Terms Beginning With - P
Property Development & Investment Glossary, Terms & Definitions
Package mortgage
Personal items such as washers, dryers, refrigerators, air conditioners, and other appliances can be used as collateral to secure a loan for the purchase of a home. An itemized list of home accessories is included in a mortgage document that describes the real property and declares them to be fixtures. A budget mortgage’s monthly payments include principal, interest, and pro rata appliance payments.
If a buyer can pay for essential furnishings over an extended period of time without an additional down payment rather than exhausting resources by purchasing them outright, some lenders believe that a package mortgage reduces default rates. New subdivision homes and condominiums, particularly in resort areas, are popularly sold using package mortgages. A financing statement in accordance with the Uniform Commercial Code is usually required as part of a package mortgage. Like a typical consumer installment loan, interest is only paid on the remaining balance in a package mortgage.
Pad
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The space in a land lease park where a manufactured home can be placed.
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A foundation or site that is especially good for a certain kind of improvement, like a pad for a convenience store.
Paired sales analysis
The direct-sales comparison approach employs a technique in which properties are paired based on similar features. An adjustment to reflect a specific change in one characteristic is made to the sales price, for example, an adjustment for the date of sale (market conditions).
Palustrine Wetland
Wetlands connected with inland locations that do not rely on stream, lake, or sea water.
Panchromatic
A word used to describe films that are susceptible to broadband signals (that is, the entire visible part of the electromagnetic spectrum).
Panelized construction
Buildings built on-site using prefabricated factory products such as finished sections of walls, floors, beams, trusses, roofs, and other housing parts delivered to a construction site and assembled into a single housing unit.
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Panic peddling
The illegal practice of trying to get people to buy or rent a home by making written or spoken statements that cause fear or alarm, sending written or spoken warnings or threats, contacting potential renters or buyers who belong to a protected class, or acting in any other way to try to get someone to buy or rent a home, either with the intent to do so or with the intent to try to do so.
- by making statements about the presence of or plans for one or more minorities to move into an area; or
- by making statements that a reasonable person would understand to mean that one or more people from a minority group are or may be moving into the area, even if they don’t say so directly.
Panic peddling is the act of aggressively trying to find sellers in a neighborhood where things are changing quickly.
Paper
Mortgage, note, or contract for deed is a business term that refers to a mortgage, note, or contract for deed that a seller typically takes back from the buyer when real estate is sold. A 5 percent down payment on a 10-year contract for deed is common practice among land developers when selling subdivided lots. They then sell these contracts, or “paper,” to a lender at a discount, or pledge them as collateral for a loan.
Par
Average; comparable; face value The accepted comparison method, such as “this loan is two points above par.”
Par value
A debt’s residual balance or outstanding principal amount.
Paragraph 17
Paragraph 17 of the Fannie Mae/Freddie Mac Uniform Instrument is the most common mortgage clause that has a “due-on-sale” clause. If the mortgage loan has a “due-on-sale” clause, it is hard to sell a single-family home when money is tight.
Parapet
The part of a house’s wall that goes up above the roof.
Parcel
A parcel of land that is owned by only one person.
Much of a larger area; a substantial amount.
Parent Material
The particulate substance from which soil is formed; there are two types of parent material: “residual” and “transported.”
Parity clause
Multiple-note mortgage or trust deed provision that stipulates that a single mortgage or trust deed can serve as security for multiple debt obligations. Two investments with the same value are said to be in “parity.”
Parking ratio
The ratio of parking spaces to office space or the number of apartments is a critical factor these days.
Off-street parking ratio to the total number of dwelling units in a particular development. There are often minimum ratios specified in local zoning codes.
Parkway
A major collector road that usually has a median strip and landscaped, set-back, park-like areas on both sides of the right-of-way. Trees are usually planted heavily along the entire length of this type of road.
Parol evidence rule
A rule of evidence that is meant to give a certain amount of certainty in a transaction and stop fraudulent and false claims. Even though the word “parol” means “spoken,” it is used here to mean “evidence that is outside of and separate from the writing.” When parties to a real estate contract put their agreement in writing, the parol evidence rule says that any oral or written negotiations or agreements made before or at the same time that change or contradict the terms of the written contract cannot be used in court as proof.
