An 18-hour city is a star among second-tier cities, with robust job growth, low living costs, and amenities that can compete with bigger urban areas.

Like first-tier cities, 18-hour cities often boast low real estate vacancy rates along with favorable supply concentrations, rental growth and absorption trends—all indicators of long-term real estate investment potential. Economists and real estate investors use the term 18-hour city to describe a mid-size city with attractive amenities, higher-than-average population growth, and a lower cost of living and cost of doing business than the biggest urban areas. Eighteen-hour cities in the U.S. are increasingly seen as viable alternatives for investment and living to the Big Six markets of Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C that make up America's first-tier or 24-hour cities. Eighteen-hour cities have emerged as an attractive alternative to big cities for starting a new business, relocating an existing one, or investing in real estate.

18-Hour City

The 48-hour rule requires that all pool information regarding to-be-announced transactions are conveyed to the buyer 48 hours prior to settlement.

The 48-hour rule is a requirement that sellers of to-be-announced (TBA) mortgage-backed securities (MBS) communicate all pool information regarding the MBS to buyers before 3 p.m. Eastern Time, 48 hours before the settlement date of the trade. The 48-hour rule is a requirement that sellers of to-be-announced (TBA) mortgage-backed securities (MBS) communicate all pool information regarding the MBS to buyers before 3 p.m. Eastern Time, 48 hours before the settlement date of the trade. The 48-hour rule states that the seller of a specific MBS must make the buyer of that MBS aware of the mortgages that make up the MBS 48 hours prior to the trade settling. The 48-hour rule stipulates that the seller of an MBS notifies the buyer with the details of the underlying mortgages that make up the MBS by 3 p.m. Eastern Time, 48 hours before the settlement date. The 48-hour rule is part of the mortgage allocation process, the period when the underlying mortgages will be assigned and made available to a specific MBS, which was created to bring transparency to TBA trade settlements.

48-Hour Rule

Abandoned property is an asset that has been turned over to the state after several years of inactivity. 

Table of Contents
What Is Abandoned Property? Typically, only half of a state's unclaimed property is reclaimed each year, providing some additional revenue for U.S. states through the assets of unclaimed property. In partnership with state organizations, NAUPA has built a database that allows consumers to check government records for unclaimed property in any U.S. state where they have lived. Abandoned property is a piece of property, a dormant account, or an unused asset that has been turned over to the state after several years of negligence or inactivity. Once a property is registered as unclaimed, a certain amount of time must pass, known as the dormancy period, before it can be deemed abandoned and turned over to the state.

Abandoned Property

An absentee owner is an individual who owns a building, apartment, shop, or another piece of real estate but does not live within the property's local area.

An absentee owner is an individual or corporation that legally owns a particular property without actually occupying it or actively managing it. Technically, an individual can be considered to be an absentee owner simply by owning a piece of real estate without living in it, but this describes a majority of absentee landlords as well as most real estate companies and real estate investment trusts (REITs). On the downside, absentee owners depend heavily on their property managers and that relationship can make or break an investment, as a toxic management company may lose an absentee owner good tenants and rental income before the owner realizes what is going on. Absentee owners generally look at real estate from an investment standpoint only and may contract out all management duties to a third party, as in a property management company. The challenges of absentee ownership make these properties a target for other real estate investors who see absentee owners as potential motivated sellers.

Absentee Owner

Absorption rate is the rate at which homes are sold in a market during a set time. Rate of absorption in accounting helps calculate a firm’s overhead costs.

Real Estate Absorption Rate and What it Means for Investors

MANAGEMENT ACCOUNTING - PERFORMANCE EVALUATION

Table of Contents
What Is the Absorption Rate?
Understanding Absorption Rates
Influence in Real Estate
Example of the Absorption Rate
Rate of Absorption in Accounting In order to determine a monthly absorption rate, take the total number of homes sold in the market and divide that by 12.
The absorption rate is a very important metric used in the real estate and accounting industries. The Bottom Line
The term absorption rate refers to a metric used in the real estate market to evaluate the rate at which available homes are sold in a specific market during a given time period. To find out the absorption rate in real estate, divide the total number of homes sold in a specific period of time by the total number of homes available in that market. The absorption rate is commonly used in the real estate market to determine how many homes are sold in a market at a particular time.

Absorption Rate

The ABX Index is an index created by market intelligence firm Markit that represents 20 subprime residential mortgage-backed securities (RMBS). 

The ABX Index is an index that represents 20 subprime residential mortgage-backed securities (RMBS). The ABX Index uses credit default swaps (CDS) on the 20 largest subprime residential mortgage-backed securities (MBS) selected for the Index. The Index is also be known as the Markit ABX Home Equity Index, the ABX.HE Index, or the asset-backed securities index. Since the ABX Index is one of only a few leading market indicators in the subprime RMBS market, it is used broadly by institutional investors and traders as a gauge for risk and value levels of subprime RMBS. The Index, created by market intelligence firm Markit, is used as a financial benchmark measuring the overall value and performance of the subprime residential mortgage market.

What Is the ABX Index?

An acquisition fee is charged by a lessor to cover the expenses, usually of the administrative variety, that they incur in arranging a lease.

An acquisition fee, sometimes built into a price of a lease or loan, is charged by a lessor to cover the expenses, usually of the administrative variety, that they incur in establishing said lease or loan. When managing a real estate fund, in contrast with other types of funds that invest in less tangible securities, several operational fees arise in creating real estate funds, such as leasing, property management, construction management, and disposition when the fund dissolves. Residential real estate includes undeveloped land, houses, and condominiums; commercial real estate consists of office buildings, warehouses, and retail store buildings; and industrial real estate can be factories, mines, and farms. An acquisition fee, sometimes built into a price of a lease or loan, is charged by a lessor to cover the expenses, usually of the administrative variety, that they incur in establishing said lease or loan. A buyer, or lessor, may pay acquisition fees upfront or add them to the loan or lease amount (i.e., pay them over the term of the loan).

Acquisition Fee

The add-on factor is the percentage of a building's gross usable space that is added to each tenant's rented space to determine their total rent.

The add-on factor is the percentage of a building's gross usable space that is added to each tenant's rented space to determine their total rent. In this case, add-on factor is common use space of 2,000 square feet divided by the gross rentable space of 18,000 (20,000 minus the 2,000 square feet in common space)
Add-on Factor \= 2 , 0 0 0  SqFt ÷ 1 8 , 0 0 0  SqFt \= 1 1 . 1 1 % \\text{Add-on Factor}=2,000 \\text{ SqFt}\\div18,000 \\text{ SqFt}=11.11\\% Add-on Factor\=2,000 SqFt÷18,000 SqFt\=11.11%
So if a tenant is leasing 1,000 square feet, the landlord will tack on 11.11% as the add-on factor and charge the tenant for 1,111.11 square feet to cover that tenant's portion of shared space use and its upkeep. If non-usable square footage is being calculated into the add-on factor, then this means that for the same amount of usable space, a building with a lower add-on factor will cost the tenant less than a building with a higher add-on factor. Sometimes, loss factor is classified as the add-on factor, which is why tenants have to understand what the landlord classifies as usable versus non-usable square footage. Tenants need to understand what the landlord classifies as usable (add-on factor) versus non-usable (loss factor) square footage.

