Glossary of Real Estate Terms

These  real estate related  terms and definitions are provided as a teaching and reference aid to the educational materials provided by the NDP Urban Rehabber Program™. While considered generally correct and useful for the purpose, no legal or tax related advice is offered or intended. Where legal or tax-related advice or clarification is required appropriate legal or accounting professionals should be consulted.
It should be noted that some terms or phrases may be descriptive rather than legal or technical in nature (e.g., “rolling the equity”). Others may be considered “industry jargon”, unknown in unrelated fields. Finally, as with any field of endeavor, there will be local or regional colloquialisms unknown to other parts of the country. The inclusion of these terms is derived from the personal and professional experience of the editors.

While definitions bearing an endnote citing a specific author or source are the work of others, the remainder must be attributed to the editors, who assume responsibility for any errors or misinterpretations.

- Adriana C. Wright
- Philip R. Elmes

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Glossary of Real Estate Terms
© NDP, Inc.

acquisition the act of acquiring or purchase,  v. The purchase itself, n.

adaptive reuse to change the use of a  structure from that originally intended. Example:  Conversion of industrial “loft” building to residential use..

Affordable Housing Housing that may be rented or purchased for 30-35% of the prevailing Median household income. e.g., if the household earns $36 thousand per year, or $3,000 per month, that household’s total housing expense should be no more than about $1,000 per month to be deemed “affordable.” (Note: “median” is the point, number  or dollar amount where half the number in question is above, and half below.) e.g., if the household earns $36

agent, real estate one who acts or has the power to act for another. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be his or her agent.(1)

appraisal an estimate of the quantity, quality or value of something. The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.(1)

arbitration clause a clause in a lease calling for the decision of a third party (arbitrator) regarding disputes over future rents based on negotiation. Also used in construction contracts, disputes between brokers, etc. (2)

Articles of Agreement a contractual agreement between two or more parties conveying certain “use and occupancy” property rights by the Seller to the Purchaser for a finite period of time (term), in return for which the Purchaser shall make regular payments in cash or in kind to the Seller; upon satisfaction of all terms and conditions, in particular upon receipt of all payments called for in the Agreement, full title of the property shall be conveyed to the Purchaser. In many ways similar to a “Purchase Money” mortgage–a form of Seller Financing–but actual title to the property does not pass Seller to Purchaser until all terms have been met. Also sometimes referred to as a Contract Sale.

A.R.V. "after repaired value". Industry jargon.

asset protection actions which may serve to protects one’s personal property, including assets, from loss due to adverse financial circumstances, including claims arising from litigation and other legal claims.

asset statement a summary statement including a specific listing of one’s personal (or corporate) cash on hand and in banks, and all financial instruments (e.g., notes, mortgages, bonds, securities, etc.) and real property of ascertainable value. See also “financial statement”

assets  Investments that result in real tangible, monetary returns. Assets make money.(2)

assets everything owned by a person or corporation which can be used for payments of debts.(2)

assign  to transfer property, or an interest in the property.(2)
assignee one who receives an assignment.(2)
assignment the transfer in writing of interest in a bond, mortgage, lease or other instrument.(1)

assignee the recipient of the assignment of another (assignor).

assignor one who makes an assignment.(2)

assumption of mortgage Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payment. (1)

balance sheet a statement of the assets and liabilities of a company [or individual] to determine its net worth (equity). (2) See also Financial Statement.

bank REO’s abbrev. mortgage lenders maintain “real estate owned’” departments charged with the responsibility of disposing of properties taken back through foreclosure.(1) Also may refer to specific pieces of property owned by the foreclosing bank or mortgage lender.

basis the financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner’s basis is the cost of the property plus the value of any capital expenditures for the improvements to the property, minus any depreciation allowable or actually taken. This new basis is called the “adjusted basis”. (1)

breach of contract violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due.(1)

broker one who acts as intermediary on behalf of others for a fee or commission. In most states subject to specific laws requiring a license, with sanctions or penalties for those who act as a broker without appropriate license.
brokerage the bringing together of parties interested in making a real estate transaction.(1)

builder one whose business is in the construction of structures.(2)

