REAL ESTATE TERMINOLOGY

By Atty. R.B. Palacio, Jr.

REAL ESTATE BROKERAGE

EARNEST MONEY amount accompanying an offer to
purchase to show good faith or genuine desire of the buyer; it is
considered part of the price if the offer is accepted, but is returnable
if the offer is rejected.
ESCROW an agreement where the consideration of a
contract or a portion thereof is deposited with a third party known
as escrow agent who is authorized to release payment after
fulfilment of some conditions.
HOLD-OVER CLAUSE a provision in listing which entitles the
broker to the commission even if he closed the sale after the period
of his authority provided the sale is to a buyer whom the broker
registered in writing to the seller and with whom he has negotiated
during the period of his listing.
LISTING the authority given by the principal to the broker
for the latter to negotiate the sale, purchase, lease, exchange, or
mortgage of property within a stipulated period and at stated price
and terms.
MULTIPLE LISTING a cooperative arrangement among
brokers who are members of a realty association where properties
for sale/ lease or wanted are circularized to all members, and
commission is shared between the listing member and selling
member, with a nominal percentage going to the association as
service fee.
OPTION a contract between the seller/lessor and the
buyer/lessee wherein the former, for a consideration known as
option money, binds himself to reserve the property for the latter to
purchase/ lease at stipulated price and within a stipulated period.
PROCURING CAUSE the act of the broker which is
instrumental in effecting the meeting of minds between the seller
and the buyer as to price and terms. It is one of the requisites for
entitlement to commission.
REAL ESTATE BROKER a natural or juridical person who, on
behalf of a principal and for or in expectation of commission, fee or

other valuable consideration, negotiates the sale, purchase, lease,

exchange, or mortgage of real estate.

REAL ESTATE FINANCING

ACCELERATION CLAUSE a provision in a promissory note or
financing instrument which renders the remaining principal balance
of the loan immediately due and payable upon default in any
stipulated installment.
AMORTIZATION
principal and interest.

the

periodic

payment

which

includes

AUTOMATIC REDEMPTION CLAUSE a provision in a blanket

mortgage (mortgage covering two or more properties) which
release a property from the mortgage upon payment of its loan
value.
BALLOON PAYMENT the final payment in an instalment plan
which is bigger than the previous instalments and which liquidates
the entire obligation.
BREAK-EVEN POINT the amount of rent or the occupancy
level to pay operating expenses and debt service.
BUYERS EQUITY the differences between contract price and
loanable amount.
BUYERS FULL DOWN PAYMENT is the buyers equity plus
the miscellaneous expenses such as title transfer, mortgage
registration, fire insurance, mortgage redemption insurance, etc.
COMMUNITY MORTGAGE PROGRAM a financing scheme
under the unified home lending program to enable residents in
depressed areas to acquire their lot by organizing themselves into a
cooperative.
DEFEASANCE CLAUSE a provision in a mortgage contract
which release the property from encumbrance when the mortgaged
obligation is fully paid.
ESCALATION CLAUSE stipulation in a promisory note
authorizing periodic increase of interest rate, or a provision in a
long-term lease authorizing periodic increase in rental.

LOAN VALUE the value of property which is a certain

percentage of its market value which the bank is willing to lend with
only the property as security.
OPEN-END MORTGAGE - a type of mortgage loan which
permits borrowing additional funds against the same collateral.
TRUTH IN LENDING ACT a law that requires lenders to
report or disclose the cost of credit in terms of the annual
percentage rate.

FUNDAMENTALS OF OWNERSHIP
ABSTRACT OF TITLE a condensed history of the title
consisting of the various links in the chain of titles, together with
the statement of all aliens, encumbrances, or conditions affecting
the title.
AIR RIGHT right of a land owner to use and control the air
space over his land, subject to the requirements of aerial
navigation, law, or contract.
CAPITAL PROPERTY refers to property exclusively owned by
the husband.
CLOUD ON TITLE an outstanding claim, which if valid, will
impair or adversely affect the owners title. Example : A bequests
a parcel of land to B in his will. As widow is contesting the
validity of the bequest. During the pendency of the case, there is a
cloud on Bs title.
DOMINANT ESTATE land which does not have access to a
public road which is given a right of way through an adjoining land.
EMINENT DOMAIN right of the state or any of its
instrumentalities to take private property for public use upon
payment of just compensation.
ESCHEAT reversion of private property to the state due to
the intestate to the State death of the owner who is not survived
with any legal heir; or the confiscation of illegally acquired property.
FEE SIMPLE the bundle of rights which are inherent in
ownership without any limitation or restrictions other than those
provided by law, annotated on the title, or stipulated by contract.
the bundle of rights includes the right to possess, to use, to
dispose, to the fruits, and to recover.