Add-On Factor

Adjusted funds from operations is a financial performance measure primarily used in the analysis of real-estate income trusts (REITs). 

Though there is no one official formula, calculations for AFFO typically would be something like:
**AFFO = FFO + rent increases - capital expenditures - routine maintenance amounts**
Traditional metrics used in evaluating equities, such as earnings-per-share (EPS) and price-to-earnings ration (P/E), are not reliable in estimating the value of a REIT. The formula for FFO is:
**FFO = net income + amortization + depreciation - capital gains from property sales**
Once the FFO is determined, the AFFO can be calculated. The AFFO of a REIT, though subject to varying methods of computation, is generally equal to the trust's funds from operations (FFO) with adjustments made for recurring capital expenditures used to maintain the quality of the REIT's underlying assets. Though no one official measure exists, a AFFO formula is along the lines of AFFO = FFO + rent increases - capital expenditures - routine maintenance amounts.

Adjusted Funds From Operations—AFFO

An aggregator is an entity that purchases mortgages from financial institutions and then securitizes them into mortgage-backed securities.

An aggregator is an entity that purchases mortgages from financial institutions and then securitizes them into mortgage-backed securities (MBSs). By expanding the search across a variety of mortgage originators, including regional banks and specialty mortgage companies, it is possible to create tailored mortgage-backed securities that can't easily be sourced from a single mortgage originator. An aggregator is any entity that purchases mortgages from financial institutions and then securitizes them into mortgage-backed securities (MBSs) for sale. An aggregator is an entity that purchases mortgages from financial institutions and then securitizes them into mortgage-backed securities (MBSs). Selling a single mortgage directly to an investor is tricky because a single mortgage faces a lot of difficult-to-quantify risks based on the individual buying a property.

Aggregator

Allied lines are any type of property-casualty insurance closely related to fire insurance coverage. 

Allied lines are any type of property-casualty insurance closely related to fire insurance coverage. Allied lines insurance covers a variety of perils, including but not limited to:
Demolition charges
Increased cost of construction
Radioactive contamination
Sprinkler leakage
Standing timber
Strikes and Malicious Damage
Earthquake & Volcanic Eruption
Impact on all property insured
Subsidence, Collapse & Landslip The types of unforeseen losses covered by allied lines insurance can cause a flourishing business to suddenly find itself in a disastrous situation with major losses in property, inventory, machinery, tools, and facilities, ultimately wiping out the capital and causing consequential losses. Allied lines are any type of property-casualty insurance closely related to fire insurance coverage. Allied lines insurance can include coverage for such things as accounts receivable, data-processing equipment, water damage, and vandalism.

Allied Lines

AMCs fulfill an administrative function in the appraisal process and have been a part of the real estate landscape for the past 50 years.

FHFA Announces Home Valuation Code of Conduct

NAR Issue Brief: Appraisal Management Company Q&A

An Appraisal Management Company (AMC) is an independent entity through which mortgage lenders order residential real estate valuation services for properties on which they are considering extending loans to homebuyers. Essentially, the U.S. federal government created appraiser independence requirements to prevent lenders from influencing appraisers to inflate property values, a problem believed to have contributed to the housing crisis. An Appraisal Management Company (AMC) is an independent entity through which mortgage lenders order residential real estate valuation services for properties on which they are considering extending loans to homebuyers. AMCs select state-licensed or state-qualified appraisers to valuate properties and deliver appraisal reports to lenders. The U.S. government developed appraiser independence guidelines, restricting the influence lenders have on appraisers.

Appraisal Management Company (AMC)

Appurtenance denotes the attachment of a right or property to a more worthy principal and occurs when the attachment becomes part of the property.

Cohen v. Whitcomb, 142 Minn. 20 (1919) Feb. 14, 1919 · Minnesota Supreme Court · No. 21,022 142 Minn. 20 Joseph W. Cohen v. J. A. Whitcomb

Appurtenance is a legal term denoting the attachment of a right or property to a more worthy principal. Appurtenance is used to describe an improvement to what is usually a physical property, which then becomes the legal property of what it was improved upon. Appurtenance is usually applicable to property rights or items that are permanent and are passed along with the sale of the property. Appurtenances also include rights to natural resources found in the land, such as water, minerals, or oil, as well as improvements to the property and easements. The lease stated that any repairs or improvements made by the tenant became part of the property and, therefore, was the landlord's property.

Appurtenance

Assignment of trade (AOT) is a three-party agreement that facilitates the sale of a mortgage-backed security (MBS) pool of loans.

Assignment of trade (AOT) is a transaction used primarily in the mortgage-backed securities (MBSs) to be announced (TBA) market, where the obligation to fulfill an existing forward trade is assigned by one of the counterparties to a third party. Mortgage originators use AOT to facilitate the pricing and purchase of whole loans by the third party to which the TBA trade is assigned, with the agreement that the third party will then make delivery of an MBS into the original TBA trade, which was taken out by the mortgage originator as a hedge. AOTs are frequently used to avoid having to make delivery of securities into, or receive delivery of securities from, a TBA trade—a contract to purchase or sell an MBS, a bond that is secured by mortgage loans, on a specific date. Enter the third-party assignee who is willing to take on the loans immediately, collecting the income streams from them, and then delivering the MBS to the dealer and fulfilling the responsibilities of the assignor. The third-party assignee is willing to take on the loans immediately, collecting the income streams from them, and then delivering the MBS to the dealer and fulfilling the responsibilities of the assignor.

Assignment of Trade (AOT)

Attornment is the act of granting authority or jurisdiction to a party even though no legal rights exist. 

Attornment is the act of granting authority or jurisdiction to a party even though no legal rights exist. In the case of commercial property changing hands, an attornment clause in a subordination, non-disturbance, and attornment (SNDA) agreement requires the tenant to acknowledge a new owner as their landlord and to continue paying rent regardless of whether the property changes hands through a normal sale or a foreclosure. The attornment clause in an SNDA obligates the tenant to recognize the new owner of the property as its landlord regardless of whether the new owner acquired the property through a normal sale or a foreclosure. It applies mainly to real estate transactions and may occur when a tenant acknowledges a new owner of the property as their new landlord. The clause in an SNDA dictates that if ownership changes, the new owner replaces the former owner in the lease and assumes all of the former owner’s rights and responsibilities.

Attornment

A title that does not grant ownership to its holder due to unsatisfied legal or financial problems is called a bad title. 

12 Surprisingly Common Title Problems That Could Happen to You

What Happens When You Have a Bad Title to Your Property?

If the title searcher discovers that the property history has a record of unpaid taxes or other unpaid liens, an incomplete certificate of occupancy, written deeds, any unresolved legal debts, or building code violations, the title is deemed a bad title. The term bad title refers to a legal document associated with an asset that doesn't grant ownership to the entity that holds the title. A bad title is a legal document associated with an asset that doesn't grant ownership to the entity that holds the title. Bad titles are also called clouded titles or those with a break in the title chain, which means there are problems with the title.

