Term definitions were taken from The Dictionary of Real Estate Appraisal, Fourth Edition, published by the Appraisal Institute. 

agreement of sale A written contract of sale between a buyer and a seller, drawn up before the actual transfer of title or assumption of ownership, which states the conditions necessary for the transfer of ownership. Also called sale contract.

all-inclusive deed of trust A junior deed of trust in which the beneficiary (lender or seller) agrees to pay one or more senior lien holders and the trustor (borrower or buyer) makes one payment to the beneficiary rather than separate payments to the junior and senior lien holders. See also deed of trust; wraparound mortgage.

amortization The process of retiring a debt or recovering a capital investment, typically through scheduled, systematic repayment of the principal; a program of periodic contributions to a sinking fund or debt retirement fund.

amortization schedule A schedule of debt repayment specifying the timing and amount of payments; a program of retiring debt through the scheduled, systematic repayment of principal.

amortization rate The ratio of the periodic amortization payment to the total principal amount to be amortized; corresponds to a sinking fund factor or rate; the difference between the mortgage (annual) constant and the nominal rate of interest.

appraisal (n.) The act or process of developing an opinion of value; an opinion of value. See also complete appraisal; limited appraisal.

APR Annual percentage rate The effective annual interest rate. Truth-in-lending legislation requires that loan instruments and advertising show the interest cost to the borrower in the form of an annual rate, as distinguished from the nominal rate.

assignment A written transfer of the rights of use and occupancy of a property to be held by another legal entity or to be used for the benefit of creditors, e.g., assignments of mortgages, sales contracts, and leases.

balance sheet An itemized listing of the total assets, total liabilities, and net worth of an entity.

bridge financing Short-term financing between 1) the termination of one loan and the commencement of another; 2) the acquisition of a property and the improvement or rehabilitation that will make it eligible for a permanent mortgage; or 3) the maturity of a construction loan and the negotiation of permanent financing.

beneficiary of trust deed The lender, who is one of three parties in a trust deed agreement. The borrower, or trustor, gives the title to a third party, the trustee, who holds the title in trust for the benefit of the borrower and the lender.

boundary survey A closed diagram that mathematically depicts the complete outer boundary of a site; shows dimensions, compass bearings, and angles. A licensed land surveyor's signed certification is required, and a metes and bounds or other written description is included.

capital improvement plan A schedule of capital improvement projects that the government intends to complete over a specified period of time; includes project descriptions, a schedule of priorities, cost estimates, and methods of finance.

closing A meeting of the parties to a real estate transaction held to execute and deliver mortgage or property title documents.

closing costs The settlement costs incurred in the transferring of property ownership, e.g., recording fees, attorney fees, title insurance premiums.

closing date The date on which ownership of a property is formally transferred from the seller to the buyer, i.e., the date on which the seller delivers title and the buyer pays the agreed-upon price for the property. See also contract date; date of opinion.

closing statement A listing of the debits and credits of the buyer and seller in the final financial settlement of a real estate transaction.

cloud on title An encumbrance that may affect the fee holder's ownership and the marketability of the title.

collateral Security offered as a guarantee for the fulfillment of a financial obligation.

commission An agent's compensation for performing his or her duties; in real estate, a percentage of the selling price of property or a percentage of rentals that is received by the agent.

commitment For a mortgage, a promise or statement by the lender of the terms and conditions under which a loan will be made; also called loan commitment.

commitment letter A formal written offer by a lender stating the terms under which it agrees to lend money to a borrower.

construction loan Financing arranged for the construction of real estate; generally a short-term, floating-rate debt repaid with the proceeds from permanent financing. Construction loans with a permanent financing commitment are designated as loans "with a takeout commitment" and those that do not have permanent financing are loans "without a takeout commitment." May include an interest carry and/or a very small permanent component to see the property from the post-construction phase through full absorption.

conventional loan A mortgage that is neither insured nor guaranteed by an agency of the federal government, although it may be privately insured.

creditor A person to whom money is owed.

credit report A report on the credit standing of a prospective borrower, which is sent to a prospective lender.

