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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.
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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.
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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.
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The increase or addition of land by the deposit of sand or soil washed up naturally from a river, lake or sea.
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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.
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A formal declaration made before a duly authorized officer, usually a notary public, by a person who has signed a document.
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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.
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The legal process that results in the tenant's being physically removed from the leased premises.
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Express information or fact; that which is known; direct knowledge.
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Tax levied according to value, generally used to refer to real estate tax. Also called the general tax.
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ADJUSTABLE-RATE MORTGAGE (ARM) |
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A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index.
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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.
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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 contracts no defects have occurred in the title
(3) certifies that he or she is in possession of the property (if applicable).
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The relationship between a principal and an agent wherein the agent is authorized to represent the principal in certain transactions.
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AGENCY COUPLED WITH AN INTEREST |
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An agency relationship in which the agent is given an estate or interest in the subject of the agency (the property).
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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.
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A designated airspace over a piece of land. An air lot, like surface property, may be transferred.
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The right to use the open space above a property, usually allowing the surface to be used for another purpose.
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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.
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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.
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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.
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AMERICAN LAND TITLE ASSOCIATION (ALTA) POLICY |
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A title insurance policy that protects the interest in a collateral property of a mortgage lender who originates a new real estate loan.
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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.
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ANNUAL PERCENTAGE RATE (APR) |
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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.
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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.
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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).
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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.
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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.
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A right, privilege or improvement belonging to, and passing with, the land.
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An easement that is annexed to the ownership of one parcel and allows the owner the use of the neighbor's land.
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An easement that is annexed to the ownership of one parcel and allows the owner the use of the neighbor's land.
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The combining of two or more adjoining lots into one larger tract to increase their total value.
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The imposition of a tax, charge or levy, usually according to established rates.
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The transfer in writing of interest in a bond, mortgage, lease or other instrument.
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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.
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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 person's debt to a creditor.
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ATTORNEY'S OPINION OF TITLE |
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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. |
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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.
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The sudden tearing away of land, as by earthquake, flood, volcanic action or the sudden change in the course of a stream.
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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.
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A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.
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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.
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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
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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.
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A permanent reference mark or point established for use by surveyors in measuring differences in elevation.
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(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.
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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.
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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.
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The illegal practice of inducing homeowners 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.
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Common name for those state and federal laws that regulate the registration and sale of investment securities
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Money or property given to make up any difference in value or equity between two properties in an exchange.
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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.
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Violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due.
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One who acts as an intermediary on behalf of others for a fee or commission.
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The bringing together of parties interested in making a real estate transaction.
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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).
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An ordinance that specifies minimum standards of construction for buildings to protect public safety and health.
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Written governmental permission for the construction, alteration or demolition of an improvement, showing compliance with building codes and zoning ordinances.
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See Uniform Commercial Code
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The concept of land ownership that includes ownership of all legal rights to the land--for example, possession, control within the law and enjoyment.
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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.
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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.
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Profit earned from the sale of an asset.
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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 -------- = Value Rate
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The rate of return a property will produce on the owner's investment.
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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.
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In an agricultural lease, the amount of money given as rent to the landowner at the outset of the lease, as opposed to sharecropping.
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A Latin phrase meaning "Let the buyer beware."
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CERTIFICATE OF REASONABLE VALUE (CRV) |
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A form indicating the appraised value of a property being financed with a VA loan.
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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.
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A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.
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The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title.
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The appraisal principle that holds that no physical or economic condition remains constant.
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An act that prohibits racial discrimination in the sale and rental of housing.
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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.
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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.
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The grouping of homesites within a subdivision on smaller lots than normal, with the remaining land used as common areas.
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A written system of standards for ethical conduct.
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A supplement or an addition to a will, executed with the same formalities as a will, that normally does not revoke the entire will.
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A clause in insurance policies covering real property that requires the policyholder to maintain fire insurance coverage generally equal to at least 80 percent of the property's actual replacement cost.
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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.
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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.
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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
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The body of law based on custom, usage and court decisions.
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A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage. A holdover of Spanish law found predominantly in western states; the system was unknown under English common law.
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Properties used in an appraisal report that are substantially equivalent to the subject property.
