illusory contract

An apparent contract that is not a contract because the parties have not agreed to be bound.

imperfect market

A market in which (similar) properties are traded for either more or less than actual market value.

implied agency

An agency agreement created by the actions of the parties, and not a stated (written or verbal) agreement. (See express agency)

implied agreement/contract

A contract under which the agreement of the parties is demonstrated by their acts and conduct.

implied authority

The authority of an agent to perform acts reasonably necessary to accomplish the purpose of the agency.

implied easement

When the owner of two or more adjacent properties sells a part thereof, he or she grants by implication all those apparent and visible easements which are necessary for the reasonable use of the property granted. (See easement)

implied warranty

A theory in landlord/tenant law in which the landlord renting property implies quiet enjoyment of the property or that the property is habitable. (See habitability, quiet enjoyment)

impound account

A trust account established to set aside funds for future needs relating to a parcel of real property. Many mortgage lenders require an impound account to cover future payments for taxes, assessments, private mortgage insurance and insurance in order to protect their security from defaults and tax liens.

improved land

Land that has improvements. Land that has been partially or fully developed for use. Examples: any of the following activities on a piece of "raw land" will result in "improved land": (a) landscaping and grading, (b) installation of utilities, (c) construction of roads, curbs, and/or gutters, (d) construction of buildings.


  1. Any structure, usually privately owned, erected on a site to enhance the value of the property—for example, building a fence or a driveway.
  2. A publicly owned structure added to or benefiting land, such as a curb, sidewalk, street or sewer.

improvement allowance

The estimated actual dollar value (represented by a gross amount or an amount per square foot) of the improvement allowance being offered by the landlord.

improvement ratio

The relative value of "improvements" to the value of "unimproved property". Example: Land worth $250,000 was improved with a $1 million building. the "improvement ratio" is $1 million to $250,000, or 4:1.


Generally, the term refers to buildings but may also include any permanent structure or other physical item such as streets, sidewalks, curbs, parking areas, landscaping, utilities, etc. (See tenant improvements)

imputed interest

Implied interest. In a "mortgage" that states an insufficient interest rate, the law will impute that the rate is higher, and the "principal" is less. Example: Abel sells property to Baker. Baker gives Abel a portion of the price in cash and Abel takes "note" for the remainder. Since the gain on the sale is taxable at "capital gains" rates and the interest paid on the note is taxed as "ordinary income", it is in Abel's favor to set a higher price in exchange for charging a low rate of interest on the note. If this is done, the Internal Revenue Service (IRS) will consider a portion of the principal paid on the note as "imputed interest" and tax that portion as ordinary income.

in-house transaction

The situation that occurs when, in a sale or lease transaction, both the listing and the procuring agent are employed by the same brokerage firm.

incentive zoning

Zoning that offers incentives to developers, such as retail shops on the first floor of multistory office building if a plaza for public use is included. (See zoning)


Unfinished; begun but not completed. In real estate, this can apply to "dower" rights prior to the death of a spouse. Example: Collins dies, leaving dower rights "inchoate". Her children by a former marriage sue her widower to recover her share of property he sold.


money or other benefit coming from the use of property, skill, or business. Examples: In real estate, "income" may be produced by: (a) rents, (b) fees, (c) royalties, (d) sales of crops, timber, or livestock, (e) revenues derived from business activities on the property.

income capitalization approach

An approach to property valuation based on the anticipated economic benefits to be derived from ownership of a property. Sometimes called the “income approach.”

income capitalization value

The indication of value derived for an income-producing property by converting its anticipated benefits (cash flows and reversion) into property value in one of two ways: direct capitalization of expected income or discounting the annual cash flows for the holding period at a specified yield rate. [Appraisal Institute]

income method

An appraisal method. Also called the Investment Method, which is typically used for income producing properties. It converts the income steam produced by the property into a market value for the property by using a Capitalization Rate.

income property

Real estate that generates rental income. Examples: The following are types of "income property": apartment buildings, shopping centers, office buildings, industrial properties and warehouses, resort and recreational properties, hotels/motels and restaurants. The following are generally not considered income property: personal residences, undeveloped land (rental income is minimal), and schools, churches, and parks.