Bad Title

Bank-owned property is a designation given to properties that were not sold during a foreclosure sale and thus are added to that bank's inventory.

Bank-owned property, also known as real estate owned (REO) property, is a designation given to properties that were not sold during a foreclosure sale, and thus are added to that foreclosing bank's inventory. Bank-owned property, also known as real estate owned (REO) property, is a designation given to properties that were not sold during a foreclosure sale, and thus are added to that foreclosing bank's inventory. Bank-owned property, also known as real estate owned (REO) property, is a designation given to properties that were not sold during a foreclosure sale, and thus are added to that foreclosing bank's inventory. Buying a bank-owned property may take longer to finalize than a non-bank-owned property. Under the bank's ownership, the lender may make necessary structural and cosmetic repairs to the property and even relist it for sale with a real estate company that specializes in foreclosures or with a general real estate company.

Bank-Owned Property

A bird dog is a person who looks for motivated sellers and undervalued properties to pass on to a real estate investor in exchange for a fee. 

A bird dog is a real estate investing term that refers to a type of broker or agent who spends their time trying to locate properties with substantial investment potential. That said, if you are interested in becoming a bird dog, it may be wise to find a kindly real estate investor or a seasoned bird dog to learn from. Real estate investors may work with a network of bird dogs to increase the area over which they are looking for real estate deals. A bird dog looks for motivated sellers or undervalued properties intending to pass the deal on to a real estate investor in exchange for a percentage or fee. A bird dog is a real estate investing term that refers to a type of broker or agent who spends their time trying to locate properties with substantial investment potential.

Introduction to the Bird Dog

Building permits are a form of authorization required by regulators before construction commences on a new or existing building.

Building permits are a type of authorization that must be granted by a government or other regulatory body before the construction of a new or existing building can legally occur. Since all related factors associated with the construction of a building are important economic activities (for example, financing and employment), the building permit report can give a major hint as to the state of the economy in the near future. The design for the proposed construction along with the expected building materials, will be reviewed by authorities to ensure they adhere to building codes. The U.S. Census Bureau conducts surveys of building permits for new housing units with data available for monthly, annual, and year-to-date intervals. Building permits are a type of authorization that must be granted by a government or other regulatory body before the construction of a new or existing building can legally occur.

Introduction to Building Permits

A calamity call is a provision of a collateralized mortgage obligation (CMO) that can be triggered if the scheduled mortgage payments fall short.

A calamity call is a protective measure for investors in a collateralized mortgage obligation (CMO) that is triggered if defaults or prepayments on the underlying mortgages threaten to interrupt the cash flow generated by the investment. A calamity call is a protective measure for investors in a collateralized mortgage obligation (CMO) that is triggered if defaults or prepayments on the underlying mortgages threaten to interrupt the cash flow generated by the investment. Investors buy CMOs in order to access the cash flow from mortgages without having to originate or purchase the mortgages. A calamity call provision reduces the risk for CMO investors, guaranteeing an uninterrupted cash flow. A calamity call provision is used to replace losses in CMO cash flow that can be caused by defaults or early repayments.

Calamity Call

Capital improvements are permanent structural changes or restorations to a property that enhance its property value, increases its useful life, or allows for a new use.

A capital improvement is the addition of a permanent structural change or the restoration of some aspect of a property that will either enhance the property's overall value, prolongs its useful life, or adapt it to new uses. A capital improvement must also become part of the property—or be affixed so permanently to the property—that the removal of it would cause significant damage or decrease in the value of the property itself.
Repairs or maintenance cannot be included in a property's cost basis. If no capital improvements had been made, the taxable amount for the capital gain would normally be $75,000 ($975,000 sale price - $650,000 purchase price - $250,000 capital gains exclusion). Although the scale of a capital improvement can vary, both individual homeowners and large-scale property owners make capital improvements. In addition to enhancing a home, capital improvements can increase the cost basis of a property, which in turn reduces the tax burden when it is sold.

Capital Improvement

The capitalization rate is the rate of return on a real estate investment property based on the income that the property is expected to generate. 

The capitalization rate (also known as cap rate) is used in the world of commercial real estate to indicate the rate of return that is expected to be generated on a real estate investment property. The capitalization rate (also known as cap rate) is used in the world of commercial real estate to indicate the rate of return that is expected to be generated on a real estate investment property. In essence, varying levels of income that gets generated from the property, expenses related to the property and the current market valuation of the property can significantly change the capitalization rate. While the cap rate can be useful for quickly comparing the relative value of similar real estate investments in the market, it should not be used as the sole indicator of an investment’s strength because it does not take into account leverage, the time value of money and future cash flows from property improvements, among other factors. In the most popular formula, the capitalization rate of a real estate investment is calculated by dividing the property's net operating income (NOI) by the current market value.

Capitalization Rate

A captive real estate investment trust is a REIT that is controlled by a single company and is established for tax purposes. 

26 U.S. Code Title 26—Internal Revenue Code

A captive real estate investment trust is simply a real estate investment trust (REIT) with controlling ownership by a single company. Specifically, a company must meet the following requirements t qualify as a REIT:
Taxable as a corporation
Pay at least 90% of taxable income in the form of shareholder dividends each year
Derive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales
Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries
Have at least 100 shareholders (controlling companies may name executives as shareholders in order to meet this requirement) In general, the parent company of a captive REIT can deduct rent or mortgage payment costs it pays to its captive REIT, which reduces its taxable income. A captive real estate investment trust is simply a real estate investment trust (REIT) with controlling ownership by a single company. Comprehensively, captive REIT accounting can be complex for a parent company and the captive REIT subsidiary.

Captive Real Estate Investment Trust

Cash available for distribution (CAD) is a real estate investment trust's (REIT) cash-on-hand that is available to be distributed as shareholder dividends. 