cross-collateralization A provision that joins two or more properties collateralizing two or more separate notes that allows cash flows from all properties to be available for any debt payments, property improvements, maintenance, etc. of all properties. Commercial mortgage-backed securities (CMBS) backed by cross-collateralized properties reduces delinquency risk and adds value to the deal. This is a form of credit enhancement.

cross-default A provision joining two or more commercial mortgage loans that gives the lender the right to call any or all loans into default if any single loan is in default. This is a form of credit enhancement.

debt coverage The ability of a property to meet its debt service out of net operating income.

deed A written, legal instrument that conveys an estate or interest in real property when it is executed and delivered.

deed description A recitation of the legal boundaries of a parcel of land as contained in a deed of conveyance.

deed of trust A legal instrument similar to a mortgage, which, when executed and delivered, conveys or transfers property title to a trustee.

delinquency Failure to make mortgage payments when mortgage payments are due.

discount points A percentage of the loan amount that a lender charges a borrower for making a loan; may represent a payment for services rendered in issuing a loan or additional interest to the lender payable in advance; also called points.

disposition value The most probable price that a specified interest in real property is likely to bring under all of the following conditions:
1. Consummation of a sale will occur within a limited future marketing period specified by the client.
2. The actual market conditions currently prevailing are those to which the appraised property interest is subject.
3. The buyer and seller is each acting prudently and knowledgeably.
4. The seller is under compulsion to sell.
5. The buyer is typically motivated.
6. Both parties are acting in what they consider their best interests.
7. An adequate marketing effort will be made in the limited time allowed for the completion of a sale.
8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
This definition can also be modified to provide for valuation with specified financing terms.

due diligence 1. In a property acquisition or investment transaction, the standard investigation of contractual terms and property and market characteristics prior to closing the transaction. 2. In appraisal, the expectation of adequate research into factors that can affect the utility and value of a property. 3. A requirement in certain real estate contracts that a party perform his or her obligations in good faith, e.g., a buyer who makes an offer contingent upon obtaining financing must use due diligence in seeking such financing.

due-on-sale clause A clause in mortgage contracts that provides that the outstanding loan balance is due when the mortgaged property is sold or transferred; precludes loan assumption by a new buyer.

due-on-transfer provision This terminology is usually used for second mortgage. See due-on-sale clause.

effective gross income (EGI) The anticipated income from all operations of the real property after an allowance is made for vacancy and collection losses. Effective gross income includes items constituting other income, i.e., income generated from the operation of the real property that is not derived from space rental (e.g., parking rental or income from vending machines).

effective gross income multiplier (EGIM) The ratio between the sale price (or value) of a property and its effective gross income; a single year's EGI expectancy or an annual average of several years' EGI expectancies (EGIM = V/EGI).

equity 1. The ownership claim on property. Total property value is obtainable by adding equity to the debt claim. Equity investors assume greater risk and their earnings are subordinate to operating expenses and debt service. They are compensated with dividends (cash flows) and possible appreciation in the value of their investments. Equity includes the residual claim to the assets, which is solely possessed by the owners. 2. In regard to a specific property, equity refers to the net value of the property obtained by subtracting from its total value all liens or other charges against it; the value of an owner's interest in property in excess of all claims and liens.

equity ratio The ratio (1 - M) between the down payment paid on a property and its total price; the fraction of the investment that is unencumbered by debt.

equity value Market value less all encumbrances on the property. escrow Property or evidences of property, e.g., money, securities, instruments, deposited by two or more persons with a third person to be delivered under a certain contingency or on the completion of specified terms. An escrow account is generally held to cover taxes and insurance.

escrow account The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property taxes and insurance.

financing (see various types of financing below)

debt financing Paying for all or part of a capital investment with borrowed funds; in real estate, the property itself may serve as security for the debt.

interim financing A temporary or short-term loan that is secured by a mortgage and generally paid off from the proceeds of permanent financing. See also construction loan.

secondary financing A loan that is junior or subordinate to one or more loans or encumbrances that have priority to the property as security for the amounts owed.

