Glossary of Real Estate Terms.

 

Below is a list of some of the most commonly used terms relating to real estate and the property market. Browsing from A to Z will help you become more familiar with the meaning of these terms and give you a better knowledge of the real estate industry.

 

 

 

  • Acceptance

               Consent by the person receiving the offer to be bound by the terms and conditions of the person making the offer. Acceptance of an offer constitutes an agreement.

 

 

  • Acre

               A unit of area equivalent to 48400 square feet or 4496.50 square meters approximately. It is a commonly used term for larger land pieces in Pakistan.

 

 

  • Act of GOD

               Any act of nature such as rain, Lightning, Floods or Earthquakes. Many insurance policies do not cover losses resulting from an ‘Act of GOD’.

 

 

  • Advance Payment

               In a sale transaction, it is the amount paid by a buyer to the seller at the time of signing the Agreement to Sell (ATS) to secure the transaction. It usually ranges between 10% to 20% of the transaction amount. It is also known as earnest money. It is not same as token advance.

               In a renting transaction, it is the amount paid by the tenant to the landlord before signing the rent agreement to secure the transaction. This amount is usually equivalent to one month rent which is adjustable against first month rent. Not to be confused with security deposit or token advance.

 

 

  • All Cash Deal

               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 pay 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.

 

 

  • Alternative User Value

               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, state development agency or a society) 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.

 

 

  • Agreement

               The written contract for the sale and purchase of property between the seller (vendor) and the buyer (purchaser).

 

 

  • Agreement to Sell (ATS)

               An agreement between the buyer and the seller that details the price and terms of the transaction. 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. Also referred to as Agreement for Sale.

 

 

  • Amenity

               A feature of real property that enhances its attractiveness and increases the occupant’s or user’s satisfaction although the feature is not essential to the property’s use, e.g.: scenic views, proximity to public transport or recreational facilities.

 

 

  • 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.

 

 

  • Appraisal

               A written report of the estimated value of a property prepared by a certified Real Estate appraiser or evaluator.

 

 

  • Appreciation

               An increase in the value of a property due to changes in market conditions or supply and demand, etc.

 

 

  • Arbitration

               A method of resolving a dispute in which a third party renders a decision.

 

 

  • 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.

               Generally, all foreclosure properties are auctioned on “As Is Where Is” basis. Therefore, it is in the best interest of buyer to conduct thorough physical and legal due diligence before investing in a foreclosure property.

 

 

  • Assessed Valuation

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

 

 

  • Asset

               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

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

 

 

  • Assignment

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

 

 

  • Assignor

               A person, usually owner, who transfers rights and interests of a property.

 

 

  • Auction

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

 

 

  • Beneficiary

               The person designated to receive the income from a trust, estate, or a deed of trust.

 

 

  • Bayana (Token Amount)

               A Pakistan 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.

 

 

  • Best and Final Offer

               In real estate, a prospective buyer’s last and highest offer. A best and final offer is typically submitted in response to a bidding war. A seller who has received several offers will ask either all bidders or the top bidders to submit their best and final offers. This type of offer presents the most favorable terms the buyer is willing to offer the seller for the purchase of the property. In some multiple offer situations, the seller will request that potential buyers submit only one offer that is their best and final offer.

 

 

  • 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

               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.

 

 

  • 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

               1)  Commission paid to a broker.

               2)  The activity of a broker in bringing together two parties in a transaction.

 

 

  • BSP     (Basic Sales Price)

               Basic Sales 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 preferential location charges, registration charges, common area maintenance etc.

 

 

  • Building Bye Laws

               Local authority control of building standards 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 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.

 

 

  • Buyer’s Market

               A situation in which supply exceeds demand, giving buyers an advantage over sellers in price negotiations. Contrast with seller’s market.

 

 

  • Business Day

               A standard day for conducting business. 9.00am - 5.00pm. Excludes weekends and public holidays.

 

 

  • Capital

               1)  Money used to create income, either as an investment in a business or an income property

               2)  The money or property comprising the wealth owned or used by a person or business.

               3)  The accumulated wealth of a person or business.

               4)  The net worth of a business represented by the amount its assets exceed its.

 

 

  • Capital Gain

               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.