BXP Quarterly Investor Overview - Q4 2020

Table of Contents
Cash Available for Distribution (CAD)?
What Does CAD Tell You?
CAD vs. FFO
Cash available for distribution (CAD) refers to a real estate investment trust's (REIT) cash-on-hand that is available to be distributed as shareholder dividends. An expanded formula for FFO is:
F F O \= N I \+ D A − I I \+ I E − G P \+ L P − I V \+ L V where: N I \=  Net income D A \=  Depreciation and amortization I I \=  Interest income I E \=  Interest expense G P \=  Gain on property sale L P \=  Loss on property sale I V \=  Income from unconsolidated ventures L V \=  Loss from unconsolidated ventures \\begin{aligned} &FFO = NI + DA - II + IE - GP + LP - IV + LV\\\\ &\\textbf{where:}\\\\ ∋ = \\text{ Net income}\\\\ &DA = \\text{ Depreciation and amortization}\\\\ &II = \\text{ Interest income}\\\\ &IE = \\text{ Interest expense}\\\\ &GP = \\text{ Gain on property sale}\\\\ &LP = \\text{ Loss on property sale}\\\\ &IV = \\text{ Income from unconsolidated ventures}\\\\ &LV = \\text{ Loss from unconsolidated ventures} \\end{aligned} ​FFO\=NI+DA−II+IE−GP+LP−IV+LVwhere:NI\= Net incomeDA\= Depreciation and amortizationII\= Interest incomeIE\= Interest expenseGP\= Gain on property saleLP\= Loss on property saleIV\= Income from unconsolidated venturesLV\= Loss from unconsolidated ventures​ C A D \= F F O − R C E where: C A D \= Cash available for distribution F F O \= Funds from operations \\begin{aligned} &CAD = FFO - RCE\\\\ &\\textbf{where:}\\\\ &CAD = \\text{Cash available for distribution}\\\\ &FFO = \\text{Funds from operations}\\\\ &RCE = \\text{Recurring capital expenditures} \\end{aligned} ​CAD\=FFO−RCEwhere:CAD\=Cash available for distributionFFO\=Funds from operations​
Calculating cash available for distribution is done by subtracting recurring capital expenditures from funds from operations. Table of Contents
Cash Available for Distribution (CAD)?
What Does CAD Tell You?
CAD vs. FFO
Cash available for distribution (CAD) refers to a real estate investment trust's (REIT) cash-on-hand that is available to be distributed as shareholder dividends. Boston Properties' financial statements indicate that it calculates CAD by adding to FFO lease transaction the costs that qualify as rent inducements, non-real estate depreciation, non-cash losses from early extinguishment of debt, and stock-based compensation expense; then eliminating the effects of straight-line rent and straight-line ground rent expense adjustment; and finally, subtracting maintenance capital expenditures, hotel improvements, and equipment upgrades and replacements.

Cash Available for Distribution (CAD)

Cash-on-cash yield is a basic calculation used to estimate the return from an asset that generates income.

Cash-on-cash yield is a basic calculation used to estimate the return from an asset that generates income. It cannot be completely relied on for accuracy because the metric may overstate yield if part of the distribution consists of return of capital (ROC) instead of a return on invested capital (ROIC).
Cash-on-cash yield is useful as an initial estimate of the return from an investment and can be calculated as follows:
> Cash-on-Cash Yield = Annual Net Cash Flow / Invested Equity
Cash-on-cash yield has number of limitations. Calculations based on standard ROI will incorporate the total return of an investment; on the other hand, cash-on-cash yield simply measures the return on the actual cash invested. For example, if an apartment priced at $200,000 generates monthly rental income of $1,000, the cash-on-cash yield on an annualized basis would be: 6% ($1,000 \12 / $200,000 = 0.06).
In the context of income trusts, assume a trust with a current market price of $20 pays out $2 in annual distributions, consisting of $1.50 in income and 50 cents in ROC. The cash-on-cash yield in this case is 10%; however, since part of the distribution consists of return of ROC, the actual yield is 7.5%.

Cash-on-Cash Yield

A certificate of title is a state or municipal-issued document that identifies the owner or owners of personal or real property. 

A certificate of title is an official state or municipal-issued document that identifies the owner(s) of personal or real property. When issued for real property—such as land or a house—by a title insurance company, the certificate of title is a statement of opinion on the status of the title, based on a thorough examination, or title search, of specified public records. It's important that a title search is performed by a title company to ensure that there are no liens, back taxes, or issues with the title that would prevent the sale of the asset. In other words, the title must be a clear title, meaning there are no creditors claiming ownership due to extending credit to a borrower, and the owner has an undisputed claim to the property or asset. Once clear title has been established, the previous owner passes the certificate of title onto the new owner.

Certificate of Title

A chain of title is the official ownership record of a property or asset.

The term chain of title refers to the history of ownership of a piece of property. In a real estate transaction, the chain of title is researched on behalf of the buyer by a title company, which summarizes all title transfers and encumbrances in a title report. While chains of title are common in real estate, they are also important for intangible property, such as farming or timber rights , and for intellectual property, such as film and music. Widespread lack of clarity in chain of title results from a 1995 decision by many lenders to rely on a third entity—a specific company, Mortgage Electronic Registration Systems (MERS)—to hold title nominally, in an effort to enable the buying and selling of mortgage liabilities without registration of changes of ownership with local governments. In the United States, insurance companies issue title insurance based upon the chain of title to the property when it is transferred.

Chain Of Title

A collateralized mortgage obligation is a mortgage-backed security where principal repayments are organized by maturity and level of risk.

As a result, many investors purchased CMOs full of subprime mortgages, adjustable-rate mortgages, mortgages held by borrowers whose income wasn't verified during the application process, and other risky mortgages with high risks of default. However, whereas CMOs only contain mortgages, CDOs contain a range of loans such as car loans, credit cards, commercial loans, and even mortgages. Rising housing prices made mortgages look like fail-proof investments, enticing investors to buy CMOs and other MBSs, but market and economic conditions led to a rise in foreclosures and payment risks that financial models did not accurately predict. A collateralized mortgage obligation (CMO) refers to a type of mortgage-backed security that contains a pool of mortgages bundled together and sold as an investment.

Collateralized Mortgage Obligation (CMO)

Commercial property insurance is used to cover any type of commercial property against such perils as fire, theft, and natural disaster.

Insurers Under Scrutiny in Puerto Rico with 13,600 Hurricane Maria Claims Still Open

Commercial property insurance is used to cover any commercial property. How about a security system?
Some particular places on your property to consider insuring include:
The building that houses your business, including if it is owned or rented
All office equipment, including computers, phone systems, and furniture, whether they're owned or leased
Accounting records and essential company documents
Manufacturing or processing equipment
Inventory kept in stock
Fence and landscaping
Signs and satellite dishes
Commercial property insurance can be used to cover a variety of situations. Several factors, such as location and occupancy, are considered while determining the cost of commercial property insurance.
Commercial property insurance can be a major expense for businesses that use equipment worth millions or billions of dollars, such as railroads and manufacturers. Commercial property insurance is insurance used to cover property and equipment from the risk of disasters. Commercial property insurance protects commercial property from such perils as fire, theft, and natural disaster.

Commercial Property Insurance

Commercial property is buildings and land that are intended for profit-generating activities rather than regular residential purposes. 

Commercial property is real estate that is used for business activities. In contrast, a commercial property investor can rely on the income statement that shows the value of current leases, which can then be compared against the capitalization rate of other commercial property in the area. Commercial property investors can also utilize the triple net lease, whereby expenses such as real estate taxes, building insurance and maintenance are borne by the company leasing the premises. Real estate investment trusts (REITs) are an ideal option if you want to invest in commercial property but lack the capital or desire to buy a whole building. A residential property investor must to look at a number of factors, including the emotional appeal of a property to prospective tenants.

What Is Commercial Property?

A commercial real estate (CRE) loan is a mortgage secured by a lien on a commercial, rather than residential, property.

