See: Income Capitalization Approach.

A method of figuring income tax by paying tax on the average income per year for the past five years. For example: A, a real estate salesperson, earns $10,000 taxable income for 4 years. In the fifth year, A sells a shopping center and earns $100,000 taxable income. A could take the total income for 5 years ($140,000), divide by 5 ($28,000), and pay tax on $28,000 for the past 5 years, less what A has already paid.

Estimating value (v) by dividing Net Operating Income (N.O.I.) by an overall capitalization rate R0. N.O.I. ÷ R0 = v. See: Overall Capitalization Rate.

See: Participation.

Property which produces income, usually from rental. May also include any property not entirely owner occupied.

See: Tax Lien (2).

One who is mentally or physically unable to handle his property without help. A court will appoint someone to handle the financial affairs of such a person.

To create a corporation.

Rights to intangibles, such as legal actions, rather than rights to property (rights to possession or use of land).

See: Escalation Clause.

An economic theory that an increase in capital or manpower will not increase production proportionately (five workers may do less than five times the work of one worker; and two workers may do more than twice the work of one worker). When the increase in production is proportionately greater than the addition, there is an increasing return; when production is proportionately less than the addition, the return diminishes.

An increase or growth, gained or added, such as a population increase.

A claim, lien, charge, or liability attached to and binding real property. Any right to, or interest in, land which may exist in one other than the owner, but which will not prevent the transfer of fee title.

1. A defect that would cost more to fix than the increase in value it would bring. 2. A defect that is not financially practical to fix.

See: Functional Obsolescence.

See: Physical Deterioration.

An agreement by which one party agrees to repay another for any loss or damage the latter may suffer.

A deed executed by both grantor and grantee, containing reciprocal agreements (grants or obligations). See also: Deed Poll.

An appraisal by one who has no interest in the property or nothing to gain from a high or low appraisal.

The term is most important as used to describe the relationship of broker and salesperson. The salesperson is either an employee or independent contractor. If an employee, the broker must withhold income tax and pay social security, provide workman’s compensation when applicable, and may be liable for some negligent acts of the salesperson while on the job, such as automobile accidents. The broker avoids all of these responsibilities if the salesperson is an independent contractor. The greater the control over the salesperson, the more likely the salesperson will be considered an employee. Some examples of this control would be required office hours or attendance at regularly scheduled meetings, as well as payment or reimbursement by the broker for license fees, auto expenses, etc.

See: Rate Index.