The Complete Glossary of Real Estate Terms
October 5, 2015
There are many abbreviations used in real estate industry. Here’s our comprehensive real estate glossary to help you understand the real estate jargons well.
The number of months it would take to sell the currently listed homes in the market. The amount of inventory or units of a specific commercial property type that become occupied during a specified time period (usually a year) in a given market, typically reported as the absorption rate.
A fee charged by a lessor to cover the expenses incurred in arranging a lease. Acquisition fees may also refer to charges and commissions paid for the acquisition or purchase of property, such as closing costs, real estate commission, and development/construction fees. Acquisition fees may be paid up front by the buyer or lessee or added to the loan amount and paid over the term of the loan.
An Adangal is an extract from A – register which is maintained at the VAO office. This record gives detailed information on the type of land and the use of this land.
The number of usable square feet divided by the number of rentable square feet in a commercial real estate lease. The result of this calculation will be 1 if the two numbers are identical, but it is usually slightly lower than 1 because some square footage in a building will be partly or totally non-unusable. Non-usable square footage includes space shared with other tenants (such as lobbies, hallways, stairwells, elevators and restrooms) or occupied by structural components (such as support poles and interior walls). In a poorly designed building, the usable area may be considerably less than the rentable area.
A clause in a contract that gives the lender specific rights in the event that the mortgaged property is sold or transferred
Amortization is the periodic payment of principal and interest on a liability (including a mortgage), or the write-off of a non-depreciable asset over a scheduled term.
The final payment of the balance due on a partially amortized loan.
The minimum rent due to the landlord. Typically, it is a fixed amount. This is a face, quoted, contract amount of periodic rent. The annual base rate is the amount upon which escalations are calculated.
Board approval is a condition in the standard cooperative sales contract requiring that the buyer obtain approval from the board of directors of the cooperative corporation as a prerequisite to completing the sale.
The sales threshold over which percentage rent is due. It is calculated by dividing the annual base rent by the negotiated percentage applied to the tenant’s gross sales.
A bridge loan is a loan for a short duration of time and can be used when one is purchasing one property but is dependent on the equity from another property that has not yet been sold. Once the property is sold then the bridge loan is repaid.
An individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. The role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.
A sum of money paid by a tenant and held by the Tenancy Services to ensure against defaulting on payment and damage to the property.
The maximum amount for which the tenant pays its share of common area maintenance costs. The owner pays for any CAM expenses exceeding that amount
The net cash received in any period, taking into account net operating income, debt service, capital expenses, loan proceeds, sale revenues, and any other sources and uses of cash.
A Chitta is an extract from Patta that contains information related to the ownership details of the land. Information like Village Taluk, District, Patta number, Owner’s name and their father’s name can be found in this record.
Closing costs are the expenses incurred in the purchase and sale of real property paid at the time of settlement or closing. Some examples of closing costs are title insurance, attorney fees, appraisal fees, recording fees and taxes.
A method of determining the market value of a property by evaluating the costs of creating a property exactly like the subject.
Common Area Maintenance
This is the amount of additional rent charged to the tenant to maintain the common areas of the property shared by tenants. Typical examples include such work as landscaping, snow removal, exterior lighting, as well as insurance and property tax.
The principle that cities or regions tend to produce those items or support those activities for which they have the greatest advantage over other areas as defined by the factors of production, demand, supporting industries, and quality of life considerations, as defined in relation to human, financial, and physical resources, and opportunity costs—costs expressed in terms of opportunities foregone.
A condominium project that is operated as a hotel with a registration desk, cleaning service and more. The units are individually owned. Unit owners also have the option to place their unit in the hotels rental program where it is rented out like any other hotel room.
Conformity is the homogeneous uses of land within a given area which results in maximizing land value.
A contract is a legally binding agreement between two parties, and in order to have a valid Contract of Sale in real estate there must be: an offer, an acceptance, competent parties, consideration, legal purpose, written documentation, description of the property, and signatures of the principals.
The act of transferring an ownership interest in real property from one party to another. Conveyance also refers to the written instrument, such as a deed or lease that transfers legal title of a property from the seller to the buyer. The term arises most frequently in real estate, where a conveyance refers to the written contract between the seller and the buyer stating the agreed-upon purchase price and the date of actual transfer, as well as the obligations and responsibilities of both parties.
A type of ownership of property. This is when the individual unit owners own shares in the cooperative building and do not own the actual property. The amount of shares owned is determined by the value and size of the apartment. The cooperative building owns all of the units and the purchaser is buying stock in the building.
