Nick DiPino

Commercial Real Estate Valuations and Reviews

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There are three primary means of appraising commercial real estate: the cost approach, sales comparison approach and the income capitalization approach. Each method has value depending on the situation and type of real estate involved. real estate image by Andrei Merkulov from <a href='http://www.fotolia.com'>Fotolia.com</a> real estate image by Andrei Merkulov from <a href='http://www.fotolia.com'>Fotolia.com</a> There are three primary methods for commercial real estate appraisal. 2526b23d-0df0-2040-5468-e74c00c574cd300400 Cost Approach The cost approach is not commonly used. The primary assumption of this method is that the value is the same as the cost to construct the property or replacement cost. This method requires an in-depth knowledge of construction and material costs. Sales Comparison/Market Approach This is the method most are familiar with as it is the accepted method for valuing residential real estate. Typically this method involves selecting properties with similar characteristics in the the same market area that have recently sold. Once those properties are found they are compared to the property in question and a professional appraiser will deduct value from the subject property for comparative deficiencies and increase value for advantages. Typically this method is required if the investor is seeking conventional financing. Income Capitalization Approach This valuation method is a short-hand means for real estate investors to determine the value of a property based on its income in comparison to similar properties. Essentially, if the investor knows what prevailing capitalization rates are in a given market for that type of property, he can divide the income generated by the property by the capitalization rate and come up with a sales value as a result

Certified Residential Real Property Appraiser is the minimum qualification for valuing any residential property with a loan amount exceeding $250,000 and for valuing any other type of real property with a loan value of less than $250,000. Candidates for this certification must have at least an associate degree or in lieu of the degree, 21 units of specified college-level education. In addition, this certification requires 200 hours of appraiser-specific classroom training and 2,500 hours of work experience accrued over at least 2 years.

Certified General Real Property Appraisers have no restrictions on the types or values of real property for which they can give valuations. Candidates for this certification must have at least a bachelor's degree, or in lieu of the degree, 30 units of specified college-level education. In addition to a degree, this certification requires 300 hours of appraiser-specific classroom training and 3,000 hours of work experience accrued over at least 30 months. At least half of these hours must be in nonresidential appraisal work.

In addition to the Federally required Certified Residential and Certified General Real Property Appraiser classifications, most States also have the Licensed Residential Real Property Appraiser classification. Holders of this license are permitted to appraise noncomplex one-to-four residential units having a transaction value of less than $1,000,000, and complex one-to-four residential units having a transaction value of less than $250,000. For the Licensed Residential Appraiser classification, candidates must obtain 150 qualifying education hours and at least 2,000 hours of on-the-job training obtained over a period of no less than 1 year. In addition, all candidates must pass an examination.

In many States, those working on their appraiser requirements for licensure or certification are classified as a "trainee." Training programs vary by State but usually require at least 75 hours of specified appraisal education before one can apply for a trainee position. The number of additional courses trainees must take depends on the State requirements and the kind of license they wish to obtain.

Across all levels of certification and licensure, 15 hours of classroom education must be devoted to the Uniform Standards of Professional Appraisal Practice (USPAP), which are set forth by the Appraisal Standards Board (ASB) of the Appraisal Foundation. Additionally, the Licensed Residential, Certified Residential, and the General Real Property Appraiser designations each have an associated examination that must be passed before these credentials are awarded.

For both appraisers and assessors, continuing education is necessary to maintain a license or certification. The minimum continuing education requirement for appraisers is 14 hours per year. Appraisers must also complete a 7-hour National USPAP Update Course every 2 years. Some States have further requirements. Continuing education may be obtained in any State-approved school or facility, as well as in recognized seminars and conferences held by associations or related organizations. Assessors also must fulfill a continuing education requirement in most States, but the amount varies by State.

The GRM ratio is a capitalization method used for calculating the rough value of an income producing commercial property based on the property's gross rental income.

While it sounds a little tricky, it really is quite easy as long as you can get your hands on some basic information. To calculate the rough value of a commercial property using the Gross Rent Multiplier approach to valuation, you will need the following information: GRM ratio - contact a local commercial appraiser, a local commercial real estate agent, or calculate a GRM on your own using recent comparable sales - more on this later - Gross annual or monthly rents for the subject property Once you have a GRM ratio and the gross rents for the subject property, you can calculate the property's rough value by simply multiplying the two together. The calculation looks like this: Value = Annual Gross Rents X Gross Rent Multiplier (GRM) $640,000 = $80,000 X 8 (GRM) In this example, a property that generates $80,000 a year in gross rental income is worth $640,000 based on a GRM of 8. Wow, that was easy, but how accurate can the Gross Rent Multiplier (GRM) valuation method be based on such as simple approach? While using the GRM to value a commercial property has it's limitations, its actually quite accurate and make sense once you understand the basics of a commercial appraisal. A commercial appraisal typically values a property based on a three tier approach: income, replacement, and sales comparison. The final value of a commercial property blends the income and sales comparison methods together to determine the property's actual value. Since our valuation of a property using the GRM ratio depends on both gross income and recent sales, it only makes since that the GRM approach to valuation is quite accurate. How to Calculate Your Own Gross Rent Multiplier - GRM Ratio - So you called the local appraiser and he told you to take a hike, to put it politely! What now? Contact a commercial real estate agent and ask for a couple of listings for property types similar to yours. To calculate a GRM, take the listed selling price and the annual gross rental income and divide one into the other, the equation looks like this: GRM = Sales Price / Annual Gross Rents 8 = $640,000 /  $80,000 In this example, the GRM for a property with a listing price of $640,000 and $80,000 in gross rental income, is 8. Then, simply average the respective gross rent multipliers together and you have a good indicator of the local market GRM for your property type. As you can see, it is rather easy to determine the value of a commercial property using the Gross Rent Multiplier (GRM) approach to valuation. And since the major determinant of value for an income producing property is gross rents and comparable sales, the GRM is fairly accurate as well.