Builder’s Risk a specialized form of insurance specifically applicable to properties that are “vacant and under construction.” Generally substantially more costly than insurance available for occupied properties and otherwise typical for their type.

building code an ordinance that specifies minimum standards of construction for buildings to protect public safety and health.(1)
building inspector an employee of a governmental agency (generally a municipality) charged with responsibility for monitoring building conditions for conformity with that entity’s Building Code(s); presumably with the intent to enforce.

building permit written governmental permission for the construction, alteration or demolition of an improvement, showing compliance with building codes and zoning ordinances.(1)

bundle of rights the concept of land ownership that includes ownership of all legal rights to the land -- for example, possession, control within the law, and enjoyment. (1)

capital gain profit earned from the sale of an asset.(1) –e.g., taxable profit realized from the sale of real estate.

cash flow the net spendable income from an investment, determined by deducting all operating and fixed expenses from the gross income. When expenses exceed income, a negative cash-flow results.(1)

certificate of sale the document generally given to the purchaser at a tax foreclosure sale. A certificate of sale does not convey title; normally it is an instrument certifying that the holder’s  redemption period passed and that the holder paid the property taxes for that interim period.(1)

certificate of title a statement of opinion on the status of title to a parcel of real property based on an examination of specified public records.(1)

chain of title the succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title.(1)

closing statement a detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made and all cash paid out in the transaction.(1) Sometimes referred to as a “HUD-1”

closing, real estate 1. in real estate sales, the final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed. 2. a selling term meaning the point at which the client or customer is asked to agree to the sale or purchase and sign the contract. 3. the final call in a metes and bounds legal description which “closes” the boundaries of the property.(2)

cloud on title any document, claim, unreleased lien or encumbrance that may impair the title to real property or make the title doubtful; usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title.(1)

code violation legal citation of a property’s nonconformity with existing (statutory) building cases and/or ordinances: often relating to unsafe or unsanitary conditions.

commodities objects bought and sold in the ordinary conduct of business. A commodity may be said to lack personality or individuality.

comp. abbrev. “comparable” abbreviated; real estate industry jargon. (See “comparables”)

comparables properties used in an appraisal report that are substantially equivalent to the subject property.(1)

comparative market analysis (CMA)    a comparison of the prices of recently sold homes that are similar to a listing seller’s home in terms of location, style and amenities.(1)

compensation remuneration in cash or kind for services rendered; payment for services rendered

compound interest interest paid on accumulated interest as well as on the principal.(2)

consideration  1. That received by the grantor in exchange for his or her deed. 2. Something of value that induces a person to enter into a contract.(1)

construction loan a loan, secured by the asset, made specifically for the purpose of making physical improvements to the property.

contingency commonly, the dependence upon a stated event which must occur before a contract is binding. For example: The sale of a house is contingent upon the buyer obtaining financing.(2) Also, in financial analysis and budgets, refers to a monetary reserve for the unexpected, as in “Contingency Reserve”.

contingent liability a liability (financial obligation) which will only become due and payable in the event of some occurrence; e.g., a car loan cosigned or guaranteed for another becomes an obligation of the guarantor in the event the signatory to to the loan fails to pay. Contingent liabilities generally do not appear on credit reports and are identified on financial statements specifically as “contingent liabilities,” not as liabilities per se.

contract for deed see “articles of agreement”, “contract sale”  & “land contract”

contract of sale in some areas of the country, synonymous with land contract. In other areas synonymous with purchase agreement. (2)

contract sale the sale or transfer of real property, e.g., a home or piece of vacant land, subject to a contractual agreement wherein title is not to transfer to the buyer until all terms and conditions of the agreement have been met. A form of purchase money (seller) financing.

contractor see general contractor; subcontractor

Contractor’s Sworn Statement a signed and generally notarized affidavit submitted by the contractor documenting: a) the financial terms agreed to by the property owner and contractor for specific work to be completed; and b) dollar amounts already paid and to be paid in satisfaction of the contract. A spreadsheet in format.

