Glossary - Real Estate
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1031 Exchange
A 1031 exchange lets you sell investment real estate and reinvest the proceeds into a like-kind property without paying capital gains tax right away. It's a deferral, not a write-off — the tax bill comes due later unless you keep exchanging.
Rules that matter: You have 45 days to identify a replacement property and 180 days (or your tax filing date, if earlier) to close. The property must be U.S.-based investment property — not a primary residence or, with narrow exceptions, a business. Most practitioners treat one to two years of holding time as the safe minimum before a sale qualifies.
Why it matters: If a business owner also owns the real estate the business operates from, a 1031 exchange can shape how they structure the real estate sale alongside the business sale — worth flagging early, since the exchange deadlines are unforgiving and don't bend for deal timing.
Get expert help. Exchanges (simultaneous, delayed, forward, reverse, two-party, three-party) have enough structuring variants that working with a 1031 intermediary and a tax professional isn't optional.
2 Out of 5 Year Rule
A tax rule allowing a homeowner to exclude gain on the sale of a primary residence if they lived in it at least 2 of the 5 years before selling. See IRC 121 (Internal Revenue Code 121) for the full exclusion amounts and exceptions.
A
After Repair Value (ARV)
The price a property is expected to sell for once repairs and renovations are complete.
B
BizBuySell
The largest online marketplace for businesses for sale — functionally the business-brokerage equivalent of Zillow for real estate.
Boot
"Boot" is the leftover cash or non-like-kind value in a 1031 exchange that doesn't get reinvested — and it's taxable. If you sell a property for $300,000 but only reinvest $250,000, the $50,000 difference is boot, taxed at your capital gains rate.
What triggers boot: cash taken out of the deal, a reduction in mortgage debt, receiving non-like-kind property, or paying non-transaction costs (like tenant deposits) out of exchange funds. It's easy to trigger by accident, which is why exchanges need careful structuring.
C
Cap Rate
Cap rate measures a real estate investment's return independent of how it's financed: net operating income divided by current property value.
Example: A property now worth $250,000, generating $30,000 in income against $10,000 in operating costs over the past year, has a cap rate of 12.5% ($20,000 ÷ $250,000). Net operating income excludes interest, taxes, depreciation, amortization, principal payments, and capital improvements — so cap rate isolates the property's operating performance, not the owner's financing choices.
Commercial REALTOR®
A licensed real estate professional and National Association of REALTORS® (NAR) member who represents buyers and sellers of income-generating property — office, retail, restaurant, industrial, and multi-family (over four units). Membership isn't required to legally practice commercial real estate; see REALTOR® for what NAR membership actually confers.
D
Deferred Sales Trust
A deferred sales trust is a fallback option when a 1031 exchange's tight deadlines can't be met. A qualified intermediary moves the sale proceeds into the trust, which can still defer the tax hit even after the 1031 window has closed.
Why it matters: Useful to know as a backstop if a business owner's real estate sale and a 1031 exchange don't line up on timing.
Depreciation Recapture
When you sell a depreciated property, the IRS taxes back the benefit you got from depreciating it while you owned it — on top of taxing the appreciation. A 1031 exchange is the main way to defer this. As the saying goes: "When you buy, you hop on the depreciation bus. When you sell, you hop off and the bus runs you over."
E
Estoppel Certificate
Also called a tenant estoppel letter. A binding document a buyer requests before closing that confirms the current terms and status of a lease they're about to inherit — protecting them from surprises after the sale.
F
For Sale By Owner (FSBO)
Selling real estate without an agent, or selling a business without a business broker.
G
Gross Rent Multiplier (GRM)
GRM compares real estate investments by dividing purchase price by annual rental income. A $200,000 property renting for $2,500/month has a GRM of 6.7 ($200,000 ÷ $30,000).
GRM ignores operating expenses, so it's not a payback-period calculation — just a quick screening tool. Target GRMs generally run 4–7, with lower being more favorable, though reaching the low end usually means trading off neighborhood quality.
