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Real Estate Glossary
Below are some terms and their meaning, you may often hear in the either the Commercial or Residential real estate industry.
ARM (Adjustable Rate Mortgage)
A financing technique in which the lender can raise or lower the mortgage interest rate according to a set index, such as six-month Treasury bills.
Agent
An authorized person who manages or transacts business for another. Laws governing real estate--especially relating to agents--vary considerably from state to state. While some standardization has been achieved, it is best to check the particulars in each state.
Buyer Agent:
An agent who represents the buyer in a real estate transaction. A buyer agent may be paid by the buyer, seller, or listing agent at closing, provided all parties consent.
Dual Agent:
An agent representing both parties in a transaction. In almost every state, dual agency is illegal and unethical without the written consent of both the buyer and the seller.
Listing Agent:
The agent who represents the seller.
Selling Agent:
The agent who obtains a buyer. A selling agent may represent the buyer, or may be a subagent of the seller.
Subagent:
A salesperson who works for an agent.
Amenities
Features that enhance the value or desirability of a property.
Amortize
To pay a debt in periodic amounts until the total amount, including any interest, is paid.
Appraisal
A qualified party's opinion of the value of a property.
Appreciation
An increase in value
Assessment
An official valuation of property for tax purposes. Payments made by condominium or cooperative owners for their share of building maintenance expenses.
Broker
An independent business person who sets real estate office policies, hires employees, determines their compensation, and supervises their activities.
Capitalization Rate (Cap Rate)
The rate that is considered a reasonable return on investment (on the basis of both the investor's alternative investment possibilities and the risk of the investment). Used to determine and value real property through the capitalization process. Also called "free and clear return".
Certificate of Occupancy (COE)
A document presented by a local government agency or building department certifying that a building and/or the leased premises (tenant's space), has been satisfactorily inspected and is/are in a condition suitable for occupancy.
CLO (Computerized Loan Origination)
A computer network of major lenders that allows agents to initiate mortgage applications in their office. HUD has approved the procedure as long as 1) full disclosure is made of the fee; 2) multiple lenders are displayed on the computer screen to give borrowers a basis for comparison; 3) the fee charged is a dollar amount rather than a percentage of the loan.
Closing
The point at which real estate formally changes ownership. Closing costs are fees paid for services associated with a home's closing such as title insurance, surveying fees, recording fees, deeds, and affidavits.
CMA (Competitive Market Analysis)
A method of determining the value of a property by comparing the prices paid for similar properties.Code of Ethics A written standard of ethical conduct embraced by the NATIONAL ASSOCIATION OF REALTORS®, a trade organization of more than 700,000 members representing all branches of the real estate industry.
Commercial Lease Terms:
Abatement
A reduction or decrease. Usually applies to a decrease of assessed valuation of ad valorem taxes after the assessment, and levy.
Base Rent
The guaranteed base annual rent payable by Tenant to Landlord for one Lease Year for the use and occupancy of the Premises payable in advance in equal monthly installments.
Build-out
The space improvements put in place per the tenant's specifications. Takes into consideration the amount of Tenant Finish Allowance provided for in the lease agreement. See also "Tenant Improvement Allowance".
Common Area
There are two components of the term "common area". If referred to in association with the Rentable/Usable or Load Factor calculation, the common areas are those areas within a building that are available for common use by all tenants or groups of tenants and their invitees (i.e. lobbies, corridors, restrooms, etc.). On the other hand, the cost of maintaining parking facilities, malls, sidewalks, landscaped areas, public toilets, truck and service facilities, and the like are included in the term "common area" when calculating the tenant's pro-rata share of building operating expenses.
Common Area Maintenance (CAM) Expenses
This is the amount of Additional Rent charged to the tenant, in addition to the Base Rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit. Examples include: landscaping, outdoor lighting, parking lot sweeping, insurance, property taxes, etc. Most often, this does not include any capital improvements that are made to the property.
Fixturization Period
The period of time, if any, commencing on the date when Landlord delivers possession of the Premises to Tenant and during which Tenant: (a) shall commence Tenant’s Work and (b) shall not be required to pay Base Rent, CAM Expenses, Real Estate Taxes and Privilege Tax.
Floor Area
The gross area of any space that has been constructed and is either leased or available for lease by Landlord for the exclusive use of a tenant or other occupant, as determined by Landlord's architect, calculated from the exterior surface of exterior walls (and from the extensions thereof, in the case of openings) and from the center line of interior demising partitions, Including restrooms, mezzanines, interior storage areas, clerical or office areas and employee areas, as well as a load factor representing Tenant's proportionate share of any rooms which accommodate risers, alarms, mechanical equipment, telecommunications equipment, but excluding any permitted outside sales or storage areas except to the extent a tenant's lease provides otherwise.
Landlord's Work
Landlord's obligations with respect to the initial construction of the Premises.
Lease
An agreement whereby the owner of real property (i.e., landlord/lessor) gives the right of possession to another (i.e., tenant/lessee) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent).
Lease Commencement Date
The date usually constitutes the commencement of the term of the Lease for all purposes, whether or not the tenant has actually taken possession so long as beneficial occupancy is possible. In reality, there could be other agreements, such as an Early Occupancy Agreement, which have an impact on this strict definition.
