Real Estate Glossary

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E

earnest money

money deposited by a buyer under the terms of a contract, will be forfeited if the buyer defaults, but will be applied to the purchase price if the sale is closed.

easement

is the right that a party or parcel of real estate has to cross or use the land of another.

Easements may affect value and are not always visible. Appraiser should require access to a survey, plat, and complete legal description to minimize the likelihood that an easement or encroachment will be overlooked when attempting to determine value. Common easements include power line, drainage, and underground utility easements.

easement in gross

is the right to use real estate that vests in a person or entity such as a power company or railroad. There is a servient estate but no dominant estate.

For example, an electric company may own an easement across several properties to install power poles and transmission wires. Other common easements in gross are found in utility easements, oil pipeline easement, sewer easements, and drainage easements. Unlike commercial easements in gross, personal easements in gross generally expire with death of the easement holder.

economic factors

one of the four broad categories of factors affecting the value of real estate, which are - physical, social, economic and governmental.

Economic factors that affect real estate markets originate at the national level and at the state and local level. From a national perspective the federal government’s monetary and fiscal policies may cause changes in interest rates, inflation, and the cost of housing. On a local level, the availability of high wage employment, financially sound employers, a good economic base, and a community that encourages business development are all favorable factors for real estate markets.

economic life

is the period of time a component or structure will contribute value to the property. Every improvement has a physical life and an economic life. Appraisers are concerned with economic life because economic life is tied to value.

An air-conditioning unit may only have an economic life of 5 years before it loses all book value. If it is well maintained, it may be useful for 15 years.

economic obsolescence

A value loss that occurs because of factors external to the property. Economic obsolescence (sometimes referred to locational, external, or environmental obsolescence) is a value loss associated with detrimental or inharmonious nearby land uses which detract from the subject property’s appeal, utility, marketability, and consequently, its value.

Some common examples:

Properties adversely affected by take-offs and landings at a nearby airport.
Properties adversely affected by odors from an adjacent or nearby land fill.
Properties adversely affected by proximity to noise from highway traffic.

Note that in each instance, the source of the loss in value is outside the boundaries of the property being appraised. Although technically, there may be some instances where economic obsolescence may be curable, it is generally considered to be incurable.

effective age

is the apparent or relative age of a component or structure. Effective age may the same as actual or chronological age, but it may also be different.

A house that has an actual age of five years may only have an effective age of two years if the house were well-maintained, updated, and redecorated to stay current. In other words, the five year-old house may compete with houses that are only two years old because the improvements have been kept current.

effective date

is the single date (point in time) for which the value estimate is effective and it is valid for that one day (point in time) only. Real estate markets are constantly changing and factors affecting value are dynamic. The effective date establishes the economic framework in place on the valuation date and is necessary to make the value estimate valid. The effective date of an appraisal can be for sometime in the past (retrospective), a current date, or some date in the future (prospective) – relative to the date of the report. The effective date is determined by the client. A common retrospective appraisal would be for an estate appraisal and the effective date is usually the date of death. If the property was repaired after the death or the area went through some changes the appraiser must factor in those elements to determine the accurate value on the effective date.

effective gross income

is a realistic estimate of the actual gross income for an income producing property because it provides an allowance for vacancy and collection losses.

The EGI is equal to the potential gross income (PGI) minus the appropriate vacancy and collection losses for the type of property.

Keyword(s):

efficient market

Efficient markets adjust prices quickly to changes in supply and demand. Efficient markets tend to have the characteristics of a theoretical “perfect market.”

electronic contracting

a process of integrating information in a real estate transaction between clients, lender and title and closing agents electronically.

Electronic Signatures in Global and National Commerce Act (E-Sign)

an act that makes contracts (including signatures) and records legally enforceable regardless of the medium in which they are created.

emblements

Growing crops, such as grapes and corn, that are produces annually through labor and industry; also called fructus industriales.

eminent domain

is the power of the government to take private property for public use for just compensation under the Fifth Amendment to the U.S. Constitution. This is one of the four powers of government which institutes public limitations on real property. The four powers are: Police power, Eminent domain, Taxation, and Escheat, remembered by the acronym PETE.

A recent decision in Kelo v. City of New London, 545 U.S. 469 (2005) has challenged the historical understanding. In Kelo, the Supreme Court of the United States permitted the city of New London, Connecticut to use eminent domain to transfer land from one private owner to another private owner to further economic development. The Court held in a 5-4 decision that the general benefits a community enjoyed from economic growth qualified such redevelopment plans as a permissible "public use" under the Takings Clause of the Fifth Amendment.

employee

someone who works as a direct employee of an employer and has employee status. The employer is obligated to withhold income taxes and social security taxes from the compensation of employess. See also independent contractor.

encapsulation

is another way of asbestos control; sealing off of disintegrating asbestos.

encroachment

is the unauthorized extension of one property onto another property’s land or into its air space.

