Real Estate Glossary

For a qualifying like-kind exchange, replacement property is generally identified within 45 days and acquired within 180 days. A qualified intermediary holds the exchange funds so the taxpayer does not receive them.

Total loss in value from all causes: physical deterioration + functional obsolescence + external (economic) obsolescence. Deducted from improvement cost in the cost approach.

The study guide emphasizes five years of continuous, uninterrupted, open, notorious, actual, and hostile possession, plus payment of all property taxes. A court action is required to perfect title.

Estoppel can arise when a principal's conduct allows a person to appear authorized, and the principal is prevented from later denying that appearance to a party who reasonably relied on it.

Ratification occurs when a principal approves an agent's previously unauthorized act after the fact. The approval can make the act binding according to the circumstances and applicable law.

California agency disclosure should be made as soon as practicable before entering a listing agreement or presenting an offer to purchase, whichever occurs first. Confirmation of agency is handled at or before purchase-agreement execution.

Gradual payoff of a loan through regular payments of principal and interest. Early payments are mostly interest; later payments are mostly principal.

California anti-deficiency rules can restrict a lender's ability to recover an unpaid balance after foreclosure. The result depends on the loan, foreclosure method, and applicable statute; do not assume every foreclosure has the same outcome.

Authority that arises from the principal's conduct that reasonably causes a third party to believe the agent is authorized. Created by the principal's representations, not the agent's.

An appraiser should remain independent and objective. The study guide notes that an appraiser may not be compensated as a percentage of the appraised value because that creates a conflict of interest.

A federal disclosure under TILA expressing the total cost of credit as a yearly rate, including interest and certain financing costs. APR is typically higher than the note rate.

A loan with an interest rate that adjusts periodically based on an index. Rate = Index + Margin, subject to periodic caps (how much it can change per period) and lifetime caps.

Assemblage: combining two or more parcels under one ownership. Plottage: the potential increase in value from successful assemblage when the combined property has greater utility.

A large lump-sum payment due at the end of a loan term. A partially amortizing loan has a balloon payment because the regular payments don't fully pay off the loan.

Using fear of protected-class demographic change to induce housing transactions. Also called panic selling. A prohibited fair housing practice.

The study guide identifies the broker pathway as two years of qualifying full-time salesperson experience (or equivalent), eight college-level courses, and a passing broker examination. Always confirm current requirements with the DRE.

Responsible brokers must establish and maintain policies, procedures, and systems to supervise licensed activities — including transactions, advertising, trust funds, and salesperson conduct.

The California Department of Real Estate licenses and regulates real estate professionals, investigates complaints, enforces the Real Estate Law, oversees continuing education, and administers the Recovery Account.

DRE issues salesperson and broker licenses. Salespersons must work under a responsible broker. A broker license allows operating an independent brokerage. Licenses run four years.

Real estate licenses run 4 years. Continuing education: 45 hours for broker/salesperson renewal. First renewal: 45 hours including specific courses.

1% Prop 13 rate. 2% annual cap. Nov 1 / Dec 10 (1st). Feb 1 / Apr 10 (2nd). Transfer tax: $1.10 per $1,000 of value (county rate; cities may add more).

3 business days to deposit trust funds. 3 years record retention. Broker may keep limited personal funds in trust account only to cover bank charges.

Cap Rate = NOI ÷ Value. Expresses the relationship between NOI and value. Higher cap rate = lower value (for same NOI). Used in direct capitalization: Value = NOI ÷ Cap Rate.

CLAO is a study mnemonic for contract elements: Capacity (competent parties), Mutual consent (offer and acceptance), Lawful object, and Consideration.

Improper mixing of trust funds with the broker's personal or general business funds. A DRE violation. A limited amount of personal funds may be kept in a trust account only to cover bank charges.

California's default form of ownership for married couples. Property acquired during marriage is generally community property. Each spouse owns an undivided one-half interest.

Authorization for a use allowed conditionally under zoning — the use is permitted but requires approval subject to specified conditions. Different from a variance.

Bargained-for legal value supporting a promise. Need not equal market value. Adequacy and existence of consideration are different questions.

Legal notice created by proper recording in the public record. A person is presumed to know recorded information even without actual knowledge.

A condition that must be satisfied for a party's obligation to perform. NOT an unlimited cancellation right — it must be exercised according to its terms and deadlines.

Unauthorized use of another person's funds or property. More serious than commingling. Can result in criminal charges and license revocation.

Value = Land Value + Cost of Improvements (Replacement or Reproduction) − Accrued Depreciation. Best for new construction, special-purpose, or unique properties with limited market data.

A security instrument used in California. Three parties: trustor (borrower), beneficiary (lender), trustee (holds security title). Enables non-judicial foreclosure through power of sale.

