Glossary of Terms

Earnest Money

Earnest money is a payment made to a seller indicating a buyer’s willingness to enter into an arrangement. Typically, buyers provide earnest money to acknowledge that they are serious about a potential purchase, or that their intent to transact is “in good faith.” For the seller, earnest gives assurance that the buyer won’t backout of negotiations without valid cause. Earnest money does not obligate a buyer to transact, however, as issues with the property may be found later while being appraised or inspected.

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Easement

Easement is a non-possessory right that allows the holder to occupy or use real property that he or she may not actually own. Easement rights are limited in nature, and are restricted to whatever is “convenient or necessary” to satisfy the purposes of the easement. There are two main types of easements that are common in real property: easements appurtenant and easements in gross.

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Economic Growth

Economic growth is a term used to describe an increase in the production of economic goods and services over time. It is measured by an increase in the market value of goods and services produced as a result of changes in the productive capacity of capital goods, labor force, technology, and human capital.

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Economic Life

Economic life is the period an entity expects to be able to use an asset, assuming a normal amount of usage and maintenance. Different from physical life, economic life is used to determine how long a capital investment, or investment in real estate, will be useful towards the operations of a business. Economic life doesn’t just refer to a predetermined amount of time, and can be applied to other forms of measurement such as mileage. For example, one may refer to an automobiles economic life as 200,000 miles, instead of 15 years.

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Economically Distressed Community

See Distressed Areas
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Economies of Scale

Economies of scale are competitive cost advantages that firms enjoy when they achieve efficiency in production. The higher the production and the larger the business, the wider the fixed and variable costs can be spread.

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Effective Gross Income (EGI)

Effective Gross Income (EGI) is income generated by a property including base rent and miscellaneous income, less vacancy and collection losses.

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Effective Rent

Net rental income received by landlord from a lease after deducting the value of concessions and costs incurred to secure the lease such as

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Egress

The right to exit a property or the act of going out of or leaving a place. From a real estate standpoint, egress and ingress may be important components of site feasibility.  Properties typically have entry and exit points along public streets, however that is not always the case.  In situations of a landlocked or difficult to access property, access easements may be necessary in order to provide reasonable access to and from the property. Note that easements rights to enter and exit a property may be separate from legal ownership of the property itself.

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Elasticity

Elasticity is a concept used to measure the sensitivity of one variable to change in another variable. Typically used to gauge consumer demand for a good or service, elasticity can be measured by the change in aggregate quantity demanded following a change in price or quality.

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Empowerment Zones

Economically distressed communities designated by government for aid—but this aid is intended primarily to lift the communities out of poverty by stimulating business enterprise and creating jobs.

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Encumbrance

Encumbrance is any limitation on the ownership of real property. Similar to a lien, an encumbrance can restrict both the free use and the transferability of the property until removed. Encumbrances include leases and mortgages, but are not always financially related. Encumbrances are non-possessory, holding no interest in the title of real property.

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Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP) is the process used by firms to manage various portions of their business to promote efficiencies across business lines. ERP systems are used to manage all levels of a firm’s operations, from distribution and supply chain management to treasury management and payroll processing.

Enterprise resource planning allow firms to integrate all information onto a single platform and promote the sharing of information across various departments. ERP is particularly valuable for corporations that operate across diverse geographies across a country or the globe.  

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Environmental Site Assessment (ESA)

Environmental Site Assessment is a report prepared for a real estate holding that identifies potential or existing environmental contaminations liabilities.
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Equity

Equity is the value of an asset less the value of all liabilities on that asset. For example, if an investor owned a property with a market value of

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Equity Financing

A method of raising capital through the sale of ownership interests in an enterprise or other business entity. Equity financing can range in size from seed money for a start-up to an IPO for a multinational corporation. This type of financing isn’t limited to business endeavours, however, and can include raising capital for a real estate acquisition or other asset that may churn a profit. Equity ownership includes, but is not limited to, common stock, convertible preferred stock, and ownership interests in a Delaware Statutory Trust.

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Equity Interests

Equity Interests are ownership interest in a business entity, from the concept of equity as ownership. 

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Equity Investments

Equity investments are one or more shares in the ownership of a business or corporation that are purchased by investors. In contrast to debt investments, equity investments

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Equity Load

Equity load is a commission paid by an investor on his or her investment in a security (in this case a beneficial interest in DST or TIC). The sales charge is paid to

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Escrow Agent

Escrow agent is an entity that has fiduciary responsibilities in the transfer of property from one party to another. The escrow agent acts as a custodian of

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Escrow Funds

Escrow funds are capital held by a neutral entity in an account for the benefit of the parties of a financial arrangement whereby the funds are distributed only after certain

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Estate Planning

The process of arranging the transfer of one’s wealth and assets after his or her death. Estate planning helps govern how these assets will be managed and distributed, while looking to minimize estate taxes to preserve wealth. Real estate, personal property, stock and other securities, life insurance, and debt are a few of the assets that are considered to be part of an individual’s estate.

