Continued from…
Real Estate Glossary C [Part 7]
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.
Cost recovery
A type of deduction that applies to real and personal property used in a trade or business or held to generate revenue. The Economic Recovery Tax Act of 1981 replaced depreciation with this approach, which applies to new and used real or personal property “put in service” by the taxpayer after 1980. Unlike depreciation, cost recovery is not based on a property’s “useful life” or “salvage value.” Instead, the entire cost (of the depreciable fraction) of property might be deducted over an arbitrary time period.
The Tax Reform Act extended the cost recovery periods for depreciable assets such as real estate. The cost recovery term for residential rental property has raised to 27.5 years, and the cost recovery period for nonresidential real property has extended to 39 years. The act also includes a mid-month convention, which states that property is considered to have been “put in service” in the middle of the month, regardless of the day it was actually placed in service.
A deduction that is made every year based on how long an asset will last.
Cost recovery allowance
An income tax provision that allows for the recovery of capital expenditures on property with a finite useful life that was bought on or after January 1, 1981 and employed in a trade or company or for income generating.
Cost recovery assets
Assets that are eligible for tax-deductible cost recovery allowances.
Cost recovery recapture
The Taxpayer Relief Act of 1997 says that a noncorporate taxpayer will have to recapture or pay taxes on any straight-line cost recovery taken during the holding period for properties sold after May 6, 1997.
Cost segregation
A tax method that separates personal property from real property. Owners frequently do this because personal property can be depreciated at a faster rate if it is segregated from real estate and other personal property.
Cost-of-funds index
An index for adjustable-rate mortgages that is based on the weighted average of interest rates paid by thrift institutions on deposits (savings and loan associations and savings banks).
Cost-of-living index
An index number representing the relative change in the expense of living between two specified time periods (using a factor of 100). Escalator provisions in commercial leases typically relate to an increase in maintenance costs proportional to the rise in the cost of living or the U.S. Department of Labor’s consumer price index (which uses a 1982 reference base of 100).
Cost-plus contract
A construction arrangement in which the owner pays the cost of all labor and supplies plus a fixed amount based on a set percentage of the cost, which represents profit and the contractor’s overhead. A fixed-price contract is in contrast to this sort of contract.
Cotenancy
Two or more people own an undivided interest in the same property in this type of concurrent property ownership. Two or more people or other entities are said to be co-owners of a piece of real estate when title to it is vested in (or owned by) them.
There are various types of co-ownership, each with its own set of legal requirements. Tenancy in common, joint tenancy, tenancy by the entirety, community property, condominium and cooperative ownership, and partnership property are the most frequent kinds of co-ownership recognized by the various states.
The title to real estate is held in the names of two or more owners.
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Counseling
A real estate specialization that entails offering expert, unbiased advice and professional help on a wide range of real estate issues. A counsellor strives to guide the client in making decisions among possible courses of action.
Providing professional, unbiased guidance on a wide range of real estate difficulties affecting any or all company sectors, such as merchandising, leasing, management, planning, financing, appraising, court testimony, and other related services.
Counselor of real estate (CRE)
The Counselors of Real Estate award this professional credential. Appendix B is available.
Counter flashing
When counter-flashing is constructed into a chimney and overlaps a replaceable piece of base flashing, two parallel pieces of flashing are utilized together. The counter is blinking. A flashing that covers shingle flashing and prevents moisture from entering a chimney.
Counterfort
A general contractor who specializes in renovation projects.
Counteroffer
An offer made in reaction to an offer, rather than an acceptance.
In response to an offer received from an offeror, a fresh offer is made. The impact of a counteroffer is that it rejects the previous offer, which may only be accepted again if the offeror repeats it.
If the seller makes any change to the offer after the buyer submits it for acceptance, the seller’s adjustment becomes a counteroffer, which terminates the original offer and prevents subsequent acceptance. The seller has made a counteroffer if the seller changes the suggested closing date from 10:00 AM November 10, 2013 to 1:00 AM November 10, 2013, initials the change, and signs the sales contract. The parties’ roles are then reversed. The buyer is under no obligation to accept or reject the counteroffer. The buyer must accept the terms of the counteroffer within a set amount of time to constitute a legitimate contract. It’s important to note that simply asking if the offeror would be ready to amend the conditions of an offer does not constitute a rejection or counteroffer.
