Glossary of Terms

Abstract Of Title
A condensed history relating to the title of a particular piece of real estate. The abstract of title is reviewed by an attorney or title insurance company to ensure there aren't any title defects that have to be cleared before purchase.
Acceleration Clause
The acceleration clause is a condition that may be found within a mortgage requiring the balance of the load to become due immediately under certain conditions. This usually applies when regular mortgage payments are not being made or when some other breach of the mortgage occurs.
Accounts Payable
Money that a business owes to its suppliers.
Accounts Receivable
Money that is owed to a business by its customers.
Accrued Interest
Interest that has been earned but not yet paid.
Ad Valorem
A tax that is based on the value of a transaction or property. Examples include sales or value-add taxes. Ad Valorem taxes can also occur on an annual basis (ex. property tax) or based on a specific event (ex. inheritance, expatriation, tariff).
Adjustable Rate Mortgage (ARM)
Loans that have an interest rate that is adjusted periodically according to the conditions of the loan. When rates are adjusted, the interest and monthly payment will go up or down based on the change. Typically these types of mortgages will include an interest rate cap limit that specifies the maximum amount the rate can change at one time.
Adverse Possession
A method of obtaining real estate that doesn't follow the right of possession and title of the true owner. One example would be squatter's rights.
A contracted relationship in which one person is authorized to represent and act on behalf of another in certain business transactions.
Agreement of Sale
A contract with specific terms and conditions in which the seller agrees to sell and the buyer agrees to buy. It is also known as contract of purchase, purchase agreement, or sales agreement.
Amortization Schedule
A calculated table showing how a loan will be repaid over time. It provides the required payment by date and a breakdown of the payment amount - showing how much interest and repayment of principal.
Amortized Loan
A loan that is repaid over its life in equal payments.
Paying off debt gradually through fixed regular payments over a period of time. It can also refer to spreading out of expenses over a period of time for accounting and tax purposes.
Annual Compounding
Compounding of a cash flow or series of cash flows with interest being added once a year.
Annual Percentage Rate (APR)
The annual amount charged for borrowing expressed as a percent. It is calculated using the amount financed, applicable fees, and the length of the loan. Because it takes into account additional expenses, it will often differ from the interest rate on the loan.
Annuity In Advance
An amount of money that has an immediate payment, such as the day the annuity begins. Rent is a good example because it is a sum of money paid at the beginning of the month which covers the month to follow.
Annuity In Arrears
An amount of money that has the first payment due a full period after its date of commencement, such as one month from the day the annuity begins. Mortgage payments are an example of this in that the payment covers the previous month's interest and principal.
A stream of equal payments that lasts for a specific period of time.
Application Fee
Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report, and a lock-in fee or other closing costs incurred during the process, or the fee may be in addition to these charges.
An initial statement of personal and financial information required to apply for a loan.
An expert judgment or estimate of the quality or value of real estate as of a given date. The process through which conclusions of property value are obtained. It is also refers to the formalized report that sets forth the estimate and conclusion of value.
Assessed Value
An official valuation of property most often used for tax purposes.
Anything a business or firm owns, such as land, buildings, or equipment.
Assumption Of Mortgage
An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is released from further liability. In an assumption, the mortgagee’s consent is usually required. The original mortgagor should always obtain a written release from further liability if he or she desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments. An assumption of mortgage is often confused with “purchasing subject to a mortgage.” When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee’s consent is not required on a sale subject to a mortgage. Both assumption of mortgage and purchasing subject to a mortgage are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.
Balance Statement
A statement of the firm’s financial position at a specific point in time.
Balloon Mortgage
Balloon mortgage loans are short-term fixedrate loans with fixed monthly payments for a set number of years followed by one large final balloon payment (the balloon) for all of the remainder of the principal. Typically, the balloon payment may be due at the end of 5, 7, or 10 years. Borrowers with balloon loans may have the right to refinance the loan when the balloon payment is due, but the right to refinance is not guaranteed.
A proceeding in a federal court to relieve certain debts of a person or a business unable to pay its debts.
A person for whose benefit property or funds are placed in trust; also the recipient of funds from an insurance fund or annuity contract.
