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Acronyms, Abbreviations, and other Real Estate Jargon

These are some real estate terms we’ve run across while investing in Rhode Island for the past 10 years. We’ve deliberately simplified some of them for the sake of brevity. See also the legal disclaimer at the end.

Jump to acronyms/terms starting with: A B C D E F G H I J L M N O P Q R S T U V W

Price per square foot, the rent or purchase price of a property divided by its usable square feet; a very basic way to compare properties, many real estate professionals recommend against using it
Mortgage term meaning zero 30 day late payments in last 12 months
1031 tax-deferred exchange, a way to sell one property and buy another without paying tax
Five day demand notice (letter) for unpaid rent; see the RI Landlord-Tenant Handbook
Annual debt service, i.e., the total mortgage payments made in a year
Adjustable rate mortgage, where payments may change over time as interest rates change
After repair value, the expected sale price after renovating a property
After-tax cash flow; rental income after expenses and mortgage payments but after tax effects
Bargain and sale (deed), where the grantors (sellers) make no guarantees about the title whatsoever; essentially it says, “I’m not saying I own it, but if I do, I give you what I have, with no guarantees at all”
The money you get (and pay taxes on) from a 1031 exchange when it fails due to not identifying or closing on the replacement property in time
Back on market, a Multiple Listing Service (MLS) status indicating that a property had been under contract to sell, but the deal fell apart for some reason and the property is once again available
Broker’s price opinion, an estimate of a property’s price by an agent, which is faster & cheaper than a full appraisal; often used to determine listing price for bank-owned (REO) properties
Bedroom, or (depending on context) Bankruptcy
Before-tax cash flow; rental income after expenses and mortgage payments but before tax effects
Common area maintenance; everything an owner/landlord pays to maintain the “common areas”
Cap gain
Capital gain, the difference between sale price and initial purchase price + improvements; taxed at a lower rate than ordinary income but requires owning for at least a year, could also be a capital loss
Cap rate
Capitalization rate; rate of investment return on a property if you pay all cash (no mortgage), aka “unlevered rate of return”; NOI divided by purchase price
Cash on cash return; rate of return from dividing rental income after expenses and mortgage (BTCF) by total initial cost of the property
Covenants, conditions and restrictions; special restrictions on how owners can use a property, often found with condominiums and planned unit developments
Closing disclosure; a summary of loan terms for residential mortgages which must be given to buyers/borrowers at least 3 business days before closing (one of the TRID consumer protection rules)
Continuing education or continuing legal education; classes real estate agents and attorneys need to take to renew their licenses; note non-agents may also take RIAR classes for a slightly higher fee
Competitive market analysis, an estimate of a property’s value done by an agent for a property owner, often as part of a listing presentation
Certificate of occupancy, permits a building to be inhabited; for new buildings and heavy renovations
Comparable sales; similar properties in the same area sold recently, used to determine value
Closing protection letter; allows an attorney or escrow company to conduct a closing and issue a title insurance policy, protecting the buyer/lender from any fraud or dishonesty by the closing agent
“Doing business as”, usually when a sole proprietor does business under a different name; could also be a fictitious business name for a corporation or LLC
Division of Business Regulation, the RI agency responsible for many real estate agent requirements
Deceased, heirs of; same as EST, indicates a property was owned by someone but s/he passed away and it’s now owned by the heirs of the deceased (who may or may not be known)
Set of legislation enacted in 2010 to protect consumers and taxpayers from unscrupulous finance companies after the real estate crisis of 2008; also affected real estate investors
Days on market, how long a property has been listed in the MLS
Dining room
An advance (or reimbursement) as part of the total amount of a construction loan; to reduce lender risk funds are given out in small chunks (draws) as phases of the project are verified completed
Debt service coverage ratio, a measure of risk to the lender which should be at least 1.2; it is the net operating income (NOI) divided by annual mortgage payments (ADS)
