Glossary of Terms

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A

Abstract of title
The condensed history of a title to a particular parcel of real estate, consisting of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property and a certification by the abstractor that the history is complete and accurate.

Acceleration clause
The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant.

Accession
Acquiring title to additions or improvements to real property as a result of the annexation of fixtures or the accretion of alluvial deposits along the banks of streams.

Accretion
The increase or addition of land by the deposit of sand or soil washed up naturally from a river, lake, or sea.

Accrued items
On a closing statement, items of expense that are incurred but not yet payable, such as interest on a mortgage loan or taxes on real property.

Acknowledgment
A formal declaration made before a duly authorized officer, usually a notary public, by a person who has signed a document.

Acre
A measure of land equal to 43,560 square feet, 4,840 square yards, 4,047 square meters, 160 square rods, or 0.4047 hectares.

Actual eviction
The legal process that results in the tenant's being physically removed from the leased premises.

Actual notice
Express information or fact; that which is known; direct knowledge.

Adjustable-rate mortgage (ARM)
A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index.

Adjusted basis
The amount of any depreciation claimed as a tax deduction subtracted from the basis. See basis.

Ad valorem tax
A tax levied according to value, generally used to refer to real estate tax. Also called the general tax.

Adverse possession
The actual, open, notorious, hostile, and continuous possession of another's land under a claim of title. Possession for a statutory period may be a means of acquiring title.

Affidavit of title
A written statement, made under oath by a seller or grantor of real property and acknowledged by a notary public, in which the grantor (1) identifies himself or herself and indicates marital status, (2) certifies that since the examination of the title, on the date of the con tracts no defects have occurred in the title and (3) certifies that he or she is in possession of the property (if applicable).

Agency
The relationship between a principal and an agent wherein the agent is authorized to represent the principal in certain transactions.

Agency coupled with an interest
An agency relationship in which the agent is given an estate or interest in the subject of the agency (the property).

Agent
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.

Air lot
A designated airspace over a piece of land. An air lot, like surface property, may be transferred.

Air rights
The right to use the open space above a property, usually allowing the surface to be used for another purpose.

Alienation
The act of transferring property to another. Alienation may be voluntary, such as by gift or sale, or involuntary, as through eminent domain or adverse possession.

Alienation clause
The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lender's option if the property is sold by the borrower. In effect this clause prevents the borrower from assigning the debt without the lender's approval.

Allodial system
A system of land ownership in which land is held free and clear of any rent or service due to the government; commonly contrasted to the feudal system. Land is held under the allodial system in the United States.

American Land Title Association (ALTA) policy
A title insurance policy that protects the interest in a collateral property of a mortgage lender who originates a new real estate loan.

Americans with Disabilities Act (ADA)
Act addresses rights of individuals with disabilities in employment and public accommodations.

Amortized loan
A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.

Annexation
Process of converting personal property into real property.

Annual percentage rate (APR)
The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth-in-Lending Act.

Anticipation
The appraisal principle that holds that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.

Antitrust laws
Laws designed to preserve the free enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition. Most violations of antitrust laws in the real estate business involve either price-fixing (brokers conspiring to set fixed compensation rates) or allocation of customers or markets (brokers agreeing to limit their areas of trade or dealing to certain areas or properties).

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.

Appraiser
An independent person trained to provide an unbiased estimate of value.

Appreciation
An increase in the worth or value of a property due to economic or related causes, which may prove to be either temporary or permanent; opposite of depreciation.

Appurtenance
A right, privilege, or improvement belonging to, and passing with, the land.

Appurtenant easement
An easement that is annexed to the ownership of one parcel and allows the owner the use of the neighbor's land.

Area preference
This refers to people's preferences for one are over another, based on factors such as history, reputation, convenience, scenic beauty, and simple geography. Also known as situs.

Asbestos
A mineral once used in insulation and other materials that can cause respiratory diseases.

Assemblage
The combining of two or more adjoining lots into one larger tract to increase their total value.

Assessment
The imposition of a tax, charge, or levy, usually according to established rates.

Assignment
The transfer in writing of interest in a bond, mortgage, lease, or other instrument.

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 payments.

Attachment
The act of taking a person's property into legal custody by writ or other judicial order to hold it available for application to that per son's debt to a creditor.

Attorney's opinion of title
An abstract of title that an attorney has examined and has certified to be, in his or her opinion, an accurate statement of the facts concerning the property ownership.

Automated underwriting
Computer systems that permit lenders to expedite the loan approval process and reduce lending costs.

Automatic extension
A clause in a listing agreement that states that the agreement will continue automatically for a certain period of time after its expiration date. In many states, use of this clause is discouraged or prohibited.

Avulsion
The sudden tearing away of land, as by earthquake, flood, volcanic action, or the sudden change in the course of a stream.

B

Balance
The appraisal principle that states that the greatest value in a property will occur when the type and size of the improvements are proportional to each other as well as the land.

Balloon payment
A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

Bargain and sale deed
A deed that carries with it no warranties against liens or other encumbrances but that does imply that the grantor has the right to convey title. The grantor may add warranties to the deed at his or her discretion.

Base line
The main imaginary line running east and west and crossing a principal meridian at a definite point, used by surveyors for reference in locating and describing land under the rectangular (government) survey system of legal description.

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 improvements to the property, minus any depreciation allowable or actually taken. This new basis is called the adjusted basis.

Benchmark
A permanent reference mark or point established for use by surveyors in measuring differences in elevation.

Beneficiary
(1) The person for whom a trust operates or in whose behalf the income from a trust estate is drawn. (2) A lender in a deed of trust loan transaction.

Bilateral contract
A contract where both parties promise to do something; one promise is given in exchange for another. See also contract.

Binder
An agreement that may accompany an earnest money deposit for the purchase of real property as evidence of the purchaser's good faith and intent to complete the transaction.

