Real Estate Glossary

A 1031 exchange is a swap of one real estate investment property for another that allows capital gains taxes to be deferred.

Accretion in real estate refers to the gradual and imperceptible increase of a property's land area due to the accumulation of soil, sand, or other materials, typically caused by the action of water, such as a river, lake, or ocean. This natural process can have significant implications for property owners, as it may result in changes to property lines, ownership rights, and land use.

A unit of land area equal to 43,560 square feet.

An acre foot is a unit of measurement commonly used in the United States for large-scale water resources, such as reservoirs, canals, and irrigation systems. It is defined as the volume of water required to cover one acre of land to a depth of one foot. It is equivalent to 43,560 cubic feet, 325,851 gallons, or 1,233 cubic meters.

A Latin phrase that translates to "according to the value." It is a type of tax that is based on the value of an item or property, usually calculated as a percentage of the item's value. In the context of real estate, ad valorem taxes are commonly applied to property taxes, where the tax amount is determined by the assessed value of the property.

The term adjustable-rate mortgage (ARM) refers to a mortgage with a variable interest rate. With an ARM, the initial interest rate is fixed for a period of time. After that, the interest rate applied on the outstanding balance resets periodically, at yearly or even monthly intervals.

Agency refers to the legal relationship between a real estate agent and their client. This relationship establishes the agent's duties and responsibilities to act in the client's best interest. The agent is required to be loyal, obey the client's lawful instructions, disclose relevant information, maintain confidentiality, exercise reasonable care and diligence, and account for all funds received in connection with the agency.

1-d-1 Agricultural Appraisal is a special valuation method in the Texas Property Tax Code that allows agricultural land to be appraised based on its productivity value rather than its market value. This can result in lower property taxes for the landowner. To qualify for this special appraisal, the land must meet certain requirements, including being devoted principally to agricultural use for at least five of the preceding seven years and being used for the production of crops, livestock, or wildlife management.

Payment of a debt in equal periodic installments of principal and interest.

Annexation refers to the process of incorporating or adding a property or territory to an existing municipality or jurisdiction. This process can have significant implications for property owners, as it may result in changes to property taxes, zoning laws, and the provision of services.

An appraisal is an independent, professional opinion of the market value of a property. It is a crucial part of the home buying and selling process, as it helps establish the fair market value of the property, which is the price a willing buyer would pay to a willing seller in an open and competitive market.

An arms length transaction in real estate is a purchase in which the home buyer and seller are unrelated in their business and personal lives, which ensures a fair market value for the home. This type of transaction is important because it helps to establish a fair price for the property and prevents any potential conflicts of interest or manipulation of the transaction.

Assemblage in real estate refers to the process of combining two or more adjacent properties to create a larger, more valuable parcel. This is often done by developers and builders who want to build at a higher density than is currently present on the individual parcels.

Assessed value is the estimated worth of a property determined by local government authorities for the purpose of levying property taxes. The assessed value is determined by local tax assessors and is typically based on factors such as location, size, condition, and other relevant criteria assessed by the government.

Avulsion in real estate refers to a sudden and rapid change in a property's boundaries, typically caused by a natural event such as a flood, earthquake, or landslide.

A balloon mortgage is a type of property loan that has a short term, usually between five to seven years, and a fixed interest rate. During the term, the monthly payments are typically lower compared to traditional mortgages. However, at the end of the term, the borrower must make a large, lump-sum payment, known as the balloon payment, to pay off the remaining balance of the loan.

A base map is a foundational layer of geographic information that provides context and reference for creating other maps and data visualizations. It typically includes essential features such as roads, water bodies, administrative boundaries, and key landmarks. Base maps are essential for orienting viewers and providing a consistent framework for overlaying additional data layers.

Base rent is the minimum amount of rent that a tenant is obligated to pay their landlord under a lease agreement. It is a fixed amount that typically covers the cost of using the leased space and is determined by factors such as the property's location, size, condition, and market conditions.