A credit score is a numerical rating provided on a credit report that establishes creditworthiness based upon a person’s past credit/payment history and their current credit standing
Declaration is the master deed containing legal description of the condominium facility, a plat of the property, plans and specifications for the building and units, a description of the common areas, and the degree of ownership in the common areas available to each owner.
The percentage rate at which money or cash flows are discounted. The discount rate reflects both the market risk-free rate of interest and a risk premium. Also see opportunity cost.
A block of land which is zoned so that there two distinct dwellings are permitted by the Local Territorial Authority, to be constructed.
A dual agent is a broker or salesperson who represents both the buyer and seller in the same transaction.
A complex and ever-changing or evolving set of diverse and interrelated entities and agents which are organized into a coherent and working totality which serves multiple and/or common purposes or objectives. Also see system and market dynamics.
Economic depreciation is the physical deterioration of property caused by normal use, damage caused by natural or other hazards, and failure to adequately maintain property.
A state where consideration, benefits, legal rights, money, documents or other valuables are transferred to another party in advance of that party’s legal claim to them, on the basis that the legal claim will arise at a given point in the future. It is a form of trust.
A measure of the capacity or effectiveness of space to produce the desired results with a minimum expenditure of time, money, energy, and materials.
A clause in a lease which allows the landlord to increase the rent in the future to reflect changes in expenses paid by the landlord, such as real estate taxes, operating costs, etc. This can take three forms: 1) fixed periodic increases, 2) adjustments based on the Consumer Price Index (cost-of-living increases), and/or 3) an increase tied to the increased costs of operating the property.
Estate refers to the collection of all assets of a deceased person. It is also the extent of interest a person has in real property.
An eviction is a landlord’s action that interferes with the tenant’s use or possession of the property. Eviction may be actual or constructive.
Exclusive Agency Agreement (Exclusive Listing)
An exclusive agency agreement is between a broker and a seller designating the broker as the seller’s sole agent for the purpose of selling his or her property. This agreement does not preclude the owner from effectuating a sale on his own.
A phase of the real estate or business cycle characterized by the dramatic short-term increase in the supply of available units in a given market (due to economic growth and increasing construction activity) as a response to increasing and/or pent-up demand and rising price levels.
The tendencies or propensities of individuals/households to spend disposable income on a given good or service in comparison to other goods and services (typically defined as a percentage of disposable income) in relation to income level or range and/or other demographic or socio-economic characteristics.
Fair Market Value
The fair market value is the price for a property agreed upon between a buyer and seller in a competitive market.
A fixed lease is when the rental amount remains the same for the entire lease term; also called flat, straight or gross lease.
A levy issued on the transfer of ownership by a cooperative corporation or condominium association against the seller, typically, though it may be against the buyer.. The flip tax is usually a percentage of the purchase price.
Full Recourse Debt
A guarantee that no matter what happens, the borrower will repay the debt. Typically with a full recourse loan no occurrence, such as loss of job or sickness, can get the borrower out of the debt obligation. In this situation, if there is no collateral for the loan, the lender can go after the borrowers personal assets to collect if the loan is defaulted.
Considerations made in the site selection process which assist in the evaluation of site potential as defined in terms of the practicality of a site, the best site for a given use, or the determination of a site’s best use, through the examination of linkages, competition, demographics, and market conditions.
A form or source of accrued depreciation considered in the cost approach to market value. The reduced capacity of a property or improvements to perform their intended functions due to new technology, poor design, or changes in market standards.
An evaluation of the difference in the demand and supply of space (measured in terms of square footage) for a particular type of commercial property in a given market area where gaps are expressed as the amount of square footage demanded less the amount of square footage available in a given time period. Note that if demand exceeds supply, the gap will be positive. A positive gap indicates that potential opportunities exist for successful commercial real estate transactions. However, transactions might be avoided when supply exceeds demand (or when a negative gap occurs), as there is an oversupply of available space in the market.
A general agent refers to the entity that has full authority over a property of the principal, such as a property manager.
A graduated lease is a lease in which the rent changes from period to period over the lease term. This type of lease is usually used by a new business tenant whose income will increase over time.
The entire floor area of a building or the total square footage of a floor. Gross leasable area (GLA) The total floor area designed for tenant occupancy and exclusive use, including basements, mezzanines, and upper floors, and it is measured from the center line of joint partitions and from outside wall faces. GLA is that area on which tenants pay rent; it is the area that produces income.