Blanket loan
A mortgage covering more than one parcel of real estate, providing for each parcel's partial release from the mortgage lien upon repayment of a definite portion of the debt.

Blockbusting
The illegal practice of inducing home owners to sell their properties by making representations regarding the entry or prospective entry of persons of a particular race or national origin into the neighborhood.

Blue-sky laws
Common name for those state and federal laws that regulate the registration and sale of investment securities.

Boot
Money or property given to make up any difference in value or equity between two properties in an exchange.

Branch office
A secondary place of business apart from the principal or main office from which real estate business is conducted. A branch office usually must be run by a licensed real estate broker working on behalf of the broker.

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.

Broker
One who acts as an intermediary on behalf of others for a fee or commission.

Brokerage
The bringing together of parties interested in making a real estate transaction.

Brownfields
Defunct, derelict, or abandoned commercial or industrial sites; many have toxic wastes.

Brownfields Legislation
Provides federal funding to states and localities to clean up brownfields sites.

Buffer zone
A strip of land, usually used as a park or designated for a similar use, separating land dedicated to one use from land dedicated to another use (e.g., residential from commercial).

Building code
An ordinance that specifies minimum standards of construction for buildings to protect public safety and health.

Building permit
Written governmental permission for the construction, alteration, or demolition of an improvement, showing compliance with building codes and zoning ordinances.

Bulk transfer
See Uniform Commercial Code.

Bundle of legal rights
The concept of land owner ship that includes ownership of all legal rights to the land—for example, possession, control within the law, and enjoyment.

Buydown
A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.

Buyer-agency agreement
A principal-agent relationship in which the broker is the agent for the buyer, with fiduciary responsibilities to the buyer. The broker represents the buyer under the law of agency.

Buyer's agent
A residential real estate broker or salesperson who represents the prospective purchaser in a transaction. The buyer's agent owes the buyer/principal the common-law or statutory agency duties.

Buyer's broker
A residential real estate broker who represents prospective buyers exclusively. As the buyer's agent, the broker owes the buyer/principal the common-law or statutory agency duties.

C

Capital gain
Profit earned from the sale of an asset.

Capitalization
A mathematical process for estimating the value of a property using a proper rate of return on the investment and the annual net operating income expected to be produced by the property. The formula is expressed as: Income ÷ Rate = Value.

Capitalization rate
The rate of return a property will produce on the owner's investment.

Capping
The process of laying two to four feet of soil over the top of a site and then planting grass or some other vegetation on it to enhance the landfill's aesthetic value and to prevent erosion.

Carbon monoxide
A colorless, odorless gas that occurs as a by-product of burning such fuels as wood, oil, and natural gas owing to incomplete combustion. Also known as CO.

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.

Cash rent
In an agricultural lease, the amount of money given as rent to the landowner at the outset of the lease, as opposed to sharecropping.

Caveat emptor
A Latin phrase meaning "Let the buyer beware."

Certificate of occupancy
A permit issued by the appropriate local governing body to establish that the property is suitable for habitation by meeting certain safety and health standards. Also known as an occupancy permit.

Certificate of reasonable value (CRV)
A form indicating the appraised value of a property being financed with a VA loan.

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 received title to the property after the redemption period passed and that the holder paid the property taxes for that interim period.

Certificate of title
A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.

Chain of title
The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title.

Change
The appraisal principle that holds that no physical or economic condition remains constant.

Chattel
Items of personal property that include such tangibles as chairs, tables, clothing, money, bonds, and bank accounts. Trade fixtures belong in this category. See also personal property.

Civil Rights Act of 1866
An act that prohibits racial discrimination in the sale and rental of housing.

Client
The principal.

Closing
An event where promises made in a sales contract are fulfilled and mortgage loan funds (if any) are distributed to the buyer.

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.

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.

Clustering
The grouping of home sites within a subdivision on smaller lots than normal, with the remaining land used as common areas.

Code of ethics
A written system of standards for ethical conduct.

Codicil
A supplement or an addition to a will, executed with the same formalities as a will, that normally does not revoke the entire will.

Coinsurance clause
A clause in insurance policies covering real property that requires the policy holder to maintain fire insurance coverage generally equal to at least 80 percent of the property's actual replacement cost.

Commingling
The illegal act by a real estate broker of placing client or customer funds with personal funds. By law brokers are required to maintain a separate trust or escrow account for other parties' funds held temporarily by the broker.

Commission
Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.

Common elements
Parts of a property that are necessary or convenient to the existence, maintenance, and safety of a condominium or are normally in common use by all of the condominium residents. Each condominium owner has an undivided ownership interest in the common elements.

Common law
The body of law based on custom, usage, and court decisions.

Community association management
Provides a team of property managers, accounting staff, office staff, and property consultants to manage property.

Community property
A system of property owner ship based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage. A hold over of Spanish law found predominantly in western states; the system was unknown under English common law.

Community Reinvestment Act of 1977 (CRA)
Under the Act, financial institutions are expected to meet the deposit and credit needs of their communities; participate and invest in local community development and rehabilitation projects; and participate in loan programs for housing, small businesses, and small forms.

Comparables
Properties used in an appraisal report that are substantially equivalent to the subject property.

Competition
The appraisal principle that states that excess profits generate competition.

Competitive 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.

Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
A federal law administered by the Environmental Protection Agency that establishes a process for identifying parties responsible for creating hazardous waste sites, forcing liable parties to clean up toxic sites, bringing legal action against responsible parties, and funding the abatement of toxic sites. See Superfund.

Comprehensive plan
A comprehensive plan to guide the long-term physical development of a particular area. See master plan.

Computerized loan origination (CLO)
An electronic network for handling loan applications through remote computer terminals linked to various lenders' computers.

Condemnation
A judicial or administrative proceeding to exercise the power of eminent domain, through which a government agency takes private property for public use and compensates the owner.

Conditional-use permit
Written governmental per mission allowing a use inconsistent with zoning but necessary for the common good, such as locating an emergency medical facility in a predominantly residential area.

