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Terms Beginning With A - E
AAA
The highest rating given to corporate or municipal bonds indicating the expected full payment of both principal and interest at maturity. Standard & Poor's rates investment grade bonds as AAA, AA, A, and BBB; Moody's Investors Service rates investment grade bonds as Bbb or higher. Bonds or securities below these investment grade ratings are considered as junk bonds. See bond rating for a more complete presentation of the security rating system.
AAA Tenant
A tenant with a top credit rating. To a real estate developer, attracting such a tenant is important since the ability to arrange both construction and permanent financing for a major commercial project, such as a shopping center or office building, is often dependent upon pre-leasing a certain amount of the space to an AAA tenant or tenants.
Abandon
To give up or leave employment; to relinquish possession of personal property with the intent to disclaim title.
Abandonment
The voluntary release of a claim or right one has in a piece of property with the clear intention of terminating possession or interest and without giving this interest to anyone else. Abandonment includes both the intention to release any claim one has against the property as well as the actual act of "abandoning" the property.
Abatement
(1) A complete or partial cancellation of a levy imposed by a governmental unit. (2) A decrease or reduction in the amount of a charge such as rent. For example, a tenant receives an abatement of rent during the time the leased space cannot be inhabited due to fire or flood damage. Abatements usually apply to tax levies, special assessments, and service charges.
Ability-to-Pay Principle
The idea that people or entities (i.e., corporations) who earn more (or own more) should pay more in terms of taxes.
Able
A term referring to the financial capability of a purchaser. The word is often used in a phrase appearing in real estate listing agreements and sales contracts as "ready, willing and able."
Abnormal Sale
A sale that is not typical within the context of what is happening in the marketplace.
Abode
A home or place of residence.
Above Par (Value)
The price of a stock or bond when it is higher than its face (redemption) value.
Abrogate
To repeal or cancel. For example, a law could be repealed (abrogated) by legislative action.
Absentee Owner
The owner(s) of property who does not physically reside on the property. When this occurs both the rental as well as the upkeep of the property are normally done by someone other than the actual owner, such as a property manager.
Absolute Advantage
The ability to produce a good for less cost (less factory inputs) than anyone else. Also see comparative advantage.
Absorption Costing
A product costing method in which all manufacturing costs are treated as product costs.
Absorption Rate
The percentage of a particular type of real estate that can be sold or leased in a particular location during a certain period of time.
Abstract
The notes made by a title examiner based on his examination of the land records. These notes are a concise summary of the transactions affecting the property. The title agency produces a binder from the information in the abstract. Also referred to as abstract of title.
Abstract of Title
(1) The history of the transfers of title to a given piece of land, briefly stating the parties to and the effect of all deeds, wills, and judicial proceedings relating to the land. A condensed chronological history of all recorded instruments in the chain of title which affect the title. (2) A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurance title.
Abstraction (Extraction) Method
A method of estimating the value of land by establishing a ratio of site value to total property value based on data from comparable improved properties. The ratio derived from comparable properties is then applied to the total value of the property being appraised to estimate the value of the land.
Abut
To border on or to share a common boundary. For example, a property owner could have land that "abuts" a highway, which means the two properties border each other.
Accelerated Cost Recovery System (ACRS)
A tax provision contained in the Economic Recovery Tax Act of 1981 intended to provide an incentive to invest in capital assets by making a company's asset lives substantially shorter than actual service lives. By shortening the period over which depreciation charges may be taken, companies are more prone to replace older assets which are fully depreciated with new ones for which depreciation charges may be credited against current earnings for tax-reduction purposes.
Accelerated Depreciation
Depreciation methods that write off the cost of an asset at a faster rate than the write-off under the straight line method. A form of depreciation in which expenses are accelerated in the early years creating greater charges against income for tax reduction purposes. The three principal methods of accelerated depreciation are: (1) sum of years' digits, (2) double declining balance, and (3) units of production. As a non-cash charge to earnings, cash flows are increased due to reduced income taxes in the earlier years of an asset's life. Accelerated depreciation techniques create only "timing differences" in depreciation; the total depreciated value remains the same irregardless of the depreciation method.
Acceleration Clause
(1) A provision in a contract, loan document, or any legal instrument that upon a certain event the time for the performance of specified obligations shall be advance, for example, a provision making the balance due in full upon the debtor's default. (2) A condition in a real estate financing instrument giving the lender the power to declare all sums owing lender immediately due and payable upon the happening of an event, such as the sale of the property, or a delinquency in the repayment of the note. (3) A clause in a promissory note, mortgage or deed of trust giving the creditor (mortgagee) the legal right to demand immediate payment of all future payments due to the occurrence of some event such as the default on an installment payment or the failure to keep the property adequately insured.
Acceleration Principle
Changes in consumer demand (spending) cause even greater changes in derived demand and therefore in investment spending.
Accelerationist Hypothesis
The idea that monetary and fiscal policy can be used to permanently reduce the rate of unemployment only at the cost of accepting an accelerating rate of inflation.
Acceptance
(1) A voluntary expression by the person receiving the offer (the offeree, and quite often the seller of the property) to be bound by the exact terms of the offer in the manner requested or authorized by the person making the offer (the offeror, and quite often the potential buyer of the property). An acceptance must be unequivocal and unconditional. (2) The unqualified assent to the act or proposal of another, as the acceptance of a draft or bill of exchange, of acceptance of money through a loan contract, of an offer to make a contract, or of a gift or a deed. Also see banker's acceptance.
Access
The right to enter upon and leave property. The owner of land which abuts or adjoins a road or highway normally has a vested right to come and go from his or her land to the highway without obstruction, subject to limitations imposed by the governing body.
Accessibility
The ease with which a person can either enter or exit a particular parcel of land. The accessibility of a particular parcel is a function of many things such as frontage to a road, traffic flow, and topography. Good accessibility will usually result in higher value; likewise, a parcel of land with poor accessibility will normally sell for less in the marketplace.
Accession
(1) The legal right that entitles the owner of land to all that the soil produces or all that is added to the land either intentionally or by mistake. (2) The acquisition of title to property by a person by virtue of the fact that it has been attached to property that is already owned.
Accessory Building
A second building on a lot and one that is not considered to be the primary building. A storage shed or a detached garage would be an accessory building.
Accommodating Accounts
In the balance of payments, those accounts that for analytical purposes can be considered triggered by the need to finance other transactions included in the balance of payments. Also referred to as compensating or financing accounts.
Accommodation Party
A person who signs a commercial paper or contract to lend credit to another.
Accord
An agreement between the Federal Reserve System (Fed) and the U. S. Treasury Department concluded in March 1951. It freed the Federal Reserve from the obligation of pegging interest rates and allowed it to pursue a discretionary and independent monetary policy.
Accord and Satisfaction
An agreed-to substitution of a different performance for the original obligation, the accord being the agreement and the satisfaction the execution or performance.
Account
A record of the additions, deductions, and balances of individual assets, liabilities, owners' equity, revenues, and expenses. The basic component of a formal accounting system.
Account Activity
The transactions associated with an account, whether it be a deposit account showing deposits, withdrawals, and automatic transfers, or a loan account which shows payments made, interest credited, loan additions, or payoff. A complete record of such transactions comprises part of a financial institutions account analysis.
Account Analysis
A record of the transactions, typically provided on a monthly basis, associated with a customer's account, particularly that provided to corporate customers as part of a financial institution's overall cash management services. Account analysis is typically done to assess the adequacy of a customer's compensating balances or the fees paid for banking services received. The analysis takes into account such activity as the average daily balance, float activity, earnings credit, and related factors.
Account Executive
The title given by some brokerage firms to their stockbrokers. Other variations on the title include registered representative, financial counselor and financial consultant.
Account History
A summary statement of a deposit account's activity, normally recorded over a monthly period. This form of analysis is generally the one presented to bank depositors on their monthly statement of account activity.
Account Hold
Also referred to as check hold, this is the number of days from date of deposit that a financial institution can legally hold uncollected balances before providing customers the use of these funds. The holding period represents the time required for the institution to collect the funds from the institution upon which the check or draft for payment was written.
Account in Trust
An account managed by one party for the use or benefit of another who is named as the account beneficiary. Normally such accounts are established for minor children as savings accounts for future use or checking accounts for college students and the like.
Account Inquiry
A request for the account history of a customer's account.
Account Number
The numeric code identifying the owner of an account. For financial institutions, such account numbers may contain coded information for security purposes.
Account Party
The party whose bank issues a letter of credit - usually the buyer.
Account Reconcilement
A bookkeeping service offered by banks, frequently for a fee, which aides customers in balancing their checking accounts.
Accountabilities
Assets and resources for which a person or organization (including a governmental unit) must render an accounting, although he or it may not be personally liable for them. For example, a public official is responsible for the cash and other assets under his control and must account for them. Moreover, even if a trustee has disbursed all funds confided to his care and has relieved himself of liability, he is still obligated to account for them, and the items are, therefore, accountabilities.
Accountant's Opinion (Letter)
A statement provided by an outside accounting firm attesting to their findings and examination of the financial records of a company that the transactions recorded and presented in the financial statements follow Generally Accepted Accounting Principles (GAAP). An opinion may be qualified or unqualified depending on the extensiveness of the accountant's examination. A qualified opinion indicates that the examination, typically due to limitations in scope, was not able to directly confirm all information contained within the statements, and is therefore not necessarily negative.
Accounting
(1) The process of recording, classifying, reporting, and interpreting the financial data of an organization. (2) A system of record keeping that provides individuals and organizations the means to provide information on resources available for the purpose of the organization, the means to finance these resources, and the results achieved through their use.
Accounting Cycle
Steps in the processing of business transactions during the accounting year: (1) analyzing transactions; (2) recording in journals; (3)posting to general ledger; (4) adjusting the accounts; (5) preparing financial statements; and (6) closing temporary accounts.
