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CAP Rate (Capitalization Rate): The percentage rate of return calculated on an all cash basis. Calculated by dividing net operating income by the sales price or value of a property.
Capital Gains Tax: A tax assessed on profits from the sale of a property.
Cash Flow: The amount of cash earned over a certain period of time from an income-producing property.
Certificate of Occupancy: A document presented by a local government agency or building department certifying that a building and/or the leased area has been satisfactorily inspected and is in a condition suitable for occupancy.
Commission: Fee charged by a broker or agent for his/her service in facilitating a transaction.
Contingency: A condition that must be fulfilled before a contract is binding.
Contract Rent: The rental obligation, expressed in dollars, as specified in a lease. Also known as face rent.
Covenants Conditions & Restrictions (CC&R's): Covenants, Conditions, and Restrictions is an agreement, usually included in the deed to a property, restricting the manner in which the property can be used. For example, a deed for an investment property may contain a covenant that limits the use of the property to i.e. food use, financial services, etc.
Conversion Clause: A provision in an adjustable-rate mortgage allowing the loan to be converted to a fixed-rate mortgage at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.
Cross Easements: Right to move freely over another parcel(s), which in many instances refers to utilities lines or access to parking within shopping centers.
Deed: A legal document conveying ownership of property.
Default: Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a
mortgage.
Deferred Interest: When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.
Double Net Lease: A lease where the tenant is responsible for property taxes and insurance, but is not responsible for the building or structure.
Downleg: The property to be exchanged in a 1031 exchange. For a more detailed explanation of 1031 exchanges, please view the 1031 Exchange page on the Willis Ventures website.
Due Diligence: Activities carried out by a prospective purchaser or mortgager of property to confirm that the property is as represented by the seller. Due diligence is an investigation by the purchaser/purchaser’s consultants to confirm that all the statements within the property documents are true and that no material facts are omitted.
Egress: Exit out of a property.
Environmental Impact Statement: Documents required by federal and state laws to accompany proposals for major projects and programs that will likely have an impact on the surrounding environment.
Equity: The difference between a property’s value and the mortgage amount owed on the property.
Escrow: The holding of documents and money by a third party prior to closing.
Estoppel: In Real Estate, an “Estoppel Certificate” is a document signed by the Seller confirming the representations made by the Seller in the subject property lease. The reasons for a Buyer to request an Estoppel Certificate are twofold: 1) to confirm the Seller’s representations to the lease and 2) to prevent the Seller from later asserting a fact that is inconsistent with the terms of the lease.
Fixed-Rate Mortgage (FRM): A loan on which the interest rate and monthly payment do not change.
Franchise: A form of business organization in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and usually with the franchisor's guidance, in exchange for a fee.
Fully Amortized ARM: An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
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