               Long-term capital gains are usually taxed at a lower rate than regular income. This is done to encourage entrepreneurship and investment in the economy.

 

 

  • Capital Loss

               The loss incurred when a capital asset (investment or real estate) decreases in value. This loss is not realized until the asset is sold for a price that is lower than the original purchase price.

 

 

  • 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 a perpetuity. Also known as “cap rate”.

                              Capitalization Rate = Yearly Income/Total Value.

 

 

  • Cash Flow

               A measure of cash inflow and outflow from the business. Positive cash flow means more money is coming into the business than is leaving it. Negative cash flow is the converse.

 

 

  • Chain of Title

               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.

 

 

  • D.C Rate (Minimum Govt. Rate)

               The minimum value of a property at which the registration of a property is done.

 

 

  • 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. Also known as “clean title,” “just title,” “good title” and “free and clear title.”

 

 

  • Commercial Property

               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 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.

 

 

  • Comparable Sales

               A valuation technique in which a recently sold asset with similar specifications is used to determine the value of an asset. This technique is often used in real estate to determine the initial sale price of a property.

 

 

  • 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. It is necessary at the time of transfer of built up property.

 

 

  • Conditional Agreement

               This is a legally binding contract, but it is subject to conditions being satisfied, usually by the purchaser.

 

 

  • Condominium

               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 Pakistan, the terms condominium, apartment and flat are used interchangeably.

 

 

  • Construction Loan

               Also called Building Loan. A short-term, interim loan (only paid to registered builders) for financing the cost of construction. The lender makes payments to the builder at periodic intervals as work progresses.

 

 

  • Conveyance

               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 Cities 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. Once, the land is allotted to a society, it appoints a construction contractor and upon completion of construction, individual flats are allotted to society members based on a draw system.

 

 

  • Co-ownership/ Joint ownership

               When there are 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.

 

 

  • Covered Area

               Same as Built Up Area

 

 

  • Cover Note

               A document issued by an insurance company giving temporary insurance until a formal policy is issued.

 

 

  • Deed

               A legal document conveying title to a property.

 

 

  • Deed of Assignment

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

 

 

  • De Facto Possession

               The actual physical possession of the property.

 

 

  • Default

               Failure to make payments on time or comply with other requirements of the agreement.

 

 

  • 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.

 

 

  • Deposit

               A percentage of the purchase price given to bind the sale of real estate.

 

 

  • Depreciation

               A decline in the value of property due to changes in market conditions or other clauses.

 

 

  • Fixtures

               Fixed items that cannot be removed without damaging either the property or the fixture itself, e.g. cupboards.

 

 

  • Home Improvement Loan

               A loan made to a homeowner in which the home is used as collateral for the loan.

 

 

  • Interest Rate

               The rate of interest in effect for the monthly payment due.

 

 

  • Landlord

               A person who rents property to another, a lessor. A property owner who surrenders the right to use property for a specific time in exchange for the receipt of rent.

 

 

  • Lessee

               A person getting a property on lease.

 

 

  • Lessor

               The owner of a property that is being leased to another person.

 

 

  • Liabilities

               A list of debts owned.

 

 

  • Loan

               A sum of borrowed money that is generally repaid with.

 

 

  • Loan Application Fee

               It’s also called Establishment Fee. A fee paid to a lender for processing a loan.

 

 

  • Market Value

               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. Establishing the market value is the objective of an appraisal.

 

 

  • Negotiation

               Make an offer and we will attempt to negotiate a concluded contract between the parties.

 

 

  • Off The Plan

               To purchase a property before it is completed after having only seen the plans.

 

 

  • Offer

               Conveyed intent by one party to form a contract, which may have conditions and stipulations, with another party.

 

 

  • Open Space

               Land which has not had improvements such as buildings and other structures added to it. Such land is often left in a subdivision by a developer or stipulated by a local authority for recreational use or for personal use by the owner.

 

 

  • Power-of Attorney

               The person who has authority to execute documents on behalf of the grantor of the power. Also a legal document which authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

 

 

  • Real Estate Agent

               A person or Company licensed to negotiate and transact the sale or Purchase of real estate on behalf of the property owner.

 

 

  • Unsecured Loan

               A loan that is not backed up by assets or guarantee.