A program to help eligible California Veterans finance the purchase of farms and ranches within the state. Cal-Vet Loan Programs

California Environmental Quality Act

The Act allows local governments to require environmental impact reports for private or government projects that may have a significant impact on the environment. (See environmental impact report, National Environmental Policy Act)

California Housing Financial Discrimination Act of 1977

Also known as the Holden Act. A California act prohibiting discrimination by a lender for any reason unrelated to the creditworthiness of the loan applicant.

cancellation option

A clause in a lease agreement that gives one party the right to cancel the lease. A cancellation option is sometimes reserved by retail landlords, exercisable if the tenant's sales do not sustain a minimum annual level.

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 contract.

capital gain

Profit earned from the sale of an asset, where the sales price was greater than the adjusted basis. (See adjusted basis, deferred capital gain, excluded capital gain, realized capital gain (loss), recognized capital gain)

capital loss

Loss sustained from the sale of an asset, where the sales price was less than the adjusted book basis. (See adjusted 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 = Value)

capitalization rate

In the valuation of real estate, the rate, expressed as a percentage, used to convert an income stream into an estimate of value. In the direct capitalization method of valuation, the property value equals the net operating income divided by the capitalization rate. Also called “cap rate,” “overall rate,” or “OAR.”

capital markets

Capital markets in the context of commercial real estate involve the purchase and sale of real estate equity or debt for the purpose of generating a financial return. Consideration is given to the cost of capital, the expected future cash flows, and the risks. The markets’ participants can be segmented as follows:

Private Markets Public Markets
Equity/owners Individuals, firms, and institutions Investors in publicly traded real estate companies and equity REITs
Debt/lenders Banks, insurance companies, private lenders Investors in mortgage-backed securities and mortgage REITs


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 value. (See landfill)


Yearly and/or life-of-loan limitations on the amount of variation allowed when adjusting interest on variable-rate loans. (See adjustable rate mortgage (ARM), rate cap)

capture rate

The sales or leasing rate of a real estate development compared to the sales or leasing rate of all developments in the market area. Example: 2,000 condominium units are built in a rapidly growing metropolitan area, including one project of 500 units built by Gibraltar Developments. Sales in the area during July are 200 units, of which half are sold by Gibraltar; therefore Gibraltar's capture rate is 50%.


A group tour by a real estate office's sales agents to view listed properties. (See agent property evaluation)

carbon monoxide (CO)

A colorless, ordorless gas that occurs as a byproduct of burning such fuels as wood, oil and natural gas due to incomplete combustion.


A cancer producing substance. (See asbestos, radon)


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 in 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. (See agent, law of agency, principal)

carpet and paint

The term used when the landlord's responsibility for tenant improvements is relatively minor (e.g., floor and wall finishes). Most commonly encountered in office properties.

carry-back financing

See purchase money mortgage.

carrying charges

Expenses necessary for holding property, such as taxes and interest on idle property or property under construction. Example: The annual carrying charges on a $100,000 tract of land are: $2,000 for taxes and $12,000 for interest.

cash flow

Periodic amounts available to an equity investor after deducting all periodic cash payments from rental income. (See also: before-tax cash flow, cash throw-off, after-tax cash flow.)

cash flow after debt service (CFADS)

Net Operating Income or Operating Cash Flow (as applicable) less loan payments to principal and interest; expressed on an annual basis.

cash now

The net spendable income from an investment, determined by deducting all operating and fixed expenses from the gross income. When expenses exceed income, a negative cash flow results.

cash-on-cash return

The rate of return derived by dividing the cash flow after debt service by the buyer’s equity investment.


When a seller of a property wants to receive the entire sales price in cash, with no carry-back financing. (See carry-back)

cash rent

In an agricultural lease, the amount of money given as rent to the landowner at the outset of the lease, as opposed to share cropping.


Casualty insurance policies include coverage against theft, burglary, vandalism and machinery damage as well as health and accident insurance. Casualty policies are usually written on specific risks, such as theft, rather than being all-inclusive.


A notice registered against the title to land warning those looking at the title that a claim has been made.

caveat emptor

Latin for "let the buyer beware." A buyer should inspect the goods or realty before purchase.