Basis refers to the cost of acquiring a property, which includes the purchase price and any additional expenses incurred during the acquisition, such as closing costs and settlement fees. The basis of a property is important for tax purposes, as it is used to calculate capital gains or losses when the property is sold. Additionally, the basis can be adjusted over time to account for improvements or depreciation.

Basis refers to the cost of acquiring a property, which includes the purchase price and any additional expenses incurred during the acquisition, such as closing costs and settlement fees. The basis of a property is important for tax purposes, as it is used to calculate capital gains or losses when the property is sold. Additionally, the basis can be adjusted over time to account for improvements or depreciation.

Bottomland refers to low-lying areas of land near a river or stream that are prone to flooding. This type of land is often characterized by its rich soil, which is ideal for agriculture, and its abundant water supply. However, due to the risk of flooding, bottomland is not always suitable for building or development. In some cases, bottomland may be used for recreational purposes, such as fishing or hunting, or for conservation efforts to protect wildlife habitats and wetlands.

In real estate, a boundary is a line that defines the limits of a property, separating it from neighboring properties. It is an important aspect of property ownership, as it determines the extent of the land that a person or entity legally owns. Boundaries can be marked by physical features such as fences, walls, or natural landmarks, or by legal descriptions in property deeds.

A building permit is an official approval from a local government agency that allows you to proceed with the construction, renovation, or demolition of a building or structure. It ensures that the proposed project complies with local building codes, zoning laws, and other regulations.

Build-to-suit is a real estate development model in which a developer builds a property to the specifications of a particular tenant or buyer. This model is often used for commercial properties, such as office buildings, retail spaces, and industrial facilities. In a build-to-suit arrangement, the developer typically owns the land and constructs the building, while the tenant or buyer leases or purchases the property upon completion.

A buyer's agent is a real estate professional who represents the buyer in a real estate transaction. The buyer's agent's primary responsibility is to protect the interests of the buyer and assist them in finding a suitable property at the best possible price and terms.

The capitalization rate (also known as cap rate) is used in the world of commercial real estate to indicate the rate of return that is expected to be generated on a real estate investment property. The capitalization rate is calculated by dividing a property's net operating income by the current market value.

Cash flow is the amount of income that a property produces after all operating expenses have been paid.

CC&R stands for Covenants, Conditions, and Restrictions. These are a set of rules and regulations that govern the use of a specific piece of real estate within a community, such as a planned unit development or a condominium complex. CC&Rs are typically established by the developer or the homeowners' association (HOA) and are intended to maintain the overall appearance, character, and value of the property.

CERCLA, or the Comprehensive Environmental Response, Compensation, and Liability Act, is a United States federal law enacted in 1980 to address the issue of hazardous waste sites and the associated cleanup costs. The law is commonly known as Superfund and is administered by the Environmental Protection Agency (EPA).

Chattel refers to movable personal property that is not permanently affixed to the property, such as furniture or appliances.

The final step in a real estate transaction where ownership of real property is transferred from the seller to the buyer according to the terms and conditions set forth in a purchase agreement.

Collateral refers to an asset that a borrower pledges as security for a loan, such as a mortgage. The purpose of collateral is to reduce the risk for the lender, as it provides a way to recover the outstanding loan amount in case the borrower defaults on the loan.

A condition in a purchase agreement specifying an action or requirement that must be met for the contract to become legally binding.

Debt service refers to the cash that is required to cover the repayment of interest and principal on a debt for a particular period. In the context of real estate, this term often refers to the periodic payments an individual or a business must make to repay the mortgage on a property.

A legal document that grants ownership of real property.

Deferred maintenance refers to the practice of postponing necessary repairs, upkeep, and maintenance tasks on buildings, infrastructure, or assets due to budget limitations, lack of resources, or time. This can lead to increased costs and potential safety hazards over time.

Depreciation is the decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors. In the context of real estate, depreciation refers to the gradual loss of value of a property over its useful life.