So, if the buyer and seller agree orally that the buyer will pay the broker’s commission, but the final contract of sale says that the seller will pay, the written contract wins, and evidence of the oral agreement is not allowed. Note that the rule does not prevent proof of oral contracts made after the formal written contract.
There are many ways that the “parol evidence rule” can be broken. For example, parol evidence is always allowed to show that the parties did not intend to make a contract, that the contract was illegal when it was made, that there were certain circumstances that led to the creation of a contract, or to clear up any ambiguities in the contract. In other words, a party can still question whether or not a contract is valid instead of trying to change, add, or change the terms of the contract.
Parquet floor
Not a strip floor, but one made of short pieces of hardwood laid in various patterns.
Partial eviction
A situation in which the landlord’s carelessness makes it impossible for the tenant to use part of the property for the reasons stated in the lease.
Partial reconveyance
A document that is filed when a mortgage or trust deed lien is removed from part of a piece of real property.
Partial release
A mortgage condition that allows for the release of portions of a property following defined lump-sum loan installments. Typically used in subdivision and development finance.
The act of removing a general mortgage lien from a piece of the pledged property.
Partial release clause
A clause in a mortgage that says the mortgagee will free certain parcels from the blanket mortgage lien if the borrower pays a certain amount of money. The clause is often included in loans for building on land tracts. A mortgagee can’t be forced to release a part of the property from the mortgage lien unless that’s what the mortgage says to do. So, if there isn’t a partial-release clause, people who buy a lot from a developer who also has a mortgage can’t force the mortgagee to release their lot from the lien of the developer’s mortgage just because they paid a portion of the debt. Also, if the terms of a purchase-money note limit the buyer’s ability to pay all or part of the amount due early, the buyer will want to be able to get parts of the mortgaged property released or other collateral put in place of the released property. At the time of the release, the mortgagee should make sure that the mortgagor hasn’t broken any of the terms of the loan.
Many states require that a blanket lien on a condo unit or lot in a subdivision be partially released before the unit can be sold.
Partial taking
Taking a portion of a private property for public use is known as condemnation. There must be consideration given to any special benefits or losses that may have been gained or lost as a result.
The seizing of merely a portion of the property or property rights in a condemnation.
Partially amortized
A plan for paying back a loan in which the payments on the principal are not enough to pay off the loan over its term. The remaining principal balance is due in full at the end of the loan’s term.
Partially amortizing
A loan option in which the outstanding principal is paid in installments during the term of the loan, then entirely retired with a greater lump sum “balloon” payment at maturity.
Partially disclosed principal
A situation in which a party to a transaction, like a seller, knows or has reason to know that an agent in the transaction is working for a principal, but the seller can’t figure out who the principal is. A buyer’s broker does not have to tell the seller who the buyer is.
Participating broker
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A brokerage firm or its sales agent that finds a buyer for a property that is listed with another brokerage firm. Most of the time, the participating broker and the seller’s broker agree on how much of the commission will go to each of them.
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A broker who helps the listing broker on behalf of the seller, whether the broker works for the seller, the listing broker, or the buyer. Condominium developers sometimes list their condos for sale with more than one brokerage company. These companies are called “participating brokers” in the project.
Participation certificate (PC)
A mortgage-backed security is a type of security that Freddie Mac sells to pay for the mortgages it buys. It represents an ownership interest in pools of mortgages that Freddie Mac buys and the sellers take care of. PCs can be given to anyone, so they can be sold between investors like bonds.
Participation loan
A loan in which the lender shares in the property’s future cash flow and resale profits.
Participation mortgage
- A mortgage in which the lender gets a share of the income from the property being mortgaged, in addition to the interest rate, or gets a yield on the loan. The lender can either take an equity position in the project or get a share of the income from the property and the borrower’s income. It’s also called a “equity kicker” or a “hybrid mortgage” sometimes. Lenders need to be careful about environmental hazards on the property, because the Environmental Protection Agency (EPA) might think that the lender’s participation is enough of an ownership interest to make the lender liable under Superfund regulations.
Lenders usually use participation mortgages with commercial loans as a way to protect themselves from inflation and increase their total return on the loan. A lender’s share of gross rents over a fixed base of 90 percent is an example of this. Most of the time, these participations happen when a large lender, like a life insurance company, gives loans on commercial properties or multifamily units when interest rates are high and money is tight. Some people don’t agree on whether or not a lender’s share of a project’s income or equity counts as extra interest under the state’s usury law.