Condominium
The absolute ownership of a unit in a multiunit building based on a legal description of the airspace the unit actually occupies, plus an undivided interest in the ownership of the common elements, which are owned jointly with the other condominium unit owners.

Confession of judgment clause
Permits judgment to be entered against a debtor without the creditor's having to institute legal proceedings.

Conformity
The appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value.

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.

Construction alterations
Alterations, such as redesigning the space, to the interior of a building to meet a tenant's particular space needs.

Construction loan
A short-term loan made during the construction phase of a building project. See also interim financing.

Constructive eviction
Actions of a landlord that so materially disturb or impair a tenant's enjoyment of the leased premises that the tenant is effectively forced to move out and terminate the lease without liability for any further rent.

Constructive notice
Notice given to the world by recorded documents. All people are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property.

Contingency
A provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding.

Contract
A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.

Contribution
The appraisal principle that states that the value of any component of a property is what it gives to the value of the whole or what its absence detracts from that value.

Controlled business arrangement (CBA)
An arrangement where a package of services (such as a real estate firm, title insurance company, mortgage broker and home inspection company) is offered to consumers.

Conventional loan
A loan that requires no insurance or guarantee.

Conveyance
A term used to refer to any document that transfers title to real property. The term is also used in describing the act of transferring.

Cooperating broker
Brokers that have the same fiduciary obligation to the seller as does the listing broker, helping produce a ready, willing, and able buyer for the property. See also listing broker.

Cooperative
A residential multiunit building whose title is held by a trust or corporation that is owned by and operated for the benefit of persons living within the building, who are the beneficial owners of the trust or stockholders of the corporation, each possessing a proprietary lease.

Co-ownership
Title ownership held by two or more persons.

Corporation
An entity or organization, created by operation of law, whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures.

Correction lines
Provisions in the rectangular survey (government survey) system made to compensate for the curvature of the earth's surface. Every fourth township line (at 24-mile intervals) is used as a correction line on which the intervals between the north and south range lines are remeasured and corrected to a full six miles.

Corrective maintenance
Repairs that keep the building's equipment, utilities, and amenities functioning.

Cost approach
The process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the reproduction or replacement cost of the building, less depreciation.

Cost recovery
An Internal Revenue Service term for depreciation.

Counteroffer
A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted there after unless revived by the offeror.

Covenant
A written agreement between two or more parties in which a party or parties pledge to perform or not perform specified acts with regard to property; usually found in such real estate documents as deeds, mortgages, leases, and contracts for deed.

Covenant of quiet enjoyment
The covenant implied by law by which a landlord guarantees that a tenant may take possession of leased premises and that the landlord will not interfere in the tenant's possession or use of the property.

Credit
On a closing statement, an amount entered in a person's favor - either an amount the party has paid or an amount for which the party must be reimbursed.

Curtesy
A life estate, usually a fractional interest, given by some states to the surviving husband in real estate owned by his deceased wife. Most states have abolished curtesy.

Curvilinear
A street system that integrates major arteries of travel with smaller secondary and cul-de-sac streets carrying minor traffic.

Customer
The third party for whom some level of service is provided.

D

Datum
A horizontal plane from which heights and depths are measured.

Debit
On a closing statement, an amount charged; that is, an amount that the debited party must pay.

Decedent
A person who has died.

Dedication
The voluntary transfer of private property by its owner to the public for some public use, such as for streets or schools.

Deed
A written instrument that, when executed and delivered, conveys title to or an interest in real estate.

Deed in lieu of foreclosure
A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.

Deed in trust
An instrument that grants a trustee under a land trust full power to sell, mortgage, and subdivide a parcel of real estate. The beneficiary controls the trustee's use of these powers under the provisions of the trust agreement.

Deed of trust
The means by which a trustor conveys real estate to a trustee for the benefit of a beneficiary. See trust deed.

Deed of trust lien
A voluntary lien in real estate given to a lender by a borrower as security for a real estate loan. See also trust deed lien.

Deed restriction
Clause in a deed limiting the future uses of the property. Deed restrictions may impose a vast variety of limitations and conditions—for example, they may limit the density of buildings, dictate the types of structures that can be erected, or prevent buildings from being used for specific purposes or even from being used at all.

Default
The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.

Defeasance clause
A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.

Defeasible fee estate
An estate in which the holder has a fee simple title that may be divested upon the occurrence or nonoccurrence of a specified event. There are two categories of defeasible fee estates: fee simple on condition precedent (fee simple determinable) and fee simple on condition subsequent.

Deficiency judgment
A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.

Demand
The amount of goods people are willing and able to buy at a given price; often coupled with supply.

Density zoning
Zoning ordinances that restrict the maximum average number of houses per acre that may be built within a particular area, generally a subdivision.

Department of Housing and Urban Development (HUD)
Administers federal fair housing law that prohibits discrimination on the basis of race, color, religion, sex, handicap, familial status, or national origin.

Depreciation
(1) In appraisal, a loss of 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.

Descent
Acquisition of an estate by inheritance in which an heir succeeds to the property by operation of law.

Designated agent
A licensee authorized by a broker to act as the agent for a specific principal in a particular transaction.

Developer
One who attempts to put land to its most profitable use through the construction of improvements.

Devise
A gift of real property by will. The donor is the devisor, and the recipient is the devisee.

Diminishing returns
The concept that no matter how much money is spent on a property, the property's value does not keep pace with the expenditures.

Disclosure
Providing information, such as property condition, to help consumers make informed decisions.

Discount point
A unit of measurement used for various loan charges; one point equals 1 per cent of the amount of the loan.

Dominant tenement
A property that includes in its ownership the appurtenant right to use an easement over another person's property for a specific purpose.

Dower
The legal right or interest, recognized in some states, that a wife acquires in the property her husband held or acquired during their marriage. During the husband's lifetime the right is only a possibility of an interest; upon his death it can become an interest in land.