Lease Year
The twelve (12) month period commencing on the Rent Commencement Date or the annual anniversary thereof, as may be applicable; provided, however, that the Rent Commencement Date falls on a day other than the first day of a calendar month, then the first Lease Year shall also include that partial month commencing on the Rent Commencement Date and shall continue for the following full twelve (12) month period.
Rent
Compensation or fee paid, usually periodically (i.e. monthly rent payments, for the occupancy and use of any rental property, land, buildings, equipment, etc.
Rent Commencement Date
The date on which a tenant begins paying rent. The dynamics of a marketplace will dictate whether this date coincides with the lease commencement date or if it commences months later (i.e., in a weak market, the tenant may be granted several months free rent). It will never begin before the lease commencement date.
Rental Concession
Concessions a landlord may offer a tenant in order to secure their tenancy. While rental abatement is one form of a concession, there are many others such as: increased tenant improvement allowance, signage, lower than market rental rates and moving allowances are only a few of the many. See also "Abatement".
Rent-up Period
That period of time, following construction of a new building, when tenants are actively being sought and the project is approaching its stabilized occupancy.
Tenant/Lessee
One who rents real estate from another and holds an estate by virtue of a lease.
Tenant Improvements
Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the negotiations will include in some detail the improvements to be made in the leased premises by the landlord.
Tenant Improvement Allowance
Defines the fixed amount of money contributed by the landlord toward tenant improvements. The tenant pays any of the costs that exceed this amount. Also commonly referred to as "Tenant Finish Allowance."
Transaction Privilege Tax (TPT)
Transaction privilege tax (TPT) refers to a tax levied by the State of Arizona on certain persons for the privilege of conducting business in the state. TPT differs from the “true” sales tax imposed by many other U.S. states as it is imposed upon the seller or lessor rather than the purchaser or lessee. The seller/lessor may pass the burden of the tax on to the purchaser/lessee, but the seller or lessor is the party that remains ultimately liable to Arizona for the tax. TPT is imposed under 17 separate business classifications: amusement, commercial lease, job printing, membership camping, mining, owner builder sales, personal property rental, pipeline, prime contracting, private car line, publication, restaurant, retail, telecommunications, transient lodging, transporting, utilities.
Triple Net Lease (NNN)
A lease in which the tenant pays, in addition to rent, certain costs associated with a leased property, which may include property taxes, insurance premiums, repairs, utilities, and maintenances. There are also “Net Leases" and “NN” (double net) leases, depending upon the degree to which the tenant is responsible for operating costs.
Useable Square Footage
Usable Square Footage is the area contained within the demising walls of the tenant space.
Vacancy Rate
The total amount of available space compared to the total inventory of space and expressed as a percentage. This is calculated by multiplying the vacant space times 100 and then dividing it by the total inventory.
Workletter
A list of the building standard items that the landlord will contribute as part of the tenant improvements. Examples of the building standard items typically identified include: style and type of doors, lineal feet of partitions, type and quantity of lights, quality of floor coverings, number of telephone and electrical outlets, etc. The Work letter often carries a dollar value but is contrasted with a fixed dollar tenant improvement allowance that can be used at the tenant’s discretion.
Commission
Compensation paid to a real estate agent (usually by the seller) for services rendered in connection with the sale, exchange, or lease of property.
Condominium (Condo)
Individual ownership of a portion of a building, with common areas shared by all owners. Maintenance fees called "assessments" are paid to the condominium association to maintain, repair, or improve the property.
Conventional Loan
A fixed-rate, fixed term loan that is not insured by the government.
Co-operative (Co-op)
An arrangement in which a corporation made up of residents owns a building. The buyer owns a proprietary lease, rather than real property, and a corresponding number of shares in the corporation.
Counter Offer
A new offer as to price, terms, and conditions, made in response to a prior, unacceptable offer. A counter offer terminates an original offer.
A legal document transferring ownership of a property from one party to another.
CRS (Certified Residential Specialist)
A professional designation awarded to experienced agents who complete an advanced course of study in residential real estate and demonstrate proficiency in sales and production. CRS Designees are members of the Residential Sales Council, a not-for-profit affiliate of the NATIONAL ASSOCIATION OF REALTORS®.
Disclosure
Revealing what previously was private knowledge. Any statement of fact that is required by law.
Down Payment
A percentage of the purchase price the buyer pays in cash.
Earnest Money
A buyer's partial payment to the seller as a show of good faith in completing the transaction.
Equity
The difference between the current market value of a property and the claims--such as the unpaid portion of a mortgage--that exist against it.
Escrow
The closing of a real estate transaction through a neutral third party who holds funds and/or documents for delivery after specific conditions have been met.
Exclusive Listing
A written agreement in which the seller appoints only one agent to market the property for a specific period of time. If the owner sells the property himself, he is not required to pay a commission.
Exclusive Right of Sale Listing
A written agreement between an agent and a property owner stating that the owner will pay a commission to the agent if the property is sold during a specific time period--whether or not the agent is responsible for the sale.
