Real Estate Glossary E [Part 4]

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Continued from…

:point_right: Real Estate Glossary E [Part 3]

Exchange

A deal in which the transfer of “like kind” property serves as part or all of the compensation for the acquisition of real estate (i.e., real estate for real estate). Even though Section 1031 of the Internal Revenue Code defers taxes on a property exchange until the asset is sold in a taxable transaction, it is not a tax-free exchange because it only defers taxes on property kept for investment or income creation. Deferring capital gains taxes through the use of a 1031 exchange has grown increasingly popular. For an exchange, income tax should not be applied as long as an investment in the form of real estate remains in place. As a result, this tax-deferred status does not apply to the sale of a primary dwelling. To ensure that the dates and times of these exchanges are correct, consulting with an expert is highly suggested.

An improved or unimproved leasehold with 30 or more years remaining in the lease is regarded as “similar” to a fee title. In a tax-free exchange, the basis in the new property is lower than it would have been had the new property been purchased and the old property sold in separate transactions. As a result, smaller depreciation deductions are possible due to the lowered basis. The contract must clearly state that the taxpayer intends to exchange the property rather than sell it.

“Three-cornered” exchanges are the most common sort of exchange. The exchanging party (A) hands up his property 1 to the buyer (B) in return for new property 2, which the buyer obtained in accordance with the exchanging party’s instructions prior to the exchange.

Another sort of exchange has the exchanging party (A) transfer his property 1 to the buyer (B) in return for new property 2 from a third-party seller (C).

When two properties of equal worth and equity can’t be found, one party is usually required to pay some money or accept a bigger amount of underlying debt in order to balance the equities. Taxes will be levied on any money or additional debt that a person is freed of if it is received by the party requesting the tax-free exchange.

Example: Angelo Domni wishes to trade his $500,000 apartment building with a $400,000 mortgage lien for Howard Wong’s $450,000 apartment building with a $400,000 mortgage lien, which is subject to a $400,000 lien. Both Domni’s and Wong’s equity is $ 100,000. Therefore, Wong would have to pay $50,000 in boot to equalize the equities. Even if the equity was identical, but Wong’s property only had a $350,000 mortgage (thereby relieving Domni of $400,000 but assuming just $350,000), Domni would be seen to have gained $50,000 in boot in the form of debt relief once again.

Most of the time, locating the “up-leg” property takes some time. The taxpayer must name the replacement property(s) in writing to the qualified intermediary within 45 days under special delayed exchange requirements. If the replacement property is not purchased by the 80th day following the date of sale of the surrendered property, the taxpayer will be required to pay a late penalty. Taxpayers must close their business on the 45th or 180th day of a holiday. If the swapped property is US property, the replacement property must be situated in the United States. (Exchanging foreign property for foreign property is permitted.) Each exchanger should have their spouse sign a release of marital rights in order to avoid legal complications.

Section 1031 of the Internal Revenue Code allows for a tax-free exchange of like-kind properties.

The IRS allows tax-deferred exchanges of “like-kind” property used in a trade or business or held as an investment under Section 1031 of the code. It is possible to trade real estate for other similar assets in a Section 1031 exchange if certain conditions are met. A buyer of real estate can avoid paying any capital gains tax until the property is sold. Deferring capital gains taxes is based on the idea that an investor shouldn’t have to pay tax on their profits as long as they keep their initial investment in (like-kind) real estate (like-kind refers to real property as such, rather than the quality or quantity of property).

The exchange of shares in one property for shares in another. If the exchange is handled by a licensed real estate agent, that person will usually treat each transaction as a sale and charge a commission for each one.

Exchange of contracts

In this case, the buyer and seller sign a contract that makes them both promise to buy or sell the property.

Exchange-Traded Funds (ETFS)

Investors may extend their investments even farther by following the performance of a whole index, which can be traded like regular shares.

Excise tax

Non-assessment tax that is based only on a person’s ability to deliver a service or receive an income. A few examples include the cost of obtaining a driver’s license, the cost of purchasing goods, and the federal estate tax.

Exclusionary zoning

Zoning that excludes lower-income populations is forbidden.

The zoning of an area so that minorities and low-income people are not allowed to live there. Although this may seem counterintuitive, it is possible that a minimum lot or home size restriction could have an unintentional discriminatory effect, even if it is not explicitly stated.

Exclusive agency

When an owner reserves the right to sell their property without paying a commission to an agent, they enter into a listing agreement with that agent. If the property is sold by anybody other than the seller, the exclusive agent is entitled to a commission. The property is only listed with one broker, making it exclusive. Participating brokers must be able to send exclusive-agency listings to the multiple-listing service.