Dual agency
Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states.

Due-on-sale clause
A provision in the mortgage that states that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property.

Duress
Unlawful constraint or action exercised upon a person whereby the person is forced to perform an act against his or her will. A contract entered into under duress is voidable.

E

Earnest money
Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but applied to the purchase price if the sale is closed.

Easement
A right to use the land of another for a specific purpose, such as for a right-of-way or utilities; an incorporeal interest in land.

Easement by condemnation
An easement created by the government or government agency that has exercised its right under eminent domain.

Easement by necessity
An easement allowed by law as necessary for the full enjoyment of a parcel of real estate; for example, a right of ingress and egress over a grantor's land.

Easement by prescription
An easement acquired by continuous, open, and hostile use of the property for the period of time prescribed by state law.

Easement in gross
An easement that is not created for the benefit of any land owned by the owner of the easement but that attaches personally to the easement owner. For example, a right granted by Eleanor Franks to Joe Fish to use a portion of her property for the rest of his life would be an easement in gross.

Economic life
The number of years during which an improvement will add value to the land.

Electromagnetic fields (EMFs)
Generated by the movement of electrical currents.

Emblements
Growing crops, such as grapes and corn, that are produced annually through labor and industry; also called fructus industriales.

Eminent domain
The right of a government or municipal quasi-public body to acquire property for public use through a court action called condemnation, in which the court decides that the use is a public use and determines the compensation to be paid to the owner.

Employee
Someone who works as a direct employee of an employer and has employee status. The employer is obligated to withhold income taxes and Social Security taxes from the compensation of employees. See independent contractor.

Employment contract
A document evidencing formal employment between employer and employee or between principal and agent. In the real estate business this generally takes the form of a listing agreement or management agreement.

Enabling acts
State legislation that confers zoning powers on municipal governments.

Encapsulation
A method of controlling environmental contamination by sealing off a dangerous substance.

Encroachment
A building or some portion of it—a wall or fence for instance—that extends beyond the land of the owner and illegally intrudes on some land of an adjoining owner or a street or alley.

Encumbrance
Anything—such as a mortgage, tax, or judgment lien, an easement, a restriction on the use of the land or an outstanding dower right—that may diminish the value or use and enjoyment of a property.

Equal Credit Opportunity Act (ECOA)
The federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age, or marital status.

Equalization
The raising or lowering of assessed values for tax purposes in a particular county or taxing district to make them equal to assessments in other counties or districts.

Equalization factor
A factor (number) by which the assessed value of a property is multiplied to arrive at a value for the property that is in line with statewide tax assessments. The ad valorem tax would be based on this adjusted value.

Equitable lien
A lien that arises out of common law. It is created by a court based on fairness. See also statutory lien.

Equitable right of redemption
The right of a defaulted property owner to recover the property prior to its sale by paying the appropriate fees and charges.

Equitable title
The interest held by a vendee under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another's name.

Equity
The interest or value that an owner has in property over and above any indebtedness.

Equity buildup
The portion of the loan payment directed toward the principal rather than the interest, plus any gain in property value due to appreciation.

Erosion
The gradual wearing away of land by water, wind, and general weather conditions; the diminishing of property by the elements.

Escheat
The reversion of property to the state or county, as provided by state law, in cases where a decedent dies intestate without heirs capable of inheriting, or when the property is abandoned.

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 upon the performance of certain conditions outlined in the escrow instructions.

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.

Escrow contract
An agreement between a buyer, seller, and escrow holder setting forth rights and responsibilities of each. An escrow contract is entered into when earnest money is deposited in a broker's escrow account.

Escrow instructions
A document that sets forth the duties of the escrow agent, as well as the requirements and obligations of the parties, when a transaction is closed through an escrow.

Estate (tenancy) at sufferance
The tenancy of a lessee who lawfully comes into possession of a landlord's real estate but who continues to occupy the premises improperly after his or her lease rights have expired.

Estate (tenancy) at will
An estate that gives the lessee the right to possession until the estate is terminated by either party; the term of this estate is indefinite.

Estate (tenancy) for years
An interest for a certain, exact period of time in property leased for a specified consideration.

Estate (tenancy) from period to period
An interest in leased property that continues from period to period—week to week, month to month, or year to year.

Estate in land
The degree, quantity, nature, and extent of interest a person has in real property.

Estate taxes
Federal taxes on a decedent's real and personal property.

Estoppel
Method of creating an agency relationship in which someone states incorrectly that another person is his or her agent and a third person relies on that representation.

Estoppel certificate
A document in which a borrower certifies the amount owed on a mortgage loan and the rate of interest.

Ethics
The system of moral principles and rules that becomes standards for professional conduct.

Eviction
A legal process to oust a person from possession of real estate.

Evidence of title
Proof of ownership of property; commonly a certificate of title, an abstract of title with lawyer's opinion, title insurance, or a Torrens registration certificate.

Exchange
A transaction in which all or part of the consideration is the transfer of like-kind property (such as real estate for real estate).

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, for a 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.

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.

Executed contract
A contract in which all parties have fulfilled their promises and thus performed the contract.

Execution
The signing and delivery of an instrument. Also, a legal order directing an official to enforce a judgment against the property of a debtor.

Executory contract
A contract under which something remains to be done by one or more of the parties.

Express agency
An agency relationship based on a formal agreement between the parties.

Express agreement
An oral or written contract in which the parties state the contract's terms and express their intentions in words.

Express contract
A contract that exists when the parties state the terms and show their intentions in words. An express contract may be either oral or written. See also express agreement.

External depreciation
Reduction in a property's value caused by outside factors (those that are off the property).

External obsolescence
Incurable depreciation caused by factors not on subject property, such as environmental, social, or economic factors.

F

Facilitator
See nonagent.

Fair Housing Act
The federal law that prohibits discrimination in housing based on race, color, religion, sex, handicap, familial status, and national origin.

