When qualifying a prospective buyer for financing, the ratio of the borrower's income to monthly debt obligation is a primary consideration. Based on "back-end qualification," the ratio of a prospect's income to their total housing expense plus their long-term debt obligation should not exceed 36%. (See front-end qualification, prequalify)
An offer to buy submitted to a seller with the understanding that the seller has already accepted a prior offer; a secondary offer. Sometimes the seller accepts the backup offer contingent on the failure of the sales transaction on the part of the first purchaser within a specified period of time. The seller must be careful how he or she proceeds, however, when the time for buyer's performance under the first contract has expired.
bad debt allowance
An estimate of the amount of rent that may become uncollectible from the tenants of occupied units.
bail bond lien
A real estate owner who is charged with a crime for which he or she must face trial may post bail in the form of real estate rather than cash. The execution and recording of such a bail bond creates a specific, statutory, voluntary lien against the owner's real estate. If the accused fails to appear in court, the lien may be enforced by the sheriff or another court officer.
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.
balance due on completion
The amount of money the purchaser will be required to pay to the vendor to complete the purchase, after all adjustments have been made.
A financial statement in table form showing assets, liabilities, and equity, in which assets equal the sum of liabilities plus equity.
A "combination trust" is referred to as a "balanced trust" in California. (See combination trust)
A mortgage with a balloon payment. Example: the balloon mortgage called for payments of $500 per month for 5 years, followed by a balloon payment of $50,000.
A final lump-sum balance that is due and payable at the end of the term of a mortgage loan that is not fully amortized.
Using a 360-day year for prorations.
A condition of financial insolvency in which a person's liabilities exceed assets and the person is unable to pay current debts.
bargain and sale deed
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.
One of a set of imaginary lines running east and west used by surveyors for reference in locating and describing land under the government survey method of property description.
base (net) rent
The rental rate not including inducements, taxes and operating costs. Can be used by a building owner as a reference with regards to building cash flow and value.
A set amount used as a minimum rent in a lease, which may also employ a percentage of retail sales, building operating expense escalation, common-area maintenance charge, or other calculation, for additional rent.
base rent increase
An increase in rent payments per an escalation clause in a lease. Also called "rent bumps."
The year upon which a building operating expense rent escalation is based; typically used for gross leases. (See escalation clause)
base year expenses
Actual taxes and operating expenses for a specified base year, most often the year in which the lease commences.
basic form homeowner's policy
The most common homeowner's policy is called a basic form. It provides property coverage against fire and lightning; glass breakage; windstorm and hail; explosion; riot and civil commotion; damage by aircraft; damage from vehicles; damage from smoke; vandalism and malicious mischief; theft; and loss of property removed from the premises when it is endangered by fire or other perils. (See homeowner's insurance policy)
basic title policy
Title insurance that covers against matters recorded with the applicable public recording agency.
The dollar amount that the Internal Revenue Service attributes to an asset for purposes of determining annual depreciation or cost recovery, and gain or loss in the sale of the asset. The determination of basis is of fundamental importance in tax aspects of real estate investment. All property has a basis. If 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, reduced by any cost recovery depreciation actually taken or allowable. The basis is also reduced by any untaxed gain "carried over" to the new property in cases where the new property is a replacement of a former residence or is acquired through a like-kind exchange or through an involuntary conversion. This new basis is called the property's adjusted basis. (See adjusted basis, depreciable basis, original basis)
The opening between two columns, walls, etc., which forms a room-like space. May be industrial space, parking space, barn space or other use.
A wall which supports the weight of a part of a structure in addition to its own weight.
before-tax cash flow
A permanently affixed mark that establishes the exact elevation of a place; used by surveyors in measuring site elevations, or as a starting point for surveys. Example: The U.S. Coast and Geodetic Survey implants brass markers in the sidewalks of downtown areas to serve as benchmarks. The benchmark indicates the official elevation above sea level for the spot at which the marker is placed.
The point during construction at which an owner can begin using some or all of the building for its intended purpose. Functionally but not finally complete.