Accounting Entity
Those people, assets, and activities devoted to a specific economic purpose and for which a separate accounting should be made.
Accounting Equation
An expression of the equivalency in dollar amounts of assets and equities in double entry bookkeeping; often stated as: Assets = Liabilities + Owners' Equity.
Accounting Exposure
See balance sheet exposure, transaction exchange gain or loss, and translation exchange gain or loss.
Accounting Period
(1) That time period, typically one year, to which accounting reports are related. (2) A period at the end of which, and for which, financial statements are prepared.
Accounting Principles
See Generally Accepted Accounting Principles (GAAP).
Accounting Procedure
The arrangement of all processes which discover, record, and summarize financial information to produce financial statements and reports and to provide internal control.
Accounting System
The total structure of records and procedures which discover, record, classify, and report information on the financial position and operations of an organizational unit or any of its funds, balanced account groups, and organizational components.
Accounts Receivable
Amounts owing on open account from private persons, firms, or corporations for goods and services furnished by an entity.
Accrete (Accretion)
An increase in the value of an asset which from an accounting sense is accompanied by the generation of non-cash income. The cash gain is realized upon eventual sale or disposition of the asset.
Accreted Value
A valuation basis for certain investments and debt instruments that reports on the balance sheet only that portion of their face value that reflects principal and interest accrued to date.
Accretion
(1) The buildup of land from natural forces such as wind or water. (2) The accumulation of land (soil) as a result of the gradual washing or motion of water (alluvion).
Accretion of Discount
An accounting entry made to interest income in order to offset any discount to be earned for bonds purchased below their par value or call price.
Accrual Basis
The accounting basis whereby revenues are recognized in the period earned whether actually received or not and expenses are recognized and matched with the related revenues of the period whether actually paid or not.
Accrual System
Accounting system in which the returns and costs are reported when legally incurred rather than when the cash flow associated with the receipt or the payment materializes.
Accruals
Continually recurring short-term liabilities. Examples are accrued wages, accrued taxes, and accrued interest.
Accrue (Accrual)
(1) A method of accounting for income or expenses based upon expected cash flows as opposed to actual cash received or paid out. (2) To record revenues when earned and to record expenditures as soon as they result in liabilities for benefits received, notwithstanding that the receipt of cash or payment of cash may take place, in whole or in part, in another accounting period. Accrual accounting tends to smooth earnings by better matching a period's anticipated revenues with associated expenses.
Accrued
An accumulation over a certain period of time, such as accrued depreciation or accrued interest.
Accrued Benefits
The amount of a pension plan participant's benefit (whether or not vested) as of a specified date, determined in accordance with the terms of the pension plan and based on compensation (if applicable) and period of service to that date.
Accrued Depreciation
Any diminishment or loss of utility or value of a building from the time of initial construction to the present. Accrued depreciation is calculated as the difference between what it would cost to replace the building new and the current appraised value of the building.
Accrued Dividend
The regular dividend considered earned by the stockholder but not declared or payable.
Accrued Expenses
Expenses incurred during the current accounting period but which are not payable until a subsequent accounting period. Also see accrual basis and accrue.
Accrued Income
See accrued revenue.
Accrued Interest
(1) Interest that has been earned but has not yet been paid; unpaid interest that has already been earned.. (2) Interest accrued but not yet paid on a bond or security since the last interest payment was made. The buyer of the bond pays the market price plus accrued interest. (3) Interest that is due but hasn't yet been paid. It most often comes into play when you buy bonds in the secondary market. Bonds usually pay interest every six months, but it is earned (accrued) by bondholders every month. If you buy a bond halfway between interest payment dates, you must pay the seller for the three months' interest accrued but not yet received. You get the money back three months later when you receive the interest payment for the entire six-month period.
Accrued Interest on Investments Purchased
Interest accrued on investments between the last interest payment date and the date of purchase.
Accrued Interest Payable
A liability account reflecting certain interest cost that has been incurred but is not due until a later date.
Accrued Interest Payable
A liability account which represents the amount of interest expense accrued at the balance sheet date but which is not due until a later date.
Accrued Revenue
Revenue earned during the current accounting period but which is not to be collected until a subsequent accounting period. Also see accrual basis and accrue.
Accrued Taxes Payable
A liability for taxes which have accrued since the last payment date.
Accrued Wages Payable
A liability for wages earned by employees between the last payment date and the balance sheet date.
Accumulated Benefit Obligation
The actuarial present value of benefits (whether vested or non-vested) attributed by the pension benefit formula to employee service rendered before a specified date and based on employee service and compensation (if applicable) before that date. The accumulated benefit obligation differs from the projected benefit obligation in that it includes no assumption about future-compensation levels.
Accumulated Depreciation
A contra account to the related asset account reflecting the cumulative amounts recorded as depreciation for a specific asset or group of assets. Also referred to as accumulated depreciation.
Accumulated Dividend
A dividend not paid when due but expected to be paid at a later date; becomes a liability of the company until payment.
Accumulated Plan Benefits
Benefits attributable under the provisions of a pension plan to employees for services rendered to the benefit information date.
Accumulated Surplus
Also referred to as simply surplus, the excess of a company's profits, after the payment of taxes and dividends, which are either held or reinvested.
Accumulation Plan
A plan for the systematic accumulation of mutual fund shares through periodic investments and reinvestments of dividend income and capital gains distributions.
Acknowledgment
(1) A formal declaration to a public official by a person who has signed (executed) an instrument which states that the signing was voluntary. (2) As a verb, the confirmation by a party executing a legal document that this is his signature and voluntary act. This confirmation is made to an authorized officer of the court or notary public who signs a statement also called an acknowledgment.
Acquisition
(1) The act or process by which property ownership is achieved. The ways in which title to real property is transferred may be classified as (a) voluntary conveyance (deed), (b) transfer by devise (dying with a will) or descent (dying without a will), (c) transfer by adverse possession, (d) transfer by accession and (e) transfer by public action or by operation of law. (2) The purchase of an asset with rights and title passing to the new owner. (3) A general term referring to the taking over of one company by another as in merger and acquisition.
Acquisition Adjustment
Premium paid for an acquisition, over and above original cost less depreciation. Similar to goodwill.
Acquisition Cost
The total cost of purchasing or acquiring title to real property. In addition to the sales price, additional costs could also include loan origination fees, appraisal fee, credit report fee, title charges, attorney fees and other normal closing costs.
Acre
A measure of land in whatever shape equal to 43,560 square feet, 4,840 square yards or 160 square rods. A square parcel of land measuring 208.71 feet on each side contains one acre. There are 640 acres in a section of land.
Acreage Allotments
Government restrictions of the acreage that farmers may plant with a particular crop.
Acreage Property
A large tract of land that has had few, if any, improvements made either "to" the land, such as roads or the platting of individual lots, or "on" the land, such as buildings.
ACRS
See Accelerated Cost Recovery System.
Act of Bankruptcy
Any of the acts specified by the national bankruptcy law which, when committed by the debtor within the specified time preceding the filing of the petition in bankruptcy, is proper grounds for declaring the debtor a bankrupt if the other requirements are met.
Act of God
Any act of nature such as rain, lightning, floods or earthquakes. Many casualty insurance policies do not cover losses resulting from an "Act of God."
Action Branches (Decision Theory)
Branches emanating from an action point in a decision-tree diagram and representing the possible actions of the decision maker.
Action Point (Decision Theory)
In a decision-tree diagram, a point of choice (at which the decision maker is in control), symbolized by a square.
Action to Quiet Title
(1) A court action to establish ownership of real property. (2) A lawsuit filed by a person to remove a cloud on title or clear the claims of others filed against a parcel of property. The objective of such action is to have a court rule that the claims filed against the property are invalid. Although technically not an action to remove a cloud on title, the two actions are usually referred to as quiet title actions.
Actions
In decision theory, the mutually exclusive decision alternatives open to a decision maker.
Active Account
An account showing deposits or withdrawals during the specified accounting period. Contrast with inactive account.
Activity Charge
A charge made by financial institutions to cover the costs of servicing an account. Such charges are most typically triggered when the account balance falls below some specified level.
Actual Age
The historical (chronological) age of a building, as for example a building constructed ten years ago is ten years old in actual age. Actual age should not be confused with effective age which is the age of a building that is indicated by the condition and utility of the improvement. It should be clear that the amount of maintenance and care given to a building helps determine its effective age. For example, a ten-year-old building might have an effective age of twenty-five years because of poor or deferred maintenance.
Actual Authority
The power that a principal has expressly conferred upon an agent or any power that is incidental or necessary to carry out the express power of the agency. This power may be broad, general power or it may be limited, special power.
Actual Cash Value
The monetary worth of a structure for insurance purposes. Actual cash value is calculated by taking the replacement cost of the property and then subtracting the value of the physical wear and tear of the property.
Actual Damages
The compensation received by an injured party for the actual injuries or loss suffered by the party.
Actual Eviction
The violation of any material breach of covenants by the landlord or any other act which wrongfully deprives the tenant of the possession of the premises.
Actual Possession
The physical occupancy and control by someone of a parcel of real estate. For example, if John has clear title to his house and is living in the house then he is in actual possession of the house. A distinction should be made between actual possession and constructive possession which occurs when a person has the legal right to assume occupancy but does not actually occupy the space.
Actuals
See cash commodity.
Actuarial Assumptions
Assumptions used in the actuarial valuation process as to the occurrence of future events affecting pension costs, such as mortality, withdrawal, disablement and retirement; changes in compensation and national pension benefits; rates of investment earnings and asset appreciation or depreciation; procedures used to determine the actuarial value of assets; characteristics of future entrants for open group actuarial cost methods and other relevant items.
Actuarial Basis
A basis used in computing the amount of contributions to be made periodically to a fund so that the total contributions plus the compounded earnings thereon will equal the required payments to be made out of the fund. The factors taken into account in arriving at the amount of these contributions include the length of time over which each contribution is to be held and the rate of return compounded on such contribution over its life. A trust fund for a public employee retirement system is an example of a fund set up on an actuarial basis.