income ratio

The relationship between a person's total income and the amount needed to make one month's mortgage payment.

income return

Expressed as a percentage, the component of return derived from property or portfolio operations during the period of analysis.

income statement

A financial statement which lists the revenues and expenses of a business organization for a stated period of time. Also called a profit and loss statement.

income stream

A regular flow of money generated by a business or investment. Example: A "net lease" that pays $1,000 per month "rent" for 10 years provides an "income stream."

income tax

That part of taxable income which a person or corporation is required to forward to Revenue Canada periodically.

incorporeal right

A no possessory right in real estate; for example, an easement or a right of-way.

increasing and diminishing returns

The addition of more improvements to land and structures increases value only to the assets' maximum value. Beyond that point, additional improvements no longer affect a property's value. As long as money spent on improvements produces an increase in income or value, the law of increasing returns applies. At the point where additional improvements do not increase income or value, the law of diminishing returns applies.

incurable depreciation

A defect that cannot be cured or that is not financially practical to cure; a defect in the "bone structure" of a building. Compare to "curable depreciation." Example: it is estimated that if a specific house had a more convenient "floor plan," it would sell for an additional $5,000. The cost of rearranging the partitions to improve the floor plan is $10,000. The poor floor plan is an "incurable depreciation."


  1. To protect another person against loss or damage.
  2. To compensate a party for loss or damage.


A written agreement made between two or more persons having different interests. Example: The "indenture" "trustee" enforces the agreement made between the "bond" issuer (borrower) and the lender.


A brokerage firm operating on-its-own without an affiliation with a regional or national franchise.

independent contractor

One who is retained to perform a certain act, but who is subject to the control and direction of another only as to the end result and not as to how he or she performs the act. The critical feature, and what distinguishes an independent contractor from an employee or agent, is the degree of control the employer has over such a person's activities. Because many licensing laws make brokers responsible for the activities of their salespeople, even if they are independent contractors, many brokers want to exercise a high degree of control over such activities. However, the state licensing laws do not preclude the establishment of independent contractor status for tax purposes, provided the relationship is carefully structured to avoid possible classification of such a person as an employee. A broker should always consult a tax attorney concerning such matters. (See employee)


Used to set interest rates, such as the six month Treasury bill rate. (See index rate)

index lease

A rental agreement that requires changes in rent based on a published record of cost changes. See "cost of living index." Example: A landlord makes an "index lease" with initial rent at $10,000 per year, adjusted annually by the Consumer Price Index (CPI). If the CPI is 100 at the time of the lease and increases to 10 in the second year, the rent for the second year will be 10,000 x 1.10 - $11,000.

index method

The appraisal method of estimating building costs by multiplying the original cost of the property by a percentage factor to adjust for current construction costs.

index rate

The rate to which the interest rate on an adjustable rate loan is tied (see adjustable-rate mortgage). At set adjustment periods, the borrower's interest rate will move up or down as the index rate changes.

indexed loan

A long-term loan in which the "term", payment "interest rate", or "principal" amount may be adjusted periodically according to a specific "index." The index and the manner of adjustment are generally stated in the loan contract. Example: An "adjustable rate mortgage" is an "indexed loan." At specific intervals, the "face interest rate" on the loan may be changed according to variations in the specified "index."

Individual Retirement Account (IRA)

An Individual Retirement Account (IRA) is an IRS-approved way for any working individual to set aside savings for retirement each year in a tax-deferred account. The individual is not taxed for accumulated earnings in an IRA until benefits are withdrawn (usually after retirement when the person may be in a lower income tax bracket).

industrial broker

A real estate broker who specializes in brokering industrial real estate.

industrial development bonds

A bond that allows private investors to finance apartment and commercial development by using tax-exempt, inexpensive funds. TRA '86 imposed severe restrictions on this financing technique. (See TRA '86)

industrial gross rent

Rent that includes certain operating expenses (such as property taxes and insurance) in the base rent but excludes other operating expenses (such as utilities). Also called "modified gross rent." A lease bearing this type of rent is often referred to as an "industrial gross lease" or a "modified gross lease."

industrial revenue bonds

Bonds issued for the development of an industrial park or the construction of a building for lease to commercial tenants.