- A loan that is paid for by more than one lender.
Particleboard
Wood fibres and a glue are mixed together to make this building material, which is less expensive than solid wood or plywood.
Parties
The parties involved in a transaction or legal proceeding. A sales contract, for example, has the buyer and seller (not the broker) as parties; a lawsuit has the plaintiff and defendant as parties.
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Partition
The partition of property among individuals who have an undivided stake in it.
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A wall inside the house.
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The division of cotenants’ rights in a piece of real estate. In co-ownership, one of the people who owns the property may want to sell it, but the other people may not. When people can’t agree on anything, an action in partition is often the best way to solve the problem. Partition is a way for people who own things in common but don’t want to be related to each other to get rid of that relationship.
Any one or more of the owners who hold title as tenants in common or joint tenants and want the property to be split up can file a suit in equity. If it looks like a “partition in kind” can’t be done without hurting the owners too much, the court orders that all or part of the property be sold. The verified petition for partition gives a full description of the property and lists the rights of everyone who is interested. The petitioner should file a “lis pendens” against the property right away to let people know that a court case is pending.
The court can choose a commissioner to look into the situation and give advice on the best way to divide the land. If the court tells the commissioner to, he or she can make deeds of partition or sell the land. In equity, the court can clear up any problems with the title, such as an unreleased lien or encumbrance, transfer titles by decree, divide the property between the parties as they agree or by drawing lots, give some or all of the parties a piece of the property and sell the rest, or sell the whole thing and use the money to make everyone’s share of the property equal.
An action for partition can end a joint tenancy, but a tenancy by the entirety can’t be ended by partition. Most state laws say that a condo’s common areas can’t be split up.
By all parties agreeing in writing, the right to divide can be limited or changed. Reasonable limits on the right to divide are legal, but under the statute of frauds, they must be in writing. For example, it’s not unusual for people who own something together to agree that each of them has the right of first refusal if one of them wants to sell his share.
When a partition is ordered, a mortgagee’s lien is put on the part of the land that was given to the person who took out the loan. In some cases, the fact that the house is being split up could cause a clause in the mortgage to go into effect.
Because legal procedures can take a long time and cost a lot of money, tenants may choose to divide the property among themselves or sell it at auction. This can be done even if the only bidders are the tenants and a third party is in charge of the auction.
Partnership
A group of two or more people who work together to run a profitable business.
A group of two or more people who work together to run a business for profit, as defined by the Uniform Partnership Act, which is in effect in most states. Under this act, a partnership can hold title to real property in the name of the partnership. This is called “holding by tenancy in partnership.” One benefit of this type of ownership is that the partnership does not have to pay taxes on its own. It has to fill out Form 1065, which is a partnership information return, to show how much of its income it gave to each partner. The partners, on the other hand, are responsible for their own taxes.
State license laws may let a partnership get a real estate broker’s license under certain circumstances.
An organization of two or more persons acting as co-owners for the purpose of operating a profit-making enterprise.
Partnership agreement
Document outlining the rights and duties of persons who get together to run a for-profit corporation. It can be done orally, but it is commonly done in writing.
An agreement between partners that spells out each party’s responsibilities and rights.
Party driveway
A driveway that goes on both sides of a property line and is used by both property owners. Instead of relying on the general law of easements, it is best for the owners to have a written agreement that spells out their rights and responsibilities.
Party to be charged
In the statute of frauds, this is the person against whom the contract is being tried to be enforced. This is the person who is being sued (the defendant) and is being held responsible for the terms of the contract that person signed. This is the person who is to be bound by the contract.
Party wall
An outside wall shared by two contiguous structures, each owned by a separate person.
A wall that is on or near the boundary line between two lots that are next to each other and is used or planned to be used by the owners of both lots to build or maintain improvements on their own lots. This wall is often made to be the outside wall of two buildings that are next to each other. It is built and kept up according to a written agreement. Both neighbors need to agree on what is theirs and what isn’t, so that both properties will be easier to sell.
You can make a party wall through an agreement, a deed, or an implied grant. Even though it is usually in the middle, the party wall can be all on one lot. A party wall is usually a perimeter wall that connects two attached houses and gives structural support to both. It is most common in row or tract houses in highly developed urban areas where property owners want to make the most of the width of their lots and share the costs of building and maintaining the houses. Both owners are responsible for fixing a party wall, and they can’t use their rights to the wall in a way that hurts their neighbor.