Sole agency is another name for this. Common agency or open agency is the opposite.

Exclusive agency listing

A contract between a property seller and a broker in which the seller agrees to pay a commission to the broker if anybody other than the owner finds a buyer during the term of the contract.

A contract between a seller and a broker giving the broker exclusive rights to sell a property for a set length of time. This arrangement also allows the seller to sell the property without paying a commission to the broker.

Exclusive listing

Seller agrees to use just one broker for the sale of the property for a defined amount of time in the written listing. Exclusive agency and exclusive right to sell are the two forms of exclusive listings. Exclusive listings, by definition, must include a specific end date and cannot contain a rollover provision. An indefinite listing is discouraged by the courts, is prohibited in many states, and is generally considered bad practice. This is to protect sellers who, because they neglected to give a cancellation notice, may not realize that the listing is still in place after the initial listing period has ended and so find themselves liable for the payment of two full commissions on the sale of the property.

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Exclusive right of sale listing

A contract between a property seller and a broker in which the broker is guaranteed a commission if the broker or anybody else, including the owner, finds a buyer within the term of the contract.

Exclusive right to sell

A signed listing agreement designating a broker as the only agent for the sale of real estate for a predetermined length of time. If the owner, the broker, or anybody else manages to sell the property, the listing broker is entitled to a commission. In reality, the phrase “right to sell” refers to the right to locate a buyer; it does not imply that the agent has the authority to sell the property. Most courts consider it as a simple exclusive-agency listing unless the contract expressly indicates that it is an exclusive right or authorization to sell.

Exclusive right to sell listing

A contract between a seller and a broker that grants the broker exclusive rights to sell a property for a set length of time. The broker is entitled to a commission regardless of who sells the property.

Exclusive use zoning

Restrictive zoning means that only certain uses of land within a designated district are permitted.

Exculpatory clause

Loan provision that absolves the borrower of duty for contract fulfillment.

  1. The right to sue for unpaid debt in a mortgage note that is sometimes included as an amendment.
  2. A clause in a lease that is intended to release the landlord from any and all liability for damage to or injury to the tenants’ person or property. However, the landlord may not be protected against third-party injuries. Clauses in leases that require the tenant to forgo his or her right to sue in the event of a breach of contract are frowned upon by several states.

A clause in a mortgage that states that the borrower is not personally responsible in the event of failure.

Execute

Making a document legally binding, such as signing a contract or acknowledging and delivering a deed. In some circumstances, execution of a document refers merely to the act of signing; in others, it refers to the entire performance of the conditions of the contract.

To agree to a deal.

Executed contract

A contract that has been entirely completed.

A contract with terms that have been met.

A deal that has been fulfilled.

Execution

A judicial procedure in which the court authorizes an official to levy (seize) a judgment debtor’s property in satisfaction of a judgment lien. Certain properties are frequently protected from execution under state law.

Executor

It is a person designated by the testator to carry out the instructions and requests contained in a will, along with the task of distributing any remaining property of the deceased in accordance with the will. The term “personal representative of the decedent” is commonly used in state probate legislation.

The executor has the right to take ownership and control of the testator’s property until the heirs, claims, and division of the property have been determined, paid, and distributed. The executor must get court approval before selling the decedent’s real property unless the ability to do so is explicitly stated in the will. To sell the property, the executor does not often need a real estate license, but the probate court must give them permission to do so. Executors may sell real estate without notifying the court if the will directs them to do so, either at public auction or privately (however, title does not pass until the sale has been confirmed by the court). Within a year of being appointed as executor, a final accounting is usually required.

Executory

A contract that has not yet been concluded because one of its parties has failed to accomplish some required performance.

Executory contract

For example, a contract for sale where one or both parties have not yet fulfilled their obligations. For a contract to be considered “executed,” it must be completed by both parties, with nothing more to be done. Instead of a contract, the instrument serves as proof of a completed agreement. To make this distinction is crucial: Therefore, a person who transfers property in line with an oral sale contract cannot later invoke the statute of frauds in an attempt to void the contract and reclaim the property. For example, the statute of frauds does not normally apply to an oral agreement. In this case, however, the seller can’t be compelled to deliver the deed under oral contract if the agreement is executory.

An agreement in which one or more parties have yet to fulfill their obligations.

