Glossary of Real Estate Terms and Definitions
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A - Real Estate Terms and Definitions
acceleration clause
A term in the contract which brings the maturity date of the loan forward if the borrower defaults, so that the Outstanding Balance is immediately due and payable.

accrual basis
Accounting procedure which recognizes revenue at the time it is earned, as opposed to when it is actually received. This method ties in with the Revenue Principle. Contrast with Cash Basis.

actual value
Actual value as determined by the assessor. This value, in thousands of dollars, when multiplied by the tax rate equals the amount of real property taxes payable.

adjacent
In law, implies that two or more properties are not widely separated, though they may not physically touch.

adjoining
In law, implies that two properties are contiguous or touching each other as opposed to adjacent to one another.

adjustment date
Date agreed to by both parties to a real property transaction for the adjustment of property taxes, rent, interest, and other items.

affidavit
A written statement of facts, the contents of which are sworn under oath to be true by the person making the statement. An affidavit is sometimes used in court proceedings as evidence in place of oral testimony.

agent
At common law, an agent is any person who contracts to act for or on behalf of another, who in turn, is known as the principal. The common law principles of agency apply to all levels of licensee, including brokerages, managing brokers, associate brokers and representatives, as defined by the Real Estate Services Act, when they are acting on behalf of a vendor or purchaser.

agreement for sale
A contract by which the owner of land (vendor) agrees to sell land to another (purchaser) who agrees to purchase it. The purchaser's interest is registered in the Land Title Office as a charge against the vendor's certificate of title. The contract provides that the purchase price will be paid by instalments.

airspace
Historically, one owned the airspace above a parcel of land "to the heavens". Today, airspace refers to the legal concept that a person who owns land also owns as much of the airspace above the land as he or she can effectively use.

amortization
The process of paying off a loan by periodic payments of blended principal and interest.

appraisal
The estimation of the value of a legal interest in land.

appreciation
The amount by which real property (or any other Asset) has increased in value.
arm's length transaction. Transaction in which the parties involved are not inclined toward making voluntary concessions to each other.

assessment
Appraisal, usually for real property taxation purposes.

asset
Item of value owned by a business. Contrast to Liability.

assign
To transfer over to another. (e.g., "I assign all right, title and interest in Blackacre to my wife, Elaine.")

associate broker
A licensee who meets the educational and experience requirements to be a managing broker, but who is providing real estate services under the supervision of a managing broker (formerly known as an "Agent 9.15" under the now repealed Real Estate Act).

assumable mortgage
A Mortgage that allows a purchaser to assume or take over the responsibilities and liabilities under the mortgage from the vendor.

assurance fund
A fund established by the B.C. provincial government to compensate any person who is deprived of land because of the operation of the Land Title Act in certain cases where there has been a fraud committed, a mistake made, or an improper act of the Registrar of Titles or his employees.

B - Real Estate Terms and Definitions
bad debt allowance
An estimate of the amount of rent that may become uncollectible from the tenants of occupied units (also known as collection loss allowance).

balance due on completion
The amount of money the purchaser will be required to pay to the vendor to complete the purchase, after all adjustments have been made.

balance sheet
A financial statement listing Assets, Liabilities, and Owner's Equity at a specific point in time. Also known as a Statement of Financial Position or Statement of Assets and Liabilities.

balloon payment
Any payment of principal over and above the regular payment.

blanket mortgage
A single mortgage registered against two or more individual parcels of real property.

blended payments
See constant payment loan or payment.

bonus
The portion of the face value of a mortgage loan which exceeds the funds actually received by the borrower and which is intended as additional compensation for the lender.

book value
The original cost of a noncurrent asset less all depreciation claimed to date.

book value (of a mortgage)
The original face value of the mortgage less the amount of principal repayment, or the mortgage amount outstanding at a particular point in time. At origination, the book value and face value are the same.

borrower qualification
The process of determining the maximum amount that can be lent to a potential borrower, given his or her income and the Lending Value of the property to be purchased.

borrowing
Incurring an obligation to repay a debt in order to invest or consume more than one currently owns.

breach of contract
Failure, without legal excuse, to perform any promise which forms the whole or part of a contract.

break even point
The square footage of floor space (or number of units) which must be rented in order for revenues to exactly equal expenses.

brokerage
A licensee (often corporate) on behalf of which other licensees must provide real estate services. - e.g., Sutton Select Inc.

brokerage fee
A fee charged by a mortgage broker for arranging a loan.

builders' lien
A claim registered against the title to land by a contractor, supplier of materials or workman with respect to work done or materials supplied to improve that land.

building scheme
Refers to a scheme of development which comes into existence where defined land is laid out in parcels and intended to be sold to different purchasers or leased or subleased to different tenants each of whom enters into a restrictive covenant with the common vendor or landlord agreeing that his particular parcel should be subject to certain restrictions as to use.

