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Commercial Dictionary


For your reference, below we've defined some of the more commonly used terms in commercial real estate.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

Absolute Net

Lease that requires the tenant to pay all costs (including rent) associated with the operation, repair and maintenance of the building. This includes real estate taxes, utilities, repair and maintenance. Also referred to as net-net-net (NNN) or triple net.


The amount of inventory or units of a specific commercial property type that become occupied during a specified time period (usually a year) in a given market, typically reported as the absorption rate.

Accelerated cost recovery system

A tax calculation that provides greater depreciation in the early years of ownership of real estate or personal property.

Acceleration clause

A provision that gives a lender the right to collect the balance of a loan if a borrower misses a payment.


A measurement of land equal to 43,560 square feet.

Actual age

The number of years a structure has been standing.

Adjustable-rate mortgage (ARM)

A loan with an interest rate that is periodically adjusted to reflect changes in a specified financial index.

Adjusted cost basis

The cost of any improvements the seller makes to the property. Deducting the cost from the original sales price provides the profit or loss of a home when it is sold.

Adjustment period

The amount of time between interest rate adjustments in an adjustable-rate mortgage.


A person given authority to manage and distribute the estate of someone who died without leaving a will.

Administrator's deed

A legal document that an administrator of an estate uses to transfer property.

Adverse possession

The acquisition of title to property through possession without the owner's consent for a certain period of time.

Adverse use

The access and use of property without the owner's consent.

Alienation clause

A provision that requires the borrower to pay the balance of the loan in a lump sum after the property is sold or transferred.

Americans with Disabilities Act

A law passed in 1990 that outlaws discrimination against a person with a disability in housing, public accommodations, employment, government services, transportation and telecommunications.


The repayment of loan principal and interest through equal payments over a designated time period.

Amortization schedule

Mathematical tables that lenders use to calculate a borrower's monthly payment.

Anchor bolt

A large steel bolt anchored in concrete and attached to a building to prevent the structure from moving.

Annual debt service (ADS)

The total amount of principal and interest to be paid each year to satisfy the obligations of a loan contract.

Annual Percentage Rate (APR)

The cost of the loan expressed as a yearly rate on the balance of the loan.


Regular fixed payments or receipts over a designated time period.


An opinion of the value of a property at a given point in time.

Appraisal fee

The fee that an appraiser charges to estimate the market value of the property.

Appraisal report

A detailed written report on the value of a property based on recent sales of comparable sites in the area.

Appraised value

An opinion of the current market value of a property.


An increase in the value of a property.


A fire-resistant mineral used for insulation and home products that has been found to pose a health hazard.

Assessed value

A tax assessor's determination of a property?s value in order to calculate a tax base.


The estimated value of a piece of real estate or a levy placed on property in addition to taxes.


Items of value which include cash, real estate, securities and investments.


A transfer in which all of the tenant?s leasehold interest in a property goes to another party. Nevertheless, the original tenant remains liable unless released from future obligations by the owner.


A person who transfers rights and interests of a property.

Assumable mortgage

A mortgage that can be transferred to another borrower.

Assumption clause

A provision that allows a buyer to take responsibility for the mortgage from a seller.

Assumption fee

A fee the lender charges to process new records for a buyer who assumes an existing loan.

Average annual effective rate

The average annual effective rent divided by the total square feet.

Average annual effective rent

The tenant?s total effective rent divided by the lease term.

Aviation easement

An easement over private property near an airport that limits the height of structures and trees.

Backup offer

A secondary bid for a property that the seller will accept or negotiate if the first offer fails.

Balloon mortgage

A mortgage in which monthly installments are not large enough to repay the loan by the end of the term. As a result, the final payment due is the lump sum of the remaining principal.

Balloon payment

The final lump sum payment due at the end of a balloon mortgage.

Base Rent

The minimum rent due to the landlord. Typically, it is a fixed amount. This is a face, quoted, contract amount of periodic rent. Escalations are calculated from the annual base rate.

Basis Point

A basis point is one one-hundredth of one percentage point. For example, the difference between a loan at 7.25 percent and a mortgage at 7.35 percent is 10 basis points.

Bill of sale

A document that transfers ownership of personal property.

Biweekly mortgage

A mortgage that requires payments every two weeks and helps repay the loan over a shorter term.

Blanket insurance policy

A policy that covers more than one person or piece of property.


An agreement that insures one party against loss by acts or defaults of another party.

Break-even point

The point in which the owner's rental income matches expenses and debt.


The sales threshold over which percentage rent is due. It is calculated by dividing the annual base rent by the negotiated percentage applied to the tenant?s gross sales.


A contract in which the owner agrees to develop or finish a property or space to the specifications of the tenant. The tenant may partly carry the cost in the form of increased rent.

Building code

A comprehensive set of laws that controls the construction or remodeling of a home or other structure.

Building inspector

A city or county employee who enforces the building code and ensures that work is correctly performed.

Building line or setback

Guidelines that limit how close an owner can build to the street or an adjacent property.

Building moratorium

A halt on construction to slow the rate of development.

Building restrictions

Regulations that limit the manner in which property can be used.


Industrial space category that describes properties consisting of little more than four walls, a roof, and a floor.

Cap rate

see Capitalization Rate

Capital expenditure

The cost of making improvements on a property.

Capital gain

Taxable income derived from the sale of a capital asset. It equals the sale price less the costs of sale, adjusted basis, suspended losses, excess cost recovery, and recapture of straight-line cost recovery.

Capital improvement

Any improvement that extends the life or increases the value of a piece of property.

Capital market

The supply and demand for resources to invest in real estate and other investments.

Capitalization Rate

A percentage that relates the value of an income-producing property to its future income, expressed as net operating income divided by purchase price. Also known as cap rate.