Delaware statutory trust, a way for multiple people to invest in property, similar to a limited partnership
Debt-to income ratio, one way of determining if a borrower can afford to get a mortgage
Due on sale
Section of mortgages indicating the entire mortgage becomes due if the property is sold or transferred
Effective gross income, gross rental income (PGI) after an allowance for vacancy is subtracted
Employer identification number, identifies a business to tax authorities like an SSN does for people
Eat-in kitchen, a kitchen with enough space to eat in
Errors and omissions insurance, a special kind of insurance real estate agents, attorneys and other professionals must have
Earnest money deposit, a small portion of the purchase price given with an offer or P&S; the contract is not considered binding until the deposit has been received by the seller or her/his agent
Estate; often seen in tax assessor records, indicates a property was owned by someone but s/he passed away and it’s now owned by their “estate”; the heirs may or may not be known
et ux, et vir
Latin for “and wife” or “and husband”; sometimes seen in deeds and tax assessor records
Execution, aka “judgment”; an involuntary lien recorded against a property when a homeowner owes money to a creditor, ensuring the creditor gets paid if the property is sold or refinanced
Fair credit reporting act, legislation controlling how landlords and property managers can obtain and manage credit information
Federal Housing Administration, insurer of FHA mortgages that are often easier to get and have lower required down payments than other types of mortgages
Federal Home Loan Mortgage Corporation (aka Freddie Mac), helps more mortgage loans get made by packaging mortgages into pools and selling them to investors
Finance, insurance and real estate; three industries which are all affected by financial issues like interest rates and which also have a strong presence in NYC
Fair market value; the value when a property has adequate market exposure and buyers and sellers don’t know each other (an “arms length transaction”)
Fair market rents, a measure calculated annually by HUD and used to determine rents paid by Section 8 or other housing assistance programs
Federal National Mortgage Association (aka Fannie Mae), helps more mortgage loans get made by packaging mortgages together and selling them to investors; similar to FHLMC but slightly different
For sale by owner; when a property owner tries to sell a property without a real estate agent
General contractor, like a “general manager” for renovation projects, s/he manages individual subcontractors like electricians and plumbers to get the overall project done
Geographic information system, a way of presenting data about a city/town with an interactive map, for example by turning on layers showing lot dimensions, wetlands, sewer lines, etc.
Gross living area, approximate sq ft of living/rental area; used in comps and calculating price per sq ft
Giver, from land evidence records; the grantor “gives” an interest in real estate to the grantee; e.g., when selling a property, the seller is the grantor (giver) and the buyer is the grantee (receiver)
Receiver, from land evidence records; the grantee “receives” an interest in real estate from the grantor; e.g., the owner gets loan funds and grants a mortgage (claim on the property) to the bank (grantee)
Gross rent multiplier, purchase price divided by gross rents (before expenses); crude measure used to compare prices of properties, doesn’t account for things like if the owner pays for utilities
Gain to old lease; amount of current rent which is above market rent (this is uncommon)
Housing assistance payment, portion of a tenant’s rent paid by the Section 8 housing program; the difference between the HAP and the “contract rent” is paid by the tenant
Home equity line of credit, a line of credit against a property which has a maximum amount and is secured by a mortgage; frequently have variable interest rates like adjustable rate mortgages (ARMs)
Home owners association, a group/committee of condominium owners, or property owners in planned communities, which handles shared expenses and agreed-upon rules and sets “HOA fees”
Home owners insurance, often used when proof of property insurance is requested
U.S. Department of Housing and Urban Development, or the HUD-1 closing statement (see TRID)
Heating, ventilation and air conditioning; a set of environmental control equipment like boilers and central air conditioning which usually requires “HVAC specialists” for service
Hot water
Its successors and/or assigns, as their interests may appear; often in mortgage and insurance docs
Inheritance tax lien, an automatic lien placed against RI real estate when someone dies; can be discharged by filing Form T-77, Discharge of Lien Form (and paying any tax due, of course)