Each owner owns a cross-section of the wall on his own piece of land. The other owner has an easement, called a cross-easement, to use the wall as the perimeter wall of his or her own building and to support it. The statute of frauds says that because a party wall is an easement, the agreement should be in writing. The right to a party wall can also arise by prescription, such as when a surveyor’s mistake causes a wall to encroach on neighboring land and the encroachment continues for the prescriptive period.
When a property owner wants to build, he or she may make a “party-wall agreement” with nearby property owners. For example, in a typical agreement, owner A will build first, and when neighbor B decides to build on his lot and use the wall, B will pay A one-half of the cost of the wall. A party wall is also used if A owns two lots and builds a house on each, with one wall dividing the two houses and serving as the perimeter wall for each.
Pass-through
Lease provision in which certain costs are passed on directly to the tenant rather than the owner (for example, property tax increases on a long-term lease).
Tax benefit of a partnership, limited liability company, or S corporation that lets income, profits, losses, and deductions, especially depreciation, “pass through” the legal structure of the partnership directly to the individual investors. Called flow-through as well. Real estate investment trusts also use the pass-through.
Expenditures or a portion of tenancy expenses that are “passed through” from the landlord to the tenant and paid by the renter.
Pass-through certificates
Certificates guaranteed by a pool of mortgages that have been insured. The collected interest and principal are used to pay interest on the certificates as well as to retire them.
Pass-through security
A security that Ginnie Mae gives to investors in mortgages. Cash flows from the block of individual mortgage loans that the securities are backed by are “passed through” to the holders of the securities in proportion to how much they own of the block. This includes loan prepayments. Ginnie Mae makes sure that the principal and interest on a mortgage-backed security are paid on time.
Passed in
When a property does not sell for the vendor’s reserve price at auction, it is referred to as a “failure to sell.” (The highest bidder has the option of meeting the reserve price or attempting to negotiate a price that is acceptable.)
This happens at an auction when a person bids too high and doesn’t get close enough to the seller’s “reserve price.”
Passive activity
For a taxpayer who is not actively participating in operations on a “regular, continuous, and significant (year-round) basis,” any trade or business is a passive activity.
Passive activity income
The IRS income categorization that encompasses all revenue derived from trade and commercial operations such as rental real estate.
Passive activity income
Profits from a passive trade or business. Passive income can be used to cover losses from other passive activities. Any passive activity income that is not offset by losses is combined with other taxable income.
Passive activity loss restrictions
Losses from passive operations, which include all rental properties, are generally allowed to be used exclusively to offset income from other passive assets, according to IRS guidelines.
Passive activity losses
Losses incurred as a result of inactive trade or company operations. In most cases, passive activity losses can be countered solely by passive activity revenue. With some key exceptions, all leftover passive activity losses must be carried forward and used against future years’ passive activity revenue, even if a taxpayer has significant taxable income from non-passive sources during the year of the loss.
Passive income
Rents, royalties, dividends, interest, and capital gains from the selling of securities are all sources of income.
Passive investor
An investor who only puts money into a project and doesn’t do anything else to help plan, build, or run it. This is the opposite of an active investor.
A person who makes a financial investment but does not participate in its management.
Passive loss
A loss from doing nothing. The Tax Reform Act of 1986 stopped letting losses and credits from passive investments be used to offset income from other sources (also called tax shelter). Passive activity losses and credits can no longer be deducted from other active sources of income. However, they can still be deducted from passive activity gains. Any losses or credits that aren’t allowed in one year can be moved to the next year and used as a deduction or credit for only passive activities. There are no carry-backs allowed. Any unrealized losses from an activity are fully allowed when the activity is sold in a way that is taxed. For real estate rental activities in which an individual taxpayer actively takes part, there is a small exception (up to a $25,000 offset).
A passive activity is any activity that has to do with running a business or trade in which the taxpayer doesn’t play a big role, or any activity that has to do with renting. A taxpayer is only considered to be materially involved in an activity if they do it on a regular, continuous, and significant basis. Most of the time, a limited partner’s interest is considered passive because they don’t take part in running the business. Interest, dividends that aren’t made in the normal course of business, and any gain or loss from selling a property that makes interest or dividends don’t count as passive income.
Patent
A sort of deed in which the government transfers title to a private party to real property controlled by the government.