Cash flow

The net cash received in any period, taking into account net operating income, debt service, capital expenses, loan proceeds, sale revenues, and any other sources and uses of cash.

Cash flow after taxes (CFAT)

Calculated from the cash flow before taxes, less the tax liability (savings), plus investment tax credit.

Cash flow before taxes (CFBT)

For properties, it is the result of several steps; calculating the effective rental income, plus other income not affected by vacancy, less total operating expenses, less annual debt service, funded reserves, leasing commissions, and capital additions.

Cash-on-Cash Return

An investment return ratio derived by dividing cash return by cash invested.

Certificate of Deposit (CD)

A document showing that the bearer has a specified amount of money deposited with a bank or other financial institution.

Certificate of deposit index

An index based on the interest rates on six-month CDs. It used to determine the interest rate for some adjustable-rate mortgages.

Certificate of eligibility

A document issued by the Veterans Administration that verifies the eligibility of a veteran for a loan program.

Certificate of occupancy

A document which states that a home or other building has met all building codes and is suitable for habitation.

Certificate of sale

A document issued at a judicial sale, which entitles the buyer to receive a deed after court confirmation of the purchase of the property.

Chain of title

The official record that details the ownership history of a piece of property.


Personal property such as furniture, clothing or a car.

Classified property tax

A tax that varies in rate depending on the use of the property.

Clear title

A property that does not have liens, defects or other legal encumbrances.


The final procedure in which documents are signed and recorded, and the property is transferred.

Closing costs

Expenses incidental to the sale of real estate including, but not limited to, loan, title and appraisal fees.

Closing statement

A document that details the final financial settlement between a buyer and seller and the costs paid by each party.

Cloud on title

An invalid encumbrance on real property.


A second party who signs a promissory note and takes responsibility for the debt.

Commercial real estate

Any multifamily, office, industrial, or retail property that can be bought or sold in a real estate market.

Commercial strip property

A strip of commercially zoned land divided into parcels to be developed for retail use. These properties usually have a fairly narrow trade area and offer a variety of products and services.

Common area

Areas within a building and its site, such as lobbies, hallways, grounds, and parking lots, that is available for non-exclusive use by all tenants.

Compound interest

Interest computed on the original principal and accumulated interest.

Compound interest

The interest paid on the principal balance in a mortgage and on the accrued and unpaid interest of the loan.


A type of calculation in which interest earned is reinvested and earns additional interest.

Conditional commitment

A promise by a lender to make a loan if the borrower meets certain conditions.


Individual units in a building or development in which owners hold title to the interior space while common areas such as parking lots, community rooms and recreational areas are owned by all the residents.

Condominium conversion

The change in title from a single owner of an entire project or building to multiple owners of individual units.

Construction loan

Short-term loans a lender makes for the construction of homes and buildings. The lender disburses the funds in stages.

Contract rent

The total monetary rental obligation specified in a lease. See base rent.

Contractual lien

A voluntary obligation such as a mortgage or trust deed.

Controlled growth

Any restrictions imposed on the amount or type of new development in an area.

Convertible adjustable-rate mortgage

A mortgage which starts as an adjustable-rate loan, but allows the borrower to convert the loan to a fixed-rate mortgage during a specified period of time.


The transfer of title of property.

Conveyance tax

A tax imposed on the transfer of real property.

Cost recovery

An annual deduction based on the class life of an asset.


A response to an offer.

Critical area

Any area that is subject to natural hazards or a land feature that supports unique, fragile or valuable natural resources including fish, wildlife or other organisms or their habitats or such resources that carry, hold or purify water in their natural state.

Debt Coverage Ratio

The ratio between the net income of an investment and the amount of debt service of the investment: expressed as (NOI / DS = DCR).

Debt Service

The periodic payments of interest and/or principal on a property's indebtedness.


The legal document that transfers ownership of a piece of property.

Deed of trust

A document that gives a lender the right to foreclose on a piece of property if the borrower defaults on the loan.


The failure to fulfill a duty or promise or discharge an obligation, such as making monthly mortgage payments.

Deferred maintenance

Any repair or maintenance of a piece of property that has been postponed, resulting in a decline in property value.

Delinquent mortgage

A mortgage that involves a borrower who is behind on payments. If the borrower cannot bring the payments up to date within a specified number of days, the lender may begin foreclosure proceedings.

Density test

An analysis of soil to determine if the surface can support the foundation of a property.


Money given by the buyer with an offer to purchase property. Also known as earnest money.


The decline in value of a piece of property.

Discount points

Fees that a borrower pays at the time the lender makes the loan. One point equals 1 percent of the total loan amount.

Discount rate

The percentage rate at which money or cash flows are discounted. The discount rate reflects both the market risk-free rate of interest and a risk premium. See opportunity cost.


The process of reducing the value of money received in the future to reflect the opportunity cost of waiting to receive the money.

Distressed property

Property that is in poor physical or financial condition.

Down spouts

A vertical gutter that empties water from the roof to the ground.

Dry rot

A fungal decay that causes wood to become brittle and crumble.

Dual agency

A relationship in which a real estate agent or broker represents both parties in a transaction.

Due-on-sale clause

Standard language in a mortgage which states that the loan must be paid when the property is sold.


A structure that consists of two separate family units.

Early occupancy

The condition in which buyers can occupy the property before the sale is completed.

Earnest money

Money a buyer gives with an offer to purchase a property. Also called a deposit.


A right given by the owner to use a portion of the property for certain purposes, such as power lines or water mains.

Effective age

The age of a structure estimated by an appraiser based on its condition rather than its actual age.

Effective rental income

The resulting income a property produces after estimated vacancy and credit losses have been deducted from potential rental income.

Efficiency percentage

The relationship of useable area to rentable area on a given property. It is calculated by dividing useable square feet by rentable square feet.