 

Certifications

ABSORPTION RATE
The ratio of the number of properties in an area that have been sold against the number available in a particular market. Can be broken down to different types and sizes of properties. These rates are used to show the volatility of a market.

ABSTRACTION METHOD
A Method of estimating the value of property using similar properties available in the same market to determine the value of a parcel of land. It is a structured analysis to systematically examine demand factors needed to support any increase in supply of real estate space in any given area.

ACCELERATION CLAUSE:
This is a clause in your mortgage or loan that allows the lender the legal right to demand the full payment of your loan if you default. This payment can be due immediately upon your failure to pay or if the borrower transfers the title to the property to another individual without informing the lender, this also applies to non payment of property taxes or homeowners insurance. Most mortgages contain the acceleration clause as a protection for the lender.

ACCESSORY BUILDING
A structure on a property that serves a special purpose or complements the home or main building like a garage or shed is an accessory building. In most zoning districts an accessory building can be erected unattached from the house or main building. 

ACCRETION
The natural growth of a piece of land resulting from forces of nature or the gradual addition to the shore or bank of a waterway by deposits of sand or silt. This natural process of land addition on a stream, lake or seaside is a special gift from mother nature to the land owner.

ACRE
A tract of land containing 43,560 square feet, or 0.0016 square miles of land. An acre measures 208.71 feet on each side. In the metric system, one acre equals 0.4047 hectare or 40.47 area. When purchasing real estate, whether it is land void of a structure, or land with a structure, it is important for every buyer to be aware of the land size. The survey will notify the buyer of the land size.

ACTUAL AGE 
In appraisal terms the chronological age of an improvement, as contrasted with its Effective Age. Example: Although the actual age of the building was only 5 years, excessively heavy use made it appear much older. When purchasing insurance on your property, you will need to know the actual age.

ADJUSTMENT DATE
An adjustment date is the date on an adjustable rate mortgage that the interest rate changes. This date is frequently predetermined and, the amount of the adjustment rate is also predetermined when the mortgage is written

AD VAL OREM TAX 
Refer to the taxes assessed by the government agency, the office of the assessor, based on the value of the land and improvements. The office of the assessor will list and value all taxable property, real and tax purposes.

ADDENDUM 
An addendum to a real estate contract or purchase agreement is a document that becomes a part of the original contract to explain or add information or requirements that are not clear in the original contract. Appraisers might use an addendum to explain items for which there was inadequate space on the original contract.

ADJUSTABLE RATE MORTGAGE 
A type of mortgage program in which the interest rate and payments are adjusted as frequently as every month. The purpose of the program is to allow mortgage interest rates to fluctuate with market conditions. The moving of these rates higher and lower are usually pre-selected.

ADJUSTED BASIS 
The base price of an asset or security that reflects any deductions taken on or improvements to the property or security, used to compute the gain or loss when sold.

ADJUSTED SALES PRICE 
The adjusted sales price is an adjustment of the selling price of a property, sometimes used to match the characteristics of another property. Since no two parcels of land are exactly the same, an appraiser will analyze a other sales to find patterns, and assign dollar amounts to the main differences and then adjust the selling price. An example is two homes, next door to each other and looking exactly the same except one might have a garage attached. A momentary amount will be assigned to the garage. This amount will add to the selling price. The difference in the selling price would be the adjusted sales price

AESTHETIC VALUE 
Increment of market or user value attributed to the appearance of a property. Example: The lake and mountain setting of the vacation cabin contributed a great amount of aesthetic value to the property. A tennis court, swimming pool or beautiful landscaping can also increase the value of a property and allow the owner to obtain more of a premium price.

AFFIRMATION 
A declaration that a certain set of facts are truthful, made under the penalties of perjury by a person who conscientiously declines taking an oath

AFFORDABILITY ANALYSIS 

A calculation used to determine an individual's likelihood of being able to meet the obligations of a mortgage for a particular property. Takes into account the down payment, closing costs and on-going mortgage payments. This information is important for both the buyer and the seller.