Executory interest

If Alice Gorski marries Mike Cwik, then Harry Green and his heirs will inherit Harry Green’s property. If she doesn’t, then Alice Gorski and Mike Cwik’s heirs will inherit the property (“to Harry Green and his heirs when and if Harry Green marries Carol Kaiser”). In the case of a fee simple with executory interest, it is an estate in which the fee simple is automatically transferred to a third party upon the occurrence of an event specified in the grant. According to Jim Winn’s will, he gives his property to George Zito “so long as it is used throughout the following 20 years to grow wheat and if not so used, then to Ed Schultz and his descendants.”

If a property is to revert to the grantor, an executory interest must become possessory within the time frame permitted by state law (see future interest, possibility of reverter, rule against perpetuities), and this distinction is critical.

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Exhibit

A document or piece of a document supplied as part of the supporting data for the principal document. Contracts for the sale of property may include a legal description or an inventory of the property’s furnishings as exhibits.

Expansion

A phase of the real estate or business cycle that is marked by a sharp, short-term rise in the number of available units in a given market. This is a response to rising demand and/or pent-up demand, and it happens when the economy grows and more buildings are built.

Expansion joint

Fibers are put inside and around a concrete slab so it can move along the foundation wall, which doesn’t move.

Installed around an existing concrete slab with a layer of fibrous material.

Expansion option

Lease provision requiring the property owner to provide room for the tenant to increase the size of their rented space.

Lease language allows the renter to extend their lease for an extended length of time.

Expansive soils

Soil that grows and shrinks based on how much water is in it.

Expected cash flow

The most probable cash flow in all potential global scenarios.

Expected value (EV)

The most likely result; the middle of a symmetric probability distribution.

The weighted average of a set of alternative outcomes weighted by their probability.

The sum of the weighted averages of all possible outcomes in a probability distribution. Probability distribution is a list of all of the possible outcomes of an event and how likely each one is to happen. The weights are based on how likely each possible outcome is to happen. The EV of the outcome is the sum of each possible value times how likely it is to happen. EVs can be calculated for any type of result the investor wants to look at, including net operating incomes, cash flows after taxes, and rates of return (IRRs).

Expenditure patterns

The likelihood or tendency of people or households to spend their disposable income on a certain good or service compared to other goods and services (usually measured as a percentage of disposable income) in relation to their income level or range and/or other demographic or socio-economic factors.

Expense ratio

The connection between total costs (not including debt payment) and gross revenue.

Expense Stop

A condition in business leases that mandates landlords to cover property running expenditures up to a certain level and renters to pay expenses above that number. Typically, the expenditure stop is expressed as a per square foot number.

In commercial leases, a financial amount above which the lessee agrees to pay the running costs. Protects lessors in the event of unanticipated increases in operating expenditures, such as real property taxes and inflated heating and cooling prices.

A cash limitation or restriction on how much the landlord will pay for a certain spending category. This ceiling is calculated by multiplying the base year expenses by a percentage or a monetary amount.

Lease terms that restrict the amount of a landlord’s spending liability on a property, with any expenses in excess of this level being covered by the tenant.

How much (or up to what level) the landlord will pay for certain operating costs. The renter is responsible for any amounts above the stop.

Expenses

The expenses incurred in the operation, acquisition, or organisation of an investment entity.

Expenses of the syndicator

The syndicator’s expenditures, which he wants to pay himself without reimbursement.

Expert witness

A person who is qualified to testify because of his or her specific training and/or experience. It is common for real estate brokers to speak about the ethics of their colleagues; appraisers may testify about a piece of property’s value in a court case.

Explicit transfer costs

Dollar costs; particularly, the cost per mile of chosen transportation option plus the dollar worth of time spent en route.

Exposed aggregate finish

A way to finish concrete by washing the cement-and-sand mixture off the top layer of aggregate, which is usually gravel.

Exposure

  1. The location of a property with relation to compass direction or availability to air, light, or amenities. Commercial property owners favor the south and west sides of main thoroughfares because in hot weather, people prefer to walk on the shady side of the street. Merchandise exhibited in storefront windows on this side of the street is less susceptible to solar damage.

  2. A property for sale that has been made available to the general public in terms of marketing. Display, exhibition, and/or access to the property by eligible purchasers are all factors in determining its exposure to the market. expropriation In a condemnation litigation, the government’s right of eminent domain is used to seize private property for public use.

Express agency

An agreement between a principal and an agent, either verbal or written.

Extended coverage

One of the most commonly used terms in fire insurance policies to indicate that the policies cover damage caused by the likes of wind and hail as well as riot, smoke, and other risks.