A person who receives benefits from the gifts or acts of another, as in the case of one designated to receive the proceeds from a will, insurance policy, or trust; the real owner, as opposed to the trustee who holds only legal title. With a trust, the trustee holds the legal title, but the beneficiary enjoys the benefits of ownership.
When an existing loan is to be paid or assumed by a buyer, the escrow agent will obtain a statement of the balance due on the loan so the buyer receives the proper amount of credit.
The acquisition cost is the purchase price plus a "best-faith estimate" of all settlement costs. (See acquisition cost)
Bank Insurance Fund
A contract in which each party promises to perform an act in exchange for the other party's promise to perform. The usual real estate contract is an example of a bilateral contract in which the buyer and seller exchange reciprocal promises respectively to buy and sell the property. If one party refuses to honor his or her promise and the other party is ready to perform, the nonperforming party is said to be in default.
bill of sale
A written agreement by which one person sells, assigns or transfers to another his or her right to, or interest in, personal property. A bill of sale is sometimes used by a seller of real estate to evidence the transfer of personal property, such as when the owner of a store sells the building and includes the store equipment and trade fixtures.
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.
See centers of influence.
A loan with twice-monthly payments to match a borrower's payroll schedule.
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.
A mortgage covering more than one property of the mortgagor, such as a mortgage covering all the lots of a builder in a subdivision.
blanket trust deed
A trust deed secured by several properties or a number of lots. A blanket mortgage is often used to secure construction financing for proposed subdivisions or condominium development projects. The developer normally seeks to have a "partial release" clause inserted in the mortgage so that he or she can obtain a release from the blanket loan for each lot as it is sold, according to a specified release schedule.
An interest rate for a newly financed loan that is higher than the existing rate but lower than the current market rate.
An advertisement that does not include the name and address of the person placing the ad, only a phone number or post office box address. Licensed brokers are generally prohibited by state license laws from using blind ads.
An illegal and discriminatory practice whereby one person induces another to enter into a real estate transaction from which the first person may benefit financially by representing that a change may occur in the neighborhood with respect to race, sex, religion, color, handicap familial status or ancestry of the occupants, a change possibly resulting in the lowering of the property values, a decline in the quality of schools or an increase in the crime rate. Also called panic selling or panic peddling.
Requiring full disclosure of all risks in a limited partnership solicitation under the Uniform Partnership Act. (See Uniform Partnership Act)
Standard language found in contracts. Preprinted material. Example: Collins decides to lease her property. At a stationery store, she finds a preprinted boilerplate lease form. She fills in the blanks and asks the tenant to sign.
In good faith, honestly, openly, and sincerely and without deceit or fraud. In an attitude of trust and confidence, without notice of fraud.
1. A debt instrument; an obligation to pay; a security issued by a corporation. 2. A written promise that accopmpanies a mortgage and is evidence of the debt secured by the mortgage. 3. An interest-bearing certificate issued by a government to finance public projects. (See security)
The portion of the face value of a mortgage loan which exceeds the funds actually received by the borrower and which is intended as additional compensation for the lender.
The carrying amount of an asset, as shown on the books of a company. Generally, the amount paid for an asset, less depreciation. Example: X Corp. purchases a building for $100,000, then depreciates it by $10,000 on its financial statements. The book value was $100,000 and is now $90,000.
Money or other property that is not like-kind, which is given to make up any difference in value or equity between exchanged properties. Boot may be in the form of cash; notes; gems; the market value of an asset such as a mortgage, land contract, personal property, goodwill, a service or a patent offered in an exchange. The taxable gain in the like-kind exchange is recognized immediately to the extent of boot, whereas other gain from the exchange may be deferred until subsequent transfer. (See exchange, like-kind)
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.
breach of contract
Violation of any of the terms or conditions of a contract without legal excuse; default; nonperformance. The nonbreaching party can usually seek one of three alternative remedies upon a material breach of the contract; rescission of the contract, action for money damages or an action for specific performance.