Structures that illegally extend onto another?s property.


A claim or lien on a property which affects the title process.

Environmental impact statement

A government-mandated evaluation of all aspects and effects a development will have on the environment of a proposed site.

Equal Credit Opportunity Act

A federal law that prohibits a lender or other creditor from refusing to grant credit based on the applicant's sex, marital status, race, religion, national origin, age or receipt of public assistance.


A determination of the value of a property after existing liens are deducted.

Equivalent Level Rate (ELR)

Flat rate per square foot that will equal the same total present value as a proposed lease's variable cash flows.

Escrow account

An account that a lender establishes to hold funds for the payment of expenses such as homeowners insurance and property taxes. Also known as an impound account.

Escrow agent

A neutral third party that holds the documents and money involved in a real estate transaction and ensures that all conditions of a sale are met.

Escrow analysis

A lender's periodic examination of an escrow account to determine if the lender is withholding enough funds from a borrower's monthly mortgage payment to pay for expenses such as property taxes and insurance.

Escrow closing

Escrow closes when all conditions of a real estate transaction are met and the title of the property is transferred to the buyer.

Escrow company

Firms that act as neutral third parties to ensure that all conditions that the buyer, seller and lender establish in a real estate transaction are met.

Escrow payment

Funds that a mortgage broker withdraws from a borrower's escrow account to pay property taxes and insurance.


The total assets of a person, including real property, at the time of death.

Estimated Increase in Equity

A specified property value increased by a selected rate of appreciation for a specific number of years.

Estoppel Certificate

Prevents individuals from asserting facts different from those contained in a document. Both the tenant and landlord sign the estoppel certificate to confirm the facts pertaining to the lease.


A legal procedure to remove a tenant from a property.

Examination of title

An inspection by a title company of public records and other documents to determine the chain of ownership of a property.

Exclusive listing

A contract that gives an agent the exclusive right to market a property for a specific period of time.


A person appointed to carry out the instructions in a will. If there is no will, a probate court will appoint an executor.

Expansion Option

Right granted by the landlord which provides the option of adding more space to the premises.

Expense stop

The level (or maximum amount) up to which the landlord will pay certain operating expenses. Amounts above the expense stop are the tenant?s responsibility.

Extension Option

Mutually agreed continuation of occupancy under the same conditions as outlined in previous agreements.

Fair Credit Reporting Act

A federal law passed in 1971 that regulates the activity of credit bureaus. It is designed to prevent inaccurate or obsolete information from staying in a consumer's credit file and requires credit bureaus to have reasonable procedures for gathering, maintaining and disseminating credit information. The act also requires credit bureaus to show a consumer their credit file if the consumer presents proper identification, although the bureau reserves the right to charge a fee for doing so.

Fair Housing Act

Landmark federal law passed in 1965 and amended in 1988 that makes it illegal to deny rent or refuse to sell to anyone based on race, color, religion, sex or national origin. The 1988 amendment expanded the protections to include family status and disability.

Fannie Mae

The official name of the Federal National Mortgage Association, it is a congressionally chartered, shareholder-owned company that buys mortgages from lenders and resells them as securities on the secondary mortgage market.

Federal Home Loan Mortgage Corporation

The Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac. The company buys mortgages from lending institutions, pools them with other loans and then sells shares to investors.

Federal Housing Administration (FHA)

A government agency that operates a variety of home-loan programs through insuring residential mortgage loans made by private lenders.

Fee simple

This type of ownership is the maximum interest a person can have in a piece of real estate. It entitles the owner to use the property in any manner they see fit, in accordance with state and local laws.

Fee simple defeasible

The owner of the property holds a fee simple title contingent upon certain conditions.

Fiduciary duty

The relationship of trust that buyers and sellers expect from a real estate agent. The term also applies to legal and business relationships.

First mortgage

The primary mortgage on a property that has priority over all other voluntary liens.

Fixed installment

The monthly payment on a loan.

Fixed lease

A lease in which the lessee pays a fixed rental amount for the duration of the lease.

Fixed-rate mortgage

A loan with an interest rate that will remain at a specific rate for the term of the loan.


Personal property permanently attached to a house, such as drapery rods, toilets, built-in bookcases or a furnace.


Metal strips placed around chimneys, skylights, vents, windows, doors, beneath shingles and along seams in the roof to prevent water seepage.

Flood insurance

Hazard coverage that is required in designated flood areas.

Flood plain

Flat, flood-prone areas located along waterways.


A course of action a lender may pursue to delay foreclosure or legal action against a delinquent borrower.


The legal process reserved by a lender to terminate the borrower's interest in a property after a loan has been defaulted. When the process is completed, the lender may sell the property and keep the proceeds to satisfy its mortgage and any legal costs. Any excess proceeds may be used to satisfy other liens or be returned to the borrower.


The relinquishing of property rights by a delinquent borrower.


A term used to describe industrial and commercial properties. The property type often is developed in an industrial park setting or as a build-to-suit on a selected piece of property. Freestanding properties usually are designed for manufacturing, distribution, assembly, packaging, and similar uses. In commercial establishments providing goods and services in single or multiple use buildings of various sizes, the larger, newer freestanding stores also are referred to as big boxes.

Fully amortized mortgage loan

A method of loan amortization in which equal periodic payments completely repay the loan.

Future value

The amount to which money grows over a designated time period at a specified interest rate.

Good-faith estimate

An estimate from an institutional lender that shows the costs a borrower will incur, including loan-processing charges and inspection fees.

Government National Mortgage Association

Commonly known as Ginnie Mae, this agency buys home loans from lenders, pools them with other loans and sells shares to investors. Ginnie Mae differs from Fannie Mae and Freddie Mac, in that it only purchases loans backed by the federal government.