Beta Coefficient
A measure of the degree of sensitivity of a security’s returns to the movements in an underlying factor, such as a broad basket of stocks.
Bill Of Sale
A written document or instrument that provides evidence of the transfer of right, title, and interest in personal property from one person to another.
Black-scholes Pricing Model
A formula used to calculate the price of an option.
Any obligation under seal. A real estate bond is a written obligation, usually issued on security of a mortgage or deed of trust.
The breaking of a law or failure of a duty, either by omission or commission; the failure to perform, without legal excuse, any promise that forms a part or the whole of a contract.
Break-even Analysis
The analysis of the level of sales required for a business to exactly break even, resulting in zero profit.
Broker, Real Estate
Any person, partnership, association, or corporation who, for compensation or valuable consideration, sells or offers for sale, buys or offers to buy, or negotiates the purchase or sale or exchange of real estate, or rents or offers to rent, any real estate or the improvements thereon for others.
Those who engage on behalf of others in negotiations for contacts relative to property in which they have no custodial concern.
Capital Asset Pricing Model (CAPM)
A model based on the proposition that any stock’s required rate of return is equal to the risk-free rate of return plus a risk premium that reflects only the risk remaining after diversification.
Capital Budgeting
The process of planning expenditures on assets whose cash flows are expected to extend beyond one year.
Capital Expenditures
Investments of cash or other property, or the creation of a liability in exchange for property to remain permanently in the business—usually pertaining to land, buildings, machinery, and equipment.
Capital Structure
The blend of both debt and equity capital maintained by an entity.
Accumulated wealth; a portion of wealth set aside for the production of additional wealth; specifically, the funds belonging to the partners or shareholders of a business, invested with the express purpose and intent of remaining in the business to generate profits.
The act or process of converting or obtaining the present value of future incomes into current equivalent capital value; also the amount so determined; commonly refers to the capital structure of a corporation or other such legal entity.
Carrying Costs
Costs that increase with increases in the level of assets such as interest, taxes, and insurance.
Cash Flow
Cash generated by a business and paid to creditors and shareholders. It can be classified as (1) cash flow from operations, (2) cash flow from changes in fixed assets, and (3) cash flow from changes in net working capital.
Cash Out
Any cash received when you get a new loan that is larger than the remaining balance of your current mortgage, based on the equity you have already built up in the house. The cash-out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan.
Certificate Of Title
A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property that he or she is offering for sale. A certificate of title offers no protection against any hidden defects in the title that an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.
Chain Of Title
A history of conveyances and encumbrances affecting the title to a particular real property.
Compound Interest
Interest paid on the original principal of an indebtedness and also on the accrued and unpaid interest that has accumulated over time.
The arithmetic process of determining the final value of a cash flow or series of cash flows when compound interest is applied.
Individual ownership of a dwelling unit and an individual interest in the common areas and facilities that serve the multiunit project.
Something of value, usually money, that is the inducement of a contract. Any right, interest, property, or benefit accruing to one party; any forbearance, detriment, loss or responsibility given, suffered or undertaken, may constitute a consideration that will sustain a contract.
Conventional Mortgage
A mortgage loan not insured by HUD or guaranteed by the Veterans Administration. It is subject to conditions established by the lending institution and state statutes. The mortgage rates may vary with different institutions and between states. (States have various interest limits.)
Conversion Clause
A provision in some adjustable rate mortgages (ARMs) that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature.
Convertible Arms
A type of ARM loan with the option to convert to a fixed-rate loan during a given time period. Conveyance The document used to effect a transfer, such as a deed, or mortgage.
A form of business organization that is created as a separate legal entity consisting of one or more actual individuals or other entities.
Cost-of-funds Index (COFI)
An index of the weighted average interest rate paid by savings institutions for sources of funds, usually set by members of the 11th Federal Home Loan Bank District.
An agreement between two or more persons entered into by deed whereby one of the parties promises the performance of certain acts or promises that a given state does or shall, or does not or shall not, exist.
Credit Report
A report detailing the credit history of a prospective borrower that’s used to help determine borrower creditworthiness. Debt An obligation to repay a specified amount at a specified time.
Current Assets
Those assets in the form of cash or that are expected to be converted to cash within the next 12-month period, such as accounts receivable.