Covenants, conditions and restrictions are limitations on land use imposed by deed, usually when land is subdivided. CC&Rs are a means of regulating building construction, density and use. May be referred to simply as restrictions. (See deed restrictions, restrictive covenants)


Abbreviation of Capital Cost Allowance.

ceiling price

The maximum price that a purchaser is willing to pay for a property. Compare to floor price.

center core building

A building in which the elevators and service cores are located in the center of the floor.

centers of influence

Influential people in a community. Real estate agents cultivate relationships with these "centers of influence" as a method of locating prospects in the community where the person has influence. Also known as "bird dogs," indicating that these people "point the way" to new prospects.

central business district (CBD)

The downtown section of a city, generally consisting of retail, office, hotel, entertainment, and governmental land uses with some high density housing. Example: Office markets of the CBD are distinguished from those in the suburbs by market analysts.


The Comprehensive Environmental Response Compensation Act.

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. The act also authorizes regional administrators to restore a veteran/seller's entitlement to loan-guarantee benefits and release the veteran from liability to the VA when another veteran has agreed to assume the outstanding balance on the veteran/seller's existing VA-guaranteed loan and consented to the use of his or her entitlement to the same extent that the veteran/transferor had used the original entitlement. This is not a release from the lender, however. The veteran/transferee and the property must otherwise meet the requirements of the law. Reinstatement of eligibility is never automatic but must always be applied for, preferably at the time of the sale of property purchased with an existing VA-guaranteed loan. Many veteran/sellers presume that they are eligible for a new VA loan after selling their property by way of a loan assumption. In a loan assumption, the broker should point out that for the seller to have complete VA entitlement restored, the buyer must be a veteran and must agree in the sales contract to substitute his or her entitlement for the seller's. (See VA loan)

certificate of occupancy

A document presented by a local government agency or building department certifying that a building and/or the leased premises (tenant's space), has been satisfactorily inspected and is/are in a condition suitable for occupancy.

certificate of reasonable value (CRV)

A certificate insured by the Veterans Administration setting forth a property's current market value estimate, based on a VA-approved appraisal. The CRV places a ceiling on the amount of a VA-guaranteed loan allowed for a particular property. (See VA loan)

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 building codes. 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.

cessation of work

A period of 60 days where no work is being conducted. (See notice of cessation)

chain of title

The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title. (See conveyance)


The appraisal principle that holds that no physical or economic condition remains constant. (See appraisal)


Personal property. Anything owned and tangible, other than real estate. Example: Furniture, automobiles, and jewelry are all chattels.)

Chattel Mortgage

A document evidencing a debt owed by the borrower (mortgagor) to the lender (mortgagee). The mortgage is secured by the lender against personal property owned by the borrower as collateral to ensure the repayment of the debt. These mortgages are governed by the Personal Property Security Act.

civil action

An action where an issue, formed by some kind of complaint, is presented for trial. Proceedings are for declaration, enforcement, protection of a right, redress, or prevention of a wrong.

civil law

A system of law codified by statutes. (See common law, constitutional law, Roman Civil Law, statutory law)

Civil Rights Act of 1866

The Civil Rights Act of 1866 prohibits racial discrimination in the sale and rental of housing. (See Federal Fair Housing Law)

Civil Rights Act of 1870

The Voting Rights Act of 1870 (aka, Civil Rights Act of 1870) includes a clause reaffirming the remedies of the Civil Rights Act of 1866.

Civil Rights Act of 1964

The first modern civil rights act. Made into law by President John F. Kennedy's Executive Order 11063 prohibiting discrimination in housing where federal funds were involved. (See Federal Fair Housing Law)

Civil Rights Act of 1968

In 1968, Congress enacted Title VIII of the Civil Rights Act, called the federal Fair Housing Act, which declared a national policy of providing fair housing throughout the United States (Reference Sections 3601-3631 of Title 42, United States Code). This law makes discrimination based on race, color, sex, familial status, handicap, religion or national origin illegal in connection with the sale or rental of most dwellings and any vacant land offered for residential construction or use. (See Fair Housing Act, Federal Fair Housing Law)

Class A office

A descriptive category for office buildings with excellent location and amenities that will attract the highest quality tenants. Property must be of superior construction and finish, relatively new or competitive with new buildings, and provide professional on-site management.