C - Real Estate Terms and Definitions
capital cost allowance (cca)
The amount that an owner of an income producing asset is allowed to deduct as an expense for Income Tax purposes as a result of ownership of that depreciable asset. Only one-half of the ordinary CCA may be claimed in the first year of the holding period; no CCA may be claimed in the year of sale.

capital risk
The risk of losing all or part of an Investment. (Capital at risk is the estimate).

capitalization
Changing a stream of income to a capital market value (current market value) using a required rate of return.

capitalization rate
The return an investor requires for investing in a property to receive the annual net operating income flows. It can be estimated from similar properties by dividing their estimated net operating incomes by the prices at which the properties sell.

cash basis
Accounting procedure which recognizes revenue at the time it is actually received in cash form. Contrast to Accrual Basis.

cash reconciliation statement
A calculation of the cash available at any point in time. The old cash balance plus all receipts less all disbursements will compute the current cash at hand.

cash-equivalent price (of an offer)
See Market Value (of an offer).

caveat
A notice registered against the title to land warning those looking at the title that a claim has been made.

cca
Abbreviation of Capital Cost Allowance.

ceiling price
The maximum price that a purchaser is willing to pay for a property. Compare to Floor Price.

certificate of pending litigation
A notice of a pending court action registered against the title to property for the purpose of warning all persons that the title to the property is in litigation and preventing dealings with respect to the property.

chattel mortgage
A document evidencing a debt owed by the borrower (mortgagor) to the lender (mortgagee). The mortgage is secured by the lender against personal property owned by the borrower as collateral to ensure the repayment of the debt. These mortgages are governed by the Personal Property Security Act.

chattels
Articles of personal property (i.e., a car, stereo, television, etc.) as opposed to real property.

civil law
A system whereby the law of a nation is set out in a comprehensive set of writings. An example of these writings or codes would be a Criminal Code for a country.

closed mortgage
A mortgage which cannot be fully paid out before expiry of its term.

closing statement
A statement prepared for a purchaser or vendor, showing the amounts to be received and paid out. The difference between these amounts represents either the balance payable (by the purchaser) or the cash proceeds from sale (to the vendor) upon completion of the transaction. See also Purchaser's Statement of Adjustment and Vendor's Statement of Adjustment.

co-ownership syndicate
A real estate syndicate organization in which two or more investors are owners of an undivided interest in real property.

common law
A system of law made up of principles and rules of action based upon the ancient customs and usages of the people of a nation which have been recognized, affirmed or enforced by the courts.

comparative method
An appraisal method which bases the value of the subject property on the price of similar properties which have sold recently. Also named the Market Method.

completion date
Date on which the purchaser's solicitor undertakes to the vendor (or his solicitor) that he will pay the balance owing to the vendor upon the Transfer of Title being accepted for registration.

compound interest
Interest which, during the life of the loan, is charged or calculated at regular intervals and if not immediately paid (as in an interest only loan) will, in subsequent periods, earn interest itself (as in an interest accruing loan).

compounding frequency
Indicates the number of times compound interest is charged or calculated per year (for example, semi-annually or monthly).

condition
A fundamental term of a contract, a breach of which allows the injured party to terminate the contract and/or sue for damages or Specific Performance.

condition precedent
Legal term for a "subject to" clause. In contract law, a condition precedent calls for the happening of some event or the performance of some act before the contract shall be binding upon the parties.

conditional sales agreement
A contract for the sale of goods by which the seller reserves ownership (but not possession) of the goods until the price has been paid (usually by instalments). Such contracts are regulated by the Personal Property Security Act.

consideration
The legal term for the reason which induces a party to enter into a contract. Consideration may be in the form of a right, interest, profit or benefit accruing to one party. It may also be in the form of an agreement not to do something, or loss suffered by the other.

consistency principle
The accounting rule which states that once a firm has selected a method of recording financial transactions from a number of alternative options, all of which are acceptable under generally accepted accounting principles, it will apply those principles over subsequent accounting periods.

constant payment loan
A loan which is repaid by equal and consecutive instalments that include principal and interest.

consumption
The act of spending money on goods which decrease in value after the time of purchase (for example, the purchase of bread or a refrigerator). Contrast to Investment.

contract
An agreement between two or more persons which creates an obligation to do or not to do a particular thing.

contract of purchase and sale
A contract of purchase or sale of land which contains the obligations of the vendor and purchaser with respect to the purchase and sale.

conversion (of an interest rate)
The process of changing an interest rate with one compounding frequency to an equivalent rate with a different compounding frequency.

conveyance
The process of transferring an interest in land from one person to another by way of a transfer document. Conveyancing usually refers to the transfer of title to land but also includes dealings such as assignments, leases, and mortgages.

corporate veil
In law, this refers to the distinct status of a corporation as a separate entity from its shareholders and corporate officers. Because a corporation is a separate entity, a person dealing with the corporation may not know the identities of the shareholders or officers. For example, the names of the owners of an incorporated business are not shown on its financial statements.

corporation
A business entity which is owned by shareholders who decide on the general policies of the company through their elected Board of Directors. A corporation is a separate legal entity and therefore has the rights and liabilities of an individual.

cost method
A method of appraisal which determines the value of a property by adding the market value of the site to the cost of replacing the existing building.

cost of goods sold
The cost to the business of manufacturing or purchasing the items actually sold.

cost principle
A generally accepted accounting principle which states that the historical cost of an asset must be reflected in a company's Financial Statements.

counter-offer
A statement by the recipient of the offer which has the legal effect of rejecting the offer and of proposing a new offer to the offeror (who then becomes the recipient of the "new" offer).

court order enforcement act
An Act which, amongst other things, provides for the rights and remedies of individuals attempting to collect on judgments awarded by the Court.

covenant
For the purposes of this course a covenant is a promise contained within an agreement. The person making the covenant is called the covenantor and the person in whose favour it is made is called the covenantee.

credit analysis
An investigation of a loan applicant's ability to repay.

creditor
A person to whom a debt is owed. Contrast to Debtor.

curable depreciation
Wear and tear or outmoded design which can be corrected at a cost that is economically feasible (e.g., worn carpeting). Contrast to Incurable Depreciation.

current assets
Those assets which will be converted into cash, sold, or consumed within one year or the normal operating cycle of a business, whichever is longer. Current Assets may include Cash, Marketable Securities, Accounts Receivable, Inventories, and Prepaid Expenses. Compare to Noncurrent Assets.

current cost
The amount of money it would be necessary to spend today to reconstruct existing improvements. See also Historic Cost.

current liabilities
Those Liabilities which are expected to be paid within one year. Current Liabilities may include Accounts Payable, Property Taxes Payable, Wages Payable, and Income Taxes Payable.