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The appraisal principle that states that excess profits generate competition.
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COMPETITIVE MARKET ANALYSIS (CMA) |
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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.
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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.
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Written governmental permission allowing a use inconsistent with zoning but necessary for the common good, such as locating an emergency medical facility in a predominantly residential area.
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The absolute ownership of a unit in a multi-unit building based on a legal description of the airspace the unit actually occupies, plus an undivided interest in the ownership of the com- mon elements, which are owned jointly with the other condominium unit owners.
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CONFESSION OF JUDGEMENT CLAUSE |
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Permits judgment to be entered against a debtor without the creditor's having to institute legal proceedings.
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Failure to fulfill a promise, discharge an obligation or perform certain acts required by an agreement.
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The volume or quantity of a product or service purchased, or willing to be purchased, in
relation to price.
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Elements or forces that influence the demand for goods and services in a given market area.
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Characteristics of human populations as defined by population size and density of regions,
population growth rates, migration, vital statistics, and their effect on socio-economic
conditions.
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The loss of utility and value of a property.
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The percentage rate at which money or cash flows are discounted. The discount rate reflects both the market risk-free rate of interest and a risk premium. Also see opportunity cost.
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DISCOUNTED EFFECTIVE RATE |
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The cash flows over the term of the lease, discounted to the present value.
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The process of reducing the value of money received in the future to reflect the opportunity
cost of waiting to receive the money.
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Sales that result from purchases made by customers who are not located in the subject
service area (represents a revenue gain for retail establishments as sales are generated
from consumers who reside outside the local trade area).
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The process of examining a property, related documents, and procedures conducted by or
for the potential lender or purchaser to reduce risk. Applying a consistent standard of
inspection and investigation one can determine if the actual conditions do or do not reflect
the information as represented.
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An amount after a base amount has been adjusted for concessions, allowances, and costs.
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A measure of the capacity or effectiveness of space to produce the desired results with a
minimum expenditure of time, money, energy, and materials.
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Action to gain possession of real property.
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The government's right to condemn and acquire property for public use.
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The percentage of total employees (at the firm or industry level) that are office space users.
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Features or state of the physical environment and the surroundings, factors, or forces which
influence or modify that environment.
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Any physical or natural condition or event which possesses a risk to humans.
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The repercussions of an activity or specific land use on the physical/social environment as a
consequence of emissions, waste disposal, water and power usage, etc.
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A type of joint venture arrangement in which an owner enters into a contract with a user
who agrees to occupy a space and pay rent as a tenant, but at the same time, receives a
share of the ownership benefits such as periodic cash flows, interest and cost recovery
deductions, and perhaps a share of the sales proceeds.
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The return on the portion of an investment financed by equity capital.
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A legal instrument by which a lessee verifies the major points of an existing lease, usually required to be provided by a landlord/mortgagor to the lnder/mortgagee.
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Under Section 1031 of the Internal Revenue Code, like-kind property used in a trade or
business or held as an investment can be exchanged tax-deferred. Under a fully qualified
Section 1031 exchange, real estate is traded for other like-kind property. All capital gains
taxes are deferred until the newly acquired real estate is disposed of in a taxable
transaction. The underlying philosophy behind the deferral of capital gains taxes is that
taxation should not occur as long as the original investment remains intact in the form of
(like-kind) real estate (like-kind refers to real property as such, rather than the quality or
quantity of property).
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An agreement in which a broker has the exclusive right to represent an owner, tenant or buyer in a sale or lease transaction.
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A phase of the real estate or business cycle characterized by the dramatic short-term
increase in the supply of available units in a given market (due to economic growth and
increasing construction activity) as a response to increasing and/or pent-up demand and
rising price levels.
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The sum of the weighted averages of all possible outcomes of a probability distribution.
Probability distribution is the collection of all possible outcomes for an event and their
corresponding probabilities of occurrence. The probabilities of occurrence for each possible
outcome are used as the weights. The sum of each possible value multiplied by its
probability of occurrence equals the EV of the outcome. EVs can be calculated for any type
of outcome the investor chooses to analyze: net operating incomes, after-tax cash flows,
and rates of return (IRRs).