A commercial real estate loan is a mortgage secured by a lien on commercial property as opposed to residential property. Lenders consider the nature of the collateral (the property being purchased); the creditworthiness of the entity (or principals/owners), including three to five years of financial statements and income tax returns; and financial ratios such as the loan-to-value ratio and the debt-service coverage ratio when evaluating CRE loans.
CRE loans tend to be more expensive than residential loans. As with residential property, banks, independent lenders, pension funds, insurance companies, private investors, and other capital sources, such as the U.S. Small Business Administration’s 504 Loan Program are actively involved in providing CRE loans. Like residential lenders, commercial lenders assume different levels of risk and have different terms they are willing to offer to borrowers. Here are the most common types of CRE loans:
**Permanent Loans** are first mortgages on a commercial property. A permanent loan must have some amortization and a term of at least five years written into the contract. A commercial real estate loan is a mortgage secured by a lien on commercial property as opposed to residential property.

Commercial Real Estate (CRE) Loan

Commercial real estate (CRE) is property, used solely for business purposes and often leased to tenants for that purpose.

Commercial real estate (CRE) is property that is used exclusively for business-related purposes or to provide a workspace rather than as a living space, which would instead constitute residential real estate. Alternatively, investors may invest in the commercial market indirectly through the ownership of various market securities such as Real Estate Investment Trusts (REITs), exchange-traded funds (ETFs) that invest in commercial property-related stocks, or by investing in companies that cater to the commercial real estate market, such as banks and realtors. Commercial real estate along with residential real estate comprise the two primary categories of real estate property. Commercial real estate (CRE) is property that is used exclusively for business-related purposes or to provide a workspace rather than as a living space, which would instead constitute residential real estate. Investing in commercial real estate usually requires more sophistication and larger amounts of capital from investors than does residential real estate.

Commercial Real Estate (CRE)

A companion tranche is designed to provide support to the planned amortization class (PAC) tranche by absorbing variable prepayment rates.

A companion tranche is a class, or type, of tranche, which is a portion of a debt or security. A CMO that contains a companion tranche is vital because prepayment rates on the underlying securities in a collateralized mortgage obligation (CMO) can change, which in turn affect principal and interest payments to the planned amortization class (PAC) and targeted amortization class (TAC) tranches. A companion tranche is considered to be a support tranche to a planned amortization class (PAC) tranche and a targeted amortization class (TAC) tranche. Companion tranches absorb the changes in prepayment rates to ensure that the interest and principal payments to the planned amortization class (PAC) tranches and targeted amortization class (TAC) tranches remain stable. It is primarily associated as a tranche of a collateralized mortgage obligation (CMO), which also includes planned amortization class (PAC) tranches and targeted amortization class (TAC) tranches.

Companion Tranche

A construction bond is a type of surety bond used in construction projects to protect against an adverse event that causes disruptions or financial loss.

Table of Contents
What Is a Construction Bond?
How a Construction Bond Works A surety bond is the financial guarantor of a construction bond, guaranteeing the obligee that the contractor will act in accordance with the terms established by the bond. Construction bond, also known as a contractor license bond, is a required bond for a construction project. Each contending contractor has to submit a bid bond along with their bids to protect the project owner in the event a contractor backs out of the contract after winning the bid or fails to provide a performance bid, which is required to start working on the project. The contractor purchases a construction bond from a surety which runs extensive background and financial checks on a contractor before approving a bond.

Construction Bond

A construction lien is a claim for payment made against a property by a contractor or subcontractor who supplied labor or materials for work done on it.

A construction lien is a claim made against a property by a contractor or subcontractor who has not been paid for work done on that property. If you're having remodeling work done, make sure it's on a professional business footing from the start:
Make sure you have a written agreement in place with the general contractor describing the work to be done, the materials to be used, the subcontractors and other workers to be hired, with a breakdown of the cost.
Require proof that those subcontractors and others have been paid before you make your final payment to the general contractor. Although state laws vary, a construction lien can usually be filed only if there is a written contract describing the nature of the work to be done, the materials to be used, and the agreed price for the work. A construction lien is a claim made against a property by a contractor or subcontractor who has not been paid for work done on that property. A contractor or subcontractor can file a construction lien against a property if the owner has not paid for work done on it.

Construction Lien

A construction loan is a short-term loan used to finance the building or renovation of a home or real estate project.

A construction loan (also known as a “self-build loan") is a short-term loan used to finance the building of a home or another real estate project. After construction of the house is complete, the borrower can either refinance the construction loan into a permanent mortgage or obtain a new loan to pay off the construction loan (sometimes called the “end loan”). Construction loans can allow a borrower to build the home of their dreams, but—due to the risks involved—they have higher interest rates and larger down payments than traditional mortgages.
Most lenders require a 20% minimum down payment on a construction loan, and some require as much as 25%. If a construction loan is taken out by a borrower who wants to build a home, the lender might pay the funds directly to the contractor rather than to the borrower. To gain approval for a construction loan, the borrower will need to give the lender a comprehensive list of construction details (also known as a “blue book”).

Construction Loan

Contractor fraud refers to illegal business practices committed by individual contractors or firms hired to renovate, repair or (re)build residential properties.

BBB Tip: Hire a Reliable and Trustworthy Contractor

Guaranty Fund FAQs—Home Improvement Commission

Contractor fraud refers to illegal business practices committed by individual contractors or contracting firms hired to renovate, repair, or (re)build residential properties. 5.  **Verify licenses and insurance**: Verify that the contractor has the necessary licenses and insurance to work in your area, and check with the contractor's insurance carrier to confirm coverage for worker's compensation, property damage, and personal liability in the event of an accident.
7.  **Confirm building permits**: The contractor must obtain the correct permits—generally at your cost—before commencing the project. The Better Business Bureau (BBB) suggests the following tips to consider when hiring anybody to work in your home:
1.  **Research and gather information**: You can search for a contractor's business profile on the Better Business Bureau website to get free information on the contractor's history of complaints, customer reviews, and check if the contractor is a BBB Accredited Business.
2. This category also includes low-ball offers wherein the contractor intentionally quotes a price that is well below the going rate for similar work, and then tacks on additional prices that may result in the final cost being much greater than the initial estimate.
**Running into unexpected problems that require additional cash**: Another common ruse, this involves the contractor purportedly running into unforeseen, major problems—such as hidden water or termite damage—once the job is already underway. The Federal Trade Commission (FTC) highlights the following warning signs of a home improvement scam or contractor fraud:
Knocks on your door for business because they are in the neighborhood
Happens to have materials left over from a previous job
Pressures you for an immediate decision
Only accepts cash and asks you to pay everything upfront
Suggests you borrow money from a lender the contractor knows
Asks you to get the required building permits

Contractor Fraud

The cost approach valuation method evaluates how much it would cost to rebuild a structure.

The cost approach is a real estate valuation method that estimates the price a buyer should pay for a piece of property is equal the cost to build an equivalent building. The cost approach is one of three valuation methods for real estate; the others being the income approach and the comparable approach.
The cost approach to real estate valuation considers the value should equal the total cost to build an equivalent structure. When all estimates have been gathered, the cost approach is calculated in the following way:
> cost – depreciation + land worth = value of the property.
The cost approach can be less reliable than the income and comparable methodologies in practice. Insurance appraisals tend to use the cost approach when underwriting homeowners' policies or considering claims because only the value of improvements is insurable and land value is separated from the total value of the property. In the cost approach, the property's value is equal to the cost of land, plus total costs of construction, less depreciation.