D - Real Estate Terms and Definitions
date of valuation
In appraisal, the date for which the value of the subject property is established, not to be confused with the date at which the appraisal takes place.

debt coverage ratio
The number of times net operating income must cover the annual mortgage payments (principal and interest). For example, if the lender requires the borrower to earn $1,100 in net income to allow him $1,000 in annual mortgage payments, the ratio is 1.1:1. The lender usually states the ratio as a number exceeding one (i.e., 1.1) and the maximum allowable loan payment can then be calculated by dividing N.O.I. by the number supplied (i.e., $1,100 ÷ 1.1 = $1,000.) See also Ratio.

debt financing
Incurring an obligation to repay a debt in order to invest or consume more than one currently owns.

debt service
The making of mortgage payments by the borrower, as arranged with the lender.

debtor
One who owes a debt. Contrast to Creditor.

deceit
A fraudulent or deceptive misrepresentation used by one person to deceive or trick another person ignorant of the true facts.

deed
A document used to transfer an interest in land from one party to another.

demise
The legal term for the granting of a Lease.

deposit
An amount deposited with the brokerage by the purchaser when an offer to purchase is made.

depreciation
The amount by which the value of improvements has decreased over time as a result of wear and tear or changes in taste. Depreciation can be classified as physical or functional and curable or incurable. See also Depreciation Expense and compare to
Capital Cost Allowance.

depreciation expense
The periodic cost of owning depreciable assets which are subject to wear and tear, such as buildings and equipment. No depreciation expense can be taken on land. Depreciation expense is a method of accounting for the initial cost of an asset in its subsequent periods of use.

disclosure statement (in development)
A document prepared by the developer of a subdivision to ensure that investors or purchasers have adequate information upon which to base a purchasing decision.

discounting
The process of expressing expected future income in terms of a present value.

distress
A legal term for a landlord's right to seize and sell a tenant's personal property in order to recover arrears of rent.

diversification
The process of investing funds in more than one project or industry in order to reduce the risk of incurring unexpected losses. The opposite of "putting all your eggs in one basket."

divided ownership syndicate
A real estate syndicate organization in which the investors are the individual owners of the (condominium) units.

dividends
That part of a corporation's after-tax income that is distributed to the shareholders.

dominant tenement
Land to which the benefit of a right (i.e., an easement or restrictive covenant) is attached.

duress
A situation where a person is forced to enter into a contractual relationship against his will by the threat of imprisonment either to himself or his family, or the threat of actual physical force.

E - Real Estate Terms and Definitions
easement
A limited right of use of another's land by a landowner for the benefit of his land. The land receiving the benefit is called the dominant tenement and the land granting the benefit is called the servient tenement.

economic life
The time span over which a property is employed in its Highest and Best Use.

encroachment
A fixture, such as a wall or fence, which illegally intrudes into or invades on public or private property, diminishing the size and value of the invaded property.

encumbrance
A judgment, mortgage or lien or any other claim which is registered against the title to land.

equitable mortgage
The transfer of equity in property as security for a debt. Technically, any mortgage registered on title subsequent to the first mortgage (i.e., second or third mortgage).

equity (in common law)
The concept of justice being administered by the Courts according to fairness as contrasted with the strictly formulated rules of common law. In law the term "equity" denotes the spirit and habit of fairness, justness, and right dealing which would regulate interaction of men with men.

equity (in mortgage finance)
The difference between a property's market value or purchase price and the debt incurred to purchase the property.

equity of redemption
The mortgagor's right to repay the mortgage.

equivalent rate
Two interest rates are equivalent if, for the same amount borrowed, over the same period of time, the same amount is owed at the end of that period of time.

escalator clause
A term in a commercial lease which allows the landlord to charge the tenant for any increases in specified operating expenses.

execution
The process of commencing proceedings to collect an amount owing by reason of a judgment.

F - Real Estate Terms and Definitions
face value of a loan
The loan amount which must be repaid at a stated rate of interest according to the contract terms.

fee simple
The legal term for the maximum interest in land available to a person, or the maximum of legal ownership. Equivalent in many ways, for practical purposes, to absolute ownership.

fiduciary
A person who holds a position of trust with respect to someone else and is obliged, by virtue of the relationship of trust, to act solely in the other person's benefit.

final payment. The last instalment that is made on a fully amortized loan. It is usually smaller than the preceding periodic payments.

financial statement
A numerical presentation of particular aspects of a business. Common financial statements include the Balance Sheet and the Income Statement.

first-year half-rate rule
In the year an asset is purchased, only one-half the maximum allowable CCA may be claimed.

fiscal year
Any period of twelve consecutive months chosen by a business as its accounting period.

fixed expenses
Those costs which will be incurred irrespective of the extent to which a property is occupied.

