Real Estate glossary: the ABCs of real estate.

(This is the first of a two-part glossary of terms key to understanding the real estate industry. The glossary is "back by popular demand," following positive feedback after a published list of other important real estate terms in 2006.)

Ad Valorem Taxes: Property taxes on the assessed value of property.

All-Inclusive Trust Deed (AITD): An alternative to refinancing the entire loon when a borrower needs additional funds, this technique involves the creation of u subordinate mortgage that includes the balance due on the existing mortgage(s) plus the amount of the new secondary or junior lien.

Annual Percentage Rote (APR): The percentage relationship of the total finance charge to the amount of the loan. The term is used in the Truth in Lending Act.

Appurtenance: Any tangible or intangible item attached to the land and thus port of the property, such as a building (tangible) or on easement (intangible).

Acre: A parcel of land that measures 45,560 feet.

Basis Point: This term describes the amount of change in yield in many debt instruments, including mortgages. It is equal to one one-hundredth of one percent.

Blanket Mortgage/Blanket Trust Deed: A mortgage on more than one parcel or unit of land. Blanket mortgages frequently ore incurred by subdividers or developers who hove purchased a single tract of land for the purpose of dividing it into smaller parcels for sale or development.

Book Value: The capitalized cost of on asset, less depreciation token for accounting purposes, based on the method used for the computing of depreciation over the useful life of the asset.

Call: An option to buy a specific security at a specified price within a designated period of time.

Capital Expenditure: The cost of on improvement mode to extend the useful life of u physical asset, such as property, or to odd to its value.

Capital Improvement: Any permanent improvement to real property that odds to its value and useful life.

Capitalization Rate (or cap rate): Used to determine capitalized value, this rote is the percentage rote of return on investor can expect. It is the net operating income of the property divided by the soles price or value of the property expressed as a percentage. An acceptable capitalization rote provides full return of the capitol invested as well us a profit.

Cash on Cash Return: The rate of return on an investment measured by the cash returned to the investor based on the investor's cash investment without regard to income tax savings or the use of borrowed funds. It equals the annual dollar income divided by the total dollar investment, expressed us a percentage.

Certificate of Occupancy: Written authorization given by u local municipality to u builder or renovator that allows a newly completed or substantially completed structure to be occupied.

Certificate of Title: A written statement of opinion furnished by on obstruct or title company or on attorney after a search of the public land and tax records stating that the title to a piece of property is legally vested in the present owner.

Chain of Title: The chronological history of oil the documents transferring title to a particular parcel of real property, starting with the earliest existing document and ending with the most recent.

Completion Bond: A bond furnished by a mortgagor to guarantee completion of construction.

Coupon Rote: The annual interest rate on debt instrument expressed as u percentage of its face value, or principal.

Covenant: A legally enforceable promise or restriction. For example, in a mortgage, the borrower may covenant to keep the property in good repair and adequately insured against fire and other casualties. A buyer who breaches such u covenant may be subject to foreclosure.

Debt coverage ratio: The ratio of effective annual net income to annual debt service. This ratio often is used as a criterion for underwriting income property mortgage loons.

Deed in lieu (of foreclosure): A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.

Density: The ratio between the total land area and the number of residential or commercial structures to be placed upon it. Density usually is regulated by local ordinances.

Discounted cash flow (DCF) :The method of applying on appropriate discount to cash to be received in the future to arrive ut the present value of those future earnings. The discount rote used, generally the appropriate cost of capital, incorporates the risk level of future cash flows.

Easement: A right granted to another person to use your land for a specific purpose. Most commonly, easements ore grunted to pubic utility and telephone companies for the purpose of running lines on or under the property or to neighbors for the purpose of using a common driveway.

Eminent Domain: The right of government bodies, public utilities, and public service corporations to take private property for public use on payment of its fair market value. This may occur, for example, if a state or locality wonts to widen a highway.

Escalator clause: A provision in a lease whereby real estate tax increases imposed on the lessor are passed along to the lessee as additional rent

Exculpatory clause: A clause in contract holding one party harmless in the event of same default. In a lease, the exculpatory clause relieves the landlord of liability for personal injury to tenants or damage to tenants' property. In a mortgage, it ollows the borrower to surrender the property to the lender without personal liability for the loan.

Floor area ratio (FAR): The ratio of the total floor area of a building to the total area of the site. Also referred to us Floor Space Index.

Floor space index (FSI): The ratio of the total floor area of a building to the total area of the site.

Graduated lease: A lease in which the rent is fixed for the ini tial term and increases at certain set intervals by predetermined amounts or by amounts based on periodic appraisals.

Gross income multiplier: A tool used to assess the approximate value of a rental property by comparing its rental income with other like properties. It gives the relationship between the gross rental income and soles price.

Gross rent multiplier (GRM): A tool used to assess the approximate value of a rental property by comparing its rental income with other like properties. It gives the relationship between the gross rental income and soles price. Also referred to as gross income multiplier.

Guillotine Clause: A clause in a mortgage that enables a lender to coil a loon if specified gaols are not met.

Holdover tenant: A tenant who remains in possession of leased property after the expiration of the lease term. Internal rote of return (IRR): A method of determining the annualized effective compounded return rote on an investment over time assuming a set of income, expense, and property value conditions as well us risk. It combines the present worth of the right to receive future income streams with the present worth of the right to receive a particular profit when the property is sold.

Kick-Out Clause

* Lease: A clause in the lease that permits a tenant to cancel a lease if the landlord foils to comply with stated conditions or standards.

* Purchase: A douse that protects the buyer by providing that upon the occurrence of some triggering event prior to the deal closing (e.g., seller's acceptance of a new offer) that the buyer has a specific period of time to oct (e.g., by matching the terms of the new offer) to avoid being "kicked out" of the contract. The clause must specify precisely what the seller must do to invoke its rights under it.