A loss in the purchasing power of money; an increase in the general price level. Generally measured by the Consumer Price Index, published by the Bureau of Labor Statistics. Example: Real estate is considered a hedge against "inflation" because it tends to be long-lasting and holds its value in real terms. As the value of the dollar drops, real estate tends to command more dollars. A home that was purchased in 1967 for $5000, resold in 1976 for $100,000 and in 1993 for $200,000. The home did nothing to cause its price to change; inflation caused the house to command more dollars.


The basic public works of a city or subdivision, including roads, bridges, sewer and water systems, drainage systems, and essential public utilities.


A way to enter a property; access. The opposite of egress.

inheritance taxes

A state "estate" tax imposed on heirs for their right to inherit property. The tax is not levied on the property itself, but rather on the heirs for their right to acquire the property by succession or devise. Therefore, the rates or the deductions may vary depending on the degree of the relationship. At the time of a person's death, a statutory lien usually attaches to all real property interests owned by the decedent, which lien remains in effect until the inheritance taxes have been paid and a "tax clearance" is issued. This applies even if property was held in joint tenancy with right of survivorship. (See estate taxes, statutory lien)

initial rate

The initial rate charged to a borrower for the first adjustment period of an adjustable rate mortgage. (See adjustable rate mortgage (ARMs))


A legal action whereby a court issues a writ that forbids a party defendant from doing some act or compels the defendant to perform an act. An injunction requires the person to whom it is directed to refrain from doing a particular thing, such as violating deed restrictions or house rules. (See restraining order)

installment contract

A contract for the sale of real estate whereby the purchase price is paid in periodic installments by the purchaser, who is in possession of the property even though title is retained by the seller until a future date, which may be not until final payment. Also called a contract for deed or articles of agreement for warranty deed.

installment note

A promissory note with payments of principal and interest made at designated intervals. (See promissory note)

installment sale

An income tax method of reporting gain received from the sale of real estate when the sales price is paid in installments, i.e., where at least one payment is to be received after the close of the taxable year in which the sale occurs. No down payment is required in an installment sale. If certain conditions are met the taxpayer can save on taxes by postponing the receipt of an installment and the reporting of such income to future years when his or her other income may be lower. Thus, a taxpayer can avoid paying the entire tax on the gain in the year of sale. (See realized capital gains)


Parts of the same "debt", payable at successive periods as agreed; payments made to reduce a "mortgage." Example: Abel purchases a property with a "land contract". the contract calls for a payment of $30,000 at "closing", with 10 annual "installments" of $15,000 each.

Institute of Real Estate Management (IREM)

A national organization concerned with professional management of real estate. The professional designation conferred by IREM is ARM, Accredited Resident Manager.

institutional lender

Financial intermediaries who invest in loans and other securities on behalf of their depositors or customers; lending and investment activities are regulated by laws to limit risk. Example: "Institutional lenders" are a prime source of real estate loans. Many organizations, such as "savings and loan associations" and "commercial banks" originate loans directly; others, such as insurance companies, lend through "mortgage brokers."

institutional properties

High-grade investment properties generally selling for $50 million or more and customarily bought and sold by pension fund advisors, Wall Street firms, REITs, and the like.