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The level (or maximum amount) up to which the landlord will pay certain operating
expenses. Amounts above the stop are the responsibility of the tenant.
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FAIR VALUE OF AN ASSET (OR LIABILITY) |
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The amount at which the asset (or liability) could be bought (or incurred) or sold (or
settled) in a current transaction between willing parties, that is, other than in a forced or
liquidation sale. (Real Estate Information Standards)
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The use of borrowed funds to acquire an investment.
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The possible change in an investment’s ability to return principal and income.
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Costs that do not change with a building’s occupancy rate. They include property taxes,
insurance, and some forms of building maintenance.
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A lease in which the lessee pays a fixed rental amount for the duration of the lease.
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Space that is flexible in terms of what it can be used for (for example, space that could be
utilized for industrial or office activities). Also see cross-over (office use) demand.
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FULLY AMORTIZED MORTGAGE LOAN |
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A method of loan amortization in which equal periodic payments completely repay the loan.
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Factors which determine how a location or site functions.
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A form or source of accrued depreciation considered in the cost approach to market value.
The reduced capacity of a property or improvements to perform their intended functions due
to new technology, poor design, or changes in market standards.
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The amount to which money grows over a designated period of time at a specified rate of
interest.
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Evaluation of the difference in the demand and supply of space (measured in terms of
square footage) for a particular type of commercial property in a given market area where
gaps are expressed as the amount of square footage demanded less the amount of square
footage available in a given time period. If demand exceeds supply, the gap will
be positive. A positive gap indicates that potential opportunities exist for successful
commercial real estate transactions. However, transactions might be avoided when supply
exceeds demand (or when a negative gap occurs), as there is an oversupply of available
space in the market.
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GENERAL MARKET AREA GAP ANALYSIS |
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A gap analysis that is carried out for a city or several cities (simultaneously) to identity one
or more general market areas where a positive gap exists for a particular type of
commercial real estate. Also see gap analysis.
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Factors influenced by the demographics, economies, and location of a market.
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Commercial space that can be used for a variety of purposes, such as multiple-use office space.
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The total number of households or housing units within a given area as defined by tenure,
income, and other socio-economic attributes that are known to exist or estimated to be
within specific geographic units or divisions (for example, in various census tracts).
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Concession given or measures taken by local or regional government to attract firms or
investment dollars to a given locality for the purposes of promoting economic growth and
encouraging development.
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Additional time allowed to complete an action or make a payment beyond the agreed due date, before a default or violation occurs.
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The entire floor area of a building or the total square footage of a floor.
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GROSS LEASABLE AREA (GLA) |
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The total floor area designed for tenant occupancy and exclusive use, including basements,
mezzanines, and upper floors, and it is measured from the center line of joint partitions and
from outside wall faces. GLA is that area on which tenants pay rent; it is the area that
produces income.
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A lease in which all expenses associated with owning and operating the property are paid by
the landlord. Also see net lease.
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The total income generated by the operations of a property before payment of operating
expenses. It is calculated from potential rental income, plus other income affected by
vacancy, less vacancy and credit losses, plus other income not affected by vacancy. The
Annual Property Operating Data form or the Cash Flow Analysis Worksheet can be used to
calculate a property’s gross operating income.
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GROSS RENT MULTIPLIER (GRM) |
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A method investors may use to determine market value. This method calculates the market
value of a property by using the gross rents an investor anticipates the property will
produce at end of year 1 multiplied by a given factor (known as the gross rent multiplier
extracted from the marketplace).
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A lease of the land only. Usually the land is leased for a relatively long period of time to a
tenant that constructs a building on the property. A land lease separates ownership of the
land from ownership of buildings and improvements constructed on the land.
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In reference to location-decision considerations made in relation to the energy or power
requirements of a firm/user in the assessment of the feasibility of a location to support a
given activity.
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Protecting oneself against negative outcomes.
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A good or service requiring a high threshold population before it is offered to a market.
Such a good or service requires a large number of consumers to support its business and
requires a larger trade area than a low order good. Also see lower order good.
