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Real Estate Glossary

A
Absolute Title

This is title to a property that is free of any encumbrances or deficiencies. Absolute title gives unequivocal right of ownership to the owner, and cannot be disputed or challenged by anyone else. This is opposed to titles with liens, attachments or judgments against them. It is also known as perfect title or clear title.

Accelerated Depreciation

This is a bookkeeping method that depreciates property faster in the early years of ownership

Acceleration Clause

This is a clause in the loan agreement that allows a lender to require a borrower to repay all or part of an outstanding loan if certain requirements are not met. An acceleration clause outlines the reasons that the lender can demand loan repayment. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

Add-on Factor

This is the number of usable square feet divided by the number of rentable square feet in a commercial real estate lease. The result of this calculation will be 1 if the two numbers are identical, but it is usually slightly lower than 1 because some square footage in a building will be partly or totally non-unusable. Non-usable square footage includes space shared with other tenants (such as lobbies, hallways, stairwells, elevators and restrooms) or occupied by structural components (such as support poles and interior walls). In a poorly designed building, the usable area may be considerably less than the rentable area. Potential tenants can thus use the add-on factor to help them compare leases and determine which lease offers the best value.

All Cash Deal

This is the transfer of a real estate property without financing or debt funding. The buyer would produce the appropriate funds at the time of closing; the seller would receive the entire selling price at closing. There may be significant drawbacks to paying cash for real estate, including tax consequences resulting from no loan interest tax deduction or the loss of earning power on the money that is tied up in the purchase.

Affidavit of Title

A document provided by the seller of a piece of property that explicitly states the status of potential legal issues involving the property or the seller. The affidavit is a sworn statement of fact. For example, someone looking to sell a piece of real estate would have to provide an affidavit of title indicating that the property is truly owned by the seller, that the property is not being sold to another party, that there are no liens against the property and that the seller is not in bankruptcy proceedings.

An affidavit of title is designed to protect the buyer from outstanding legal issues that might be facing the seller. If an issue arises in the future, the buyer has a physical document made by the seller that can be used in legal proceedings.

Agreement to Sell

This refers to an agreement between the buyer and the seller that details the price and terms of the transaction. This should not be confused with Sale Deed/ Conveyance Deed. It precedes the execution of Sale Deed and acts as the basic document on which a Sale Deed is drafted. This is also referred to as Agreement for Sale.

Alternative User Value

This is the value of land and buildings which reflects a prospective use which is different from that of the current use.

Allotment Letter

A letter issued by the developer (private or state development agency) allotting a particular plot or unit in an under development or under construction project. It includes all details regarding the unit, payment options and any extra charges that the buyer will have to pay in case of maintenance or additional facilities. It also includes construction schedule, house plans, delivery date and other booking terms. This letter is important in availing loan from banks. It is generally superseded by builder-buyer agreement once that is signed.

Amenities

Features of real property that enhances its attractiveness and increases the occupant’s or user’s satisfaction e.g. Parks, swimming pools, health-club facilities, party rooms, bike paths, community centers and other enticements offered by builders of planned developments.

Amortization

The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

Amortization Schedule

A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

Annuity

A sum of money paid each year usually as a legal obligation under a contract or undertaking, as through a pension scheme. It may be paid in installments more frequently than once every twelve months.

As-is where-is basis

The term “As is where is basis” is mainly used by banks while auctioning foreclosed properties. It means that the buyer will inherit all of the physical and legal conditions of the foreclosed property, as is. After purchasing the foreclosed property, the buyer will become responsible for any repairs, liens, liabilities & legal disputes etc., associated with the property and auctioning bank will bear no responsibility.

Asking Price

The listed price of the property but may not always be the selling price. The owner may be willing to negotiate.

Assessed Valuation

The valuation placed on a property for the purposes of taxation by an authority.

Asset

This is a resource with economic value that has the potential to provide future benefits. In simple monetary terms, an asset is something that can generate cash flow, regardless of whether it’s a company’s manufacturing equipment or an individual’s real estate producing rental returns.

Asset Valuation

A method of assessing the worth of a company, real property, security, antique or other item of worth. Asset valuation is commonly performed prior to the sale of an asset or prior to purchasing insurance for an asset. Common methods for determining an asset’s value include comparing it to similar assets and evaluating its cash flow potential. Acquisition cost, replacement cost and deprival value are also methods of asset valuation.

Assignee

This is a person in whose name the rights and interests of a property are transferred.

Assignment

This refers to the transfer of a property interest, especially a lease, from one party to another by signing a deed of assignment.

Assignor

This refers to a person, usually owner, who transfers rights and interests of a property.

Auction

This refers to a public sale of a property or real estate that is sold to the highest bidder.

B
Balloon Loan

This refers to a long-term loan, often a mortgage that has one large payment (the balloon payment) due upon maturity. A balloon loan will often have the advantage of very low interest payments, thus requiring very little capital outlay during the life of the loan. Since most of the repayment is deferred until the end of the payment period, the borrower has substantial flexibility to utilize the available capital during the life of the loan. The major problem with such a loan is that the borrower needs to be self-disciplined in preparing for the large single payment, since interim payments are not being made. Balloon loans are often undertaken when refinancing or when a major cash flow event is anticipated.

Balloon Payment

This refers to an oversized payment due at the end of a property loan, commercial loan or other amortized loan. Because the entire loan amount is not amortized over the life of the loan, the remaining balance is due as a final repayment to the lender.

Bare Shell

This depicts the condition of any property after completion of construction activity and installations of basic building services. A bare shell includes basic flooring – tiled, mosaic, cement or granite and plastered walls. Apart from this, pantry and toilet facilities may also be operational in such condition.

