A doctrine founded on the idea that money has a time value. The present value of a payment to be received at some point in the future is the amount that grows to the payment amount over the projected term at a given fixed interest rate. The present value of one dollar receivable one year from now is one dollar less the one-year interest loss. For example, if annual interest is 6%, the value of a dollar to be received next year is 94 cents today.
Tables (such as the Inwood tables) have been devised to set forth a list of mathematical factors to be used to discount money to be received in the future at different interest rates over different time periods. These tables are most commonly used in long-term lease valuations to compute the value of a lessor’s reversionary interest. They are also used to calculate the appropriate conveyance tax on the first ground lease issued. The present value of one dollar is also used in building valuation calculations to determine the present value of assigned leases.
A zoning district created to protect and preserve parkland, wilderness areas, open spaces, beach reserves, scenic areas, historic sites, open ranges, watersheds, water supplies, and fish and wildlife, as well as to encourage forestry and grazing.
A legal principle that states that a court will draw a specific inference from a given fact or piece of evidence unless and until the truth of that inference is disproved or rebutted. The date on a deed, for example, is presumed to be the date of delivery, and a transfer to two or more people with no stated tenancy is presumed to be a tenancy in common with equal interests.
The person who prevails in a lawsuit. Some contracts state that the prevailing party is entitled to reimbursement for reasonable attorney fees incurred if a lawsuit arises from the contract.
A general term for the average interest rate that banks and other lenders charge on mortgage loans right now.
To avoid possible difficulties, a programme of frequent inspections and care is implemented.
A programme that inspects the many physical components of a property on a regular basis.
The amount of one thing exchanged for another. The sum of money paid for a product; the consideration; the purchase price Market price and market value are distinct concepts.
A measure of how sensitive supply (price elasticity of supply) or demand (price elasticity of demand) is to price changes for a product or service.
A market circumstance in which price decreases result in a decrease in total revenue while price rises result in a gain in total revenue.
Economic units that operate on a large enough scale to have some price control over their goods or services in the marketplace.
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Economic units that realize that they cannot entirely control the price at which things are exchanged, but also recognize that they do influence market pricing. Price hunters must be continually mindful of the influence their price selections will have on the decisions of competitors.
Economic entities that operate on such a tiny scale that they have little control on the market price of their goods or services.
The illegal practice of conspiring to set fixed fees or prices for goods or services rendered; a violation of antitrust laws. In recent years, local bar associations’ setting of attorney fees and commission percentages and management fees has been successfully challenged as price-fixing and thus a violation of the Sherman Antitrust Act.
A legal term for evidence that, at first glance, seems to be good enough to prove a certain fact or prove a case. Prima facie evidence proves a case unless it is rebutted or contradicted. This is also known as presumptive evidence.
For example, if a homeowner puts their home up for sale but never moves in, even though they got an owner-occupant loan, this is a clear sign that they don’t plan to live there. Then it’s up to the homeowner to prove his or her case.
Data obtained by researchers precisely for the subject they are currently working on.
A lease between a landlord and a tenant whose interest has been leased in whole or in part.
Borrowers and lenders negotiate mortgage conditions in the loan origination market.
The market where lenders start loans and give money directly to borrowers, take on the risk of long-term financing, and usually keep paying back the loan until the debt is paid off.
Markets where real estate loans originated.
Referring to house mortgages that are “qualified.” The phrase is used in a variety of ways. Some people use the term prime to refer to loans with a FICO score of 660 or better. FHA and VA mortgage loans are two more options. Others differentiate prime based on the type of lender.