 

AGENT

A person who has been appointed to act on behalf of another for a particular transaction, also know as a foot soldier, because he or she finds properties for a particular buyer and then takes the buyer to view the property and handles all aspects to the purchasing of the property.

AMENITY 
Any feature of a property that increases its value or desirability. These might include natural amenities such as location or proximity to mountains, or man-made amenities like swimming pools, parks or other recreation. Might also include proximity to schools, libraries and shopping.

AMERICAN SOCIETY OF APPRAISERS 
An appraisal organization consisting of persons involved in the appraisal of both real and personal property. Appraisers are not restricted to just real estate, but also appraisers are used to appraise a business for sale, or for estate taxes or an inheritance.

AMORTIZATION 
To reduce a debt by regular payments of both principal and interest, as opposed to interest only payment. The operation of paying off indebtedness, such as a mortgage, by installments. 

AMORTIZATION SCHEDULE 
A table which shows the payment amount applied toward the principal and the interest amount over the life of the loan. The gradual decrease of the loan balance should also be shown over the life of the loan. The gradual decrease of the loan balance should also be shown until it reaches zero

AMORTIZATION TERM 
The length of time over which an amortized loan is repaid. Mortgages are commonly amortized over 15 or 30 years

AMPERAGE 
A measurement of the amount of electric current, The rate of flow of electricity through wire - measured in terms of amperes. A measure of the volume of electric flow (as opposed to the "pressure" of flow, which is measured in volts). The product of volts times amperes is equal to power which is measured in watts. One ampere flowing at 100 volts equals 100 watts. Similarly, 10 amperes flowing at 10 volts equals 100 watts. Amperes are commonly referred to simply as "amps."

ANNUAL PERCENTAGE RATE 
The interest rate reflecting the cost of a mortgage as a yearly rate. This rate might be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. the APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

ANNUITY 
An Annuity is a form of an investment that is typically provided by an insurance company. An annuity guarantees payments of pre-set amounts and pre-set times,, money paid at regular intervals, often annuity.

 

APPLICATION

 A form used to apply for a mortgage loan that details a potential borrower's income, debt, savings and other information used to determine credit worthiness or a verbal request for assistance or employment or admissions to a school.

APPRAISAL 
A defensible and carefully documented opinion of value. Most commonly derived using recent sales of comparable properties by a licensed, professional appraiser. Not only used for real estate, but also used to appraise estates for tax purposes or inheritance.

APPRAISAL FOUNDATION 
A not-for-profit educational organization established by the appraisal profession in the United States in 1987. It is dedicated to the advancement of professional valuation and responsible for establishing, improving, and promoting the Uniform Standards of Professional Appraisal Practice (USPAP).

APPRAISAL INSTITUTE 
A world-wide organization dedicated to real estate appraisal education, publication and advocacy.

 

APPRAISAL PRINCIPLES 

The basic building blocks of the property valuation process, including property inspection, market analysis and basic economics.

APPRAISAL REPORT 
The end result of the appraisal process usually consists of one major standardized form such as, the Uniform Residential Appraisal Report form 1004, as well as all supporting documentation and additional detail information. The purpose of the report is to convey the opinion of value of the subject property and support that opinion with corroborating information

APPRAISAL STANDARDS BOARD (ASB) 
An independent board of the APPRAISAL FOUNDATION, which writes, amends, and interprets USPAP. The ASB is composed of up to seven appraisers appointed by the Foundation's Board of Trustees. The ASB holds public meetings throughout the year to interpret and amend USPAP.

APPRAISED VALUE 
An opinion of the fair market value of a property as developed by a licensed, certified appraiser following accepted appraisal principals.

APPRAISER 
An educated, certified professional with extensive knowledge of real estate markets, values and practices. The appraiser is often the only independent voice in any real estate transaction with no vested interest in the ultimate value or sales price of the property.

APPRECIATION 
The natural rise in property value due to market forces, or another way to describe appreciation is the increase in value of a property over time due to inflation, 

ARMS LENGTH TRANSACTION 
Any transaction in which the two parties are unconnected and have no overt common interests. Such a transaction most often reflects the true market value of a property.

ASSESSED VALUE 
The value of a property according to jurisdictional tax assessment.

ASSESSMENT 
The function of assigning a value to a property for the purpose of levying taxes.

ASSESSMENT RATIO 
The comparative relationship of a property's assessed value to its market value.

ASSESSOR 
The jurisdictional official who performs the assessment and assigns the value of a property.

ASSET 
Any item of value which a person owns.

ASSIGNMENT 
Transfer of ownership of a mortgage usually when the loan is sold to another company.

ASSUMABLE MORTGAGE 
A mortgage that can be taken over by the buyer when a home is sold. 

ASSUMPTION 
When a buyer takes over, or "assumes" the sellers mortgage.

ATTACHED HOUSING 
Any number of houses or other dwellings which are physically attached to one another, but are occupied by a number of different people. The individual houses may or may not be owned by separate people as well.

BACKFILL 
Soil that is used to create a retaining wall on all or part of a property, or the slope of ground around a house, material placed adjacent to the retaining wall. 