Shorthand for formula: net operating Income = capitalization Rate x Value; same as the formula for calculating capitalization rate: Rate = net operating Income / Value (price)
Joint tenancy with rights of survivorship; at death one’s share goes to the other owners
Joint venture, an agreement between business entities to cooperate on a specific project only, instead of having an ongoing partnership which spans multiple projects
Lead based paint; highly poisonous, used to paint many houses built before 1978
Life estate; ownership for the rest of one’s life, after which it goes to the “remaindermen
Legal use
How a property may be legally used (commercial, residential, industrial, manufacturing, etc.) and how many units may be rented/occupied; determined by city’s building department not tax assessor
Claim by one party against a property, recorded in land evidence records; may be voluntary (like a mortgage) or involuntary (like a judgment) and may or may not have a dollar amount specified
Letter of intent; a simple offer letter, preliminary to a full P&S and often used for 20+ unit properties
Letter of Map Amendment, issued by FEMA when a property has been mistakenly mapped as being in a flood plain, but is actually on natural high ground above the base flood elevation
Leased land; the owner only owns the building, not the underlying land, and s/he pays “land rent”
Limited liability company, a business entity that contains liability for activities within the company, protecting its members; similar to a corporation but no shareholders and fewer requirements
Limited partnership, an investment structure with one General Partner who manages the investment (and has liability) and Limited Partners who do not manage the investment
Living room
Loss to old lease; amount that current rent is below the market rent, a common occurrence
Loan to value, a percentage of the mortgage loan amount divided by the property value; most banks will not go above 80% LTV, though a 65% or 70% is more common for private loans
Leaking underground storage tanks; most state environmental agencies have a list of known LUSTs and other hazard sites, and it’s good to check this as part of due diligence when buying
Maximum allowable offer, the most an investor can pay for a property based on the ARV, renovation costs, holding costs, and necessary profit; if an investor goes above MAO s/he may lose money
Master bedroom
Mortgage backed securities, also CMBS for commercial MBS and RMBS for residential MBS; packages of mortgages sold to investors on Wall Street which allow more mortgage loans to be made
Massachusetts business trust, a way for multiple people to invest in property, like the Delaware statutory trust and similar to a limited partnership; aka unincorporated business organization (UBO)
Memorandum, a letter or notice recorded in land evidence records to notify the public of something regarding a property or entity, such as a “memorandum of trust” summarizing the terms of a trust
Municipal lien certificate, lists all taxes and bills owed to the city/town including property taxes, special assessments, and (often) water/sewer charges; obtained from city as part of a closing
Mortgage loan originator, a loan officer or mortgage broker licensed to originate (create) mortgages
Multiple listing service, the database REALTORS® use to list and sell property
A voluntary lien recorded against a property which is usually associated with a “promissory note” that describes the loan terms; the mortgage “secures” the note (loan) to the property
Acronym for the elements required to gain ownership of a property by adverse possession
National Association of REALTORS®, nationwide organization that owns the REALTOR® trademark and holds its members to a high standard of professionalism to protect the REALTOR® brand
Notice of default, a notice/letter sent by a bank to property owners advising them that their mortgage is in default; usually the first step in the foreclosure process
Net operating income, the rental income from a property after a vacancy allowance (like 5%) and operating expenses are subtracted; used in many calculations like cap rate and DSCR
Change in name only, not a true “sale” between unrelated parties; seen in tax assessor records, often for a change in ownership between family members where no money is exchanged
Promissory note, a document describing the terms of a loan such as interest rate, payment amount/frequency, etc.; may be unsecured, or secured by real estate (by recording a mortgage)
National Mortgage Licensing System, a system which licenses financial service companies and professionals such as mortgage brokers; you can verify someone’s NMLS credentials