Discounted Cash Flow (DCF) is a valuation method used to estimate the value of an investment based on its future cash flows. In this method, the ultimate purpose is to estimate the money an investor would receive from an investment, adjusted for the time value of money. This involves taking the cash flows that are projected to be generated by an investment, and then discounting those cash flows using a predetermined discount rate and the amount of time that has elapsed since the initial capital investment.

A due-on-sale clause is a provision in a loan or promissory note that enables lenders to demand that the remaining balance of a mortgage be repaid in full in the event that a property is sold or transferred.

Earnest money is a deposit made by a buyer to a seller in a real estate transaction to demonstrate the buyer's good faith in completing the purchase. It is typically held in an escrow account until the closing of the sale, at which point it is applied towards the purchase price.

The legal right to use another person’s land for a specific purpose.

Effective age in real estate refers to the age of a property based on its condition and utility, rather than its actual age. It's a way to measure the wear and tear a home experiences as it relates to a loss in value due to physical wear and tear, functional issues, and external factors that impact value.

The difference between the market value of a property and the amount owed on it.

A legal concept describing a financial agreement whereby an asset or money is held by a third party (commonly the title company) on behalf of two other parties that are in the process of completing a transaction.

Fair market value (FMV) in real estate refers to the price that a property would sell for in an open market, with a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts and not being under any pressure to buy or sell.

The Federal Reserve, often referred to as the Fed, is the central banking system of the United States. Established on December 23, 1913, the Fed is responsible for a wide range of financial and economic activities, including setting interest rates, managing the money supply, regulating financial markets, and, more recently, creating trillions of dollars to boost financial markets.

Fee simple is a type of property ownership in which the owner has complete and unrestricted rights to the land and any improvements on it. This is the most common form of property ownership in the United States. In fee simple ownership, the owner has the right to use the property, sell it, lease it, or pass it on to their heirs.

The term fixed-rate mortgage refers to a mortgage with a constant interest rate. With a fixed-rate mortgage, the initial interest rate is set at the time of closing and remains unchanged for the entire duration of the loan. Unlike an adjustable-rate mortgage (ARM), the interest rate applied on the outstanding balance does not reset periodically, ensuring stable and predictable monthly payments.

A floodplain is a low-lying area of land near a river or stream that is prone to flooding. These areas are typically flat and may be covered by water during periods of heavy rainfall or when the river or stream overflows its banks.

Floor area ratio (FAR) is the ratio of a building's total floor area to the size of the land on which it is built. It is a measure of the building's density and is used in zoning regulations to control the intensity of development in a given area. A higher FAR indicates a denser development, while a lower FAR indicates a more spread-out development.

Foreclosure is the legal process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of the mortgaged property and selling it.

FSBO stands for "For Sale By Owner," which is a term used when a homeowner decides to sell their property without the assistance of a real estate agent. By choosing the FSBO route, the seller takes on the responsibility of handling all aspects of the sale, including setting the price, marketing the property, negotiating with potential buyers, and handling the paperwork. This option can save the seller money on real estate agent commissions, which typically range from 5% to 6% of the sale price. However, it also requires more time and effort on the seller's part and may not result in the same exposure or expertise as working with a professional agent.

Functional obsolescence is a term used to describe a reduction in the usefulness or desirability of an object, property, or technology due to an outdated design, poor planning, or changes in the market. It can be categorized into three types: curable, incurable, and superadequacy.

A General Warranty Deed is a legal document that is used to transfer ownership of real property from one person or entity to another. It provides the highest level of protection to the buyer, as it guarantees that the seller holds a clear title to the property and has the right to sell it.

The Gross Rent Multiplier (GRM) is a metric used by real estate investors to evaluate the potential profitability of a rental property. It is calculated by dividing the property's market value or purchase price by its annual gross rental income.

A ground lease is a type of agreement in which a tenant is permitted to develop a piece of property during the lease period, after which the land and all improvements are turned over to the property owner. This type of lease is common in commercial real estate and typically lasts for 50 to 99 years.

