Glossary of Real Estate Terms
Active Contingent
When a seller accepts an offer from a buyer, that offer is contingent upon the buyer’s ability to meet certain conditions before finalization of the sale. Contingencies might include the buyer selling their home, receiving mortgage approval, or reaching an agreement with the seller on the home inspection.
Appraisal
An appraisal on your home is an unbiased estimate of how much a home is worth. When buying a home, the lender requires an appraisal by a third party (the appraiser) to make sure the loan amount requested is accurate. If the home’s appraised value is below what the buyer has offered, the lender may request the buyer pay the difference in cost.
Assignment
An assignment is when the seller of a property signs over rights and obligations to that property to the buyer before the official closing.
Deed
A housing deed is the legal document transferring a title from the seller to the buyer. It must be a written document and is sometimes referred to as the vehicle of the property interest transfer.
Deed in Lieu of Foreclosure
A deed-in-lieu of foreclosure is a document transferring the title of a property from a homeowner to the bank that holds the mortgage. A homeowner might submit a deed-in-lieu of foreclosure if the bank has denied them a loan modification or short sale. However, the bank can deny the request for a deed-in-lieu (and often do).
Eminent Domain
The right of eminent domain gives the government the ability to use private property for public purposes. It's only exercisable when and if the government fairly compensates the owner of the property.
FHA Mortgage
Federal Housing Administration (FHA) loans have been around since 1934 and are meant to help first-time homebuyers. The FHA insures the loan, making it easier for lenders to offer the homebuyer a better deal, including a lower down payment (as low as 3.5% of the purchase price), low closing costs, and easier credit qualifying.
MLS - (Multiple Listing Service)
An MLS is a suite of around 700 regional databases containing their own listings. Each database has its own listings, requires agents to pay dues for access, and allows agents to share listings across regions -- without paying dues to each one. It is widely considered the most comprehensive listing service available.
Owner Financing
Owner financing (also known as seller financing) takes place when a borrower finances the purchase of a home through the seller, bypassing conventional mortgage lenders and financial institutions
Pending
A sales is considered “pending” if all contingencies have been met and the buyer and seller are moving toward closing. At this point, it’s unlikely the sale will fall through, and the buyer or seller risk losing the earnest money if they walk out on the deal at this point.
Short Sale
A short sale occurs when a homeowner sells their property for less than what’s owed on the mortgage. A short sale allows the lender to recoup some of the loan that's owed to them but must be approved by the lender before the seller moves forward
VA Mortgage
Service members, veterans, and eligible surviving spouses can receive home loan guarantees provided by private lenders. The Department of Veteran’s Affairs guarantees a portion of the loan, which leads to more favorable terms for the borrower.
Glossary of Commercial Terms
Appreciation Potential
The possibility or probability that a real estate investment will increase in value during the holding period.
Average Annual Effective Rate
The average annual effective rent divided by the square footage.
Averaging Method
A simple technique used to forecast next period's/year's vacancy rate by averaging previous years' vacancy rates; especially effective where vacancy rates have remained relatively flat or show little variability over time.
Break Even Point
The stage at which an investment produces an income that is just sufficient to cover recurring expenditure. For an investment in real property, the point at which gross income is equal to normal operating expenses, including debt service (the stage at which the next cash flow becomes positive). Also known as the default point. (Encyclopedia of Real Estate Terms 2nd Edition, Damien Abbott)
Capital Gain
Taxable income derived from the sale of a capital asset. It is equal to the sales price less the cost of sale, adjusted basis, suspended losses, excess cost recovery, and recapture of straight-line cost recovery.
Capitalization Rate
A percentage that relates the value of an income-producing property to its future income, expressed as net operating income divided by purchase price. Also referred to as cap rate.
Commercial Real Estate
Any multifamily residential, office, industrial, or retail property that can be bought or sold in a real estate market.
Due Diligence
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.
Expected Value (EV)
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).
Feasibility Analysis
The process of evaluating a proposed project to determine if that project will satisfy the objectives set forth by the agents involved (including owners, investors, developers, and lessees)
Gross Operating Income (GOI)
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.