REAL ESTATE TERMINOLOGY

REAL ESTATE TERMINOLOGYBy Atty. R.B. Palacio, Jr.

REAL ESTATE BROKERAGE

EARNEST MONEY amount accompanying an offer to purchase to show good faith or genuine desire of the buyer; it is considered part of the price if the offer is accepted, but is returnable if the offer is rejected.

ESCROW an agreement where the consideration of a contract or a portion thereof is deposited with a third party known as escrow agent who is authorized to release payment after fulfilment of some conditions.

HOLD-OVER CLAUSE a provision in listing which entitles the broker to the commission even if he closed the sale after the period of his authority provided the sale is to a buyer whom the broker registered in writing to the seller and with whom he has negotiated during the period of his listing.

LISTING the authority given by the principal to the broker for the latter to negotiate the sale, purchase, lease, exchange, or mortgage of property within a stipulated period and at stated price and terms.

MULTIPLE LISTING a cooperative arrangement among brokers who are members of a realty association where properties for sale/ lease or wanted are circularized to all members, and commission is shared between the listing member and selling member, with a nominal percentage going to the association as service fee.

OPTION a contract between the seller/lessor and the buyer/lessee wherein the former, for a consideration known as option money, binds himself to reserve the property for the latter to purchase/ lease at stipulated price and within a stipulated period.

PROCURING CAUSE the act of the broker which is instrumental in effecting the meeting of minds between the seller and the buyer as to price and terms. It is one of the requisites for entitlement to commission.

REAL ESTATE BROKER a natural or juridical person who, on behalf of a principal and for or in expectation of commission, fee or other valuable consideration, negotiates the sale, purchase, lease, exchange, or mortgage of real estate.

REAL ESTATE FINANCING

ACCELERATION CLAUSE a provision in a promissory note or financing instrument which renders the remaining principal balance of the loan immediately due and payable upon default in any stipulated installment.

AMORTIZATION the periodic payment which includes principal and interest.

AUTOMATIC REDEMPTION CLAUSE a provision in a blanket mortgage (mortgage covering two or more properties) which release a property from the mortgage upon payment of its loan value.

BALLOON PAYMENT the final payment in an instalment plan which is bigger than the previous instalments and which liquidates the entire obligation.

BREAK-EVEN POINT the amount of rent or the occupancy level to pay operating expenses and debt service.

BUYERS EQUITY the differences between contract price and loanable amount.

BUYERS FULL DOWN PAYMENT is the buyers equity plus the miscellaneous expenses such as title transfer, mortgage registration, fire insurance, mortgage redemption insurance, etc.

COMMUNITY MORTGAGE PROGRAM a financing scheme under the unified home lending program to enable residents in depressed areas to acquire their lot by organizing themselves into a cooperative.

DEFEASANCE CLAUSE a provision in a mortgage contract which release the property from encumbrance when the mortgaged obligation is fully paid.

ESCALATION CLAUSE stipulation in a promisory note authorizing periodic increase of interest rate, or a provision in a long-term lease authorizing periodic increase in rental.

LOAN VALUE the value of property which is a certain percentage of its market value which the bank is willing to lend with only the property as security.

OPEN-END MORTGAGE - a type of mortgage loan which permits borrowing additional funds against the same collateral.

TRUTH IN LENDING ACT a law that requires lenders to report or disclose the cost of credit in terms of the annual percentage rate.

FUNDAMENTALS OF OWNERSHIP

ABSTRACT OF TITLE a condensed history of the title consisting of the various links in the chain of titles, together with the statement of all aliens, encumbrances, or conditions affecting the title.

AIR RIGHT right of a land owner to use and control the air space over his land, subject to the requirements of aerial navigation, law, or contract.

CAPITAL PROPERTY refers to property exclusively owned by the husband.

CLOUD ON TITLE an outstanding claim, which if valid, will impair or adversely affect the owners title. Example : A bequests a parcel of land to B in his will. As widow is contesting the validity of the bequest. During the pendency of the case, there is a cloud on Bs title.DOMINANT ESTATE land which does not have access to a public road which is given a right of way through an adjoining land.EMINENT DOMAIN right of the state or any of its instrumentalities to take private property for public use upon payment of just compensation.

ESCHEAT reversion of private property to the state due to the intestate to the State death of the owner who is not survived with any legal heir; or the confiscation of illegally acquired property.

FEE SIMPLE the bundle of rights which are inherent in ownership without any limitation or restrictions other than those provided by law, annotated on the title, or stipulated by contract. the bundle of rights includes the right to possess, to use, to dispose, to the fruits, and to recover.PARAPHERNAL PROPERTY refers to property exclusively owned by the wife.

RIPARIAN OWNER an owner whose lands abuts the bank of a river.

