capacity of parties
The legal ability of people or organizations to
enter into a valid contract. A person entering into a
contract will have full, limited or no capacity to
No capacity to contract - The inability of a person to
enter into a valid contract under any circumstances.
Such inability can arise when a person has been
adjudicated insane or is an officer of a corporation who
is not authorized to execute a contract in behalf of a
Profit earned from the sale of an asset, where the
sales price was greater than the adjusted basis.
Any structure or component erected
as a permanent improvement to real property that adds to
its value and useful life.
Loss sustained from the sale of an asset, where the
sales price is less than the adjusted book basis.
A mathematical process for converting net income into an
indication of value, commonly used in the income
approach to value. The net income of the property is
divided by an appropriate (capitalization) rate of
return to give the indicated value. (Income ÷ Rate =
The rate of return a property will produce on the owners
The process at of laying two to four feet of soil over
the top of a landfill site and then planting vegetation
to prevent erosion and enhance the landfill's aesthetic
Yearly and/or life-of-loan limitations on the amount of
variation allowed when adjusting interest on
carbon monoxide (CO)
A colorless, odorless gas that occurs as a byproduct of
burning such fuels as wood, oil and natural gas due to
National Safety Council on Carbon Monoxide
The agent must exercise a reasonable degree of care
while transacting the business entrusted to him or her
by the principal. The principal expects the agent's
skill and expertise in real estate matters to be
superior to that of the average person. The most
fundamental way in which the agent exercises care is to
use that skill and knowledge on the principal's behalf.
The agent should know all facts pertinent to the
principal's affairs, such as the physical
characteristics of the property being transferred and
the type of financing being used.
A cancer producing substance.
cash flow analysis
A cash flow analysis shows the effect an investment
property has on an owner's income in terms of tax
benefits. Analyzes the return on investment after taxes
on an income producing property. Measures the property
manager's performance from period to period by comparing
income and expenses for a given property.
When a seller of a property wants to receive the entire
sales price in cash with no carry-back financing.
Latin for "let the buyer beware." A buyer should inspect
the goods or realty before purchase.
certificate of eligibility
A certificate issued by a Veterans Administration
regional office to veterans who qualify for a VA loan.
The Veteran Housing Act permits regional administrators
to restore a veteran's entitlement to loan-guarantee
benefits after his or her property purchased with an
existing VA-guaranteed loan has been disposed of and 1.
this loan has been paid in full; 2. the administrator is
released from liability under the guarantee or 3. any
loss suffered by the administrator has been repaid in
full. It is no longer required that property ownership
was transferred for a compelling reason.
A certificate issued by a governmental authority
indicating that a building is ready and fit for
occupancy and that there are no building code
violations. Some condominium developers insert language
into the sales contract to the effect that upon
notification that the units are ready for occupancy, the
buyer must accept the unit despite any construction
defects that may exist, although acceptance will not bar
the buyer from obtaining redress for such defects. Once
the building has been certified for occupancy the
developer can then close the individual sales, transfer
title to the buyers and, most important, begin to pay
off the construction loan and eliminate the interest
certificate of sale
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.
certificate of title
A statement of opinion prepared by a title company,
licensed abstracter or an attorney on the status of a
title to a parcel of real property, based on an
examination of specified public records. This
certificate of title should not be confused with the
certificate of title that is issued to a titleholder of
land registered under the Toreens system, or with a
title insurance policy.
A certificate of title does not guarantee title, but it
does certify the condition of title as of the date the
certificate is issued, on the basis of an examination of
the public records maintained by the recorder of deeds,
the county clerk, the county treasurer, the city clerk
and collector and clerks of various courts of record.
The certificate also may include records involving
taxes, special assessments, ordinances, zoning and
Note that a certificate of title does not offer
protection against "off -the-record" matters such as
undisclosed liens, rights of parties in possession and
matters of survey and location. Nor does it protect
against "hidden defects" in the records themselves, such
as fraud, forgery, lack of competency or lack of
delivery. A title insurance policy, not a certificate of
title, protects against certain off-the-record and
hidden defects risks.
chain of title
The succession of conveyances, from some accepted
starting point, whereby the present holder of real
property derives title.
The appraisal principle that holds that no physical or
economic condition remains constant.
A meeting at which a sale of a
property is finalized by the buyer signing the mortgage
documents and paying closing costs. At this meeting,
ownership of the property is transferred from
the seller to the buyer.