Current Liabilities
Those financial obligations that are expected to require cash payments within the next 12-month period to satisfy them, such as accounts payable.
Current Ratio
A ratio used to measure the short-term solvency of a business, calculated as total current assets divided by total current liabilities.
Debt Service
The portion of funds required to repay a financial obligation, such as a mortgage, which includes interest and principal payments.
Deed Of Trust
Like a mortgage, a security instrument whereby real property is given as security for a debt; however, in a deed of trust there are three parties to the instrument—the borrower, the trustee, and the lender (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee, who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, the borrower defaults in the payment of the debt, the trustee may sell the property at a public sale under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his or her property sold without benefit of legal proceedings. A few states have begun in recent years to treat the deed of trust like a mortgage.
A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the state where the property is located, and should be delivered to the purchaser on the day of closing. There are two parties to a deed—the grantor and the grantee.
Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth in the mortgage or deed of trust. It is the mortgagor’s responsibility to remember the due date and to remit the payment prior to the due date, not after. Generally, if payment is not received 30 days after the due date, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.
Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason. The term is most often applied for tax purposes.
Discount Points (or Points)
An up-front fee paid to the lender at the time that you get your loan. Each point equals 1 percent of your total loan amount. Points and interest rates are inherently connected: In general, the more points you pay, the lower the interest rate. However, the more points you pay, the more cash you need up front, because points are paid in cash at closing.
Down Payment
The amount of money to be paid by the purchaser to the seller on the signing of the agreement of sale. The agreement of sale will refer to the down payment amount and will acknowledge receipt of the down payment. Down payment is the difference between the sales price and maximum mortgage amount. The down payment may not be refundable if the purchaser fails to buy the property without good cause. If purchasers want the down payment to be refundable, they should insert a clause in the agreement of sale specifying the conditions under which the deposit will be refunded (if the agreement does not already contain such clause). If the seller cannot deliver good title, the agreement of sale usually requires the seller to return the down payment and to pay interest and expenses incurred by the purchaser.
Earnest Money
The deposit money given to sellers or their agents by potential buyers on signing the agreement of sale to show that they are serious about buying a house or any other type or real property. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.
Economic Life
The period over which a property may be profitably used or the period over which a property will yield a return on the investment over and above the economic or ground rent due to its land.
Economic Obsolescence
Impairment of desirability or useful life arising from economic forces, such as changes in optimum land use, legislative enactments that restrict or impair property rights, and changes in supply and demand relationships.
The value of a homeowner’s unencumbered interest in real estate. Equity is computed by subtracting from the property’s fair market value the total of the unpaid mortgage balance and any outstanding liens or other debts against the property. A homeowner’s equity increases as he or she pays off the mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100 percent equity in that property.
Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual. In FHA mortgage transactions an escrow account usually refers to the funds a mortgagor pays the lender at the time of the periodic mortgage payments. The money is held in a trust fund provided by the lender for the buyer. Such funds should be adequate to cover yearly anticipated expenditures for mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments.
To perform what is required to give validity to a legal document. To execute a document, for example, means to sign it so that it becomes fully enforceable by law.
Expected Return
The average of possible returns weighted by their corresponding probability.
A person to whom property is entrusted; a trustee who holds, controls, or manages for another. A real estate agent is said to have a fiduciary responsibility and relationship with a client.
Financial Accounting Standards Board (FASB)
The governing body in accounting.
Financial Distress
The events that lead to the declaration of bankruptcy by a business.
Fixed Rate
An interest rate that is fixed for the term of the loan.
Fixed-rate Loans
Fixed-rate loans have interest rates that do not change over the life of the loan. As a result, monthly payments for principal and interest are also fixed for the life of the loan. Fixedrate loans typically have 15- or 30-year terms. With a fixed-rate loan, you will have predictable monthly mortgage payments for as long as you have the loan.
A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage or deed of trust by taking and selling the mortgaged property and depriving the mortgagor of possession.
Functional Obsolescence
An impairment of desirability of a property arising from its being out-of-date with respect to design and style, capacity, and utility in relation to site, lack of modern facilities, and the like.
Future Value (FV)
The amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate.