Fannie Mae
A quasi-government agency established to purchase any kind of mortgage loans in the secondary mortgage market from the primary lenders.

Farm Credit System (System)
A federal agency of the Department of Agricultural that offers programs to help families purchase or operate family farms.

Farmer Mac
An agency that operates similarly to Fannie Mae and Freddie Mac, but for agricultural loans.

Farmer's Home Administration (FmHA)
Currently known as the Farm Service Agency (FSA). An agency of the federal government that provides credit assistance to farmers and other individuals who live in rural areas.

Farm Service Agency (FSA)
Formerly the Farmer's Home Administration (FmHA). An agency of the federal government that provides credit assistance to farmers and other individuals who live in rural areas.

Federal Deposit Insurance Corporation (FDIC)
An independent federal agency that insures the deposits in commercial banks.
Federal Home Loan Mortgage Corporation (FHLMC) See Freddie Mac.

Federal National Mortgage Association (FNMA)
See Fannie Mae.

Federal Reserve System
The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates.

Fee-for-service
Arrangement where a consumer asks a licensee to perform specific real estate services for a set fee.

Fee simple
The highest interest in real estate recognized by the law; the holder is entitled to all rights to the property.

Fee simple absolute
The maximum possible estate or right of ownership of real property, continuing forever.

Fee simple defeasible
A qualified estate that is subject to the occurrence or nonoccurrence of some specified event. See also defeasible fee estate.

Fee simple determinable
A fee simple estate qualified by a special limitation. Language used to describe limitation includes the words, "so long as" or "while" or "during."

Feudal system
A system of ownership usually associated with precolonial England, in which the king or other sovereign is the source of all rights. The right to possess real property was granted by the sovereign to an individual as a life estate only. Upon the death of the individual, title passed back to the sovereign, not to the decedent's heirs.

FHA loan
A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA's regulations.

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.

Fiduciary relationship
A relationship of trust and confidence, as between trustee and beneficiary, attorney and client, or principal and agent.

Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
This act restructured the savings and loan association regulatory system; enacted in response to the savings and loan crisis of the 1980s.

Financing statement
A short notice of the security agreement that contains a complete description of the items against which a lien applies. See also Uniform Commercial Code.

Fiscal policy
The government's policy in regard to taxation and spending programs. The balance between these two areas determines the amount of money the government will withdraw from or feed into the economy, which can counter economic peaks and slumps.

Fixture
An item of personal property that has been converted to real property by being permanently affixed to the realty.

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 all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the fore closure sale, free of all encumbrances affecting the property subsequent to the mortgage.

Fractional section
A parcel of land less than 160 acres, usually found at the edge of a rectangular survey.

Fraud
Deception intended to cause a person to give up property or a lawful right.

Freddie Mac
A corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market.

Freehold estate
An estate in land in which owner ship is for an indeterminate length of time, in contrast to a leasehold estate.

Front footage
The measurement of a parcel of land by the number of feet of street or road frontage.

Functional obsolescence
A loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design.

Future interest
A person's present right to an interest in real property that will not result in possession or enjoyment until some time in the future, such as a reversion or right of reentry.

G

Gap
A defect in the chain of title of a particular parcel of real estate; a missing document or conveyance that raises doubt as to the present ownership of the land.

General agent
One who is authorized by a principal to represent the principal in a specific range of matters.

General lien
The right of a creditor to have all of a debtor's property—both real and personal—sold to satisfy a debt.

General partnership
A partnership where all partners participate in the operation and management of the business and share full liability for business losses and obligations. See also partnership.

General real estate tax
A tax which is made up of the taxes levied on the real estate by government agencies and municipalities.

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.

Ginnie Mae
A government agency that plays an important role in the secondary mortgage market. It sells mortgage-backed securities that are backed by pools of FHA and VA loans.\

Government check
The 24-mile-square parcels composed of 16 townships in the rectangular (government) survey system of legal description.

Government lot
Fractional sections in the rectangular (government) survey system that are less than one quarter-section in area.

Government National Mortgage Association (GNMA)
See Ginnie Mae.

Government survey system
See rectangular (government) survey system.

Graduated-payment mortgage (GPM)
A loan in which the monthly principal and interest payments increase by a certain percentage each year for a certain number of years and then level off for the remaining loan term.

Grantee
A person who receives a conveyance of real property from a grantor.

Granting clause
Words in a deed of conveyance that state the grantor's intention to convey the property at the present time. This clause is generally worded as "convey and warrant"; "grant"; "grant, bargain, and sell"; or the like.

Grantor
The person transferring title to or an interest in real property to a grantee.

Gridiron
A street pattern that evolved out of the government rectangular survey system. Features large lots, wide streets, and limited-use service alleys.

Gross income multiplier (GIM)
A figure used as a multiplier of the gross annual income of a property to produce an estimate of the property's value.

Gross lease
A lease of property according to which a landlord pays all property charges regularly incurred through ownership, such as repairs, taxes, insurance, and operating expenses. Most residential leases are gross leases.

Gross rent multiplier (GRM)
The figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property's value.

Ground lease
A lease of land only, on which the tenant usually owns a building or is required to build as specified in the lease. Such leases are usually long-term net leases; the tenant's rights and obligations continue until the lease expires or is terminated through default.

Groundwater
Water that exists under the earth's surface within the tiny spaces or crevices in geological formations.

Growing-equity mortgage (GEM)
A loan in which the monthly payments increase annually, with the increased amount being used to reduce directly the principal balance outstanding and thus shorten the overall term of the loan.

H

Habendum clause
That part of a deed beginning with the words "to have and to hold," following the granting clause and defining the extent of ownership the grantor is conveying.

Heir
One who might inherit or succeed to an interest in land under the state law of descent when the owner dies without leaving a valid will.

Heterogeneity
Also known as nonhomogeneity, or the uniqueness of land.