contractual control a contract to purchase the property has been fully executed (signed) by both the buyer – in this case, the builder/rehabber – and the seller and, subject to certain stated conditions, the property may be considered “under contract” and ready to close once the conditions are met by both parties. (1)

conventional loan a mortgage or deed of trust not obtained under a government insured program (such as F.H.A. or V.A.). (2)

corporate “shield” a corporate shield is said to exist when one incorporates under state law and conducts business with others as a corporation. A corporation is an entity separate and distinct from its ownership (stockholders) and, as such, may engage in business, be taxed as a separate entity and, importantly, incur liability independent of its ownership.

corporate “umbrella”    see “corporate shield” (another metaphor implying protection)

corporate resolution an action taken by vote of the directors of a corporation. A title insurance company may require a corporate resolution before insuring a sale or loan made by a corporation.(2)

dealer, real estate one who buys and sell real estate as a business, as opposed to an investor. The importance of the term is for tax purposes. If IRS determines that a taxpayer is a dealer, said tax payer is a dealer, said taxpayer will not be allowed the capital gains benefits of an investor, but will be taxed at ordinary income rates. The term applies to the transactions more than the person. One may be a dealer in certain transactions and an investor in others. (2)

deferred maintenance repairs necessary to put a property in good condition. A concern of a purchaser. An owner may have an account for such maintenance.(2)

depreciation 1. in appraisal, a loss value in property due to any cause, including physical deterioration, functional obsolescence and external obsolescence. 2. in real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property.(1) Depreciation will be imputed by the IRS, whether claimed or not, when determining profits (ordinary or capital gain) for tax purposes.

distressed property  those real estate assets discounted in value by the marketplace due to some aspect of physical condition (deferred maintenance, fire damage), ownership or condition of title.(1)

due diligence the act of investigating any/all matters relating to an immanent or future act having a potentially adverse outcome. e.g., in real estate, checking for outstanding code violations and inspecting the physical condition of the property are considered “exercising” due diligence.adverse

earned income income attributable to one’s trade or business; also termed “active income”

economies of scale in business and economics, “economies of scale” are realized by the production of goods and performance of services repetitively and in multiple quantities; e.g., the automotive assembly line vs. the custom built automobile.

end loan see “take out” loan

environmental disclosure affidavit executed by the seller, required by law in Illinois and many other states, indicating what if any environmentally hazardous conditions the seller has knowledge of on or about the property to be sold or transferred.

equity the interest or value that an owner has in property over and above any indebtedness.(2)

errors and omissions insurance insurance covering losses caused by errors and omissions of professions other than medicine. Used by banks, real estate  companies, escrow companies, etc.(2)

escrow the closing of a transaction through a third party called an escrow agent, or escrowee, who receives certain funds and documents to be delivered on the performance of certain conditions outlined in the escrow instructions.(1)

escrow account the trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction. (1)

estate 1. the interest or nature of the interest which one has in property, such as a life estate, the estate of a deceased, real estate, etc. 2. a large house with substantial grounds surrounding it, giving the connotation of belonging to a wealthy person. (2)

exclusive agency listing a listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time to sell the property on the owner’s  stated terms of commission. The owner reserves the right to sell without paying anyone a commission if he or she sells to a prospect who has not been introduced or claimed by the broker.(1)

exclusive right to sell listing  a listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time to sell the property on the owner’s stated terms, and agrees to pay the broker a commission when the property is sold, whether by the broker, the owner or another broker.(1)

expense, deductible expenditures, or categories of expense, the government deems necessary and beneficial to enhance (taxable) earnings and profitability; effectively a government subsidy. Interest, taxes levied by other governmental agencies, such as real estate taxes, business related travel, etc., are examples of deductible expenses.

fee simple absolute the maximum possible estate or right of ownership of real property, continuing forever.(1)

fiduciary one in whom trust and confidence is placed; a reference to a broker employed under the terms of a listing contract or buyer agency agreement.(1)

financial statement an accounting statement showing assets and liabilities of a person or company. Used generally for large loans or other instances when the credit report (history of payment of debts) in itself is not sufficient.(2) See also “balance sheet”.