A court judgment for the unpaid balance remaining after foreclosure proceeds are applied to the debt. California anti-deficiency statutes limit deficiency rights in many situations.

Transfer of a deed requires delivery with intent that it become presently operative, and acceptance by the grantee. Physical location of the paper alone is not decisive — intent controls.

If the comparable is SUPERIOR to the subject in some way, subtract from the comparable's price. If the comparable is INFERIOR, add to it. The goal is to bring the comparable to parity with the subject.

California documentary transfer tax is charged on qualifying transfers of real-property interests. The county rate is commonly stated as $0.55 per $500 or fraction thereof, with some cities adding a local tax; the agreement determines who pays.

DSCR = NOI ÷ Annual Debt Service. Above 1.0 means NOI covers debt service. Below 1.0 means income falls short. Lenders use DSCR in commercial underwriting.

One brokerage represents both buyer and seller in the same transaction. Requires specific disclosures and consents required by California law. A dual agent cannot share one principal's confidential info with the other.

A loan provision allowing the lender to demand full repayment when the property is transferred. Federal law preempts most state restrictions on enforcing this clause.

An easement that benefits one parcel (dominant tenement) and burdens another (servient tenement). It runs with the land and transfers with the dominant parcel.

An easement that benefits a person or entity, not a parcel of land. Utility easements are the classic example. No dominant tenement.

Government's power to take private property for public use, with constitutionally required just compensation. The process is called condemnation.

A physical intrusion of an improvement (building, fence, overhang) across a property boundary onto another's land. Can affect title and cloud marketability.

Property passes to the state when an owner dies with no will and no qualifying heirs. A government power over ownership.

A neutral process where an escrow holder follows written instructions from all parties, handles documents and funds, and does not advocate for buyer or seller.

When asked what to do FIRST: stop harm, protect funds, meet deadline. When asked for the BEST answer: apply the legally correct rule — not the most aggressive or most protective action.

Authority the principal directly grants to the agent, either orally or in writing.

Loss in value from influences OUTSIDE the property — adverse nearby uses, neighborhood decline, economic downturns. Generally incurable because the owner can't control external factors.

The broadest estate in real property — the owner has absolute ownership subject only to governmental and private limitations.

A fee simple defeasible is ownership subject to a condition. A fee simple determinable can end automatically when the condition is violated; a fee simple subject to condition subsequent requires the grantor to act to reclaim the property.

Loan insured by the Federal Housing Administration. Allows lower down payments. Requires Mortgage Insurance Premium (MIP) — both upfront and annual. Not the same as PMI.

Remember the fiduciary duties an agent owes the principal as OLDCAR: Obedience to lawful instructions, Loyalty to the principal, Disclosure of material facts, Confidentiality, Accountability for funds and property (accounting), and Reasonable care and diligence.

FIRST: What to do first — identify immediate action to stop harm, protect funds, or meet a deadline. BEST: Among legally permissible options, which serves the principal's lawful interests best while meeting all duties.

Loss in value from features within the property that are inadequate, outdated, or superfluous by current market standards. Example: outdated floor plan, inadequate electrical, too many bathrooms.

PETE helps recall governmental powers over land: Police power, Eminent domain, Taxation, and Escheat. Police power regulates; eminent domain takes for public use with compensation.

Transfers the described interest and includes California statutory warranties: grantor has not previously conveyed to another, and grantor has not encumbered the property except as disclosed.

GIM uses annual gross income for larger or commercial income properties: GIM = Sale Price ÷ Annual Gross Income. Estimated value = GIM × annual gross income.

GRM = Sale Price ÷ Gross Monthly Rent. To estimate value: Subject Rent × Market GRM = Estimated Value. GRM is a rough tool — it does NOT account for operating expenses.

California landlords must maintain residential rentals in a habitable condition. Includes weatherproofing, working heating, plumbing, and electrical, sanitation, and freedom from infestation.

The reasonably probable use of a property that is: (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive. Must satisfy all four tests.

Authority to do acts reasonably necessary to carry out authority the principal has expressly granted. Not directly stated but reasonably inferred.

Intestate succession applies when a person dies without a valid will. Property passes under succession law; if no qualifying heirs can be found, the property may escheat to California.

IRV relates Income, Rate, and Value: Income ÷ Rate = Value; Income ÷ Value = Rate; Rate × Value = Income. If two variables are known, solve for the third.

Concurrent ownership with the right of survivorship. Requires the four unities: Time, Title, Interest, and Possession. A deceased joint tenant's interest passes automatically to surviving joint tenants.

A deceased joint tenant's interest normally passes automatically to surviving joint tenants by right of survivorship, avoiding probate for that interest.