A guarantor is a person who agrees to take responsibility for a borrower’s debt or other financial obligation in the event of a default.

The Highest and Best Use (HBU) of a property is the most profitable and legal use of a property, given the current market conditions and zoning regulations. It is a crucial concept in real estate and is determined by considering four factors: Physically Possible, Legally Permissible, Financially Feasible, & Maximally Productive.

A homestead exemption is a legal provision that offers homeowners a reduction in property taxes on their primary residence. The exemption typically applies to the assessed value of the property, and the amount of the exemption varies by state.

Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the return of potential investments. It is the discount rate that makes the net present value (NPV) of a project or investment equal to zero. In other words, it is the rate at which the present value of future cash flows equals the initial investment.

Joint tenancy is a form of co-ownership in real estate where each party has an equal share in the property and the right of survivorship. This means that if one joint tenant dies, their share of the property automatically passes to the surviving joint tenant(s).

A land survey is a process by which professionals assess, measure, and map the land to identify boundaries, features, and characteristics of a specific parcel of property.

A legal agreement between a property owner (lessor or landlord) and a tenant (lessee) that grants the tenant the right to occupy and use the property for a specified period in exchange for payment, typically in the form of rent.

A leased fee is a type of real estate ownership in which the property owner (the lessor) leases the property to a tenant (the lessee) for a specific period. In this arrangement, the tenant pays rent to the property owner in exchange for the right to use the property for the duration of the lease.

A leasehold interest refers to a tenant's right to occupy and use a property for a specific period, as outlined in a lease agreement. This type of interest is commonly used in commercial and residential real estate, where the tenant (lessee) pays rent to the property owner (lessor) in exchange for the right to use the property.

A letter of intent (LOI) is a document that declares the preliminary commitment of one party to do business with another and outlines the chief terms of a prospective deal. It is often used in commercial real estate transactions to establish the key points of a deal and protect the parties involved.

A lien is a legal right that gives an individual or entity a claim to a collateral property until the outstanding debt is paid off. If the debt goes unpaid, the issuer of the lien has the right to take the property back from the borrower.

A limited partner is an investor in a business partnership who has limited liability for the debts and obligations of the partnership. They contribute capital to the partnership and share in the profits and losses, but they do not participate in the day-to-day management and decision-making of the business.

A lis pendens, which is Latin for "suit pending," is a written notice of a civil lawsuit concerning the title to or an ownership interest in a specific real property that has been recorded on the property. It serves as a warning to potential buyers that there is a pending lawsuit that may affect the title or ownership of the property.

The loan-to-value (LTV) ratio is a metric used by lenders to assess the risk associated with a mortgage or loan application. It measures the amount of the loan against the value of the asset being purchased, typically a home. A higher LTV ratio indicates a higher level of risk for the lender, as the borrower has less equity in the property.

A lot typically refers to a piece of land that has been designated on a recorded subdivision map, such as a plat or survey map.

MLSs are private databases that are created, maintained and paid for by real estate professionals to help their clients buy and sell property. In most cases, access to information from MLS listings is provided to the public free-of-charge by participating brokers.

A mortgage is a type of loan specifically used to purchase real estate. In a mortgage agreement, the buyer borrows money from a lender (usually a bank or a mortgage company) to buy a home or other real estate.

Net leasable area (NLA) is a crucial metric in commercial real estate that refers to the total area of a property that is available for lease to tenants. This area is measured from the inside of the exterior walls and does not include common areas such as corridors, lobbies, and restrooms.

A Single Net Lease, often referred to as a "Net Lease" or "N Lease," is a type of commercial real estate lease agreement where, in addition to the base rent, the tenant is responsible for paying the property taxes associated with the leased space.

A non-recourse loan is a type of loan in which the lender's only remedy in the event of default is to repossess the property being financed or used as collateral. This means that the lender cannot pursue the borrower's other assets or personal property if the proceeds from the sale of the collateral are not enough to cover the outstanding debt.