“flip”, to flip to buy and immediately, or in the short term, resell at what may be considered an excessive profit (particularly where no substantive improvements have been made to enhance value).

foreclosure a legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of the parties to a conclusion and passes the titles in the mortgaged property to either the holder of the mortgage or a third party, who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.(1)

Form 1099 Form required by the IRS of employers of Independent Contractors documenting the total amount paid that contractor during the calendar year; generally not required for amounts totaling less than $800, in total, for the year. The form is given (mailed to) the contractor on or before January 31st of the year following the year in which the work was performed. Generally considered necessary documentation for the employer to include such  payments to contractors as tax deductible expenditures for the tax year in question.

functional obsolescence a loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design.(1) A factory or warehouse located in an area now predominantly residential may be considered functionally obsolete.

functionally obsolete no longer useful as originally designed and built,  e.g., multi-floor industrial building

general contractor one who contracts for the construction of an entire building or project, rather than a portion of the work. The general contractor hires subcontractors, such as plumbing contractors, electrical contractors, etc., coordinates all work, and is responsible for payment to the said contractors.(2)

general warranty deed a deed in which the grantor fully warrants good clear title to the premises. Used in most real estate deed transfers, a general warranty deed offers the greatest protection of any deed.(1)

gentrification the process whereby homes within a neighborhood or community are improved to the extent existing residents no longer “qualify” financially to reside there, either as owners or tenants; generally results in the displacement of these traditional residents to other, less costly and arguably less desirable neighborhoods.

gross profit the total profit before deductions. A general term which varies, depending on accounting procedures.(2)

“hard money” mortgage a mortgage given in return for cash, rather than to secure a portion of the purchase price, as with a purchase money mortgage.(2) In the rehab. business, premium priced short term financing made available to dealers in distressed property for the purpose of acquisition and improvement; upon completion, the property is typically sold or refinanced for investment purposes.

holdback portion of the loan held back by the lender until a contingency is met. In the sale of a home insured by V.A. or F.H.A.,funds may be held back to make necessary improvements to bring the property to V.A. of F.H.A. standards. The money to make “these” repairs may not be available until closing. One and one and a half to double the estimated amount necessary is held back. If repairs are not made in the time allowed, these funds are used to make the repairs. In construction financing, funds are held back until, for example, a certain percentage of a subdivision has been sold, or a certain portion of a building has been completed.(2)

home inspector an individual, generally licensed, who performs an on site comprehensive inspection of a residential dwelling and produces, for a fee, an authoritative summary of physical conditions. A professional home inspection is considered to be an objective evaluation, free from self interest (as may not be the case with a contractor’s opinion.

HUD-1 standard form required by (Federal) Department of Housing ennumerating all financial considerations relating the to the purchase or sale of real estate; produced and acknowledged by both buyer and seller at closing.

income, capital gain  profit earned from the sale of an asset.(1) Typically after the passage of a minimum one year’s time. The capital gain tax rate is generally significantly lower than “ordinary” income tax rate.

income, ordinary a term having meaning only in relationship to income tax. The regular graduated scale of tax is paid on income which is called “ordinary”, as opposed to capital gains or any other income taxed differently.(2)

income, passive income derived from invested capital, e.g., rental income. Generally taxable as “ordinary”  income.

income, taxable income derived from any source and subject to taxation, regardless of tax rate

independent contractor one who is engaged, or “hired,” to perform services subject to a written agreement stating the specific work to be accomplished under the contract. Not an Employee, subject to direct supervision

interest (paid) a charge made by the lender for the use of money.(1)

interest, vested a generally documentable claim against real property (real estate or any “asset”), an estate, or  business venture. An investor or partner in a venture is said to have a “vested interest” (in profits as well as losses).

interim financing a short-term loan usually made during the construction phase of a building project (in this case referred to as a construction loan).(1)

interim lender lender for acquisition and rehab.(1) Typically “short term”

investment income income or other “return” of ascertainable value, taxable or not, derived from invested capital. Generally subject to taxation at rate(s) unlike that applied to “ordinary” income.

joint venture the joining of two or more people to conduct a specific business enterprise. A joint venture is similar to a partnership in that it must be created by agreement between the parties to share in the losses and profits of the venture. It is unlike a partnership in that the venture is for one specific project only, rather than for a continuing business relationship.(1) See also “venture”.

