The cash deposit (including initial and additional deposits) paid by the prospective buyer of real property as evidence of good-faith intention to complete the transaction, to be forfeited if the buyer defaults but applied to the purchase price if the sale is closed; called bargain money, caution money, hand money, or a binder in some states. (See trust funds)
earthquake safety disclosure
By California law, real estate agents or owners are required to prepare a "Residential Earthquake Hazards Report" disclosing the earthquake safety preparedness of all houses sold in the state.
The right to a specific use of or right to travel over land owned by another. The land being used or traveled over is the servient tenement; the land that is benefited by the use is the dominant tenement. An easement appurtenant is a property interest belonging to the owner of dominant tenement and is transferred with the land; an easement in gross is a personal right that usually is not transferable by its owner. (See affirmative easement, dominant tenement, easement appurtenant, easement in gross, implied easement, negative easement, servient tenement)
easement by condemnation
An easement created by the government or government agency that has exercised its right under eminent domain. (See eminent domain)
easement by estoppel
An easement created when a person's words or actions lead another to believe that an easement exists. If, in relying on those words or actions, the easement user acts to his or her detriment, they may not deny the existence of the easement. (See estoppel)
easement by necessity
An easement allowed by law as necessary for the full enjoyment of a parcel of real estate; for example, a right of ingress and egress over a grantor's land.
easement by prescription
An easement acquired by continuous, open and hostile use of property for the period of time prescribed by state law.
easement in gross
An easement that is not created for the benefit of any land owned by the owner of the easement but that attaches personally to the easement owner. For example, a right granted by Eleanor Franks to Joe Fish to use a portion of her property for the rest of his life would be an easement in gross.
Easton v. Strassburger
The duty on the licensee to make a reasonable investigation of the property evolved from the case of Easton v. Strassburger (1984). As the leading case on this issue, the courts decision sent the message "loud and clear" to all real estate licensees that their responsibility does not stop at a mere disclosure of material facts known to the licensee. Easton filed suit against Strassburger, the real estate agency and others for fraudulent concealment and intentional misrepresentation regarding potential soil problems and a resulting slide on the property.
- The estimated period over which an improved property may be profitably utilized so that it will yield a return over and above the economic rent attributable to the land itself; the period during which an improvement has value in excess of its salvage value. In the case of an older structure or improvement, economic life refers to the remaining period during which the improvements to the real property (not land) are depreciated for tax purposes. The economic lives of such improvements are normally shorter than their actual physical lives. Also called service life.
- As applied to a structure, the years or age indicated by the condition and utility of the structure, as opposed to its actual or chronological age.
Currently referred to as market rent, it is the rental income that real estate can command in an open, competitive market at any given time, as contrasted with contract rent, or the income actually received under a lease agreement.
effective annual rate
An annual interest rate which is compounded once a year. This rate is used for disclosure purposes under the British Columbia Mortgage Brokers Act.
effective interest rate
The actual rate or yield of a loan, regardless of the amount stated on the debt instrument. (See nominal interest rate)
The true rate of return considering all relevant financing expenses. See "annual percentage rate." Example: Abel borrows $10,000 on a one-year bank loan. He pays 2 discount points and a 10% face interest rate. He repays the loan at the end of the year, with interest. Since he really received only $9,800 at the start of the loan and repaid $11,000, the effective rate was greater than 10%. It was approximately 12.25%.
The dollar per square foot per year, which the tenant actually pays on average over the term of the lease. This would be the average of specified rents in a stair-stepped lease, as well as the average rent of a lease with substantial free rent period. Example: The effective rate of a five (5)-year lease with six (6) months free rent is ten percent (10%) less than the face rent.
effective rental rate CIPREC
Common net effective rent is the true Rent related to a certain lease transaction, based on the present value using the common discount rate, of all rent receivable by a landlord over the initial fixed term, less the present value of all tenant inducements, free rent periods and commissions payable, with such remainder present value then amortized over the fixed initial lease term.
The proportion of a building's area that is leasable space. Example: An office building contains 200,000 square feet of space. Of this amount, 10,000 sq. ft. are taken up by elevators and other physical plant equipment. Another 5,000 sq. ft. are taken up by the sales and management offices. Restrooms and hallways occupy 30,000 sq. ft. The lobby is 5,000 sq. ft. Total space available for lease is 150,000 sq. ft. The efficiency ratio is 150,000/200,000 or 75%.
To change to a powder from loss of water of crystallization; to form or become covered with a powdery crust (bricks may effloresce owing to the deposition of soluble salts).
