who specializes in renovation projects.
Contractor, specialty
A contractor who specializes in performing specialized work.
Contractor, sub
A subcontractor is a general or specialty contractor who works under the supervision of a general contractor.
Contractor’s affidavit
A written declaration issued under oath before a notary public by a contractor that states the facts about the contract, subcontracts, material suppliers, and labor. This affidavit details the sums paid and unpaid, as well as the outstanding payments.
Contribution
The idea that the value of an improvement is how much it adds to the market value of the whole property, not how much it cost to make. A remodeled basement may not add the full cost to the value of the property, but a new bedroom will usually add more to the value of the house than the cost of installing it.
Control
The effective management of comparing actual performance to planned performance, analysing deviations, assessing potential alternatives, and taking remedial action as needed.
Control joint Tooled
To establish where the concrete should crack, straight grooves were employed.
Control point
Any station in a horizontal or vertical control system detected on a photograph and used to correlate the data depicted on the photograph.
Controlled business arrangements
Under the Real Estate Settlement Procedures Act (RESPA), an arrangement or combination in which a person or business owns more than 1% of a company that the person or business regularly sends business to. Such an arrangement is allowed, as long as the affiliation is written down, an estimate of the cost of the service is given, customers are free to get the service somewhere else, and the affiliated companies don’t trade referral fees.
Convection
Heating air rises and draws cooler air behind it, resulting in currents.
Convenience activities
Some sorts of urban services and goods are classified so that users may receive the good or service from the nearest accessible source.
Convenience goods
Items are usually bought at the places that are the easiest to get to. They aren’t usually very expensive or long-lasting, and they don’t require a lot of thought when you buy them. Convenience goods are different from things that people buy when they study the retail market.
Convenience store
A store that sells food, drinks, and other things that people usually buy at random and on the spot, wherever is most convenient.
Conventional estate
A transaction estate is distinct from an estate created by operation of law, such as a life estate created under dower statutes.
Conventional loan
A loan secured by real estate that does not require government involvement in the form of insurance (FHA) or guarantee (VA). An institutional lender or a private party can be the mortgagee. The loan is conventional in the sense that it follows established guidelines and the lender relies entirely on the borrower’s credit and the property’s security to assure debt repayment. Loans insured by private mortgage insurance providers are classified as conventional.
Because conventional loans are not subject to the more severe government regulations that apply to FHA and VA loans, they are often more flexible in terms of terms and interest rates, albeit they may have a higher interest rate and bigger down payment requirements due to the higher risk involved. Lenders may be able to give zero-down-payment mortgages to low-income people with good credit in some instances. Institutional regulation, which can be statutory (federal, state) or self-created, applies to conventional loans.
A loan that is not insured by a government entity such as the FHA or the VA.
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Conventional mortgage loan
A loan from a source other than the federal government.
Conventional mortgages
Mortgages that are not backed by the government in the form of FHA insurance or a Veterans Affairs (VA) guarantee.
Conversion
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The conversion of an income-generating property, such as a rental apartment building or a hotel, into condominium apartments for sale to individual owners. The building is frequently renovated, existing leases are allowed to lapse or cancelled, and the project is registered with the appropriate state body and a condominium title is issued. Cost and market study, purchase, initial remodeling, appraisal, interim and long-term financing, tenant relocation, and sales are all processes that demand considerable knowledge. Existing tenants are frequently given a significant period of time to relocate if they choose not to purchase their property under state law. Many developers are considering condominium conversion as a solution to housing shortages due to rising construction prices. However, several towns have set limits (and sometimes moratoriums) on condominium conversions due to tenant relocation issues.
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Taking possession of someone else’s property. It’s possible that the conversion is illegal (like when a broker misappropriates client cash) or that it’s permissible (as when the government condemns property under the right of eminent domain).
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The process of converting a property from one use to another for tax purposes, such as from a personal residence to a rental property.
Convertibility
Converting a loan from an adjustable to a fixed rate schedule.
Convertible Apartment
A bedroom apartment with enough space to add another bedroom.
Conveyance
A document that transfers ownership of a piece of property.
A written instrument, such as a deed or a lease assignment, is used to transfer title or an interest in real property. A divorce decision or a property settlement agreement involving real property does not constitute an effective conveyance in and of itself. The Uniform Land Transactions Act provides a more straightforward means of transferring real estate title.
Conveyancing
The legal procedure of transferring property ownership from one individual or business to another
The legal process of giving someone else the right to own real estate.
Cooling load
The amount of cool air required to maintain a structure’s temperature balance.
Cooling off period
It is possible to cancel a purchase contract, but only with a small penalty. Depending on where you live, it can take 2-5 days to get a countersigned contract back from the seller. In Washington, it doesn’t start until that countersigned contract is sent back from the seller.
A grace time established by law or by contract during which a contracting party may lawfully back out of the contract; a right of rescission. In refinancing agreements involving a borrower’s own dwelling, the federal Truth in Lending Act stipulates a cooling-off period. The federal Interstate Land Sales Full Disclosure Act provides for a seven-day cooling-off period. For condominium, time-share, and subdivision sales, many states have their own statutory cooling-off periods. However, contrary to popular opinion, there is no automatic right to withdraw a real estate purchase deal unless specifically stated by statute or contract.