L. T. V.  abbrev. Loan to value ratio. The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.(1)

L.L.C. abbrev. Limited Liability Corporation, A corporate form or type innovated during the 1990s and not yet available in every state. The LLC is generally considered superior to other forms of corporate organization due to, among other features:  the limited liability provided participating investors; the simple “pass through” of profits and tax benefits to shareholder investors; and the ability to resolve management and profit distribution issues within a relatively less complicated document. (See “limited liability”)

land contract an installment contract for the sale of land. The seller (vender) has legal title until paid in full. The buyer (vendee) has equitable title during the contract term.(2) See also “articles of agreement”.

land trust a “trust” account created by a bank or trust company for the purpose of holding title to real estate on behalf of one or more beneficiaries (generally owners and/or their heirs). The true owner of the property is said to be the “beneficiary”, subject to a formal, written “trust agreement”, of the land trust that technically “owns” the property as trustee. A property ownership device that some wrongly consider to limit liability while, in fact, what is primarily provided is anonymity and sometimes greater flexibility in the sale, transfer or collatoralizing of the property.

latent defect a hidden structural defect that could not be discovered by ordinary  inspection and that threatens the property’s soundness or the safety of it’s inhabitants. Some states impose on sellers and licensees a duty to inspect for and disclose latent defects.(1)

lease a written or oral contract between a landlord (the lessor) and a tenant (the lessee) that transfers the right to exclusive possession and use of the landlord’s real property to the lessee for a specific period of time and for a stated consideration (rent). By state law leases for longer than a certain period of time (generally one year) must be written to be enforceable.(1)

lease option a lease under which the tenant has the right to purchase the property either during the lease term or at its end.(1)

leasehold estate (a/k/a leasehold interest) a tenant’s right to occupy real estate during the term of the lease, generally considered to be a personal property interest.(1)

legal description a description of a  specific parcel of real estate complete enough for an independent surveyor to locate and identify it.(1)

lender any person or entity advancing funds which are to be repaid. A general term encompassing all mortgages, and beneficiaries under deeds of trust.(2)

lender, hard money see “hard money mortgage”.(2)

lender, private any non-bank lender; sometimes a corporate entity that “originates” or loans money subject to some form of “collateral interest”, e.g., the title to real estate

lender, sub-prime generally, a mortgage company organized for the purpose of making loans (mortgages) on real estate to individuals generally unable – due to compromised or substandard credit –- to borrow from “conventional lenders”. As with banks, the sub-prime lender will then sell the debt instruments to investors interested in the higher yields on these higher risk loans.

lessee  The tenant (renter) under the terms of a formal lease agreement. See "lease".

lessor  Generally termed “landlord”. See "lease".

leverage the use of borrowed money to finance an investment.(1) One is said to “have leverage” when an asset may be controlled (“owned”) with the investment of only a fraction of the asset’s entire value.

liabilities 1. amounts owed others; financial obligations or claims that may diminish or compromise assets. 2. Items or "entertainments" that we purchase (home, cars, wardrobe or vacation cruises) that may contribute to our sense of Living the Good Life, but nevertheless diminish in value over time and contributing nothing to Passive Income, arguably the true index of Wealth.

liability insurance insurance that may be purchased that serves to protect the insured against legal claims against one’s assets.

liability, contingent a financial obligation which will come into “full force and effect” only in a certain circumstance; e.g., in the event the primary borrower fails to meet his/its commitment to pay, as in the case where a parent “cosigns” a car loan for a son or daughter who fails to pay as promised.

liability, limited a contractual or legal limitation on the amount(s) that may be claimed or asserted against the assets of an individual or legal entity.

liability, unlimited a condition wherein there may be no limitation on the amount(s) that may be claimed or asserted against the assets of an individual or legal entity. Such claims may be limited or obviated by insurance purchased for the purpose of protecting against such claims.

lien a right given by law to certain creditors to have their debts paid out of the property of a defaulting debtor, usually by means of a court sale.(1)

limited liability corporation a corporate form or type innovated during the 1990s and not yet available in every state. The Limited Liability Corporation (LLC) is generally considered superior to other forms of corporate organization due to, among other features:  the limited liability provided participating investors; the simple “pass through” of profits and tax benefits to shareholder investors; and the ability to resolve management and profit distribution issues within a relatively less complicated document.