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The reasonably probable and legal use of vacant land or an improved property, which is
physically possible, appropriately supported, financially feasible, and that results in the
highest value. [Appraisal Institute]
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HIGHEST AND BEST USE (FINANCIAL) ANALYSIS |
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A determination of the highest and best use of one or more sites (either vacant or as
though vacant) or properties as improved by examining the profitability of all possible use
scenarios (including renovation, rehabilitation, demolition, and replacement).
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A tenant who remains in possession of leased property after the expiration of the lease term.
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Unstable or non-sustainable conditions which arise out of a market disequilibrium or the lack of balance between the forces of supply and demand in any or all subcategories of
commercial properties in one or more geographic submarkets over a given time period.
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A market in which product differentiation exists, there is a lack of important product
information, and certain buyers or sellers may influence the market. Commercial real estate
is bought and sold in an imperfect market.
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An approach to estimating the trade area (and sales/revenue potential) for a given retail
establishment or center based on observed flow patterns or traffic counts, where estimates
are obtained for both the percentage of traffic that stops or patronizes that
establishment/center and the percentage of people coming in-the-door who make a
purchase.
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INCOME CAPITALIZATION APPROACH |
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A method to estimate the value of an income-producing property by converting net
operating income into a value. The cap rate is divided into the net operating income to
obtain the estimated value. Value = net operating income ÷ capitalization rate
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A lease in which the rental amount adjusts accordingly to changes and/or movements in a
price index, commonly the consumer price index.
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The difference between the demand for an industrial property and the supply of that
property in a given market or area.
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Commercial properties that are used for the purposes of production, manufacturing, or
distribution.
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The outlay of cash needed to acquire an investment.
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The value of the portions of the property that are physically destructible.
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INTANGIBLE CHARACTERISTICS |
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Attributes that are not directly measurable or quantifiable, and therefore must be expressed
in a qualitative or abstract manner.
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A method of loan amortization in which interest is paid periodically over the term of the loan
and the entire original loan amount is paid at maturity.
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INTERNAL RATE OF RETURN (IRR) |
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The percentage rate earned on each dollar that remains in an investment each year. The
IRR of an investment is the discount rate at which the sum of the present value of future
cash flows equals the initial capital investment.
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INTERNAL RATE OF RETURN METHOD |
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A comparison method that calculates the internal rate of return of the differential cash flow between any two investment alternatives, then compares that rate with the user’s opportunity cost. Also see internal rate of return.
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The supply or stock of a given commodity or a listing thereof.
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Limiting current consumption in favor of future consumption.
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The value to a specific investor, based on that investor’s requirements, tax rate, or
financing.
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With respect to the handling of hazardous materials, they are important laws or statutes
enacted to enforce the responsible handling of materials to minimize the danger to human
beings and/or the environment.
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A body or core group of workers (employed and employable) that make up the local labor
force.
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The same concept as a sale-leaseback, but only the land is sold and leased back using a
ground lease.
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The owner or lessor of the leased property.
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LANDLORD-PAID TENANT IMPROVEMENTS (LPTI) |
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The total cost of necessary tenant improvements paid by the landlord netted
against any contribution made by the tenant.
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Purchases made in other service areas by consumers located within the subject area
(representing a loss of revenue for retailers located within the trade area in which those
consumers reside).
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A contract that creates the relationship of landlord and tenant. A contractually binding agreement that grants a right to exclusive possession or use of property, usually in return for a periodic payment called rent. (Encyclopedia of Real Estate Terms, 2nd Ed., Damien Abbott)
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The process by which a landlord, tenant, or third party pays to extinguish the tenant's
remaining lease obligation and rights under its existing lease agreement.
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Terms commonly used in reference to a lease.
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In exchange for permitting a tenant to use the property, the owner/lessor has the right to
receive rental income and the right to repossess the property upon termination of the lease.
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The value (to the owner) of the rental payments plus the value of the property at the end of
the lease term (reversionary interest).
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In exchange for rent, the tenant has the right to occupy and use the property for the
duration of the lease.
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The value (to the tenant) of the lease. The value of the leasehold interest is determined by
present value of the difference between market rent and the contract rent.
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A means of obtaining the physical and partial economic use of a property for a specified
period without obtaining an ownership interest.
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The person renting or leasing the property. Also known as a tenant.
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The person who rents or leases a property to another. Also known as a landlord.