Actuarial Cost Method
A procedure for determining the actuarial present value of pension plan benefits and expenses and for developing an actuarially equivalent allocation of such value to individual periods, usually in the form of a normal cost and an actuarial accrued liability.
Actuarial Present Value (APV)
The discounted value of an amount or series of amounts payable or receivable at various times, determined as of a given date by the application of a particular set of actuarial assumptions.
Actuarial Update
An estimate or projection of the pension benefit obligation developed by using techniques and procedures considered necessary by the actuary. If conditions are relatively stable, only a few minor adjustments (such a an accrual of additional interest on the pension benefit obligation since the valuation date, and addition of benefits earned during the year less benefits paid) may be sufficient. If there have been significant changes in one or more relevant factors (e.g., in the size or composition of the population covered by the employees' retirement system), the procedures may be more extensive.
Actuarially Determined Contribution Requirements
Amounts required to be paid annually to a pension plan, based on an actuarial cost method or funding method.
Ad Valorem
(1) A valuation based on the monetary worth of an asset. (2) In proportion to value. A basis for levy of taxes upon property. For example, an ad valorem tax is a tax assessed on the value of the underlying good. (3) A Latin prefix meaning "according to value." Local and state governments levy taxes on real property based on the assessed value of the property. Two different pieces of property with the same assessed value have the same ad valorem tax. (4) Designates an assessment of taxes against property. Literally, according to value; based on the "ability to pay" theory. Contrast with specific tax which is a fixed amount, irrespective of the asset's worth or value.
Ad Valorem Tax
A tax levied on the value of a good.
Adaptive Expectations
The idea that people form their expectations of economic variables solely on the basis of previous values of those variables.
ADC Loan
A type of loan intended to cover the three phases of a project: (1) acquisition, (2) development, and (3) construction. Such loans, while considered more risky than some other types of real estate loans, are normally made with a variable interest rate and are expected to be repaid over a reasonably short period of time.
Addendum
Something that is added and thus made part of a document. Quite often a real estate listing agreement or sales contract is a pre-printed form and thus may not have the space within the document to include specific and detailed information that the parties to the contract wish to include.
Add-On Interest
(1) A method of interest payment calculation in which a percentage of the principal is used to calculate the interest cost. The interest cost is then added to the principal to determine the total amount of payment. (2) A method of calculating the amount of interest due by taking the simple interest that would be charged if the loan principal amount was not amortized over the term of the loan. Periodic installments are thus calculated by dividing the sum of the add-on interest and original principal by the number of periods in the term.
Add-on Method
A method of paying interest where the interest is added onto the principal at maturity or interest payment dates. Also see add-on interest.
Adequate Public Facilities Ordinance
A local government ordinance that requires that certain public facilities such as road and utilities be completed or soon to be completed before any new real estate development can be permitted. This technique is used by municipalities to control growth and direct new development toward areas where adequate public facilities exist.
Adjacent Land
Land lying close to or near another parcel, though the two parcels may not actually touch. The term should not be confused with adjoining land which exists when two parcels are actually jointed to each other.
Adjunction
The process of adding or annexing a parcel of land to a larger parcel.
Adjustable Peg
The exchange rate system under the Bretton Woods agreement. Each country agreed to keep the exchange rate between its currency and other currencies within narrow bands. If those bands became indefensible, the pegged exchange rate could be readjusted and new bands set up.
Adjustable Rate Loan
A loan whose rate of interest is adjusted or changed at periodic intervals based upon some standard rate of interest as specified in the original loan agreement.
Adjustable Rate Mortgage (ARM)
(1) Similar to an adjustable rate loan, a mortgage with periodic adjustments in its interest rate, usually done every six months. ARM interest rates are calculated against an standard index rate, for example, the six-month Treasury bill rate or the Federal Home Loan Bank of San Francisco cost of funds, or some other agreed-to rate of interest. Such loans also most typically have certain protections for the borrower to limit the rapid escalation in interest rates and mortgage payments by limiting the frequency of adjustments and limiting the rate changes within a year and over the life of the loan. Sometimes lenders may offer a "teaser rate" on ARMs to entice new customers, knowing that rates may be adjusted later with rising market rates of interest. (2) A type of real estate loan in which either the interest rate charged or the length of the loan, or both, can change. Adjustable rate mortgages became very popular during the 1980's due primarily to the reluctance of lenders to quote a fixed interest rate loan to potential borrowers. By using an ARM, a lender is able to pass on the uncertainty of changes in interest rates to the borrower if rates change during the life of the loan. ARMs are normally tied to some index such as government securities. ARMs may also be referred to as adjustable mortgage loans (AMLs) or variable rate mortgages (VRMs).
Adjustable Rate Preferred (ARP) Stock
A perpetual preferred stock with a floating dividend rate reset each quarter and based upon the highest of three benchmark Treasury rates (three- month Treasure bill, 10-year Treasury note, or 10- or 20-year Treasury bond). ARP's have a minimum and a maximum dividend allowable rate which is known as a "collar."
Adjusted Cost Basis
The value of property for accounting purposes used to determine the amount of gain or loss realized by the owner upon the sale of the property.
Adjusted Futures Price
The cash-price equivalent reflected in the current futures price. This is calculated by taking the futures price times the conversion factor for the particular financial instrument (e.g., bond or note) being delivered.
Adjusted Gross Income
See taxable income.
Adjusted Sales Price
The estimated sales price of a comparable property after additions and/or subtractions have been made to the actual sales price for improvements and deficiencies when compared to the subject property being appraised.
Adjusting Entries
Those entries resulting from an attempt to reflect in the accounts various changes that may be appropriate although no source document is normally available; usually made to align recorded costs or revenues with the accounting period or to reflect unrecorded revenues and costs.
Adjustment
An accounting term used to describe an entry to account for entries not previously posted, transfers to subsidiary accounts, or to correct for pervious accounting errors.
Adjustment Interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.
Adjustments
The additions and subtractions made in the market data or comparable sales approach to value to account for differences in location, design, age, etc. between the properties being used as comparables and the subject property being appraised.
Administered Prices
According to some economists, some large corporations in specific industries in the U. S. economy are not subject to price competition. Instead, they administer prices to maximize their profits. As a consequence, he believes, most prices do not fluctuate as much as would be expected on the basis of shifts in supply and demand.
Administrative Lag
The time lapse between the recognition of a problem and when a policy action is undertaken to correct it. Also see recognition lag and impact lag.
Administrator (Administratrix)
A person appointed by the court to settle the estate of a person who dies without a will. The feminine form is administratrix. Compare to executor.
Administrator's Deed
A conveyance of property which is issued to a grantee (purchaser) who purchases property from an estate.
Adult
A person who has attained the age of majority and thus has the legal capacity to be bound under a contract. The age of majority varies from state to state.
Advance
The word has two common meanings in real estate finance: (1) to pay or advance money before it is due, and (2) to disburse working capital to a builder/developer through a construction loan. Under the first meaning, an owner might have both a first mortgage and a second mortgage on a parcel of real estate.
Advance Refunding
The issuance of debt instruments to refund existing debt before the existing debt matures or is callable. Also see "yield burning".
Advance Refunding Bonds
Bonds issued to refinance an outstanding bond issue before the date the outstanding bonds become due or callable. Proceeds of the advance refunding bonds are deposited in escrow with a fiduciary, invested in U.S. Treasury bonds or other authorized securities and used to redeem the underlying bonds at their maturity or call date, to pay interest on the bonds being refunded, or to pay interest on the advance refunding bonds. Also see "yield burning".
Adverse Opinion
An opinion stating the auditor's view that financial statements do not present fairly financial position, results of operations or changes in financial position in conformity with generally accepted accounting principles.
Adverse Possession
(1) A method of acquiring title to real property by possession for a statutory period of time. (2) The hostile possession of real estate, which when actual, blatant, visible, notorious, exclusive, and continued for the required number of years, will vest the title to the land in the person in such adverse possession. (3) The actual, exclusive, open notorious, hostile and continuous possession and occupation of real property under an evident claim of right or title. The time required legally to obtain title by adverse possession varies from state to state.
Adverse Selection
A problem faced by insurance companies when those who buy insurance make up a biased sample such that their probability of loss differs markedly and, from the point of view of the company, adversely from the population at large.
Advising Bank
A correspondent of an issuing bank that notifies the beneficiary of a letter of credit without adding its own engagement to that of the issuing bank.
Aesthetic Value
The intangible value of property created when the property possesses unique characteristics or features that make it attractive.
Affiant
The person who makes an affidavit.
Affidavit
Latin meaning "has pledged his faith." A written statement of facts made voluntarily and sworn to under oath before a public official or other persons authorized to administer such an oath.
Affidavit of Title
A sworn statement by the seller of real estate that no defects of title other than those stated in the sales contract or deed exist in the title being conveyed.
Affiliate
A related entity or company. See subsidiary.
Affirm
Ratification of a voidable contract by the party who is to be bound under the contract.
Affirmation
A solemn and formal declaration attesting to the truth of some matter. In certain instances, an affirmation is substituted for an oath, as for example, when a person for religious or personal reasons does not wish to take an oath.
Affirmative Fair Housing Marketing Plan
Action taken with the intent of encouraging minority integration in housing. The Department of Housing and Urban Development (HUD) has required an affirmative fair housing marketing plan from all subdivisions, multi-family projects and mobile home parks of five or more units before these projects are eligible for participation in various federal programs, including home mortgage programs.
After Acquired Title
Legal ownership in real property acquired by someone who had previously transferred his or her legal interest in the property.
After-Tax Basis
A method for comparing the returns on a taxable security and a tax-free municipal bond or security.