Expenses of the sale (or loan refinancing) that must
be paid in addition to the purchase price (in the case
of the buyer's expenses) or be deducted from the
proceeds of the sale (in the case of the seller's
expenses). Some closing costs result from legal
requirements; others are a matter of local custom and
A document which details the financial settlement
between a buyer and seller and the costs paid by each
cloud on title
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.
1. A pledge to do a certain act, such as a promise by a
lender to loan a certain amount of money at a specific
rate of interest to a qualified borrower, provided the
loan is made by a certain date. 2. Also refers to an
agreement by a title insurance company to issue a policy
in favor of a proposed insured upon acquisition of a
Land or improvements in a condominium development
designated for the use and benefit of all residents,
property owners and tenants. Common areas frequently
include such amenities as corridor or hall areas,
elevators, parks, playgrounds and barbecue areas, which
are sometimes called green belts. In shopping centers,
the common areas are parking lots, malls and traffic
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.
The percentage of undivided ownership in the common
elements belonging to each condominium apartment, as
established in the condominium declaration.
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. This system stemmed from germanic tribes and,
through Spain, came to the Spanish colonies of North and
Properties used as comparisons to determine the value of
a specific property.
comparative market analysis (CMA)
This is a term often used by real estate brokers in
preparing a report for prospective sellers and buyers,
indicating market trends in various neighborhoods, based
on computer statistics generated from multiple-listing
service data. Generally, these analyses are used for
clients to determine a listing price for the sale of a
home or for buyers to determine if a list price is
reasonable for a given location.
Interest computed on the principal sum plus accrued
interest. At the beginning of the new interest period,
all interest is added to the principal, forming a new
principal figure on which interest is then calculated.
This process repeats itself each interest
period—interest may be compounded daily, monthly,
semiannually or annually.
Ownership by two or more persons at the same time,
such as joint tenants, tenants by the entirety, tenants
in common or community property owners.
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.
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.
Type of real estate ownership where the owner has
title to specific unit and shared interest in the common
An estate in real property consisting of an individual
interest in an apartment or commercial unit and an
undivided common interest in the common areas in the
condo project such as the land, parking areas,
elevators, stairways, exterior structure and so on. Each
condominium unit is a statutory entity that may be
mortgaged, taxed, sold or otherwise transferred in
ownership, separately and independently of all other
units in the condo project. Units are separately
assessed and taxed based on the combined value of the
individual living unit and the proportionate ownership
of the common areas. The unit also can be separately
foreclosed upon, in case of default on the mortgage note
or other lienable payments. In effect, the condominium
permits ownership of a specific horizontal layer of
airspace as opposed to the traditional view of vertical
property ownership from the center of the earth to the
sky. Typically, the unit, the percentage of common
interest and the limited common elements are appurtenant
to each other and cannot be sold or transferred
A mortgage loan that meets all Fannie Mae and Freddie
Mac underwriting guidelines.
An act or the promise thereof, which is offered by
one party to induce another to enter into a contract;
that which is given in exchange for something from
another; also the promise to refrain from doing a
certain act, like filing a justifiable lawsuit (the
forbearance of a right). Consideration, which
distinguishes a contractual obligation from a gift, is
usually something of value, such as the purchase price
in and paid for a promise or it may be a return promise.
Thus, the mere promise to pay money is sufficient
consideration, so an earnest money deposit is not
necessary for purposes of creating a binding contract.
A guardian, protector, preserver or receiver appointed
by a court to administer the person and property of
another (usually an incapable adult) and to ensure that
the property will be properly managed. A conservator may
not need a real estate license to sell the protected
real estate, although the sale does require court
A condition that must be met before a contract is
legally binding. For example, home purchasers
often include a contingency that specifies that the
contract is not binding until the purchaser obtains
a satisfactory home inspection report from a qualified
In real estate, the contract is the legal document by
which buyer and seller make offers and counteroffers.
The real estate contract describes the property,
includes or excludes items in the property, states the
price, assigns the closing cost to each party, and sets
a closing date. When the buyer and seller agree on terms
and sign the same document, it is agreed that there is a
"meeting of the minds" and thus there is a legally
binding contract to buy and sell the property.
Breach of a legal or equitable duty that the law
declares fraudulent because of its tendency to deceive
others, despite no showing of dishonesty or intent to
deceive. A broker may be charged with constructive fraud
for failing to disclose a known material fact when the
broker had a duty to speak—for example, if a listing
broker failed to disclose a known major foundation
problem not readily observable upon an ordinary
Notice given to the world by recorded documents. All
people are charged with knowledge of such documents and
their contents, whether or not they have actually
examined them. Possession of property is also considered
constructive notice that the person in possession has an
interest in the property.