Graduated-payment mortgage (GPM)

A mortgage that requires a borrower to make larger monthly payments over the term of the loan. The payment is unusually low for the first few years but gradually rises until year three or five, then remains fixed.


A person who is conveyed an interest in a piece of property.


The person who conveys an interest in a piece of property to another person.

Gross leasable area

The total floor area designed for tenant occupancy and exclusive use, including basements, mezzanines, and upper floors, is measured from the center line of joint partitions and from outside wall faces. Gross leasable area is that area on which tenants pay rent; it is the area that produces income.

Gross lease

A lease in which the landlord pays all expenses associated with owning and operating the property.

Gross operating income

The total income generated by property operations before payment of operating expenses. It is calculated from potential rental income, less vacancy and credit losses, plus other income not affected by vacancy. Also known as Gross Scheduled Income.

Gross rent multiplier (GRM)

A number which, multiplied by the gross income of a property, produces an estimate of value of the property (e.g., if the gross income from an apartment building is $100,000 annually and an appraiser uses a gross multiplier of 12%, then the value of the building is $1,200,000.

Ground lease

A lease of the land only. Usually the land is leased for a relatively long period of time to a tenant that constructs a building on the property. A ground lease separates ownership of the land from ownership of buildings and improvements constructed on the land.

Hazard insurance

The provision of property insurance that covers damage by fire, wind or other hazards.

High density

The concentration of housing units in a specific area or on a specific property.


An office building that the Building Owners and Managers Association defines as greater than 25 stories above ground.

Historic structure

A home or building listed in the National Register of Historic Places and certified as historic by the U.S. Secretary of the Interior.

Home equity conversion mortgage

Loans made to older home owners who want to convert equity into money. The borrowers are qualified on the basis of the value of their home and usually receive monthly payments from the lender. The loan does not have to be repaid until the borrower no longer occupies the home.

Home equity loan

A loan that allows owners to borrow against the equity in their homes.

Home rule

The power of a local government to adopt its own land-use regulations.

Housing expense ratio

The percentage of gross monthly income devoted to housing costs.

HUD-1 Uniform Settlement Statement

A closing statement or settlement sheet that outlines all closing costs on a real estate transaction or refinancing.

Impact fees

Fees collected from developers of new homes to pay for schools, parks and other facilities.


A portion of the monthly mortgage payment that is placed in an account and used to pay for hazard insurance, property taxes and private mortgage insurance.

Income property

Property that is not occupied by the owner but is used to generate income.

Incurable defect

A defect in a property that cannot be fixed, such as an adjacent hazardous waste site, or that would cost too much to repair relative to the value of the property.


Financial tables used by lenders to calculate interest rates on adjustable mortgages and on Treasury bills.

Index lease

A lease in which the rental amount adjusts according to changes and/or movements in a price index, commonly the consumer price index.

Industrial property

Commercial properties that are used for the purpose of production, manufacturing, or distribution.

Infill development

Any significant new construction in an established area.


Occurs when there is more money available than there are goods and services to be purchased.

Initial interest rate

The original interest rate on an adjustable-rate mortgage.

Initial investment

The outlay of cash needed to acquire an investment.

Insurable title

Title to property that a company agrees to insure against defects and disputes.


Policies that can be purchased to guarantee compensation for specific losses.

Insurance binder

A temporary insurance arrangement usually put in force until a permanent policy can be obtained.


The fee borrowers pay to obtain a loan. It is calculated based on a percentage of the total loan.

Interest rate caps

A limit on the amount that can be charged to the monthly payment of an adjustable-rate mortgage during an adjustment period.

Interest rate ceiling

The highest interest a lender can charge for an adjustable-rate mortgage.

Interest-only loan

The borrower pays only the interest that accrues on the loan balance each month. Since each payment goes towards interest, the outstanding balance of the loan does not decline with each payment.

Internal rate of return (IRR)

The percentage rate earned on each dollar that remains in an investment each year. The IRR of an investment is the discount rate at which the sum of the present value of future cash flows equals the initial capital investment.

Investment property

Real estate that generates income.

Joint liability

The responsibility of two or more individuals to fulfill the terms of a loan or debt.

Joint tenancy

Ownership by two or more individuals with equal shares of a piece of property. Rights pass to the surviving owner or owners.


The decision of a court or law. If a court decides that a person must repay a debt, a lien may be placed against that person's property.

Judicial foreclosure

A procedure to handle foreclosure proceedings as civil matters.

Jumbo mortgage

Loans that exceed limits set by Fannie Mae and Freddie Mac.


The owner of a leased property. See lessor and owner.

Late charge

A fee a lender imposes on a borrower when the borrower does not make a payment on time.

Late payment

A payment a lender receives after the due date has passed.

Latent defect

An invisible problem in a piece of property such as bad wiring or termite damage.


A contract stating the relationship between landlord and tenant that grants a right to exclusive possession or use of property, usually in return for a periodic payment called rent.

Lease option

A lease that contains the right to purchase the property within a certain time frame.

Leasehold estate

An arrangement in which the borrower does not own a specific piece of property but possesses a long-term lease.

Legal description

A description identifying and locating a piece of property that is acceptable to a court.


A bank, savings institution or mortgage company that offer loans.


The party renting or leasing a property.


The party who rents or leases a property to another party.

Letter of intent

A formal statement that the buyer intends to purchase the property for a certain price on a certain date.


The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.


The use of borrowed funds to finance a portion of the cost of an investment.


A borrower's debts and financial obligations.

Liability insurance

A policy that protects owners against any claims of negligence, personal injury or property damage.


A claim laid by one person or company on the property of another as security for money owed.

Life cap

A limit on the amount that a loan rate can move during the term of the mortgage. For example, the rate on an adjustable-rate mortgage that begins at 5 percent and has a lifetime cap of 7 percentage points cannot rise above 12 percent.