After-Tax Cash Flow
(1) The net amount of any receipt or expenditure after incorporating the effects of income taxes. (2) The spendable cash from an income-producing asset, such as an office building or apartment complex, calculated by taking gross income and subtracting fixed and variable costs, replacement for reserves, debt service plus tax savings or minus tax liability.
After-Tax Equity Yield Rate
The internal rate of return on the equity investment after considering federal income taxes.
After-Tax Proceeds from Resale
The amount of money a property seller would receive from a property sale after subtracting transaction costs, capital gains taxes and other expenses. Generally, this figure is calculated by taking the selling price less the sum of the existing debt, the income or capital gains taxes, and the expenses of sale.
Ag Land
Land zoned for agricultural use such as farmland or land used to raise livestock.
Against Actuals
See exchange for physicals.
Age-Life Method
A method of estimating accrued depreciation by applying to the reproduction cost new of the property the ratio of the property's effective age to its economic useful life.
Agency
(1) A relationship in which the agent is given the authority to act on behalf of another person (the principal). (2) A relationship in which one party (known as the principal) authorizes another party (the agent) to act as the principal's representative in dealing with third parties. Agency law generally involves rights and liabilities among these three parties.
Agent
(1) A person authorized to act for another (a principal). (2) One who acts for and in the place of a principal for the purpose of affecting the principal's legal relationship with third persons. The power of an agent to affect the principal's legal relations for lawful purposes is called authority. The term may apply to a person in the service of another, but in the strict sense an agent is one who stands in place of the principal. If A works for B as a secretary, he is a servant in the legal sense, but he may also be an agent. If A takes orders for B, he acts in place of B and is an agent.
Aggregate Demand
(1) The basis of estimating total demand for goods and services in an economy; consists of personal consumption expenditures (PCE), business investment spending to include expenditures for new housing units, net exports (exports minus imports), and government spending. (2) A curve showing the demand for the total output of the economy (real GDP) as a function of its price. Equivalent to the expenditure approach for the determination of total economic output or Gross Domestic Product (GDP).
Aggregate Supply (AS)
(1) The sum of all goods and services produced in the domestic economy in a specific period of time. (2) A curve showing the total supply of output (real GDP) as a function of its price.
Aggressive Growth
A term referring to an investment strategy which places emphasis on maximizing growth and capital gains versus asset quality, security, and income.
Aging Schedule
(1) A report showing how long accounts receivable have been outstanding. It gives the percent of receivables not past due and the percent past due by, for example, one month, two months, or other periods. (2) An accounting by category of a company's trade account receivables by date of sale; used primarily by lenders to assess the quality of a company's outstanding credits (receivables) as a basis for lending decisions.
Agreement
An expression of mutual assent, or a meeting of the minds, by two or more parties on a given proposition.
Agreement of Sale
(1) Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties. (2) An agreement between parties for the sale of real estate. In some states it is synonymous with a purchase agreement, sales agreement, or land contract or earnest money contract.
Agricultural Loan Program
A federal program in which the government lends money at pre-announced rates to farmers and allows them to use the crops they plant for the upcoming crop year as collateral. Default on these loans is the primary method by which the government acquires stock of agricultural commodities.
Agricultural Property
Land zoned for agricultural or farming activities.
AICPA
The American Institute of Certified Public Accountants, the national professional organization of CPAs in the United States.
Air Rights
The right to use, control and occupy the space above a particular parcel of real estate.
Alienation
The voluntary transfer of property and possession of the land or tenements from one party to another.
Alienation Clause
(1) Provision in a mortgage document stating that the loan must be paid in full if ownership is transferred. (2) A provision often included in a mortgage or deed of trust that legally permits the lender (mortgagee) to demand payment of all the outstanding principal if the property is sold or transferred by the borrower (mortgagor). Such a provision is also commonly known as a due-on-sale clause.
Allocation (Abstraction)
Method An appraisal technique used to estimate the value of the site (land) by deducting the value of the improvements from the total sales price of the property.
Allocation (Assets)
See asset allocation.
Allocation (of Resources and Goods)
Deciding which resources will be used for which purposes and how the outputs of the economy will be distributed among the people. A fundamental principle of the study of economics which assumes that resources - land, labor, capital and entrepreneurship will gravitate to their most productive uses based on prices. In efficient markets, pricing decisions are used to insure that resources are used (allocated) most efficiently in accordance with the needs of society.
Allocative Efficiency
See economic efficiency.
Allocative Inefficiency
See economic inefficiency.
Allodial System
The free and complete ownership of land by individuals. The allodial system is the system of property ownership in America today. The term allodial means free from the tenurial or vested rights in the king or feudal overlord.
Allowance for Amortization
The account in which are accumulated the amounts recorded as amortization of the intangible asset to which the allowance relates.
Allowance for Depreciation
The account in which are accumulated the amounts of cost of the related asset which have been charged to expense.
Allowance for Uncollectible Accounts
A contra asset account with a normal credit balance shown on the balance sheet as a deduction from accounts receivable to reflect the expected realizable amount of accounts receivable.
Allowance for Uncollectibles
A contra-asset valuation account used to indicate the portion of a receivable not expected to be collected.
Allowance Method
An accounting procedure whereby in the period in which credit sales occur the related amount of uncollectible accounts expense is estimated and recorded in the contra asset account allowance for uncollectible accounts.
Alluvion
The increase of soil, gravel or sand upon the bank of a stream or river or the shore of a sea due to the flow or current of the water. The actual act of the soil being added is known as accretion.
Alonso, William
An urban economist who believed that urban sites are composed of both land and location. In his book, Location and Land Use, Alonso explained the trade-off that exists between land rent and the transportation cost incurred by individuals in determining where to locate within an urban area.
Alpha (Measure)
(1) The rate of price appreciation of a stock or security, typically in units of percent per period. (2) A mathematical measure of price volatility that attempts to isolate the price movements of a stock from those of the market. A stock with a high alpha is expected to perform well regardless of what happens to the market as a whole. See beta.
Alteration
An unauthorized modification of a contract by one of the parties to the contract. The alteration is considered material when it affects the rights of the parties to the contract. If the alteration is intentional and material, it will be treated as fraud and the innocent party may void the contract at his or her option.
Ambient Standards
Government rules specifying maximum quantities of pollutants a unit of the environment may contain.
Amenity
(1) A feature or benefit received from a particular parcel of property which increases the satisfaction received by the owner or user of that property. Amenities may be both natural, for example, location or scenic view, and manmade, such as a swimming pool or tennis courts. Both material and man-made amenities increase the desirability of a certain location or parcel of land and thus that particular land will normally have a higher value than a parcel of land without the amenities. (2) In appraising, those qualities that attach to property in the benefits derived from other than monetary. Satisfactions of possession and use arising from architectural excellence, scenic beauty and social environment.
American Bankers Association
(ABA) Membership in the American Bankers Association is comprised of persons employed in the commercial banking business. The organization serves as a spokesman for the banking community.
American Depositary Receipts (ADRs)
(1) Certificates traded on U.S. stock exchanges or over the counter, representing ownership of a specific number of shares of a foreign stock. (2) ADRs are certificates issued by a U.S. bank, consisting of a bundle of shares of a foreign corporation that are being held in custody overseas. ADRs can be "sponsored," which means the corporation provides financial and other information to the bank, or "unsponsored." While ADRs have the same currency and economic risks as the underlying foreign shares, they are much more convenient for U.S. shareholders to own since there are no problems in transferring securities from a foreign country or currency conversion.
American Economic Development Council (AEDC)
The American Economic Development Council is an international organization whose mission is to advance the art and science of economic development. AEDC publishes a journal, Economic Development Review, and awards the professional designation CIDICED (Certified Industrial or Economic Developer). The council's address is Suite 22, 4849 North Scott Street, Schiller Park, Illinois 60176.
American Institute for Property and Liability Underwriteres
The American Institute for Property and Liability Underwriters is the main professional organization of property insurance agents. In addition to numerous educational programs and seminars, a professional designation, CPCU (Chartered Property Casualty Underwriter), is sponsored by the institute.
American Institute of Architects
This institute awards the designation AL4 and is the primary group for promoting architecture as a profession. Among the group's activities is its national committee on housing which provides numerous services in an effort to improve the quality of the living environment.
American Institute of Housing Consultants
This organization works with nonprofit sponsors in developing low-income housing. The institute also serves as a spokesman for low-income housing.
American Land Development Association (ALDA)
The American Land Development Association is a trade organization comprised primarily of land developers. The association's primary function is to represent the interstate land development industry in matters related to land development.
American Land Title Association (ALTA)
An association, founded in 1907, representing more than 2,100 title abstractors, title insurance companies, title insurance agents, and associate members. Since the role and responsibility of the title industry, and of its ALTA members, is to guarantee the safe, efficient transfer of real property, the ALTA membership functions cooperatively and effectively to provide protection for consumers and lenders alike. Members of the association use standardized title insurance forms developed by ALTA to provide uniformity within the industry. The ALTA staff represents specialists in the fields of government relations, public affairs, research and state governmental affairs.
American Planning Association (APA)
A professional trade association comprised of both publicly and privately employed planners. APA was formed by the merger of the American Institute of Planners and the American Society of Planning Officials.
American Real Estate and Urban Economics Association
The principal professional organization of real estate education, AREUEA consist of both educators and professional practitioners. The association publishes a journal of articles dealing with land use, urban economics and related topics.
American Society of Appraisers
An appraisal organization consisting of persons involved in the appraisal of both real and personal property. The society sponsors the designation ASA.
American Society of Consulting Planners
A professional society whose membership is limited to private planning firms. The society offers various services to its members and serves as a spokesman for consulting planners.
American Society of Home Inspectors, Inc. (ASHI)
A professional trade organization whose membership specializes in the physical inspection of homes. ASHI publishes numerous pamphlets and proceedings, conducts seminars and provides a Standards of Practice.