Base Rate

Reserve Bank of India replaced Benchmark Prime Lending Rate (BPLR) system with Base Rate system with effect from July 1, 2010. Base rate is the interest rate below which banks cannot lend. The Base Rate includes all those elements of the lending rate that are common across all categories of borrowers. Banks are allowed to determine their actual lending rates on loans and advances with reference to the Base Rate and by including such other customer specific charges as considered appropriate. All categories of loans are priced only with reference to the Base Rate.

Bayana (Token Amount)

An Indian term used to denote the token money given to the landlord to informally freeze negotiations on a particular property, after the initial terms and conditions have been formalized.

BHK

Bedroom Hall Kitchen

Bidding War

A situation where two or more buyers are so interested in an item (such as a house or a business) that they make increasingly higher offers of the price they are willing to pay to try to become the new owner of the item. The bidding usually occurs at a fast pace, requiring potential buyers to make less thought-out decisions than they normally might. While a bidding war is a seller’s dream come true, it may cause buyer’s remorse.

Breach of Contract

This refers to violation of any of the agreed-upon terms and conditions of a binding contract. This breach could be anything from a late payment to a more serious violation, such as failure to deliver a promised asset. A contract is binding and will hold weight if taken to court; however, proof of the violation is imperative.

Bridge Loan

Bridge loan is a type of gap financing arrangement wherein the borrower can get access to short-term loans for meeting short-term liquidity requirements. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral such as real estate or inventory.

Broker/ Dealer

A broker is a person or a company who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.

Brokerage

Commission paid to a broker in lieu of the activity of a broker in bringing together two parties in a transaction.

Basic Sale Price

It can be arrived at by multiplying basic per square feet rate with the area of the property in square feet. To arrive at the final price of a property, the buyer should add all other charges such as parking charges, preferential location charges, registration charges, common area maintenance, EDC, IDC etc.

Building Bye Laws

Local authority control of building standards promulgated to regulate and control the usage of land, property and areas in cities and towns.

Building Code

Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Building Contract

A contract between an owner or occupier of land and a building contractor, setting forth the terms under which construction is to be carried out, basis of remuneration, time scale, and penalties, if any, for failure to comply with terms of the contract.

Built-up Area

Built up Area or Plinth Area is the total covered area of the apartment or commercial property unit i.e. area within & including outside walls of the unit. It can be calculated by adding carpet area, areas of utility ducts within property unit and internal & external walls of the unit.

Bullet Loan

Any short-term, generally five to seven years, financing option that requires a balloon payment at the end of the term and anticipates that the loan will be refinanced in order to meet the balloon payment obligation. These loans are riskier because the homeowner’s equity in the property doesn’t increase over time.

Buyout Rate

In a buy back scheme, the buyout rate is the final appreciated rate at which the builder buys out the property back from the investor, taking into account the promised investment yield.

Buyer’s Market

This refers to a situation in which supply exceeds demand, giving buyers an advantage over sellers in price negotiations.

C
Capital Gain

This refers to an increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes.

Capitalization

At a given date the conversion into the equivalent capital worth of a series of net receipts, actual or estimated, over a period.

Capitalization Rate (Cap Rate)

A rate of return on a real estate investment property based on the expected income that the property will generate. Capitalization rate is used to estimate the investor’s potential return on his or her investment. This is done by dividing the income the property will generate (after fixed costs and variable costs) by the total value of the property. In technical terms, it is the discount rate of perpetuity.

Catchment Area

In Real Estate terms, it is the area which contains those people who can be expected to obtain goods, services, employment or other benefits from a particular property.

Carpet Area

This refers to the actual usable area of an apartment/office unit/showroom etc. minus wall thickness. Simply put, it is that area within the walls where you can actually lay a carpet.

Chain of Title

This refers to the official record of ownership of a property or asset. The chain of ownership gets its name from its sequential nature; a chain of title traces historical title transfers from the current owner back to the original owner. Due to their critical importance in establishing ownership of a property or asset, rigorous and accurate title records are generally maintained by a centralized registry or system.

CIBIL

Credit Information Bureau (India) Limited (CIBIL) is India’s first Credit Information Company (CIC) founded in August 2000. CIBIL collects and maintains records of an individual’s payments pertaining to loans and credit cards. These records are submitted to CIBIL by member banks and credit institutions, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to credit institutions in order to help evaluate and approve loan applications.

Circle Rate

This refers to the minimum value of a property at which the registration of a property is done.

Clearance Area

This refers to an area which is to be cleared of all buildings. This is generally promulgated by way of a government declaration, which is normally followed by the acquisition of the land and the clearance of the area.

Clear Title

A clear title is a title without any kind of lien or levy from creditors or other parties and poses no question as to legal ownership. This is also known as “clean title,” “just title,” “good title” and “free and clear title.”

Closing Costs

This refers to the expenses, over and above the price of the property that buyers and sellers normally incur to complete a real estate transaction. Costs incurred include loan processing fee, title searches, surveys & site visits, taxes, stamp duty, registration charges and credit report charges.

Co-Borrower

This refers to a party or individual who cosigns a mortgage loan. Co-borrowers are jointly liable with the other borrower for the balance of the loan period. Often the co-borrower will also receive a portion of the ownership in the asset in exchange for assisting with the loan. However, it is not necessary to be a co-owner of the mortgaged property in order to be a co-borrower.

Collateral

This refers to an asset (such as property or car) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Commercial Property

This refers to real estate property that is used for business activities. Commercial properties fall into many categories and include office space, retail shopping centers, or even vacant land.