Life-cycle cost analysis

An analysis of a building project's expected operating, maintenance and replacement costs, calculated by an architect.

Limited Partnership

a legal partnership where some owners are allowed to assume responsibility only up to the amount invested.

Liquid assets

Cash and all other assets that can be converted to cash relatively quickly. Liquid assets can include money in savings and checking accounts, money-market accounts, and most certificates of deposit.


The ability to convert an investment into cash quickly without loss of principal.

Live-work space

An officially designated dwelling in which the occupant conducts a home-based business or enterprise.

Loan officer

An official representative of a lending institution who is empowered to act on behalf of the lender within certain limits.

Loan origination fee

Most lenders charge borrowers an origination fee--or points--for processing a loan. A point is 1 percent of the total loan amount.

Loan point

see points.

Loan processing fee

A fee charged by some lenders for gathering information to enable the lender to process the loan.

Loan-To-Value Ratio (LTV)

The ratio between an investment's value and its financing, expressed as a percentage. The higher the LTV Ratio, the higher the risk.

Low density

A low concentration of housing units in a specific area.


An office building that the Building Owners and Managers Association defines as fewer than seven stories above ground.


The lender's retail markup on the mortgage. For example, if the index rate for an adjustable-rate mortgage is 5 percent but the lender has a 1.5 percentage-point margin, the rate the borrower will pay is 6.5 percent.

Market area

A geographical area in which supply and demand operate to influence the course of industrial and commercial activities.

Market conditions

Factors affecting the sale and purchase of properties at a particular point in time.

Market data

Information collected and displayed for a given market or by market area.

Market value

The most probable price that a property would bring in a competitive and open market under fair market sale conditions.

Master Lease

A lease controlling subsequent leases.

Master-planned community

A suburban plan that includes homes and commercial, work, educational and community facilities.

Mechanic's lien

An encumbrance filed by subcontractors or suppliers against a property to seek payment.

Metes and bounds

A surveying method that describes land in terms of shape and boundary dimensions.

Metropolitan Statistical Area (MSA)

The area in and around a major city. The Office of Management and Budget defines an MSA as a city with a population of at least 50,000 or an urbanized area with a population of at least 50,000 within a total metropolitan population of 100,000.


An office building that the Building Owners and Managers Association defines as between seven and twenty-five stories above ground.

Mixed-use development

A project that combines several different functions, such as residential space above a commercial establishment or an entire development combining commercial, residential and public accommodations.


The legal document that secures property for the repayment of funds borrowed to purchase real estate.

Mortgage banker

A company that provides loans using its own money.

Mortgage broker

A company that matches lenders with prospective borrowers who meet the lender's criteria. The mortgage broker does not make the loan, but receives payment from the lender for services.

Mortgage insurance

Required by lenders in some loans to protect them from a possible default. Most conventional loans with less than a 20 percent down payments require private mortgage insurance (PMI).

Mortgage life insurance

A special type of insurance that will pay off a mortgage if the borrower dies before the debt is retired.

Mortgage-interest deduction

The tax write-off that the Internal Revenue Service allows most owners to claim for the annual interest payments they make on their real estate loans.


A bank or other financial institution that lends money to the borrower.


The person who borrows money to purchase a property.

Multi-family housing

Housing units that accommodate more than one family or household.

Multidwelling units

A property that contains individual units for several households but carries only one mortgage.

Municipal housing inspector

Inspectors employed by cities or counties to check all construction sites and verify that contractors are meeting building codes.

Negative amortization

Occurs when a borrower's monthly payment is not large enough to cover both the principal and interest of a loan. As a result, the outstanding balance of the loan actually grows larger with each payment rather than smaller.

Net cash flow

The income that an investment property generates after expenses such as principal, interest, taxes and insurance are subtracted.

Net lease

A lease in which the tenant pays, in addition to rent, all operating expenses such as real estate taxes, insurance premiums, and maintenance costs.

Net operating income (NOI)

The potential rental income plus other income, less vacancy, credit losses, and operating expenses.

Non-assumption clause

A loan provision that prohibits the transfer of a mortgage to another borrower without lender approval.

Non-recurring closing costs

Costs that are one-time only fees for such items as an appraisal, loan points, credit report, title insurance and a property inspection.


The legal document that requires a borrower to repay a mortgage at a certain interest rate over a specified period of time.

Note rate

The interest rate specified in a mortgage note.

Notice of default

A lender's initial action when a mortgage payment is late, which informs that legal action may be taken.


The inadequacy, disuse, outdatedness, or non-functionality of facilities, infrastructure, products, or production technologies due to effects of time, changing market conditions, or decay. This factor is considered in depreciation to cover the decline in value of fixed assets due to the invention and adoption of new production technologies or changing consumer demands.

Occupancy Cost

Charge to tenant, pursuant to its lease, such as rent, operating expense increases, parking charges, moving expenses, remodeling costs, etc.

Office property

A commercial property type maintained for or occupied by professional or business offices. Such properties typically house management and staff operations. Office properties may be classified as Class A, B, or C. Class A properties are the most functionally modern. Class B and C properties in the same market typically command lower rents because they are older and in need of modernization.


Industrial space category in attractive, park-like settings with landscaping. They are usually at the highest end of market rents and devote more than 25% of their spaces to offices. Office/service properties are similar to research and development facilities.


Industrial space category that may devote 5 to 25 percent of its space to office requirements and typically is constructed of metal, brick, block, or wood. This category usually features dock-high loading.

Operating expense stop

A negotiable amount at which the owner?s contribution to operating expenses stops. It also can be stated as the amount above which the tenant is responsible for its pro rata share of operating expenses.

Operating expenses

Cash outlays necessary to operate and maintain a property. Examples of operating expenses include real estate taxes, property insurance, property management, maintenance, utilities, and legal or accounting expenses. Operating expenses do not include capital expenditures, debt service or cost recovery.