Class B office

A descriptive category for office buildings with good location, management, construction, and tenancy. May be competitive with the low end of Class A.

Class C office

A descriptive category for office buildings (generally older) with increasing functional and/or economic obsolescence.

Class D office

A descriptive category for older office buildings in need of extensive renovation as a result of functional obsolescence or deterioration.

classes of construction

Commercial buildings can be of Class A, B, C, D, or S construction. These designations are based on the type of materials used in the construction, and are distinct and different from classes of office buildings/space (Class A, B, C, and D).

clear height

The interior industrial building height to which goods can be stacked and equipment can operate freely.

clear title

A marketable title; one free of "clouds" and disputed interests. (Example: It is necessary to obtain clear title in order to convey a general warranty deed in a transaction.)


The person or legal entity that employs an agent to perform certain activities on their behalf; also known as the "principal" under agency laws.


The consummation of a real estate transaction, when the seller delivers title to the buyer in exchange for payment by the buyer of the purchase price. Closing in some areas may not occur until the documents are recorded; however, under general rules of real estate law, transfer of title takes place upon delivery of the deed to the grantee.

Closed Mortgage

A mortgage which cannot be fully paid out before expiry of its term.

closed-end fund

A commingled fund with a stated maturity (termination) date, with few or no additional investors after the initial formation of the fund. Closed-end funds typically purchase a portfolio of properties to hold for the duration of the fund and, as sales occur, typically do not reinvest the sales proceeds.

closing costs

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; other are a matter of local custom and practice.

closing date

The date on which the seller delivers the deed and the buyer pays for the property. (Example: The sales contract generally establishes a closing date, at which time the parties will meet and settle all accounts necessary to transfer title to the property.)

closing statement

A detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made and all cash paid out in the transaction.

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.

CLTA policy

A standard coverage title insurance policy protects real estate buyers in matters of record and specific risk. (See standard coverage policy, title insurance)


The grouping of homesites within a subdivision on smaller than normal lots, with the remaining land used as common areas.


The situation that occurs when a listing agent employed by one brokerage firm and a procuring agent employed by another, wholly separate brokerage firm complete a real estate sale or lease transaction.


Title ownership held by two or more persons.

code of ethics

A written system of standards of ethical conduct. Because of the nature of the relationship between a broker and a client or other persons in a real estate transaction, a high standard of ethics is needed to ensure that the broker acts in the best interests of both his or her principal and any third parties.

code requirements

Building code requirements which must be satisfied by either the tenant or the landlord in preparing space or building for tenant occupancy. Required codes usually address safety, electric, plumbing, mechanical, energy, hazardous waste / toxic materials, and handicapped requirements.


A supplement or an addition to a will, executed with the same formalities as a will, that normally does not revoke the entire will.

coinsurance clause

A clause in insurance policies covering real property that requires the policyholder to maintain fire insurance coverage generally equal to at least 80 percent of the property's actual replacement cost.


Something of value given or pledged as security for a debt or obligation. The collateral for a real estate mortgage loan is the hypothecated mortgaged property itself.

collection loss factor

See credit and collection loss factor.

combination trust

A trust that participates in real estate investments as both financier and investor.

commercial bank

A financial institution designed to act as a safe depository and lender for many commercial activities (usually short-term loans or lines of credit). Commercial banks rely heavily on demand deposits—checking accounts—for their basic supply of loanable funds, although they also receive capital from savings accounts, loans from other banks, short-term loan interest and the equity invested by their owners. (See line of credit)

Commercial Investment Real Estate Institute (CIREI)

A professional organization of real estate practitioners specializing in commercial real estate. CIREI, affiliated with the National Association of REALTORS(r), confers the designation CCIM (Certified Commercial Investment Member).

commercial leasehold insurance

Insurance that covers payment of rent in the event the insured (tenant) cannot pay it.

commercial real estate

A classification of real estate that includes income-producing property such as office buildings, gasoline stations, restaurants, shopping centers, hotels and motels, parking lots and stores.

commingled funds

A term applied to all open-end and closed-end pooled investment vehicles designed for institutional tax-exempt investors. A commingled fund may be organized as a group trust, partnership, corporation, insurance company separate account or other multiple ownership entity.