fixture
A chattel attached to real property; anything which has become so attached to the land as to form, in law, part of the land.

floor price
The minimum price that a vendor is willing to accept for a property. Compare to Ceiling Price.

foreclosure
A legal action taken by a mortgagee to obtain possession of a property, by reason of the mortgagor's default in payment of the principal and/or interest of the mortgage debt.

frustration
A legal doctrine that provides that where the existence of a specific thing is necessary for performance of the contract, the duty to perform is discharged if the thing, for reasons beyond anyone's control, is no longer in existence at the time for performance.

fully amortized mortgage
Loan which is repaid completely by a series of payments over the full duration of the amortization period.

functional depreciation
The loss in value caused by outmoded or inadequate design (e.g., small closets in a residential property) which may be curable or incurable. See Curable Depreciation and Incurable Depreciation. Compare to Physical Depreciation.

future value
Any lump sum which is payable or will have been accumulated some time from now.

G - Real Estate Terms and Definitions
gross lease
A lease in which the landlord pays for all the operating expenses. Contrast to Net Lease.

gross potential rent
The rent which would be collected if all units were leased at market rents.
gross potential revenue. Similar to Gross Potential Rent, except it also includes income from other sources such as parking income or laundry income (in the case of an apartment building, for example).

gross realized rent
Gross Potential Rent less Vacancy Allowance and Bad Debt Allowance.

gross realized revenue
Gross Potential Revenue less an allowance for Vacancy and Bad Debt. Note that different rates may be used for the different income sources (i.e., 5% vacancy rate for units, 2% vacancy rate for parking spaces).

guarantor
One who becomes contingently or secondarily liable for another's debt or performance.

H - Real Estate Terms and Definitions
highest and best use
That use of land which, within all constraints (for example, zoning bylaws), will provide the maximum net return during the foreseeable future.
historic cost. The actual amount of money spent at the time the asset was purchased or the improvements were built. See also Current Cost.

howey test
One of two tests which determines whether an investment unit is a security. The other test is called the Risk Capital Test.

I - Real Estate Terms and Definitions
imperfect market
A market in which (similar) properties are traded for either more or less than actual Market Value.

improvement
A structural addition to the land which can be considered to be a fixture.
income method. An appraisal method, also called the Investment Method, which is typically used for income producing properties. It converts the income stream produced by the property into a market value for the property by using a Capitalization Rate.

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

incurable depreciation
Wear and tear or outmoded design which can only be corrected at considerable expense and, in fact, correction may be cost-prohibitive (e.g., narrow hallways). Contrast with Curable Depreciation.

indefeasibility
A legal principle. In B.C., subject to certain statutory exceptions, the Title Register is conclusive evidence that the person named as holding an estate in land is in fact entitled to that interest, and his holding is not subject to any condition or encumbrance other than those shown on the Title Register.

indenture
A document or deed, expressing certain objects between two or more parties.

inflation
A rise in the average price level.

injunction
A court order which either restrains a party from doing something or requires a party to do something.

insurable value
The estimated value of a property for insurance purposes.

interest
The dollar value which represents the cost of borrowing or the benefit of lending money.

interest accruing loan
Debt which is paid off as one lump sum, including principal plus accumulated compound interest.

interest adjustment
The process of calculating compound interest payable on the amount borrowed between the day the monies are advanced and the day the amortization period starts.

interest rate
The percentage rate that represents the cost of borrowing or the benefit of lending money.

interest-only loan
A loan which is serviced by interest-only payments. At the end of the term the full principal plus interest for the last payment period of the loan is still owing.
investment. The spending of capital today in order to receive benefits in the future (e.g., the purchase of a Canada Savings Bond which pays interest periodically).

invitation to treat
A type of advertisement used by one to induce the public or some individual to submit their own offers. An invitation to treat is not an offer capable of acceptance to form a contract.

J - Real Estate Terms and Definitions
joint tenancy
Where two or more persons acquire an equal undivided interest in a property. When one person dies, that person's share automatically goes to the survivor or survivors.
joint venture. A type of business where two or more business organizations cooperate in a particular undertaking. Profits or losses are shared by the participants and taxed in their hands.

judgment
An award granted to a successful party to litigation by the court. The award may include a specific amount of money to be paid to the successful party by the unsuccessful party to the litigation.

jurisprudence
The collection of legal decisions out of which legal principles or rules emerge.

L - Real Estate Terms and Definitions
latent defect
A hidden or concealed defect that would not be discovered during the course of a reasonable inspection.

latent value
The value possessed by a property which has potential for redevelopment because it is currently not employed at its Highest and Best Use.

lateral support
The support provided to one piece of land by the land which lies next to it.
lease. An instrument granting exclusive possession of land to another for a specified term, usually at a rent. The one who grants the lease is called the Landlord (or Lessor) and the one to whom it is granted is called the Tenant (or Lessee ).

lending value
The estimated value of a property for lending purposes. It is a long-term, conservative estimate of the value of the security as determined by the lender and, therefore, does not necessarily equal Market Value or Sales Price.

leverage
The partial use of debt to finance investments. The use of debt can magnify the potential variations of yields on the equity portion of the investment.

liability
Monies owed by a business. Contrast to Asset.

licence
With respect to real property, a privilege to enter onto premises for a certain purpose. However, this privilege does not confer upon the licensee any title, interest or estate in such property (e.g., exclusive right to possession of the property). Examples of a licence include a hotel suite where monthly rates may be available but the innkeeper has the right to enter the suite at his pleasure.