STEWARDSHIP CONCEPT OF OWNERSHIP a mandate to owners to use their property in a manner that will promote not only their interest but also the general welfare, and further decrees that when ones utilization is not conducive to general welfare or the extent of his ownership exceeds the requirements of his necessities, then the State may exercise its power to regulate and control ownership.

SERVIENT ESTATE land through which a right of way is given in favor of another land.

TENANTS RIGHT OF FIRST REFUSAL the priority right of a lessee of land on which he has build his house to buy the land provide that 1) he is a legitimate tenant for at least 10 years; 2) the land is located in an urban land reform area; and 3) the owner is selling the land.

REAL ESTATE TAXATION

ACTUAL USE - the use to which the property is principally or predominantly devoted.

ASSESSMENT - the procedure or methodology for arriving at assessed value.

ASSESSMENT LEVEL a percentage of market value prescribed by law at which the assessed value is determined.

ASSESSMENT VALUE value of real property for realty tax purpose which is arrived at by multiplying market value by assessment level.

CAPITAL ASSET property not constituting inventory for sale, or property not used in connection with trade, business, or source of income.

CAPITAL GAINS TAX income tax payable to the Bureau of Internal Revenue for the sale, transfer, or other disposition of real estate classified as capital asset.

ORDINARY ASSET property constituting inventory for sale, or property used in connection with trade, business, or source of income.

TRANSFER TAX a tax payable to the local government unit for the sale, transfer, or other disposition of real estate, whether capital or ordinary asset.

WITHHOLDING TAX a tax payable to the bureau of Internal Revenue on the sale, transfer or other disposition of real estate classified as ordinary asset.

ECONOMICS AND APPRAISAL

APPRAISAL the process of estimating the value of real estate or any interest therein as of a given time and for a specified purpose.

BUYERS MARKET a condition obtaining in an area at a certain time when there are many properties for while there are few buyers, in which case price tends to go down. Supply is more than demand.

CONFORMITY, PRINCIPLE OF an appraisal principle which holds that value of a property tends to be enhanced when there is a reasonable homogeneity in utilization.

CONTRACT RENT the rental stipulated to be paid in a lease contract.

CORNER INFLUENCE the added desirability or utility of a lot due to ties frontage to parallel and perpendicular streets.

COST APPROACH a method of estimating the fair market value of an improvement by estimating present reproduction cost and deducting depreciation.

DEPRECIATION loss in value to physical deterioration, functional obsolescence, or economic obsolescence.

ECONOMIC RENT the potential rental which a property can command, taking into consideration the rate of nearby or comparable properties.

ENROACHMENT the displacement of an existing use by a non-conforming use, such as the introduction of a factory in a residential area.

ECONOMIC LIFE the period during which a property can b profitable used, or the period during which a building is expected to generate more income than operating expenses.

INCOME APPROACH the process of estimating the fair market value of a commercial property by capitalizing its annual net income.

INCREASING AND DIMINISHING RETURNS, PRINCIPLE OF states that the application of more factors of production will tend to increase net income up to a certain point, beyond which th introduction of more factors of production will tend to decrease net income.

INFILTRATION the displacement of present residents by people of lower economic status or different cultural or social background.

MARKET ANALYSIS study of current supply and demand conditions in a particular area for a specific type of property.

MARKET DATA APPROACH a process of determining fair market value of a land by comparing it with nearby or comparable properties which subject of recent sales or offerings, making positive or negative adjustments depending on whether the comparatives are superior or inferior based on certain adjustment factors.

MULTIPLIER EFFECT OF REAL ESTATE states that real estate is considered a spark plug which triggers activities in allied industries, creates income opportunities for different private sectors, and enhances the market for construction materials, furnitures, and appliances.

OVER-IMPROVEMENT an improvement which is not suitable to the site on which it is placed because of excessive size or cost.

PROGRESSION, PRINCIPLE OF an appraisal principle which holds that the value of a property tends to be enhanced by association with superior properties.

REGRESSION, PRINCIPLE OF an appraisal principle which holds that the value of a property tends to be adversely affected by association with inferior properties.

REAL ESTATE - land and all permanent improvements thereon.

SELLERS MARKET a condition prevailing in an area as of a given time when there are few properties for sale against many buyers, in which case price will tend to go up. Demand is more than supply.

SUBSTITUTION, PRINCIPLE OF an appraisal principle which holds that the value of a replaceable property is inferred from the value of an equally desirable substitute property. This is based on the assumption that no prudent buyer will pay more than what will cost him to acquire an equally desirable substitute property.

UNDER-IMPROVEMENT an improvement which is not suitable to the site on which it is placed because of deficient size or cost.

UNEARNED INCREMENT increase in value of real estate without any effort or expense by the owner.

VALUE in the economic sense, it refers to the power or attribute of a property to satisfy humane want; in appraisal, it is the present worth of future benefits arising from ownership of a property.