Cost Approach

Current face is the total outstanding balance of a mortgage-backed security (MBS). 

Current face refers to the current par value of a mortgage-backed security (MBS). It reveals the remaining monthly principal on a group of home mortgages, providing investors with a snapshot of how an MBS, the vehicle collecting on these loans, is doing compared to when it started out. Current face is the total outstanding balance of a mortgage-backed security (MBS).
As payments come in and the principal of the underlying mortgages in the pool is paid down, the current face declines compared to the original face.
MBSs with the same issue date, coupon, and original face value can have greatly different current faces because they pay down at different rates.
Mortgage-backed securities (MBSs) are home loans that are sold by the banks that issued them to a government-sponsored enterprise (GSE) or financial company. Current face refers to the current par value of a mortgage-backed security (MBS). It reveals the remaining monthly principal on a group of home mortgages, providing investors with a snapshot of how an MBS, the vehicle collecting on these loans, is doing compared to when it started out. Current face is calculated by multiplying the current pool factor, a measure of how much of the original loan principal remains, by the MBS's original face value. Naturally, as payments come in and the principal of the underlying mortgages in the pool is paid down, the current face declines compared to the original face.

Current Face

In the world of finance, an individual or entity is delinquent upon failure to make contractually obligated debt payments in a regular, timely manner.

Delinquent describes something or someone who fails to accomplish that which is required by law, duty, or contractual agreement, such as the failure to make a required payment or perform a particular action. However, the Federal Reserve Bank of New York states that delinquency rates for student loans are likely understated by as much as half, meaning that about $333 billion of student loan debt has not been serviced in at least three months as of the end of Q4 2018. In the world of finance and investing, delinquency occurs when an individual or corporation with a contractual obligation to make payments against a debt, such as loan payments or the interest on a bond does not make those payments on time or in a regular, timely manner. As of the fourth fiscal quarter of 2018, delinquency rates in the U.S. were 2.83% on residential real estate loans and 0.78% on commercial real estate loans. According to Federal Reserve bank statistics, delinquency rates in the U.S., have been steadily declining since reaching a Great Recession-high of 7.4% in the first quarter of 2010—with a record-breaking 11.3% on residential real estate loans alone.

Delinquent

Demolition insurance is used to cover the costs of demolishing a building that is damaged by a peril, such as a fire or storm.

Demolition insurance is insurance for property owners that is used to cover the costs of demolishing a building that is damaged by a peril, such as a fire or a storm. The typical homeowners policy may or may not cover demolition and debris removal, depending on the state and policy type. HO-1, one of the most common policies, covers damage from fire, lightning, windstorm (unless you live in a hurricane zone), hail (not available everywhere), explosion, riots, civil commotion, aircraft (and debris falling from aircraft), vehicles striking the house (and items thrown from vehicles), smoke, vandalism (although some policies exclude this), malicious mischief, theft, and volcanic eruption. Demolition is a dangerous process, so contractors take out demolition insurance to protect their employees against injury on the job, any nearby civilians that were injured by the demolition, or in case a part of the property that was not going to be demolished is damaged by them. Demolition insurance also refers to insurance taken on by contractors that covers bodily harm or property damage during the demolition process. Holders of demolition insurance should check their policies for a debris removal clause that covers the removal of debris after demolition.

Demolition Insurance

A discounted payoff (DPO) is the repayment of an obligation for less than the principal balance outstanding.

A discounted payoff (DPO) is the repayment of an obligation for less than the principal balance. Once a distressed DPO has been negotiated between a borrower and lender, the borrower usually has to raise the capital to pay off the loan in a lump sum payment by a specified date in the near future. In most cases of distressed debt DPOs, the lender takes a loss for the value of the contracted debt and interest that the borrower is no longer obligated to pay. With an asset-backed loan DPO the lender can agree to a discounted payoff level while also exercising the right to seize the underlying asset. In some business dealings, including loan agreements, a lender may include a contract clause that offers a borrower a discounted payoff with no repercussions.

Discounted Payoff (DPO)

A distress sale occurs when a seller attempts to urgently divest themselves of an asset even if means incurring a net loss.

A distress sale—also called a distressed sale—occurs when a property, stock, or other asset must be sold quickly. A short sale is a form of distressed sale in which the homeowner attempts to sell their property even though the current market value is below the amount owed to their lender. If a distress sale is conducted for a piece of property such as an antique or collectible art, the seller might choose to take offers that are lower than the value of the item. A distress sale—also called a distressed sale—occurs when a property, stock, or other asset must be sold quickly. Distress sales often result in a financial loss for the seller because buyers realize that the seller is in a hurry to obtain funds and will offer a lower price.

Distress Sale

Distribution reinvestment is a process whereby the distribution from a pooled investment trust is automatically reinvested in the trust. 

Distribution reinvestment is a process whereby the distribution from a pooled investment trust is automatically reinvested in the trust. A real estate investment trust is a company that owns – and typically operates – income-producing real estate or real estate-related assets. REITs provide a way for individual investors to earn a share of the income produced through commercial real estate ownership without actually having to go out and buy commercial real estate. To qualify as a real estate investment trust, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends. What distinguishes real estate investment trusts from other real estate companies is that a REIT must acquire and develop its properties primarily to operate them as part of its own investment portfolio, as opposed to reselling those properties after they have been developed. Distributions from limited partnerships like real estate investment trusts (REITs) or other pooled investments are often reinvested into common units or shares in the fund, often at a discount to the current market price.

Distribution Reinvestment

A double net lease makes the tenant responsible for both property taxes and insurance premiums due.

A double net lease (also known as a 'net-net' or 'NN' lease) is a lease agreement in which the tenant is responsible for both property taxes and premiums for insuring the building. A double net lease (also known as a 'net-net' or 'NN' lease) is a lease agreement in which the tenant is responsible for both property taxes and premiums for insuring the building. A triple net lease (also known as an 'NNN' lease) is a lease agreement in which the tenant or lessee agrees to pay all real estate taxes, building insurance and maintenance, in addition to normal expected costs under the agreement (rent, utilities, etc.). Unlike a single net lease, which only requires the tenant to pay property taxes, a double net lease passes more expenses along in the form of insurance payments. A double net lease is a rental agreement whereby the tenant agrees to cover the costs of two of the three primary property expenses: taxes, utilities, or insurance premiums.

Double Net Lease

DownREIT is a joint venture between a real estate owner and a real estate investment trust to defer capital gains tax on the sale of real estate. 

DownREIT is a joint endeavor between a real estate owner and a real estate investment trust (REIT) for the purpose of acquiring and controlling real estate. DownREIT involves a partnership arrangement between a real estate owner and the (REIT) that assists the real estate owner in deferring capital gains tax on the sale of appreciated real estate. The UPREIT was invented after the real estate recession of the 1990s to facilitate investment of capital into the real estate industry.﻿﻿ DownREIT evolved out of the UPREIT.
Real estate owners who contribute property to DownREITs receive operating units in a partnership. DownREIT is a joint endeavor between a real estate owner and a real estate investment trust (REIT) for the purpose of acquiring and controlling real estate. A DownREIT is a partnership agreement between an REIT and a real estate owner that enables deferring of tax on sale of appreciated real estate.