The illegal act of mixing deposits or monies belonging to a client (trust funds) with one's personal money. By law brokers are required to maintain a separate trust or escrow account for other parties' funds held temporarily by the broker. (See trust funds)


Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.


  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 specific property.

common area

There are two applications of the term "common area." As referred to in connection with the load factor, loss factor, or rentable-usable ratio calculation, the common areas are those areas within a building that are available for common use by all tenants or groups of tenants (i.e., lobbies, corridors, restrooms, etc.). As used in connection with operating expenses, the costs of maintaining parking facilities, malls, sidewalks, landscaped areas, public toilets, truck and service facilities, and the like are included in the term "common-area expenses" when calculating a tenant's pro-rata share of building operating expenses.

common-area factor

The percentage of common areas in a multi-tenant office building (rest rooms, hallways, etc.) that, when added to the usable square footage, equals the rentable square footage. May be computed for a building or a floor of a building. May also apply to multi-tenant industrial buildings. (See load factor, add-on factor, core factor, loss factor)

common-area maintenance (CAM)

This is the amount of additional rent charged to the tenant, in addition to the base rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit. Examples include: snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc. Most often, this does not include any capital improvements that are made to the property.

common areas

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 and elevators, and parks, playgrounds and barbecue areas, which are sometimes called green belts. In shopping centers, the common areas are parking lots, malls and traffic lanes.

common elements

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. (See condominium ownership)

common interest

The percentage of undivided ownership in the common elements belonging to each condominium apartment, as established in the condominium declaration.

common interest subdivision

A subdivision in which the owners own or lease a separate lot or unit together with an undivided interest in the common areas of the subdivision. (See common areas, subdivision)

common law

The body of law based on custom, usage and court decisions. (See civil law, constitutional law, stare decisis, statutory law)

community center

A community center typically offers a wider range of apparel and other soft goods than the neighborhood center does. Among the more common anchors are supermarkets, super drugstores, and discount department stores. Community center tenants sometimes contain off-price retailers selling such items as apparel, home improvement/furnishings, toys, electronics or sporting goods. The center is usually configured as a strip, in a straight line, or "L" or "U" shape. Of the eight center types, community centers encompass the widest range of formats. For example, certain centers that are anchored by a large discount department store refer to themselves as discount centers. Others with a high percentage of square footage allocated to off-price retailers can be termed off-price centers.

community property

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 South America. In states that maintain a community property system, such as California and other states with laws of Spanish origin, there are two classifications of property - separate property and community property. Separate property is property that either the husband or wife owned at the time of marriage or that was acquired by one spouse during marriage by inheritance, will or gift.

Community Reinvestment Act of 1977 (CRA)

Community reinvestment refers to the responsibility of financial institutions to help meet their communities' needs for low- and moderate-income housing. In 1977, Congress passed the Community Reinvestment Act of 1977 (CRA). Under the CRA, financial institutions are expected to meet the deposit and credit needs of their communities, participate and invest in local community development and rehabilitation projects, and participate in loan programs for housing, small businesses and small farms.

company dollar

The term "company dollar" is the amount left over after all commissions have been paid out.

comparables (comps)

Also known as "comps," this term refers to information on recent transactions and, to a lesser extent, current listings of commercial space for lease similar to that being leased/sought. Comparables are often used to ascertain market conditions and set expectations for both landlords and tenants in lease transactions.

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.

comparative method

An appraisal method which bases the value of the subject property on the price of similar properties which have sold recently. Also name the Market Method.

comparative unit method

An appraisal technique to establish relevant units as a guide to appraising the subject property. (Examples: Parking garages are compared per parking space; Bowling centres are compared per lane; Land may be sold per square foor or per front foot.)

compensating factors

Positive factors in an individual's credit history which offset negative factors. "Compensating factors" increase the possibility that a borrower's loan application will be approved. (See credit score)


The source of compensation does not determine agency. An agent does not necessarily represent the person who pays his or her commission. In fact, agency can exist even if no fee is involved (called a gratuitous agency). Buyers and sellers can agree however they choose to compensate the broker, regardless of which is the agent's principal. For instance, a seller could agree to pay a commission to the buyer's agent. The written agency agreement should state how the agent is being compensated and explain all the alternatives available.

compensatory damages

Monetary damages paid to compensate an injured party for a loss. (See exemplary damages, nominal damages)


The appraisal principle that states that excess profits generate competition. (See appraisal)

competitive market analysis (CMA)

A comparison of the prices of recently sold properties that are similar to a listing seller's property in terms of location, style and amenities.