The percentage of rented or used space to the total available.

Operating expenses are the costs associated with running a business on a day-to-day basis. These expenses are necessary for the operation and maintenance of a property, and they directly impact the property's ability to generate income. Some common operating expenses in real estate include property management fees, routine maintenance and repairs, utilities, insurance, property taxes, and accounting and legal fees. These expenses are typically deducted from the property's gross income to calculate the net operating income (NOI).

An option contract is a legal agreement that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specific time period. In the context of real estate, an option contract is a contract that allows a buyer to purchase a property at a predetermined price within a specified time frame.

A parcel is a broader term that refers to any piece of land, regardless of whether it has been subdivided or not.

Personal property refers to items that are movable, not permanently attached to real property, and owned by an individual or entity. This can include items such as furniture, clothing, jewelry, and vehicles. In contrast, real property refers to land and any structures or fixtures that are permanently attached to the land, such as buildings or homes.

A Phase 1 ESA involves a comprehensive investigation of the environmental conditions of a property, including a visual on-site inspection, a review of records for information about past ownership and uses, and an analysis of these uses to determine if any of them would have likely involved hazardous materials. The primary goal of a Phase 1 ESA is to identify any potential environmental risks or liabilities associated with the property, such as contamination or hazardous materials.

A plat is a map or diagram that represents a piece of land, showing the boundaries, divisions, and other relevant features of the property.

A prescriptive easement is a legal term that refers to a right to use someone else's property without their permission. This right is acquired through continuous and uninterrupted use of the property for a specific period, typically defined by state law. The use must be open and notorious, meaning it is not hidden or secretive, and the property owner must have had the opportunity to prevent the use.

The initial amount of money borrowed or the amount of money still owed on a loan, excluding interest.

A professional property inspection is an impartial third party visual evaluation of the physical structure, foundation, electrical, plumbing, heating, air-conditioning, roof, built in appliances, interior and exterior walls, doors and windows.

The administration of the day-to-day activities related to the operation, control, maintenance, and oversight of investment or income-producing real estate.

A Qualified Intermediary (QI) is an entity that facilitates tax-deferred transactions, such as 1031 exchanges, by acting as an intermediary between the buyer and the seller in a real estate transaction. The QI holds the proceeds from the sale of the relinquished property and then uses those funds to acquire the replacement property on behalf of the taxpayer. This allows the taxpayer to defer capital gains taxes on the sale of the relinquished property.

A quiet title is a legal action used to establish or settle the title to a piece of real property. It is a lawsuit filed with the intention of determining who has the legal right to claim ownership of a property. The process is meant to "quiet" or resolve any disputes or claims that may be made against the title.

A quitclaim deed is a legal document used to transfer property ownership from one person to another. Unlike a warranty deed, a quitclaim deed does not provide any guarantees or warranties about the property's title or ownership. Instead, the person transferring the property (the grantor) simply relinquishes their rights to the property without making any promises about the property's condition or ownership.

A specially structured company that owns, operates, or finances income-generating real estate.

A Realtor is a real estate professional who is a member of the National Association of REALTORS® (NAR).

Land reclamation is the process of creating new land from oceans, riverbeds, or lakes. It involves filling in these areas with large amounts of soil, sand, clay, or other materials to create a stable foundation for development. This technique has been used for centuries to expand cities, create new ports, and increase agricultural land.

Redevelopment is the process of revitalizing and transforming an area that has experienced decline or disinvestment. It involves the rehabilitation, reconstruction, or replacement of existing structures, infrastructure, and public spaces to improve the economic, social, and environmental conditions of a community.

A reservation is a legal agreement between two parties that grants one party certain rights to use or access the property of the other party. In the context of real estate, a reservation may involve the reservation of mineral rights, water rights, or other rights associated with a piece of property.