In income property, the figure at which rental income is equal to expenses and debt service.
A loan, typically short-term, made on investment property to cover the owner’s costs to get it to full occupancy. Sometimes called “gap financing” or a “swing loan.”
broad-form homeowner's policy
Covers falling objects; damage due to the weight of ice, snow or sleet; collapse of all or part of the building; bursting, cracking, burning or bulging of a steam or hot water heating system or of appliances used to heat water; accidental discharge, leakage or overflow of water or steam from within a plumbing, a heating or an air-conditioning system; freezing of plumbing, heating and air-conditioning systems and domestic appliances; and injury to electrical appliances, devices, fixtures and wiring from short circuits or other accidentally generated currents.
Technically, one who holds a real estate broker's license issued by a state agency. In commercial real estate, the term is often used to refer to a licensed salesperson as well as a licensed broker.
The bringing together of parties interested in making a real estate transaction.
Abandoned, idled, or under-used industrial and commercial facilities where expansion or redevelopment is complicated by real or perceived environmental contamination. Definition by Environmental Protection Agency (EPA)
A loan with payments set up to cover taxes and insurance in addition to interest and principal reductions.
build to suit (BTS)
A method of leasing property whereby the landlord builds a new building in accordance with a tenant's specifications.
building capitalization rate
In appraisal, the capitalization rate is used to convert an income stream into one lump sum value. The rate for the building may differ from that for the land because the building is a wasting asset. Example: A discount rate of 10% is used as the land capitalizaton rate. The building, with a 50-year useful life, requires a 2% straight-line annual capital recovery rate. So the building capitalization rate is 12% (10% discount plus 2% capital recovery). If the building generates $15,000 annual income, its estimated value is $125,000 ($15,000 divided by 0.12 = $125,000). (However, straight-line capital recovery is aplicable only when a declining income stream is expected.)
The discount or interest rate used in the selection of the capitalization rate for an investment property. (See capitalization rate)
An ordinance that specifies minimum standards of construction for buildings to protect public safety and health. (See Uniform Building Code)
Regulations established by local governments describing the minimum structural requirements for buildings; includes foundation, roofing, plumbing, electrical, and other specifications for safety and sanitation. Example: A developer who wishes to construct houses must comply with the local building codes and submit to inspections by a building inspector.
The “working insides” of a building, which normally include building elevators, restroom, smoke towers, fire stairs, mechanical shafts, janitorial closets, etc.
An overall inspection of a home or building performed by a qualified contractor or inspector. The inspection usually covers all major systems including foundation, plumbing, electrical, roof, heating and air conditioning.
Standard dimensions within leased areas dictated by spacing of window mullions or columns (i.e. a 5-foot module dictates offices in multiples of 5-foot dimensions).
Building Owners and Managers Association (BOMA)
BOMA publishes measurement standards for office space that are in general use throughout the United States.
Public agency approval of plans and specifications required to build real property improvements. Building permits are customarily required for significant tenant improvement construction but not for minor improvements such as carpet and paint.
A list of construction materials and finishes used in building out space for a tenant that the landlord offers for tenant improvements. Examples of standard building items are: doors, partitions, lights, floor covering, telephone outlets, etc. May also specify the quantity and quality of the materials to be used and often carries a dollar-per-square-foot value. Most commonly encountered in new office space, but also found in some retail, industrial, and existing office space situations.
building standard plus allowance
An arrangement often used for financing tenant improvements (finishing out office space with improvements such as walls, doors, carpeting, etc.). Under this arrangement, the landlord lists in detail all materials and costs to make the premises suitable for occupancy and provides a negotiated allowance for the tenant to customize or upgrade material beyond the building standard. (See workletter)
building standard tenant improvements
Building materials and quantities, as identified and specified by the landlord, provided as part of the base rent to the tenant for improving the tenant’s premises.
building standard work letter
A document which delineates the type, quality and quantity of materials to be furnished by the landlord as building standard.
Under Construction: Buildings for which ground is broken. Planned: Buildings that are permitted and financed. Proposed: Buildings in the conceptual stage.