A type of lease in which the tenant pays a flat sum for rent, covering all landlord-paid expenses, including taxes, insurance, maintenance, utilities, etc. By having all these costs thrown in, you can better forecast your monthly expenses and also avoid potentially high bills associated with these operating costs.
In reference to the patterns of urban or population growth in a geographic market, an important consideration in retail trade area analyses as growth patterns are known to affect sales/revenue potential within a market given the tendency of retail to follow population movement and income concentrations over time.
A visual representation of data using colors. A heatmap can be used with all sorts of data, from representing the number of foreclosures to the spreads of credit default swaps.
Housing Expense Ratio
The housing expense ratio is the relationship of a borrower’s monthly payment obligation on housing (principal, interest, taxes, insurances and other applicable housing expenses) divided by gross monthly income, expressed as a percentage. It is also referred to as top ratio.
The total number of housing units demanded in a given market, defined as occupied household units divided by one minus the vacancy allowance for that market (where demand is affected by the rate at which new households are being added to the market, allowing for a normal level of vacancy).
HVAC is an acronym that stands for heating, ventilation and air conditioning.
A market in which product differentiation exists, there is a lack of important product information, and certain buyers or sellers may influence the market. Commercial real estate is bought and sold in an imperfect market.
Index is a benchmark, usually a published interest rate, such as a one-year London Interbank Offered Rate (LIBOR) security yields, used to calculate the interest rate of an adjustable rate mortgage when rate is scheduled to change. Generally, a margin stated in loan documents is added to the index to determine the new interest rate.
A lease in which the rental amount adjusts accordingly to changes and/or movements in a price index, commonly the consumer price index.
The difference between the demand for an industrial property and the supply of that property in a given market or area.
An installment sale is a property sale in which the purchaser pays the purchase price over a period of years. The seller recognizes gain for tax purposes by the proportion of the profit (determined by the profit divided by the nest sales price of the asset) received on each payment as it is received.
Investment Real Estate
Real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence, while the others are used to generate rental income and profits through price appreciation. The tax implications for investment real estate are often different than those for residential real estate.
A land lease is a situation in which a building and other land improvement are rented for a term of years. At the end of the lease term, the right of possession is extinguished and reverts back to the landowner. At the time, the tenant loses any remaining equity interest in the property.
Landmark status is the designation given to a building or neighborhood that is under government protection for purposes of preservation.
A means of obtaining the physical and partial economic use of a property for a specified period without obtaining an ownership interest.
Letter Of Intent
This is an informal and preliminary agreement between the tenant and the landlord indicating intent to move forward with negotiations. Always consult your legal counsel before signing any Letter of Intent.
The term used by brokers to market an apartment for sale or rent.
The listing broker represents the interests of the seller or landlord in the sale or rental of his or her property.
The amount of money remaining to be paid on an amortizing loan at a given time.
Loan or mortgage value
That portion of the value of real property recognized by the lender when used to secure a loan.
A loft refers to an open living space that was converted from commercial space to residential space. Lofts contain very high ceilings, large windows and open space.
A lot is a measured section of land.
The monthly charge levied on owners by a cooperative corporation to cover the building’s operating costs, real estate taxes, and the debt service on the building’s underlying mortgage.
The process of examining market supply and demand conditions, demographic characteristics, and opportunities; identifying alternative locations/sites that meet specific objectives or satisfy various criteria; and assessing the financial feasibility of those locations/sites to facilitate decision making regarding the commercial potential or suitability of various locations/sites to support a given activity or use.
Second stage of four-stage transaction management process pertaining to gathering and evaluating property information to unite the investor and user. The acronym MATCH represents the activities to market, analyze, target, compare, and highlight during the match stage.
A measure of central tendency (for a distribution of values) defined as the average value of a variable in a sample and calculated by adding together all the values observed in a data set and dividing by the number of values observed.
A mortgage is a pledge of real estate collateral to secure a debt. Also, it is a legal document describing and defining the pledge. The mortgage may also include the terms of repayment of the debt. It is also referred to as a deed of trust.
A real estate professional who represents an array of banks seeking to issue mortgages. The mortgage broker meets with a customer, assists with the application, and facilitates the mortgage process on behalf of the borrower and the bank. Generally, in the case of residential mortgages, the mortgage broker is paid a fee by the bank for this service.