Triple net, a commercial lease where the tenant pays virtually all property expenses, usually seen with large commercial properties and companies such as Walgreens or CVS
Non-sufficient funds, usually stamped on a bounced check when it’s returned
Or best offer, such as “House has mold, uninhabitable, $30,000 OBO”
Owner occupied
Owner of record; may refer to tax asssessor record or land evidence records
Op exp
Shorthand for operating expenses, all the expenses that go into renting out and maintaining a property; does not include mortgage payments since those are related to financing, not operations
Personal financial statement, something a borrower fills out for a loan application (and sometimes annually thereafter) which summarizes her/his income, expenses, assets & liabilities
Potential gross income, the yearly income a property could get, before subtracting vacancy/expenses
Principal and interest; basic components of every mortgage payment; early in a fixed-rate mortgage it’s mostly interest and then toward the end it becomes mostly principal
Principal, interest, taxes & insurance; the mortgage payment when it includes taxes and insurance
Profit and loss, a financial statement for a person, company, or property summarizing income and expenses for a period such as a quarter or year; also known as an income statement
Private mortgage insurance, an extra charge required on most conventional mortgages if the down payment is less than a 20%; after the home rises in value it’s possible to eliminate the PMI
Power of attorney or limited power of attorney, a document authorizing one person to sign legal documents like deeds on behalf of another (the principal)
Paid outside of closing, a notation on some HUD items indicating they are not included in the totals but are related to the transaction and were paid before or after the closing
Proof of funds; often required to make a “cash only” offer, especially through the MLS
An extra amount paid at the beginning of a mortgage (usually at closing), each point is 1% of the loan amount; often used to get a lower interest rate (to “buy down” the rate)
Private placement memorandum, a (usually lengthy) document that must be given to potential investors by real estate syndicators, which summarizes the deal and risk factors
Pre-payment penalty, a clause in a commercial mortgage allowing the lender to charge an extra fee if you pay all or part of the mortgage early; not usually present in RI residential mortgages
Purchase and sales agreement, a legally binding agreement between buyer and seller describing the terms of sale; while RIAR provides one for REALTORS® to use, there is no single “standard” P&S
The prime rate, a variable rate that lending institutions use as a benchmark to determine interest rates offered to borrowers; often expressed as “prime +2%” or “prime -0.5%”
Publicly traded partnership, a form of limited partnership whose interests trade publicly like stocks or REIT shares; there are pros and cons to PTPs and subtle differences from REITs
Planned unit development, a neighborhood of houses/units often developed together and which may have special rules residents must follow
Legal “exaggeration” of a property’s characteristics, as opposed to outright misrepresentation, fraud, or concealing material defects which are all illegal
Quitclaim (deed), where the grantors (sellers) guarantee good real estate title for their ownership period only; makes no guarantees for before that time, and includes no promise to “defend” the title
R1, R2, R3
Zoning or “use” codes for Residential single family, two-family, and three-family; codes vary by city/town so contact the building department for exact meanings or see online zoning ordinances
Refinance, to replace one loan (mortgage) with another; usually the new loan has a lower interest rate (payments), and/or the new loan is a higher amount, allowing the owner to receive cash at closing
Real estate investor association, a group of real estate investors such as RIREIG or Black Diamond REI that meets regularly to network, hear presentations, discuss landlording and legal issues, etc.
Real estate investment trust; makes investing in commercial real estate like buying stock; must pay out most of its rents to shareholders as dividends and treated as stock (not real estate) for taxes
Bank-owned property; comes from the “real estate owned” bank department which takes over when a property goes to foreclosure and no one bids on it, so the bank becomes the owner
Rhode Island Association of Realtors, local membership organization for REALTORS® that helps them with continuing education, MLS support, a library of standard forms, tools like lock boxes, etc.
Rhode Island Commercial Information Exchange, a branch of the RI MLS for purely commercial properties (office, industrial, retail, manufacturing, storage, businesses, etc.)