Highest and best use
The possible use of a property that would produce the greatest net income and thereby develop the highest value.

Holdover tenancy
A tenancy whereby a lessee retains possession of leased property after the lease has expired and the landlord, by continuing to accept rent, agrees to the tenant's continued occupancy as defined by state law.

Holographic will
A will that is written, dated, and signed in the testator's handwriting.

Home equity loan
A loan (sometimes called a line of credit) under which a property owner uses his or her residence as collateral and can then draw funds up to a prearranged amount against the property.

Homeowner's insurance policy
A standardized package insurance policy that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks.

Homestead
Land that is owned and occupied as the family home. In many states a portion of the area or value of this land is protected or exempt from judgments for debts.

Hypothecate
To pledge property as security for an obligation or loan without giving up possession of it.

I

Implied agency
Based on the actions of the parties which imply that they have mutually consented to an agency relationship, an implied agency relationship is formed.

Implied agreement
A contract under which the agreement of the parties is demonstrated by their acts and conduct.

Implied contract
A contract in which the agreement of the parties is demonstrated by their acts and conduct. See also implied agreement.

Implied warranty of habitability
A theory in land lord/tenant law in which the landlord renting residential property implies that the property is habitable and fit for its intended use.

Improvement
(1) Any structure, usually privately owned, erected on a site to enhance the value of the property—for example, building a fence or a driveway. (2) A publicly owned structure added to or benefiting land, such as a curb, sidewalk, street, or sewer.

Income approach
The process of estimating the value of an income-producing property through capitalization of the annual net income expected to be produced by the property during its remaining useful life.

Income property
Property held for current income as well as potential profit upon its sale.

Incorporeal right
A nonpossessory right in real estate; for example, an easement or a right-of-way.

Increasing returns
When money spent on improvements produces an increase in income or value.

Independent contractor
Someone who is retained to perform a certain act but who is subject to the control and direction of another only as to the end result and not as to the way in which the act is performed. Unlike an employee, an independent contractor pays for all expenses and Social Security and income taxes and receives no employee benefits. Most real estate salespeople are independent contractors.

Index method
The appraisal method of estimating building costs by multiplying the original cost of the property by a percentage factor to adjust for current construction costs.

Inflation
The gradual reduction of the purchasing power of the dollar, usually related directly to the increases in the money supply by the federal government.

Inheritance taxes
State-imposed taxes on a decedent's real and personal property.

Inquiry notice
Notice the law presumes a reasonable person would obtain by inquiring into a property.

Installment contract
A contract for the sale of real estate whereby the purchase price is paid in periodic installments by the purchaser, who is in possession of the property even though title is retained by the seller until a future date, which may be not until final payment. Also called a contract for deed or articles of agreement for warranty deed.

Installment sale
A transaction in which the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer can postpone reporting such income until future years by paying tax each year only on the proceeds received that year.

Interest
A charge made by a lender for the use of money.

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

Intermediate theory
Adopted by a number of states, a theory based on the principles of title theory but requires the mortgagee foreclose to obtain legal title.

Interstate Land Sales Full Disclosure Act
A federal law that regulates the sale of certain real estate in interstate commerce.

Intestate
The condition of a property owner who dies without leaving a valid will. Title to the property will pass to the decedent's heirs as provided in the state law of descent.

Intrinsic value
An appraisal term referring to the value created by a person's personal prefer emcees for a particular type of property.

Inverse condemnation
An action brought by a property owner seeking just compensation for land taken for public use when the taker of the property does not intend to bring eminent domain proceedings. Property is condemned because its use and value have been diminished due to an adjacent property's public use.

Investment
Money directed toward the purchase, improvement, and development of an asset in expectation of income or profits.

Involuntary alienation
When title to property may be transferred without the owner's consent. See alienation.

Involuntary lien
A lien placed on property without the consent of the property owner.

J

Joint and several liability
Each of the individual owners is personally responsible for the total damages.

Joint tenancy
Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the decedent's interest passes to the surviving joint tenant or tenants by the right of survivorship.

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 par ties 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.

Judgment
The formal decision of a court upon the respective rights and claims of the parties to an action or suit. After a judgment has been entered and recorded with the county recorder, it usually becomes a general lien on the property of the defendant.

Judicial precedent
In law, the requirements established by prior court decisions.

Junior lien
An obligation, such as a second mortgage, that is subordinate in right or lien priority to an existing lien on the same realty.

L

Laches
An equitable doctrine used by courts to bar a legal claim or prevent the assertion of a right because of undue delay or failure to assert the claim or right.

Land
The earth's surface, extending downward to the center of the earth and upward infinitely into space, including things permanently attached by nature, such as trees and water.

Land contract
A contract where the seller (also known as the vendor) retains legal title. The buyer (called the vendee) takes possession and gets equitable title to the property. Also called a contract for deed, a bond for title, an installment contract, a land sales contract, or articles of agreement for warranty deed.

Landfill
An enormous hole, either excavated for the purpose of waste disposal or left over from surface mining operations.

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 its inhabitants. Some states impose on sellers and licensees a duty to inspect for and disclose latent defects.

Law of agency
See agency.

Lead
Material used as a pigment and drying agent in alkyd oil-based paint.

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 specified 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 in writing to be enforceable.

Leasehold estate
A tenant's right to occupy real estate during the term of a lease, generally considered to be a personal property interest.

Lease option
A lease under which the tenant has the right to purchase the property either during the lease term or at its end.

Lease purchase
The purchase of real property, the consummation of which is preceded by a lease, usually long-term. Typically done for tax or financing purposes.

Legacy
A disposition of money or personal property by will.

Legal description
A description of a specific parcel of real estate complete enough for an independent surveyor to locate and identify it.

Legally competent parties
People who are recognized by law as being able to contract with others; those of legal age and sound mind.

Lessee
The owner of real estate in a lease. See also lease.