lien
A claim or charge on real or personal property for payment of some debt, lien obligation or duty.

life estate
An interest in land to be enjoyed during a person's life, and which ends on that person's death.

life estate pur autre vie
The form of Life Estate where the measuring life is that of some other person. (e.g., A man may grant a life estate pur autre vie to his deceased son's wife [his daughter-in-law] for the life of his grandchild. If the grandchild dies, the daughter-in-law loses her interest.)

limited liability
The principle that a shareholder or limited partner cannot be held liable for more than he has paid into (or agreed to pay into) the firm. Contrast to Unlimited Liability.

limited partnership
A form of organization in which two or more persons conduct a business. It consists of one or more limited partners and one or more general partners. A general partner assumes unlimited liability but a limited partner has limited liability. Compare to General Partnership.

liquidated damages
A specific sum of money expressly stipulated by the parties to a contract as a pre-estimate of the amount of damages to be recovered by either party for a breach of the contract by the other.

liquidity
The degree of ease and certainty with which an asset can be converted into cash.

listing agreements
A contract between an owner (vendor) and a real estate licensee whereby the licensee agrees to try to find a purchaser for the listed property in return for the vendor paying a stipulated amount of commission should the licensee be successful.

listing price
The value at which a property is advertised for sale.

loan-to-value ratio
The percentage of lending value which determines the maximum loan available. See Ratio. Compare to Gross Debt Service Ratio or Total Debt Service Ratio (for residential underwriting) and Debt Coverage Ratio (for commercial underwriting).

M - Real Estate Terms and Definitions
management survey
A study of a property and the factors which affect it. The survey includes an analysis of the region, the market, the neighbourhood, and the property and also presents a study of the economics of alternatives, a financial analysis, and a management plan.

managing broker
The licensee responsible for a brokerage, and who is responsible for exercising the rights conferred on the brokerage as well as for the performance of the duties imposed on the brokerage by its licence. In addition, the managing broker is responsible for the control and conduct of the brokerage's real estate business, including the supervision of its related licensees. Sometimes also meaning the human representative of a corporate real estate brokerage. See the Real Estate Services Act, sections 5 and 6.

market method
See Comparative Method.

market rate
The prevailing interest rate, at any given point in time, at which financing or refinancing can be expected.

market value (of a property)
In appraisal, the expected or forecasted sales price.

market value (of an offer)
The amount of cash which would have to be received today that equals the downpayment plus the present value of the mortgage loan discounted at the market rate.

matching principle
A generally accepted accounting principle which states that expenses should be recognized in the same period as the revenues with which they are associated.

maturity
The date on which the balance owing on a mortgage becomes due; the final day of the term of a mortgage.

metes and bounds
A system of land description whereby all boundary lines are set forth by use of terminal points, directors, and angles - mete referring to a limit or limiting mark, the bounds referring to boundary lines.

misrepresentation
A false assertion of fact which, if accepted, leads one to an incorrect belief about a given situation.

mistake
A legal term which describes the situation where a person, under some erroneous conviction of law or fact, does, or omits to do, some act which but for the erroneous conviction, he would not have done or omitted doing.

mitigate
The legal doctrine of "mitigation" imposes upon an injured party a duty to exercise reasonable diligence and ordinary care in attempting to minimize his damages after injury has been inflicted.

mortgage
A document evidencing a debt owed by the borrower (mortgagor) to the lender (mortgagee). Registration of the mortgage in the Land Title Office transfers the mortgagor's interest in land to the mortgagee as security for the repayment of the debt.

mortgagee
The lender.

mortgagor
The borrower.

N - Real Estate Terms and Definitions
necessaries
Generally, a necessary is an article indispensable or proper and useful, for the sustenance of human life (i.e., food, drink, clothing, medical attention).

negligence
A legal term for the failure to use such care as a reasonably prudent and careful person would use under similar circumstances; it is the doing of some act which a person of ordinary prudence would not have done under similar circumstances or failure to do what a person of ordinary prudence would have done under similar circumstances.

negligent misrepresentation
A legal principle which provides that if, in the ordinary course of business, a person seeks information or advice from another who possesses special skills in circumstances in which a reasonable man would know that his special skills were being relied upon, and the person asked chooses to give the advice without clearly qualifying his answer so as to show that he does not accept responsibility if it is incorrect then he accepts a legal duty to exercise such care as the circumstances require. If he is incorrect he may be liable for his negligent misrepresentation.

net income
The amount by which revenues exceed expenses in any given time period. Contrast to Net Loss.

net lease
A Lease in which the tenant pays some or all of the operating expenses. See also Triple Net Lease. Contrast to Gross Lease.

net loss
The amount by which expenses exceed revenues in any given time period. Contrast to Net Income.

net operating income (in appraisal)
Gross Potential Revenue less Vacancy Allowance, Bad Debt Allowance, and total Operating Expenses. This amount is calculated excluding Income Tax, Mortgage Payments, and Depreciation Expense or Capital Cost Allowance.

net proceeds
The face value of a loan less all brokerage fees, legal fees, appraisal costs and other charges.

nominal rate of interest
An interest rate quoted as a rate per annum; it is equal to the interest rate per compounding period multiplied by the number of compounding periods. (For example, j2 = 10%; j4 = 12%; j12 = 11.5%).

nominee
Under the now-repealed Real Estate Act, the nominee was the equivalent of the managing broker.

noncurrent assets
Those assets that will not be sold within one year or the normal operation cycle of a business. Noncurrent Assets may include property, plant, and equipment. Compare to Current Assets.

noncurrent liabilities
Those liabilities which are not expected to be paid within one year.

novation
A novation refers to a creditor's acceptance of a 3rd party in place of the debtor so that the 3rd party becomes the debtor and the original debtor is released by the creditor from having to pay off the debt.