A written legal document, created to establish the rights and liabilities of the parties to it. Examples: "deed", "mortgage"

insurable value

The cost of total replacement of destructible improvements to a property. Example: Although the market value of the home was $100,000, its "insurable value" was $75,000, based on an allocation of $25,000 to the land and replacement costs of $75,000 for the structure and other man-made improvements.

insurance companies

Insurance companies accumulate large sums of money from the premiums paid by their policyholders. While part of this money is held in reserve to satisfy claims and cover operating expenses, much of it is free to be invested in profit-earning enterprises, such as long term real estate loans. Although insurance companies are considered primary lenders, they tend to invest their money in large, long-term loans that finance commercial and industrial properties rather than single-family home mortgages.

insurance coverage

Total amount and type of insurance carried. Example: The owner maintained $100,000 of "hazard" insurance coverage on the property, and $300,000 of "liability" insurance coverage. The "hazard insurance coverage" was adequate to meet the 80% "coinsurance" requirement in the policy.

insurance, mortgage

A service, generally purchased by a borrower, which will "indemnify" the lender in case of "foreclosure" of the loan. Indemnification is generally limited to losses suffered by the lender in the foreclosure process. See "FHA mortgage loan", "private mortgage insurance." Example: Abel took out a "home loan" covered by "mortgage insurance." After one year, Abel "defaulted" on the loan and the lender foreclosed. Abel owed $50,000, but the foreclosure sale produced only $40,000 in proceeds. The insurance company paid the lender the difference of $10,000.


A charge made by a lender for the use of money.

interest factor

In a table, numbers derived from formulas used to determine the present or future value of money. Interest factors are a function of interest rate and time, and can be derived for any combination of the two. (See future worth)

interest rate

  1. The percentage of a sum of money charged for its use.
  2. The rate of return on an investment. Example: A $50,000 mortgage loan is made at 12% interest and 4 "discount points." The contract "interest rate" is 12% and determines the monthly payment amount. The "effective rate" of interest, which incorporates the effects of the discount points, is 12.55% and is the rate of return to the lender if the loan runs to maturity.


A loan that carries periodic payments to interest but no principal reduction payments during its term. Such loans require a balloon payment for the principal balance at the end of the term.

interim financing

A short-term loan usually made during the construction phase of a building project (in this case often referred to as a construction loan).

interim occupancy agreement

An agreement allowing a buyer to take possession of a property as a tenant prior to close of escrow.

intermediate theory

Some states have adopted an intermediate theory of mortgage based on the principles of title theory, but requiring the mortgagee (lender) to foreclose to obtain legal title as is necessary in lien theory. (See lien theory, title theory)

internal rate of return (IRR)

Also known as the “IRR.” When valuing property by the discounted cash flow analysis technique, this term describes the interest rate used to calculate the net present value of an investment property. When used in this manner, it is also called the “discount rate.” Investors can also use this term to refer to a projected yield when evaluating a proposed property purchase at a given price (in this case, the price is known and the DCF technique is used to calculate the IRR).


A judicial proceeding by which, when two parties make the same claim against a third party, the rightful claimant is determined. As such, he could require them to litigate their problems between themselves, instead of litigating it with him.