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The use of borrowed funds to finance a portion of the cost of an investment.
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The likely price that a property would bring in a forced sale (foreclosure or tax sale). Used
when a sale must occur with limited exposure time to the market or with restrictive
conditions of sale.
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The ability to convert an investment into cash quickly without loss of principal.
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The ratio of rentable area to useable area. The load factor is a gauge by which a user can
evaluate different sites with comparable rents. It is also known as the add-on factor.
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The amount of money remaining to be paid on an amortizing loan at a given time.
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That portion of the value of real property recognized by the lender when used to secure a
loan.
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A charge prepaid by the borrower upon the origination of a loan. One point equals one
percent of the loan amount.
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LOAN-TO-VALUE RATIO (L/V) |
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The amount of money borrowed in relation to the total market value of a property.
Expressed as the loan amount divided by the property value.
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|
The process of evaluating whether a general location meets the requirements of being both
possible and practical as defined on the basis of technical and functional components.
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A change in market parameters or conditions brought about in response to one or more
market signals (including price changes from shifts in supply and demand); typically
characterized as cycles, fluctuations, or trends (categories that differ in terms of cause,
duration, and impact on commercial real estate markets).
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The process of examining market supply and demand conditions, demographic
characteristics, and opportunities; identifying alternative locations/sites that meet specific
objectives or satisfy various criteria; and assessing the financial feasibility of those
locations/sites to facilitate decision making regarding the commercial potential or suitability
of various locations/sites to support a given activity or use.
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A geographical area in which supply and demand operate to influence the course of
industrial and commercial activities, for example, a Metropolitan Statistical Area (MSA).
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Information/data collected and displayed for a given market or by market area.
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A method of determining the property’s value by analyzing recent sales or rental prices of
comparable properties.
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In reference to changing market conditions and the underlying processes responsible for
creating change and defining/redefining interrelationships amongst components in an
economic system (consider the change in price levels of a given commodity as an outcome
of the forces and interplay of supply and demand).
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Pertaining to the evaluation or selection of a site or an analysis of a site's highest and best
use. Also see feasibility analysis.
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The demand for space minus the supply of space for a specific type of commercial property
in a given real estate market. Also see general market area gap analysis.
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Advantageous circumstances in a market which facilitate a given action or outcome that is
generally viewed as favorable from a money-making standpoint.
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The pricing of commodities (including rental rates of various types of commercial properties)
as determined by the forces and factors of influence operating in a market.
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The possibility that downward market trends will reduce an investment’s market value.
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Refers to the percentage of total sales in a retail category that each competing outlet is
expected to capture based on current patterns and trends in the market.
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The most probable price that a property would bring in a competitive and open market
under fair sale conditions. Market value also refers to an estimate of this price.
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The ability to sell or lease a property quickly. Marketability deals with the appeal and
demand for a property, good, or service.
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The point at which all individuals/entities to a contract agree to the substance of the terms of that contract.
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A requirement of the Tax Reform Act of 1984 that taxpayers use the 15th of the month to
establish the date of acquisition and date of disposition when calculating cost recovery
deductions. This act applies to real estate placed in service after June 22, 1984 (with the
exception of low-income housing).
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A specified dollar amount paid by the owner to cover, in part or in whole, tenant moving
expenses. Also known as owner's moving expense.
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The cost incurred by the tenant to move into the new space. The landlord may pay a
portion or all, depending on what is negotiated in the lease. Also see moving allowance.
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MULTIPLE-USE OFFICE SPACE |
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Office space that can be used for a variety of purposes; sometimes referred to as generic
office space.
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WEIGHTED AVERAGE COST OF CAPITAL (WACC) |
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The average cost of capital (whether equity or debt), taking into account the relative
proportions of each source of capital. (Encyclopedia of Real Estate Terms 2nd Edition,
Damien Abbott)
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Borrowed funds are invested at a rate of return lower than the cost of funds to the
borrower.
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A lease in which the tenant pays, in addition to rent, all operating expenses such as real
estate taxes, insurance premiums, and maintenance costs. Also see gross lease.
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NET OPERATING INCOME (NOI) |
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The potential rental income plus other income, less vacancy, credit losses, and operating
expenses.