Mortgage insurance is insurance that protects the lender in case the home buyer does not make their mortgage payments. Typically, a borrower would be required to pay a fee for mortgage insurance if their down payment is less than 20%.
A lease in which the tenant pays, in addition to rent, all operating expenses such as real estate taxes, insurance premiums, and maintenance costs.
This clause prevents the landlord from leasing any other premises on the development to a direct competitor of yours or another tenant operating the same type of business. It might be worth considering such a clause to protect your investment for the long term – especially if you are in the service industry and expect a lot of walk-in traffic.
Some legal documents, including certain leases and contracts of sale, are notarized by a certified Notary Public to verify the authenticity of a signature.
An investment situation in which the cost of borrowed funds is exactly equal to the yield provided by the investment.
In reference to the inadequacy, disuse, outdated, or nonfunctionality of facilities, infrastructure, products, or production technologies due to effects of time, changing market conditions, or decay (a factor considered in depreciation to cover the decline in value of fixed assets due to the invention and adoption of new production technologies, or changing consumer demand).
An open listing is an apartment for sale for which the owner has not signed an exclusive agreement with a real estate broker. Many brokers may represent the seller, or the seller can promote the property independently.
Cash outlays necessary to operate and maintain a property. Examples of operating expenses include real estate taxes, property insurance, property management and maintenance expenses, utilities, and legal or accounting expenses. Operating expenses do not include capital expenditures, debt service, or cost recovery.
Costs incurred by the owner of an interest in property, usually calculated on a yearly basis. Eg. management, repairs, rates, insurance and rent payable to the holder of a superior interest, as appropriate to his contractual or other liabilities. It is prudent to make annual provision for future items involving expenditure at intervals of more than one year.
In reference to commercial real estate, oversupply is a stock or supply of a given commercial property type that is greater than that which can be cleared under prevailing prices levels and market conditions (for example, excess supply). Also, a phase of the real estate market cycle denoting that period of time in which commercial real estate markets become saturated with units due to overbuilding.
Partially amortized mortgage loan
The payments do not repay the loan over its term and thus a lump sum (balloon) is required to repay the loan. Participation mortgage A loan secured by real property, with a stated interest rate that also provides for a share to the lender in annual net cash flow, gain on sale, or proceeds from refinancing the property. (Real Estate Information Standards)
A passive loss is a loss generated by investment real estate when real estate is not the taxpayer’s primary business. Loss in excess of income may not be fully recognized for tax purposes in the year it was incurred.
A Patta is an important legal document issued by the government in the name of the owner of a particular land or plot. This land revenue record establishes the ownership or possession of the property.
A penthouse apartment refers to the apartment on the highest floor in a luxury, high-rise building.
A percentage lease refers to a lease that has a rental amount that is a combination of a fixed amount plus a percentage of the lessee’s gross sales.
Perfecting a Loan
When a loan is issued against a personal property, it is recorded in the county clerk’s office against the name of the borrower. The recording process perfects a security position against the collateral.
Borrowed funds are invested at a rate of return higher than the cost of the funds to the borrower.
The portion of a loan payment used toward reducing the original loan amount.
The lease issued by a cooperative corporation to each tenant-shareholder prescribing his or her right to occupy a specific apartment and his or her general obligations as an owner and tenant.
A quadruplex is an apartment with four levels.
First stage of four-stage transaction management process pertaining to the process of gathering and evaluating information to measure a client’s readiness, willingness, and ability to consummate a transaction. The acronym QUALIFY represents the considerations of quantify, usage, authority, latitude, intention, financial, and yield involved in the qualify stage.
A rate cap is the limit on interest rates during the term of an adjustable rate mortgage.
Real Estate Broker
State-licensed agents with expertise in the leasing process. A good broker will not only help you find a space, but also help you in all aspects of the lease transaction. Because most brokers receive a commission or fee from the landlord or seller they represent (via a representation agreement), it’s worth doing your research to find a good one; a real estate lawyer can often offer advice in this regard.
Real estate investment trust (REIT)
An investment vehicle in which investors purchase certificates of ownership in the trust, which in turn invests the money in real property and then distributes any profits to the investors. The trust is not subject to corporate income tax as long as it complies with the tax requirements for a REIT.
Real estate trends
Long-term movements or tendencies in the demand for commercial real estate (which can typically last for years or decades), usually tied to macro-economic or business cycles.