O - Real Estate Terms and Definitions
objectivity principle
A generally accepted accounting principle which states that all recorded financial information is based upon objective and verifiable data.

offer
A proposal to do or refrain from doing some specified thing usually followed by an expected acceptance, counter-offer, return promise or act. The person who makes the offer is called the offeror. The recipient of the offer is called the offeree.

offering memorandum
A condensed version of a prospectus.

open listing
A listing given to any number of licensees without liability to compensate any except the licensee who first acquires a buyer ready, willing and able to meet the terms of the listing; the sale of the property automatically terminates the listing.

operating expenses
Those costs which have to be incurred to keep any business going, including the business of renting real property. See also Fixed Expenses and Variable Expenses.

option to purchase
A right conferred by a contract to accept or reject an offer to buy property within a certain time.

outstanding balance
The amount owing to the lender at any specified time, whether it is to be repaid over an amortization period or in a lump sum at the end of the term.

owners' equity
A classification on the balance sheet. Equal to Total Assets less Total Liabilities.

P - Real Estate Terms and Definitions
partial amortization
A loan repayment scheme in which the term is shorter than the amortization period. Whereas the loan payments will be calculated as if the loan will be paid back over the full amortization period, at the end of a specified term the outstanding balance is due and payable.

partnership
See General Partnership and Limited Partnership.

patent defect
A defect which is plainly visible or which can be discovered during the course of a reasonable inspection.

payment
A periodic installment that is made to service a debt. For an interest-only loan, the payment consists of interest; for a constant payment loan, the payment consists of interest and principal.

percentage lease
A lease agreement which specifies that the tenant will pay the Landlord.

periodic rate
The interest rate which is charged per compounding period (for example, per month or per day).

periodic tenancy
A tenancy which automatically renews itself on the last day of the term for a further term of the same duration until terminated by either party.

physical depreciation
The loss in value due to wear and tear (e.g., peeling paint) which may be curable or incurable. See Curable Depreciation and Incurable Depreciation. Compare to Functional Depreciation.

pooling agreement
An agreement between investors who have a direct ownership in real property to share revenues and expenses generated by individual rental units.

portable mortgage
A borrower can transfer the terms, conditions and interest rate of his or her current mortgage to the home the borrower would like to purchase.

possession date
Date on which the purchaser is entitled to possession of the property.

power of attorney
A document conferring authority to one person to act as another's agent on his or her behalf.

power of sale
A clause inserted into a mortgage giving the mortgagee the right and power, on default in the payment of the debt secured, to advertise and sell the mortgaged property at public auction to satisfy the mortgage debt, without the necessity of foreclosure proceedings.

prepayment
The act of fully or partially paying off the outstanding balance of a loan at any point during the term of the loan at a time earlier than set out in the contract.

present value
The current equivalent of a future dollar amount.

principal
That portion of the original amount borrowed which still has to be paid back to the lender.

private law
The law that deals with disputes between two or more individuals.

private nuisance
A legal term for wrongfully allowing the escape of injurious things onto another person's land or the wrongful disturbance of an easement or other interest granted over land.

pro forma statement
A financial statement which shows expected future revenues and expenses.

procedural law
The part of law which sets out the methods of determining and enforcing rights as between parties.

profit a prendre
A right to take the produce or part of the soil from the lands of another. For example: minerals, oil, stones, gravel, etc.

profit and loss statement
See Income Statement.

property insurance
A guarantee to the registered owner or mortgagee of an interest in land that after a specified hazard (for example, a fire) the value of the interest in land can be restored.

proprietorship
A business enterprise that is owned by a single owner who assumed unlimited liability. The proprietorship is not a taxable entity; the profits or losses of the business are reported on the owner's personal income tax return.

public law
The law that regulates disputes between individuals and the public as a whole (i.e., the state). The term "public" may be: (i) general (applying to all persons within the jurisdiction); (ii) local (applying to a geographical area); (iii) special (relating to an organization or authority charged with a public interest).

public nuisance
A legal term for some unlawful act or omission which endangers the safety or comfort of the public or some section of the public.

purchaser's statement of adjustment
A closing statement in a real property transaction which indicates the balance of cash required from the purchaser to complete the transaction. See also: Closing Statement.

Q - Real Estate Terms and Definitions
quantum meruit
Literally, "as much as he deserves". A doctrine that no one who benefits by the labour and materials of another should be unjustly enriched thereby; under those circumstances, the law implies a promise to pay a reasonable amount for the labour and materials furnished, even though a specific contract price may not have been agreed to.