Foreclosure through the courts. Available for mortgages and deeds of trust. Slower process but may preserve the lender's right to a deficiency judgment in some circumstances.

In an installment land contract, the seller finances the purchase and retains legal title until the buyer completes the payments. The buyer usually receives possession and equitable title before legal title.

California generally requires 24 hours advance notice for ordinary landlord entry. Emergency entry may occur without advance notice. Excessive entries can constitute harassment.

Federal law generally requires lead-based paint disclosures for residential property built before 1978, including the EPA pamphlet, known hazards, available records, and the buyer's opportunity to inspect.

An estate for years lasts for a definite term and ends automatically at expiration, without a separate notice to terminate. It is a possessory leasehold, not a fee ownership interest.

California real estate licenses are generally valid for four years. Renewal requires 45 hours of DRE-approved continuing education, including required subject areas and electives; requirements can change, so verify current DRE rules.

A claim or charge against property as security for an obligation. Does NOT mean the lienholder owns the property. Liens may be voluntary (mortgage) or involuntary (tax lien, judgment lien).

A freehold estate measured by a life. The estate ends when the measuring life ends. The holder cannot waste the property or commit acts that harm remainder interests.

A pre-agreed amount of damages if a party breaches. In California real estate, specific rules govern liquidated damages clauses — they are not automatic penalties.

One point = 1% of the loan amount. Discount points buy down the interest rate. Points are paid upfront and affect the effective cost of borrowing.

LTV = Loan Amount ÷ Property Value. A higher LTV indicates more lender risk. Conventional loans above 80% LTV typically require private mortgage insurance (PMI).

Framework for determining if an item is a fixture: Method of attachment, Adaptability to property, Relationship of the parties, Intention of the parties, Agreement. No single factor always controls.

The most probable price a property would sell for in a competitive, open market with informed buyers and sellers acting without duress, given reasonable time on market.

A fact that could affect a reasonable person's decision regarding a transaction, or the value or desirability of the property. Brokers must disclose known material facts.

A statutory security interest for qualifying unpaid labor, services, equipment, or materials provided for construction or improvement of property. Requires strict procedural compliance.

California sales contracts and leases include notice that registered-sex-offender information is available from local law enforcement or the state website. The seller or agent is not required to research specific locations.

A Natural Hazard Disclosure identifies whether property lies in state-mapped hazard areas such as flood, fire, earthquake fault, or seismic hazard zones. It is separate from the broker's visual inspection and does not replace expert investigation.

Occurs when scheduled payments are insufficient to cover accrued interest, causing the loan balance to INCREASE over time. Common with certain ARM payment options.

A net listing gives the broker the amount above a stated net price. Although the study guide describes it as legal in California, the direct conflict between the broker's incentive and the principal's interest makes it strongly discouraged.

NOI = Effective Gross Income − Operating Expenses. Calculated BEFORE debt service and income taxes. NOI ≠ cash flow. Cash flow = NOI − Debt Service.

A use that was lawful when established but does not conform to current zoning requirements. Generally protected as 'grandfathered' but may not be expanded or rebuilt after destruction beyond certain limits.

Substitution of a new party or obligation with the required agreement, which releases the original party or obligation. Requires agreement of all parties.

A contract requires a valid offer and a matching acceptance. A counteroffer generally rejects the original offer and creates a new one. Acceptance must be communicated to be effective.

A contractual right to purchase or lease on specified terms within the option period. An option is a contract right, NOT present ownership of the property.

An option gives the optionee the right, but not the obligation, to buy within a stated period. The optionor is bound during the option period in exchange for consideration, while the optionee may choose not to exercise.

Loss in value from wear, damage, age, or deferred maintenance. May be curable (worth fixing economically) or incurable (cost to cure exceeds value gained).

Government's power to regulate land use for public health, safety, morals, and general welfare. No compensation required. Examples: zoning, building codes, environmental regulations.

An offer to issue a title policy subject to stated exceptions. NOT the final title policy and NOT a guarantee that all title issues have been found. Review exceptions carefully.

The primary market originates loans for borrowers. The secondary market purchases existing loans from originators, increasing liquidity; Fannie Mae, Freddie Mac, and Ginnie Mae are commonly tested examples.

The value of a component is measured by what its presence adds to the whole property value — not by the component's cost. An improvement may cost more than it contributes in value.

A rational buyer will not pay substantially more for a property than the cost of acquiring a reasonably similar substitute. This principle underlies the sales comparison and cost approaches.

The broker whose uninterrupted series of efforts was the effective cause of the sale. Relevant in open listings and commission disputes. Examines the chain of events leading to the sale.