PARAPHERNAL PROPERTY refers to property exclusively

owned by the wife.
RIPARIAN OWNER an owner whose lands abuts the bank of
a river.
STEWARDSHIP CONCEPT OF OWNERSHIP a mandate to
owners to use their property in a manner that will promote not only
their interest but also the general welfare, and further decrees that
when ones utilization is not conducive to general welfare or the
extent of his ownership exceeds the requirements of his necessities,
then the State may exercise its power to regulate and control
ownership.
SERVIENT ESTATE land through which a right of way is
given in favor of another land.
TENANTS RIGHT OF FIRST REFUSAL the priority right of a
lessee of land on which he has build his house to buy the land
provide that 1) he is a legitimate tenant for at least 10 years; 2) the
land is located in an urban land reform area; and 3) the owner is
selling the land.

REAL ESTATE TAXATION

ACTUAL USE - the use to which the property is principally or
predominantly devoted.
ASSESSMENT - the procedure or methodology for arriving at
assessed value.
ASSESSMENT LEVEL a percentage of market
prescribed by law at which the assessed value is determined.

value

ASSESSMENT VALUE value of real property for realty tax

purpose which is arrived at by multiplying market value by
assessment level.
CAPITAL ASSET property not constituting inventory for sale,
or property not used in connection with trade, business, or source of
income.
CAPITAL GAINS TAX income tax payable to the Bureau of
Internal Revenue for the sale, transfer, or other disposition of real
estate classified as capital asset.

ORDINARY ASSET property constituting inventory for sale,

or property used in connection with trade, business, or source of
income.
TRANSFER TAX a tax payable to the local government unit
for the sale, transfer, or other disposition of real estate, whether
capital or ordinary asset.
WITHHOLDING TAX a tax payable to the bureau of Internal
Revenue on the sale, transfer or other disposition of real estate
classified as ordinary asset.

ECONOMICS AND APPRAISAL

APPRAISAL the process of estimating the value of real
estate or any interest therein as of a given time and for a specified
purpose.
BUYERS MARKET a condition obtaining in an area at a
certain time when there are many properties for while there are few
buyers, in which case price tends to go down. Supply is more than
demand.
CONFORMITY, PRINCIPLE OF an appraisal principle which
holds that value of a property tends to be enhanced when there is a
reasonable homogeneity in utilization.
CONTRACT RENT the rental stipulated to be paid in a lease
contract.
CORNER INFLUENCE the added desirability or utility of a lot
due to ties frontage to parallel and perpendicular streets.
COST APPROACH a method of estimating the fair market
value of an improvement by estimating present reproduction cost
and deducting depreciation.
DEPRECIATION loss in value to physical deterioration,
functional obsolescence, or economic obsolescence.
ECONOMIC RENT the potential rental which a property can
command, taking into consideration the rate of nearby or
comparable properties.
ENROACHMENT the displacement of an existing use by a
non-conforming use, such as the introduction of a factory in a
residential area.

ECONOMIC LIFE the period during which a property can b

profitable used, or the period during which a building is expected to
generate more income than operating expenses.
INCOME APPROACH the process of estimating the fair
market value of a commercial property by capitalizing its annual
net income.
INCREASING AND DIMINISHING RETURNS, PRINCIPLE OF
states that the application of more factors of production will tend to
increase net income up to a certain point, beyond which th
introduction of more factors of production will tend to decrease net
income.
INFILTRATION the displacement of present residents by
people of lower economic status or different cultural or social
background.
MARKET ANALYSIS study of current supply and demand
conditions in a particular area for a specific type of property.
MARKET DATA APPROACH a process of determining fair
market value of a land by comparing it with nearby or comparable
properties which subject of recent sales or offerings, making
positive or negative adjustments depending on whether the
comparatives are superior or inferior based on certain adjustment
factors.
MULTIPLIER EFFECT OF REAL ESTATE states that real estate
is considered a spark plug which triggers activities in allied
industries, creates income opportunities for different private
sectors, and enhances the market for construction materials,
furnitures, and appliances.
OVER-IMPROVEMENT an improvement which is not suitable
to the site on which it is placed because of excessive size or cost.
PROGRESSION, PRINCIPLE OF an appraisal principle which
holds that the value of a property tends to be enhanced by
association with superior properties.
REGRESSION, PRINCIPLE OF an appraisal principle which
holds that the value of a property tends to be adversely affected by
association with inferior properties.
REAL ESTATE thereon.

land and all permanent improvements

SELLERS MARKET a condition prevailing in an area as of a

given time when there are few properties for sale against many
buyers, in which case price will tend to go up. Demand is more than
supply.
SUBSTITUTION, PRINCIPLE OF an appraisal principle which
holds that the value of a replaceable property is inferred from the
value of an equally desirable substitute property. This is based on
the assumption that no prudent buyer will pay more than what will
cost him to acquire an equally desirable substitute property.
UNDER-IMPROVEMENT an improvement which is not
suitable to the site on which it is placed because of deficient size or
cost.
UNEARNED INCREMENT increase in value of real estate
without any effort or expense by the owner.
VALUE in the economic sense, it refers to the power or
attribute of a property to satisfy humane want; in appraisal, it is the
present worth of future benefits arising from ownership of a
property.