«GLOSSARY OF TERMS The following Glossary of Terms is not intended to be legal definitions, but rather a lay expression or explanation of how the ...»
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. Sometimes, part of the purchase price due the seller may be impounded or put aside by escrow to meet the postclosing expense of clearing title or repairing the structure.
IMPROVEMENTS ON LAND: Any structure, usually privately owned, such as buildings, fences, driveways, and retaining walls, erected to enhance the value of the property or so that a site can be used.
IMPROVEMENTS TO LAND: A publicly owned structure added to or benefiting land, such as curbs, sidewalks, streetlights and sewers.
INCANDESCENT LIGHTING: Light produced by heated wire (filament). It is inefficient and has a short, 1000-hour life.
INCOME APPROACH: The process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life.
INCOME, ADJUSTED GROSS: Gross income minus deductions. For a wage earner, gross income and adjusted gross income are one and the same. A salesman may deduct all expenses attributable to earning his salary. A business may deduct all ordinary business expenses. His net business income is his adjusted gross income. An investor may deduct 50% of the excess of net long-term capital gains over net short-term capital losses to determine his adjusted gross income.
Allard Commercial Brokerage –Glossary of Terms Page 39 of 39 INCOME, GROSS: Ordinary income plus capital gains income. (In merchandising gross income = gross receipts minus cost of goods sold. In service type business, i.e., real estate brokerage, gross income = gross receipts.)
INCOME, NET EQUITY: Cash spendable (after income taxes) plus equity build up.
INCOME, NET OPERATING: Gross scheduled income minus vacancy allowance; or audited gross income minus operating expenses, but before any loan payments.
INCOME, NET TAXABLE: Gross scheduled income minus vacancy allowance minus operating costs minus available depreciation minus interest on all loans.
INCOME PROPERTY: A property that has, as its primary purpose, the capacity to produce monetary income.
INDEMNIFY: To secure against hurt, loss or damage; to make compensation to for hurt, loss or damage.
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, 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.
INDICATED GAIN: The potential gain that would be recognized if the property were sold for cash.
Allard Commercial Brokerage –Glossary of Terms Page 40 of 40 INDUCTION SYSTEM: A mechanical system normally located on the periphery of a building at the base of the window walls. Forced air is thermostatically controlled to temper its flow by heating or cooling the interior air. This process is controlled by the current climatic conditions at the exterior and the demands of the spaces within the building (see Convection and Convector).
INDUSTRIAL DISTRICT OR PARK: A controlled park-like development designed to accommodate specific types of industry. It provides public utilities, streets, railroad sidings, water, sewage facilities, etc.
INDUSTRIAL PROPERTY: A property primarily used for the production or manufacture of goods or products.
INFLATION: The gradual reduction of the purchasing power of the dollar, usually related directly to the increases in the money supply by the federal government.
INJUNCTION: 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.
INSTALLMENT CONTRACT: A financing device for the sale of real estate wherein the purchase price is paid in installments over an extended period of time by the purchaser who is in possession. Title is retained by the seller until the 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.
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.
INSTITUTIONAL LENDER: A bank, insurance company, or savings and loan association that deals heavily in real estate loans.
INSTRUMENT: A written legal document.
INSULATION: Used to protect interiors from heat loss. There are two types: non-combustible fiberglass, Fesco, celoterm (perlite); combustible-celotex, wood fiber.
INTEREST: A charge made by a lender for the use of money.
INTEREST ONLY: A term loan calling for payments of interest only, not to include any amount for principal.
INTEREST PAYMENTS: The total interest payments during the year on all loans, either now against the property or being projected against it.
Allard Commercial Brokerage –Glossary of Terms Page 41 of 41
CREDIT RATE –An interest rate based solely upon the strength of a respected credit tenant on an executed long-term triple net lease and almost ignoring the value of the real estate involved in the deal. The credit rate is usually 1/8 –3/8% below the real estate rate.
FACE RATE –The interest rate shown on the Promissory Note; the same as the gross interest rate.
GROSS INTEREST RATE –The interest rate paid by the borrower in a mortgage loan transaction; also called the face rate.
NET RATE –The net return on investment received by the lender in a mortgage loan transaction after payment of the servicing fee to the correspondent/servicing agent. The gross interest rate (face rate) less the servicing rate.
REAL ESTATE RATE –An interest rate reflecting the desirability and risk (to the lender) of the real estate to be taken as security in the loan transaction and not anticipating the execution of a long term credit lease for space within the property.
SERVICING RATE –A small participation, by the servicing agent, in the gross rate of interest charged by the lender, for the services provided by the servicing agent (see Loan Servicing). The servicing rate is usually a function of the dollars loaned in a particular transaction and rarely exceeds.25% (1/4 of 1%).
INTERIM FINANCING: A short-term loan usually made during the construction phase of a building project.