A way to exit from a property; the opposite of ingress.
electromagnetic fields (EMFs)
Fields generated by the movement of electrical currents.
Just as surface rights must be identified, surveyed and described, so must rights to the property above the earth's surface. In the same way land may be measured and divided into parcels, the air itself may be divided. An owner may subdivide the air above his or her land into air lots. Air lots are composed of the airspace within specific boundaries located over a parcel of land.
The fraudulent appropriation to his or her own use or benefit of property or money entrusted too him/her by another, by a clerk, agent, trustee, public officer, or other person acting in a fiduciary character. (See fiduciary)
- Growing crops produced by the labor of the cultivator.
- The right to the profits from such crops. (See fructus industriales)
The right of the government to acquire title to property for public use by condemnation; the property owner receives compensation which is generally fair market value. (See taking)
Someone who works as a direct employee of an employer and has employee status. The employer is obligated to withhold income taxes and social security taxes from the compensation of employees. (See independent contractor)
A document evidencing formal employment between employer and employee or between principal and agent. In the real estate business this generally takes the form of a listing agreement or management agreement. (See listing agreement)
State legislation that confers zoning powers on municipal governments. (See zoning)
A method of controlling environmental contamination by sealing off a dangerous substance such as asbestos. (See asbestos)
An unauthorized invasion or intrusion of an improvement or other real property onto another's property, thus reducing the size and value of the invaded property. Common examples of encroachments are the roof of a building that extends over the property line or the front of a building that extends over the building setback line or extends onto a neighbor's property.
Any claim, lien, charge or liability attached to and binding on real property that may lessen its value or burden, obstruct or impair the use of a property but not necessarily prevent transfer of title; a right or interest in a property held by one who is not the legal owner of the property. There are two general classifications of encumbrances those that affect the title, such as judgments, mortgages, mechanics' liens and other liens, which are charges on property used to secure a debt or obligation; and those that affect the physical condition of the property, such as restrictions, encroachments and easements. (See easement, encroachment, judgment, lien, mechanics' lien, mortgage)
Endangered Species Act
Passed by the United States Congress in 1973. The Act was originally intended to protect endangered species on federal lands. Since passage, the Act has been used to prohibit development or other land use in habitats of protected species.
A method of prospecting where agents asks each prospect to recommend other prospects. (See prospecting)
A method of transferring title to a negotiable instrument, such as a check or promissory note, by signing the owner's name on the reverse side of such instrument. A blank endorsement guarantees payment to subsequent holders. An endorsement that states that it is without recourse does not guarantee payment to subsequent holders. A special endorsement specifies the person to whom or to whose order the instrument is payable.
Many commercial banks and mortgage bankers handle investments for endowment funds. The endowments of hospitals, universities, colleges, charitable foundations and other institutions provide a good source of financing for low-risk commercial and industrial properties.
- To direct or order (someone) to do something.
- To prescribe (a course of action) with authority or emphasis.
- To prohibit or restrain by an injunction. (See injunction)
- To be owed something under the law.
- The portion of a VA-guaranteed loan that protects a lender from defaults. (See certificate of eligibility)
Three entities can hold property individuals, partnerships and corporations. In the case of a property exchange, the way an exchanger holds property going into an exchange is the way they must hold the property coming out of the exchange.
A financial instrument evidencing ownership in an investment vehicle. Examples of an entity-level interest include limited or general partner units in a partnership, preferred or common stock in a corporation; units of participation in an insurance company separate account and membership units of a limited liability company.
environmental hazards disclosure
By California law (AB 983) a real estate agent or owner is required to inform prospective buyers of environmental hazards located on a residential property.
environmental impact report
A report required by the California Environmental Quality Act that projects the impact a project may have on the environment. The report includes relevant data and an analysis of its effects on the environment.
environmental impact statement
Required by the National Environmental Policy Act and applies to federal government actions or legislation. Includes relevant data about an action and an analysis of its effect on the environment.