Lessor
The tenant in a lease. See also lease.

Leverage
The use of borrowed money to finance an investment.

Levy
To assess; to seize or collect. To levy a tax is to assess a property and set the rate of taxation. To levy an execution is to officially seize the property of a person in order to satisfy an obligation.

Liability coverage
Special insurance that provides coverage for injuries or losses sustained.

License
(1) A privilege or right granted to a person by a state to operate as a real estate broker or salesperson. (2) The revocable permission for a temporary use of land—a personal right that cannot be sold.

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.

Lien theory
Some states interpret a mortgage as being purely a lien on real property. The mortgagee thus has no right of possession but must foreclose the lien and sell the property if the mortgagor defaults.

Life cycle costing
In property management, comparing one type of equipment with another based on both purchase cost and operating cost over its expected useful lifetime.

Life estate
An interest in real or personal property that is limited in duration to the lifetime of its owner or some other designated person or persons.

Life tenant
A person in possession of a life estate.

Limited liability company (LLC)
Combines the most attractive features of limited partnerships and corporations. Members of an LLC enjoy the limited liability offered by a corporate form of ownership and the tax advantages of a partnership. Also offers flexible management structures without complicated requirements of S corporations or the restrictions of limited partnerships.

Limited partnership
Consists of one or more general partners as well as limited partners. The limited partners are not legally permitted to participate and each can be held liable for business losses only to the extent of his or her investment. See partnership.

Liquidated damages
An amount predetermined by the parties to a contract as the total compensation to an injured party should the other party breach the contract.

Liquidity
The ability to sell an asset and convert it into cash, at a price close to its true value, in a short period of time.

Lis pendens
A recorded legal document giving constructive notice that an action affecting a particular property has been filed in either a state or a federal court.

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 the owner's terms, for which service the owner agrees to pay a commission.

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 sale are initiated. The listing broker and the cooperating broker may be the same person.

Littoral rights
(1) A landowner's claim to use water in large navigable lakes and oceans adjacent to his or her property. (2) The ownership rights to land bordering these bodies of water up to the high-water mark.

Loan origination fee
A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.

Loan-to-value ratio
The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

Lot-and-block (recorded plat) system
A method of describing real property that identifies a parcel of land by reference to lot and block numbers within a subdivision, as specified on a recorded subdivision plat.

M

Management agreement
A contract between the owner of income property and a management firm or individual property manager that outlines the scope of the manager's authority.

Market
A place where goods can be bought and sold and a price established.

Marketable title
Good or clear title, reasonably free from the risk of litigation over possible defects.

Market data approach
Also known as the sales comparison approach. An estimate of value obtained by comparing property being appraised with recently sold comparable properties.

Market value
The most probable price property would bring in an arm's-length transaction under normal conditions on the open market.

Master plan
A comprehensive plan to guide the long-term physical development of a particular area.

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.

Megan's Law
Federal legislation that promotes the establishment of state registration systems to maintain residential information on every person who kidnaps children, commits sexual crimes against children, or commits sexually violent crimes.

Meridian
One of a set of imaginary lines running north and south and crossing a base line at a definite point, used in the rectangular (government) survey system of property description.

Metes-and-bounds description
A legal description of a parcel of land that begins at a well-marked point and follows the boundaries, using directions and distances around the tract, back to the place of beginning.

Mill
One-tenth of one cent. Some states use a mill rate to compute real estate taxes; for example, a rate of 52 mills would be $0.052 tax for each dollar of assessed valuation of a property.

Minor
Someone who has not reached the age of majority and therefore does not have legal capacity to transfer title to real property.

Mold
Can be found almost anywhere and can grow on almost any organic substance, so long as oxygen and moisture are present. Can cause serious health problems.

Monetary policy
Governmental regulation of the amount of money in circulation through such institutions as the Federal Reserve Board.

Month-to-month tenancy
A periodic tenancy under which the tenant rents for one month at a time. In the absence of a rental agreement (oral or written) a tenancy is generally considered to be month to month.

Monument
A fixed natural or artificial object used to establish real estate boundaries for a metes-and-bounds description.

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

Mortgage banker
Mortgage loan companies that originate, service, and sell loans to investors.

Mortgage broker
An agent of a lender who brings the lender and borrower together. The broker receives a fee for this service.

Mortgagee
A lender in a mortgage loan transaction.

Mortgage lien
A lien or charge on the property of a mortgagor that secures the underlying debt obligations.

Mortgagor
A borrower in a mortgage loan transaction.

Multiperil policies
Insurance policies that offer protection from a range of potential perils, such as those of a fire, hazard, public liability, and casualty.

Multiple-listing clause
A provision in an exclusive listing for the authority and obligation on the part of the listing broker to distribute the listing to other brokers in the multiple-listing organization.

Multiple-listing service (MLS)
A marketing organization composed of member brokers who agree to share their listing agreements with one another in the hope of procuring ready, willing, and able buyers for their properties more quickly than they could on their own. Most multiple-listing services accept exclusive-right-to-sell or exclusive-agency listings from their member brokers.

N

Negligent misrepresentation
When a broker should have known that a statement about a material fact was false. The fact that the broker might actually be ignorant about the issue is no excuse.

Negotiable instrument
A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee's right to payment.

Net lease
A lease requiring the tenant to pay not only rent but also costs incurred in maintaining the property, including taxes, insurance, utilities, and repairs.

Net listing
A listing based on the net price the seller will receive if the property is sold. Under a net listing the broker can offer the property for sale at the highest price obtainable to increase the commission. This type of listing is illegal in many states.

Net operating income (NOI)
The income projected for an income-producing property after deducting losses for vacancy and collection and operating expenses.

Nonagent
An intermediary between a buyer and seller, or landlord and tenant, who assists both parties with a transaction without representing either. Also known as a facilitator, transaction broker, transaction coordinator, and contract broker.

Nonconforming use
A use of property that is permitted to continue after a zoning ordinance prohibiting it has been established for the area.