A commercial bank’s minimum interest rate on short-term loans to its largest and strongest clients (those with the highest credit standings). The prime rate is frequently used as a base rate for other commercial and personal loans. The rates at which banks must pay for the money they lend to prime rate borrowers influence prime rates in part. The interest rates available on other types of loans, as well as the return on investments such as federal government securities, have a significant impact on the setting of prime rates. The prime rate fluctuates due to the supply of money and the demand for loans, sometimes on a daily basis. The Federal Reserve Bank’s decisions to increase or decrease the supply of money cause prime rates to rise or fall, as does the Federal Reserve Bank’s discount rate. The interest rate on many large loans floats with the prime rate. For example, the interest rate could be stated as 3% (or three “points”) above the prime rate on the first banking day of the month. In a highly volatile money market, such as one in which the prime rate changes six or seven times per month, some lenders structure their loans using the monthly daily prime rate average. Because the interest rate on many interim construction loans is tied to the prime rate, large increases in the prime rate during construction can be detrimental to a real estate development’s profits.
The interest rate that a lender charges its most credit-worthy borrowers.
A tenant (or group of tenants) who lives in a building and takes up the most space. Usually, this is for 25 percent or more of the rentable space in the building. By name and reputation, the prime tenant may be the most important tenant in a building. A prime tenant is also someone who rents the most space or maybe even owns the building they rent. When there is a sublease, the original renter is sometimes called the prime tenant.
A business property’s anchor tenant.
The amount on which interest liability is calculated in finance.
The person who delegated power to an agent in brokerage; the amount borrowed and owing on a loan in finance.
You owe money on your loan.
One of the main people or groups involved in a deal. For example, the buyer and the seller of a piece of real estate are both principals in the deal.
The person who hires a real estate broker to help her sell property is in a fiduciary relationship with the broker. When real estate ads say “principals only,” it means that real estate agents are not allowed to contact the owners of the property.
The biggest amount. On the main amount, interest is paid. Interest and principal are both part of an amortized payment.
(Note: Do not confuse principal and principle. Principles are rules, like ethics or codes of conduct.)
The most important participant in a transaction.
The mortgage loan’s total amount.
A loan in which the principle and interest are both paid over the course of the loan’s duration.
The periodic payment of both the principle reduction and the interest required on a loan, generally made monthly.
Under the laws of some states, a licensed broker is directly in charge of and responsible for the real estate business that a brokerage company does. The designated broker is also called the broker-in-charge or the broker in charge.
In a government rectangular survey, a line of geographic reference running north and south.
The point where the prime meridian crosses the survey’s reference marker is used as a reference line for numbering ranges.
Lines stretching north and south between the Earth’s poles that are used as reference lines in property surveys.
A structure that the taxpayer has actually and physically occupied. Taxpayers who sell their primary residence receive preferential tax treatment, including an exclusion (i.e., no tax) of up to $250,000 for an individual return and up to $500,000 for married filing jointly if they own and have occupied the residence for two of the previous five years. If the buyer uses the home as his or her primary residence, foreign sellers may be exempt from the FIRPTA withholding rules.
The valuation principle states that a person is not justified in paying more for a property than it would cost to build or buy a substitute property.
The economic theories and ideas that explain how and why market behavior affects value. The theories of anticipation, change, competition, balance, substitution, supply, and demand are all part of the principles of appraisal.
A theory of water law that is based on the idea that the first person to take water from a source of water has the right to do so. The idea is that if all possible users got the same amount of water, there wouldn’t be enough to make anything. However, if the water was concentrated in a few places, at least something could be made.
The order of where things are or when they happen. Most of the time, the order in which liens are recorded shows how important they are. However, real property tax liens have priority even over recorded liens. So, the old saying, “First in time, first in right.”
Economic products in which one person’s consumption decreases the amount accessible for consumption by others.
Transfer of title to real estate on one’s own volition. Transfers for consideration, donations, and bequests are examples of these.
Property is transferred from one private owner to another by conveyance.
A limited partnership with a small number of investors and shares that are not available to the general public.
Insurance provided by private firms that reimburses the lender for capital losses incurred by the borrower in the case of failure.
A mortgage insurance policy that pays off if the borrower defaults.
A type of insurance that lets lenders increase their loan-to-market-value ratio, usually up to 97 percent of the property’s market value. Government rules, special loss reserve requirements, or internal management policies related to the mix of mortgage portfolios limit many lenders to 80 percent loans. A lender can lend up to 95% of the property’s value, though, if the extra loan amount over 80% of the property’s value is covered by a private mortgage guaranty insurer. Conventional guaranteed mortgages are sometimes used to describe mortgages that are insured by private companies.