The seller would typically make a revision to the buyers’ sales contract, initial and date the change, and send it to the buyers for acceptance. The buyers would effectively be making a counter-counteroffer if they wished to change the changed contract.
It’s bad practice to rely on a contract with a lot of initialled revisions because it’s impossible to tell whether a contract is genuinely valid. A written counter offer should be signed by both parties. If a buyer desires to respond to the seller’s counteroffer form with a counteroffer, the buyer should typically start the process over by completing a new sales contract offer.
Each update should be time-dated because it is critical to be able to determine the sequence of events. In addition, the broker must give the signing party a copy of the revisions at the time they are made, not later.
When the first offer is rejected, the buyer or seller makes another offer.
A new price, terms, and conditions offer made in response to an earlier unacceptable one. Normally, the counter offer cancels out the previous offer.
Counterpart
An exact replica of the original document
A copy or duplicate of a document. Sometimes used to prepare conveyance documents when there are multiple parties and not enough time to send a single document for signatures to parties all over the country. In this case, a copy of the document can be sent to each person who needs to sign it, and then all the copies that have been signed can be recorded as one document. Most of the time, counterparts will be treated as a single document, even though they were not made at the same time.
County
A part of a state that has its own government. Usually, it is the biggest administrative unit in a state.
Course
In a wall, a continuous horizontal layer of similar-sized building material.
Court
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A narrow street that is partially or completely surrounded by buildings, giving the impression of a tiny open square.
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An open space with walls or buildings on two or more sides.
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A court of law is an official session for the administration of justice. The United States Supreme Court is the highest court in the land, followed by the courts of appeals and circuit courts, which are intermediate courts, and district courts, which are lesser courts.
Specialized courts in the United States include the United States Tax Court, Patents Court, Bankruptcy Court, Court of Claims, and Customs Court.
Although state court systems differ, the core elements are similar to those of the federal system. In most cases, there is a supreme court; intermediate courts, known as appellate courts; and subordinate courts, known as district courts, county courts, lower claims courts, or small-claims courts. There are also courts that deal with traffic infractions, probate, and land disputes.
Courtesy to brokers
The practice of listing and cooperating brokers splitting commissions.
The listing real estate broker for a large condominium building, for example, may work for the developer. If the buyer’s broker (called the selling broker) is a client of another broker, the listing broker may extend “courtesy” to the buyer’s broker (called the selling broker) and divide a portion of the commission with the other broker. It is not uncommon for developers who own their own brokerage firm to refuse to provide politeness to “outside” brokers unless the project is experiencing marketing issues.
Covariance
An absolute measure of an asset’s proclivity to fluctuate with the returns on other assets over time.
Cove molding
A concave molding that is used to finish interior corners.
Covenant
A contract between a landlord and a tenant, or a vendor and a buyer, that specifies what can and cannot be done to a property.
A written agreement that stipulates certain uses or non-uses of the property between two or more parties. Covenants can be included in leases, mortgages, contracts for deed, and deeds, among other real estate instruments. For breach of a covenant, damages may be sought.
Covenants found in warranty deeds (general and special) are promises made by the grantor that bind both the grantor and the grantor’s heirs and assigns, guaranteeing that the title is of a certain character and that if the title is found to be of a different character, the grantor or the grantor’s heirs will compensate the grantee for any loss suffered. Covenants are indicated in many areas by the use of words like “convey and warrant,” “warrant generally,” or “warrant specially” in a deed. The following are some common warranty deed covenants:
Acts of the grantor are prohibited: This clause appears in special warranty deeds where the grantor is a fiduciary, such as an executor, trustee, or guardian. In effect, the covenant declares that the grantor has done nothing to encumber the property and that she provides no assurances about the title prior to assuming ownership. This agreement does not “follow the land” (it does not benefit future grantees).
Seisin’s Covenant: The grantor assures that he owns, is in possession of, and has the legal right to sell the property at the time of the conveyance. This covenant applies at the time of transfer and is only broken when the deed is delivered. If there is a lien on the land, the covenant is not broken; nevertheless, it is broken if the title is held by a third party or if the grantor does not hold the full extent of the estate he purports to transmit. When the grantor warrants that he "is seized of” a fee simple estate, but merely owns a life estate, the covenant of seisin is broken.