American Society of Real Estate Counselors (ASREC)
As an affiliate with the National Association of Realtors, this society consists of real estate brokers, appraisers, and consultants involved in assisting people in the buying and selling of real estate. The professional designation CPE (Counselor, Real Estate) is awarded by the society.
American Stock Exchange (AMEX)
The second largest stock exchange in the United States measured in trading volume (after the New York Stock Exchange (NYSE)). As distinguished from the NYSE, the AMEX tends to list securities of more small and medium sized companies, but also handles options trading for a number of companies listed on the NYSE. The AMEX is also more active in foreign security trades than the NYSE. In October 1998, the AMEX merged with the National Association of Security Dealers (NASD) and became the NASDAQ–AMEX Market Group.
AMEX
Acronym for the American Stock Exchange, located in New York City. In October 1998, the AMEX merged with the National Association of Security Dealers (NASD) and became the NASDAQ–AMEX Market Group.
Amortization (Amortize)
(1) Accounting for expenses or charges as applicable rather than as paid; includes such practices as depreciation, depletion, write-off of intangibles, prepaid expenses, and deferred charges. (2) The repayment of a loan by installments; i.e., to liquidate on an installment basis; an amortized loan is one in which the principal amount of the loan is repaid in installments during the life of the loan; (3) The repayment of a financial obligation over a period of time in a series of periodic installments. Specifically, this is the payback of the principal owed to the lender. The effect of amortization is to build up the paper value of the investor's (owner's) equity and to reduce the debt obligation. It should be noted that a portion of each payment consists of a blend of interest and amortization of principal. The interest portion is tax deductible, whereas the amortization is not.
Amortization of Premium
A charge made against interest income on bonds to offset any premium paid for their purchase above their par value or call price.
Amortization Rate
The percentage of a periodic payment that is applied to the reduction of the principal; in a level- payment mortgage this corresponds to the sinking fund factor.
Amortization Schedule (Table)
A detailed accounting of the amortization of a loan to include beginning period principal amounts, period payments, interest portion of each period payment, principal reduction portion of each period payment, and the ending period balance.
Amortization Term
(1) The time period over which the principal amount would be retired on the basis of the periodic installments paid. (2) For a loan, the period of time during which principal and interest payments must be made; generally the time needed to amortize the loan fully.
Amortized Loan
(1) A financial obligation that is repaid over a period of time by a series of periodic payments. (2) A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity.
Anaconda Mortgage
A type of mortgage in which a clause is included which states that the mortgage secures all debts of the mortgagor (borrower) that may be due and payable to the mortgagee (lender). Such a provision is also referred to as a "Mother Hubbard" clause.
Analyst
(1) An individual who performs various studies and calculations to help make decisions or solve problems concerning real estate investments. (2) Also known as a financial analyst or security analyst. Analysts have expertise in evaluating investments, and typically are employed by brokerage firms, investment advisors or mutual funds. They make buy, sell and hold recommendations on securities, and many specialize in industries or sectors.
Anchor Tenant
A well-known commercial retail business such as a national chain store or regional department store strategically placed in a shopping center so as to generate the most amount of customers for all of the stores located in the shopping center.
And Interest
A quotation term indicating that accrued interest is to be added to the price of a bond, i.e., the price quoted is exclusive of the interest.
Annexation
(1) The attachment of personal property to realty in such a way as to make it become real property and part of the realty. (2) The act of adding, joining and attaching one thing to another. With respect to the annexing of land, from time to time municipalities legally incorporate into the existing town or city limits a certain amount of land or territory outside their legal boundary. This may be done to consolidate two governments into one or perhaps to increase property tax revenue for the municipality.
Announcement Effect
The reaction by the financial markets to reports or press releases from regulatory bodies, such as the reported growth in the money supply, inflation measures, growth in national economic output (real Gross Domestic Product (GDP)), trade figures, and the like. Such releases are normally undertaken by officials in either the Treasury Department or the Federal Reserve Board prior to taking action.
Annual
Occurring once a year.
Annual (Loan) Cap
A specific limitation contained within an adjustable rate mortgage (ARM) agreement or other variable rate loan document which sets the maximum upward limit of adjustment for a year or for the life of the loan, irrespective of the adjustments made to the loan's index rate.
Annual Debt Service
Total payments required in one year in regard to a loan. The amount of payment is affected by either a change in the interest rate or a change in the payback period.
Annual Loan Constant
A ratio of the annual debt payment on a loan to the original amount borrowed. The loan constant is also referred to as a mortgage constant.
Annual Meeting
A yearly gathering of a company's senior management, board of directors, and shareholders in which the shareholders may vote on various matters, such as the election of the company's board of directors, management's recommendation of an outside auditing firm, management proposals and changes in company by-lays, and other corporate matters.
Annual Percentage Rate (APR)
(1) The cost of credit in consumer loans measured as an annual rate of interest. The APR takes into consideration the reduction (amortization) of the outstanding loan balance through periodic payments. Under conditions in the federal Truth in Lending Act, the APR must be listed in loan agreements and disclosed within 0.125 percent (i.e., 1/8 percentage point). (2) The effective annual rate of interest being charged on a credit agreement. The APR may differ from the stated rate. (3) A measure of the total cost of credit (interest as well as other recurring charges) expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.
Annual Percentage Yield (APY)
The amount of interest earned on a deposit account expressed as a percentage rate assuming a fixed principal amount and that the funds remain on deposit for a full 365-day accounting period.
Annual Report
An audited report provided yearly to shareholders of a publicly-owned corporation disclosing a company's annual financial performance, as required by the Securities and Exchange Commission (SEC). Typically a glossy, colorful publication, contents include a management discussion of financial performance, balance sheet and income statement, changes in financial position and capital accounts, and notes to financial statements as well as an outside accountant's opinion letter attesting to the completeness and presentation of the financial information. The annual report to shareholders required by the SEC is also referred to as the Form 10-K.
Annuities Payable
A liability account which records the amount of annuities due and payable to retired employees in a private corporation or a public employee retirement system (PERS).
Annuity
(1) An investment that produces a series of equal payments or cash flows for a limited number of periods. (2) A series of regular payments, usually from an insurance company, guaranteed to continue for a specific time, usually the annuitant's lifetime, in exchange for a single payment or a series of payments to the company. With a deferred annuity, payments begin sometime in the future. With an immediate annuity, payments begin right away. A fixed annuity pays a fixed income stream for the life of the contract. With a variable annuity, the payments may change according to the relative investment success of the insurance company. (3) A series of equal money payments made at equal intervals during a designated period of time. In governmental accounting the most frequent annuities are accumulations of debt service funds for term bonds and payments to retired employees of private corporations or under a public employee retirement systems (PERS). (4) (Legal) In law, a sum of money paid yearly to a person during his/her lifetime. It arises by a contract under which the recipient or another person deposits funds with the grantor. The grantor then returns a designated portion of the principal and interest in periodic payments upon the arrival of the beneficiary at a designated age. In general, an annuity is payment of a flat sum of money over a specific period of time.
Annuity Funds
Funds established to account for assets given to an organization subject to an agreement which binds the organization to pay stipulated amounts periodically to the donor(s).
Annuity in Advance
An annuity in which payments are made at the beginning of each period as contrasted with an ordinary annuity in which payments are made at the end of each period.
Annuity Method
A means of capitalizing future income streams from an investment. The procedure uses compound interest formulas that treat the income stream as an annuity providing for both a return "on" the investment and a return "of" the investment.
Annuity Period
The designated length of time during which an amount of annuity is accumulated or paid.
Annum Period
The designated length of time during which annuity payments are to occur.
Antidilution Provision
A contract with shareholders insuring that their relative financial position with respect to ownership (level of assets and earning power) is left unaltered in the event the company increases the number of shares of stock outstanding.
Antipirating Agreements
Agreements among employers to act jointly in the hiring of labor and not to compete with each other for workers.
Antitrust Acts (Laws)
(1) Statutes prohibiting combinations and contracts in restraint of trade, most notably the Federal Sherman Antitrust Act of 1890. (2) Laws limiting the growth of and use of monopoly power. (3) A series of laws, beginning with the Sherman Antitrust Act of 1890, designed to restrain monopoly and foster competition.
Antitrust Laws
State and federal laws enacted to protect individuals and business entities from monopolies and unfair restrictions. For example, local real estate boards cannot require its members to charge a certain brokerage commission rate since to do so would be in violation of federal antitrust laws.
AON
"All Or None." Abbreviation used on a buy or sell order to instruct the broker to fill the order entirely or fill none at all.
Appeals Board
A means by which a property owner can formally protest a tax bill and seek a change in the assessed value of his or her property. Jurisdictions that have such a board normally require the property owner to have first met with the tax assessor prior to appealing the property tax.
Applied Research
The application to a particular problem of the knowledge gained in basic research.
Appointments
Items such as furniture or equipment found in a building that may increase or decrease the intrinsic value of the property.
Apportionment
A division or allocation of responsibility among two or more persons. In regard to the sale of real estate, the allocation is typically of a cost or expense such as property taxes between the purchaser and the seller, or, in the case of income producing property, the allocation of rental income between the purchaser and seller. Normally the seller is responsible for expenses up to and including the day of settlement or closing.
Apportionment Clause
A clause normally included in standard insurance policies to prevent financial gain by the insured as a result of insuring the same property with two or more companies and hoping to collect more than the loss.
Appraisal
An estimate or opinion of value supported by factual information as of a certain date.
Appraisal
(1) The act of appraising; to make an estimate of value, particularly of the value of property. Note: If the property is valued for purposes of taxation, the less inclusive term "assess" is substituted for the above term. (2) The estimated value resulting from such action. (3) A written estimate of the market value of an asset as of a given date. Such estimates are provided by a qualified and licensed appraiser and reflect a number of factors to include the value of similar assets, improvements, market conditions, replacement costs, income-producing potential, etc. (4) An estimate of the value of property, made by a qualified professional called an appraiser. Most states require licenses. Various lenders have their own lists of approved appraisers.