1st installment: due Nov 1, delinquent Dec 10. 2nd installment: due Feb 1, delinquent Apr 10. Memory trick: 'No Darn Fooling Around' (Nov/Dec, Feb/Apr).

Limits California property tax rate to 1% of assessed value. Annual assessment increases capped at 2% unless there is a change of ownership or new construction. Passed in 1978.

Allocation of income or expense items between buyer and seller based on the relevant time period and the contract terms. Taxes, rents, and HOA dues are commonly prorated at closing.

Transfers whatever interest the grantor has, if any. NO warranties. Does not guarantee the grantor owns anything. Often used to clear title clouds.

A change in rules, policies, practices, or services required for a person with a disability to have equal opportunity to use and enjoy housing. Must be requested and must be reasonable.

The final step in appraisal where the appraiser weighs the reliability and relevance of the three approaches to arrive at a final value opinion. It is NOT simply averaging the results.

California brokers must retain transaction and trust-fund records for 3 years. Period begins from the date of closing (consummated) or the date of listing expiration (non-consummated).

Discriminatory geographic denial or limitation of housing-related financial services based on the racial or ethnic composition of an area. Prohibited under fair housing and lending laws.

A qualifying rent increase of 10% or less: 30 days notice. A qualifying rent increase of more than 10%: 90 days notice. Different rules may apply in rent-controlled areas.

Property that the lender has acquired through foreclosure. Standard disclosure duties apply. The lender becomes the owner/seller and has the same disclosure obligations as other sellers.

Real Estate Settlement Procedures Act. Governs settlement services for federally related mortgage loans. Prohibits kickbacks and unearned fee splits for referrals of covered services.

Gives the holder a chance to match a third-party offer before the owner sells to that third party. Triggered when the owner decides to accept a qualifying offer.

Estimates value by comparing the subject property to recent sales of similar properties (comparables), adjusting for differences. Adjustments go to the comparable, not the subject.

Institutions (Fannie Mae, Freddie Mac, Ginnie Mae) that purchase mortgage loans from originators, providing liquidity to the primary mortgage market.

California limits residential security deposits. For unfurnished: generally 2 months rent. For furnished: generally 3 months rent. Must be returned within 21 days with itemized statement.

Lender agrees to accept less than the full loan balance from the sale proceeds. Requires lender approval. Seller and buyer cannot force it. Broker must document negotiations carefully.

California protects source of income (including housing vouchers/Section 8) as a protected class in housing. Landlords generally cannot refuse to rent based on a tenant's source of income.

Special assessments fund specific improvements or services benefiting a district. Mello-Roos Community Facilities Act allows districts to levy special taxes for public improvements.

An equitable remedy that compels a party to perform a contract as agreed. Available for real property contracts when legal requirements are satisfied and money damages are inadequate.

Requires certain agreements involving real property to be in writing and signed by the party to be charged. Applies to real property sales and leases longer than one year.

Directing housing choices based on protected characteristics rather than the client's stated, lawful housing criteria. A prohibited fair housing practice.

A tenancy at sufferance occurs when a tenant remains in possession after the lease ends without the landlord's consent. The landlord may treat the occupant as a trespasser or accept the occupant under a new tenancy.

Two or more owners hold undivided interests that may be unequal. NO automatic right of survivorship — a deceased owner's share passes by will or intestacy.

Monthly trust account reconciliation comparing: (1) bank statement balance, (2) control record balance, and (3) total of all beneficiary ledgers. All three must agree (adjusted for timing).

A trade fixture is equipment installed by a commercial tenant for business use. It generally remains the tenant's personal property, but the tenant must remove it on time and repair resulting damage.

A statutory disclosure form required in most California residential property sales. The seller must complete it; both agents must conduct a visual inspection and disclose findings.

For covered residential sales, the seller's Transfer Disclosure Statement should be delivered as soon as practicable before transfer of title. The study guide identifies a three-day rescission period after personal delivery and five days after mailing.

Trust funds must generally be deposited into the trust account within 3 business days of receipt, unless the parties have authorized holding the check uncashed.

California's primary foreclosure method under a deed of trust's power of sale. No court involvement. Generally faster than judicial foreclosure but may limit deficiency recovery.

Loan guaranteed by the Department of Veterans Affairs for eligible veterans. May allow zero down payment. Requires a VA funding fee (not traditional mortgage insurance). No PMI.

Relief from specific development standards (setbacks, height, lot coverage) when legal findings are met. A variance is NOT a device to authorize a prohibited use.

A void agreement has no legal effect; a voidable agreement is valid until a protected party elects to cancel it; an unenforceable agreement may be valid but cannot be enforced because of a legal defense such as a writing requirement.