This covenant guarantees that the property is free and clear of any and all encumbrances not specifically excluded in the deed. As a result, any encumbrances must be stated as exceptions in the deed. Otherwise, if there is an encumbrance on the land that is not excluded in the deed, the grantees might recover their costs of paying off the encumbrance, such as unpaid taxes. This covenant, like the covenant of seisin, limits any recovery to the price paid and is broken, if at all, at the time of deed delivery. It encompasses all encumbrances, both known and unknown to both the grantor and the grantee. When there are open and visible physical encumbrances, such as an easement for power lines or an irrigation canal, the covenant against encumbrances is not broken.
Covenant of quiet enjoyment: The grantor guarantees that the grantee, as well as the grantee’s heirs and assigns, will have the right to a property free of third-party acts or claims. Innocent grantees are thus shielded from title conflicts between the grantor and a previous claimant. Only an actual or constructive eviction by reason of a title superior to the grantor violates the vow of peaceful enjoyment.
Covenant of warranty of title: This covenant guarantees the grantee that the grantor will cover the costs of defending the grantee’s title to the property if someone else makes a legitimate claim to it. If the covenant is breached because a third party has a better title, the grantee has the right to sue for damages up to the value of the property at the time of sale. “That the grantor will eternally warrant the title to said premises,” it normally says.
Further assurance promise: This covenant requires the grantor to take any steps necessary to complete the grantee’s title. It can also be used to compel a grantor to execute a correction deed if the original deed contains an error. When the grantor refuses to pay the requisite expenditures and charges for getting the required documentation, such as failing to record a satisfaction of mortgage when required or failing to obtain a quitclaim deed releasing an unrecorded interest in land or a dower interest, the covenant is breached. This covenant is normally enforced through a specific performance action rather than a damages suit. Also known as the further help covenant.
A promise entered into a deed or other document by which a party commits to do or not do specified things.
This is a formal promise.
Covenant against encumbrances
A guarantee that the property is free of liens, easements, or other restrictions, save as specified in the deed.
Covenant against removal
The mortgagee’s restriction forbidding the mortgagor from removing or destroying any portion of the building without the lender’s permission.
Covenant against waste
A limitation imposed by a mortgagee that prevents the mortgagor from allowing the building to degrade throughout the mortgage tenure.
Covenant not to compete
A promise made by a company seller not to compete against the purchaser in a particular geographic area for a period of time If the seller decides to launch a competitive firm, the purchaser is protected from losing all of his or her previous clients. It also enables the purchaser to amortize and write off the payment for the covenant over the course of the covenant’s term of performance. Similar provisions have been incorporated into employment contracts for real estate brokers.
Such covenants, on the other hand, are often not favoured by the courts. Noncompete provisions are rigorously reviewed for probable violations of antitrust laws as well as for being unreasonably restrictive of a person’s ability to do business or hold a job.
A contract that prohibits one party from competing against another.
Covenant of insurance
A mortgage condition that requires the mortgagor to have appropriate insurance coverage against fire and other specified perils.
Covenant of quiet enjoyment
A guarantee that the property will not be taken by someone who has a stronger claim to title.
Insurance protects a home owner or tenant from being deprived of his or her right to occupy a property.
Covenant of Right to Convey
The time grantor has the legal authority to convey the title.
Covenant of Seisin | Seizin
Assuring the grantee that the grantor owns the title being conveyed.
A guarantee that the grantor actually holds sound title and has the authority to pass it to the buyer.
A mortgage provision in which the mortgagor certifies that he or she is the legal owner of the property being mortgaged.
Covenant of title
The grantor’s pledge or guarantee in conjunction with the transfer of title.
Covenant of Warranty
Converting a loan from an adjustable to a fixed rate schedule.
Covenant to pay taxes
A frequent mortgage agreement in which the mortgagor agrees to pay any property taxes and assessments incurred against the property throughout the mortgage term.
Covenants
Promises that property will be used in a specific way or will not be utilized at all.
Legally binding commitments for which the grantor is held accountable.