Nonhomogeneity
A lack of uniformity; dissimilarity. Because no two parcels of land are exactly alike, real estate is said to be nonhomogeneous.

Note
The borrower's personal promise to repay a debt according to agreed-upon terms. See also promissory note.

Novation
Substituting a new obligation for an old one or substituting new parties to an existing obligation.

Nuncupative will
An oral will declared by the testator in his or her final illness, made before witnesses and afterward reduced to writing.

O

Obsolescence
The loss of value due to factors that are outmoded or less useful. Obsolescence may be functional or economic.

Occupancy permit
A permit issued by the appropriate local governing body to establish that the property is suitable for habitation by meeting certain safety and health standards.

Offer and acceptance
Two essential components of a valid contract; a "meeting of the minds."

Offeror/offeree
The person who makes the offer is the offeror. The person to whom the offer is made is the offeree.

Office of Thrift Supervision (OTS)
A government agency which governs the practices of fiduciary lenders. OTS was created by the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).

Open-end loan
A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage.

Open listing
A listing contract under which the broker's commission is contingent on the broker's producing a ready, willing, and able buyer before the property is sold by the seller or another broker.

Option
An agreement to keep open for a set period an offer to sell or purchase property.

Option listing
Listing with a provision that gives the listing broker the right to purchase the listed property.

Ostensible agency
A form of implied agency relationship created by the actions of the parties involved rather than by written agreement or document.

P

Package loan
A real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a new home that includes carpeting, window coverings, and major appliances.

Parol evidence
Oral or verbal evidence.

Parol evidence rule
A rule of evidence providing that a written agreement is the final expression of the agreement of the parties, not to be varied or contradicted by prior or contemporaneous oral or written negotiations.

Participation mortgage
A mortgage loan wherein the lender has a partial equity interest in the property or receives a portion of the income from the property.

Partition
The division of cotenants' interests in real property when the parties do not all voluntarily agree to terminate the co-ownership; takes place through court procedures.

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 as 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

Party wall
A wall that is located on or at a boundary line between two adjoining parcels of land and is used or is intended to be used by the owners of both properties.

Patent
A grant or franchise of land from the United States government.

Payment cap
The limit on the amount the monthly payment can be increased on an adjustable-rate mortgage when the interest rate is adjusted.

Payoff statement
A statement from the lender that provides the exact amount required to pay an existing loan, effective on the date of closing. See also reduction certificate.

Percentage lease
A lease, commonly used for commercial property, whose rental is based on the tenant's gross sales at the premises; it usually stipulates a base monthly rental plus a percent age of any gross sales above a certain amount.

Percolation test
A test of the soil to determine if it will absorb and drain water adequately to use a septic system for sewage disposal.

Periodic estate (tenancy)
See estate from period to period.

Personal property
Items, called chattels, that do not fit into the definition of real property; movable objects.

Physical deterioration
A reduction in a property's value resulting from a decline in physical condition; can be caused by action of the elements or by ordinary wear and tear.

Planned unit development (PUD)
A planned combination of diverse land uses, such as housing, recreation, and shopping, in one contained development or subdivision.

Plat
A detailed map that illustrates the geographic boundaries of individual lots.

Plat map
A map of a town, section, or subdivision indicating the location and boundaries of individual properties.

Plottage
The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot.

Point of beginning (POB)
In a metes-and-bounds legal description, the starting point of the survey, situated in one corner of the parcel; all metes-and-bounds descriptions must follow the boundaries of the parcel back to the point of beginning.

Police power
The government's right to impose laws, statutes, and ordinances, including zoning ordinances and building codes, to protect the public health, safety, and welfare.

Polychlorinated Biphenyls (PCBs)
Often used as an insulating material in dielectric oil. May be present in electrical equipment. Suspected of causing health problems.

Power of attorney
A written instrument authorizing a person, the attorney-in-fact, to act as agent for another person to the extent indicated in the instrument.

Prepaid items
On a closing statement, items that have been paid in advance by the seller, such as insurance premiums and some real estate taxes, for which he or she must be reimbursed by the buyer.

Prepayment penalty
A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.

Preventive maintenance
Regularly scheduled activities such as painting and seasonal servicing of appliances and systems.

Price-fixing
See antitrust laws.

Primary mortgage market
The mortgage market in which loans are originated and consisting of lenders such as commercial banks, savings and loan associations, and mutual savings banks.

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 due and payable at a certain date. (3) A main party to a transaction—the person for whom the agent works.

Principal meridian
The main imaginary line running north and south and crossing a base line at a definite point, used by surveyors for reference in locating and describing land under the rectangular (government) survey system of legal description.

Prior appropriation
A concept of water ownership in which the landowner's right to use available water is based on a government-administered permit system.

Priority
The order of position or time. The priority of liens is generally determined by the chronological order in which the lien documents are recorded; tax liens, however, have priority even over previously recorded liens.

Private mortgage insurance (PMI)
Insurance provided by private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.

Probate
A legal process by which a court deter mines who will inherit a decedent's property and what the estate's assets are.

Procuring cause
The effort that brings about the desired result. Under an open listing the broker who is the procuring cause of the sale receives the commission.

Progression
An appraisal principle that states that, between dissimilar properties, the value of the lesser-quality property is favorably affected by the presence of the better-quality property.

Promissory note
A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transfer able to a third party).

Property manager
Someone who manages real estate for another person for compensation. Duties include collecting rents, maintaining the property, and keeping up all accounting.

Property reports
The mandatory federal and state documents compiled by subdividers and developers to provide potential purchasers with facts about a property, prior to their purchase.

Proprietary lease
A lease given by the corporation that owns a cooperative apartment building to the shareholder for the shareholder's right as a tenant to an individual apartment.

Prorations
Expenses, either prepaid or paid in arrears, that are divided or distributed between buyer and seller at the closing.

Protected class