A period of reduced economic activity or a general economic downturn marked by a decline in employment, production, sales, profits, and weak economic growth that is not as severe or prolonged as a depression. As a result, sales in real estate markets are slow, property values and price levels are flat or decreasing, and there is virtually no construction of new stock given excess supply of units in most real estate markets.
A referral fee is a percentage of a broker’s commission paid to another broker for the referral of a buyer or seller.
Sales Comparison Approach
The sales comparison approach is an appraisal tool for estimating the value of a property with other similar properties that have sold recently.
Sales comparison value
An estimate of value derived by comparing the property being appraised to similar properties that have been sold recently, applying appropriate units of comparison, and making adjustments to the sales prices of the comparable based on the elements of comparison.
A payment required by a landlord to guarantee that the tenant meets his or her obligations under the lease and to guard against any potential damages that may be incurred during the term of the lease.
A lease in which the rental amount paid by the lessee increases by a preset rate or set dollar amount at predetermined intervals. A step lease is a means for the lessor to hedge against inflation and future maintenance or operational expenses.
Relatively easy-to-use GIS applications that allow the user to map objects such as commercial properties or retail establishments by street address.
Passive losses that cannot be used in the current year are suspended for use in future years or at the time of sale.
A tax abatement is a financial incentive offered by a local or municipal government to stimulate development in a particular area. The owner of the property and/or the developer has reduced taxes for a specific period of time, typically 10-15 years. The taxes are raised incrementally to the full tax burden over the period of a few years.
Tax savings (capital expenditure)
Entry on the tenant’s Cash Flow Form. It refers to any tax savings associated with any capital expenditure by the tenant in terms of the site or major, unusual business expenses incurred to make the new office efficient for the business. The amount of tax savings is calculated by multiplying the annual deduction amount by the tenant’s tax rate.
Defines any improvements to the leased space either by, or for, a tenant. If you expect to make lots of improvements to the space, it’s worth negotiating these with your landlord and trying to get as much of these costs covered as you can. The Tenant Improvement (TI) Allowance or Work Letter defines the fixed amount that the landlord will contribute towards these improvements, and costs over this amount are then covered by the tenant (also known as the Tenant Finish Allowance).
Time value of money (TVM)
An economic principle recognizing that a dollar today has greater value than a dollar in the future because of its earning power.
The legal term for the evidence that the owner is in lawful possession of the land and property.
Total Existing Inventory
In reference to commercial real state, it is existing and currently available supply or stock as represented by the total number of units or total amount of space available of a specific commercial property type in a given market at a particular point in time.
Shares of stock in a cooperative corporation transferred to the sponsor at the completion of the conversion process. The sponsor normally gets special rights to rent and/or sell these shares (representing special apartments) without board approval.
Urban System (city as a system)
A complex and structured urban environment or system composed of highly diverse, interacting, and interdependent parts and activities aggregated or organized in such a way as to serve a common purpose and/or satisfy the needs and wants of people residing in and dependent upon that system.
Rentable area, less certain common areas that are shared by all tenants of the office building (such as corridors, storage facilities, and bathrooms). Also defined in office buildings as the area that is available for the exclusive use of the tenant. Useable area = rentable area × building efficiency percentage.
The vacancy rate is the projected rate of the percentage of rental units that will be vacant in a given year.
Valuation establishes an opinion of value utilizing an objective approach based on facts related to the property, such as age, square footage, location, cost to replace, etc.
Vesting options are choices buyers have in how to acquire property.
Walk Through Inspection
The inspection of a property immediately before the closing to ensure that the property does not have any new damages.
The procedure of taking money directly from an employee’s compensation under the authority of a court order, in order to pay a debt obligation. Wage assignments are typically a last resort of a lender to receive repayment from a borrower who has previously failed to pay their debt obligation.
Wetlands are federal and state protected transition areas between uplands and aquatic habitats that provide flood and storm water control, surface and groundwater protection, erosion control, and pollution treatment.
Words of Conveyance
Words of conveyance is a stipulation in a deed demonstrating the definite intent to convey a specific title to real property to a named grantee.
A wraparound mortgage is a junior mortgage in an amount exceeding a first mortgage against the property.
The yield refers to the return on an investment.
An area of a municipality or specific building that is zoned for a specific use, such as residential, commercial, etc.
Zoning are the laws regulating land use.
Zoning ordinance is a statement settling forth the type of use permitted under each zoning classification and specific requirements.
Please feel free to comment and let us know if any other term can be added in the Glossary to benefit our readers.