USP 25 final

Bundle of Rights

The set of legal rights associated with ownership of real property, Including possession, control, exclusion, enjoyment, and disposition

1031 Exchange

a tax-deferred transaction that allows property owners to exchange one investment property for another similar property while deferring capital gain taxes

Fee simple

the highest form of property ownership where the owner has absolute rights to the property with freedom from hold of any conflicting interests

zoning

Municipal or local laws or regulations that govern how real property can and cannot be used in certain geographic areas

Capitalization Rate

A ratio that estimates the potential return on an income-generating property, calculated by dividing the Net Operating Income by the property’s market value

Net operating income

A metric that measures the profitability of an income-generating property, calculated by subtracting a property’s operating expenses from its total income

Riparian Rights

Legal rights of owners of land adjacent to water bodies that govern the use of surface water and give equal rights to all owners of land contiguous to streams, lakes, and ponds

Eminent domain

The power of government to take private property for public use with just compensation to the owner

Easement

a nonpossessory interest that allows one person to use or restrict the use of another person’s real property or land without constituting ownership

Foreclosure

the legal process used by a lender to recover the balance of a loan when a property owner fails to meet their payment

Lien

A legal claim against a property or asset that is used as collateral to satisfy a debt

Joint tenancy

A form of property ownership with right of survivorship that restricts inheritance to the last surviving owner, difficult to create and easily disrupted

Amortization

the process of gradually paying off a debt with regular payments, so that the amount owed decreases with each payment

Commingling

The prohibited act of mixing client funds with personal funds in real estate transaction, considered an ethical violation for brokers and property managers

capital stack

the organization of all capital contributed to finance a real estate transaction, defining who has rights income and profits generated by the property throughout the hold period and upon sale

Deed

a signed legal document that transfers ownership of an asset to a new owner, most commonly used to transfer ownership of property or vehicles

Adjustable-Rate Mortgage (ARM)

A home loan with a variable interest rate that changes based on an index rate plus a margin, often starting with a lower teaser rate

Tenancy in Common

a form of property ownership where each owner holds an undivided interest in the property and can sell or mortgage their interest independently

Property Management

A specialty focused on day-to-day operations of real estate properties, including maintenance, tenant relations, rent collection, and ensuring property value optimization

Time value of money

The concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim

Asset management

The management of multiple properties with a focus on long-term strategies, policy, acquisitions, dispositions, and repositioning to maximize value

Encumbrance

anything that can lessen the value or use and enjoyment of a property, such as a lien or restrictive covenant

Variance

a modification of a zoning requirement that may be granted when exceptional circumstances apply to a property, allowing deviation from standard regulations

Promissory Note

a written promise to pay a specified sum of money at a defined future date or on demand, forming part of a mortgage agreement

Condominium

A form of ownership where individuals own units separately while jointly owning building and common elements as tenants in common, governed by a declaration and bylaws

Euclidean zoning

a type of zoning that only allows one kind of land use per zone, such as residential, commercial, industrial, or mixed residential-commercial

Adverse Possession

a method of acquiring title to real property by possessing it for a statutory period under certain conditions: actual, open, notorious, exclusive, hostile use under claim of right, continuously for the statutory period, and payment of property taxes

amortization

the process of gradually paying off a debt with regular payments, so that the amount owed decreases with each payment

Capital stack

the organization of all capital contributed to finance a real estate transaction, defining who has rights to income and profits generated by the property throughout the hold period and upon sale

Condominium

a form of ownership where individuals own units separately while jointly owning building and common elements as tenants in common, governed by a declaration and bylaws

Commingling

the prohibited act of mixing client funds with personal funds in real estate transactions, considered an ethical violation for brokers and property managers

Conditional Use Permit

A permit allowing a use that may be permitted in a zone as long as the city’s specific requirements or conditions are met, only applicable when the proposed use is specifically permitted in the zoning law