BALL COCK VALVE 
The valve inside a toilet tank that controls the filling of the tank. Restricts water flow.

BALLOON MORTGAGE 
A mortgage loan in which the monthly payments are not large enough to repay the loan by the end of the term. So at the end of the term, the remaining balance comes due in a single large payment.

BALLOON PAYMENT 
The final large payment at the end of a balloon mortgage term.

BANKRUPTCY 
When a person or business is unable to pay their debts and seeks protection of the state against creditors. Bankruptcies remain on credit records for up to ten years and can prevent a person from being able to get a loan.

BEAM 
A structural supporting member

BILL OF SALE 
A physical receipt indicating the sale of property, or a document that attests a transfer of the ownership of personal property.

BIWEEKLY MORTGAGE 
A mortgage where you make "half payments" every two weeks, rather than one payment per month. This results in making the equivalent of 13 monthly payments per year, rather than 12, significantly reducing the time it takes to pay off a thirty year mortgage.

BLIGHTED AREA 
Any region of a city or town that has fallen into disrepair or otherwise has become undesirable.

BONA FIDE 
Any genuine offer, made without intent to defraud or deceive.

BRIDGE FINANCING 
An interim loan made to facilitate the purchase of a new home before the buyer's current residence sells and its equity is available to fund the new purchase

BRIDGING 
Structural members used between beams to strengthen the structure.

BROKER 
An individual who facilitates the purchase of property by bringing together a buyer and a seller. Most agents are completely dependent upon commissions from sellers for their income, so it pays to find out which side the agent represents (buyer, seller or both).

BTU 
British Thermal Unit. A unit of measurement used to describe heating or cooling capacity, that is used in the United States and sometimes in the U.K. 

BUFFER ZONE 
A segment of land between two disparate municipal zones which acts as a shield to keep one zone from encroaching upon the other. Often used to separate residential districts from commercial areas.

BUILDING CODE 
Regulations that ensure the safety and material compliance of new construction within a municipality. Building codes are localized to ensure they are adequate to meet the risk of common hazards.

BUILDING LINE OR SETBACK 
The statutory distance between buildings and the property line, imposed by municipalities, home associations, or other agreements. 

BUILT-INS 
Specific items of personal property which are installed in a real estate improvement such that they become part of the building. Built-in microwave ovens and dishwashers are common examples.

BUNGALOW 
A one-story, home-style dating from the early twentieth century. Often characterized by a low-pitched roof.

BUY DOWN 
Extra money paid in a lump sum to reduce the interest rate of a fixed rate mortgage for a period of time. The extra money may be paid by the borrower, in order to have a lower payment at the beginning of the mortgage. Or paid by the seller, or lender, as incentive to buy the property or take on the mortgage.

BX CABLE 
Electrical cable shrouded in a galvanized steel outer cover.

CALL OPTION 
A clause in a mortgage which allows the lender to demand payment of the outstanding balance at a specific time.

CAP 
Associated with Adjustable Rate Mortgages. A limit on how high monthly payments or how much interest rates may change within a certain time period or the life of the mortgage.

CAPE COD COLONIAL 
A single-story house style made popular in New England. Often characterized by a steep roof with gables.

CAPITAL 
Accumulated goods and money which is most often used to generate additional income. The assets of a business that can be applied to its operation. The amount of current assets that exceeds current liabilities

CAPITAL EXPENDITURE 
An outlay of funds designed to improve the income-producing capabilities of an asset or to extend its economic life. Money spent to acquire or upgrade physical assets such as buildings and machinery. 

CASH-OUT REFINANCE 
Refinancing a mortgage at a higher amount than the current balance in order to transform a portion of the equity into cash.

CAULKING 
A pliable material used to seal cracks or openings such as around windows

CAVEAT EMPTOR 
Literally translated: ''Let the buyer beware.'' A common business tenet whereby the buyer is responsible for verifying any and all claims by the seller of property.

CERTIFICATE OF DEPOSIT 
A document showing that the bearer has a certain amount of money, at a particular amount interest, on deposit with a financial institution.

CERTIFICATE OF DEPOSIT INDEX 
An index based on the interest rate of six month CD's. Used to set interest rates on some Adjustable Rate Mortgages.

CERTIFICATE OF ELIGIBILITY 
A document issued by the Veterans Administration that certifies eligibility for a VA loan.

CERTIFICATE OF OCCUPANCY 
Issued by an appropriate jurisdictional entity, this document certifies that a building complies with all building codes and is safe for use or habitation.

CERTIFICATE OF REASONABLE VALUE (CRV) 
Usually based on an independent appraisal, a CRV for a particular property establishes the maximum amount which can be secured by a VA mortgage.

CERTIFICATE OF TITLE 
A document designating the legal owner of a parcel of real estate. Usually provided by a title or abstract company.

CERTIFIED GENERAL APPRAISER 
Generally, any professional who has met the local or state requirements, and passed the appropriate certification exam, and is capable of appraising any type of property.