Second, a title insurance policy which provides coverage for dangers that are normally not included in conventional plans. Only the public records are protected by the usual policy. An examination may uncover unrecorded issues that are not covered by this policy

Extended-coverage mortgage title insurance plans are often required by most lenders. Extension of coverage provides protection against non-publicly disclosed liabilities, such as mechanics’ or tax lien, miscellaneous lien or easement, and other encumbrances or rights of third parties in possession or encroachment on the insured property.

Extender clause

  1. Carryover clauses (also called “safety clauses” or “protection clauses”) are a type of clause in a real estate listing that allows the broker to retain a commission even if the property is sold to a buyer who was previously introduced to the property by the broker. As an example, a clause like this might be written: “If the property is sold or exchanged within 90 days after expiration of the listing agreement, to any person who physically inspected this property with me or any cooperating broker during listing period, if broker gave me their name in writing five days after expiration date stated in listing agreement.” Brokers looking to buy a property should be made aware of any expired postings by the property owner. Owners of expired listings who fail to disclose the existence of any extender provisions run the risk of being held responsible for commissions owing by both the original broker who introduced them to the property and the new broker. Owners who list their property with another broker may lose their right to an extension clause in various states.

  2. Previously, a condition that the listing would continue for a predetermined amount of time and then be automatically renewed until the parties agreed to end it was removed. Such terms in listing contracts are now considered a violation of many state licensing regulations by the courts, and the use of them is discouraged.

Extension

A contract between two parties to prolong the contract’s duration.

  1. Agreement to extend the duration of performance beyond a set time frame. 2. For example, the seller’s broker may be able to extend the closing date for an extra 30 days under the provisions of a sales contract.

Due to a lack of available funds, many buyers with maturing contracts for deed are willing to pay a premium to extend their contracts in order to avoid defaulting on them. Nevertheless, a mortgagee should exercise caution when extending a loan because, in the case of deed assumptions, an extension may have the effect of modifying the original contract and thereby relieving the guarantors and preceding grantees of duty.

  1. A lease extension is an arrangement that extends the term of a lease beyond the original term; it is also known as a lease renewal.

Exterior insulating and finish system (EIFS)

A multi-layered external siding technology for business and residential structures, often known as synthetic stucco. As a result of its indestructibility, EIFS is often the source of mold growth and water damage to the foundation’s wood or gypsum board components. EIFS manufacturers and the National Association of Home Builders both advise homeowners to get their homes inspected at least once a year to look for signs of water infiltration. Legal action has been taken primarily against EIFS installers and manufacturers, not real estate licensees. Any real estate licensee selling a home in which EIFS has been extensively used should encourage potential buyers to get an EIFS examination and not make any claims about its quality.

External costs

Costs borne by the public as a result of a private party’s conduct or inaction.

External diseconomies

External costs are those in which the decision maker benefits while others bear the price.

External economies

A positive by-product of production or consumption for which no compensation is received or made.

Companies or industries in a certain city can save money or cut costs thanks to the advantages of sharing production inputs, information, and infrastructure. This could also be related to a city’s comparative advantage in supporting a certain activity.

External obsolescence

Property value losses caused by factors or situations outside the property’s bounds. In the cost technique of evaluating market value, the losses are removed from the reproduction cost of a structure.

A sort of depreciation induced by environmental, social, or economic circumstances over which the property owner has little or no influence; a loss of value that is often incurable. If a new industrial plant is developed adjacent to a dwelling, its zoning is likely to change, resulting in exterior obsolescence. The same is true for a well-maintained house in a declining neighborhood, as well as a motel if a new highway is constructed, making it harder to reach the motel. Other possible factors include changes in land use or population, as well as closeness to nuisances. Also known as environmental obsolescence or locational obsolescence.

A type or cause of depreciation factored into the cost method of valuing assets. Reasons for the decline in worth include competition and other external factors. For instance, a new shopping centre might increase traffic and congestion, lowering property prices in the surrounding area; a motel can no longer operate because a highway has been relocated; and so on.

Externality

The unaccounted-for impacts of land usage on neighboring property.

A positive or negative side consequence of production or consumption for which no compensation is received or made.

Extras

A contractor is required to perform additional work not originally planned by the client.

Extraterritorial jurisdiction

Manage by a community over an area bigger than the community or jurisdiction for planning and zoning reasons, granted by the state legislature, allowing local governments to plan and control urban growth outside their bounds until annexation is possible.

Eye appeal

A property’s favorable attributes, such as a beautiful view or a well-kept lawn.

CONTINUED-AT

Continued at…
:point_right: Real Estate Glossary E [Part 5]