Commission

A proportion (usually a percentage) of the sale price of a property paid to a real estate agent/ broker for negotiating a real estate transaction.

Common Areas

Common areas are the undivided parts of the commonly owned premises. The areas such as the parking lot, lawns, swimming pool, community centers, corridors, lobbies, elevators, etc are not owned by a single individual owner. The responsibility for upkeep and maintenance of these areas is collective.

Common Area Maintenance

The contribution or fee paid collectively by the owners of individual units for the maintenance and upkeep of the common areas of a real estate complex. These areas are generally managed and maintained by Residents’ Welfare Association or an outsourced Facilities Management Company.

Completion Certificate/ Statement

A certificate/ statement issued by the local development authority certifying that all necessary works have been completed and that the property is fit for occupation. In case of private development, such certificate can be given by the builder to individual unit owners at the time of possession. Owners require a completion certificate to claim tax benefits.

Condominium

This refers to a large property complex that is divided into individual units and sold. Ownership usually includes a non-exclusive interest in certain “common properties” controlled by the condominium management. An individual owner may sell or encumber his/her own unit. In India, the terms condominium, apartment and flat are used interchangeably.

Construction Loan

This refers to the act of transferring an ownership interest in real property from one party to another. Conveyance also refers to the written instrument, such as a deed or lease that transfers legal title of a property from the seller to the buyer.

Cooperative Housing

Cooperative Housing is a form of housing scheme promoted by most states in which the land is purchased, developed and constructed by a Cooperative Housing Society. A group of people can form a cooperative housing society by registering with the state government department and apply for land. Land is generally allotted to the cooperative housing society by the state development agency on a first come first serve basis at concessional rates.

Co-ownership/ Joint ownership

When there is more than one owner for an immovable property, the status of the property is known to be of the Co-ownership or Joint Ownership type.

Covenants

Terms, conditions and restrictions noted on the title. A covenant may affect future plans or resale of the property.

Credit History

This refers to a record of individuals’ current and repaid debts which is usually used by a lender to assess the risk of a potential borrower. In India, credit history is managed by CIBIL.

D
Debt Service Coverage Ratio

This refers to the relationship between the annual net operating income (NOI) of a property and the annual debt service of the mortgage loan on the property. Both Lenders and Investors calculate this ratio to assist them in determining the likelihood of the property generating enough income to pay loan payments. From the lender’s viewpoint, the higher the ratio, the better.

Deed

This refers to a legal document conveying title to a property.

Deed of Assignment

This is a legal document which affects transfer of a property interest, especially a lease, from one party to another.

Demand Letter

A letter sent to the buyer by a builder requesting due payment. Also, a letter sent to the borrower by lender requesting an overdue payment.

Depreciation

A decline in the value of property brought about by age, physical deterioration, functional or economic obsolescence, etc.

Discounted Cash Flow (DCF) Analysis

A valuation method used to estimate the attractiveness of an investment opportunity, whereby future inflows and outflows of cash associated with a particular project are expressed in present-day terms by discounting. The most widely used forms of DCF are the internal rates of return (IRR) and net present value (NPV). The techniques may be used for such purposes as the valuation of land and investment, the ranking of projects or their components.

Discount Rate

A compound interest rate used to convert expected future income into a present value income.

Distrait

Seizure of a tenant’s property or other goods by the landlord in order to obtain payment of rent or other money owed.

Down-payment

The part of the purchase price of a property that the buyer pays in cash and does not finance with a loan.

Developer

This refers to an entrepreneur or company that initiates and sees through the development of a property. The main activities carried out by a developer include land acquisition, procurement of relevant approvals, fund raising, design, construction and marketing of the project.

E
Earnest Money Deposit (EMD)

A deposit made to a seller showing the buyer’s good faith in a transaction. Earnest money allows the buyer additional time while seeking financing. Earnest money is typically held jointly by the seller and buyer in a trust or escrow account.

Easement

This refers to the right of one party to use the property of another party. A fee is paid to the owner of the property in return for the right of easement. Easements are often purchased by mobile companies to erect mobile towers or by utility companies run pipes either above or beneath private property.

Effective Gross Income

Term used for an income-producing property, derived from the potential gross income, less a vacancy factor and a collection loss amount.

Effective Rent

The gross rent payable per month by the occupiers which includes the base rent, maintenance charges, imputed costs of loss of interest on security deposit and rental advance. The effective rent indicates the total cash outflow of an occupier every month on account of leasing any property.

EMI

Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month, so that over a specified number of years, the loan is fully paid off.

Encroachment

A situation in real estate where a property owner violates the property rights of his neighbor or the public land by building something or by allowing something to hang over onto the neighbor’s property.

Encumbrance

This refers to a claim against a property by another party. Encumbrance usually impacts the transferability of the property and can restrict its free use until the encumbrance is removed. The most common instances of an encumbrance occur in real estate such as an outstanding loans, unpaid property taxes or easements.

Encumbrance Certificate

A report issued by Registrar of Assurances or Sub-Registrar’s office after due verification of the relevant documents certifying that the property in question is free from all encumbrances such as loans, leases, easements or restrictions.

Escalation Clause

Specified in lease agreements wherein renewals of lease period are built in. It involves an increment in the base rent at every renewal of a lease agreement and is generally a percentage rate that is either pre agreed or negotiated before the renewal of the lease agreement.

Escrow Account

An escrow account is a temporary pass through account held by a third party during the process of a transaction between two parties.

Estate

This refers to the total of all the real estate and personal property owned by an individual at the time of death.

Eviction

This refers to the lawful expulsion of an occupant or tenant from real property.