DownREIT

A direct participation program (DPP) is a pooled entity that offers investors access to a business venture's cash flow and tax benefits.

The Laws That Govern the Securities Industry

A direct participation program (DPP) is a pooled entity that offers investors access to a business venture's cash flow and tax benefits. A DPP may have the legal structure of a corporation (such as a REIT), a limited partnership or a limited liability corporation (LLC), but in practice, all behave as a limited partnership. The most common DPPs are non-traded REITs (about two-thirds of the DPP market), non-listed business development companies (BDC) (which act as debt instruments for small businesses), energy exploration and development partnerships, and equipment leasing corporations. A direct participation program (DPP) is a pooled entity that offers investors access to a business venture's cash flow and tax benefits. Limited partners can, however, vote to change or fire a general partner, or sue one for not acting in the best interest of the partnership.
Direct participation programs have their origin in the Securities Act of 1933 and the Financial Industry Regulatory Authority (FINRA) Rule 2310.﻿﻿﻿﻿﻿ Series 7 candidates can expect to see several questions on DPPs on their exam.

Direct Participation Program (DPP)

A drop is the price difference between when an investor sells a mortgage-backed security and buys it back at a later date through a dollar roll trade. 

Drop, also known as the roll price, is the difference in price between settlement months when executing mortgage-backed security (MBS) dollar roll trade. Drop, also known as the roll price, is the difference in price between settlement months when executing mortgage-backed security (MBS) dollar roll trade. The drop is a price spread between the current month and a future month for a pool of mortgage-backed securities. An excellent way to examine the economic benefit of a dollar roll transaction, and the resulting drop, depends on if settling the MBS and earning the coupon income, or deferring settlement into the next month and earning the cash return, will be the best use of funds. If a financial institution has more sell trades in a given month than what they can deliver securities for, they will need to roll those trades into a future month.

Drop

Earnest money is a deposit made to a seller, often in real estate transactions, that shows the buyer's good faith in a transaction.

Instructions for the Requester of Form W-9

Table of Contents
What Is Earnest Money? Special Consideration: Protecting Your Earnest Money Deposit
Example of Earnest Money
What Is Earnest Money Used For?
Does Earnest Money Get Returned?
How Can Earnest Money Be Protected?
Earnest money is a deposit made to a seller that represents a buyer's good faith to buy a home. For example, the seller gets to keep the earnest money if the buyer decides not to go through with the home purchase for contingencies not listed in the contract or if the buyer fails to meet the timeline outlined in the contract. In many ways, earnest money can be considered a deposit on a home, an escrow deposit, or good faith money. Earnest money deposits can be anywhere from 1–10% of the sales price, depending mostly on market interest.
In most cases, earnest money is delivered when the sales contract or purchase agreement is signed, but it can also be attached to the offer.

Earnest Money

An easement in gross is an easement that attaches a particular right to an individual rather than to the property itself. 

An easement in gross is an easement that attaches a particular right to an individual or entity rather than to the property itself. The party who is granted permissions by the property owner through an easement in gross does not have to own or reside in a neighboring property to be granted the associated rights. If the homeowner then sells the property, the rights granted in the easement in gross cannot be automatically passed to the next property owner. The easement in gross is often considered irrevocable for the life of the individual, but it can be rendered void if the individual sells the property upon which the easement request was based. An easement in gross is an easement that attaches a particular right to an individual or entity rather than to the property itself.

Easement In Gross

An easement in real estate is the right of one party to use the property of another party by paying a fee to the property owner.

An easement, or easement agreement, is a real estate concept that defines a scenario in which one party uses the property of another party, where a fee is paid to the owner of the property in return for the right of easement. An easement, or easement agreement, is a real estate concept that defines a scenario in which one party uses the property of another party, where a fee is paid to the owner of the property in return for the right of easement. Since an easement is unique to the agreement between the two parties involved, easement agreements are structured in such a way that the specific use of the property is explicitly outlined and that there is a termination of easement given to the property owner. Used to describe a high-level agreement between the owner of a property and another party—either a person or an organization—a typical easement agreement outlines a form of payment by the petitioner to the owner for the right to utilize the subject of easement for a specific purpose. This type of easement is an agreement between a property owner and a utility company that allows the utility company to run power lines, water piping or other types of utilities through a property.

Easement

Effective Gross Income is the potential gross rental income plus other income minus vacancy and credit costs of an investment property.

Effective gross income (EGI) is the Potential Gross Rental Income plus other income minus vacancy and credit costs of a rental property. Effective gross income is calculated by adding the potential gross rental income with other income and subtracting vacancy and credit costs of a rental property. Effective gross income (EGI) is the Potential Gross Rental Income plus other income minus vacancy and credit costs of a rental property. Rental cash flow is not a simple calculation but includes all forms of income generated by the property minus the realistic costs involved with rental income. EGI can be calculated by taking the potential gross income from an investment property, add other forms of income generated by that property, and subtract vacancy and collection losses.

Effective Gross Income (E-File)

Emblements apply to tenant farmers and specify that annual crops are the tenant's property rather than the landowner's.

Emblements are annual crops grown by a tenant on someone else's land. Emblements are annual crops grown by a tenant on another's land that are considered the personal property of the tenant. If a tenant somehow loses possession of the land on which the crops grow, the tenant is still entitled to finish raising the crops and harvest them. Thus, crops that were planted by a tenant with the intent of harvesting are considered the personal property of the tenant even though the land belongs to someone else. If the land passes to someone else because of the tenant's death, the crops pass to the tenant's heirs.

Emblements

An encumbrance is a claim against a property, often impacting its transferability or restricting its use, by a party that is not the owner.

Commercial Real Estate in Hong Kong: Overview

An encumbrance is a claim against a property by a party that is not the owner. Encroachment occurs when a party that is not the property owner intrudes on or interferes with the property, for example, by building a fence over the lot line (a trespass), or planting a tree with branches that hang over onto an adjoining property (a nuisance). An easement in gross benefits an individual rather than an owner of a property, so that Jennifer might have the right to use her neighbor's well, but that right would not pass on to someone who bought Jennifer's property. In Hong Kong, for example, the seller of a property is legally required to inform the real estate agent about any encumbrances against the property in order to avoid any problems later on in the sales process. An easement refers to a party's right to use or improve portions of another party's property, or to prevent the owner from using or improving the property in certain ways.

Encumbrance

Equity Stripping is the process of reducing the equity in a property, often used as a strategy to avoid creditors or as a predatory lending tactic. 