A provision in a contract that requires a certain
act to be done or a certain event to occur before the
contract becomes binding.
A legally enforceable promise or set of promises
that must be performed and for which, if a breach of the
promise occurs, the law provides a remedy. A contract
may be either unilateral, by which only one party is
bound to act, or bilateral, by which all parties to the
instrument are legally bound to act as prescribed.
conventional life estate
A conventional life estate is created intentionally by
the owner. It may be established either by deed at the
time the ownership is transferred during the owner's
life or by a provision of the owner's will after his or
her death. The estate is conveyed to an individual who
is called the life tenant. The life tenant has full
enjoyment of the ownership for the duration of his or
her life. When the life tenant dies, the estate ends and
its ownership passes to another designated individual or
returns to the previous owner.
A loan made with real estate as security and not
involving government participation in the form of
insuring (FHA) or guaranteeing (VA) the loan. The
mortgagee can be an institutional lender or a private
party. The loan is conventional in the sense that it
conforms to accepted standards and the lender looks
solely to the credit of the borrower and the security of
the property to ensure payment of the debt. Conventional
loans include those loans insured by private mortgage
Because the lender is not subject to the more stringent
government regulations of the FHA and VA, conventional
loans are frequently more flexible with respect to terms
and interest rates, although they do reflect a higher
interest rate and larger down payment requirements due
to the higher risk involved. Non-conventional loan
interest rates (VA loans) are fixed by federal
regulation. Conventional loans are subject to
institutional regulation, which may be statutory
(federal, state) or self-created.
The appropriation of property belonging to another.
The conversion may be illegal (as when a broker
misappropriates client funds), or it may be legal (as
when the government condemns property under the right of
An adjustable-rate loan that the borrower can convert to
fixed-rate at any time during the life of the loan.
A term used to refer to any document that transfers
title to real property. The term is also used in
describing the act of transferring.
A residential multiunit building whose title is held by
a trust or corporation that is owned by and operated for
the benefit of persons living within the building, who
are the beneficial owners of the trust or stockholders
of the corporation, each possessing a proprietary lease.
Title ownership held by two or more persons.
Provisions in the rectangular survey (government survey)
system made to compensate for the curvature of the
earth's surface. Every fourth township line (at 24-mile
intervals) is used as a correction line on which the
intervals between the north and south range lines are
measured and corrected to a full six miles. Range lines
are only parallel in theory. Due to the curvature of the
earth, range lines gradually approach each other. If
they are extended northward, they eventually meet at the
North Pole. The fact that the earth is not flat,
combined with the crude instruments used in early days,
means that few townships are exactly six-mile squares or
contain exactly 36 square miles.
Additional signers of a financial agreement that add
their personal guarantees to that of the borrower.
The process of estimating the value of a property by
adding to the estimated land value. The appraiser's
estimate of the reproduction or replacement cost of the
building, less depreciation.
A cost basis of real property is usually based on
the purchase price of the property plus the buyer's
capitalized closing costs.
A new offer made in response to an offer received.
It has the effect of rejecting the original offer, which
cannot be accepted thereafter, unless revived by the
A written agreement between two or more parties in
which a party or parties pledge to perform or not
perform specified acts with regard to property; usually
found in such real estate documents as deeds, mortgages,
leases and contracts for deed.
covenant against encumbrances
The grantor warrants that the property is free from
liens or encumbrances, except for any specifically
stated in the deed. Encumbrances generally include
mortgages, mechanics' liens and easements. If this
covenant is breached, the grantee may sue for the cost
of removing the encumbrances.
covenant of quiet enjoyment
The covenant implied by law by which a landlord
guarantees that a tenant may take possession of leased
premises and that the landlord will not interfere in the
tenant's possession or use of the property. The grantor
guarantees that the grantee's title will be good against
third parties who might bring court actions to establish
superior title to the property. If the grantee's title
is found to be inferior, the grantor is liable for
covenant of seisin
The grantor warrants that he or she owns the property
and has the right to convey title to it ("seisen" simply
covenants that run with the land
Covenants that become part of the property rights and
benefit or bind successive owners of the property.
Structuring the financing of a real estate transaction
based on the cash positions of the buyer and seller. It
involves working in conjunction with the existing
financing to create a financing package that enables the
buyer to purchase the property at better interest rates
or terms than a conventional loan.
A snapshot of a borrower's credit worthiness; a
numerical score based on statistics showing the risk of
default on a loan; takes into consideration available
credit, management of existing credit, and any
detrimental credit information.
The first impression of a house as seen from the