Opportunity Cost

The cost of selecting one alternative is the benefit foregone from the next best alternative.

Original principal balance

The amount of principal owed on a loan before a borrower makes any payments.

Origination fee

See loan origination fee.

Outlet center

A retail property type usually located in rural or occasionally in tourist locations. These centers consist mostly of manufacturers? outlet stores selling their own brands at a discount and typically are not anchored. A strip configuration is most common, although some are enclosed malls or arranged in a village cluster.

Overage rent

Also known as percentage rent.


The party who has the right to possess, use, lease and sell a property. See landlord and lessor.

Owner financing

A transaction in which the seller of a property agrees to finance all or part of the purchase.


An officially described piece of land.

Partially amortized mortgage loan

A loan in which the payments do not repay the loan over its term, so a lump sum (balloon) is required to repay the loan at the end of the term.

Patent defect

A visible deficiency in a piece of property, such as a cracked basement slab or a sagging porch.

Payment (PMT)

A periodic amount paid or received for two or more periods.

Payment cap

A legal limit on the amount a monthly payment can increase on an adjustable-rate mortgage.

Per-diem interest

Interest charged or accrued daily.

Percentage rent

The rent over a base amount that tenants pay to owners on tenant sales over a specified dollar amount. It frequently is found in retail leases. Also known as overage rent.

Personal property

Any property that is not real property. Examples include money, savings accounts, appliances, boats, etc.

PITI (Principal, Interest, Taxes, Insurance)

When a buyer applies for a loan, the lender will calculate the principal, interest, taxes and insurance. The figure is designed to represent the borrower's actual monthly mortgage-related expenses.

Planned communities

The concept began in the 19th century and describes any town or neighborhood built with certain guidelines and goals.

Planned-unit development

Residents own the home and the land, and share the use and financial responsibility for common areas.


Fees charged by lenders at the time a loan is originated. A point is equal to 1 percent of the total loan amount. Also known as a loan point.


Charges prepaid by the borrower upon origination of a loan. One point equals one percent of the loan amount. Also known as loan point.

Potential rental income

The total amount of rental income for a property if it were 100 percent occupied and rented at competitive market rates.

Power center

A retail center dominated by several large anchors, including discount department stores, off-price stores, warehouses clubs, or category killers --- stores that offer tremendous selection in a particular merchandise category at low prices. The center typically consists of several freestanding anchors and only a minimum number of small specialty tenants.

Power of attorney

A document that authorizes an individual to act on behalf of someone else.

Prepaid interest

Interest paid before it is due.

Prepayment penalty

Lenders can impose a penalty on a borrower who pays a loan off before its expected end date.

Present value (PV)

The sum of all future benefits or costs accruing to the owner of an asset when such benefits or costs are discounted to the present by an appropriate discount rate.


The amount of money that the borrower owes on a mortgage.


The portion of a loan payment used toward reducing the original loan amount.

Probate sale

A real estate sale triggered by the death of the owner, with proceeds to be divided among heirs or creditors.

Proceeds of Condemnation

Specifies who recovers the value of tenant improvements if an eminent domain action occurs.

Promissory note

The written promise to repay the mortgage loan that accompanies the mortgage.

Property data

Property/site-specific information obtained from primary and secondary sources.


Agreed-upon percentages of certain expenses associated with a piece of property that must be paid by the buyer or the seller at the time of closing.


Intangible characteristics of a local economy that define and shape the quality-of-life element and the social and cultural identity of the local population.

Purchase agreement

A document which details the purchase price and conditions of the transaction.

Qualifying ratios

Calculations that lenders compute into two ratios to determine how much a potential buyer can borrow. The two ratios are called "front" and "back" ratios. The "front" ratio is a calculation based on the borrower?s monthly housing costs as a percentage of monthly income. The "back" ratio includes monthly housing costs plus additional monthly costs/debts.

Quit-claim deed

A document that releases a party from any interest in a piece of real estate.

Real estate investment trust (REIT)

An investment method in which investors purchase ownership in a trust, which in turn invests the money in real estate and distributes at least 90 percent of its taxable income to investors. The trust is not subject to corporate income tax if it complies with REIT tax requirements. Shareholders must include their REIT income in their personal tax returns.

Real Estate Settlement Procedures Act (RESPA)

A federal law designed to make sellers and buyers aware of settlement fees and other transaction-related costs. RESPA also outlaws kickbacks in the real estate business.

Real property

Land and any permanent fixtures on it, including buildings, trees and minerals.


The cancellation of a contract by law or consent by the parties involved.


When a borrower completely pays off the mortgage, the property is reconveyed to them from the lender.


A public official responsible for keeping the records of all real estate transactions.

Recording fee

A fee charged by escrow agents for conveying the sale of a piece of property into the public record.


The process of replacing an older loan with a new mortgage.

Regional center

A retail center that provides general merchandise (a large percentage of which is apparel) and services in full depth and variety. Its main attractions are its anchors: traditional, mass merchant, discount department stores or fashion specialty stores. A typical regional center has parking surrounding the outside perimeter and is enclosed with an inward orientation of stores connected by a common walkway.

Rehabilitation mortgage

A mortgage that provides for the costs of repairing and improving a resale home or building.

Remaining balance

The amount of unpaid principal on a loan.

Remaining term

The original loan term minus the number of payments made.

Rent concession

A period of free rent or other allowance that the owner gives to the tenant.

Rent loss insurance

A policy that covers any loss of rent or rental value in the event of fire or other damage that renders the property uninhabitable.

Rentable area

The computed area of a building defined by the Building Owners and Managers Association guidelines and typically measured in square feet, including both core/structure and useable area. The actual square foot area for which the tenant will pay rent, it is the gross area of an office building, less uninterrupted vertical space (such as stairways and elevators). Unlike useable area, rentable area includes common areas such as lobbies, restrooms and hallways, as well as the measurement of structural columns and architectural projections.

