GLOSSARY OF REAL ESTATE TERMS

ACCELERATION CLAUSE – This gives a lender the right to demand immediate full repayment of a loan if the terms of the loan are not met.

APPRAISAL - service performed, by an appraiser, that develops an opinion of value based upon the highest and best use of real property.   The highest and best use is that use which produces the highest possible value for the property.  This use must be profitable and probable.  Also of importance is the definition of the type of value being developed,  i.e. fair market value, condemnation value, quick sale value, etc.  The most common type of value sought being the fair market value.  There are three usual approaches to determining the fair market value of a property: cost approach, sales comparison approach, and income approach.  The appraiser will determine what approach is applicable and develop an appraisal based upon information from each individual market area. Costs, income, and sales vary from area to area and particular importance is given to the location of the property.

ARCHITECT – person who takes on design and attractive development and solves questions for salability of real estate. 

BALOON MORTGAGE – a home loan that requires the remaining balance (called the balloon payment) be paid in the future at a specific time, typically after the first five or seven years.

BOARD OF EQUALIZATION (California) - annually assesses property, except franchises, owned or used in the state. Taxes are levied and collected in same manner as for county-assessed properties. This board is required by the California Constitution. 

BOND - a certificate of debt issued by a government or corporation in order to raise money, with the promise to pay specified sum of money at a fixed time in future and carrying a fixed interest rate.

BROKER (REAL ESTATE BROKER) - operates a brokerage to assist people in transactions involving real estate.   The term may refer to a business entity, or to an individual licensed to run such a business.  A real estate broker is a type of real estate agent.   Typically, the real estate broker will assist sellers in selling their property by marketing the property to the public and trying to obtain a buyer for the property.  A real estate broker can also assist a buyer in purchasing a property by recommending financing options, inspections, and negotiating strategies.

CAPITALIZATION RATE (CAP rate) is the rate of return used to determine the value of the property’s income stream. The higher the cap rate, the lower the value of the property.  The most basis formula for calculating a commercial property’s cap rate is Value = net operating income / cap rate.

CASH ON CASH RETURN - a percentage that measures the return on cash invested in an income producing property. It is calculated by dividing cash flow by the amount of cash invested.

CC&Rs – CODES, COVENANTS AND RESTRICTIONS – rights and responsibilities of owner within a subdivision and enforced by an association (homeowners association) of owners organized to maintain common areas owned by all owners within the subdivision.

CLOSING - completion of a transaction, performed by a settlement or escrow agent. Ownership of the property is transferred from the seller to buyer. Funds are paid and documents ae executed in accordance with the sales contract.

CLOSING COSTS – various expenses above the cost of the property that buyers and sellers incur in a real estate transaction (i.e. escrow costs, title insurance costs, points to secure the loan, prepaid interest, prepaid property taxes).

CLOSING STATEMENT – (settlement statement) document that provide an item-by-item breakdown of all costs and source of funds associated with every real estate transaction. This is also called a HUD-1, standard form created by US Department of Housing and Urban Development, which is required for completion of every real estate transaction.

COFI Index – (cost of funds index)  Reflects the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts, advances from the FHLB, and other sources of funds. The 11th District represents the savings institutions (savings & loan associations and savings banks) headquartered in Arizona, California and Nevada. Since the largest part of the Cost of Funds index is interest paid on savings accounts, this index lags market interest rates in both uptrend and downtrend movements. As a result, ARMs tied to this index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good for you if rates are falling.

CMT Index - Constant Maturity Treasury (CMT) indexes are the weekly or monthly average yields on U.S. Treasury securities adjusted to constant maturities. Yields on Treasury securities at "constant maturity" are interpolated by the U.S. Treasury from the daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

DEPRECIATION - Loss in value due to any cause, including internal and external factors.

DEVELOPER OF REAL ESTATE - a real estate developer builds on land, thereby increasing its value.   Developers are concerned with providing useful buildings and structures. Useless buildings have no value, which means they can't be sold or rented.  However, the building can only sell if it's in the right location, has utilities (availability from adjacent public roadways and with sufficient capacity of water, sanitary sewer, storm sewer, electrical power, natural gas, telephone and cable) construction costs can be managed, and the project completes on time.

DOCUMENTARY TRANSFER TAX - that amount to be paid to the county in the State of California upon sale and transfer of property. This amount is to be matched with purchase price, and the basis is $.55 (fifty five cents) per five hundred dollars of the sales price for the real property.

EASEMENT – access given to a third party to use a portion of one’s property for a specific purpose (i.e., for utilities or a driveway).

EMINENT DOMAIN  – taking of private property by public agency. Governments and their redevelopment agencies generally can use their powers of eminent domain to seize properties only in areas that suffer from adverse physical and economic conditions, defined in the law as “blight”.

ENGINEER PROFESSIONAL – solves real estate construction problems is to retain a registered professional engineer who specializes in supervision of construction, and involve this person before purchasing the land.   