Interstate Land Sales Full Disclosure Act

A federal law, enacted in 1968, that regulates interstate land sales by requiring registration of real property with the Office of Interstate Land Sales Registration (OILSR) of the U.S. Department of Housing and Urban Development (HUD). The main purpose of the act is to require disclosure of full and accurate information regarding the property to prospective buyers before they decide to buy. To comply with the act, the developer must prepare a statement of record and register the subdivision with HUD. After the registration is effective, the developer must deliver to the purchaser (and obtain a receipt for) the property report before execution of the purchase agreement. The developer must give prospective buyers a cooling-off period of seven calendar days to consider the material contained in the property report. Many large subdivisions are registered with HUD because HUD regulations apply if the developer uses the mails or any other means of interstate commerce in the sale of lots. There is an intrastate exemption to the regulations of the act that is limited in scope and very narrowly construed. If the subdivision contains fewer than 300 lots that are sold or leased to residents of the same standard metropolitan statistical area (SMSA) in which the subdivision is located (leeway is given so that 5 percent or less of sales in any one year may be made to residents of another state), the subdivider may apply for the exemption. Some of the more common exemptions from HUD filing requirements are: Subdivisions in which there are fewer than 100 lots. If there are fewer than 25 lots, there is a total exemption from the act, not just from the registration and disclosure requirements. Subdivisions in which all the lots are 20 acres or larger (inclusive of easements). Subdivisions in which the land is improved by a building or in which there is a contract obligating the seller to erect such a building within a period of two years. Bulk sales of lots to another developer. Sale to a contiguous owner. Fewer than 12 sales per year. Sales to a governmental agency. Sales of a single-family residential subdivision when the subdivision meets local code standards, title passes within 180 days after the contract and the seller refrains from promotional techniques such as gifts and dinner programs. Note that condominium units are considered by HUD to be lots "in the sky," and thus the developer may have to register a condominium with HUD as well as the local regulatory agency. The risk of noncompliance is greatest in those larger projects in which the developer is building in separate increments but promotes the use of common facilities that may not be completed for more than two years (such as a golf course). A developer need not register with HUD a condominium in which each unit has been completed before sale. In this regard, the term completed means habitable and ready for occupancy. The developer can also avoid registration (and thus not be required to furnish buyers with a property report) if the unit is sold under a contract that obligates the seller to complete construction of the development within two years following the sale, as long as construction is not delayed by conditions beyond the developer's control. Also, the developer need not give a prospective buyer a HUD property report before the buyer signs a reservation, only before he or she signs a contract to buy. A registered subdivider who sells on an installment contract must refund any payments over 15 percent of the purchase price (excluding interest owed) if the purchaser defaults on the contract. This requirement can be avoided if the contract requires the subdivider to deliver legal title within 180 days after the execution of the contract. The three-year statute of limitations for fraud does not begin to run until discovery of the fraud is made or should have been made. Note that even though a particular subdivider or subdivision may be exempt from registration under the law (e.g., a 60-lot subdivision), it is still unlawful to make false statements regarding such sales by means of interstate commerce. However, if there are fewer than 25 lots, then the subdivider is not subject to any provision of the act.


The condition of a property owner who dies without leaving a valid will. Title to the property will pass to the decedent's heirs as provided in the state law of descent.

intestate succession

A succession of a property to the heirs when a person dies without a will.

intrinsic value

An appraisal term referring to the value created by a person's personal preferences for a particular type of property.


  1. To come into use; take or have effect.
  2. To become beneficial or advantageous.


The total square footage of a particular property type in a market/submarket. Inventory can also refer more specifically to a particular property use type and/or property of a particular class. Also called "market square footage," as applied to a specified market.

inverse condemnation

A property owner forcing a government to take a property by eminent domain when that government's actions resulted in the owner's inability to use the property. (See condemnation, eminent domain)


Money directed toward the purchase, improvement and development of an asset in expectation of income or profits.

investment-grade properties

Those investment properties, generally in the $20 million to $50 million price range usually traded by private syndicators and larger private investors.

investment group financing

Large real estate projects, such as high-rise apartment buildings, office complexes and shopping centers, are often financed as joint ventures through group financing arrangements like syndicates, limited partnerships and real estate investment trusts. (See equity trust)

investment property

A property that is not occupied by the owner; rather, it is purchased for its income and appreciation potential.

investment property rule

The Internal Revenue Code specifies that no gain or loss should be recognized on the exchange of property held for productive use in trade or business or for investment if the property is exchanged for property of like kind that is to be held for productive use in trade or business or for investment. (See like kind)


One who owns commercial property for its potential income, appreciation, and income tax benefits.

involuntary conversion

Condemnation or sudden destruction by nature. Example: A property is taken by "eminent domain" for the purpose of constructing a public highway. This "involuntary conversion" of the property is contrasted with a sale that the owner enters into voluntarily.

involuntary lien

A lien placed on property without the consent of the property owner. (See lien).


Incapable of being recalled or revoked; unchangeable. Example: The bank issued an "irrevocable" "letter of credit" stating that if the terms of the "contract" were met the bank would lend the money requested.

IRS tax lien

A federal tax lien, or Internal Revenue Service (IRS) tax lien, results from a person's failure to pay any portion of federal taxes, such as income and withholding taxes. A federal tax lien is a general, statutory, involuntary lien on all real and personal property held by the delinquent taxpayer. Its priority, however, is based on the date of filing or recording; it does not supersede previously recorded liens. (See lien)