CERTIFIED RESIDENTIAL APPRAISER 
A sub-classification of appraiser who is only licensed to appraise residential property, usually up to four units.

CHAIN OF TITLE 
The complete history of ownership of a piece of property, An analysis of the transfers of title to a piece of property over the years and a history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

CHATTEL 
Any personal property which is not attached to or an integral part of a property. Personal property. Chattel is not commonly taken into consideration when appraising the value of real property

CIRCUIT BREAKERS 
Electrical devices which automatically open electrical circuits if they are overloaded.

CLEAR TITLE 
Ownership of property that us not encumbered by any counter claim or lien, title that is not burdened with defects, legal questions as to who owns the property, a marketable titile.

CLOSING 
A torturous process designed to induce cramping in a home buyer's hands by requiring signature on countless pieces of documentation that nobody has ever read. Or, the process whereby the sale of a property is consummated with the buyer completing all applicable documentation, including signing the mortgage obligation and paying all appropriate costs associated with the sale (Closing Costs).

CLOSING COSTS 
All appropriate costs generated by the sale of property which the parties must pay to complete the transaction. Costs may include appraisal fees, origination fees, title insurance, taxes and any points negotiated in the deal.

CLOSING STATEMENT 
The document detailing the final financial arrangement between a buyer and seller and the costs paid by each.

CO-BORROWER 
A second person sharing obligation on the loan and title on the property.

COLLATERAL 
An asset which is placed at risk to secure the repayment of a loan.

COLLECTION 
The process a lender takes to pursue a borrower who is delinquent on his payments in order to bring the mortgage current again. Includes documentation that may be used in foreclosure.

CO-MAKER 
A second party who signs a loan, along with the borrower, and becomes liable for the debt should the borrower default.

COMMON LAW 
As opposed to statute law. Laws that have been established by custom, usage and courts over many years.

COMMISSION 
A percentage of the sales price or a fixed fee negotiated by an agent to compensate for the effort expended to sell or purchase property. 

COMMON AREA ASSESSMENTS 
Fees which are charged to the tenets or owners of properties to cover the costs of maintaining areas shared with other tenets or owners.  

COMMON AREAS 
Any areas, such as entryways, foyers, pools, recreational facilities or the like, which are shared by the tenets or owners of property near by. Commonly found in condominium, PUD or office spaces.

COMMUNITY PROPERTY 
In many jurisdictions, any property which has been acquired by a married couple. The ownership of the property is considered equal unless stipulated otherwise by both parties.

COMPARABLES 
An abbreviated term used by appraisers to describe properties which are similar in size, condition, location and amenities to a subject property whose value is being determined. The Uniform Standards of Professional Appraisal Practice (USPAP) establish clear guidelines for determining a comparable property.

COMPOUND INTEREST 
Interest paid on the principal amount, as well as any accumulated interest.

CONCESSIONS
Additional value granted by a buyer to entice another party to complete a deal, could be a property with tax abatements.

CONDEMNATION 
The official process by which a property is deemed to be uninhabitable or unusable due to internal damage or other external conditions.

CONDENSATION 
The transition of water vapor to liquid. Typically forms in areas of high humidity.

CONDOMINIUM 
A development where individual units are owned, but common areas and amenities are shared equally by all owners.

CONDOMINIUM CONVERSION 
Commonly, the conversion of a rental property such as an apartment complex into a condominium-style complex where each unit is owned rather than leased.

CONDUIT 
A metal pipe that houses electrical wiring, or pipe or tubing through which cables can be pulled or housed.

CONSTRUCTION LOAN
A loan made to a builder or home owner that finances the initial construction of a property, but is replaced by a traditional mortgage one the property is completed. 

CONTIGUOUS
Very close or connected in space or time; "contiguous events"; : connecting without a break; within a common bounds" immediate contact"; "the immediate vicinity"; "the immediate past, 

CONTINGENCY 
Something that must occur before something else happens. Often used in real estate sales when a buyer must sell a current home before purchasing a new one. Or, when a buyer makes an offer that requires a complete home inspection before it becomes official.

CONTRACT 
A legally binding agreement, oral or written, between two parties.

CONVENTIONAL MORTGAGE 
A traditional, real estate financing mechanism that is not backed by any government or other agency (FHA, VA, etc.). 

CONVERTIBLE ARM 
A mortgage that begins as and adjustable, that allows the borrower to convert the loan to a fixed rate within a specific timeframe.

COOPERATIVE (CO-OP) 
A form of ownership where each resident of a multiunit property owns a share in a cooperative corporation that owns the building. With each resident having rights to a specific unit within the building.

CORPORATE RELOCATION 
A situation where a person's employer pays all or some of the expenses associated with moving from one location to another, usually over a substantial distance. Relocation expenses often include the amounts, such as brokerage fees, incurred in the selling and buying of the employee's primary residence. 

COST OF FUNDS INDEX (COFI) 
An index of financial institutions costs used to set interest rates for some Adjustable Rate Mortgages.