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Covenants and conditions
Covenants are unconditional pledges written in contracts, the breach of which entitles a person to damages. Conditions, on the other hand, are contingencies, qualifiers, or occurrences that would result in the acquisition or loss of an estate or property right (such as a fee simple). Covenants are denoted by terms like promise, undertake, and agree, while conditions are denoted by words like if, when, unless, and given. Because these are merely limitations and do not constitute duties, failing to meet the condition does not entitle one party to seek damages from the other.
Conditions might be either preceding or after. A condition prior must occur or be accomplished before a right or estate is acquired; a condition subsequent results in the loss of a right or the termination of an estate upon its occurrence.
A lease, for example, may include covenants to fix or pay truces, assessments, or rent. If the tenant violates a covenant, the landlord may sue for damages. If the lease contains a condition and the tenant violates it, the leasehold interest is terminated. Thus, a business lease sometimes carries a provision in a defeasance clause stating the tenant will forfeit the lease if the renter is declared bankrupt or uses the premises illegally.
Promises can be conditions or covenants. Concurrent conditions in contracts for sale, for example, are also covenants. The seller’s delivery of the deed and the buyer’s payment of the purchase money are concurrent conditions; they are also covenants. Thus, the buyer might sue the defaulting seller for damages only after meeting the tendering performance condition (by placing the purchase money into escrow).
Covenants running with the land
Covenants are agreements that become part of the property rights and help or bind each new owner. For the burden of a covenant to run with the land, it must have been made in writing by a promise between a property grantor and a property grantee, it must “touch and concern” the land, it must have been the intention of the original parties that the covenant run with the land, and subsequent grantees must know about the covenant. A deed might say that you can’t build a pigpen on the property as an example of a restrictive covenant. Such rules are enforced privately, not by the government, and they may not break any laws.
Covenants, conditions, and restrictions (CC&Rs)
Private limits on the use of real property; simply called restrictions in certain jurisdictions, these must be enforced by homeowners’ groups rather than municipalities. The rights and obligations of owners of condominium units, townhouses, PUDs, and similar associations are likewise governed by CC&Rs.
Cover note
For a newly purchased property, immediate insurance cover is often offered by an insurance broker on behalf of the insurance company.
This is provided on behalf of an insurance company and provides immediate temporary cover over a specified property for a specific sum as soon as you decide to buy a property, i.e. pay a deposit and/or sign a purchase agreement. In most states, the estate agent handling the property’s sale can issue this cover note.
Coverture
A phrase used in common law to describe a woman’s legal standing during marriage.
Cramdown
A provision that allows a bankruptcy reorganization plan to be implemented in certain circumstances without the permission of all creditors.
Crashing
Taking measures to shorten the project time at the lowest possible cost.
Crawl space
A shallow is a space beneath a building’s living quarters that is surrounded by a foundation wall and has a dirt floor.
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The area between the first floor and the ground surface, which is common in houses without a basement.
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The space between the top floor’s ceiling and the roof, which frequently serves as an attic.
Creative financing
A broad word that encompasses a wide range of creative financing approaches for property financing.
Any type of financing that isn’t a traditional level-paid amortizing loan.
Credit
The ability to raise capital.
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A person’s obligations that are due or will become due.
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In closing statements, that which is owed by either the buyer or the seller—the inverse of a charge or a debit. The credit appears in the accounting statement’s right-hand column.
Credit bid
Amounts outstanding under a defaulted promissory note that a lender can bid at a foreclosure sale of one of its secured properties.
Credit default swap
A contract in which the protection seller agrees to pay the settlement sum to the protection buyer if specific credit events occur. This provides protection to the protection buyer in exchange for the protection buyer paying a premium to the protection seller.
Credit enhancement
A tool or method that works in tandem with mortgage collateral to improve the credit quality of mortgage-backed or other securities and, as a result, support the securities’ desired credit rating.
Credit rating
A rating assigned to a person or organization to indicate creditworthiness based on current financial state, experience, and historical credit history.
A report obtained from a credit bureau by a lender in order to learn about the borrower’s credit habits.
Credit report
A report that lists current and previous debts, as well as the borrower’s ability to make timely payments and information obtained from public sources such as tax liens and judgments.
Credit reporting firms such as Du & Bradstreet, TransUnion, Equifax, and Experian maintain and issue this information.
Credit Score
A numerical expression that represents a person’s creditworthiness based on a level analysis of their credit files. A credit score is primarily determined by credit report information obtained from credit bureaus.