Keyword(s):

encumbrance

is a right or interest in real estate held by someone other than the owner (or title holder). It is an impediment to free and clear title – although not all encumbrances will adversely affect the transfer of real estate.

Encumbrances are divided into two categories, monetary and non-monetary. Monetary encumbrances (liens) affect the title and may affect the transfer of ownership; whereas non-monetary encumbrances affect the condition of the property and are not likely to interfere with a transfer of title – although some could.

entrepreneurial profit

is the reward or incentive for taking the risk associated with the construction of the improvements.

Keyword(s):

environmental impact statement (EIS)

A report that includes a description of a development project with emphasis on the environmental setting and a description of the impact the project could have on the environment during the whole process of the project.

environmental site assessments (ESA)

investigation by an environmental specialists to decide if there are any environmental hazards that could affect the use of a property or impose future financial liability. ESA assists the seller in making disclosures and the buyer in making an informed offer.

Equal Credit Opportunity Act (ECOA)

federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age or marital status.

equalization factor

used to achieve uniformity when it is necessary to correct inequalities in statewide tax assessments.

equitable right of redemption

The right of a defaulted property owner to recover the property prior to its sale by paying the appropriate fees and charges.

equitable title

an ownership interest pending payment of the debt.

equity

the interest or value that an owner has in property over and above any loan or indebtedness.

erosion

The gradual wearing away of land by water, wind, and general weather conditions; the diminishing of property by the elements

escheat

is the power of government to take property when the owner of the property abandons it or dies with no heirs and no will.

This is one of the four powers of government which institutes public limitations on real property. The four powers are: Police power, Eminent domain, Taxation, and Escheat, remembered by the acronym PETE.

escrow contract

a fund reserved to meet future real estate taxes and property insurance premiums.

estate

in reference to rights in real estate, the word estate refers to the nature, quality and degree of interest that a person has in real estate.

estate at sufferance

occurs when a tenant retains possession of the property after the termination of a lease and fails to pay rent. Because the estate is recognized as a real property right, the tenant must be evicted and cannot be removed as would be case for a trespasser.

estate for years

is a lease for a specific period of time. It does not have to be for a full year, but the lease must specify a beginning and end.

For example, a lease from March 1st to April 30th would be an estate for years. The estate for years terminates automatically at the end of the lease – no notice is required unless called for in the lease.

estate in land

The degree, quantity, nature, and extent of interest a person has in real property.

estate taxes

Federal taxes on a decedent's real and personal property.

excess land

pertains to large tracts of residential land properties that financial institutions will not make long-term mortgage loans on – even if there is a residence on the property.

There is a two-part test for identifying excess land:

land area greater than typical and necessary to support the improvement in that market; and
it is capable of separate and independent use.

exclusive-agency buyer agency

One broker becomes the buyer's agent but the buyer reserves the right to search for properties as well.

exclusive-agency listing

one broker is authorized to act as the exclusive agent of the principal. However, the seller retains the right to sell the property without the obligation to pay the broker.

exclusive-right-to-sell listing

one broker is appointed to the seller's sole agent. The broker is given the exclusive right, or authorization, to market the seller's property. Whether the sellers finds a buyer with or without the broker's assistance, the seller still must pay the broker a commission.

execute

This is making a document legally valid, such as formalizing a contract by signing, or acknowledging and delivering a deed. Execution of a document can refer to just the act of signing; it may refer to complete doing of the document's terms.

executed contract

This is a contract that has been finished fully. All parties have fulfilled their promises.

Keyword(s):

executor

or executrix if a female, is the person named in a will to handle the affairs of the estate.

Keyword(s):

executory

refers to the status of a contract which says that something remains to be done by one or more of the parties.

Keyword(s):

express agency

It is created when the principal and agent enter into an agreement which expresses their intent to create the agency. The agreement may be in writing or oral.

express agreement

an oral contract where the parties state the terms and share their intentions in words.

Keyword(s):

expressed agreement

is a contract that is declared in words either orally or in writing.

Keyword(s):

externalities

The principle of externalities states that factors external to a specific parcel of real estate may have favorable or unfavorable consequences on the value of that real estate. Proximity to a lake or river will often contribute to the value of real property, however, other externalities such as proximity to a land fill or other inharmonious land use may detract from a property’s value.

extraordinary assumption

refers to when an appraiser must presume as fact information that is otherwise uncertain in order to complete the appraisal. Every appraisal requires assumptions to be made.

An appraiser may not be able to make an interior inspection of the subject when the property is a foreclosure. It may be necessary for the appraiser to assume the quality and condition of the interior in order to proceed with the assignment. These assumptions about the interior would be classified as an extraordinary assumption. The use of extraordinary assumptions is covered in USPAP Standards Rule 1-2(f).

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