first mortgage A mortgage that has priority over all other liens on a property.

flood insurance Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

foreclosure The legal process in which a mortgagee forces the sale of a property to recover all or part of a loan on which the mortgagor has defaulted.

foreclosure sale The optional right of the mortgagee or lending institution to sell mortgaged property if the mortgagor fails to make payment, applying proceeds from the sale toward the outstanding debt.

full covenant and warranty deed A deed conveying real property in which the grantor usually warrants the title, making the five covenants of ownership, of quiet enjoyment, against encumbrances, of further assurances, and of warranty or defense.

grant deed A deed in which the grantor warrants that he or she has not previously conveyed or encumbered the property; does not ensure that the grantor is the owner of the property or that the property is unencumbered; conveys any after-acquired title of the grantor, unless a different intent is expressed. See also bargain and sale deed; deed; quitclaim deed; warranty deed.gross income Income from the operation of a business or the management of property, customarily stated on an annual basis. See also effective gross income (EGI); potential gross income (PGI).

hazard insurance Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.

income Money or other benefits that are assumed to be received periodically.

impounds Payments made to a fiduciary, usually a lender, for items such as property taxes, assessments, and insurance; often imposed by government agencies on the sale of interests in real estate syndications. The agency may require that subscription funds be placed in a special escrow account until a specific number of subscriptions have been paid. Then the funds are returned to the syndicate for use in purchasing the subject property or other activities defined in the offering circular and application for qualification.

interest Money paid for, or earned by, the use of capital; a return on capital as distinguished from a return of capital.

interest-only mortgage A nonamortizing loan in which the lender receives interest only during the term of the loan and recovers the principal in a lump sum at the time of maturity.

interest rate The price of money; the level of market interest carried by a debt instrument from the day it is created over the duration of its life. The rate of return or yield rate on debt capital, usually expressed as the nominal annual percentage of the amount loaned or invested.

judicial sale A court action that enforces a judgment lien by selling property to pay a debt. Also called nonconforming loan.

loan fee The fee paid to a lender for the use and forbearance of money or for service in making the loan; generally a percentage of the face amount of the loan. Also called points.

loan-to-value ratio (M) The ratio between a mortgage loan and the value of the property pledged as security, usually expressed as a percentage. Also called loan ratio.

loan servicing The administration and collection of monthly mortgage payments from home owners and other borrowers; usually performed by a bank, servicing agent, mortgage broker, or real estate company acting for itself or the mortgagee.

loan value A value that lending institutions will accept as a basis for a mortgage or trust deed; a nebulous value defined differently by various lending institutions; an underwriting concept, not value.

mortgage deed A deed that has the effect of a mortgage on the property conveyed and imposes a lien on the granted estate.

nonrecourse loan Debt agreement secured by real estate that provides that the lender has no claim against the debtor in the event of default, but can only recover the property.

notary public A public officer who is authorized to take acknowledgments and witness sworn affidavits.

notice of default A document filed with the county concerning the lien(s) on property that is in default; states that notice of default must be given to the person named in the document to validate subsequent foreclosure proceedings and give the person an opportunity to reinstate.

permanent loan A long-term loan used to finance the purchase and operation of a completed structure; as distinguished from temporary loans, e.g., land and construction loans.

principal A capital sum invested; a payment that represents partial or full repayment of the capital loaned or invested, as distinguished from the payment of interest; the unrecovered capital remaining in a loan or investment.

points A percentage of the loan amount that a lender charges a borrower for making a loan; may represent a payment for services rendered in issuing a loan or additional interest to the lender payable in advance. Also called loan fee.

prepayment penalty An extra charge incurred by a borrower who pays a mortgage or other debt instrument before its due date; provided for in the debt instrument and usually expressed as a percentage of the loan; may be limited or prohibited in some states.

prepayment risk The risk that a borrower will repay the remaining principal or an amount other than the scheduled payment on a mortgage prior to maturity, thus shortening the life of the loan. In order to reduce prepayment risk, commercial mortgages commonly have lock-out periods and/or prepayment premiums or yield maintenance.