The year the building was first ready for occupancy.

completion bond

A surety bond posted by a landowner or developer that guarantees a proposed development will be completed according to specifications and free of mechanic's liens.

compound interest

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.

compounding frequency

Indicates the number of times compound interest is charged or calculated per year (for example, semi-annually or monthly).

Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)

A federal law administered by the Environmental Protection Agency that establishes a process for identifying parties responsible for creating hazardous waste sites, forcing liable parties to cleanup toxic sites, bringing legal action against responsible parties and funding the abatement of toxic sites. (See Superfund)

comprehensive zoning

A broad zoning plan over a large area. (See general plan, zoning)

computerized loan origination (CLO) system

An electronic network for handling loan applications through remote computer terminals linked to various lenders' computers.


Discount given to prospective tenants by landlords to induce them to sign a lease. Concessions are frequently encountered in commercial leases, where landlords may give the first two months' rent free or provide an allowance to the tenant for renovating or customizing the demised space. A purchaser of a commercial or income-producing property should check all existing leases to see if there are any lease concessions that would reduce the amount of rent receivable in the future (such as free cable TV or one month's free rent per year for the term of the lease). If so, the value of these concessions should be computed to reduce the amount of contract rent specified. An estoppel certificate should also be obtained from the tenant. Some state laws require concessions to be noted on a lease by special wording. Concessions are negotiable points in a lease that are resolved in favor of the prospective tenant. Another example in leasing a new office building is the owner's assumption of the lessee's remaining obligation under the lessee's existing lease in another building.

concurrent ownership

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. (See joint tenancy, tenants in common)

concurrent performance

Occurring simultaneously; real estate exchanges often must be recorded concurrently.


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. (See eminent domain).

condition precedent

Legal term for a "subject to" clause. In contract law, a condition precedent calls for the happening of some event or the performance of some act before the contract shall be binding upon the parties.

condition subsequent

A fee simple estate may be qualified by a condition subsequent. This means that the new owner must not perform some action or activity. The former owner retains a right of reentry so that if the condition is broken, the former owner can retake possession of the property through legal action. Conditions in a deed are different from restrictions or covenants because of the grantor's right to reclaim ownership, a right that does not exist under private restrictions. (See fee simple, restrictive covenant).


Provision(s) in a contract that some or all terms of the contract will be altered or cease to exist upon a certain event. See "cancellation clause." Example: 1) If a building is destroyed by fire before closing, the buyer is not obligated to complete the purchase. 2) If a loan that is described as a condition cannot be arranged, the buyer is not required to complete the transaction and may receive a refund of any earnest money.

conditions, covenants, and restrictions (CC&Rs)

Recorded limitations on a property, created by a previous owner, that can affect its use and value.

conditional offer

Purchase contract tendered to the seller that stipulates one or more requirements to be satisfied before the purchase is obligated to buy. (Example: Bake offers to buy Collins' farm, conditioned on its rezoning for use as a shopping centre prior to purchase. If it is not rezoned, Baker can get the earnest money, tendered with the conditional offer, refunded.

conditional public report

An interim report that allows a subdivider to enter into a binding contract with a buyer prior to the issuance of the final public report.

conditional sales contract

A contract for the sale of property stating that the seller retains title until the conditions of the contract have been fulfilled. (Example: a contract for deed or a land contract is a conditional sales contract. Until the buyer makes full payment, the seller retains title to the property.)

conditional-use permit

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. (See zoning)

condominium ownership

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 lien able 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 separately.

confession of judgment clause

Permits judgment to be entered against a debtor without the creditor's having to institute legal proceedings.

conforming loan

A mortgage loan that meets all Fannie Mae and Freddie Mac underwriting guidelines. (See Fannie Mae, Freddie Mac)


The appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value. (See appraisal)


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 approval.


