Real Estate Glossary
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one that is created by circumstances, appearances, and/or conduct of the parties.
is an unwritten contract/agreement created by the actions of the parties.
Also called the escrow account, is the trust account made to set aside money for future needs.
is one of the three ratios (operating expense ratio; the income ratio; and the break-even ratio) that can be useful in analyzing property income. Ratios provide a quick financial “health” check of an investment. The income ratio is the portion of the effective gross that is income.
the economic feasibility of “fixing” the item which is causing the value loss. An item of depreciation is incurable if the cost to cure exceeds the value increase derived from implementing the cure. Alternatively, if the value increase is less than the cost the cure, the deficiency will be categorized as incurable.
The term incurable does not reflect on whether the item “can” or “cannot” be replaced or repaired. Rather it reflects on whether it makes economic sense to cure the item.
someone who is retained to perform a certain act but who is subject to the control and direction of another only as to the end result and not as to the way in which the act is performed. Unlike an employee, an independent contractor pays all expenses, social security and income taxes and receives no employee benefits.
an undeterminable economic indicator that is used to adjust the interest rate in the loan. Most indexes are tied to US Treasury securities.
The least accurate method of calculating cost new and the least used method is the index method (used mainly to corroborate cost estimates from other methods). The index method attempts to calculate the cost new of a structure by multiplying its original cost by the change in some known index associated with price increases. While the cost approach is normally not concerned with the original or historic cost of a structure, the index method requires the original cost, year built, and cost index from the year of construction to be known. It is also necessary to know the current year index. The index would be associated with price increases in construction and could be consumer price index or construction cost index. To calculate the cost new using the index method, multiply the original cost of the structure times the new index over the old index (the new index over the old index reflects the price changes during the period of time).
are the “soft costs” or hidden costs associated with construction that are other than labor and materials.
Examples of indirect costs include finance charges, appraisal fees, engineering fees, building permits, taxes during construction, etc.