A period of time after the contract is made (usually 5 days in NSW) during which the purchaser may cancel it.
Coop
A deal between two people to divide the commission on a real estate transaction.
A real estate company with multiple residential buildings.
Cooperating broker
A broker who aids another broker in the sale of real estate (typically the “listor”). Typically, the cooperating broker is the (selling) broker who located the buyer who has made an offer to purchase a property listed with another (listing) broker. Because there is no contractual link between the participating broker and the seller, the cooperating broker must rely only on the listing broker for a commission. Cooperating brokers should be aware that collaboration does not always imply pay; they should constantly double-check the listing broker’s compensation offer.
Negotiations about properties listed with a single broker should be conducted with that broker, not with the owner (except with the consent of the listing broker).
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Cooperative
A type of common property ownership in which inhabitants of an apartment building do not own their apartments but rather possess shares in a corporation that does.
An apartment purchased by the renter through purchasing shares in the business that owns the building rather than merely purchasing the unit.
A type of individual apartment ownership in which the property is held by a corporation in which each resident is a shareholder with the right to a private lease for a specific unit.
Cooperative ownership
Apartment unit ownership in which the apartment owner has purchased shares in the corporation (or partnership or trust) that owns the entire apartment complex. The cooperative owner is essentially a shareholder in a corporation with a building as its primary asset. The owner receives a proprietary lease giving occupation of a specific unit in the building in exchange for stock in the corporation. As a result, the owner occupies the unit under a lease but does not own it, and his or her investment is considered as personal property. Each unit owner is responsible for a pro rata share of the corporation’s expenses, such as mortgage payments, real estate taxes, maintenance, and payroll. If a cooperative’s income is produced from tenant/owner rents, the owners can deduct their individual portion of the taxes and interest charges for tax purposes. The stock certificate is usually readily assignable; however, the proprietary lease usually has rigorous assignment limitations.
A co-voting op’s power is normally one vote per unit. A single mortgage on the entire building may be taken out or assumed by the co-op corporation. Because they are purchasing personal property rather than real estate, co-op buyers may have more trouble securing financing.
The intended purchaser or lessee must typically be approved by the co-board op’s of directors prior to resale. Boards have protested to rock singers, movie stars, and even former presidents, for example, and they are allowed to do so as long as the opposition is not based on any protected class under state and federal fair housing laws. When a co-op owner (tenant/shareholder) misses a mortgage or tax payment, the other shareholders must make up the difference or risk the entire project being sold for taxes or foreclosed under the blanket mortgage. One of the biggest disadvantages of co-op ownership is the contingent responsibility. Many co-ops charge a monthly fee to build up a prepayment reserve fund to cover real estate taxes to mitigate this risk.
“Ten shares of stock in Paige Apartments, Inc., entitling owner to exclusive use of Apartment 67 and parking slot #3, and co-use of common features.”
A kind of corporate control in which each individual holds equity in the company. Each shareholder is then given a proprietary lease to live in one of the units.
Coordinate system
A mechanism for uniquely determining the position of any place on the planet.
Coped
A method of removing the top and bottom flanges of a metal Ibeam’s end(s). This method allows it to fit within and be fixed to the web of another Ibeam in a “T” shape.
Coped joint
Making woodwork with an irregular surface.
Corbel the triangula
A mantel or horizontal shelf is held in place by ornamental supports.
Core real estate investments
Property investments that are significantly rented, have an ordered lease expiry schedule, are of good quality, and come from one of the four fundamental property types: offices, industrial, retail, or multifamily. The core property must also be well-maintained in a large city, have a debt-to-equity ratio of no more than 50%, have a low degree of tenant turnover, and an investment structure with sufficient control.
Core space
The square footage utilized for the public hallways, elevators, toilets, stairways, electrical and telephone rooms, and the cleaning closet of a building.
Core-plus real estate investments
Property investments are safer than core investments, but they are riskier. Core-plus properties offer additional chances for investors to raise their rate of return, but they are significantly riskier.
Corner bead
Before applying drywall mud, formed sheet metal covers the outside corners of the drywall.
Corner boards
Trim used on the outside corners of a frame structure to finish the ends of the siding.
Corner braces
The diagonal braces of the framed structure are used to stiffen and strengthen the wall.
Corner influence
How close or far away a property is from the intersection of two streets affects its value. Most of the time, commercial corner lots are worth more than inside lots.
Corner stakes
A surveyor uses metes and bounds to do a survey. Every change of course raises the stakes.
Cornice
A beautiful horizontal protrusion or molding that facilitates water drainage at the top of the outside walls under the eaves. Any molded projection on an interior or exterior wall, in the enclosure at the roof eaves, or at the roof rake.
Horizontal decorative molding that adorns a building or a piece of furniture.
Corporate resolution
The corporate secretary generally records a summary of a specific action performed by the board of directors of a corporation in the minute book.