R - Real Estate Terms and Definitions
rating grid
A matrix which is used to make adjustments to comparable properties in order to derive the value of the subject property when using the market comparison method of appraisal.

ratio
A ratio expresses one value in terms of another value; e.g., one out of every four houses is painted white. It can be stated as a fraction, one-quarter (1/4) of the houses are white; as a percentage, twenty-five percent (25%) of the houses are white; or as a ratio, one out of four (1:4) houses is white.

real estate security
Any security whose principal or major assets consist of real property and/or buildings attached to land.

real estate syndicate
Any form of organization in which two or more investors share in the ownership of an interest in real estate.

recent
In appraisal, that time period just prior to the date of valuation over which demand and supply conditions have remained relatively stable.

register
As a noun, the term refers to the books in which certificates of indefeasible title are entered or kept and, as a verb, the term refers to registering documentation pursuant to the provisions of the Land Title Act.

reinvestment
The act of investing the funds generated by one investment into another investment.

replacement cost
The expense that has to be incurred to build a modern equivalent of the subject property. Contrast to Reproduction Cost.

replacement reserve
The amount of funds set aside for periodic replacement of building components that wear out more rapidly than the building itself and must be replaced during the buildings economic life (also referred to as replacement allowance).

representative
A licensee providing real estate services under the supervision of a managing broker.

reproduction cost
The expense that has to be incurred to build an exact replica of the subject property. Contrast to Replacement Cost.

rescission
In the law of contracts, a rescission amounts to the unmaking, or an undoing of it from the beginning, as opposed to a termination.

residual method
This appraisal method is used for properties with redevelopment potential. To employ this method, another appraisal method is used to derive the property's value assuming it were employed in its highest and best use. Then, depending on whether the residual value of the land or the building is to be found, the cost of the building or the market value of the land is subtracted.

restrictive covenant
A covenant restricting the use of the land of the covenantor (the Servient Tenement) for the benefit of land belonging to the covenantee (the Dominant Tenement). An example would be a restriction on the height of a building on one piece of land so that adjacent or adjoining lands are not put in shadow.

retained earnings
The net income of current and prior periods less dividends paid, belonging to the shareholders of a corporation.

return
See Yield.

revenue principle
A generally accepted accounting principle which states that revenue is the value received from the sale of goods and services, interest, rent, and the gain or loss on the sale of assets. According to this principle, revenue is recognized on an accrual basis.

reverse annuity mortgage
An innovative loan arrangement in which the lender makes periodic payments to the borrower during the loan term. At the end of the term, the borrower will have to repay the balance owing by refinancing or selling the property.

revocation
The term for the cancellation of an offer communicated by the offeror to the offeree prior to acceptance.

right to purchase
A right conferred by an Agreement for Sale of land.

risk
See Capital Risk.

S - Real Estate Terms and Definitions
sale - leaseback
Situation in which the vendor will lease the subject property from the purchaser.

sales price
Value in exchange; the price obtained in an actual transaction.

salesperson
The term used in the now repealed Real Estate Act, to refer to the licencee level equivalent of a representative.

saving
The process of consuming less than what can be afforded in order to increase consumption in the future.

servient tenement
Land bearing the burden of an easement or other right (i.e., restrictive covenant).

shareholder
Individual who has purchased the rights and obligations associated with (part of) the equity of a corporation.

similar
In appraisal, two properties are similar if the actual differences between the properties will not have a material effect on their selling price.

simple interest
Interest which is charged only once on the sum originally borrowed, and paid at the end of the term along with the full amount of the principal. Contrast to Compound Interest.

soft costs
Large outlays beyond the basic costs of land acquisition and construction of buildings.

specific performance
The court, rather than granting damages in lieu of performance, orders that the terms of the contract be carried out by the party in default.

stakeholder
Generally, a stakeholder is a third party chosen by two or more persons to keep money on deposit, the right to the money which may be contested between them.

stare decisis
Literally, "let the former decision stand" - to abide by prior decisions and not to disturb the doctrine of the courts that, when the court has once laid down a principle of law applicable to a certain state of facts, it will adhere to that principle, and apply it to all future cases, where the facts are substantially the same; regardless of whether the parties and property are the same.

statement of adjustment
A closing statement in a real property transaction whose format is structured by Debits and Credits. See also Closing Statements.

statutory declaration
A written statement of facts signed by the maker and sworn to be true, usually before a lawyer or notary. A statutory declaration is similar to an affidavit.

straight-line depreciation method
One possible method used to calculate depreciation expense for accounting purposes. The expected salvage value is subtracted from the purchase price of the depreciable item and the result is divided by the expected economic life to find the periodic depreciation expense.

straight-line principal reduction loan
A mortgage which is paid off with periodic payments which always include the same amount of principal and an amount of interest based on the balance still owing.

sub-mortgage broker
A defined term in the Mortgage Brokers Act. Basically, an individual employed by a mortgage broker who satisfies any one of the following requirements:
•carries on a business of lending money secured in whole or in part by mortgages, whether the money is his own or that of another person;
•holds himself out as, or by an advertisement, notice or sign indicates that he is, a mortgage broker;
•carries on a business of buying and selling mortgages or agreements for sale;
•in any one year, receives an amount of $1,000 or more in fees or other consideration, excluding legal fees for arranging mortgages for other persons; or
•during any one year, lends money on the security of 10 or more mortgages.
•carries on a business of collecting money secured by mortgages.

subdivision
This is a defined term in various statutes. Basically, a subdivision is the division of land into two or more parcels.

subject property
The property to be appraised.

substantive law
The part of law, which creates, defines, and regulates legal rights and obligations.

support
The term for the right to have one's ground supported so that it will not cave in when an adjoining owner makes an excavation. Support is of two kinds, lateral and vertical.

Sutton Member Program
A membership program that provides access to exclusive discounted products and services including the best mortgage rate available. Go to www.suttonmember.com to find out more.

syndicator
The promoter who sets up a syndicate investment package.