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The sum of all future cash flows discounted to present value and netted against the initial
investment.
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An investment situation in which the cost of borrowed funds is exactly equal to the yield
provided by the investment.
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In reference to the inadequacy, disuse, outdated, or non-functionality of facilities,
infrastructure, products, or production technologies due to effects of time, changing market
conditions, or decay (a factor considered in depreciation to cover the decline in value of
fixed assets due to the invention and adoption of new production technologies, or changing
consumer demand).
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The actual dollars paid out by the tenant to occupy the space. It can be expressed in either
pre-tax or after-tax dollars.
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Low-rise - Fewer than seven stories high above ground level.
Mid-rise - Between seven and twenty-five stories above ground level.
High-rise - Higher than twenty-five stories above ground level. [BOMA]
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The difference between the demand for office space and the supply of office space by
property type, submarket, sector, or user classification in a given geographic market.
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A commercial property type used to maintain or occupy professional or business offices.
Such properties typically house management and staff operations. The term office can refer
to whole buildings, floors, parts of floors, and office parks. Office space that can be used for
a variety of purposes is sometimes referred to as generic office space. Office properties
may be classified as Class A, B, or C. Class A properties are the most functionally modern.
Properties Classed B and C in the same market typically command lower rents because they
are older and in need of modernization. They may not be as efficient or desirable as Class A
properties because their design or condition causes functional problems.
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A negotiable amount at which the owner’s contribution to operating expenses stops. It also
can be stated as the amount above which the tenant is responsible for its pro rata share of
operating expenses.
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Cash outlays necessary to operate and maintain a property. Examples of operating
expenses include real estate taxes, property insurance, property management and
maintenance expenses, utilities, and legal or accounting expenses. Operating expenses do
not include capital expenditures, debt service, or cost recovery
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The cost of selecting one alternative is the benefit foregone from the next best alternative.
Also see discount rate.
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The total amount paid for a property, including equity capital and the amount of debt
incurred.
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In reference to commercial real estate, oversupply is a stock or supply of a given
commercial property type that is greater than that which can be cleared under prevailing
prices levels and market conditions (for example, excess supply). Also, a phase of the real
estate market cycle denoting that period of time in which commercial real estate markets
become saturated with units due to overbuilding.
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A means of obtaining the full economic use of a property for an unspecified period by
obtaining an ownership interest.
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PARTIALLY AMORTIZED MORTGAGE LOAN |
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The payments do not repay the loan over its term and thus a lump sum (balloon) is required
to repay the loan.
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A loan secured by real property, with a stated interest rate that also provides for a share to
the lender in annual net cash flow, gain on sale, or proceeds from refinancing the property.
(Real Estate Information Standards)
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Income from rental activity, limited business interests, or other activities in which the
investor does not materially participate.
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Losses from the ownership of passive investments.
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A periodic amount paid or received for two or more periods.
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A lease in which the rent amount is based on a percentage of gross sales (monthly or
annually) made by the tenant.
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The additional rent (over a base amount) that is paid by tenants to owners on tenant sales
over a specified dollar amount. It is frequently found in retail leases. Also known as
overage rent.
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PHYSICAL DEPRECIATION OR DETERIORATION |
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A form or source of accrued depreciation considered in the cost approach to market value.
The physical decay or deterioration of a property that may result from breakage, deferred
maintenance, effects of age on construction material, and normal wear and tear. (Barron’s
Dictionary of Real Estate Terms)
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Income from interest, dividends, royalties, or the disposition of property held for
investment.
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Borrowed funds are invested at a rate of return higher than the cost of the funds to the
borrower.
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The total amount of rental income for a property if it were 100 percent occupied and rented
at competitive market rates.
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The sum of all future benefits or costs accruing to the owner of an asset when such benefits
or costs are discounted to the present by an appropriate discount rate.
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A comparison technique that compares the present values of the cash flows for any two real
estate alternatives. The best user alternative is based on the lower present value amount.
It is not the same as net present value.
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The dollar amount that was offered, asked, or actually paid for a property.
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The portion of a loan payment used toward reducing the original loan amount.