Exclusive Authority

This refers to a written contract that gives one real estate agent the exclusive right to sell a property in a specified time period.

Executor

A person named in a will to administer an estate. The court appoints an administrator if no executor is named.

External Development Charges (EDC)

A type of Infrastructure Development Charges, external development charges (EDC) are levied by some states by the state development agency to the developer/ colonizer in order to provide better public infrastructure facilities at the town level. External Development Works include water supply, sewerage, drains, necessary provisions of treatment and disposal of sewage and storm water, roads, electrical works, solid waste management and disposal, slaughter houses, colleges, hospitals, stadium/sports complex, fire stations, grid sub-stations etc. and any other work which the development agency may specify to be executed in the periphery of or outside colony/area for the benefit of the colony/area. The developer further passes on these charges to the property buyers.

F
Facility Management

Facility management or facilities management is an interdisciplinary field devoted to the coordination of space, infrastructure, people and organization, often associated with the administration of office blocks, arenas, schools, convention centers, shopping complexes, hospitals, hotels, etc.

Fiduciary

A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets for the benefit of the other person rather than for his or her own profit.

Fire Certificate

This refers to a certificate covering matters of safety required under the legislation for hotels, boarding houses, factories, offices shops and railway premises, excluding those buildings containing less than a minimum number of employees. In order to obtain a fire certificate, one must apply to a fire officer, who then inspects the building and issues a list of requirements (e.g. Fire escape doors/stairways). Once the fire officer is satisfied that those requirements have been met he will issue the fire certificate. It enables fire officers, in the event of an emergency, to have prior knowledge inter alia of the permitted number of people on each floor. It also informs officials if any authorized inflammables /explosives materials are found on the premises.

Fit-outs

Interior permanent furnishings required in a property including HVAC ducting, fire protection system, establishment of workstations and telephone/computer cabling among others, in order to make the property fit for usage.

Fixed Interest Rate

This refers to an interest rate on a loan that remains fixed either for the entire term of the loan or for part of the term and does not increase or decrease with market fluctuations.

Fixed-o-floating Interest Rate

This refers to an interest rate that is fixed for a predetermined period after which it gets converted to floating interest rate.

Fixtures

This refers to personal property that becomes real property when attached in a permanent manner to real estate.

Flipping

This refers to a short-term real estate investment strategy in which an investor purchases properties with the goal of reselling them for a profit. Profit is generated either through the price appreciation that occurs as a result of a hot housing market and/or from renovations and capital improvements. Investors who employ these strategies face the risk of price depreciation in bad housing markets. It is similar to trading in stock market.

Floating Interest Rate

This refers to an interest rate that is allowed to move up and down with the rest of the market or along with an index.

Floor Space Index (FSI)/ Floor Area Ratio (FAR)

Floor Space Index or Floor Area Ratio is the ratio of the combined gross floor area of all floors (excepting areas specifically exempted under regulations) to the total area of the plot. It varies from locality to locality depending on the surrounding infrastructure to support the development. Higher FSI or FAR tends to indicate more urban (dense) construction.

Force Majeure

A force, which cannot be resisted, in other words, something beyond the control of the parties involved. It includes acts of God and acts of man, e.g. Storms, floods, fire, riots, strikes, arson. In many contracts and insurance policies, specific provision is made for damage or injury arising from force majeure.

Foreclosure

A situation in which a homeowner is unable to make principal and/or interest payments on his or her property loan, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the loan agreement.

Foreign Direct Investment (FDI)

Investment made by a foreign individual or company in productive capacity of another country. E.g. investment made either to buy a factory or to construct it.

Freehold Property

A property where title paramount has conveyed the property in favor of the purchaser by conveyance/ sale deed with no restriction on the right of the holder of the property to further transfer the property. Record of ownership of the freehold property can be ascertained from the office of the sub-registrar. It can be transferred by registration of sale deed.

Full Service Lease

A Lease where the tenant pays rent to cover everything including utilities.

G
General Power of Attorney

A power of attorney is a legal document that authorizes another person—called an agent—to act on behalf of the person who created the power of attorney—known as the principal—in the event that the principal cannot make those decision his or herself. A general power of attorney gives broad authorizations to the agent. The agent may be able to make medical decisions, legal choices, or financial or business decisions. Also check special power of attorney.

Graduated Lease

A type of long-term, typically for commercial property, lease in which the payments are variable and adjusted periodically to reflect changes in the property’s appraised value or changes in a certain publicized benchmark rate, such as the Consumer Price Index (CPI). The terms of a graduate lease can state that the payments automatically increase by a specified percentage or amount at regularly specified time intervals.

Grantee

This refers to the person to whom an interest in real property is conveyed.

Grantor

This refers to the person conveying an interest in real property.

Greenfield Site

This refers to an area of land, usually in the edge of a town or city or away from substantial urban areas, hitherto undeveloped but for which development is now proposed.

Gross Leasable Area

A term generally used in commercial lease, gross leasable area is defined as the total floor area designed for tenant occupancy and includes the tenant’s pro rata share of the building’s common areas, elevators, common bathrooms, stairwells, and other portions of the building that the tenant doesn’t actually occupy. It is equivalent to Super Built-Up Area of the unit. Also, check net rentable area.

Floor Space Index (FSI)/ Floor Area Ratio (FAR)

Floor Space Index or Floor Area Ratio is the ratio of the combined gross floor area of all floors (excepting areas specifically exempted under regulations) to the total area of the plot. It varies from locality to locality depending on the surrounding infrastructure to support the development. Higher FSI or FAR tends to indicate more urban (dense) construction.