Fannie Mae (Federal National Mortgage Association)
Fannie Mae purchases home mortgages, thus serving as a source of funds for mortgage lenders. It is a privately owned corporation whose shares are traded on the New York Stock Exchange, but it is subject to the strict supervision of the secretary of the U.S. Department of Housing and Urban Development (HUD).Federal Fair Housing Law Refers to Title VIII of the Civil Rights Act, and stipulates that discrimination based on race, color, sex, familial status, handicap, religion, or national origin is illegal in connection with the sale or rental of most dwellings.
FHA (Federal Housing Administration)
A federal agency established to improve housing standards and conditions. The FHA provides mortgage insurance to approved lending institutions.
Freddie Mac (Federal Home Loan Mortgage Corporation)
A federally chartered corporation established to purchase mortgages in the secondary, or resale, market. Freddie Mac's policies are designed to serve the needs of savings and loan associations. It is subject to oversight by the U.S. Department of Housing and Urban Development (HUD).
Guaranty
A pledge made by one person (the guarantor) to ensure that another person (the obligor) will fulfill an obligation to a third party (the obligee).
HUD (U.S. Department of Housing and Urban Development
A federal department active in a variety of national housing programs including urban renewal and public housing.
Improvements
Additions intended to increase the value of a property.
Inspection
An examination of a property by the buyer, agent, title insurance company, or other interested party.
Letter of Intent (LOI)
A preliminary agreement stating the proposed terms for a final contract. They can be "binding" or "non-binding". This is the threshold issue in most litigation concerning letters of intent. The parties should always consult their respective legal counsel before signing any Letter of Intent.
Lien
A charge or claim by one party on the property of another as security for the payment of a debt.
Listing
A written agreement between a property owner and a real estate broker authorizing the broker to find a buyer.
Market Value
The price a property will command on the open market.
MLS (Multiple Listing Service)
A means by which agents are informed of the properties offered for sale by other agents.
Mortgage
A legal document pledging property as security for the payment of a loan.
Mortgage Insurance
An insurance plan that protects the lender if the borrower does not repay a loan. Mortgage insurance is required when a home buyer makes less than a 20% down payment at the time of purchase. Private mortgage insurance (PMI) covers conventional (fixed-year, fixed-rate) loans. The Federal Housing Administration charges a mortgage insurance premium (MIP) on FHA loans.
NATIONAL ASSOCIATION OF REALTORS ®
A trade organization serving over 700,000 members from all branches of the real estate industry. Members subscribe to a strict Code of Ethics which governs their conduct.
Offer
A proposal to purchase property at a specified price and terms.
Open House
The common real estate practice of showing "For Sale" homes to the public during established hours.
Origination Fee
A lender's charge for establishing and processing a new mortgage loan. It is generally computed as a percentage of the loan and may be tax deductible.
Owner of Record
The person named in the public record as the owner of a property or mortgage.
Points
A one-time charge paid to the lender for issuing a loan. Each point equals one percent of the loan amount and is used to obtain revenue in addition to the interest rate.
Principal
The amount of money upon which interest is paid.
Pro rata
Proportionately; according to measure, interest, or liability. In the case of a tenant, the proportionate share of expenses for the maintenance and operation of the property.
Qualified Buyer
A buyer who has demonstrated the financial ability to afford the asking price of a home. Prequalifying with a lender can expedite the home buying transaction.
REALTOR®
A registered trade name that may only be used by members of the NATIONAL ASSOCIATION OF REALTORS®, an organization with over 700,000 members who represent all branches of the real estate industry. REALTORS® subscribe to a strict Code of Ethics which governs their conduct.
Refinance
Obtaining a new loan to pay off an existing loan. Refinancing is a popular practice when interest rates drop.
Residential Sales Council
A not-for-profit affiliate of the NATIONAL ASSOCIATION OF REALTORS®. The Council awards the Certified Residential Specialist (CRS) Designation, to experienced members who have completed an advanced course of study in residential real estate.
Site Plan
A detailed plan which depicts the location of improvements on a parcel of land which also contains all the information required by the zoning ordinance.
Title
Lawful ownership of property.
Title Insurance
An insurance policy that protects against losses arising from title defects such as forged or misfiled documents
Title Search
An examination of the public records to determine whether the current title is clear or defective.
Town House
Also known as a row house, generally refers to a type of dwelling having two floors, with the living area and kitchen on the first floor, and the bedrooms on the second. Town houses share a common wall between units.
VA (Veterans Administration)
A federal agency designed to
help veterans enter the housing market.
VA Loan
A loan guaranteed by the U.S. Department of Veterans Affairs (VA). VA loans are made to honorably discharged veterans or their unremarried widows or widowers. Such loans require a minimal or no down payment and offer lower interest rates.
Walk-Through
A final inspection of a property before it changes ownership.
Working Drawings
The set of plans for a building or project that comprise the contract documents that indicate the precise manner in which a project is to be built. This set of plans includes a set of specifications for the building or project.
Zoning
The division of a city or town into zones and the application of regulations having to do with the structural, architectural design and intended use of buildings within such designated zone (i.e. a tenant needing manufacturing space would look for a building located within an area zoned for manufacturing).
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