The mortgage insurance company gives the lender a promise to cover the loan with a policy worth 20% of the loan amount. When the lender gets the insurance certificate, he or she may raise the loan amount to a higher percentage of the property’s value. The borrower pays the insurance premiums, which are usually a percentage at the beginning and a set amount each month after that.
For loans that started on or after July 1, 1999, the private mortgage insurance must end when the borrower has 22 percent of the property’s value based on the property’s value at the time the loan started, with no allowance for the property’s value going up or down.
Most policies cover the top 20 to 25 percent of the loan, which is seen as the risky part of a higher-ratio loan. Unlike the FHA, which requires the insurance to be kept throughout the life of the loan, policies on privately insured loans allow the lender to stop insurance coverage when the lender is sure that the risk level has been reduced enough. Each situation is looked at on its own to decide this. State and federal laws affect whether or not the lender has to keep paying for the insurance after the borrower has reached the amount of equity that was agreed upon.
In the event of a default on an insured mortgage loan, the insurer can either buy the property from the lender for the amount still owed or let the lender foreclose and pay the lender’s losses up to the amount of the insurance. Many insurers choose the first option, especially since lenders like it better. If the loan has been late for more than four months, the lender must tell the insurance company.
FHA and VA loans are not as popular as they used to be because private mortgage insurance has lower administration costs and fees and is faster to process. The Mortgage Insurance Companies of America is a trade group that is made up of about seven private mortgage insurance companies.
A real estate security offering that is exempt from registration with state and/or federal regulatory agencies because it is not a public offering. The Securities and Exchange Commission issued guidelines (known as Rule 146) in 1974 in the hopes of bringing more clarity to what constitutes a private offering and thus does not require registration. However, even though the private offering security is exempt from the SEC’s costly and burdensome registration requirements, it is still subject to the securities laws’ full disclosure and antifraud provisions.
The selling of securities to sophisticated investors (insurance firms, pension funds, etc.) who fulfill particular conditions.
The selling of securities to a limited group as opposed to a public offering, in which the transaction is announced to the broader public. A private offering is another term for a public offering.
A private placement prospectus. It is not required to seek SEC permission, but it must offer complete information.
Direct property investments and indirect real estate investments, such as open-ended and closed-ended funds that invest directly in real estate but are not traded on exchanges, are both available.
A way to sell that doesn’t have a set closing date and is usually done with the help of an agent (as distinct from a sale at auction).
The vendor and buyer perform a private property sale.
The relationship between two people who have the same property rights, such as a mortgager and a mortgagee or an assignee and an assignor (landlord-sublessee or heir-ancestor). A change in the rights.
A cash flow prediction that has been developed to aid in discounted cash flow analysis.
A financial statement that forecasts gross income, operating expenses, and net operating income for a future period using a specified set of assumptions.
Only for show; not always official.
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A prediction of what will happen in the future with money or other things. A projected annual operating statement that shows expected income, operating costs, net operating income, and taxable income and loss. A prospectus for an offering of a real estate security, like a limited partnership to own income property, will often have a pro forma statement. A pro forma statement should be clearly marked as a prediction, and it should be set apart from operating figures, which are based on how well the business has done in the past.
An amount proportional to an investor’s ownership interest.
A measure of the likelihood of every potential result occurring.
A collection of all conceivable outcomes and their corresponding probability of occurrence.
The probability distribution of all possible outcomes and their corresponding likelihood.
The likelihood that accepting a suggested investment would turn out to be a mistake.
State legislation that controls the disposal procedure of real estate conveyances upon the death of a property owner.