Guarantor

This refers to a person who agrees to indemnify the holder of a loan for all or a portion of the unpaid principal balance in case of default by the borrower.

H
Hard Costs

Hard costs are direct costs incurred in relation to a specific construction project. Hard costs may be directly related to construction, including labor, materials, equipment, basic building services, shell features, interior enclosures, fit-out costs, mechanical services and electrical services. These costs are often borne directly by the project owner. Contrast to soft costs.

Heir

This refers to the person who is the lawful obvious inheritor of an estate or a property.

High Rise

The term generally refers to buildings higher than 7 or 8 stories. In the Central Business District, this could mean a building higher than 25 stories above ground level.

Holding Deposit

An initial (goodwill) sum of money given to register interest in or bind the sale of real estate before the full deposit is paid. This is also known as token amount.

Home Loan Insurance

Home Loan Insurance is like any other life insurance term plan. The difference is that, in case of death of the borrower, instead of paying the nominee, the insurer settles the claim with the bank to close the loan on the policyholder’s behalf. Most home loan insurance plans provide a reducing cover. That is, the cover size is linked to the outstanding loan amount and the sum assured reduces along with the liability as one repays the loan.

Housing Scheme

A scheme announced and implemented by various state housing development agencies from time to time in which residential flats or plots are allotted to the general public based on a draw system. Generally, only those who do not have a house in a particular town or city in their name can only apply. Since, prices of flats or plots offered in such schemes are well below market rate, number of applications in such schemes far outnumber the number of units on offer.

I
Immovable Property

This includes land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops or grass.

Institutional Investors

Investors taken to include banks, pension funds, insurance companies, unit trusts and investment trusts, which are together commonly referred to in the investment field as “institutions”.

Internal Rate of Return (IRR)

The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. The higher a project’s internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects considered for investment. Assuming all other factors are equal among various projects, the project with the highest IRR would probably be considered the best and undertaken first.

Inventory

Inventory or stock refers to the real estate area in square feet or number of property units that a company or individual holds for the ultimate purpose of selling or leasing.

Investment Property

A property that generates income or is otherwise intended for investment purposes rather than as a primary residence. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence, while the others are used to generate rental income and profits through price appreciation.

J
Joint Ownership

When there is more than one owner for an immovable property, the status of the property is known to be of the Co-ownership or Joint Ownership type.

K
Kickback

Payment made to someone for referral of a customer or business. Generally speaking, kickbacks are illegal because, unlike a commission, a kickback is made without the customer’s knowledge.

Kick-Out Clause

This refers to a clause in a sales contract allowing a seller to accept one buyer’s contingent offer then back out without penalty if a second buyer makes a better offer.

L
Landlord

A landlord is the owner of a house, apartment, condominium, land or real estate which is rented or leased to an individual or business, who is called a tenant (also a lessee or renter).

Lease

This refers to a written agreement between a landlord and a tenant granting a period of tenancy of a property under specific terms and conditions.

Leasehold Property

A property “bought” for a certain period of time. The “owner” of such a property will have “bought” the property from the original landlord and is entitled lawfully to rent, lease or “sell” the property to a third party during the period of leasehold. After the leasehold period, the property goes back into the original landlord’s possession.

Lessee

This refers to a person leasing a property.

Lessor

This refers to the owner of a property that is leased to another person.

Letter of Intent

A letter of intent is a document outlining an agreement between two or more parties before the agreement is finalized.

Liability

An obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. Debt is a form of liability.

Lien

This refers to a legal claim against a property that must be paid off when the property is sold.

Liquid Asset

An asset, cash or otherwise, that can be converted into cash.

Loan Processing Fee

A fee paid to a lender (bank) for processing application of a loan. This fee is charged by the lender to cover its administrative and other application related costs. This is also known as loan application fee or establishment fee.

Loan Eligibility

The amount of loan an individual is eligible based on the net salary he earns.

Loan Servicing

Loan servicing is the process by which a company (mortgage bank, servicing firm, etc.) collects interest, principal and escrow payments from a borrower.

Lock-in Period

When a buyer books an under construction property with a builder, some builders put the lock-in clause which means that the buyer cannot sell the property for a particular time period or till the handover. Such time period is known as lock-in period.

Low Rise

This refers to a building with fewer than 4 stories above ground level.

M
Maintenance Charges

This refers to charges payable by the owners / occupants of a development (apartment complex / commercial complex / plotted development etc) towards upkeep & maintenance of all common areas and facilities. It is normally a monthly charge and the amount payable is dependent on the kind of amenities that are part of the project.

Market Value

This refers to the price at which a seller is happy to sell and a buyer is willing to buy. This assumes that there is sufficient activity in the marketplace to generate enough buyers and sellers so that neither party controls the price.

Master Plan

A Master Plan is the long term perspective plan for guiding the sustainable planned development of a city, an area or an infrastructure project. This document lays down the planning guidelines, policies, development code, layouts and infrastructure & space requirements for various socio-economic activities during the plan period.

Mixed-Use

This refers to space within a building or project providing for more than one use for e.g. a loft or apartment project with retail, an apartment building with office space, an office building with retail space.

Mortgage

A written instrument creating an interest in real estate and that provides security for the performance of a duty or the payment of a debt. The borrower (i.e., mortgagor) retains possession and use of the property.

Mutation

Mutation is the recording of a transfer of title of a property from one person to another in the revenue records. The documentation procedure to be followed and the fee payable vary from State to State. The mutation in the municipal records is for the purpose of payment of property tax, and it does not mean a legal title for the person in whose name the property has been mutated in the municipal records.

N
Net Income

This refers to income after taxes are deducted.