FANNIE MAE – the private, shareholder-owned company that works to make sure mortgage money is available for people in communities in America.  Fannie Mae operates exclusively in the secondary mortgage market, to ensure that money for mortgages is available to home buyers in every state.  First, it purchases mortgages from lenders and hold those mortgages in our portfolio.   The lenders, in turn, can use that money to make more mortgages for more home buyers.  Second, it issues what are known as Mortgage-Backed Securities (MBS) in exchange for pools of mortgages from lenders. These MBS provide the lenders with a more liquid asset to hold or sell.  Fannie Mae MBS are highly liquid investments and are traded on Wall Street through securities dealers.  Fannie Mae does not lend money directly to home buyers.  Instead, works with lenders to make sure they don't run out of mortgage funds.  By raising funds from U.S. and global investors and dispersing risk on mortgage assets, Fannie Mae works to keep low-cost capital flowing to mortgage lenders, at the lowest mortgage rates in the housing finance market.  

INSURANCE BINDER – proof of coverage required by lender to show that sufficient hazard insurance exists on a property. This document must be provided to lender before the lender will agree to loan money for purchase of property.

LIBOR rate - London Interbank Offer Rate – This is the rate of interest at which banks borrow funds, in marketable size, from other banks in the London interbank market.   LIBOR is the international rate that banks borrow from other banks.  This is the most widely used benchmark or reference rate for short term interest rates.

MTA Index - the Monthly Treasury Average, also known as 12-Month Moving Average Treasury index (MAT) is a relatively new ARM index.  This index is the 12 month average of the monthly average yields of U.S. Treasury securities adjusted to a constant maturity of one year. It is calculated by averaging the previous 12 monthly values of the 1-Year CMT.   Because this index is an annual average, it is more steady than the 1-Year CMT index.  The MTA and CODI  indexes generally fluctuates slightly more than the 11th District COFI,  although its movements track each other very closely, as illustrated on our historical graph.

NEGATIVE AMORTIZATION – when a mortgage payment does not cover all of the interest that is due, the unpaid amount is added to principal balance, causing loan balance to increase instead of decrease.

NET INCOME MULTIPLIER - The price of an asset divided by the net income it generates in a given period of time. It is a useful measure for judging how effectively an asset generates income compared with its market price. It is found by dividing the sales price, or market value, by the net operating income.

Planned Development (PD) - a planning and zoning term used to describe a subdivision in which the standard available zoning classifications do not apply. A master developer will, with the consent of the local governing authority, establish criteria for development of private and common area parcels specific to that subdivision. These may include special setback requirements, street lighting designs, street width standards, architectural styles, building height standards, land coverage ratios, common area park and amenity designs and the like. Planned unit developments are often used to cluster homes closer together than would otherwise be allowed by local zoning laws. Unlike in a condominium, individual property owners own the land underneath their homes.

PMI (PRIVATE MORTGAGE INSURANCE) – If the first mortgage loan to value ration is greater than 80 percent, a special insurance is required, typically paid monthly or annually, to protect the lender if the loan goes into default.

PRODUCER PRICE INDEX (PPI) - An inflationary indicator published by the U.S. Bureau of Labor Statistics to evaluate wholesale price levels in the economy.

PRIME RATE -  The lowest rate of interest on bank loans at a given time and place, offered to preferred borrowers.  Also called prime interest rate.

PRINCIPAL RESIDENCE - where owner has resided two out of last five years, which allows for the exclusion from income taxable gain on sale of up to $250,000 per person and/or $500,000 per couple.

PRIVATE MORTGAGE INSURANCE (PMI) - protects a lender or investor against financial losses if a borrower stops making mortgage payments.

PRODUCER PRICE INDEX (PPI)  - measure of changes in wholesale prices, reported monthly by US Bureau of Labor Statistics, broken down into sectors such as energy.

PROPERTY MANAGER - company or person acting as liaison between the landlord and tenant.  Duties include collecting rent, responding to and repairing problems, advertising properties for landlords, and doing credit and background checks for tenants. In exchange for the service they provide property management companies typically charge landlords 8-10% of the gross rent collected each month, in addition to marking up repair costs. Some property management companies also manage home owner associations (HOAs).  In addition to managing income and expense related activity, property managers can also manage construction, development, repair and maintenance on a property. 

QUITCLAIM DEED – a document after signed and delivered that releases an owner from any interest in a property.

REAL ESTATE -  a legal term that encompasses land along with anything permanently affixed to the land, such as buildings.  Real estate is considered synonymous with real property (also sometimes called realty), in contrast with personal property, chattel, or personalty.  However, for technical purposes, some people prefer to distinguish real estate, referring to the land and fixtures themselves, from real property, referring to ownership rights over real estate.

RELOCATION SERVICES -  focused on relocation of families or business.  Family relocation happens when a member of the family is moving to work somewhere else. Providing relocation services directs and manages the process of relocation including arranging necessary documents, finding a new house (accomodation), finding a school for children,  finding a job for the partner (work) and arranging a teacher for the family.

REO - A term used by lending institutions that refers to ownership of real property acquired for investment or as a result of foreclosure. 

STOCK - an instrument that signifies ownership in a corporation and represents a claim on its proportional share in company's assets and profits.

TEASER RATE - a low initial interest rate on an adjustable rate mortgage. This is used to entice borrowers.  This rate is later eliminated and replaced by a market-level rate. Such teaser rates are generally in effect only during first 6 months to one year of the loan, after which the interest rate increases.

Harrison & Christi Long

Explore group, Coldwell Banker Previews

949-854-7747