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.


The merging of a company's numerous smaller locations into a larger single facility.

constant payment loan

A loan on which equal payments are made periodically, so as to pay off the debt when the last payment is made. (Example: Baker obtains a constant payment loan to purchase a property. The loan requires a payment of $4,500 per month (principal and interest) for 30 years. At the end of 30 years, the principal balance will be zero.

constitutional law

Law set forth in federal or state constitutions. (See civil law, common law, statutory law)

construction loan

One that finances subdivision costs and/or improvements to real estate. See building loan agreements. Example: Collins plans to develop an office building. She receives a commitment for permanent financing and approaches a commercial bank for a construction loan. The bank agrees to advance money as construction progresses.

construction management

The actual construction process may be overseen by a qualified construction manager who ensures that the various stages of the construction process are completed in a timely and complete fashion, from getting the construction permit to completion of the construction to the final walk-through with the tenant of the completed leased premises.

constructive eviction

Actions of a landlord that so materially disturb or impair a tenant's enjoyment of the leased premises that the tenant is effectively forced to move out and terminate the lease without liability for any further rent. (See eviction, actual eviction, lease)

constructive fraud

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 inspection. (See material fact)

constructive notice

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.

consumer price index

Measures inflation in relation to the change in the price of a fixed group of goods and services purchased by a specified population during a "base" period of time. The CPI is commonly used to increase the base rent periodically as a means of protecting the landlord's income stream against inflation.

contiguous space

Multiple suites/spaces within the same building and on the same floor that can be combined and rented to a single tenant. Also, a block of space located on multiple adjoining floors in a building (e.g., a tenant leases floors 6 through 12 in a building).


A provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding.

continuing education

A requirement in most states that real estate and appraiser licensees complete a specified number of educational offerings as a prerequisite to license renewal or reinstatement.


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.

contract for deed

The contract for deed is used extensively in many areas, where it may be called a land contract, agreement of sale, installment contract, articles of agreement, conditional sales contract, bond for deed or real estate contract. A contract for deed is an agreement between the seller (vendor) and buyer (vendee) for the purchase of real property in which the payment of all or a portion of the selling price is deferred. The purchase price may be paid in installments (of either principal and interest or interest only) over the period of the contract, with the balance due at maturity. When the buyer completes the required payments, the seller must deliver good legal title to the buyer by way of a deed or assignment of lease (if the property is leasehold property). Under the terms of the contract for deed, the buyer is given possession of the property and equitable title to the property, while the seller holds legal title and continues to be primarily liable for payment of any underlying mortgage. The features of the buyer's equitable title and obligation to purchase are what distinguishes a contract for deed from a lease-option.

contract of sale

A contract for the purchase and sale of real property in which the buyer agrees to purchase for a certain price and the seller agrees to convey title by way of a deed or an assignment of lease (for leasehold property). In addition to binding the parties to the purchase and sale of the property during the period of time required to close the transaction, the contract frequently serves as the initial directions to the closing agent or escrow company to process the mechanics of the transaction. In essence, the contract of sale is an executory contract to convey property, serving as the vehicle to get to the deed, which finally conveys title; it is the blueprint for the entire transaction. Some of the many names for this contract are sales contract, purchase agreement, deposit receipt, offer and acceptance, agreement of sale, offer to lease or purchase and sale agreement.

contract rent

The rental obligation, expressed in dollars, as specified in a lease. The initial contract rent may change during the lease term because of specifically stated increases, or through adjustments based on changes in various published indices. Also known as "face rent."

contract rent

The rental income as stipulated by the parties in a lease.