price The amount a particular purchaser agrees to pay and a particular seller agrees to accept under the circumstances surrounding their transaction.

real estate cycle The successive periods of expansion, peak, contraction, and trough that characterize the activity of the real estate market. Business and real estate cycles do not generally move in tandem. Since real estate development and sales activity are especially responsive to the downward movement in interest rates, increased activity in real estate markets often heralds an economic recovery.

recognized environmental conditions The presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum products into structures on the property or into the ground, ground water, or surface water of the property.

recording The filing of a copy of a legal instrument or document, e.g., a deed, in a government office provided for this purpose; creates a public record of the document for the protection of all concerned and gives constructive notice to the public at large.

recourse A lender's right to seek from a borrower in default on a loan compensation beyond the property pledged as collateral.

reserve 1. An appropriation from surplus funds that is allocated to deferred or anticipated contingencies. In business, a credit account created to accumulate funds to retire debt or cover losses that are payable or expected to accrue in the future.
2. In association with natural resource property, the extent of commercially available resources, proven or unproven, that are not required or involved in current operations.

residence Any property used as a dwelling; in law, the legal domicile; used for owner occupancy, not investment income.

residential property A vacant or improved parcel of land devoted to or available for use as an abode, e.g., single-family homes, apartments, rooming houses.

residential occupancy Occupancy of a building in which sleeping accommodations are provided for normal residential purposes. The term excludes institutional occupancy.

sale contract A written document signed by a buyer and a seller who agree to the transfer of ownership interests in real estate; also called agreement of sale or earnest money contract. See also contract date.

sales comparison approach A set of procedures in which a value indication is derived by comparing the property being appraised to similar properties that have been sold recently, then applying appropriate units of comparison and making adjustments to the sale prices of the comparables based on the elements of comparison. The sales comparison approach may be used to value improved properties, vacant land, or land being considered as though vacant; it is the most common and preferred method of land valuation when an adequate supply of comparable sales are available.

scheduled rent Income due under existing leases.

second deed of trust A deed of trust that is subordinate to the first deed of trust.

second and third liens Encumbrances that are subordinate to the first lien; also called junior liens.

second and third mortgages Mortgages that are subordinate to the first mortgage; also called junior mortgages.

secondary financing A loan that is junior or subordinate to one or more loans or encumbrances that have priority to the property as security for the amounts owed.

secondary mortgage market A market created by government and private agencies for the purchase and sale of existing mortgages; provides greater liquidity for mortgages. Fannie Mae, Freddie Mac, and Ginnie Mae are the principal operators in the secondary mortgage market.

second deed of trust A deed of trust that is subordinate to the first deed of trust.

self-contained appraisal report A self-contained appraisal report sets forth the data considered, the appraisal procedures followed, and the reasoning employed in the appraisal, addressing each item in the depth and detail required by its significance to the appraisal and providing sufficient information so that the client and the users of the report will understand the appraisal and not be misled or confused.seller financing Funding for an acquisition provided by the owner of real estate, who takes back a secured note; usually used when the buyer has insufficient funds for a downpayment or cannot otherwise qualify for a traditional mortgage loan from a lending institution. The buyer typically takes full title to the property when the loan is fully repaid. If the buyer defaults on the loan, the seller can repossess the property.

senior mortgage A mortgage that has preference over another mortgage.

settlement An agreement by which the parties consent to settle a dispute between them.

site investigation A complete examination, investigation, and testing of surface and subsurface soil conditions. The report resulting from the investigation is used in design of the structure.

soil survey report A written report that is accompanied by a soil map and describes the areas surveyed, the characteristics and use capabilities of the soil types and phases shown on the map, and the principal factors responsible for soil development.

survey 1. The process in which the quantity and/or location of a piece of land is scientifically ascertained; may reflect the physical features of land, e.g., grades, contours, structures.
2. A map or plot that describes the courses, distances, and quantity of land and shows the lines of possession.
3. A market analysis procedure used to identify consumer preferences.

title company A corporation that issues or insures title to real property.