COVENANT 
A stipulation In any mortgage that if not not met, can cause the lender to foreclose, A covenant restricting or limiting property rights to land, or a deed restriction, in which it is specified that ownership of the land cannot be transferred unless the new owner agrees to continue to abide by the covenant.

CREDIT 
A loan of money for the purchase of property, real or personal. Credit is either secured by an asset, such as a home, or unsecured.

CREDIT HISTORY 
A record of debt payments, past and present. Used by mortgage lenders in determining credit worthiness of individuals.

CREDITOR 
A person to whom money is owed.

CREDIT HISTORY 
A record of debt payments, past and present. Used by mortgage lenders in determining credit worthiness of individuals.

CREDITOR 
A person to whom money is owed.

CREDIT REPORT 
A detailed report of an individuals credit, employment and residence history prepared by a credit bureau. Used by lenders to determine credit worthiness of individuals.

CREDIT REPOSITORY 
Large companies that gather and store financial and credit information about individuals who apply for credit.

CUL-DE-SAC 
A dead-end street. One with only one entrance/exit. 

DATE OF APPRAISAL 
The specific point in time as of which an appraiser designates the value of a home. Often stipulated as the date of inspection.

DEBT 
An obligation to repay some amount owed. This may or may not be monetary. 

DEBT EQUITY RATIO 
The ratio of the amount a mortgagor still owes on a property to the amount of equity they have in the home. Equity is calculated at the fair-market value of the home, less any outstanding mortgage.

DEED 
A deed is a legal instrument used to grant a right. The deed is best known as the method of transferring title to real estate from one person to another, often using a description of its "metes and bounds.

DEED IN LIEU 
Deed from the owner (debtor) to a lender to prevent foreclosure. When a property owner, faced with an inevitable foreclosure and loss of property, deeds the property back to the lender. The purpose is to avoid the foreclosure notification being sent to the credit bureaus. The deed and lieu will still show up on your credit, and affect the credit adversely. Most creditors view a deed in lieu as a foreclosure.

DEED OF TRUST 
A document which transfers title in a property to a trustee, whose obligations and powers are stipulated. Often used in mortgage transactions.

DEED OF RECONVEYANCE 
A document which transfers ownership of a property from a Trustee back to a borrower who has fulfilled the obligations of a mortgage.

DEED OF RELEASE 
A document which dismisses a lien or other claim on a property.

DEED OF SURRENDER 
A document used to surrender any claim a person has to a property.

DEFAULT 
The condition in which a borrower has failed to meet the obligations of a loan or mortgage.

DELINQUENCY 
The state in which a borrow has failed to meet payment obligations on time. Overdue in payment: a delinquent account.

DEPOSIT 
Cash given along with an offer to purchase property, Also called earnest money.

DEPRECIATION 
The natural decline in property value due to market forces or depletion of resources.

DETACHED SINGLE-FAMILY HOME 
A single building improvement intended to serve as a home for one family.

DISCOUNT POINTS 
Points paid in addition to the loan origination fee to get a lower interest rate. One point is equal to one percent of the loan amount.

DISTRESSED PROPERTY 
A mortgaged property which has been foreclosed on.

DOWNSPOUT 
The pipe that water moves through to reach the ground from the rain gutter.

DUE-ON-SALE PROVISION 
A clause in a mortgage giving the lender the right to demand payment of the full balance when the borrower sells the property.

DUPLEX 
A single-building improvement which is divided and provides two units which serve as homes to two families.

DWELLING 
A house or other building which serves as a home.

DOWN PAYMENT 
An amount paid in cash for a property, with the intent to mortgage the remaining amount due.

EARNEST MONEY DEPOSIT 
A cash deposit made to a home seller to secure an offer to buy the property. This amount is often forfeited if the buyer decides to withdraw his offer.

EASEMENT 
The right of a non-owner of property to exert control over a portion or all of the property. For example, power companies often own an easement over residential properties for access to their power lines.

EAVE 
The part of the roof that extends beyond the exterior wall.

ECONOMIC DEPRECIATION 
The decline in property value caused by external forces, such as neighborhood blight or adverse development.

ECONOMIC LIFE 
The amount of time which any income-producing property is able to provide benefits to its owner.

EFFECTIVE AGE 
The subjective, estimated age of a property based on its condition, rather than the actual time since it was built. Excessive wear and tear can cause a property's effective age to be greater than its actual age.

EMINENT DOMAIN 
The legal process whereby a government can take ownership of a piece of property in order to convert it to public use. Often, the property owner is paid fair-market value for the property. 

ENCROACHMENT 
A building or other improvement on one property which invades another property or restricts is usage. Building, or part of a building, or obstruction that physically intrudes upon, overlaps, or trespasses upon the property of another;.

ENCUMBRANCE 
A claim against a property, such as a mortgage, lien as a claim or liability against real estate. This can include deed restrictions, easements encroachments or licenses.

ENERGY EFFICIENCY RATIO 
An efficiency rating system for air conditioning units that corresponds to the number of BTU's output per watt of electricity used.