Appraisal and Credit Report Fees
These fees are generally collected by the lender and paid to outside companies performing the services.
Appraisal Principles
Economic concepts used to explain the rationale and process of market behavior. Appraisal principles include anticipation, change, competition, substitution, and supply and demand.
Appraisal Process
A systematic step-by-step analysis used by the appraiser to accurately reach an opinion of value. While each appraisal assignment varies according to the purpose of the appraisal and the approach(es) used, a well-done estimate of value will follow some standardized procedure.
Appraisal Report
(1) A written report submitted by the appraiser to support and document the opinion of value rendered by the appraiser. The form of the appraisal report can be a letter of valuation, a single page standard form or a more elaborate report. (2) Estimate of real estate value, presumably by an expert. An appraisal evaluates the property at a given time based on facts regarding the location, improvements, neighborhood and comparable sales. Generally, the value is based on three approaches: cost, market and income.
Appraise
To make an estimate of value, particularly of the value of property. Note: If the property is valued for purposes of taxation, the less inclusive term "assess" is substituted for the above term.
Appraised Value
(1) An expert option of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings. (2) An estimate of value based on the appraiser's analysis of data within the context of the appraisal problem that the appraiser was employed to solve.
Appraiser
An individual who has the experience, training, and legal qualifications to appraise real or personal property. Appraisers must be state certified or licensed in order to appraise property involving a federally insured or regulated agency.
Appreciate (Appreciation)
(1) An increase in the value of an asset, such as a stock or bond. (2) The increase in value of an asset due to various factors such as market conditions, replacement costs, income-producing potential, etc. (3) An increase in an asset's market value over its value at some previous point in time. The increase can be a result of inflation, increased demand or some other related cause. The term denotes the opposite of depreciation. Contrast with depreciate (depreciation).
Approaches to Value
The various acceptable methods used by appraisers in deriving an estimate of value. There are three traditional approaches to value: (1) cost approach, (2) sales comparison approach, and (3) income approach.
Appropriation
An authorization granted by a legislative body to incur liabilities for purposes specified in the appropriation act. Note: An appropriation is usually limited in amount and as to the time when it may be expended.
Appropriation of Retained Earnings
Segregation or restriction of a portion of retained earnings that reduces the amount that would otherwise be available for dividends. No transfer of funds is necessarily involved, and the aggregate amount of retained earnings remains unchanged.
Approved Attorney
An attorney authorized by a title insurance company to handle closings and render title opinions.
Appurtenance
(1) Anything attached to the land or used with it passing to the new owner. (2) That which belongs to something else and thus passes with the property. Examples would include riparian rights, easements, barns and other outbuildings, gardens and orchards.
Arbitrage
(1) Buying something in one market and selling it in a different market at the same time to make a profit. For example, buying French francs in New York and selling them in London whenever the price of francs (for purchase) in New York is lower than the price of francs (for sale) in London. (2) Dealing in differences, for example, buying an asset in a market or on one exchange while simultaneously selling short (for future delivery) in another market at a higher price. An arbitrage transaction does not involve any risk. Because contracts are made, the returns derived from the transaction are known from the beginning, even though part of the transaction may take place in the future. Also see space arbitrage and covered interest arbitrage. (3) The purchase of one security and simultaneous sale of another to give a risk-free profit; a condition existing in imperfect markets where, due to differences in prices between identical goods or financial instruments within separate markets, profits can be realized by simultaneously buying the assets low in one market and selling it high in the other market. In well-functioning capital markets, there are no opportunities for arbitrage as prices throughout all markets equalize very rapidly based on such price differentials.
Arbitration
(1) Letting an impartial third party (the arbitrator) work out the terms of a labor-management contract or some other corporate or individual dispute. (2) The settlement of disputed questions and issues, whether of law or fact, by one or more arbitrators by whose decision the parties agree to be bound. (3) The procedure of settling disputes between members, or between members and customers. (4) A procedure for resolving disputes out of court by an impartial third party chosen by the disputing parties who agree to abide by the decision of the arbitrator. While disagreements and disputes involving real estate often result in court action, disputing parties sometimes agree to settlement through arbitration.
Arc Elasticity
An (average) elasticity measure that refers to a section of a demand (or supply) line rather than a single point.
Arm's Length Transaction
(1) An economic or financial transaction as if carried out by unrelated parties; a economic or financial transaction between completely independent parties both of whom are acting in their own self-interest. (2) A transaction such as a sale of property or the lending of money in which all parties involved are acting in their own self-interest and are under no undue influence or pressure from the other parties. Such a situation is the basis for deriving fair market value, and if the transaction is not at arm's length then the actual selling price will likely be less than or greater than the market value.
Arpen (Arpent)
A French measurement term used to denote an area equal to seven-eighths of one acre. See acre.
Arrearage
Overdue payment; frequently, omitted dividends on preferred stocks.
Arrears
(1) Money which is not paid on time, as for example, if a borrower has not made the last two mortgage payments, he or she is said to be in arrears. In many political jurisdictions, property taxes are paid at the end of the year rather than at the beginning and are thus referred to as due in arrears rather than in advance. (2) A payment made after it is due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance.
Arterial Street
A major road designed to be a through street and to handle a large volume of traffic.
Articles of Co-Partnership
The formal written agreement among partners setting forth important aspects of the partnership such as name, nature, duration, and location of the business, capital contributions, duties, and profit and loss ratios.
Articles of Incorporation
A document prepared by persons organizing a corporation in the United States that sets forth the structure and purposes of the corporation and specifics regarding stock to be issued.
Artificial Person
A person created and recognized by law as having legal rights, an example being corporation. Within a legal context, such a person should be distinguished from natural person.
Ask Price
The price at which a trader giving a quote is willing to sell a given item. Also referred to as asked price or offer price.
Asked Price
The price asked for a security offered for sale. Quoted, bid, and asked prices are wholesale prices for inter-dealer trading and do not necessarily represent prices available to the general public.
Asking Price
The listed price of the property. Often such a price denotes a willingness on the part of the owner to sell the property for a lower price.
Assemblage
The combining of two or more adjoining lots into a single large lot. Often the purpose of bringing a number of lots together under one ownership is to allow a developer or investor to construct a large building or buildings on a single lot. By assembling the lots, the single value of the one large lot is often greater than the total single values of each of the smaller lots. See assemblage value.
Assemblage Value
Term used to describe the perceived enhanced value placed on real property based on its higher and more valuable use in conjunction with other property or as part of a larger assembled parcel, as when a piece of property becomes a key component part to a project which would significantly increase the overall value of the combined unit in relationship to the values of the separate individual parcels. Assemblage values are typically subjective measures of land valuations and are considerably higher than appraised or assessed valuations and are most often based on the owner's perception of the property's potential worth, not that of the prospective buyer or property developer.
Assess
To value property officially for the purpose of taxation. Note. The term is also sometimes used to denote the levy of taxes, but such usage is not correct because it fails to distinguish between the valuation process and the tax levy process.
Assessed Value (Valuation)
(1) Value placed on real estate by governmental assessors as a basis for levying property taxes; not identical with appraised or market value. (2) The worth or value of a piece of property as determined by the taxing authority for the purpose of levying an ad valorem (property) tax. The assessed value of property is normally based on some percentage of market value. Property may be assessed at full market value or, as is more commonly the case, assessed at something less. (3) An appraisal of real and personal property for determination of ad valorem taxes. Such measures are frequently used to establish the debt limits for municipal governments. Local property taxes are based on this measure by typically assessing taxes on the assessed valuation, which is computed as a percentage of the fair market value.
Assessment
(1) The process of making the official valuation of property for purposes of taxation. (2) The valuation placed upon property as a result of this process. (3) A determination of the value of a parcel for the purpose of levying a property tax on that parcel. (4) The term also is used to denote the means by which local governments raise the money to pay for certain improvements which directly benefit property owners adjoining or adjacent to the improvements. For example, the cost of paving a previously unpaved road could be assessed to the land on each side of the road. The actual cost to a particular landowner would be based on his or her front footage as a percentage of the total footage being improved. (5) Joint forms of ownership such as condominiums and cooperatives allocate the expenses incurred for the maintenance and upkeep of the common areas and limited common areas and assess each unit owner for his or her proportionate share. (6) A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Assessment Base
The total assessed value of all property in a given assessment district.
Assessment Ratio
The ratio of the assessed value of property to its full or fair market value as set by a taxing authority.
Assessment Roll or Ledger
(1) A list of all taxable property showing the assessed value of each parcel. Such information is public and is normally available in the tax assessor's office or in the local land records. (2) In the case of property subject to ad valorem taxes the official list containing the legal description of each parcel of property, its assessed valuation, and name and address of owner. Additionally, in the case of property in special assessment districts, identification of the district, total amount of assessment, amount and due date of each installment, interest charges on each installment, and record of collection of all charges.
Assessor
A public official either appointed or elected to appraise property and place an assessed value on that property for the purpose of levying a property (ad valorem) tax.
Asset
(1) All those things that are owned, including money, land, buildings, debts others owe you, and everything else that is owned. (2) On a balance sheet, that which is owned or receivable. (3) Something of value to the holder. In financial terms, an asset of one person or entity, say an investment security, may be a liability to another, i.e., a debt obligation. For example, for a commercial bank, a savings account or certificate of deposit (CD) represents an asset to a household but is carried as a liability to the bank, i.e., something that is owed.
Asset Allocation
(1) Part of an investment strategy for determining an investor's share of stocks, bonds, and cash. It is generally believed that asset allocation plays an important role in a fund's performance, particularly in the short-term. (2) The division of an investment portfolio among major asset categories, such as bonds, common stocks or cash, usually to balance risk and reward appropriate for an investor's age, financial position, retirement objectives, etc. (3) The division of investment funds among categories of assets, such as cash equivalents, stock, fixed-income investments and such tangible assets as real estate, precious metals collectibles. Asset allocation affects both risk and return and is a central concept in personal financial planning and investment strategy and management. Funds managers often use asset allocation to achieve portfolio diversification, which spreads risk over several asset categories.