T - Real Estate Terms and Definitions
tax rate
The number of dollars per $1,000 worth of actual value which is payable in property taxes.

tax sheltering
The process of creating a taxable loss on an investment property, and applying such a loss to offset taxable income generated by another source.

taxable income (loss)
Income (loss) reported for tax purposes. It is not to be confused with net income (loss). Net income (loss) is arrived at by the deduction of Depreciation Expense, whereas taxable income (loss) is calculated after the deduction of Capital Cost Allowance.

taxable value
Actual value as determined by the Assessor. This value, in thousands of dollars, when multiplied by the Tax Rate equals the amount of real property taxes payable.

tenancy agreement
Contract between the landlord and the tenant, pertaining to the letting of residential premises.

tenancy at will
A tenancy where the tenant, with the consent of the landlord, occupies land as a tenant for a term which, can be terminated by either party at any time.

tenants in common
Where two or more persons acquire interests in a single property. Each may sell or bequeath their interest and in the event of death, their interest becomes a part of their estate.

term
With respect to mortgages, a time period at the end of which the outstanding balance of a mortgage is due and payable; it represents the duration of the mortgage contract.

terminal value
The value upon destruction of an asset.

time clause
A clause contained in a contract for purchase or resale of land which allows a party to invoke a time period in which a condition precedent must be removed. A failure to remove the condition precedent within the time period would result in the termination of the contract.

time share plan
A plan providing for the recurring use, occupation, or possession of real property to circulate on a periodic basis among persons in the plan.

torrens land registration system
A system for registration of the actual title to land in order to provide security to those holding interests in land and to remove the need for retrospective investigation of titles to land.

tort
A private wrong or injury, other than breach of contract, for which the court will provide a remedy in the form of an action for damages.

total debt service ratio
The percentage of gross income which is the maximum amount that a mortgagor is allowed to pay annually in principal, interest and property taxes on all debts. Compare to Loan-to-Value Ratio. See also Ratio and Gross Debt Service Ratio.

trade record sheet
A form required and approved by the Real Estate Council, which contains certain required information in respect to trades in real estate in relation to which a brokerage provides trading services.

trespass
A legal term for wrongfully entering, remaining on, or placing something on another's land.

triple net lease
A lease in which the tenant pays all operating expenses. See Net Lease.

trust account
An account where money is deposited by one for the benefit of another. The money is devoted to a particular purpose and cannot or should not be diverted for other purposes.

trust syndicate
Syndicate organization in which the investors hold real estate indirectly as beneficiaries under a trust agreement. Such a trust may be referred to as a Real Estate Investment Trust (REIT).

trustee
Individual or business entity in whose name a trust is held.

U - Real Estate Terms and Definitions
undepreciated capital cost (ucc)
An account which includes the purchase price of all assets belonging to the same class less all CCA accrued over time for that class.

undertaking
A promise given in the course of legal proceedings by a party or his lawyer, generally as a condition to obtaining some concession from the opposite party.

undue influence
Any improper or wrongful constraint, manipulation, or persuasion whereby the will of a person is overpowered and he is induced to do or refrains from doing an act which he would not do or would do if left to act freely.

unlimited liability
The obligation of an owner to pay his creditors from his personal assets if his company cannot pay its debts. Contrast to Limited Liability.

usury
In law, referring to regulating the charging of interest rates. Historically, charging interest on money lent or the taking of any compensation whatever for the use of money offended the usury laws which disallowed this practice.

V - Real Estate Terms and Definitions
vacancy allowance
An estimate of the amount of rent that may be foregone because of unoccupied units.

valuation
See Appraisal.

value in exchange
See Sale Price.

variable expenses
Those costs which vary according to the extent to which a property is occupied (e.g., janitorial services in an office building).

variable rate mortgage
A loan being repaid by payments which, change as the market interest rate changes.

vendor take-back mortgage
A mortgage taken back by the vendor from the purchaser to facilitate a sale, whereby the vendor becomes the mortgagee and the purchaser becomes the mortgagor.

vendor's statement of adjustment
Closing Statement which shows the net amount of proceeds to be received by the vendor upon completion of the transaction. See also Statement of Adjustment.

vertical support
The right of land to be supported by the land which lies under it.

void contract
A contract which never had any legal existence or effect and which is not capable of being enforced.

voidable contract
One which exists until repudiated by a party entitled to do so at which time it becomes void.

W - Real Estate Terms and Definitions
warranty of authority
An agent's promise or guarantee to third parties that his or her actions fall within the scope of authority given by the principal. An agent acting outside of the scope of authority breaches the warranty of authority.

waste
An abusive or destructive use of property by a person in rightful possession is one form of waste. There are other forms of waste described in the text.

wrap-around mortgage
A second mortgage, registered on title, which includes a prior existing mortgage. It may be written for an amount equal to the outstanding balance of the first mortgage or may also add additional funds for a larger loan balance than currently exists. Payments under the new mortgage include the payments under the original mortgage and the new mortgagee undertakes the responsibilities as mortgagor under the original mortgage.

Y - Real Estate Terms and Definitions
yield
The income and/or value appreciation of an investment expressed in terms of the purchase price of that investment. For example, if a property that has sold for $100,000 is worth $2,000 more one year later and has generated an income of $5,000 during the year, the yield to the investor is ($2,000 + $5,000) ÷ $100,000 = .07 or 7%. See Return



               

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