liquidity having liquid assets.(2) Liquid assets are those items or properties that are already, or may be readily converted to cash.

listing agreement a contract between an owner (as principal) and a real estate broker (as agent) by which the broker is employed as agent to find a buyer for the owner’s real estate on then owner’s terms, for which service the owner agrees to pay a commission.(1)

listing broker the broker in a multiple listing situation from whose office a listing agreement is initiated, as opposed to the cooperating broker, from whose office negotiations leading up to a sake are initiated. The listing broker and the cooperating broker may be the same person.(1)

listing, exclusive right to sell a listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time to sell the property on the owner’s stated terms, and agrees to pay the broker a commission when the property is sold, whether by the broker, the owner or another broker.(1)

listing, exclusive-agency a listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time to sell the property on the owner’s  stated terms of commission. The owner reserves the right to sell without paying anyone a commission if he or she sells to a prospect who has not been introduced or claimed by the broker.(1)

listing, open a written authorization to a real estate agent by a property owner, stating that a commission will be paid to the agent upon presentation of an offer which meets a  specified price and terms. However, the agent has no exclusive right to sell and must bring in his offer before any other offer is presented or accepted.(2)

litigation the resolution of disputes in a court of law, under the supervision of a  presiding Judge, with or without a  jury as the litigants may determine; the result of a law  suit, involving one or more adversaries or legal entities.

loan-to-value ratio the relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.(1) abbrev. as “LTV”.
managing agent an individual, who assumes responsibility of the day to day  management for property.(1) Managing agents, in Illinois, are required to be licensed by the state.

L.T.V. see "loan-to-value"

market  a place where goods and services are bought and sold and a price established.(1) Also "marketplace".

market value the most probable price property would bring in an arm’s length transaction under normal conditions on the open market.(1)

materialman one who supplies construction materials.(2) Also: see “vendor”.

mechanic’s lien a statutory lien created in favor of contractors, laborers and materialmen who have performed work or furnished materials in the erection or repair of a building.(2)

median price the statistical midpoint in a market where half the properties are more costly and half are less.

mortgage a conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien.(1)

mortgage broker an agent of a lender who brings the lender and borrower  together. The broker receives a fee for this service.(1)

mortgagee a lender in a mortgage loan transaction.(1)

“mortgaging out”  the recovery of working capital and reimbursement of project related expenses through refinancing with the same or another lender; the underlying mortgage, commonly used to initially acquire and improve the property is paid as well. Industry jargon.

mortgagor a borrower in a mortgage loan transaction.(1)

net worth the difference between total assets and liabilities of an individual, corporation, etc.(2)

N.O.I. abbrev. In financial analysis “net operating income”, the amount remaining after subtracting operating expenses, before debt service, from gross operating income.

nominee most commonly used in a deed, such as a John Doe, or nominee, when the actual grantee is not revealed. Has no legal meaning, other than representative of another.(2)

open listing a written authorization to a real estate agent by a property owner, stating that a commission will be paid to the agent upon presentation of an offer which meets a  specified price and terms. However, the agent has no exclusive right to sell and must bring in his offer before any other offer is presented or accepted.(2)

option an agreement to keep open for a set period on offer to sell or purchase property.(1)

partnership an association of two or more individuals who carry on a continuing business for profit as co-owners. Under the law a partnership is regarded as a group of individuals rather than a single entity. A general partnership is a typical form of joint venture in which each general partner shares in the administration, profits and losses of the operation. A limited partnership is a business arrangement whereby the operation is administered by one or more general partners and funded, by and large, by limited or silent partners, who are by law responsible for losses only to the extent of their investments.(1)

partnership, limited a limited partnership is a business arrangement whereby the operation is administered by one or more general partners and funded, by and large, by limited or silent partners, who are by law responsible for losses only to the extent of their investments.(1) Also: see “partnership”.

passive income income earned without active participation in day to day management of the asset. Income earned through rents or long term ownership – e.g., vacant land – is generally considered passive income. Like “active income”, passive income is subject to taxation.

plans and specifications a written and illustrated description of improvements in place or to be built or modified, generally prepared by an architect. “Specifications” are the written details; “plans” are scale drawings that illustrate the improvements. Generally required in conjunction with the issuance of building permits.