Renter's insurance

A policy that covers the replacement value of possessions.

Repayment plan

When a borrower falls behind in mortgage payments, many lenders will negotiate a repayment plan rather than go to court.

Replacement reserve fund

Money that is set aside from homeowners' assessments to replace common property, such as furniture in a planned development's community room.


When a property is taken back by the lender holding the mortgage.

Research and development

Industrial space category that is a hybrid of office and manufacturing. The research and development category is the most people-intensive of industrial properties. Tenants of these properties usually require many improvements, such as clean rooms for chip manufacturing, laboratories, cafeterias, lounges and other amenities.

Reserve fund

All homeowners associations set aside a certain amount of money for major repairs or improvements.

Restructured loan

A mortgage in which new terms are negotiated.

Retail property

Property used to market and sell consumer goods and services. Types of retail properties include: community center, fashion/specialty center, neighborhood center, outlet center, power center, regional center, super-regional center and theme/festival center.

Retail trade area

Also referred to as service area, it generally is defined as the geographical or formal area from which a sustained patronage is attracted to support a retail center or establishment. This is determined by numerous factors including the site characteristics of the center or establishment; its accessibility; the presence or absence of physical barriers to movements; and general limitations imposed by drive time, congestion and distance/separation.

Return on Equity (ROE)

An investment return ratio derived by dividing cash return, or net profit, by equity.

Return on investment

The amount of profit a property generates.

Reverse mortgage

See Home equity conversion mortgage.

Reversion value

A lump-sum cash benefit that an investor receives or expects to receive upon the sale of an investment.

Right of First Offer

Right which gives the tenant the first option of buying or leasing occupied property if the owner decides to sell or lease.

Right of first refusal

An agreement by a property owner to give another person the right to buy or rent the property before it goes on the open market.

Right of ingress or egress

The right to enter or leave designated premises.

Right of Offset

Specific clause in lease in which the tenant has the right to deduct from the rent the costs which are incurred to the tenant from the landlord.

Right of Survivorship

The right of survivors in a joint tenancy to acquire the interest of a deceased joint tenant.


The probability that actual cash flows from an investment will vary from the forecasted cash flows.

Sale proceeds after tax

The sale proceeds before tax less the tax liability on the sale.

Sale proceeds before tax

The sale price less the sale costs and the mortgage loan balance.


A leasing and financing strategy in which a property owner sells its property to an investor, then leases it back. This strategy frees capital that otherwise would be frozen in equity.

Sandwich lease

Also known as sublease.

Second mortgage

Another loan placed upon a piece of property.

Secondary mortgage market

A market of packaged home loans that are resold as securities to investors. Major players are Fannie Mae and Freddie Mac.

Secured loan

A loan backed by collateral.


A piece of property designated as collateral.

Seller carry-back

An agreement in which the seller provides financing for a home purchase.


A firm that collects mortgage payments and manages borrowers' escrow accounts.


The minimum distance a house or buildings must be from the lot line.

Settlement statement

A document that details who has paid what to whom.

Shared-appreciation mortgage

A loan that allows a lender or other party to share in the borrower's profits when the home is sold.

Shared-equity transaction

A transaction in which two buyers purchase a property, one as a resident co-owner and the other as an investor co-owner.

Shopping center

A group of commercial establishments designed, built and managed as a unit to serve the immediate trade area. It provides on-site parking in proportion to the size, type and number of stores in the center.

Simple average method

A technique for calculating the vacancy rate for a market area by calculating the vacancy rate for each building, then averaging these rates to get an overall rate.

Sinking fund

A fund designed to accumulate a designated amount of money over a specified time period. The periodic amount of money deposited plus compound interest will accumulate to the designated amount.

Slab foundation

A foundation built directly on soil with no basement or crawl space.


An external area under the overhang of a roof.

Space market

The supply and demand for the use of physical space.

Space Pocket

Part(s) of a leased premises set aside to accommodate tenant's future growth.

Special deposit account

Rehabilitation mortgages require a special deposit account from which restoration and remodeling funds included in the loan are disbursed to the appropriate contractors as work is completed.

Standard Metropolitan Statistical Area

Areas designated by the U.S. Office of Management and Budget that contain a city of 50,000 or more.

Standard payment calculation

A calculation that is used to determine the monthly payment necessary to repay the balance of a home loan in equal installments.

Step lease

A lease in which the rental amount paid by the lessee changes by a present rate or set dollar amount at predetermined intervals. A step lease is a means for the lessor to hedge against inflation and future maintenance or operational expenses.

Step-rate mortgage

A loan that allows a gradual increase in the interest rate during the first few years of the loan.


The process in which the owner of a large piece of property divides it into smaller parcels.


A lease in which the original tenant (lessee) sublets all or part of the leasehold interest to another tenant (known as a subtenant) while still retaining a leasehold interest in the property. Also known as a sandwich lease due to the sandwiching of the original lessee between the lessor and the subtenant.


A segment or portion of a larger geographic market defined and identified on the basis of one or more attributes that distinguish it from other submarkets or locations.

Subordinate loan

A second or third mortgage.

Super-regional center

A retail property type similar to regional centers, but because of its larger size, a super-regional center has more anchors, a deeper selection of merchandise and draws from a larger population base. As with regional centers, the typical configuration is as an enclosed mall, frequently with multiple levels.


A document that illustrates the property boundaries and measurements, specifies the location of buildings on the property, and indicates any easements or encroachments.

Sweat equity

The non-cash value put into a piece of property by the owner, such as do-it-yourself improvements.

Tax liability

Real estate taxable income multiplied by the tax rate.