The formal court process to prove or confirm that a will is valid, collect the assets of the deceased person’s estate, pay their debts and taxes, and figure out who gets the rest of their estate. The will is taken to the probate court, where creditors and other interested parties are told to present their claims or explain why the court shouldn’t enforce the will’s terms. This court is sometimes called the surrogate’s court. Even if there is a will, it still has to go through probate. The will does, however, say what to do with the testator’s property instead of leaving it up to the laws of the state where the testator lived if there was no will.
Any interest in land goes straight to the heirs or people named in the will. This transfer is not a final sale, though, because it has some restrictions:
- The title is based on whether or not the personal representative has the right to own the property.
- The title is subject to claims that can be made against the estate of the person who died. If the claims are true, the property could be sold and the money from that could be split.
- The title depends on whether or not the surviving spouse goes against the will.
- The title is subject to all liens and claims that were in place at the time of death.
- The will could be called into question.
- The estate and inheritance taxes that apply to all of the deceased person’s property also apply to the title.
Even if the person who died didn’t have a will (died “intestate”), the estate still has to go through the probate process. The court decides who the rightful heirs are, pays the legal claims of creditors, and chooses an administrator to distribute the real and personal property according to the court’s decree.
A creditor has a certain amount of time to make a claim on the estate of a person who has died, or the claim will be lost forever. One exception is that a secured creditor, like a mortgagee, can foreclose on the decedent’s property even if she hasn’t already filed a claim.
The executor or administrator of an estate, also called the personal representative, must file a final accounting with the court that lists all income, expenses, and remaining assets. When the court approves the final accounting, this person is let out of jail. When this is done, the real property can be sold or given away without any debts, claims, or taxes from the person who died.
A broker who signs a listing agreement with the executor or administrator of an estate in probate should know that the court sets the amount of commission and that commissions are only paid out of the sale proceeds. So, a broker can’t get a commission unless the sale is okayed by the court. Even if the broker finds a buyer who is ready, willing, and able to buy, this is still the case. Both the sale and the commissions to be paid are subject to court approval.
Any modification in contract criteria must be approved in writing before any work may begin, and the price and/or completion time must be recalculated accordingly.
A place where the lender puts the money from the loan until the closing of a real estate deal. This step is especially important if the loan commitment is set to end before the closing date.
The cost of transforming raw materials into final items.
That work that leads to the result you want. Also known as the leading cause or the contributing cause.
In an open listing, the commission goes to the broker who made the sale happen or did the most to make it happen. A broker can be the procuring cause, even if the property is only sold indirectly because of the broker’s work. For example, if the broker sent a potential buyer to the owner’s house and the property was then sold, the broker is seen as the cause of the sale.
With the exclusive-right-to-sell contract, the broker is entitled to a commission if the property is sold “by you, by me, or by anyone else,” which gets rid of most procuring cause disputes. But disputes between the cooperating broker acting as a subagent and the listing broker can happen when both of them give advice to the buyer without knowing about the other’s role. There are also problems when the buyer works with more than one buyer’s agent. Purchasing cause disputes should be solved between the offices involved if at all possible.
Several state REALTOR® boards have made rules for how to settle disputes over procuring cause. Procuring cause panels look at all the facts and try to figure out who started and continued the chain of events that led to a successful transaction.
A broker will be considered the transaction’s procuring cause. If his efforts form the foundation on which the talks culminated in a closure, he is entitled to the real estate commission.
The ultimate output of the manufacturing process.
A property’s ability to provide utility or want-satisfying power. The ability of a property to command rent is a measure of its productivity.
A non possessive right to take the soil, minerals, or products from someone else’s land. Includes an implied right of access.
A legal right to remove a portion of the land’s soil or produce, such as coal, fruit, or wood. The only way a profit may be generated is by a formal gift or prescription, as a profit is a land interest. In contrast to a profit, an easement merely gives you permission to utilize someone else’s land, whereas a profit allows you to take their soil or products with you. It is considered an ancillary easement if it is essential for a profit a prendre to be enjoyed to its full extent.
Ownership of a natural resource is different from leasing it to a developer and receiving a royalty payment, such as in an oil or gas lease contract in which the owner retains the right to a one-sixth net sales price royalty.
