Real Estate Principles

absentee owner

a property owner who does not occupy the property in question and therefore often utilizes a property manager’s services

abstract of title

an abbreviated history of a property, including information on any transfers, grants, wills, conveyances, liens, and encumbrances

acre

a measurement of land equal to 43,560 square feet

actual eviction

the legal process by which someone is expelled from a property and prevented from re-entry

adverse possession

involuntary transfer of title from an owner who does not use or inspect their land for a number of years to another person who has some claim to the land and takes possession

agency by estoppel

agency that is imposed by law when it is determined that ostensible agency existed

agency by ratification

an unauthorized action taken on behalf of a principal which is accepted and legitimized after the fact by the principal

agent

an individual with authority to act on behalf of another; a state license is required to operate as an agent in real estate

amortization

the process of paying off a debt/mortgage in regular installments based on a fixed payment schedule

amortization tables

a schedule that details how much of a mortgage payment will go toward principal and how much will go toward interest each month

appraisal

an official valuation given to a property by a licensed appraiser

appraiser

an individual who is trained and licensed to perform appraisals, which estimate the value of real property

appurtenances

rights that run with real property ownership; most often transferred with the property, but possible to sell separately

arrears

payment that occurs at the end of a period to compensate for charges accrued during that time

associate licensee

a licensee operating under the sponsorship, authority, and guidance of (and on behalf of) their broker in a brokerage environment

balloon payment

a payment at the end of a loan period which includes the total outstanding balance of the loan

bargain and sale deed

a deed without any covenants or warranties against encumbrances that only implies the grantor has possession of the property and holds the right to convey title

baseline

a parallel used in reference to a meridian to identify ranges, tiers, and townships in the rectangular survey method of land description

benchmark

a permanent marker of known location and elevation above sea level as established by a government survey team (such as the USGS)

beneficiary

the recipient of advantage or gain from an act or instrument such as a trust, will, or insurance policy

broker

a licensee who holds a broker license and who engages in an activity enumerated in the license law for a commission or other valuable consideration

broker price opinion (BPO)

a broker’s opinion of the value of a piece of real property, given in writing

broker-associate

an individual licensed as a real estate broker but who works in the capacity of a salesperson for another responsible broker or corporation

certificate of title

a document prepared by a title attorney detailing the chain of title and offering an opinion on the marketability of the seller's title

chain of title

the entire chronological record of a property’s ownership

Closing Disclosure

a form used to itemize services and fees charged to the borrower by the lender when applying for a real estate loan; aka closing statement

cloud

any claim to or encumbrance on the title to a property that affects transferability

color of title

a title transfer that is defective in a way that is unknown to the new owner

common elements

portions of a shared ownership property not controlled by any one owner or tenant; examples include parking lots, lobbies, fitness centers, elevators, etc.

community property

a system of property co-ownership, most commonly applied to married couples, which describes what is joint property and what is individual property

comparative market analysis (CMA)

a report that compares the prices of recently sold or listed homes ("comparables") in order to estimate the market value of a similar property (the "subject property") located in the same area

condominium

property where each owner has a separate interest in their own unit and undivided interest in the common areas

constructive eviction

the termination of a lease in circumstances in which the landlord defaults and acts, or fails to act, in such a way that the premises become unusable

conveyance

an instrument that transfers a grantor’s interest in real property

cooperating brokerage

an agency arrangement in which two brokerages collaborate to achieve a real estate transaction for a specific piece of property

cooperative broker

an unaffiliated broker (and/or their sponsored license holders) who assists a listing broker in finding a buyer for the listing broker's seller client; can operate as a subagent of the listing agent or as a buyer's agent

covenant of seisin

a protection in which the grantor states they hold the title conveyed in the deed

covenants, conditions, and restrictions (CCRs)

private restrictions similar to deed restrictions that dictate what the homeowner may do with their property

credit report

contains information regarding an individual's credit history (loan payments, etc.) as well as the present credit status of all open credit accounts

credits

a sum of money that is received

customer

an individual with whom a license holder has no agency relationship nor fiduciary duties but to whom fairness and honesty are still required

datum

a designated base reference point to elevation used by surveyors to determine the elevations of land or property in an area

debits

a sum of money that is owed

debt service

amount of money spent on an investment property’s loans; includes both the portion spent on the principal and the interest of a loan

debt service coverage ratio (DSCR)

used to evaluate income-producing properties; is calculated by dividing the net operating income (cash flow after all expenses and debts are paid) by total debt service (current debt obligations)

debt-to-income ratio

used to measure a borrower's creditworthiness; calculated by dividing all debt (monthly payment + other debt) by monthly income

dedication

a gift of land to the government for public use, gifted by the property owner

deed of reconveyance

a document issued by a lender that conveys the right of a property to the borrower once a loan associated with a deed of trust has been paid in full