Tax lien

An impediment placed against a property, such as back taxes.

Tax sale

The public sale of a property by the government for nonpayment of taxes.

Tax shelter

A term often applied to real estate investments that refer to various tax advantages.


A person or entity that has possession of a property through a lease. See lessee.

Tenant improvements (TI)

Preparation of leased premises prior to or during a tenant?s occupancy, which may be paid for by the landlord, tenant, or both.

Tenant-paid tenant improvements (TPTI)

The total cost (outlay) of necessary tenant improvements paid by the tenant netted against any allowance provided by the landlord.

Tenants in common

Two or more owners who share interest in a specific property.

Term Beginning

States when the tenant begins to owe rent.

Term Length

Specifies the effective period for the lease.

Theme/festival center

A retail center that typically employs a unifying theme carried out by individual shops in their architectural design and, to an extent, in their merchandise. The biggest appeal of theme/festival centers is to tourists; restaurants and entertainment facilities can anchor them. Generally located in urban areas, these centers tend to be adapted from older, sometimes historic, buildings and can be part of mixed-use projects.

Time value of money (TVM)

An economic principal recognizing that a dollar today has greater value than a dollar in the future because of its earning power.


The actual legal document conferring ownership of a piece of real estate.

Title company

Firms that ensure that the title to a piece of property is clear and provide title insurance.

Title insurance

A policy issued to lenders and buyers to protect any losses because of a dispute over the ownership of a piece of property.

Title risk

Possible impediments to the transfer of a title from one owner to another.

Title search

A check of public title records to ascertain that the seller is the legal owner and that there are no claims or liens against the property.

Total effective rate

The rate per square foot the tenant pays over the entire period analyzed. It is calculated by dividing the total effective rent by square feet rented.

Total effective rent

The total dollar amount that the tenant will actually pay out over the entire period analyzed.

Total employment

The total number of actively employed people in the workforce within a given geographic area at a particular point in time.

Total expense ratio

The percentage of monthly debt obligations relative to gross monthly income.


An attached home that is not a condominium.

Trade area

An area delineated by a central or dominant location, comprising a zone that depends on production output from that location to meet internal demand, whose outermost boundaries are defined in terms of the presence or absence of interactions with that central or dominant location. For example, a localized area over which some specific activity or transaction takes place.

Trade equity

Other real estate or assets a buyer gives to a seller as part of the down payment.

Transfer of ownership

Any legal means by which a piece of real estate changes hands.

Transfer tax

The state or local tax paid when title passes from one owner to another.

Treasury bills

Securities issued by the Treasury Department that have the full backing of the U.S. government.

Treasury index

An index used to determine interest rate changes for adjustable rate mortgages.

Triple Net Lease (NNN)

A Lease that requires the tenant(s) to pay property expenses such as taxes, insurance, maintenance, utilities, etc.

Trust account

Special accounts used by brokers and escrow agents to safeguard funds for a buyer or seller.


A legally authorized person who holds or controls a piece of property for another person.

Truth-in-Lending Act

A federal law that protects consumers in a variety of ways. One of its key provisions allows a consumer to cancel a home-improvement loan, second mortgage or other loan if the home was pledged as security (except for a first mortgage or first trust deed) until midnight of the third business day after the contract was signed.

Two-step mortgage

An adjustable mortgage with two interest rates, one for the first five or seven years of the loan, and the other for the remainder of the loan term.

Two-to-four unit property

A property that is owned by one entity but provides housing for up to four households.

U.S. Department. of Housing and Urban Development (HUD)

A federal agency that oversees the Federal Housing Administration and a variety of housing and community development programs.


The process that lenders go through to evaluate the risks posed by a particular borrower and to set appropriate conditions for the loan.

Unsecured loan

Any loan that is not backed by collateral.


The process in which a parcel of land is zoned from a lower to a higher use, such as the number of dwelling units allowed.

Urban sprawl

The unplanned expansion of development over a large area.

Useable area

Area available for the exclusive use of the tenant. It is the tenant?s rentable area less certain common areas shared by all tenants of the office building (such as corridors, storage facilities and bathrooms). It is calculated by multiplying the rentable area by the building?s efficiency percentage, which is the useable square feet divided by the rentable square feet.


A reference to illegally excessive interest charged on any loan.


The number of units or space of a specific commercial type that is vacant and available for occupancy at a particular point in time within a given market. It is usually expressed as a vacancy rate.

Vacancy and Credit Losses

Income lost due to vacancies and/or tenants defaulting on lease payments.

Vacancy rate

The percentage of the total supply of units or space of a specific commercial type that is vacant and available for occupancy at a particular point in time within a given market. It is calculated by dividing vacant space by total space.

Variable interest rate

A loan rate that adjusts up and down based on factors such as changes in the rate paid on bank certificates of deposit or Treasury bills.

Variable rate

An interest rate that changes with fluctuations in such indexes as the U.S. Treasury bill index.

Variable rate mortgage

A loan with an interest rate that hinges on factors such as the rate paid on bank certificates and Treasury bills.

Voluntary lien

A lien that a homeowner willingly acquires (i.e. mortgage loan)


A voluntary relinquishing of certain rights or claims.

Waiver of Subrogation

Protects each party in a lease from being sued for the recovery of damages by a third party that has a claim against the other party.


A legally binding promise to do something in the future.

Weighted average method

A technique for calculating the vacancy rate for a market area by dividing the sum of the vacant space by total space in the market.

Wraparound mortgage

A loan made to a buyer for the remaining balance of a seller's first mortgage and an additional amount requested by the seller. Payments on both loans are made to the lender who holds the wraparound loan.

Zero-lot lines

Houses built without space between them and with little or no yard.


Regulations that control the use of land within a jurisdiction.

Zoning variance

A one-time modification of existing zoning regulations.