The appraisal principle that states that the value of any component of a property is what it gives to the value of the whole or what its absence detracts from that value. (See appraisal)

control book

A compilation of data maintained by a landlord on a building or project that catalogs floor plans with tenant spaces, rent rolls, and existing space encumbrances, such as options.

controlled business arrangements

As defined under the Real Estate Settlement Procedures Act (RESPA), an arrangement or combination in which an individual or a firm has more than a 1 percent interest in a company to which the individual or firm regularly refers business. Such arrangement is permitted provided that written disclosure of the affiliation is made; an estimated charge for the service is provided; consumers are free to obtain the services elsewhere; and referral fees are not exchanged among the affiliated companies. (See Real Estate Settlement Procedures Act (RESPA))

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. (See life estate)

conventional loan

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 that the lender looks solely to the credit of the borrower and the security of the property to ensure payment of the debt.


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 eminent domain). (See eminent domain)

convertable loan

An adjustable-rate loan that the borrower can convert to fixed-rate at any time during the life of the loan. (See hybrid financing)

converted-use properties

Factories, warehouses, office buildings, hotels, schools, churches and other structures that have been converted to residential use. Developers often find renovation of such properties more aesthetically and economically appealing than demolishing a perfectly sound structure to build something new. An abandoned warehouse may be transformed into luxury loft condominium units, a closed hotel may reopen as an apartment building, and an old factory may be recycled into a profitable shopping mall.

convertible mortgage note

A loan secured by real property, typically written at a rate below current market interest rates, in exchange for the privilege of the lender to convert the loan to an equity interest at a specified future time.


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. (See title)

cooperating broker

A broker who assists another broker in the sale of real property. Usually the cooperating broker is the selling broker who found a buyer for the listing broker. (See listing broker)

cooperating broker fee agreement

An agreement between brokers specifying the commission split should the cooperating broker sell a property listed by the listing broker. (See cooperating broker, listing broker)


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 stock holders of the corporation, each possessing a proprietary lease.


The elevators and other mechanical areas grouped within the floor of an office building.

core factor

A term used in some markets in place of "load factor." (See also add-on factor, common-area factor, loss factor)

core plus

An institutional-investment property that looks good and shows a good return.

core drilling

A method of drilling holes in floors and ceilings to facilitate installation of telephone, computer and electrical wiring.

core property

An institutional-investment property of acceptable quality and showing an adequate return.


An entity or organization, created by operation of law, whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures.

corporation franchise tax lien

State governments generally levy a corporation franchise tax on corporations as a condition of allowing them to do business in the state. Such a tax is a general, statutory, involuntary lien on all real and personal property owned by the corporation.

correction lines

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.

correlative water rights

A modern law in some states that holds that a riparian owner who has rights in a common water source is entitled to take only a reasonable amount of the total supply for the beneficial use of land (such as irrigation). (See appropriative water rights, riparian rights)


A mortgage banker. (See mortgage banker)


Additional signers of a financial agreement that add their personal guarantees to that of the borrower.

cost approach

An approach to property valuation based on estimated land value plus the cost to produce a substitute property with equivalent utility.

cost approach improvement value

The current cost to construct a reproduction of, or replacement for, the existing structure less an estimate for accrued depreciation.

cost approach land value

The estimated value of the fee simple interest in the land as if vacant and available for development to its highest and best use.

cost basis

A cost basis of real property is usually based on the purchase price of the property plus the buyer's capitalized closing costs. (See closing costs)

cost of goods sold

The cost to the business of manufacturing or purchasing the items actually sold.

cost of living index

An indicator of the current price level for goods and services, related to some base year. (Example: The CPI, published by the Bureau of Labor Statistics, indicates that the price level for goods and services in April 1992 was 139.5. This means that, on average, prices were 39.5% higher in April 1992 than in Base Year 1982-84.)

cost of sale percentage

Expressed as a percentage of the Reversion Value, an estimate of the costs to sell an investment representing brokerage commissions, closing costs and fees, and other necessary disposition expenses.

cost principle

A generally accepted accounting principle which states that the historical cost of an asset must be reflected in a company's financial statements.

cost recovery

An Internal Revenue Service term for depreciation.


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 offeror.

court order enforcement act

An Act which, among other things, provides for the rights and remedies of individuals attempting to collect on judgments awarded by the Court.