Leasehold Estate

a form of property ownership where you own the property but the freeholder/landlord owns the land and building. Common for apartments, requiring payment of ground rent, service charges, and maintenance fees for a finite period of time

Tenancy at Will

a type of tenancy with no agreement on rent or time and no end date, allowing either party to terminate the arrangement at any time

Agglomeration Economies

A localized economy where numerous companies, services, and industries exist in close proximity and benefit from cost reductions and efficiency gains resulting from this proximity

Ministerial Approval

A project approval process that must be granted if it complies with objective standards, without subjective judgment from planners, and it not subject to environmental reviews or public hearings

Floor Area Ratio (FAR)

The measurement of a building’s floor area in relation to the size of the lot/parcel that the building is located on, used to regulate building density and size

Bid Rent Theory

A geographical economic theory that explains how the price and demand for real estate change as the distance from the central business district increases, with businesses willing to pay highest rent in the most accessible locations

Tenancy at Sufferance

A tenancy that occurs when a tenant remains in possession of property after the lease expires without the landlord’s consent but without being evicted

Avulsion

The sudden removal of land from one parcel to another when a body of water abruptly changes its channel, resulting in loss of land through erosion

Accretion

The gradual, natural addition of land area due to deposits of soil by water action, considered nature’s gift to the property owner

Location Quotient

A ratio that compares an area’s distribution of employment by industry to a reference area’s distribution, indicating the concentration of industries in a local economy relative to the national economy

Real Property vs Personal Property

Real property involves land and buildings on it along with natural resources, while personal property refers to movable items. The MARIA test (Manner of attachment, Adaptability, relationship of parties, intent, agreement) helps distinguish between them

Life Estate

A type of ownership estate that grants the right to use and occupy property during one’s lifetime, after which the property transfers to a designated remainder interest holder

Absorption rate

The amount of space or units occupied within a market over a given period of time, indicating demand. Positive absorption occurs when more space is leased than vacated, while negative absorption indicates the opposite

Comprehensive Planning

A process that projects future population growth, infrastructure requirements, public service needs, and land use demands to design compatible arrangements of needed land uses, typically with a 20-year outlook

Estoppel Certificate

a document signed by a tenant certifying the current status of their lease, including terms, conditions, and any modifications, used in property sales or financing to verify lease information

Dual Agency

A situation where a real estate agent represents both the buyer and seller in the same transaction, requiring disclosure and consent from both parties due to potential conflicts of interest

Effective Gross Income (EGI)

The total income generated by a property after accounting for vacancy and credit losses, including rental income and other income sources like parking or laundry facilities

Base industry

A business that imports money into the area where it is physically located through the sale of goods or services to customers outside the area, creating economic growth through the multiplier effect

Load factor

a calculation that allocates common area costs proportionally among tenants, determined by dividing the total square footage by the usable square footage, ensuring each tenants pays their fair share of common area maintenance.

Depreciation Recapture

when property is sold, the total depreciation expense previously claimed is taxed as regular income up to a rate of 25% representing the portion of gain resulting from accumulated depreciation

Fast-track construction

a construction method where design and building phases overlap to accelerate project completion, making overall costs difficult to determine accurately until all work packages are completed and increasing the chance of errors

Effective Gross Income multiplier

a ratio calculated by dividing a property’s sale price by its effective gross income, used as a quick indicator of value for smaller rental properties without requiring operating expense information

AB 1482 (Tenant Protection Act)

California legislation establishing statewide rent control and just cause eviction requirements, affecting approximately 2.4 million apartments until 2030

Expense Stop

A common expense reimbursement method in office leases where the landlord is responsible for initial/base year operating expenses, and future increases above this “stop” are billed to tenants proportionally based on rentable area

Triple Net Lease (NNN)

A lease agreement where the tenant is responsible for paying property taxes, insurance, and maintenance costs in addition to rent, giving tenants more freedom with their space while providing landlord’s reliable income with few overhead costs