Rhode Island General Partnership, a business structure where partners have liability for each other’s actions; required to register in their cities/towns but due to ease of formation often don’t
Rhode Island Housing and Mortgage Finance Corporation, a quasi-governmental, taxpayer-funded agency which assists homeowners and renters by administering various loan and rental programs
Return on investment, a general concept meaning the amount of income received each year (after all expenses), divided by the total initial investment; cap rate is a real estate specific measure of ROI
REALTORS® Political Action Committee, a lobbying organization that supports pro-REALTOR® candidates and issues; its candidates/agendas usually align closely with real estate investors
Right of redemption; in tax assessor records, indicates a property owner had unpaid property taxes and there is now a tax lien holder, but the owner still has the right to “redeem” (pay the back taxes)
Rentable square feet, the square footage actually usable by tenants, as opposed to common areas or other unusable areas; usually used as part of comparing properties by their rents per square foot
Security deposit, an amount held by a landlord (which in RI cannot exceed one month’s rent]) to help ensure a tenant leaves an apartment in good condition (except for “normal wear and tear”)
Self-directed individual retirement account, a form of IRA which has special (strict) requirements, but allows someone to invest their IRA in real estate, mortgages, and other non-stock assets
SF, 2F
Single family, 2-family (duplex), etc. – 3F, 4F, and 5F are what you’d expect; investors tend to change to “unit” above 5 units, such as 6U for a 6 unit building or 12U for 12 units
Single family house
Single family residence
Sole owner; sometimes seen in tax assessor records
Rhode Island Secretary of State, often mentioned in real estate for the corporate database, good standing certificates, and corporation/LLC annual report filings
Stainless steel, or (depending on context) short sale, where a property sells for less than the mortgage balance (i.e., the lender loses money) and which may have tax/legal consequences for the owner
Subject to
Buying a property with an existing mortgage left in place; allows the buyer to bring much less money to closing since the mortgage isn’t paid off, but is risky in many ways (see “due on sale”)
Trailing 12 months; a report of a property’s actual income and expenses for the past 12 months, as opposed to “pro forma” projections based on assumptions about the future
Tenancy at will; a month-to-month tenancy, tenant may or may not have an actual lease
Tax Cuts and Jobs Act, legislation passed in late 2017 which made many revisions to the tax code
TE, T-by-E
Tenants by the entirety; a special form of joint tenancy for spouses
Tenant improvements allowance, part of commercial leases saying how much the landlord will pay for tenants to “build out” the rented unit and bring it from “white box” to finished space
Tenants in common; at death one’s share goes to one’s heirs, as opposed to joint tenants etc.
Taxpayer identification number, a generic term which means an SSN for a person or EIN for a business
TILA (truth in lending act) RESPA (real estate settlement procedures act) Integrated Disclosures; consumer protection regulations which took effect October 2015
Tax title; seen in tax assessor records, indicates that the tax title holder paid the property owner’s back taxes and now holds a tax lien on the property
Trustee (abbreviation), the person in charge of managing a trust’s assets for the benefit of the beneficiaries; s/he has a fiduciary responsibility to the beneficiaries
Trailing twelve months of financial data on a property; see T12
UAD, u/a/d
Under agreement dated; usually used in conjunction with trusts, such as “The Happy Irrevocable Trust u/a/d Dec 31, 2008”, indicating when the trust agreement was created
Unrelated business income tax, a special tax a self-directed retirement account has to pay when it gets involved in investments that are non-passive (like operating businesses)
Unincorporated business organization, another name for a Massachusetts business trust
Urea formaldehyde foam insulation, a method of insulation used in the 1970s which has been considered a hazardous material (though some disagree)
Underground storage tanks for heating oil, usually removed by sellers before listing a property or as required by buyers; the main issue is whether they leaked oil into surrounding soil
Veterans’ Administration, helps veterans get favorable VA home loans by guaranteeing part of the loan
Verification of employment, verbal verification of employment; part of the mortgage application process where the borrower’s employment is verified by contacting the employer directly
Washer/dryer, used to indicate a house or apartment comes with these appliances or has hookups
Warranty deed, where the grantors (sellers) guarantee good real estate title for their ownership period, and for previous owners as well; includes a promise to “defend” the title from any challenges

Disclaimer: Many of the above are legal terms and while the definitions are based on our personal experience, we are not attorneys and we could be wrong. We urge readers to consult an attorney before making real estate decisions.

Also note that REALTOR® is a registered trademark of the National Association of REALTORS®

Filed under: Reference — Anthony Thompson @ 10:23 pm November 18, 2016

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