Net Rentable Area

A term used in commercial lease, net rentable area is the actual square footage of the tenant’s space without including common areas of the building. It is equivalent to carpet area of the unit. Also check gross leasable area.

Net Worth

Net worth is the total assets minus total outside liabilities of an individual or a company. Put another way, net worth is what is owned minus what is owed.

Net Present Value (NPV)

In a time series of cash flows, the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project.

Nominee

A person in whose name title to property is held but who is not the actual proprietor or holder.

No Objection Certificate (NOC)

A certificate issued by the concerned local authority that the plans are in order and conform to the guidelines and rules in force. In other words, the authority concerned has NO OBJECTION to the commencement of construction.

Non Conforming Use

This refers to the use of a property which does not conform to the allocation of the area for planning purposes. Such a property may have been built in conformity with the planning requirement at the time and a policy change ensued; more usually, the property was constructed before planning control was introduced.

Notice of Default

A formal written notice to a borrower by the lender that a default has occurred and that legal action may be taken. If the borrower does not pay, the lender may initiate foreclosure process by issuing public notice of default followed by notice of sale for the property.

Null and Void

This refers to one that which cannot be legally enforced, as with a contract provision that is not in conformance with the law.

O
Occupancy Certificate

A certificate issued by the local development authority certifying that all necessary works have been completed as per the sanctioned plans and that the property is fit for occupation. The OC is issued after clearance from the water, electricity, sewerage, fire fighting authorities etc.

Open Listing

A property listing that uses multiple real estate agents in order to sell it and get it off the market. With an open listing, the agent that sells the property collects the commission. An open listing can also refer to an owner who sells his/her home or property on his/her own without paying a commission to a real estate agent.

P
Patwari

Usually denotes the person appointed by a local government or land authority to maintain and update land ownership records for a specific area as well as to undertake the collection of land taxes.

Percentage Lease

Percentage Lease is a lease where the tenant has to pay base rent plus a percentage of the tenant’s revenue. It is a term used in commercial real estate. Percentage lease agreements can often decrease the base rate while simultaneously providing the lessor with additional upside potential.

Plinth Area

Total covered area of the apartment or commercial property unit i.e. area within & including outside walls of the unit. It can be calculated by adding carpet area, areas of utility ducts within property unit and internal & external walls of the unit.

Power of Attorney

A power of attorney is a legal document that authorizes another person—called an agent—to act on behalf of the person who created the power of attorney—known as the principal—in the event that the principal cannot make those decisions himself or herself.

Pre-approval

This refers to an evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan, or the maximum amount that the lender would be willing to lend. The process involves a thorough look into the income and expenses of the borrower, including a look at the borrower’s credit report and score.

Preferential Location Charges (PLC)

A PLC (preferential location charges) is an additional cost that a home buyer would pay for booking a housing unit which has an advantage over others in terms of location. A Preferred location within the apartment complex may mean an apartment that faces the park or is a corner plot near to the main road. The preferred location and the fee for it varies with project type, location of the city and climatic conditions, the floor number etc.

Pre Launch Property

A property in a project which is in planning stage and does not have all the approvals yet but is soon expected to get all approvals. Generally, in order to raise public funds, many developers offer huge discounts in the pre launch stage. However, investors should be cautious of the risks involved.

Pre Qualification

The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

Pre Payment

This refers to the satisfaction of a debt or installment payment before its official due date. A pre-payment can be for the entire balance or for any upcoming payment that is paid in advance of the date for which the borrower is contractually obligated to pay it. Examples of a prepayment come in the form of rent or early loan repayments.

Pre Payment Penalty

Additional fee imposed by some loan agreements where a borrower retires a loan before its scheduled pay-off date. It is meant to compensate the lender for not realizing the anticipated interest income and for the possibility of reinvesting the loan amount at a lower interest rate. The penalty is usually based as a percentage of the amount pre-paid.

Principal

The amount borrowed or still to be repaid.

Promissory Note

This refers to a written promise to repay a specified amount over a specified period of time.

Property Management

This refers to the administration of residential, commercial and/or industrial real estate. The property manager acts on behalf of the owner to preserve the value of the property while generating income. Managed properties include residential and vacation properties, commercial retail space or industrial warehouse space. Property managers are typically paid a fee and/or a percentage of the rent brought in for the property while under management.

Property Tax

A property tax is a levy on property that the owner is required to pay. The tax is levied by the local municipal body of the state in which the property is located. All states have different tax structures and rates.

Proxy

This refers to a person who represents another, particularly in some meeting.

Q
Qualified Covenant

A restriction contained in a legal document which limits the rights of a person having an interest in the land but, by its wording envisages the possibility of removing the limitation on terms agreed between the parties e.g. a covenant by a lessee not to assign or sublet without the landlord’s written consent. In certain cases, such as the one quoted, statute law strengthens the applicant’s position by importing such words as “such consent not to be unreasonably with-held”.

R
Ratable Value

This refers to the figure upon which property tax is charged in India. This value is determined by the tax authorities and thereafter the tax liability is charged to the owner(s) of the property on the basis of certain pre-determined tax slab rates.

Rate Lock

This refers to an agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a loan over a specified time period. Generally, such locked-in interest rate is slightly higher than the floating market rate.

Raw Land

This refers to unimproved land that remains in its natural state.

Ready to Move Property

A property which is ready to occupy i.e. which is complete in all respects including all utility connections and has received completion certificate.

Real Assets

This refers to physical or tangible assets that have value, due to their substance and properties. Real assets include precious metals, commodities, real estate, agricultural land and oil.