The instrument by which the state or federal government transfers real property to an individual.
Path
Any continuous succession of related activities in a project network diagram from the beginning to the end of the project.
Patio home
A small-lot home design that saves land by building part of the house close to or on the lot line. On the side of each house, a patio is built. To keep things private, the next house has a wall with no windows that faces that patio.
Pavilion
A part of a building that sticks out or is only partly connected to the rest of it.
Payback method
Multipliers for real estate investing criterion based on rules of thumb.
Payback period
The period of time it takes for an investor to recoup their investment in an enterprise.
For the advantages of an investment, generally income or cash flow, to repay the whole cost or equity costs of the investment, there are rules of thumb that result in years.
Payee
Individual who has agreed to return a certain sum at a future period under the terms of a promissory note.
The person to whom a debt instrument, like a check or promissory note, is made payable; the obligee; the receiver.
Payment bond
A surety bond is a way for a contractor to guarantee to a building owner that all the money for materials and labor used to build a building will be paid in full and that no mechanics’ liens will be filed. The payment bond protects subcontractors and suppliers from the prime contractor not paying them. A labor and material payment bond is another name for it.
Payment caps
Protects the borrower from the shock of substantial payment fluctuations; the interest rate may rise to the point that the consequent payment increase is insufficient to meet the extra interest expense.
Payoff
Refinancing or the sale or transfer of a secured property usually results in the complete repayment of an existing loan. For the purpose of getting “payoff statistics,” Escrow will reach out to the mortgagee.
Payor
The person or group that pays someone else.
Peale Discharge
Maximum flow of a stream or river in reaction to an event, such as a downpour, or throughout a time period, such as a year.
Pedestrian traffic count
A study and analysis of the number and types of people who pass by a certain place. This helps to figure out the buying power of a certain area. When planning, building, and renting shopping centres, it is especially important to know how many people walk through them.
Penalty
A penalty is what happens when someone breaks a law or an agreement. Sometimes, a court will not enforce a liquidated damages clause as a penalty for breaking a contract if the amount of damages is so high that it has nothing to do with the real damages caused by the breach. In this case, the court looks at the damages clause as a punishment, which means it can’t be enforced. The court then gives the person who was hurt the right amount of money.
A price levied for breaking the law or breaching a contract’s conditions.
Penetration rate
A project’s and its competitors’ ability to attract a percentage of total demand within a particular market sector. Also known as capture rate.
Pension fund
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A financial institution that invests in long-term mortgages and high-quality stocks and bonds in order to accumulate funds to provide individuals with retirement income in accordance with a predetermined plan. Pension funds are a rich source of funding for real estate. Pension funds can accept a lower yield on an investment because they are not taxed on earnings.
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A pension or profit-sharing arrangement. Because qualified plans receive favorable tax treatment, it is common for attorneys, real estate brokers, and other professional businesspeople to incorporate individually and set up their own pension and profit-sharing plans.
In commercial real estate markets, retirement savings accounts are increasingly a substantial source of equity capital.
Penthouse
A structure on the roof of a building that stores mechanical equipment or, more commonly, an apartment on the top floor of a building. Most of the time, a penthouse is considered another story when it is used to store mechanical equipment that takes up more than 20% of the roof area or when people will be living there. Most of the time, a penthouse apartment costs more than most of the other apartments in the building.
Peppercorn rent
A one-peppercorn-a-year rent; in actuality, a way by which a landlord can rent a property for almost nothing while keeping all ownership rights.
Per cent complete
An estimate of the quantity of work accomplished on an activity or series of activities represented as a percentage.
Per stirpes
To get a share through the law of descent by right of representation instead of per capita or in one’s own right. Let’s say Samir dies without a will and leaves $60,000 behind. He doesn’t leave behind a wife, but he does have two children who are still alive, Aida and Nina, and two grandchildren from a third child who died. Aida and Nina each get one-third of the money as their share. The two children of the child who died would each get one-third of the child’s share per stirpes, which means by right of representation. Then, each grandchild gets $10,000, which is a one-sixth share.
Per-unit cost method
A way to figure out how much a property manager should charge based on how much it costs directly to run a certain number of rental units.
Percentage clause
Lease clause that stipulates rental based on a base rate plus a percentage of the tenant’s total sales.
Continued at…
Real Estate Glossary P [Part 2]