Environmental Protection Agency (EPA)
A federal agency created in 1970 by bringing together various federal pollution control activities that had been scattered among a number of federal departments and agencies. The EPA is involved with environmental problems of air and water pollution, solid-waste management, pesticides, radiation and noise. The EPA sets standards, determines how much pollution is tolerable, establishes timetables to bring polluters into line with its standards and enforces environmental laws. The EPA conducts an extensive environmental research program; provides technical, financial, and managerial help to state, regional and municipal pollution control agencies; and allocates funds for sewage-treatment facilities. The original authority of the EPA was broadened by passage of the Clean Air Amendments and the Resource Recovery Act in 1970; the Federal Water Pollution Control Act Amendments, the Federal Environmental Pesticide Control Act, the Noise Control Act and the Marine Protection Research and Sanctuaries Act in 1972; the Safe Drinking Water Act in 1974; and the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) in 1980. (See CERCLA, hazardous waste)
Equal Credit Opportunity Act (ECOA)
Federal legislation passed in 1974 to ensure that the various financial institutions and other firms engaged in the extension of credit exercise their responsibility to make credit available with fairness and impartiality and without discrimination on the basis of race, color, religion, national origin, sex or martial status, age, receipt of income from public assistance programs (food stamps, social security), and ensure good-faith exercise of any right under the Consumer Credit Protection Act (creditor must state reasons for denial of credit). The act applies to all who regularly extend or arrange for the extension of credit. A real estate licensee is considered a creditor if the licensee routinely assists sellers in determining whether a proposed buyer in a land contract or purchase-money mortgage is creditworthy.
equal dignities rule
A rule of agency law that stipulates that when a contract is required by law to be in writing, the authority of an agent to enter into such a contract on behalf the principal must also be in writing.
In some jurisdictions, when it is necessary to correct inequalities in state wide tax assessments, an equalization factor is used to achieve uniformity. An equalization factor may be applied to raise or lower assessments in a particular district or county. The assessed value of each property in the area is multiplied by the equalization factor, and the tax rate is then applied to the equalized assessment.
A factor (number) by which the assessed value of a property is multiplied to arrive at a value for the property that is in line with statewide tax assessments. The ad valorem tax would be based on this adjusted value.
The transfer of equity in property as security for a debt. Technically, any mortgage registered on title subsequent to the first mortgage (i.e., second or third mortgage).
A defaulted property owner recovering their property prior to its sale by curing the default. (See statutory redemption)
equitable right of redemption
The right of a defaulted property owner to recover the property prior to its sale by paying the appropriate fees and charges.
The interest held by a vendee under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another's name.
The interest an owner of real property has in its total assets after allowing for encumbrances and creditors' claims.
A loan based on a percentage of the equity a borrower holds in a collateral property.
An investment trust dealing with ownership rather than financing. (See investment group financing)
equity value of property
The total market value less outstanding debt.
Two interest rates are equivalent if, for the same amount borrowed, over the same period of time, the same amount is owed at the end of that period of time.
The gradual loss of soil due to the operation of currents, tides or winds.
A clause in a lease providing for an increased rental at a future time. May be accomplished by several types of clauses, such as:
- fixed increase - a clause which calls for a definite, periodic rental increase.
- cost of living - a clause which ties the rent to a government cost of living index, with periodic adjustments as the index changes.
- direct expense - the rent is adjusted according to changes in the expenses of the property paid by the lessor, such as tax increased, increased maintenance costs, etc.
- A contract provision relieving a party of liability for failure to perform, as where a stated contingency does not occur. If such a clause allows the party to cancel the contract for no reason whatsoever, there really is no enforceable contract, for mutuality of obligation is lacking.
- A clause in a proprietary lease of a tenant-stockholder that permits the tenant to surrender the stock and lease back to the cooperative association and thereby terminate continuing liability for payments due under the lease.
The reversion of property to the state or county, as provided by state law, in cases where a decedent dies intestate and there are no heirs capable of inheriting or when the property is abandoned. In some states, bank accounts that are unused for more than seven years will escheat to the government. (See intestate)
The process by which money and/or documents are held by a disinterested third person (a stakeholder) until satisfaction of the terms and conditions of the escrow instructions (as prepared by the parties to the escrow) has been achieved. Once these terms have been satisfied, delivery and transfer of the escrowed funds and documents takes place. Although in some states a real estate broker is authorized to handle escrow functions, the common practice is to employ the services of a licensed escrow company, title company or lending institution.
The trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction. (See trust fund bank account)
An individual qualified to perform all the steps necessary to prepare and carry out escrow instructions. Tasks include obtaining title insurance; securing payoff demands; prorating taxes, interest, rents, etc.; and distributing the funds held in escrow. (See escrow instructions, prorations, title insurance)
A fee covering all the usual escrow services except for title insurance. The fee is normally determined by the amount of money involved in the transaction.