Real Estate

Land and anything permanently affixed to the land, such as building, fences and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items that would be personal property if not attached. Real estate can be grouped into three broad categories based on its use: residential, commercial and industrial.

Real Estate Investment Trust (REIT)

This refers to a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

Real Property

This refers to any property that is attached directly to land, as well as the land itself. Real property not only includes buildings and other structures, but also rights and interests. Real property can be either rental or residential.

Realtor

A general term used for Real Estate professionals including real estate brokers, salespeople, property managers, appraisers, counselors and other real estate professionals.

Refinance

This refers to the process of paying off one loan with the proceeds from a new loan using the same property as security.

Refurbishment

Improvement and modernization of a building falling short of rebuilding or redevelopment and thus not normally requiring planning permission (other than for alterations to the external appearance), except in the case of listed buildings.

Registration

This refers to a legal documenting and subsequent recognition of a transaction at the regional sub registrar’s office of the local municipal authority. Both rental and capital transactions can be registered after paying registration charges, which vary from state to state.

Rentable Area

The area of floor space for which rent is calculated even though other areas, within or outside the premise, are lawfully used by the tenant. For example, in an office building it is customary to exclude from the direct calculation of rent the space used for corridors, atrium and stairways.

Rental Yield

This refers to the rental income return on the investment. This is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.

Representation Agreement

An agreement between the owner of a property and a real estate broker giving the broker the authorization to attempt to sell or lease the property at a certain price and terms in return for a commission, set fee or other form of compensation.

Request for Proposal (RFP)

The formalized Request for Proposal represents a compilation of the many considerations that a tenant might have and should be customized to reflect their specific needs. Just as the building’s standard form lease document represents the landlord’s wish list, the RFP serves in that same capacity for the tenant.

Requisitions on Title

This refers to a process where the buyer requests additional information about the title of the property from the vendor.

Resale Property

Generally referred to an under construction property which is put in the market for sale by the investor.

Reserve Price

This refers to the minimum price which a seller will accept at auction.

Residential Property

This refers to any property, which is used for residential purposes. These areas are specifically earmarked as such by the concerned local municipal body.

Reverse Mortgage

A type of mortgage (loan) in which a homeowner can borrow money against the value of his or her home. No repayment of the loan (principal or interest) is required until the borrower dies or the home is sold. This product is particularly useful for retired people who can convert the equity in their home into cash and use that cash to meet their expenses. The loan is called a reverse mortgage because the traditional mortgage payback stream is reversed. Instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower.

Rise and Fall Clause

This clause may be contained in a building contract. It provides for an upward or downward contract price which correlates to the movement of prices, wages or other factors specified in the clause.

Row House

This refers to a style of medium-density housing where a row of identical or mirror-image houses share side walls. Also known as townhouse, linked house or terraced house.

S
Sale and Leaseback

An arrangement whereby a freeholder or lessee sells his interest in a property for an agreed sum and takes back a lease on the whole or part of the property from the purchaser, generally either at a rack rent or at some lesser rent related to the price paid.

Secondary Market

This refers to a market where investors purchase properties from other investors, rather than from developers directly. Resale properties and ready to move properties are part of secondary market.

Secured Loan

A loan secured by collateral to reduce the risk associated with lending. For e.g. Home loan is secured by house mortgage as collateral towards the loan. If the borrower defaults on repayment, the bank seizes the house, sells it and uses the proceeds to pay back the loan.

Security

In lending, security refers to the collateral given, deposited or pledged to secure the payment of the loan.

Security Deposit

This refers to a monetary deposit given to a lender, seller or landlord as proof of intent. Security deposits can be either refundable or nonrefundable, depending on the terms of the transaction. As the name implies, the deposit is intended as a measure of security for the recipient.

Seller’s Market

When demand for property is greater than supply. The result is greater opportunities for owners who may find someone willing to offer the asking price or even a figure greater than the asking price. Contrast with Buyer’s Market.

Serviced Apartment

Suites or rooms where the landlord provides a range of services within the individual premises extending beyond the traditional ones associated with the maintenance and management of the building itself or the operation and maintenance of the installation or plant therein e.g. furniture, telephone, fax machine, room cleaning, and/or provides centralized specialized services, such as a receptionist and secretarial and communication facilities.

Setback

The distance from a curb, property line or other reference point, within which building is prohibited.

Settlement

Settlement (Closing) is the final step in executing a real estate transaction when final payment is made by the buyer, sale deed is signed, title is transferred to the buyer by registration of sale deed, loan documents come into effect, costs are paid and the new owner takes possession of the property.

Shared Office Space

Shared office space refers to fully equipped and furnished offices ready for quick setup for a branch office or entrepreneur who doesn’t want to work from home. Also knows as business centers and executive suites, these facilities provide mail, telephone and Internet services. Sharing office space can provide professional facilities at a lower cost than traditional office rents and even offer the possibility for outside input and referrals from others that utilize the same arrangement.

Site Plan

A drawing of an area of land, on a horizontal plane, showing the boundaries and physical extent of the land included in a particular parcel. It may also show any existing buildings or the proposed layout of a development.

Soft Cost

Soft Cost is a term used in construction for an expense that is not considered direct construction cost. Soft costs include architectural, engineering, financing and legal fees, and other pre- and post-construction expenses. Contrast with Hard Costs.

Soft Launch

A soft launch is the release of a real estate project to a limited audience. In this stage, usually, all approvals are in place for the project but construction is yet to start. Soft-launching is a method for gathering feedback on a project, its pricing and acceptance in the marketplace, before making it generally available as a hard launch or grand opening. Generally, prices offered in the soft launch stage are slightly lower than the actual planned launch.