“price point” what the Market will pay for the “improved” housing product.(1)

principal 1. a sum loaned or employed as a fund or an investment, as distinguished from its income or profits. 2. the original amount (as in a loan) of the total amount due and payable at a certain date. 3. a main party to the transaction – the person for whom the agent works.(1)

profit the difference of income less expenses. Further broken down into net profit and gross profit.(2)

project management the process of coordinating the tasks to be performed in completing a project in a timely manner.

project manager the individual(s) employed to manage the several contractors and vendors engaged in completing a project in a timely manner; may or may not replace the role of “general contractor” as project coordinator.  As a contract or salaried employee, the project manager seldom has direct liability for timely completion or quality of work (as does a general contractor).

R.E.O. abbrev. See “bank R.E.O.s”

R.O.I. abbrev. “Return On Investment” – the actual or projected monetary return on invested capital. A term used frequently in financial analysis and planning; often expressed as a percentage.

real estate Land. a portion of the earth’s surface extending downward to the center of the earth and upward infinitely into space., including all things permanently attached to it, whether naturally or artificially.(1)

real estate development the act of “improving” or significantly modifying the existing nature or condition of real property.  Examples include land subdivision, and the addition of built improvements to vacant or functionally obsolete real estate; the rehabilitation of distressed real estate is a form of real estate development.

Realtor® a registered trademark term reserved for the sole use of active members of local Realtor boards affiliated with the National Association of REALTORS.(1) Without capitalization and registration symbol (®), the term is now considered a generic identification of an individual actively or professionally engaged in real estate agency.

refinance 1. The renewing of an existing loan with the same borrower and lender. 2. A loan on the same property by either the same lender or borrower. 3. the selling of loans by the original lender.(2)

rehab (abbrev.)  "rehabilitation"  Synonymous with reconditioning, except when used in connection with urban renewal, at which time it encompasses all types of changes, including structural and even street changes.(2)

rezoning municipality’s ability to change the character or use of property.(1)

“rolling the equity” the process of recovering all or part of the equity in a piece of real estate through refinancing, for the purpose of reinvestment in another property. (See also: “mortgaging out”) Jargon.

scope of work    a written narrative description of work to be performed, including detailed information on materials to be used, quantities, branded products to be installed, and other information deemed useful in determining costs. A short form approximation of Plans and Specifications, generally lacking illustrative drawings.(See Plans and Specifications)

seasoning / “seasoned” a term referring to a land contract or mortgage, indicating that payments have been made regularly over a period of time, and that the contract or mortgage is not a new one.(2) A non statutory requirement of a prospective lender that the property to be purchased or refinanced has been held by the Seller or owner for such period of time that no “flip” or other artificial inflation of value has occurred. (See also: “flip”)

second mortgage a mortgage which ranks after a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts, as liens at the same time. Legal priority would determine whether they are called first, second, third, etc., lien.(2)

securities fractional ownership interests in corporate business entities (“stocks”) or debt instruments issued by corporations or governmental entities (“bonds”) with an ascertainable yield or interest to be paid upon maturity. Securities are purchased and owned by individuals for speculative or long term passive income.
simple interest interest computed on principal alone, as opposed to compound interest.(2)

Sources and Uses a commonly accepted form of balance sheet used in summarizing business activity over a period of time; a fore shortened and simplified variant of the “cash flow” analysis that identifies or projects business activity on a periodic basis, say month to month, or year by year. Identifies all funds “coming in the door” for the period, whether earned or borrowed (“sources”), and all expenditures, including operating expenses, debt reduction, return of capital and retained earnings (“uses”); a balance sheet, wherein Sources will equal Uses.

sub contractor one who works under a general contractor (builder), such as an electrical contractor, cement contractor, etc.(2)

sub-prime lenders mortgage lenders willing to loan to borrowers generally not qualified, due to poor or irregular credit histories, for secured loans from conventional home lenders.