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 of further assurance

The grantor promises to obtain and deliver any instrument needed to make the title good. For example, if the grantor's spouse has failed to sign away dower rights, the grantor must deliver a quitclaim deed (discussed later) to clear the title.

covenant of quiet enjoyment

A provision of a lease whereby the landlord promises that the tenant or grantee shall enjoy possession of the premises in peace and quiet without disturbance. It provides a warranty by a landlord that the landlord has the legal ability to convey the possession of the premises to a tenant. This provision may well be granted by law even if the lease does not specifically address the issue.

covenant of seisin

The grantor warrants that he or she owns the property and has the right to convey title to it ("seisin" simply means "possession").

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. (See encumbrances, liens)

covenant of warranty forever

The grantor promises to compensate the grantee for the loss sustained if the title fails at any time in the future. These covenants in a general warranty deed are not limited to matters that occurred during the time the grantor owned the property they extend back to its origins. The grantor defends the title against both himself or herself and all those who previously held title.


Promises written into deeds and other instruments agreeing to performance or nonperformance of certain acts, or requiring or preventing certain uses of the property. Examples: Deed covenants are often used to: (a) maintain a land parcel in a specified use; (b) enforce architectural and design standards; (c) control the density of future development; (d) prohibit certain practices, such as the sale of liquor.

covenants that run with the land

Covenants that become part of the property rights and benefit or bind successive owners of the property.

crawl space

  1. The space between the ground and the first floor, often found in homes with no basement.
  2. The space found between the top floor and the roof, often found in the place of an attic.

creative financing

Structuring the financing of a real estate transaction depending on the cash positions of the buyer and seller; involves working in conjunction with the existing financing to create a financing package that enables the buyer to purchase the property at a better interest rates or terms than a conventional loan.


  1. Obligations that are due or are to become due to a person.
  2. In closing statements, that which is due and payable to either the buyer or seller—the opposite of a charge or debit. The credit appears in the right-hand column of the accounting statement.

credit analysis

An investigation of a loan applicant's ability to repay.

credit and collection loss factor

A deduction from gross potential rent used in the income capitalization approach to valuing investment property by discounted cash flow analysis. It is used to account for anticipated losses in income from non-payment of rent.

credit loan

A mortgage issued upon the financial strength of a borrower, without regard for collateral.

credit report

A document, obtained from a credit repository, indicating an individual's credit circumstances. Used to derive credit scores for borrowers seeking a real estate loan. (See credit repository, credit score)

credit repository

Organizations that maintain and make available public credit history records; lenders use information from credit repositories to derive credit scores for potential borrowers. (See credit report, credit score)

credit score

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. (See FICO)

credit unions

Credit unions are cooperative organizations whose members place money in savings accounts. In the past, credit unions made only short-term consumer and home improvement loans. Recently, however, they have branched out to originating longer-term first and second mortgage and deed of trust loans. (See noninstitutional lenders)


The person to whom a debtor owes a debt or obligation; a lender.


A provision of many junior mortgages stipulating that a default in one mortgage also triggers a default in the mortgage in which the clause appears. (See junior lien/mortgage)

crunch down

A form of recasting where the lender rewrites an existing mortgage loan to a lower balance to avoid a foreclosure. (See foreclosure, recasting)

cumulative zoning

Zoning that allows more restrictive uses. For example, a lot zoned for a multi-family dwelling would allow a single-family home if the zoning were cumulative. (See zoning)

curable depreciation

Wear and tear or outmoded design which can be corrected at a cost that is economically feasible (e.g., worn carpeting). Contrast to Incurable Depreciation.

current assets

Those assets which will be converted into cash, sold, or consumed within one year or the normal operating cycle of a business, whichever is longer. Current Assets may include Cash, Marketable Securities, Accounts Receivable, Inventories, and Prepaid Expenses. Compare to Noncurrent Assets.

current cost

The amount of money it would be necessary to spend today to reconstruct existing improvements. See also Historic Cost.

current liabilities

Those liabilities which are expected to be paid within one year. Current Liabilities may include Accounts Payable, Property Taxes Payable, Wages Payable, and Income Taxes Payable.

current occupancy

The current leased portion of a building or property expressed as a percentage of its total area or units.


A life estate, usually a fractional interest, given by some states to the surviving husband in real estate owned by his deceased wife. Most states have abolished curtesy.


A prospective buyer of real estate. Not to be confused with a property seller, who is the listing broker's client.