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Estate Tax

Per the IRS, an estate tax is a tax on the transfer of property upon death. An estate tax considers the fair market value of all the property within one’s estate, and not what the assets were originally purchased for. The total of these items is known as the Gross Estate, and can include cash, securities, ownership interests in either a business or real estate, annuities, among other asset classes. As of 2019, a filing is only required for estates with a gross assets and prior taxable gifts above $11,400,000.

Once the Gross Estate has been determined, one may be able to take deductions to determine the actual taxable amount of the estate. These include mortgages, estate administration expenses, and property that is given to eligible charities. Note, that property passed to a living spouse may be transferred tax free.

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Exchange Accommodation Titleholder (EAT)

Used when completing a reverse exchange, an Exchange Accommodation Titleholder (EAT) is an unrelated party who holds legal title to either

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Exchange Accommodator Titleholder (EAT)

For Exchange Accommodator Titleholder see Accommodator.

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Exchange Agreement

A written agreement between the exchanger and the Qualified Intermediary defining the transfer of the relinquished property, the ensuing purchase

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Exchange Period

Exchange period, under IRC Section 1031, is when an exchanger or taxpayer executing a delayed exchange has 180 calendar days from the closing date of the sale

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Exchange Proceeds

Exchange proceeds are cash proceeds from a transfer of relinquished property held in a qualified escrow account set up by a qualified intermediary whereby the funds

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Exchange Rates

An exchange rate is a metric that quantifies the value of a country’s currency as it relates to the value of another country’s currency. Most exchange rates are considered floating rates, meaning that the rate rises and falls as a result of changes and developments on the foreign exchange market. An exchange rate tells an individual for example how many euros he or she can obtain in exchange for one U.S. dollar.

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Exchange-traded Fund (ETF)

An exchange-traded fund (ETF) is collection or basket of securities traded on a financial exchange. ETFs can be bought and sold via brokers just as stocks can. ETFs can have any type of investment concentration and offer investors exposure to thousands of stocks, commodities or bonds operating within or originated in the United States, emerging markets such as India or Brazil, Europe or any other geography. It can also focus on a specific industry or sector such as banking, telecommunications, minerals or technology.
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Exchanger

Exchanger is the taxpayer or owner of the property or properties being exchanged during a tax deferred exchange (aka 1031 exchange or like-kind exchange).

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Excise Tax

Excise tax is an indirect tax charged to a producer of a good such as oil or tobacco that is ultimately passed onto a consumer via a higher price. There are two types of excise taxes: ad valorem and specific excise tax.

Ad valorem means “according to value” in Latin. An ad valorem excise tax is levied on a product or service based on its value. Tax regulators impose ad valorem excise taxes on products and services via a fixed percentage of the price for that good or service.

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Exclusive Right Listing

Exclusive right living is a formal agreement between a seller and a real estate agent, under which the real estate agent has the sole right to sell a specified property.

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Exclusive-Agency Listing

Exclusive-agency listing is an agreement established between the seller and one real estate agent, where the seller reserves the right to sell the property on his or her own,

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Exit Cap Rate

See Terminal Cap Rate.

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Exit Strategy

A planned approach to liquidating one’s position in an asset, investment, or venture in hopes of minimizing loss or maximizing gain. Exit strategies may be executed when an investment has stopped being profitable, or has met its objective. Other factors that may contribute to an exit include a change in market conditions or legal reasons.

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Expected Return

Expected return is the amount an investor would anticipate receiving on an investment that has various known or expected rates of return.

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Expense Stops

Expense stops, as stated in a commercial lease, mark the extent of operating expenses and taxes a landlord will be responsible for on a tenant-filled property. All expenses past this threshold will be held liable by the active tenant.

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Externality

Externality is an economic term that describes a third-party factor that has a positive or negative impact on an individual or firm where the third party factor has no direct control over the creation of a cost or benefit. 

The impact that positive net migration to a particular market in the United States has on property values is an example of a positive externality. The impact of an uptick in crime in a particular neighborhood has on the value of homes in that area is an example of a negative externality.

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The Environmental Protection Agency (EPA)

The Environmental Protection Agency (EPA) is an agency of the United States government established in December 1970 by United States President Richard Nixon. The agency was created to promote and protect human and environmental health by creating standards and laws that support this mission.

The agency was created in response to public concern with regard to the health of the natural environment and humans. The EPA regulates manufacturing, processing, distribution and use of chemicals and pollutants and enforces its standards via fines, sanctions and other various methods of penalty to actors who violate its terms.

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