Prop 13

A California constitutional amendment that rolled back property taxes to 1975 levels, capped them at 1% of assessed value, limited annual assessment increases to 2% and required reassessment only upon change of ownership

Prop 19

A california proposition allowing homeowners who are 55+, severely disabled, or affected by wildfire to transfer their property tax base to a replacement home anywhere in the state up to three times, while limiting intergenerational transfer exemptions

Fiduciary Duty

The legal obligation of a real estate agent or broker to act in the best interest of their client, including duties of obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care

Debt Service coverage ratio

A financial metric that measures a property’s ability to cover its debt obligations, calculated by dividing the net operating income by the annual debt service, with a minimum acceptable ratio typically being 1.3

Internal Rate of Return

A financial metric that solves for the discount rate at which the net present value equals zero, indicating where a project breaks even. A project typically started if the IRR exceeds the required rate of return

Habendum Clause

A clause in a deed describing the type of estate being conveyed, specifying whether the transfer is fee simple absolute, an easement, or a conditional fee with reverter, or other type of estate

Percentage Rent

A retail lease provision where the tenant pays a percentage of sales in addition to base rent once sales exceed a specified breakpoint, allowing the landlord to share in the tenants’s business success

Metes and Bounds

A method of land acquisition where a qualified surveyor measures a sequence of directed distances, providing the most flexible but most difficult to interpret form of property description

encroachment

An intrusion on a person’s territory or rights, such as when a structure or other property improvement extends beyond the owner’s property line onto adjacent land without permission, potentially creating legal issues between property owners

Title Insurance

insurance that provides indemnification against title risks, protecting against latent defects such as forged deeds, incompetent grantors, and legal delivery issues, required for mortgage transactions

Mezzanine Financing

Funding that bridges the gap between bank debt (70-80% of costs) and equity, often secured by a pledge of partner shares, more expensive than bank debt but less expensive than equity

Quitclaim Deed

A deed that releases any potential interest the signatory may have in property with no warranties, allowing the grantor to walk away free of liability without guaranteeing they actually had ownership rights

Seisin Clause

A clause in a deed whereby the grantor warrants that they are the rightful owner of the property and have the right and power to convey the property to the grantee, ensuring the grantor has good “clean” title

Dominant and Servient Tenant

In easement relationships, the dominant tenant is the land to which an easement is attached and benefits from the right, while the servient tenement is the land upon which a burden or servitude is laid. The servient tenant is subject to the burden of the easement

General Contractor

a professional who undertakes a contract to provide material or labor for a construction project, selecting subcontractors, establishing schedules, and working under fixed-price bid, cost plus fee, or maximum cost plus fee compensation structures

Constructive notice

legal awareness presumed by law when documents such as deeds, mortgages, and liens are property recorded in public records, regardless of whether a person has actual knowledge of them

Cost Segregation Study

an engineering analysis that breaks down a property into different depreciation components with varying recovery periods (5, 7, 15, and 27.5 years) to accelerate tax depreciation and increase cash flow

Creative office space

an open, flexible office plan featuring collaboration areas, small private workstations, comfort-designed spaces, and amenities like fitness centers, lounges, and outdoor spaces, often commanding higher rent due to superior tenant finishes

Subdivision Plat

a “recorded map” filed in public records that identifies property by block and lot numbers, showing numerous features and serving as the dominant form of urban land description

Actual notice

direct, explicit knowledge of a fact or circumstance, such as open, continuous, and actual possession of property, that legally binds a person regardless of whether information is recorded in public records

Tenancy for years

A type of leasehold estate for a specified time period that must be in writing, where the written lease governs all aspects of the tenancy. It automatically terminates at the end of the specified period without requiring notice

Reddendum clause

a clause in a deed reserving some right in the real property for the grantor or imposing a restriction on use of the property by the grantee, such as deed restrictions, easements, or mineral rights

Deed Delivery

The legal concept that a deed takes effect only when the grantor intends to presently convey title, not just physically hand over the document. It is the most litigated aspect of deed validity and requires both grantor’s intent to convey and grantee’s acceptance

Title abstract

a chronological collection of documents that traces the history of a property from the earliest date to the current owner, researched to confirm there are no breaks in the chain of title. Often accompanied by an attorney’s legal opinion on title validity

Statute of frauds

a legal requirement that certain contracts must be in writing to be enforceable, including contracts for the sale, gift, or financing of real property.