A right-of-way is a type of easement that grants someone the right to travel over or through another person's property for a specific purpose. This can include access to public utilities, roads, or other infrastructure. The holder of the right-of-way has the legal right to use the designated area, but the property owner retains ownership of the land.

The REALTORS® Land Institute (RLI) is a leading professional organization for land real estate professionals, including brokers and agents who specialize in land transactions such as farms, ranches, recreational properties, and other types of land.

A sale leaseback is a financial transaction in which an owner sells an asset, usually real estate or a piece of equipment, to a buyer and then leases it back from the buyer for a specified period. This arrangement allows the seller to free up capital while still retaining the use of the asset.

A seller's agent is a real estate professional who represents the seller in a real estate transaction. The seller's agent's primary responsibility is to protect the interests of the seller and assist them in marketing their property effectively to achieve the best possible price and terms.

Setback means the areas, measured from the property line to any structure, within which building is prohibited, but which may include driveway areas or other similar surface improvements.

Soft costs refer to the indirect expenses incurred during a real estate development project or transaction. These costs are not directly related to the physical construction or renovation of a property, but are essential to the project's completion.

The statute of frauds is a legal concept that requires certain types of contracts to be in writing and signed by the parties involved in order to be enforceable. It is designed to prevent fraud and to ensure that the terms of the agreement are clear and unambiguous.

The division of a piece of land into smaller plots or lots, especially for the purpose of selling them for building development. For example, a developer might buy a large tract of land and create a subdivision of homes.

The time value of money (TVM) is a fundamental concept in finance that states a dollar today is worth more than a dollar in the future, due to its potential earning capacity. This concept is based on the idea that money can be invested and earn interest over time, increasing its value.

Title refers to the legal right to own, use, and dispose of a specific property or piece of land.

A topographical map (topo map) is a type of map that represents the physical features of a geographical area in detail. It typically shows both natural features, such as mountains, valleys, rivers, and lakes, as well as man-made features like roads, buildings, and bridges.

A triple net lease (often abbreviated as NNN lease) is a type of commercial lease agreement where the tenant is responsible for paying, in addition to the base rent, the property's real estate taxes, building insurance, and maintenance costs.

In banking, as well as real estate investing, underwriting refers to the process by which financial institutions, lenders, or investors evaluate the creditworthiness of potential borrowers or the viability of an investment opportunity. This assessment determines the risk associated with lending money or investing capital. The underwriting process often involves examining the borrower's credit history, financial statements, assets, and liabilities, as well as the value and potential risks associated with the property or investment in question.

Undivided interest refers to a type of shared ownership in which two or more people own a property or asset together as a whole, rather than having separate, divided shares. This means that each co-owner has an equal right to use and enjoy the entire property, and they are also equally responsible for its liabilities, such as taxes and maintenance costs.

The actual space a tenant can use in a commercial building.

The vacancy rate for real estate refers to the percentage of all available units or spaces in a particular property or group of properties that are vacant or unoccupied at a particular time.

Wetlands are ecologically significant areas where water covers or saturates the soil for extended periods. Their presence can influence property values, impose development restrictions, and necessitate environmental assessments. Developers often require permits to work near or on wetlands and may face legal liabilities for non-compliance.er covers the soil or is present at or near the surface.

A writ of execution is a court order that allows a plaintiff to take possession of property or assets from a defendant to satisfy a judgment. This legal document is issued by a court after a judgment has been entered in favor of the plaintiff, and it directs a sheriff, marshal, or other law enforcement officer to seize the defendant's property to satisfy the judgment.

Zoning is a regulatory process by which local governments segment land into specific "zones," each with rules dictating its use, building heights, density, and other factors. It aims to ensure orderly development, protect community character, and prevent incompatible land uses. Zoning decisions, which influence property values and community direction, can be subjects of public debate and government deliberation.

A zoning variance is an exception to the existing zoning laws that allows a property owner to use their land or property in a way that is normally not permitted in that area. This exception can be granted by a local zoning board or commission and is typically given for a specific purpose and for a limited time.