Equity Stripping is a set of strategies designed to reduce overall equity in a property. In addition to the strategies employed by predatory lenders, two of the most common equity stripping strategies are spousal stripping and home equity lines of credit (HELOC).
Spousal stripping is the process of shifting the title of a property into the name of a debtor's spouse. By giving another party a claim against a property, an owner can retain use of the property as well as control over cash flow while simultaneously making the property an unattractive asset to any creditor who may otherwise attempt to exercise a legal judgment against the property owner. The idea behind equity stripping as an asset protection strategy is that through reducing interest in a property, creditors are discouraged from including the property in any claims against the debtor. It is also considered a predatory lending practice because it helps creditors reduce an owner's claim to a property by systematically purchasing equity in it and controlling cash flow associated with the property.

Equity Stripping

An escrow agreement is a legal document outlining the terms and conditions between parties involved in an escrow arrangement.

An escrow agreement is a contract that outlines the terms and conditions between parties involved, and the responsibility of each. An escrow agreement normally includes information such as:
The identity of the appointed escrow agent
Definitions for any expressions pertinent to the agreement
The escrow funds and detailed conditions for the release of these funds
The acceptable use of funds by the escrow agent
The duties and liabilities of the escrow agent
The escrow agent's fees and expenses
The jurisdiction and venue in the event of a legal action
Most escrow agreements are put into place when one party wants to make sure the other party meets certain conditions or obligations before it moves forward with a deal. The escrow agreement generally includes, but is not limited to, information about the escrow agent's identity, the funds in escrow, and the acceptable use of funds by the agent﻿.
In an escrow agreement, one party—usually a depositor—deposits funds or an asset with the escrow agent until the time that the contract is fulfilled. For certain transactions such as real estate, the escrow agent may open up an escrow account into which funds are deposited. Escrow agreements generally involve an independent third party, called an escrow agent, who holds an asset of value until the specified conditions of the contract are met.

Escrow Agreement

The financial management rate of return is a real estate measure of performance that adjusts for unique discount rates for safe and riskier cash flows.

The financial management rate of return (FMRR) is a metric used to evaluate the performance of a real estate investment and pertains to a real estate investment trust (REIT). Many analysts will supplement IRR or MIRR return measures with the payback period to assess the length of time required to recoup a principal investment sum.
The modified internal rate of return improves on the standard internal rate of return value by adjusting for differences in the assumed reinvestment rates of initial cash outlays and subsequent cash inflows. Before using such software, there are some important steps that must be undertaken to determine a safe rate and reinvestment rate (higher than the safe rate) to apply to all future cash flows over the course of a specific holding period. FMRR takes things a step further by specifying cash outflows and cash inflows at two different rates known as the “safe rate” and the “reinvestment rate.” The financial management rate of return (FMRR) is a metric used to evaluate the performance of a real estate investment and pertains to a real estate investment trust (REIT).

Financial Management Rate of Return – FMRR

Flipping is short-term ownership of an asset hoping to turn a quick profit. Discover more about Flipping here.

Flipping refers to purchasing an asset with a short holding period with the intent of selling it for a quick profit rather than holding on for long-term appreciation. The second type is a quick fix flip where a real estate investor uses his knowledge of what buyers want to improve undervalued properties with renovations and/or cosmetic changes, known as a reno flip.
Flipping has made fortunes in real estate, but it does seem to spawn more infomercials than it does easily replicated results. In wholesaling, a person with an eye for undervalued (and therefore flippable) real estate enters into a contract to buy a property subject to an inspection period and then sells the rights of the contract to a real estate investor for a fee or percentage. Flipping is most strongly associated with real estate, where it refers to a strategy of purchasing properties and selling them on a short time frame (generally less than a year) for a profit. Flipping is most often used to describe short-term real estate transactions as well as the activities of some investors in initial public offerings (IPO).

Introduction to Flipping

In real estate construction, a floor loan is the minimum amount that a lender agrees to advance in order for a builder to commence construction on a project. The floor loan is often the first stage of a larger construction loan or mortgage.

A floor loan is a specific kind of loan designed specifically for real estate construction projects. In the case of a real estate project that is a commercial piece of property (retail centers, office complexes, hotels, and non-owner-occupied apartment buildings), the builder can fund the project with a construction loan and then take out a commercial real estate loan to pay it off. A construction loan is a short-term loan (a loan whose term is a year or less) used to finance the real estate project. An individual homeowner can, however, refinance the construction loan into a permanent, longer-term mortgage, or simply can take out a new loan to pay off the construction loan. Instead, the floor loan is the partial amount of a larger loan—the sum that the borrower and builder need in order to actually begin the construction project.

Floor Loan Defintion

Force-placed insurance is placed onto a mortgaged property by lien holders to provide coverage after a borrower has allowed their policy to lapse.

H.R.4173—Dodd-Frank Wall Street Reform and Consumer Protection Act

627.7011 Homeowners' Policies; Offer of Replacement Cost Coverage and Law and Ordinance Coverage

Lien holders will put force-placed insurance onto a mortgaged property in cases where the borrower allows the coverage they were required to purchase to lapse. Some consumer advocates say the higher prices for force-placed insurance are a result of price gouging or kickbacks to unscrupulous lenders.
A homebuyer may find themselves paying for the higher premium, forced plan coverage if they delay, or miss the renewal period for their homeowner's insurance policy. Force-placed insurance is also known as creditor-placed, lender-placed, or collateral protection insurance. Providers of force-placed insurance will charge higher prices for the coverage because they are mandated to provide coverage, regardless of risk. Additionally, lender-placed insurance may offer less coverage for the price than other available homeowner's policies.

Force-Placed Insurance

Functional obsolescence is a reduction of an object's usefulness or desirability because of an outdated design feature that cannot be easily changed.

Functional obsolescence is the reduction of an object's usefulness or desirability because of an outdated design feature that cannot be easily changed or updated. While various efforts have been made over the years to objectively quantify the effect of functional obsolescence in real estate, assessment or appraisal of functional obsolescence is mostly subjective. While various efforts have been made over the years to objectively quantify the effect of functional obsolescence in real estate, assessment or appraisal of functional obsolescence is mostly subjective. Real estate can exhibit functional obsolescence if its design features are outdated, not useful, or not aligned with market tastes and standards, such as when an old house is located within a neighborhood of new homes. Consumers can mitigate losses caused by functional obsolescence by considering the long-term usefulness of purchased goods.

Functional Obsolescence

Gazunder is a slang term used in the United Kingdom when a real estate buyer lowers their offer despite already having agreed to pay the higher price.

Gazunder is a colloquial term used in the United Kingdom when a real estate buyer lowers their offer despite already having agreed to pay a higher price. The seller's recourse is to ignore the gazunder and risk the buyer walking away from the sale, to agree to the gazunder offer or try to negotiate it down, or to walk away entirely and start the sales process over again with a new buyer, potentially while the real estate market softens further. In a related practice called gazumping, a seller coming from a strong position raises the sale price of a property above a previously agreed-upon price when the transaction is already underway. In a related practice called gazumping, a seller coming from a position of strength will raise the sale price of a property above the previously agreed-upon price when the transaction is already well underway. A seller may gazump if they think the buyer will remain committed to the purchase even at a higher price or if they have received competing bids and can fall back on another offer if the first buyer walks away.

Real Estate Investing

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