A declaration that shows a property’s operational results.
A detailed list of how much money a business makes and how much it spends. It shows how the business is doing over a certain time period. Often called a profit and loss statement, operating statement, or income statement.
P&L statements are something that a property manager has to do on a regular basis. Most of the time, these statements only show the total gross income, not the sources of that income, and the total of all operating expenses, not each expense.
The present value of predicted future cash flows divided by the original cash outlay yields the present value per dollar of cash outlay.
A forecast of future earnings and costs.
A network analysis approach that is often used to depict the project sequence, identify the critical path, and assess project progress.
A project manager in charge of a number of interconnected initiatives.
Payments that are planned to be made when certain parts of a construction project are finished. In many new condo projects, buyers have to make progress payments. This means that they pay the down payment into escrow in small amounts, with a certain amount due at the time of purchase, loan approval, building completion, and closing.
Construction loan funds are usually given out as the building is built, not all at once at the beginning. On behalf of the owner, the lender usually keeps a small portion of each progress payment to the contractor until the lender is sure that the work is done as planned.
A valuation principle that says that putting a less valuable object near better ones makes it more valuable. Change in the opposite direction.
A transitory and one-of-a-kind set of goal-oriented actions carried out to achieve a predetermined end.
A property’s intended development plan.
One or more homes that are usually made up of five or more single-family units.
A project is a planned development, like a condominium complex or a shopping centre.
A set of typically consecutive project stages, the names and numbers of which are established by the control requirements of the project’s associated organization(s). The application of knowledge, skills, tools, and procedures to project activities in order to meet or exceed stakeholder demands and expectations.
A centralized office (strategic or administrative) for project coordination.
The person in charge of overseeing a project.
The parent organization in charge of project management.
The formal document that contains all of the precise plans for how the project will be carried out.
A prediction of a property’s future performance.
A contract that includes a commitment to pay a certain sum at a future date.
A letter outlining the details of a financial deal.
A written promise from one person to pay a certain amount of money to another person, an order, or the bearer at a future date. The words “or order” or “bearer” are important to make the instrument negotiable because they let the instrument be signed over and given to someone else. If it can be changed, the person who made it should make and sign only one note and not any copies. Most copies have the maker’s initials on them. The Uniform Commercial Code says how to write a promissory note that can be enforced and traded.
When a prospective buyer gives a broker a promissory note as a deposit, the broker must usually tell the seller that the deposit is in the form of a promissory note. If the broker doesn’t tell the seller, his or her license could be suspended or taken away. The agent is required by common law to tell the principal about all facts about the subject of the agency that could hurt the principal’s interests. A promissory note is better than a “hold check” or a check with a future date. It’s a good idea to put a clause in the note that says the person who wins a dispute over the note is entitled to the costs of collecting it, including attorney fees.
In financing real estate, the promissory note, which is sometimes called the mortgage note, is proof of the debt, which is secured by the mortgage on the property. If the security isn’t enough to cover the debt, the holder of the note can get a deficiency judgment against the debtor for the difference, unless the note is marked “nonrecourse.”
A placement agency or fund-raising consultant employed by the concept’s creator or general partner to find investors.
A syndicator is a person who organizes a group of people
To put out in print. The state real estate commission may put out rules and regulations or approved forms for brokers to use.
Anything that has the potential to be owned or possessed. It may be both a tangible and intangible asset.
To the exclusion of all others, an individual’s rights in lands or assets.
A person’s ownership stake in a thing, but not the thing itself. The right to acquire, use, encumber, transfer, and exclude are all included in what is known as the “bundle of rights.” The modern concept of property, on the other hand, refers to a specific object that is owned by a certain person or group of people. There are two types of property: real and personal
Location, physical qualities, economic attributes, usage, and non reality components are the five selling price adjustments made to comparable property transaction prices.
Development, stabilization, and decline are the three stages that a building goes through in its life, and they all happen at different times.
A piece of land’s recorded boundaries.
Real Estate Glossary P [Part 5]