INTERIM OCCUPANCY AGREEMENT: An agreement allowing a buyer to take possession of a property as a tenant prior to close of escrow.
INTERIOR LOT: One that is surrounded by other lots, with a frontage on the street; the most common type lot, which may or may not be desirable-depending on other factors.
INTERIOR ROOF DRAINAGE: Roof drainage from the interior portion of a roof. Interior or underground piping carries water to the pavement or store system.
INURE: 1. to come into use; take or have effect. 2. to become beneficial or advantageous.
INVOLUNTARY LIEN: A lien placed on property without the consent of the property owner.
IRR (Internal Rate of Return): A multi-year analysis of rate of return similar to Financial Management Rate of Return (FMRR). Used by investors in medium and large properties Allard Commercial Brokerage –Glossary of Terms Page 42 of 42 (occasionally on small properties). Multi-year cash flows and net sale proceeds are analyzed using discounted cash flow techniques to solve for the IRR. IRRs and FMRRs are the best rate of return indicators, because they require an analysis of the investor's entire holding period, not just a single year. The discounting process takes into consideration the time value of money and thereby produces a more realistic rate of return. (See FMRR)
IRREVOCABLE: That which cannot be revoked or changed.
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.
JAMB: (See Door Frame).
JOINT NOTE: Note signed by two or more persons each having equal liability for payment.
JOINT AND SEVERAL LIABILITY: A situation when more than one party is liable for repayment of a debt or obligation. The parties may be sued either jointly or individually for the full amount of the note.
JOINT VENTURE: The joining of two or more people to conduct a specific business enterprise. A joint venture is similar to a partnership in that it must be created by agreement between the parties to share in the losses and profits of the venture. It is unlike a partnership in that the venture is for one specific project only, rather than for a continuing business relationship.
JOIST: A horizontal floor or roof deck support.
JUDGMENT: The formal decision of a court on the respective rights and claims of the parties to an action or suit. A judgment that has been entered and recorded with the county recorder usually becomes a general lien on the property of the defendant.
Allard Commercial Brokerage –Glossary of Terms Page 43 of 43 JUDGMENT CLAUSE: A provision in notes, leases and contracts by which the debtor, lessee, etc., authorizes any attorney to go into court and confess judgment against him for a default in payment. Unenforceable in many states.
JUDGMENT DECREE: A decree specifying the award made by the court in a civil case.
JUDGMENT LIEN: A charge, or lien, upon the land of a debtor, arising when a money judgment is publicly recorded in the jurisdiction where the land is located, and giving the holder of the judgment a right to levy the property to satisfy the debt.
JUDICIAL FORECLOSURE: A method of foreclosing on real property by means of a court supervised sale. In a judicial foreclosure there is an appraisal, after which the court determines an upset price below which no bids to purchase will be accepted.
JUNCTION BOX: A rectangular metal or plastic box that provides a nexus (junction) for a b ii ‟electrical wiring system and protects the wiring from the elements.
ud g ln s JUNIOR LIEN OR MORTGAGE: An obligation, such as a second mortgage, that is subordinate in right or lien priority to an existing lien (senior loan) on the same real estate.
JUNIOR TRUST DEED: Any trust deed that is recorded after a first trust deed.
KEY LOT: So named because it resembles a key fitting into a lock; one that is surrounded by the backyards of other lots, therefore is the least desirable because of the lack of privacy.
KILOVOLT-AMPERE (K.V.A.): A unit of electro-motive force equal to 1,000 volt amperes.
KW, KVA, DEMAND: The maximum electric power required during any 15-minute period in a month.
LAND CONTRACT: A contract for the purchase of real estate upon an installment basis. Upon payment of the last installment, the deed is delivered to the purchaser (see Installment Contract).
LANDLORD: The lessor or the owner of a leased premises. The landlord retains a reversionary interest in the property so that when the lease ends the property will revert to the landlord.
LAND PROJECTS: Subdivisions located in sparsely populated areas of California, made up of 50 parcels or more.
LAND TRUSTS: A few states permit the creation of land trusts, in which real estate is the only asset. As in all trusts, the title to the property is conveyed to a trustee, and the beneficial interest belongs to the beneficiary. In the case of land trusts, however, the beneficiary is usually also the trustor. While the beneficial interest is personal property, the beneficiary retains management and control of the real property and has the right of possession and the right to any income or proceeds from its sale. One of the distinguishing characteristics of a land trust is that the public records usually do not name the beneficiary. A land trust may be used for secrecy when assembling separate parcels. There are other benefits as well. A beneficial interest can be transferred by assignment, making the formalities of a deed unnecessary. The beneficial interest in property can be pledged as security for a loan without having a mortgage recorded. Because the beneficiary's interest is personal, it passes at the beneficiary's death under the laws of the Allard Commercial Brokerage –Glossary of Terms Page 44 of 44 state in which the beneficiary lived. If the deceased owned property in several states, additional probate costs and inheritance taxes can be avoided.