General Warranty Deed
A deed that conveys not only all the grantor’s interests in and title to the property to the grantee, but also warrants that if the title is defective or has a “cloud” on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic’s liens) the grantee may hold the grantor liable.
Generally Accepted Accounting Principles (GAAP)
A standardized set of accounting principles and concepts by which financial statements are prepared.
Good Faith Estimate
Written estimate of the settlement costs the borrower will likely have to pay at closing. Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to provide this disclosure to the borrower within three days of receiving a loan application.
Grace Period
Period of time during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the note.
That party in the deed who is the buyer or recipient; the person to whom the real estate is conveyed.
That party in the deed who is the seller or giver; the person who conveys the real estate.
Gross Income
Total income before taxes or expenses are deducted.
U.S. Department of Housing and Urban Development. Office of Housing and Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.
Income Statement
The financial report that summarizes a business’s performance over a specific period of time.
Interest Rate Cap
Consumer safeguards that limit the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan. For example, if the per-period cap is 1 percent and the current rate is 5 percent, then the newly adjusted rate must fall between 4 and 6 percent regardless of actual changes in the index.
Interest Rate
The annual rate of interest on the loan, expressed as a percentage of 100.
A charge paid for borrowing money, which is calculated as the remaining loan balance.
Internal Rate Of Return (IRR)
A method of ranking investment proposals using the rate of return on an investment, calculated by finding the discount rate that equates the present value of future cash inflows to the project’s cost.
A species of contract, written or oral, between the owner of real estate, the landlord, and another person, the tenant, covering the conditions on which the tenant may possess, occupy, and use the real estate.
A person who leases property from another person, usually the landlord.
The owner who rents or leases property to a tenant or lessee; the landlord.
The debts of a business or entity that are in the form of financial claims on its assets.
Libor (London Interbank Offered Rate)
The interest rate charged among banks in the foreign market for short-term loans to one another. A common index for ARM loans.
A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor.
Limited Liability Partnership (Limited Liability Company)
A hybrid form of organization in which all partners enjoy limited liability for the business’s debts. It combines the limited liability advantage of a corporation with the tax advantages of a partnership.
Limited Partnership
A hybrid form of organization consisting of general partners, who have unlimited liability for the partnership’s debts, and limited partners, whose liability is limited to the amount of their investment.
Line Of Credit
An informal arrangement in which a bank agrees to lend up to a specified maximum amount of funds during a designated period.
Liquid Asset
An asset that can be converted to cash quickly without having to reduce the asset’s price very much.
Loan Application Fee
Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report, and a lockin fee or other closing costs incurred during the process, or the fee may be in addition to these charges.
Loan Application
An initial statement of personal and financial information required to apply for a loan.
Loan-origination Fee
Fee charged by a lender to cover administrative costs of processing a loan.
Loan-to-value Ratio (LTV)
The percentage of the loan amount to the appraised value (or the sales price, whichever is less) of the property.
Lock Or Lock-in
A lender’s guarantee of a given interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The lock-in protects you against rate increases during that time.
Market Value
The amount for which a property would sell if put on the open market and sold in the manner in which property is ordinarily sold in the community where the property is situated. The highest price estimated in terms of money that a buyer would be warranted in paying and that a seller would be justified in accepting, provided both parties were fully informed, acted intelligently and voluntarily, and furthermore that all the rights and benefits inherent in or attributable to the property were included in the transfer.
Marketable Title
A title that is free and clear of objectionable liens, clouds, or other title defects. A title that enables owners to sell their property freely to others and that others will accept without objection.
Meeting Of Minds
A mutual intention of two persons to enter into a contract affecting their legal status based on agreed-upon terms. Modified IRR (MIRR) The discount rate at which the present value of a project’s cost is equal to the present value of its terminal value, where the terminal value is found as the sum of the future values of the cash inflows, compounded at the firm’s cost of capital.
Mortgage (Open End)
A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.
Mortgage Insurance Premium
The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA-insured mortgages, this represents an annual rate of onehalf of 1 percent paid by the mortgagor on a monthly basis.
Mortgage Note
A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.
A lien or claim against real property given by the buyer to the lender as security for money borrowed. Under governmentinsured or loan guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges, and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.
The lender in a mortgage agreement.