Asset Management
A bank management orientation, typically followed prior to the 1970's and the relaxation of interest rate ceilings, which directed management attention to the uses of funds, particularly asset quality issues. Under asset management, sources of funds were generally considered as fixed due to lack of competition allowed among financial intermediaries under a system of interest rate ceilings on deposits accounts. By the 1970's, with the introduction of new short-term variable rate funds sources (e.g., fed funds, repurchased agreements, large negotiable CD's, commercial paper) this management orientation gave way, for many aggressive and money-center banks, to liability management techniques which game emphasis on attracting new sources of funding. Compare to asset-liability management.
Asset Management Account (AMA)
An account at a financial institution or brokerage firm that includes a variety of banking services, for example, transaction account, credit card, over-draft protection, and brokerage services. Generally such accounts provide the owner with one consolidated monthly statement of transactions.
Asset Markets
See capital markets.
Asset Quality
An assessment of a financial institution's assets in terns of both credit risk, i.e., the likelihood of repayment of both principal and interest, and liquidity, i.e., marketability.
Asset Sale
The nonrecourse sale of a financial institution's receivables to a third party either through the sale of individual loans, a pool of loans, or securitization, or the issuance of securities collateralized by the underlying receivables. For an asset sale to take place for accounting purposes, the sale must be under conditions of nonrecourse to the seller, that is the buyer assumes complete control over the assets being transferred without any residual obligation (recourse) or interest on the part of the seller, for example, an obligation that the seller buy back bad loans.
Asset Swap
See currency swaps and interest-rate swaps.
Asset Turnover Ratio
A gauge of how effectively a company's assets are being used to generate sales. Calculated by dividing gross revenues by total assets. The object is achieving the greatest level of sales with the least fixed assets.
Asset-Backed Securities
Bond or debt instruments which are collateralized by the cash flow from a pool of interest-earning assets. The bonds so created give the holder an unrestricted claim to ownership to the underlying assets making up the pool. Typically the pool consists of automobile loans, consumer loans, credit card receivables, vehicle and equipment leases, and other similar debt obligations.
Asset-Based Lending
Financial obligations secured by a firm's assets, such as inventory, receivables, or other forms of collateral excepting real estate. Also referred to as asset-based financing.
Asset-Liability (Management) Committee (ALCO)
A senior management committee tasked with the coordination of a financial institution's lending and borrowing decisions. The committee functions to reduce the institution's exposure to changes in market interest rates (interest rate risk) by better matching the volume and maturity structure of its interest-earning assets and its interest- bearing liabilities. This is accomplished by measuring the interest sensitivity "gap," or difference between the cumulative and/or unique volume of interest-earning assets and interest-bearing liabilities at specified maturity intervals, i.e., 30 days, 60 days, 90 days, 180 days, less than one year, two years, over two years, etc. By matching these maturity "buckets" for both assets and liabilities, in theory changes to net interest income will be minimized.
Asset-Liability Management
The active management of a financial institution's balance sheet in order to minimize adverse changes in net interest income, i.e., the difference between interest income and interest expense, caused by interest rate risk. Neutral asset-liability management would attempt to match the volume of rate-sensitive assets and liabilities (the "gap"; active asset-liability management would attempt to increase rate-sensitive assets relative to rate-sensitive liabilities (referred to as a positive gap) in a rising interest rate environment and decrease rate-sensitive assets relative to rate-sensitive liabilities (negative gap) in a falling interest rate environment. The overall result of these actions would be to re-price more assets at higher rates when rates are rising and, when rates are falling to be able to re-price more liabilities at lower rates. The internal organization for undertaking such responsibilities is typically the asset-liability (management) committee, or ALCO. Also see gap and gap management.
Assets
(1) Those economic resources of an entity that can usefully be expressed in monetary terms; examples include cash, accounts receivable, inventories, and plant and equipment. (2) An accounting term used to denote the real and personal property one possesses, as distinguished from debts and obligations which are known as liabilities. Assets minus liabilities equals net worth. Also see asset.
Assign
(1) To transfer interest. To transfer to another. (2) To make an option seller perform his obligation to assume a short futures position (as a seller of a call option) or a long futures position (as a seller of a put option).
Assignee
(1) The person to whom a claim, benefit, or right in property is made. (2) One who receives an assignment or transfer of rights. An assignment of a contract transfers the right to buy property.
Assignment
(1) A relatively inexpensive way of liquidating a failing firm that does not involve going through the courts. (2) Transferring the title, rights, ownership, or other interests in an asset to another person. The transfer of a right; most generally used in connection with personal property used in connection with personal property rights, as rights under a contract, a negotiable instrument, an insurance policy, a mortgage, or a chattel real or lease. (3) Transfer of a contract from one party to another. (4) The transfer of a claim, benefit or right in property belonging to one person (the assignor) to another person (the assignee). Real estate instruments in which assignments occur include sales contracts, mortgages, options, and leases. Rights under contracts are valuable property rights which can ordinarily be assigned to third persons. The legal effect of an assignment is to substitute the assignee for the assignor in the contractual relationship with the other original contracting party.
Assignment of Lease
A transfer by the tenant (lessee) of his or her interest in the lease to a third person. Both the lessor and lessee may transfer their respective interests in a lease to a third person, unless prohibited by the terms of the lease.
Assignor
The one who assigns to another person.
Associate Broker
A person who has met the qualifications necessary for a real estate broker's license but who works jointly with and is employed by another broker.
Associate Membership
A Chicago Board of Trade (COBT) membership that allows an individual to trade financial instrument futures and other designated markets.
Associated General Contractors of America (AGCA)
AGCA serves as a leading spokesman for the construction industry. Four classifications of construction contractors are represented: buildings, heavy industrial, municipal utility construction, and highway.
Associated Person (AP)
An individual who solicits orders, customers, or customer funds (or who supervises persons performing such duties) on behalf of a futures commission merchant, an introducing broker, a commodity trading adviser, or a commodity pool operator.
Assumable Mortgage
A mortgage obligation which gives the borrower the right to assign the remaining balance to another person without any penalties by the lender. The buyer assumes all obligations of the seller at the same rate and terms as the original loan agreement, while the seller remains secondarily liable for repayment. Department of Veterans Affairs (VA) mortgages and Federal Housing Administration (FHA) insured mortgages are typically assumable. To preclude this, many lenders write mortgage contracts with a due-on-sale clause.
Assumption
(1) The right to convey a mortgage or deed of trust to another party at the same rate and terms. (2) When the new owner assumes the responsibility for repaying an existing mortgage. (3) The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, possibly higher, market-rate interest charges will apply. Both FHA and VA loans are fully assumable. Some adjustable rate mortgages may be partially assumable, but the new owners may be required to re-qualify for the loan.
Assumption Fee
A charge levied by a lender to a purchaser who takes title to property by assuming an existing mortgage. The charge can be a fixed amount; for example, $100, or perhaps a percentage of the outstanding balance, for example, one percent. The assumption fee is paid to the lender at the time of settlement or closing.
Assumption of Mortgage
(1) An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments. An "assumption of mortgage" is often confused with "purchasing subject to a mortgage." When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage. Both "assumption of mortgage" and "purchasing subject to a mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure. (2) Taking title to property which has an existing mortgage and agreeing to be personally liable for the payment of the existing mortgage debt. A distinction exists between "assuming" a mortgage and taking title 'subject to' a mortgage. If the purchaser agrees to assume the mortgage, he or she becomes personally liable on any deficiencies, such as not making payments, occurring in a foreclosure sale. When a purchaser takes title subject to the mortgage, no personal liability is undertaken to the lender; thus, the purchaser could walk away from the mortgage and lose nothing but the equity already invested. In both situations the original borrower is liable to the lender unless specifically released in a novation. A mortgage may obtain a non-assumption clause or due on sale clause which prohibits an assumption without consent of the lender. Such consent is normally given for a fee and a possible jump in the interest rate if the contract rate is below the prevailing market rate.
At a Discount
Refers to a security selling below its par or face value.
At a Premium
Refers to a security selling at above its par or face value.
At Par
Refers to a security selling at its par or face value.
Atomistic Competition
The type of competition among buyers or among sellers in perfectly competitive markets in which each individual is too insignificant (like an atom in a large universe) to affect the equilibrium price.
At-Risk Rule
A part of the Tax Reform Act of 1986 which limits the amount that an investor can claim as a loss suffered from a real estate investment.
Attached Housing
Two or more units that are physically attached but intended and designed for occupancy as individual housing units. Such units may be in the form of a duplex, triplex or fourplex as well as row houses which may extend for a complete city block. In contrast, most residential units are in the form of detached units.
Attachment
(1) Seizure of property through court process to repay a debt. (2) The seizure of property of, or a debt owed to, the debtor by the service or process upon a third person who is in possession of the property or who owes a debt to the debtor. (3) The act of taking a person's property into the legal custody of a court for the purpose of serving as security for satisfaction of a judgment which has been filed. The action itself is often called a writ of attachment and serves to create a lien against the property. As a result the property may not be sold free of the attachment unless the attachment has either been satisfied or released.
Attestation
The act of witnessing a person's signing of a written instrument. Some states require that a deed be witnessed by at least two witnesses one of whom may need to be an official witness such as a notary. Without the attestation the deed is void in those states that have this requirement. Some deeds may require a witnessing in cases involving grantors who have not learned to write or are paralyzed. Such a grantor would be required to make a mark or at least a thumb print which manifests intent to sign. Both the marking and the statement or declaration of intent by the grantor would need to be witnessed.
At-the-Market
When you buy or sell a security "at-the-market," the broker will execute your trade at the next available price.