Lenders frequently ask for a certificate of resolution to confirm that the corporate board of directors has approved the borrowing of funds or the creation of an account. A borrowing resolution is one that says something like this: “Upon motion duly made, seconded, and unanimously passed, the following resolution was adopted on the 5th day of October, 2012.” It is hereby resolved that the Corporation borrows $250,000 from the Bank of Paradise to purchase a grocery shop." "The purchaser should get a resolution from the seller’s board of directors authorizing the sale and selecting an authorized official to sign the conveyance instrument where the seller is a corporation. A resolution of the shareholders to authorize the sale is usually required if the corporation is selling most of its assets.
Corporation
The secretary of state registers a legal entity that limits the individual responsibility of the persons who make up the entity.
Corporate ownership structure has limited liability, but suffers from double taxation and does not allow losses to flow through to investors for present use.
A legal entity constituted under state law that is composed of an association of one or more individuals, but which is recognized by the law as having an existence and personality distinct from the individuals who are members of the association. The primary characteristics of a corporation are its perpetual existence (that is, the corporation continues to exist indefinitely and only ceases to exist if and when it is properly dissolved through legal proceedings), centralized management in the form of a board of directors, liability of a shareholder limited to the amount of his or her investment, and the ability of shareholders to freely transfer their corporate shares to other shareholders.
When a corporation is formed, it has the ability to contract independently and to hold title to real property in accordance with the powers granted to it by its articles of incorporation. In some cases, contracts entered into by a company that it is not authorized to enter (ultra vires, or “beyond its authority”) may be deemed invalid. As a result, it is critical to determine whether or not the corporation has the authority to engage into the contract, as well as whether or not the individual signing on behalf of the corporation has that authority. To verify this information, obtain a copy of the contract’s certificate of resolution allowing it from the board of directors and from the individual who signed it. Normally, board approval is sufficient to authorize the sale of corporate property; but, where the sale represents the majority of the company’s assets, shareholder approval may be necessary.
For any new corporation purchasing real estate, it is critical to ensure that the necessary documents have been filed and that the corporation has been lawfully created; otherwise, the deed will be declared invalid due to the lack of an authorized grantor (grantor).
Dividends and other profits obtained by a corporation (other than a S corporation) are subject to special corporate income tax rates, and the investors are required to pay an additional tax on those dividends and other profits.
A closely held corporation is one in which the stock is owned by a small number of persons, all or most of whom are directly involved in the operation of the firm, and in which only a small amount of stock is held by outside investors. Corporations are subject to regulation in both the state in which they were formed and the state in which they conduct their business.
Artificial entities constituted by state law that have the authority to hold property and conduct business in their own names. They can purchase, sell, and enter into other contracts. Corporations, being legal entities, have a separate and distinct identity from their owners.
Corporeal property
Buildings, fixtures, and fences are examples of tangible real or personal property. Rents, easements, and goodwill are examples of incorporeal property.
Correction deed
Any sort of deed used to repair an earlier erroneous deed, such as when the grantor’s name was misspelt or a small factual error was made. A correction deed, for example, is used to correct an incorrect description of a lot discovered when a property is resurveyed. The corrected deed is subject to the applicable recording charge despite being exempt from the transfer tax. Grantors who made a covenant of further assurance in the original deed may be obliged to execute a corrective deed. A suitable marginal note is added to the original deed. Also known as a confirmation deed, a reformation deed, or a confirmatory deed.
Correction lines
The way the earth’s surface is curved is taken into account in the government survey method. Every fourth township line, every 24 miles, is used as a correction line for cost recovery. This line is used to measure and correct the distance between the north and south range lines to a full six miles.
Corrective action
Changes done to put the project’s projected performance in line with the planned performance.
Corrective maintenance
The routine maintenance of a building and its equipment on a daily basis.
Correlated returns
Returns on one or more assets that tend to move in tandem as market circumstances change.
Correlation coefficient
A relative measure of an asset’s tendency to change with the return of another asset over time.
Correlative water right
A modern law practiced in some jurisdictions that stipulates that a riparian owner with rights in a common water source is only entitled to a reasonable portion of the overall water supply for beneficial use of the land (such as irrigation). The owner has the sole right to take all of the water for certain beneficial uses under the appropriative water right, which is popular in various jurisdictions.
Correspondent relationship
A commercial arrangement in which a big lender offers to buy loans or review loan requests from a mortgage banker or mortgage broker.
Corridor
A corridor or hallway that serves as a common route to an exit. There is only one way to get out of a dead-end corridor.
Corridor development
Plans call for “finger development” of urban dwellings with rural land in between.
The expansion of enterprises or plants along major thoroughfares that connect two large industrial or commercial hubs that are some distance apart.
Cosigner
An additional signatory to a contract or note who is equally bound to perform as the contract’s major party. A lender may require a barely eligible applicant to find a cosigner who will be responsible for paying the loan if the borrower defaults.
Cost
The actual amount of money paid for a property or the amount needed to build or improve it at a certain time in the future.
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