EQUAL CREDIT OPPORTUNITY ACT (ECOA) 
U.S. federal law requiring that lenders afford people equal chance of getting credit without discrimination based on race, religion, age, sex etc

EQUITY 
The difference between the fair market value of a property and that amount an owner owes on any mortgages or loans secured by the property. 

EQUITY BUILDUP 
The natural increase in the amount of equity an owner has in a property, accumulated through market appreciation and debt repayment.

ERRORS AND OMISSIONS INSURANCE 
An insurance policy taken out by appraisers to cover their liability for any mistakes made during the appraisal process.

ESCROW 
An amount retained by a third party in a trust to meet a future obligation. Often used in the payment of annual taxes or insurance for real property. 

ESCROW ACCOUNT 
An account setup by a mortgage servicing company to hold funds with which to pay expenses such as homeowners insurance and property taxes. An extra amount is paid with regular principal and interest payments that go into the escrow account each month.

ESCROW ANALYSIS 
An analysis performed by the lender usually once each year to see that the amount of money going into the escrow account each month is correct for the forecasted expenses.

ESCROW DISBURSEMENTS 
The payout of funds from an escrow account to pay property expenses such as taxes and insurance.

ESTATE 
Total of all property and assets owned by an individual, Estate is a term used in the common law. It signifies the total of a person's property (including money), entitlements and obligations. It may also be used in reference to real estate at type of real property as an estate in land.

EXAMINATION OF TITLE 
A review which reveals the previous owners of, and the encumbrances on a piece of real estate. To conduct this review, a settlement agent must search the public records or examine an abstract

EXCLUSIVE LISTING 
An agreement between the owner of a property and a real estate agent giving the agent exclusive right to sell the property.

EXECUTOR 
The person named in a will to administer the estate.

FACADE 
The front exposure of any building. Often used to describe an artificial or false front which is not consistent with the construction of the rest of the building.

FAIR CREDIT REPORTING ACT 
A federal law regulating the way credit agencies disclose consumer credit reports and the remedies available to consumers for disputing and correcting mistakes on their credit history.

FAIR MARKET VALUE 
The price at which two unrelated parties, under no duress, are willing to transact business.

FANNIE MAE 
A private, shareholder-owned company that works to make sure mortgage money is available for people to purchase homes. Created by Congress in 1938, Fannie Mae is the nation's largest source of financing for home mort

FASCIA 
A horizontal band or board, often used to conceal the ends of rafters; the front of an object., Part of the face of a building, where the shop or occupier's name is usually displayed., a flat, horizontal board enclosing the overhang under the eave.

FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) 
The U.S. Government agency created in 1933 which maintains the stability of and public confidence in the nation's financial system by insuring deposits and promoting safe and sound banking practices.

FEDERAL HOUSING ADMINISTRATION (FHA) 
A sub-agency of the U.S. Department of Housing and Urban Development created in the 1930's to facilitate the purchase of homes by low-income, first-time home buyers. It currently provides federally-subsidized mortgage insurance for private lenders. 

FEE APPRAISER 
A certified, professional appraiser who forms an opinion of the fair market value of property and receives a set fee in exchange. 

FEE SIMPLE 
A complete, unencumbered ownership right in a piece of property. 

FEE SIMPLE ESTATE 
A form or ownership, or holding title to real estate. It is the most complete form of title, having an unconditional and unlimited interest of perpetual duration.

FHA MORTGAGE 
A mortgage that is insured by the Federal Housing Administration (FHA).

FINAL VALUE ESTIMATE 
The opinion of value of a piece of property resulting from an appraisal following the USPAP guidelines.

FIRST MORTGAGE 
The primary loan or mortgage secured by a piece of property. 
A type of mortgage that through a lien gives precedence to the first lender over all other lenders in case of default. 

FIXED-RATE MORTGAGE (FRM) 
A mortgage which has a fixed rate of interest over the life of the loan.

FIXTURE 
Any piece of personal property which becomes permanently affixed to a piece of real property.

FLASHING 
The metal used around the base of roof mounted equipment, or at the junction of angles used to prevent leaking.

FLOOD INSURANCE 
Supplemental insurance which covers a home owner for any loss due to water damage from a flood. Often required by lenders for homes located in FEMA-designated flood zones.

FLOOR PLAN 
The representation of a building which shows the basic outline of the structure, as well as detailed information about the positioning of rooms, hallways, doors, stairs and other features. Often includes detailed information about other fixtures and amenities.

FLUE 
The furnace exhaust pipe, usually going through the roof.

FLUSH VALVE 
The valve between the toilet bowl and the tank.

FOOTING 
The partially buried support for a vertical structural member such as a post.

FORECLOSURE 
The process whereby a lender can claim the property used by a borrower to secure a mortgage and sell the property to meet the obligations of the loan. Legal process by which a mortgagor of property is deprived of his interest in that property due to failure to comply with payment terms and conditions of the mortgage, A court action. 

FORFEITURE 
The loss of property or money due to the failure to meet the legal obligations of a mortgage or loan secured by that property. A loss if money or property or privileges due to a legal action.