At-the-Money Option
An option with a strike price that is equal, or approximately equal, to the current market price of the underlying futures contract.
At-the-Opening Order
An order that is to be executed at the opening of the market or else canceled.
Attorney at Law
A person authorized to practice law in his or her respective state and thus permitted to give legal advice, draft legal instruments, and represent clients in courts of law.
Attorney in Fact
(1) A type of agency relationship where one person holds a power of attorney allowing him to execute legal documents on behalf of another. Decisions made by the attorney in fact are binding on the principal. (2) A person authorized to act on behalf of another by virtue of a power of attorneys. Anyone of legal capacity may be an attorney in fact, and depending on the desire of the person creating the relationship, the attorney in fact's authority could be that of a universal, general, or specific agent.
Attorney's Opinion of Title
A statement issued by an attorney as to the quality of title after examining an abstract of title. Commonly referred to as "opinion of title."
Attractive Nuisance
A potentially hazardous object, such as a swimming pool, or a condition, such as an open pit on a parcel of land, that is inviting and potentially dangerous to young children.
Auction
The selling of real or personal property to the highest bidder by a person licensed and authorized to sell the property. The auctioneer is employed by the owner or seller of the property as an agent and normally receives a percentage of the sales price as his or her commission.
Auction Market
Dealings on a securities exchange where a two-way auction is continuously in effect.
Auctioneer
A person licensed or authorized to sell real or personal property belonging to someone else at public auction. In some states an auctioneer selling real property must be licensed as a real estate broker, whereas in others he or she is licensed as an auctioneer.
Audit
(1) An examination and verification of the financial records of a corporation by a qualified accountant. (2) The examination of documents, records, reports, systems of internal control, accounting and financial procedures, and other evidence for one or more of the following purposes: (a) To ascertain whether the statements prepared from the accounts present fairly the financial position and the results of financial operations of the constituent funds and account groups of the governmental unit in accordance with generally accepted accounting principles and on a basis consistent with that of the preceding year; (b) To determine the compliance with applicable laws and regulations of a governmental unit's financial transactions; (c) To review the efficiency and economy with which operations were carried out; (d) To review effectiveness in achieving program results. Audits are required by the Securities and Exchange Commission (SEC) for all companies with registered securities.
Audit Committee
A group of individuals, selected by the governing body, having specific responsibility for addressing all issues related to the external financial audit. Ideally, audit committees form a direct communications link between the auditor and the governing body; therefore, the majority of the committee's members normally would be expected not to have management responsibilities within the entity under audit.
Audit Finding
In the context of a financial audit, a weakness in internal controls or an instance of noncompliance with applicable laws and regulations that is presented in the audit report in conformity with generally accepted accounting standards. A typical audit finding is composed of a statement of the condition (i.e., weakness or instance of noncompliance) and the criterion or criteria used to define it, an explanation of the cause of the condition, a discussion of its results and recommendations for improvement. Findings ordinarily are presented together with a response from management, which states management's concurrence or nonconcurrence with each finding and its plan for corrective action.
Audit Resolution
The process whereby corrective action is planned, implemented and monitored to remedy weaknesses discovered and reported in conjunction with an audit
Audit Scope
In the context of a financial audit, the focus of audit testing as well as the reference point used by auditors when evaluating the results of audit tests or otherwise exercising their professional judgment. The minimum acceptable audit scope for governments would result in an opinion on the combined (i.e., general purpose) financial statements, with each fund type and account group considered separately when applying materiality evaluations.
Auditor's Opinion
A statement signed by an auditor in which he states that he has examined the financial statements in accordance with generally accepted auditing standards (with exceptions, if any) and in which he expresses his opinion on the financial condition and results of operations of some or all of the constituent funds and balanced account groups of the organization, as appropriate.
Auditor's Report
In the context of a financial audit, a statement by the auditor describing the scope of the audit and the auditing standards applied in the examination, and setting forth the auditor's opinion on the fairness of presentation of the financial information in conformity with Generally Accepted Accounting Principles (GAAP) or some other comprehensive basis of accounting.
Authority
(1) The power of an agent to affect the principal in legal relations with third persons for lawful purposes. Authority may be classified into: (a) actual authority, (b) implied authority, (c) apparent or ostensible authority, (d) inherent authority, and (e) other authority which may be implied from particular circumstances. Generally, the authority of an agent is strictly construed by the courts. (2) A governmental unit or public agency created to perform a single function or a restricted group of related activities. Usually such units are financed from service charges, fees, and tolls, but in some instances they also have taxing powers. An authority may be completely independent of other governmental units, or in some cases it may be partially dependent upon other governments for its creations, its financing, or the exercise of certain powers.
Authority Bonds
Bonds payable from the revenues of a specific authority. Since such authorities usually have no revenue other than charges for services, their bonds are ordinarily revenue bonds.
Authorization to Sell
A listing agreement entered into by the owner of property and a broker determining the rights and responsibilities of both parties in the selling of the property.
Authorized Shares (Stock)
(1) The maximum number of shares of stock authorized to be sold by the by-laws or articles of incorporation of a company. (2) Every corporation is permitted to issue shares of its stock up to the number authorized in the corporation's charter. The number of authorized shares can be changed only by a vote of the company's shareholders.
Authorized Stock
The total number of shares of stock authorized for issue by a company's shareholders. Also referred to as authorized shares.
Automated Teller Machine (ATM)
A computer-like terminal activated by a magnetically encoded card which allows customers of a financial institutions to conduct certain banking transactions using their accounts. Most typically, such transactions include withdrawals and deposits, bill paying, transfer of funds, and account inquiry. Nationwide interconnection of such terminals allows customers of one institution to conduct certain transactions on their accounts at another institution. Making deposits at an out-of-state ATM is precluded from such national interconnections, however.
Automated Transfer of Funds
An arrangement which allows the transfer of funds between a customer's account under prearranged conditions of the amount of transfer and the timing. Typically such arrangements will include transfers from non-interest bearing accounts to interest-bearing accounts to take advantage of higher offered interest rates.
Automatic Dividend Reinvestment (ADR)
An arrangement whereby stockholders automatically reinvest their dividends back into the stock of the paying corporation.
Automatic Stabilizers
(1) Built-in features of the economic system which tend to stabilize total spending. (2) Institutional structures in the economy which have the effect of dampening business cycle fluctuations. For example, the progressive income tax which automatically tends to pull more money out of the income stream as total incomes and spending increases, and unemployment payments which automatically push more money into the income stream when the economy slows down (and unemployment rises).
Automatic Transfer (of Savings) (ATS)
An arrangement which, at certain specified times, automatically transfers funds from a customer's savings or other interest-bearing account to a non- interest or lower-interest bearing transactions account for the payment of outstanding drafts.
Automatic Transfer System (ATS) Accounts
Transactions balances at commercial banks that combine the features of saving and time deposits. These balances earn interest up to the point when a check is written on them. Then funds are automatically transferred to the checking account - hence the name automatic transfer service accounts.
Autonomous
(1) (Economics) Independent of national income. (2) (Forecasting) Determined independently or outside of the system which is being analyzed, as autonomous explanatory variables.
Autonomous Accounts
In the balance of payments, those accounts that for analytical purposes can be considered motivated purely by economic considerations rather than by the need to finance international transactions.
Available Balance
Also referred to as available funds, the amount in a customer's account which can be used to cover outstanding checks or transfer to another account.
Available for Sale
Assets of a company or financial institution which may be readily sold to meet cash needs. Such assets would typically not be pledged as collateral or otherwise encumbered.
Average (Physical) Product (APP)
The ratio of total product to the total quantity of an input used to produce the product.
Average Age of Receivables
Trade accounts receivable divided by year's sales multiplied by 365.
Average Annual Return
A way of measuring an individual security's or index's return for a single year, based on actual returns over a number of years. Average annual return illustrates annually compounded returns that would have produced cumulative total returns if the security's performance had been constant over the entire period.
Average Cost (or Revenue)
The total cost (or revenue), divided by the number of units of output which are produced (and sold).
Average Fixed Cost (AFC)
Total fixed cost divided by total product, or the difference between average total cost and the average variable costs.
Average Propensity to Consume (APC)
(1) The ratio of the level of personal consumption expenditures (PCE) to the level of personal income (PI). (2) That fraction (or percentage) of disposable (after tax) personal income which is spent for consumer goods.
Average Propensity to Save (APS)
(1) The ratio of the level of saving to the level of national income (APS = 1 – APC), or one minus the average propensity to consume (APC). (2) That fraction (or percentage) of disposable (after tax) personal income which is not spent for consumer goods, or paid as taxes, or spent for imported goods.
Average Rate of Return
(1) A method of capital outlay analysis that focuses on the ratio of expected average annual net income to the related average investment. (2) A technique used to estimate a rate of return. To compute this rate, investment outflows are subtracted from total investment inflows. The result is divided by the number of years the investment was held, and that result is divided by the total investment to arrive at the average annual rate of return.
Average Revenue
(AR) Total revenue divided by total product; equals product price.
Average Total Cost (ATC)
Total cost divided by total product.
Average Value Product (AVP)
The average physical product (APP) multiplied by product price.
Average Variable Cost (AVC)
Total variable cost divided by total product.
Averages
Various ways of measuring the trend of stocks listed on exchanges. Formulas, some very intricate, have been devised to compensate for stock splits and stock dividends and thus give continuity to the average. In the case of the Dow Jones Industrial Average, the prices of the thirty stocks are totaled and then divided by a figure that is intended to compensate for past stock splits and stock dividends and that is changed from time to time.
Averch-Johnson Effect
Production of a given output at higher-than-minimum cost by a regulated firm as a result of wasteful investment whenever the guaranteed return on investment exceeds the cost of capital.
Avoidable Costs
Costs that may be avoided by following some course of action.
Avulsion
A sudden loss or gain of land as the result of action of water or a shift in a bed of a river which has been used as a boundary by property owners. If land is l |