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Any economic activity that alters, enhances, or transforms a product or material, thereby
increasing the value of that product or material by changing its physical form and/or
location.
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Property/site-specific information obtained from primary and secondary sources.
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The supply and demand for ownership interests in property.
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The classification of commercial real estate based on its primary use. The four primary
property types are: retail, industrial, office, and multi-family residential.
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PROPERTY-SPECIFIC FACTORS |
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Factors influenced by the site-specific and technical characteristics of a property or parcel
including its layout, limitations, orientation, physical features, and ability to comply with
government imposed zoning and land-use restrictions.
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Information obtained (usually at a cost) from private sources or firms that hold the
exclusive rights to manufacture and distribute information created for specific commercial
applications, supplying business, sales, and market-potential data and other information
services to a targeted audience.
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First stage of four-stage transaction management process pertaining to the process of
gathering and evaluating information to measure a client’s readiness, willingness, and ability
to consummate a transaction.
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The right of a tenant or owner to use the property without disturbance.
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The maximum distance consumers are willing to travel to purchase a good or service from a
given establishment or location. Hence, the boundary or outer limits of the market area
circumscribed about a location at which a good or service may be purchased can be easily
identified having knowledge of the range.
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The percentage return on each dollar invested. Also known as yield.
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REAL ESTATE CYCLES (PHASES) |
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The regularly repeating sequence of economic downturns and upturns and associated
changes in real estate market transactions tied to market dynamics and changing macroeconomic conditions, whose phases include (in order) recession, recovery, expansion, and oversupply.
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Short-term variations in real estate prices or rents (usually lasting anywhere from one day
to a few months) caused by natural hazards (such as tornadoes, hurricanes, floods,
earthquakes, and wildfires) or boosts or shocks to the local economy (such as the entry or
exit of major employers).
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REAL ESTATE INVESTMENT TRUST (REIT) |
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An investment vehicle in which investors purchase certificates of ownership in the trust,
which in turn invests the money in real property and then distributes any profits to the
investors. The trust is not subject to corporate income tax as long as it complies with the
tax requirements for a REIT. Shareholders must include their share of the REIT’s income in
their personal tax returns. (Barron’s Dictionary of Real Estate Terms and Encyclopedia of
Real Estate Terms 2nd Edition, Damien Abbott)
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Long-term movements or tendencies in the demand for commercial real estate (which can
typically last for years or decades), usually tied to macro-economic or business cycles.
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In reference to land use, they are restrictions or guidelines on development or use of land,
properties, or facilities as defined in accordance with design standards, building construction
requirements, land use plans, occupancy codes, and zoning classifications as determined by
the controlling or governing parties at the municipal or county levels.
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A period of free rent given to the tenant by the lessor.
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Items specified in a lease such as base rent, operating expenses, and taxes that may
increase by predetermined amounts at stated intervals or by a constant annual percentage.
Also see index lease and expense stop.
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The computed area of a building as defined by the guidelines of Building Owners and
Managers Association (BOMA) and typically measured in square feet, including both
core/structure and useable area. The actual square foot area for which the tenant will pay
rent. It is the gross area of an office building, less uninterrupted vertical space (such as
stairways and elevators). Unlike useable area, rentable area includes common areas such
as lobbies, restrooms, and hallways as well as the measurement of structural columns and
architectural projections.
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RENTABLE-TO-USEABLE RATIO |
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Defined as rentable area divided by useable area. Also known as the add-on factor or load
factor. Also see efficiency percentage.
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The estimated cost to construct, at current prices, a building with utility equivalent to the
building being appraised, using modern materials and current standards, design, and layout.
[Appraisal Institute]
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Also see community center, fashion/specialty center, neighborhood center, outlet center,
power center, regional center, superregional center, and theme/festival center.
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A gap analysis performed specifically on retail floor space in a given market or trade area.
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A gravity model used to estimate dollar flows to or the sale/revenue potential of competing
retail establishments in a given geographic market. Also see gravity model.
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Properties used exclusively to market and sell consumer goods and services.
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Also referred to as service area, is generally defined as the geographic or formal area from
which a sustained patronage is attracted to support a retail center or establishment; the
extent to which is determined by numerous factors including the site characteristics of the
center or establishment, its accessibility, the presence or absence of physical barriers to
movement, and general limitations imposed by driving time, congestion, and
distance/separation.