In a sales transaction, a writing signed by buyer and seller that details the procedures necessary to close a transaction and directs the escrow agent how to proceed. Sometimes the buyer and seller execute separate instructions and sometimes the contract of sale itself serves as the escrow instructions. (See contract of sale, escrow, escrow agent)
essential elements of a valid contract
- Offer and acceptance;
- Legally competent parties;
essentials of a valid lease
A lease is a form of contract. To be valid, a lease must meet essentially the same requirements as any other contract: Offer and acceptance - The parties must reach a mutual agreement on all the terms of the contract. Consideration - The lease must be supported by valid consideration. Rent is the normal consideration given for the right to occupy the leased premises. However, the payment of rent is not essential as long as consideration was granted in creating the lease itself. Sometimes, for instance, this consideration is labor performed on the property. Because a lease is a contract, it is not subject to subsequent changes in the rent or other terms unless these changes are in writing and executed in the same manner as the original lease. Capacity to contract - The parties must have the legal capacity to contract. Legal objectives - The objectives of the lease must be legal.
The degree, nature, and extent of interest that a person has in "real property." Example: The highest form of an estate is "fee simple", under which the owner can use the property at will and dispose of it without restriction.
estate (tenancy) at sufferance
The tenancy of a lessee who lawfully comes into possession of a landlord's real estate but who continues to occupy the premises improperly after his or her lease rights have expired.
estate (tenancy) at will
An estate (or tenancy) in which a person holds or occupies real estate with the permission of the owner, for a term of unspecified or uncertain duration i.e., there is no fixed term to the tenancy.
estate (tenancy) for years
An interest for a certain, exact period of time in property leased for a specified consideration.
estate (tenancy) from period to period
An interest in leased property that continues from period to period; week to week, month to month or year to year.
estate in land
The degree, quantity, nature and extent of interest a person has in real property.
Federal estate taxes and state inheritance taxes (as well as the debts of decedents) are general, statutory, involuntary liens that encumber a deceased person's real and personal property. These are normally paid or cleared in probate court proceedings. (See inheritance taxes, lien)
estimated buyer's costs
An estimate of the buyer's total cash requirements to purchase real property. A realistic estimate of all costs and payments based on the buyer's offer.
estimated seller's proceeds
An estimate of the net amount an owner will receive from the sale of their property. An "Estimated Seller's Proceeds" form is filled out by the listing broker and calculates the proceeds based on the listing price and seller's costs.
A doctrine of law that stops one from later denying facts which that person once acknowledged were true and others accepted on "good faith." Example: Abel signs a certificate acknowledging that he owes $10,000 on a mortgage as of a certain date. Later he contends that he owed only $5,000. Abel is prevented from asserting this new contention under "estoppel."
A document by which a borrower or lessee certifies that the stated obligation is correctly stated. The debtor is thereafter prevented from claiming that the balance due differs from the amount stated.
The system of moral principles and rules that become standards for professional conduct.
A study of potential property uses, but not to determine its present value. Examples: Evaluations include studies as to the market and marketability of a property, feasibility, highest and best use, land use, and supply and demand.
- The legal process of removing a tenant from a premises as a result of a breach of a lease.
- The disturbance of a tenant's enjoyment of any material part of a leased premise by an act of the landlord, or by a claim of superior title by a third party. (See actual eviction, constructive eviction, lease, retaliatory eviction)
Exists where one is removed from the property, either by force or by process of law. Example: An apartment tenant may be subject to "actual eviction", in which case, a notice will be served requiring the tenant to vacate the apartment within a specified time interval.
Exists when, through the fault of the landlord, physical conditions of the property render it unfit for the purpose for which it was leased. Example: a landlord may allow the physical condition of an apartment to deteriorate to the point that the premises are no longer safe for occupancy. A tenant may be able to terminate the lease, order "constructive eviction", and end liability for future rent payments.
evidence of title
Proof of ownership of property; commonly a certificate of title, an abstract of title with lawyer's opinion, title insurance or a Torrens registration certificate.
When the rent of an existing lease exceeds the rental rate on comparable existing space. Should the lease expire or the tenant break the lease, the new rate will probably be at market rates. Example: Two years ago, the Data Corporation signed a 5-year lease on office space at $25 per square foot. Overbuilding of office space caused the market rental rate of that space to decline to $20. The $5 paid above "market rent" is considered "excess rent." This is part of the leased fee value, but a prospective buyer of that building should recognize that the excess rent will diminish upon lease expiration, or perhaps sooner.