The borrower in a mortgage agreement.
Negative Amortization
A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan.
Net Cash Flow
The actual net cash, as opposed to accounting net income, that a firm generates during some specified period. Net float The difference between our checkbook balance and the balance shown on the bank’s books.
Net Income
In general, synonymous with net earnings, but considered a broader and better term; the balance remaining after deducting from the gross income all expenses, maintenance, taxes, and losses pertaining to operating properties except for interest or other financial charges on borrowed or other forms of capital.
Net Present Value (NPV)
A method of ranking investment proposals using the NPV, which is equal to the present value of future net cash flows discounted at the marginal cost of capital.
Net Present Value Profile
A graph showing the relationship between a project’s NPV and the firm’s cost of capital.
Net Working Capital
Current assets minus current liabilities. Nominal (quoted, or stated) interest rate The contracted, or quoted, or stated, interest rate.
Nominal (Quoted) Risk-free Rate (KRF)
The rate of interest on a security that is free of all risk: kRF is proxied by the T-bill rate or the T-bond rate. kRF includes an inflation premium.
Nonassumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.
Normal (Constant) Growth
Growth that is expected to continue into the foreseeable future at about the same rate as that of the economy as a whole (i.e., g is a constant).
An instrument of credit given to attest a debt; a written promise to pay money which may or may not accompany a mortgage or other security agreement.
A proposal, oral or written, to buy a piece of property at a specified price with specified terms and conditions.
The exclusive right to purchase or lease a property at a stipulated price or rent within a specified period of time.
A form of business organization in which two or more people form a business.
Payment Cap
Consumer safeguards that limit the amount that monthly payments on an adjustable rate mortgage may change. Since they do not limit the amount of interest the lender is earning, they may cause negative amortization.
Per Diem Interest
Interest calculated per day. (Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month.)
Acronym for principal, interest, taxes, and insurance, the components of a monthly mortgage payment.
Sometimes referred to as discount points. A point is equal to 1 percent of the amount of the mortgage loan. For example, if a loan is for $250,000, one point is $2,500. Points are charged by a lender to raise the yield on a loan at a time when money is tight, when interest rates are high, and when a legal limit caps the interest rate that can be charged on a mortgage. Buyers are prohibited from paying points on HUD or Veterans Administration guaranteed loans (sellers can pay them, however). On a conventional mortgage, points may be paid by either buyer or seller or split between them.
The combined holdings of more than one stock, bond, real estate asset, or other assets owned by an investor.
Prepayment Penalty
Fee charged by a lender for a loan paid off in advance of the contractual due date.
Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment, either by limiting the amount that can be prepaid in any one year or by charging a penalty for prepayment. The Federal Housing Administration does not permit such restrictions on FHA-insured mortgages.
Present Value (PV)
The value today of a future cash flow or series of cash flows.
Prime Rate
A published interest rate charged by commercial banks to large, strong borrowers.
The basic element of the loan, as distinguished from interest and mortgage insurance premium. In other words, principal is the amount on which interest is paid. The word also means one who appoints an agent to act for and in behalf of; the person bound by an agent’s authorized contract.
The term used to describe the rights and interests a person has in lands, chattels, and other determinate things.
Purchase Agreement
An offer to purchase that has been accepted by the seller and has become a binding contract.
Real Estate Investment Trust (REIT)
An entity that allows a very large number of investors to participate in the purchase of real estate, but as passive investors. The investors do not buy directly, but instead purchase shares in the REIT that owns the real estate investment. REITs are fairly common with the advent of mutual funds and can be purchased for as little as $10 per share and sometimes less.
Real Property
Land and buildings and anything that may be permanently attached to them.
The placing of a copy of a document in the proper books in the office of the register of deeds to make a public record of it.
The right of owner-mortgagors, or those claiming under them, after execution of a mortgage, to recover title to the mortgaged property by paying the mortgage debt, plus interest and any other costs or penalties imposed, prior to the occurrence of a valid foreclosure. The payment discharges the mortgage and places the title as it was at the time the mortgage was executed.
The process of paying off one loan with the proceeds from another loan.
Rescission Of Contract
The abrogating or annulling of a contract; the revocation or repealing of contract by mutual consent of the parties to the contract or for other causes as recognized by law.