Special Power of Attorney

A power of attorney is a legal document that authorizes another person—called an agent—to act on behalf of the person who created the power of attorney—known as the principal—in the event that the principal cannot make those decision his or herself. A special power of attorney narrows the choices the agent can make. One can even make several different POAs, with different agents for each. Also check general power of attorney.

Stamp Duty

A state tax on conveyance or transfer of real property calculated on the total value of the property or the circle rate of the area, whichever is higher. Stamp duty charges vary from State to State and generally range from 4% to 10% of the property value or the circle rate.

Sub-Leasing

This refers to a method wherein, the primary lessee of a property has the right to further lease out a part or whole of the property to another occupier or lessee. Essentially, the right to sub lease is decided beforehand at the time of signing the main lease agreement and is with the consent of both the lessor and the lessee.

Subdivision

Super Built-Up Area means built up area of a unit plus common areas proportioned to a unit. Common areas that are included in the super built up area are lobby, lift ducts, staircases, pipe ducts/ shafts, air ducts, covered community centers/ clubs, other covered common facilities. It does not include open areas such as parks, gardens, roof terrace etc.

Survey

A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

T
Tahsildar

Revenue authority or officer empowered to impose and collect revenue from a particular jurisdiction.

Tax Lien

A statutory lien, existing in favor of the state or municipality, for nonpayment of property taxes which attaches only to the property upon which the taxes are unpaid.

Tenancy

This refers to the right to occupy a property under agreed terms and conditions.

Testament

A legal declaration by which a person, the testator, names one or more persons to manage his estate and provides for the distribution of his property at death. This is same as will.

Title

This refers to a legal document evidencing a person’s right to or ownership of a property.

Token Amount (Bayana)

Token money given to the landlord to informally freeze negotiations on a particular property, after the initial terms and conditions has been formalized.

Transaction

This refers to any activity that leads to an exchange between two parties – buyer and seller/landlord and tenant etc.

Turn Key Project

The construction of a project in which a third party, usually a developer or general contractor, is responsible for the total completion of a building (including construction and interior design) or, the construction of tenant improvements to the customized requirements and specifications of a future owner or tenant.

U
Under Construction Property

A property which has received all necessary approvals from authorities raised funds from private investors or financial institutions, appointed the construction contractor and is currently under construction. From investment perspective, such properties are less risky than properties which are at development stage (not received all approvals) and more risky than ready to move properties.

Under Valuation

A value of the property that is lesser than the fair market value.

Underwriting

A term generally used in financial services industry refers to the process by which a large financial service provider (bank, insurer, investment house) would accept some of the risk on a given venture (say initial public offering of shares) in exchange for a premium. In real estate, underwriting is a process by which an underwriter commits to the developer of a project to sell a certain number of units within a specified period of time at a specified rate else the underwriter has to purchase a certain number of units itself.

Undisclosed Heir

This refers to a person who claims the right to a piece of property after the death of an owner without a will.

Unencumbered

An asset or property that is free and clear of any encumbrances such as creditor claims or liens.

Unilateral Contract

This refers to a one-sided contract. If one party makes a promise to do something, the second party is not legally required to perform. If the second party does comply, however, the first party is obligated to keep its promise.

Unsecured Loan

This refers to a loan that is not backed up by collateral.

Urban Land Ceiling and Regulation Act (ULCRA)

A legislation promulgated in 1976 as a social equity measure with a view to curb profiteering and hoarding in the urban land market as well as to prevent urban congestion.

Utilities

This refers to the private or public service facilities such as gas, electricity, telephone, water, and sewer that are provided as part of the development of the land.

V
Vaastu Shastra

A traditional Indian architecture and design system, which specifies the detailed methodology of designing buildings, buying land etc. in order to maximize benefits, from the same for the occupier. This system relies in harmonizing any real estate development with the five elements of Indian Mythology namely air, water, earth, fire and space.

Valuation

The process of making an estimate of worth of real property or real property or other assets for a particular purpose e.g. letting, purchase, sale, audit, rating, compulsory purchase or taxation. The purpose and the relevant circumstances determine assumptions and facts that are appropriate and hence the process used.

Villa

1. A large house or estate that is usually located in the country. 2. A house that you can rent and live in when on vacation. 3. A house in the city with a yard and garden.

Virtual Office Space

A virtual office provides communication and address services that allow users to reduce traditional office costs while maintaining business professionalism. Not to be confused with business center or executive suite.

W
Warehouse

Premises designed and built for the purpose of bulk storage of raw materials or finished or partly finished goods, pending either onward transit or division into smaller batches and subsequent distribution.

Warranty of Possession

It provides a warranty by Landlord that it has the legal ability to convey the possession of the premises to Tenant; the Landlord does not warrant that he owns the land.

Weighted Average Rental Rates

The weighted average ratio of unequal rental rates across two or more buildings in a market. It is calculated as the total market rent of all tenants (which is the sum of the total tenants’ sizes multiplied by each tenant’s own market rate) divided by the total area of all the tenants.

Will

A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his estate and provides for the distribution of his property at death.

Written Down Value

This refers to at a given time, the result of making one or more annual or periodic deductions for depreciation against capital cost or worth.

Y
Yield

This refers to the income return on an investment. This is usually expressed annually as a percentage based on the investment’s cost its current market value or its face value. For e.g. Rental yield refers to the rental returns with reference to the investment cost or current market value of the property.

Z
Zone

This refers to a defined area of land or part of a building which is allocated for a particular purpose, e.g. development plans may allocate areas of land for different uses or values of property may distinguish between areas of floor space of a building and ascribe different values to them.

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