Credit Scoring
A snapshot of a borrower’s credit history and current use of credit at a given time, based on information kept by credit bureaus and other sources and calculated by a math formula. Sample scores range from 400 to 900, and the lower the number, the higher the risk of default. Loans are often given a letter grade based on the borrower’s credit score, the number of missed mortgage payments, and/or bankruptcies. The lender will charge the borrower a higher rate of interest the lower the letter grade.
The statistical assessment of borrower creditworthiness, which has essentially replaced the use of credit reports and the subjective assessment of payment timeliness and debt levels.
Credit tenant
To obtain finance for a shopping mall, strong national retailers with high credit ratings are required.
Companies with general debt obligations rated “investment grade” by one or more U.S. rating agencies, such as Standard & Poor’s and Moody’s.
Credit union
Members (labor unions, clubs, churches, REALTORS®) deposit money in savings accounts, which provide greater interest rates than other savings institutions. Credit unions are exempt from paying income taxes. They primarily only issue short-term installment loans, but they may make loans backed by a lien on real property, such as second mortgages, on rare occasions. Credit unions are a fantastic place to look for both home renovation and mortgage loans.
Credit unions can provide 30-year real estate loans to members to finance their primary residences under the Federal Credit Union Act. Credit unions can also provide FHA/VA loans with interest rates that are comparable to market value. The National Credit Union Share Insurance Fund guarantees deposits up to $250,000 per depositor in federally chartered and state-chartered credit unions that apply and qualify. The fund is administered by the National Credit Union Administration (NCUA), a federal body that regulates and supervises the activities of federal credit unions.
Depository institutions whose charters limit them to serving a certain group of individuals who have a similar relationship, such as workers of a firm, government entity, labor union, or trade organization.
Creditor
Amounts outstanding under a defaulted promissory note that a lender can bid at a foreclosure sale of one of its secured properties.
A person who owes money to another.
Cricket
Another roof built on top of the main roof to raise the slope of the roof or valley. So that water can drain away from the chimney joint.
Cripple
A vertical frame of 2 by 4 inches installed above a window or door.
Critical activity
Any action or event on a critical path(s) that must begin and end on time in order for the project to be completed on time.
Critical path
The sequence of actions that defines the project’s completion date.
Critical path method (CPM)
A network analysis approach for predicting project length by determining which sequence of activities (which path) has the least degree of scheduling freedom (the least amount of float).
Cross bridging
Before applying drywall mud, formed sheet metal covers the outside corners of the drywall.
Cross Tee
A “T”-shaped metal beam used in suspended ceiling systems to ensure the spaces between the main beams.
Cross-collateralization
A clause in a mortgage that allows the collateral for one mortgage to be used as collateral for other mortgages in the structure. This is a credit enhancement approach for strengthening the protection given to a lender by adding value to the structure. It’s most commonly encountered in the context of commercial mortgage loans.
Cross-defaulting clause
A condition in many junior mortgages that states that if one mortgage defaults, the mortgage in which the phrase appears will also default.
Cross-over (office use) demand
Industrial space converted to office space in order to reduce a property’s rental rate. Also referred to as flex space.
Cross-over chart
A graphical representation of the cost differences between leasing and owning at various discount rates.
Cross-sectional surveys
One-time sample from a population of interest for study. All elements are measured at the same time. Cross-sectional surveys give a “snapshot” of the variables being observed at the time of the survey.
Crown diameter, visible
A tree crown’s apparent diameter as seen in a vertical aerial shot.
Crown land
Unallotted land that is owned by the Commonwealth or a State.
Crown molding
Encloses a large family of moldings that are intended to gracefully flare out to a finished top edge.
Cubicfoot Method
The process of calculating the cost of reproduction or replacement based on the volume of the structure.
Cul-de-sac
A blind alley is a street that is only open on one end and usually has a circular turnaround on the other end. In place of the typical grid plan with several junctions, cul-de-sacs have become popular in residential subdivisions.
An access road with a blind end in the form of a vehicle turning space.
Culvert
A drain or sewer that runs beneath a road, rather than immediately over it, to protect it from runoff or sewage.
A construction that allows water to flow beneath a road, railroad, trail, or other barrier.
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