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The probability that actual cash flows from an investment will vary from the forecasted cash
flows.
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The brokerage commissions and fees, and any additional transaction costs that are incurred
during the sale of the property.
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SALE(S) PROCEEDS BEFORE TAX |
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The sale price minus the sale costs and the mortgage loan balance.
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A leasing and financing strategy in which a property owner sells its property to an investor,
then leases it back. This strategy frees capital that otherwise would be frozen in equity.
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SALES COMPARISON APPROACH |
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A way to determine market value by comparing a subject property to properties with the
same or similar characteristics.
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An estimate of value derived by comparing the property being appraised to similar
properties that have been sold recently, applying appropriate units of comparison, and
making adjustments to the sales prices of the comparable based on the elements of
comparison. [Appraisal Institute]
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Sales revenue generated per square foot of retail floor space.
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The possible or expected revenue of a retail outlet as defined by conditions within the
market or trade area and the forces of competition.
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SALES PRICE POINT OF INDIFFERENCE |
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The future reversionary value (sales price) that would make the present cost of leasing
mathematically equal to the present cost of owning a property.
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The sale proceeds before tax minus the tax liability on the sale.
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The total amount of sales/revenue generated by a retail outlet or facility in a given time
period.
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A subset of a statistical population (typically selected randomly).
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The practice of obtaining a sample from a given statistical population.
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The phenomenon of indirectly investing in real estate markets in ways that minimize risk
(for example, investments made collectively with pooled money or the use of investment
packages/funds, such as mortgage backed securities sold on the secondary financial
market) as opposed to direct investments where investors own property or hold mortgages;
a long-term trend that has had significant impact on real estate values.
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The geographical area that encompasses/delineates the principal share of clients or
customers served by the tenants of the property (a concept that becomes less applicable as
the service area of the customer base increases).
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The identification and evaluation of a site or sites to satisfy a given use or objective.
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Site-specific factors, features, conditions, or attributes which are important in the analysis
or evaluation of a location/site (including relative location, visibility, aesthetics, landscaping,
condition of existing structures, regulatory mechanisms, and lot size).
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The process of determining the best site for a specific use.
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The supply and demand for the use of physical space.
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STANDARD INDUSTRIAL CLASSIFICATION (SIC) |
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A classification scheme utilized for general recording purposes by government and industry to categorize and account for economic and employment activity by sector using a series of
standardized and universally accepted codes.
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Drawing a reasonable conclusion or deduction from statistical evidence based on sample
statistics, while attaching a statement as to the likelihood that an assertion made about a
given statistical population is true (in probabilistic terms).
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The total set of elements or the collection of all individuals, items, or objects under
consideration in a statistical inquiry. In short, a population is a universe comprising all
members of a specified group.
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A lease in which the rental amount paid by the lessee increases by a preset rate or set
dollar amount at predetermined intervals. A step lease is a means for the lessor to hedge
against inflation and future maintenance or operational expenses.
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A lease in which the original tenant (lessee) sublets all or part of the leasehold interest to
another tenant (known as a subtenant) while still retaining a leasehold interest in the
property. Also known as a sandwich lease due to the sandwiching of the original lessee
between the lessor and the subtenant.
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A segment or portion of a larger geographic market defined and identified on the basis of
one or more attributes that distinguish it from other submarkets or locations.
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The basis in a property acquired in a qualified Section 1031 Exchange is reduced by
deferred gain and becomes the substitute basis. For example, if the market value of
property given up is $200,000, and the basis in that property was $75,000, then realized
gain equals $125,000. Assume the market value of property acquired through a tax-deferred exchange is $350,000, then subtracting the unrecognized gain of $125,000 equals
the substitute basis of $225,000. The effect of this adjustment to basis is to build in the
deferred $125,000 gain into the property acquired. If the new property were sold the next
day for $350,000, a $125,000 gain would be reported.
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Investment costs that are committed and cannot be recovered.
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The amount of property that will be made available for sale or rent at a given price or rental
rate.
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Elements or forces that influence the supply of goods and services in a given market.
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