Sub-S Corporation a corporation which by this Internal Revenue Service (IRS) “election” passes all profits and losses through to shareholders, thus avoiding taxable income at the entity level. A mechanism for avoiding “double taxation”.

subdivision a tract of land divided by the owner, known as the sub-divider, into blocks, building lots and streets according to a recorded subdivision plat, which must comply with local ordinances and regulations.(1)

survey the process by which boundaries are measured and land areas are determined; the onsite measurement of lot lines, dimensions and position of a house on a lot, including the determination of any existing encroachments or easements. (1)

Sworn Owner’s Statement a spread sheet with text that certifies the contractual amounts to be spent completing a construction related project. Used in verifying the amounts contracted for, on a “line item” basis, typically trade by trade (e.g., “electrical”, “plumbing”, “carpentry”, etc.), the amounts already paid for, the amount requested at this time, and the amount to be paid upon completion. An important tool for tracking multiple “progress payments” made over time to the contractor(s) completing the work. Construction lenders often require this document as a condition advancing construction related funds during the course of a project. (See also: “Contractor’s Sworn Statement”.)

T. I. abbrev. title insurance policy insuring the owner or mortgagee gee against loss by reason of defects on the title to a parcel of real estate, other than encumbrances, defects and matters specifically excluded by the policy.(1) See “Title Indemnity”.

“take out” loan the permanent (long term) financing of real estate after completion of construction.(2)

tax avoidance legal administration of one’s affairs to minimize taxes to be paid.(3)

tax deeds an instrument, similar to a certificate of sale, given to the purchaser at a tax sale.(1)

tax deferral a tax related Internal Revenue Service (IRS) protocol whereby income taxes that may be otherwise due and payable within a given tax year can be legitimately postponed to a later date or tax year (sometimes with the objective of securing a more favorable tax rate). taxax rate) .

Tax Deferred Accounts IRS recognized special savings and investment accounts offering tax deferral; examples include: IRA, Roth IRA’s and 401 K.(1)

taxable income all income remaining after the subtraction of all allowable deductions, tax credits, and other items that serve to reduce the amount of income subject to taxation under prevailing IRS guidelines.

title indemnity title insurance policy insuring the owner or mortgagee against loss by reason of defects on the title to a parcel of real estate, other than encumbrances, defects and matters specifically excluded by the policy.(1) See also “T. I.”.

title insurance title insurance. a policy insuring the owner or mortgagee against loss by reason of defects on the title to a parcel of real estate, other than encumbrances, defects and matters specifically excluded by the policy.(1)
title insurance company a company which issues insurance regarding title to real property.(2)

title policy see “title insurance”.

tradesman one engaged in the performance for compensation  of specific construction related “trades”, generally pursuant to a Contract or Purchase Order rather than for wages; e.g., a carpenter, plumber or electrician. See also “contractor”.

trustee the holder of bare legal title in a deed of trust loan transaction.(1)

trustee’s deed a deed executed by a trustee conveying land held in a trust.(1)

trustor a borrower in a deed of trust loan transaction.(1)

vendor supplier of specialized goods or services, retail or wholesale. A lumber yard or a plumbing supplies dealer would be considered a vendor.

venture a business related enterprise, generally with a specific project related objective.

wholesaler, real estate real estate dealers specializing in ‘wholesaling’ properties they have acquired -often in bulk- from lenders and at foreclosure auctions. see dealers.(1)

Workman’s Compensation Insurance (a/k/a “Workman’s Comp.”) insurance coverage that protects his or her employees who are injured in the course of their employment.(1)

yield ratio of income from an investment to the total cost of the investment over a given period of time.(2)

zoning site specific statutory definition of permitted uses of real estate, e.g., residential or commercial, high density vs. low  density, open space or parking required, etc.

zoning ordinance an exercise of police power by a municipality to regulate and control the character and use of property.(1)

•     •     •

(1) Modern Real Estate Practice in Illinois, 4th ed., Dearborn Financial Publ., Chicago, Il. 2001
(2) Financial Real Estate Handbook. 3rd edition. Financial Publishing Company. Boston, MA. 1994. Publication #412.
(3) Real Estate Principles and Practices,  11th edition. Jerome Dasso & Alfred A. Ring. Prentice Hall. Englewood Cliffs, N.J. 1989

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