Due-on-sale clause

A provision in a mortgage or deed of trust that allows the lender to demand full repayment of the loan when the property is sold or transferred to another party, preventing the assumption of the loan by new owners without lender approval

Periodic Tenancy

A type of tenancy with no specified duration that automatically renews for successive periods until terminated by proper notice. Typically month-to-month and often based on oral agreement, it continues until either party gives notice to terminate

CLTA insurance

California Land Title Association standard coverage insurance that protects against marketable title issues and latent defects such as forged deeds, incompetent grantors, legal delivery issues, estate tax liens and legal expenses incurred defending title

ALTA Title Insurance

American Land Title Association extended coverage insurance that includes everything in CLTA coverage plus protection against rights of possession issues (adverse possession), survey issues (boundary disputes, encroachments), unrecorded easements or liens, and certain mineral or water claims

Negative Amortization

a loan situation where the borrower’s payments are less than the interest occuring on the loan, causing the principal balance to increase over time rather than decrease, potentially leading to owing more than the original loan amount

Easement Appurtenant

an easement that benefits a particular parcel of land and passes with the title of that land. It can be affirmative (allowing dominant parcel intrusive use of servient parcel) or negative (no intrusion). Examples include driveway access, sewer lines, and common walls

Multi-Nuclei Model

An urban form theory by Harris and Ullman suggesting that cities develop multiple centers or nuclei rather than expanding from a single center, with specialized districts forming around various focal points

Mini-Perm Loan

a type of post construction financing that combines a construction loan with a 3-5 year permanent loan, providing developers time to lease up and stabilize a projects before seeking long term financing

linkages

a physical or economic concept pertaining to the time and distance between land use and support facilities, or between people and their activities, such as schools, parks, restaurants, and employment centers

Homeownership and Equity Protection Act

Legislation targeting abuses in subprime lending that requires disclosure of fees, limits prepayment fees to 3 years, prohibits balloon payments for 5 years, bans negative amortization, and prevents lending to households with inadequate income

Real Estate Settlement Procedures Act (RESPA)

Federal law applying to most standard home mortgage loans that requires a standard format closing statement, good-faith estimate of closing costs within 3 days of applying, closing statement available 24 hours before closing, and prohibits kickbacks from closing service venders

Graaskamp Method

a feasibility analysis approach for real estate development that evaluates a project by examining objectives of both the developer and the public, focusing on why the project was undertaken and its timeframe

Bonus depreciation

a tax incentive allowing businesses to immediately deduct a large percentage of eligible assets’ purchase price rather than writing them off over the useful life, also known as additional first-year depreciation deduction

Loan to value ratio

a measure comparing the amount of a mortgage with the appraised value of the property, used by lenders assess lending risk and determine loan terms, with lower ratios generally resulting in better loan terms

Residual land value

a method for determining land value by estimating the value of a completed development project and then subtracting all development costs, leaving the amount that could reasonably be paid for the land

Partially amortized loan

a loan where regular payments cover interest and some principal reduction, but do not fully pay off the loan by the maturity date, resulting in a balloon payment at the end of the term

Bullet loan

a non-amortizing loan where the borrower pays only interest during the loan term with the entire principal due at maturity, also known as an interest-only loan or straight note

Planned Unit Development (PUD)

an agreement to develop an area of land to include a diversified group of structures, with a detailed development plan negotiated with local government, often allowing mixed-use, higher density, and smaller lots in exchange for community amenities