deed restriction

a provision in a deed that restricts the land use of a property

deficiency judgment

a court’s decision to attach a judgment (lien) against a debtor in the event that a property’s sale price does not cover outstanding debts

devise

the transfer of real or personal property through a will

doctrine of laches

a legal principle used to bar dated claims; used in conjunction with an unreasonable delay or negligence in asserting or defending one’s rights

documentary transfer tax

one-time tax issued by the state that must be paid when a property is transferred from one owner to another

dual agency

an agency relationship wherein both principals in a single transaction are represented by the same brokerage

easement

an interest in, or a right to use, another individual’s land or property, generally for a specific, limited purpose

easement by condemnation

an easement in which private property is taken for public use via eminent domain

easement in gross

an easement that applies to the person or entity, not the specific land

ejectment

process by which a property owner removes an occupant from a property; the equivalent of eviction for non-tenants

encroachment

physical property that crosses the boundary into a neighboring landowner's property

encumbrance

a non-possessory interest in a property that burdens the title

equity

the portion of a property's total value owned outright by the holder to title

escalator clause

a clause in a lease allowing payments to increase in relation to a specified factor or index

escrow

a process in which funds and/or financial documents are held by a disinterested third party on behalf of the other two parties in the real estate transaction until specific conditions are satisfied

escrow instructions

the document used by the escrow holder in California to determine how to carry out the closing

estate at sufferance

a tenant’s occupancy of a property beyond their lease’s terms and without the landlord’s consent

estate at will

a tenant’s occupancy of a property with the landlord’s consent

estate for years

a lease with a specific starting and ending date; aka tenancy for years

estate from period to period

a leasehold estate which goes from period to period, and at the end of the period either party decides to renew or terminate the agreement; aka periodic tenancy or estate from year to year

eviction

the forced removal of a tenant due to a default under the terms of the lease

evidence of title

constructive or actual notice of real property ownership

exclusive agency

an agency arrangement in which one agent represents one party in a real estate transaction; the party may be either a seller or a buyer; aka single agency

express agency

agency created by a clear, specific agreement; can be written or oral

farm area

a specific area a real estate associate chooses to specialize and become an expert in; aka target market

fee simple defeasible

a property interest characterized by perpetual ownership on the condition that the property is used for a certain purpose or under specific conditions; ownership reverts back to the original owner if these stipulations are violated

fee simple estate

maximum ownership of real property; is of indefinite duration, freely transferable, and freely inheritable; aka fee or fee simple absolute

FICO score

a credit scoring system created by the Fair Isaac Corporation

fiduciary

an individual upon whom is placed the highest levels of trust and confidence when acting on behalf of another

fiduciary duties

the full sum of obligations owed to the client in an agency relationship that ensures that the agent always acts in the best interest of the client

first substantive contact

the critical point at which agency disclosure is required by a license holder; generally occurs at the first face-to-face meeting with the customer and prior to the sharing of any confidential information or initiation of any action in regards to a specific property

follow-up

the contact a sales associate makes with a buyer or seller after closing a real estate transaction

freehold estate

a form of ownership with an indeterminate length

general agency

a form of agency relationship that authorizes an agent to manage all of a principal's affairs within certain specified areas; provides broader authority than that of special agency but less than that of universal agency

general lien

a lien for which the real estate AND personal property may be sold to satisfy the debt

general partnership

a business entity in which all co-owners actively share power, liability, responsibilities, and profit

government survey system

a system of legal land description that uses the global lines of longitude and latitude to create a surveyed grid of meridians, baselines, townships, and ranges to describe a piece of land

graduated lease

a lease in which the rental rate increases over time in specific increments

grant deed

a deed that only protects against defects that occurred while the grantor held title

grantee

the person who receives a conveyance of real property in a transaction

grantor

the person who conveys real property in a real estate transaction

gratuitous agency

agency created without expectation of agent compensation

gross lease

a lease in which the tenant will be responsible for the payment of a fixed monthly charge, while the landlord is responsible for paying all operating expenses; aka full service lease

ground lease

the lease of bare, undeveloped land; aka land lease

habendum clause

a clause within a deed that clarifies the type and extent of interest conveyed by the granting clause

homestead laws

laws which protect a homeowner from loss of their principal residence from the claims of most creditors

implied agency

agency created by the actions, conduct, and words of either or both parties without ever being expressly requested

improvement

any non-natural structure built on or affixed to land

informed consent

the principle that a client or customer must understand and agree to certain actions or agency relationships prior to implementation

instrument of conveyance

a tool that transfers a grantor’s interest in real property

interest

additional money paid to a lender for the use of their money

interpleader action

when an escrow holder takes a buyer and seller to court to force them to resolve conflicts in the escrow instructions