A transaction in which all or part of the consideration for the purchase of real property is the transfer of property of "like kind" (i.e., real estate for real estate). (See like kind, realized capital gains)
excluded capital gain
Zoning that excludes stated uses.
exclusive agency listing
A written listing agreement giving a sole agent the right to sell a property for a specified time, but reserving to the owner the right to sell the property himself without owing a commission. The exclusive agent is entitled to a commission if he or she personally sells the property or if it is sold by anyone other than the seller. It is exclusive in the sense the property is listed with only one broker. The multiple-listing service must accept exclusive-agency listings submitted by participating brokers. (See listing agreement)
Like an exclusive buyer agency agreement, this is an exclusive contract between the buyer and the agent. However, this agreement limits the broker's right to payment. The broker is entitled to payment only if he or she locates the property the buyer ultimately purchases. The buyer is free to find a suitable property without obligation to pay the agent.
This is a completely exclusive agency agreement. The buyer is legally bound to compensate the agent whenever the buyer purchases a property of the type described in the contract. The broker is entitled to payment regardless of whether he or she locates the property. Even if the buyer finds the property independently, the agent is entitled to payment.
A clause in an agreement that relieves a party from all obligations for his or her acts or failure to act.
The act of making a document legally valid, such as formalizing a contract by signing, or acknowledging and delivering a deed. In some cases, execution of a document may refer solely to the act of signing; in other cases it may refer to complete performance of the document's terms.
The process of commencing proceedings to collect an amount owing by reason of a judgment.
A male person appointed by a testator to carry out the directions and requests in his or her last will and testament, and to dispose of his or her property according to the provisions of the will. State probate laws generally refer to this person as a "personal representative of the decedent."
A contract under which something remains to be done by one or more of the parties.
A female person appointed by a testator to carry out the directions and requests in his or her last will and testament, and to dispose of his or her property according to the provisions of the will. State probate laws generally refer to this person as a "personal representative of the decedent."
The allocation of expenses (either in whole or above a base year or expense stop) to a tenant based upon the tenant’s pro rata share.
A comparison of the "operating expenses" to "potential gross income." This ratio can be compared over time and with that of other properties to determine the relative operating efficiency of the property considered. Example: An apartment complex generates potential gross income of $1 million annually and incurs operating expenses of $400,000 over the same time period. The "expense ratio" of 40% can be compared to its historical rate and to that of other competitive properties. The comparison may disclose reasons for differences that may be used to bolster the property's efficiency.
An identified dollar amount, either on a dollar per square foot per year basis or a pro rata share basis of total operating expense cost, that the landlord is responsible for paying. Any increase over the expense “stop” will be passed through to the tenant.
A stated (written or verbal) agency agreement.
An oral or written contract in which the parties state the contract's terms and express their intentions in words.
extended coverage policy
A title insurance policy that covers risks normally excluded by most standard coverage policies. The standard policy normally insures the title only as shown by the public records. It does not cover unrecorded matters that might be discovered by an inspection of the premises. Most lenders require extended coverage mortgage title insurance policies. Extended coverage indemnifies the insured against such things as mechanic's liens, tax liens, miscellaneous liens, encumbrances, easements, rights of parties in possession and encroachments, which may not be disclosed by the public records. (See standard coverage policy, title insurance)
- A condition, once found in most listing forms, providing that the listing would continue for a set period of time, such as 90 days, and then would be automatically renewable until the parties agreed to terminate it. Use of such clauses in listing contracts is frowned on by the courts and violates many state license laws. The use of such a clause by an organization may be a violation of the antitrust laws. Such clauses, however, do not violate antitrust laws if inserted by individual brokers in their own exclusive listing forms, though the clause must state a final termination date.
- A "carryover" clause (often referred to as a safety clause) may be contained in a listing. It provides that a broker is still entitled to a commission for a set period of time after the listing has expired if the property is sold to a prospect of the broker introduced to the property during the period of the listing. A clause stating such conditions for payment might read "If within 90 days after expiration of the listing agreement, the property is sold to or exchanged with any person who physically inspected the property with the broker or any cooperating broker during the listing period if the broker gave the seller the name of such a person in writing within five days after the stated expiration date of the listing agreement." The owner should disclose to any broker seeking a listing whether there are any expired listings. Unless careful disclosure is made of any extender clauses in such expired listings, the owner could be faced with a claim for commissions from both the former broker who showed the buyer the property and the new broker. In many states the extender clause is revoked once the owner relists the property with another broker.
An agreement between two parties to extend the time period specified in a contract. Example: (1) When a tenant is unable to vacate the property at the termination of the lease, an "extension" may be granted by the landlord. (2) When a seller fails to clear the title in time for a closing, an "extension" of the closing date may be granted.
Reduction in a property's value caused by outside factors (those that are off the property).
A type of incurable depreciation caused by negative factors not on the subject property, such as environmental, social or economic forces. The loss in value cannot be reversed by spending money on the property. (See depreciation)