Retained Earnings
That portion of the firm’s earnings saved rather than paid out as dividends.
Return On Assets (ROA)
The ratio of net income to total assets.
Return On Equity (ROE)
The ratio of net income to equity; measures the rate of return on common stockholders’ investment.
The recall of a power of authority conferred, or the vacating of an instrument previously made.
Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed, grantors guarantee to a grantee that they have done nothing during the time they held title to the property that has impaired, or that might in the future impair, the grantee’s title. Statement of cash flows A statement reporting the impact of a firm’s operating, investing, and financing activities on cash flows over an accounting period.
Statement Of Retained Earnings
A statement reporting how much of the firm’s earnings were retained in the business rather than paid out in dividends. The figure for retained earnings that appears here is the sum of the annual retained earnings for each year of the firm’s history.
A law established by the act of the legislative powers; an act of the legislature; the written will of the legislature solemnly expressed according to the forms necessary to constitute it as the law provides.
Subordination Clause
A clause in a mortgage or lease whereby one who has a prior claim or interest agrees that his or her interest or claim shall be secondary or subordinate to a subsequent claim, encumbrance, or interest.
The distinguishing feature of a tenancy by the entirety whereby, on the death of one spouse, the surviving spouse acquires full ownership.
As applied to real estate, an enforced charge imposed on persons, property, or income to be used to support the state. The governing body in turn uses the funds in the best interests of the general public.
Time Is Of The Essence
A phrase meaning that time is of crucial value and vital importance and that failure to fulfill time deadlines will be considered a failure to perform the contract.
Title Insurance
Protects lenders or homeowners against loss of their interest in property due to legal defects in the title. Title insurance may be issued to a mortgagee’s title policy. Insurance benefits will be paid only to the “named insured” in the title policy, so it is important that an owner purchase an “owner’s title policy” if he or she desires the protection of title insurance.
Title Search Or Examination
A check of the title records, generally at the local courthouse, to make sure that the buyer is purchasing a house from the legal owner and that there are no liens, overdue special assessments, or other claims or outstanding restrictive covenants filed in the record that would adversely affect the marketability or value of title.
As generally used, the rights of ownership and possession of particular property. In real estate usage, title may refer to the instruments or documents by which a right of ownership is established (title documents), or it may refer to the ownership interest one has in the real estate.
A relationship under which one person, the trustee, holds legal title to property for the benefit of another person, the trust beneficiary.
A party who is given legal responsibility to hold property in the best interest of, or for the benefit of, another. The trustee is one who is placed in a position of responsibility for another, a responsibility enforceable in a court of law.
Truth-in-lending Act
Federal law requiring written disclosure of the terms of a mortgage (including the APR and other charges) by a lender to a borrower after application. Also requires a right-to rescission period.
In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan.
As relating to land, vacant or lacking in essential appurtenant improvements required to serve a useful purpose.
Useful Life
The period of time over which a commercial property can be depreciated for tax purposes. A property’s useful life is also referred to as its economic life.
Charging a higher rate of interest on a loan than allowed by law.
Having force, or binding forces; legally sufficient and authorized by law.
The act or process of estimating value; the amount of estimated value.
Ability to command goods, including money, in exchange; the quantity of goods, including money, that should be commanded or received in exchange for the item valued. As applied to real estate, value is the present worth of all the rights to future benefits arising from ownership.
That which is unenforceable; having no force or effect.
Renunciation, disclaiming, or surrender of some claim, right, or prerogative.
Warranty Deed
A deed that transfers ownership of real property and in which the grantor guarantees that the title is free and clear of any and all encumbrances.
Weighted Average Cost Of Capital (WAAC)
A weighted average of the component costs of debt, preferred stock, and common equity of a business’s existing projects and activities.
White Knight
A company that is acceptable to the management of a firm under threat of a hostile takeover.
Working Capital Policy
Basic policy decision regarding (1) target levels for each category of current assets and (2) how current assets will be financed.
Working Capital
A firm’s investment in short-term assets—cash, marketable securities, inventory, and accounts receivable.
Worst-case Scenario
An analysis in which all the input variables are set at their worst reasonably forecasted values.