The cost of configuring and finishing new or re-let space.
Bulk Sales Act
An act that requires the recording and publication of a sale that is not in the normal course of business. The act is intended to give notice to the creditors of the seller so they can protect their interests.
bulk sales transfer
Any transfer in bulk (and not a transfer in the ordinary course of the seller's business) of a major part of the materials, inventory or supplies of an enterprise. The Uniform Commercial Code (UCC) regulates bulk transfers to deal with such commercial frauds as a merchant selling out stock, pocketing the proceeds and leaving creditors unpaid. The UCC requires the buyer of the goods to demand that the seller provide a schedule of all the property and a list of all creditors and that the buyer give notice to creditors of the pending sale. Failure to comply with UCC means that the transfer or sale is ineffective in respect to the claims of any creditor of the seller. Bulk transfers usually become relevant upon the liquidation or sale of a business. Under state law, a bulk sale must be reported by the seller to the state tax authorities, and the purchaser must withhold payment until the seller's tax clearance is received. If the tax clearance is not made, the purchaser may become liable for any unpaid taxes that are a lien against the items sold. (See Uniform Commercial Code)
bulk transfer of goods
Any transfer in bulk of a substantial part of the materials, supplies, merchandise, equipment or other inventory of an applicable enterprise that is not in the ordinary course of the transferor's business.
Zoning for density. Regulates height restrictions, open-space requirements, parking and setback. (See zoning)
A loan that includes a call date earlier than its normal amortization period; also called a renegotiable rate loan or a rollover loan.
bundle of legal rights
The concept of land ownership that includes ownership of all legal rights to the land. For example, possession, control within the law and enjoyment.
burden of proof
The obligation to prove the truth or falsity of a fact.
Any type of business that is for sale (also called business brokerage). The sale or lease of the business and goodwill of an existing business, enterprise or opportunity, including a sale of all or substantially all of the assets or stock of a corporation, or assets of partnership or sole proprietorship.
business case analysis
A package of assembled materials that customarily includes a summary of a prospective tenant's requirement, a summary of information on the short list properties, a summary of comparable leases, and a property tour notes template.
Commonly found in industrially zoned areas. Typically, a project comprised of one- or two-story concrete tilt-up buildings used by office, light industrial, and research and development (R&D) tenants. The business park may also include amenities such as hotels and restaurants.
A provision in a contract under which the seller agrees to repurchase the property at a stated price upon the occurrence of a specified event within a certain period of time. Example: The buy-back agreement in the sales contract requires the builder-seller to buy the property back if Collins, the buyer-occupant, is transferred by her company within 6 months.
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.
An agreement where a buyer agrees to pay a commission if a broker locates a property that the buyer purchases.
buyer representation agreement
An agency contract whereby a buyer authorizes a procuring agent to act on their behalf in the acquisition of real property.
A real estate broker or salesperson who represents the prospective purchaser in a transaction. The buyer's agent owes the buyer/principal the common-law or statutory agency duties. (See seller's agent)
A broker who represents the buyer in a fiduciary capacity. Some buyer's brokers practice single agency, in which they represent either buyers or sellers, but never both in the same transaction. Some buyer's brokers represent only buyers and refer prospective sellers to other brokers. The broker is paid by the buyer, or through the seller or listing broker at closing, provided all parties consent.
Buyers of expensive items, like a home or automobile, sometimes regret their decision. They wonder if they paid to much or made the wrong selection. This fear of having made a serious mistake is referred to as "buyer's remorse."
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.
Ownership of real estate satisfies certain basic human needs. These needs are what motivate a person to purchase real property. They include comfort and convenience, desire for profit, pride of ownership and security.
buying on contract
A type of contract used in connection with the sale of real property where the seller retains legal title to the property until some future date, usually when the full purchase price has been paid. Referred to as one of four terms, all meaning much the same thing agreement to convey, contract for deed, contract of sale, or installment sales contract.
Words, actions or facial expressions that signal a prospect's readiness to buy.