FOUNDATION 
The solid structural element upon which a structure is built.

FRONTAGE 
The segment of a property that runs along a point of access, such as a street or water front.

FUNCTIONAL OBSOLESCENCE 
A decrease in the value of property due to a feature or lack thereof which renders the property undesirable. Functional obsolescence can also occur when the surrounding area changes, rendering the property unusable for its originally intended purpose

GABLE ROOF 
A steeply angled, triangular roof.

GALVANIZED PIPE 
Iron pipe with a galvanized (zinc) coating.

GAMBREL ROOF 
A ''barn-like'' roof, where the upper portion of the roof is less-steeply angled than the lower part.

GENERAL LIEN 
A broad-based claim against several properties owned by a defaulting party, with an attachment that gives the lender the right to seize the personal property of a borrower who has defaulted on the obligations of a loan, but prevents the lender from seizing real property. 

GEORGIAN 
A classic, English-style house characterized by simple rectangular shape and multiple stories. 

GFI 
Ground Fault Interrupter. A type of circuit breaker required in areas where water is present.

GINNY MAE 
A wholly owned corporation created in 1968 within the U.S. Department of Housing and Urban Development to serve low-to moderate-income homebuyers. 

GIRDER 
Main supporting beam, A main horizontal or near horizontal structural member that supports vertical loads.

GOVERNMENT MORTGAGE 
Any mortgage insured by a government agency, such as the FHA or VA. 

GRADE 
The slope of land around a building. Also ground level.

GRANTEE 
Any person who is given ownership of a piece of property.

GRANTOR 
Any person who gives away ownership of a piece of property.

GROSS AREA 
The sum total of all floor space, including areas such as stairways and closet space. Often measured based on external wall lengths. 

GROUTING 
Material used around ceramic tile.

GUTTER 
The trough around the edge of the roof that catches and diverts rain.

HALF-SECTION 
320 acres.

HAZARD INSURANCE 
An insurance policy to protect home owners against property damage Lenders require that you have hazard insurance before you buy or refinance a home. Hazard insurance shields you against property damages caused by a fire or severe storms. Earthquakes and floods usually need a different type of insurance.

HEADER 
The framing elements above an opening such as a window or door.

HEARTH 
The floor of a fireplace or the area immediately in front of it.

HEIGHT ZONING 
A municipal restriction on the maximum height of any building or other structure. 

HIDDEN AMENITIES 
Assets of a property which contribute to its value, but are not readily apparent. Examples might include upgraded or premium building materials. 

HIGHEST AND BEST USE 
The most profitable and likely use of a property. Selected from reasonably probable and legal alternative uses, which are found to be physically possible, appropriately supported and financially feasible to result in the highest possible land value.

HOME EQUITY CONVERSION MORTGAGE (HECM) 
Also known as a reverse annuity mortgage. It allows home owners (usually older) to convert equity in the home into cash. Normally paid by the lender in monthly payments. HECM's typically do not have to be repaid until the borrower is no longer occupying the home.

HOME EQUITY LINE OF CREDIT 
A type of mortgage loan that allows the borrower to draw cash against the equity in his home.

HOME INSPECTION 
A complete examination of a building to determine its structural integrity and uncover any defects in materials or workmanship which may adversely affect the property or decrease its value. 

HOME INSPECTOR 
A person who performs professional home inspections. Usually, with an extensive knowledge of house construction methods, common house problems, how to identify those problems and how to correct them.

INCOME APPROACH 
The process of estimating the value of property by considering the present value of a stream of income generated by the property. 

INCOME PROPERTY 
A piece of property whose highest and best use is the generation of income through rents or other sources. 

INDEPENDENT APPRAISAL 
An estimate of the value of a property prepared by someone who has no interest in the property or, if a mortgage is involved,. An appraisal by one who has no interest in the property or nothing to gain from a high or low appraisal.

INSPECTION 
The examination of a piece of property, its buildings or other amenities. 

INSURABLE TITLE 
The title to property which has been sufficiently reviewed by a title insurance company, such that they are willing to insure it as free and clear.

INTEREST RATE 
A percentage of a loan or mortgage value that is paid to the lender as compensation for loaning funds.

INVESTMENT PROPERTY 
Any piece of property that is expected to generate a financial return. This may come as the result of periodic rents or through appreciation of the property value over time.

JAMB 
The side of a door frame.

JOINT TENANCY 
A situation where two or more parties own a piece of property together. Each of the owners has an equal share, and may not dispose of or alter that share without the consent of the other owners. 

JOISTS 
Horizontal beams laid on edge to support flooring or a ceiling.

JUDGMENT 
An official court decision. If the judgment requires payment from one party to another, the court may put a lien against the payee's property as collateral.

JUDICIAL FORECLOSURE 
A type of foreclosure conducted as a civil suit in a court of law.

JUMBO LOAN 
A mortgage loan for an amount greater than the limits set by Fannie Mae and Freddie Mac. Often called non-conforming loans.

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