I
iBuyer
An iBuyer is a corporate real estate investor that uses technology to make fast cash offers on homes, buying "as-is" without requiring the seller to prep or repair the property. Sellers usually trade a lower sale price for speed and certainty.
The model is controversial — smaller investors and local agents see it as well-funded competition — and it's proven fragile in downturns: Zillow and Redfin both shut down their iBuying operations (2021 and 2022) after failing to manage the model through a cyclical market.
Impound
An impound account is where a mortgage lender bundles property taxes, homeowner's insurance, and PMI into a single monthly payment alongside principal and interest, then pays those bills on the homeowner's behalf. Some loans (FHA, VA) require impounds; some lenders offer a rate discount to encourage them voluntarily.
IRC 121 (Internal Revenue Code 121)
IRC 121 lets a homeowner exclude up to $250,000 ($500,000 for qualifying joint filers) of gain from taxes when selling a primary residence — a permanent exclusion, not a deferral like a 1031 exchange. To qualify, the home must have been the taxpayer's primary residence for at least 2 of the 5 years before sale.
Converting a residence to a rental: If a former primary residence becomes a rental, the owner generally has a 3-year window to sell and still claim the exclusion, or must move back in for 2 years to requalify.
What counts as a primary residence: where you work, where your family lives, the address on your tax return, driver's license, vehicle registration, voter registration, and where your bills and bank accounts are tied.
Exceptions to the 2-of-5 rule exist for job relocation (50+ miles), health reasons (including caring for a sick family member), and other "unforeseen circumstances" — death, divorce, job loss, a pay-affecting employment change, multiple births from one pregnancy, disaster damage, or condemnation/seizure.
L
Listing Agreement
A listing agreement is the contract between an owner and their agent or intermediary authorizing them to market and sell the property, business, or asset. It applies across residential real estate, commercial real estate, and business brokerage alike.
Common structures:
Most listing agreements are exclusive, since 100% commission-based pay only makes sense for the agent if they're guaranteed credit for their work. A net listing (see that entry) is a variant where the owner sets a minimum they must net, and the agent keeps everything above it.
What a listing agreement should specify: agreement type, parties, term length, what's included/excluded from the sale, price, payment terms, a "tail" period (commission still owed if a buyer the agent introduced closes shortly after expiration), cancellation terms, each party's obligations, and how disputes get resolved.
| Type | Agents allowed | How commission is earned |
|---|---|---|
| Exclusive Right to Sell | One | Agent earns commission regardless of who finds the buyer |
| Exclusive Agency | One | Agent earns commission unless the owner finds the buyer directly |
| Open Listing | Multiple | Only the agent who produces the buyer earns commission |
M
MLS
Shorthand for Multiple Listing Service — see that entry for the full definition. (Note: the source glossary listed "MLS" and "Multiple Listing Service (MLS)" as two separate circular entries pointing at each other. Consolidated here into one full entry, with "MLS" as a simple redirect.)
Multiple Listing Service (MLS)
An MLS is a private, regional database where real estate professionals share listing details with each other to sell property more efficiently. There's no single national MLS — over 500 regional ones exist, some with reciprocal access agreements. MLS data feeds public-facing sites like Zillow, Redfin, and Realtor.com through IDX (Internet Data Exchange), though those sites typically show far fewer fields than the underlying MLS record.
Non-confidential MLS data is generally free to the public; listing on an MLS directly requires being a licensed member or using a flat-fee broker.
Why it matters: Business sales have no direct MLS equivalent — no single, credentialed regional network. Platforms like BizBuySell fill a similar (if less structured) role for businesses that Zillow/Redfin fill for homes.
N
Net Listing
See the Real Estate section above — Net Listing is cross-referenced there since its primary tie-in is 1031/real estate terminology in the source material, but it's fundamentally a listing-agreement structure. Full definition: a listing type where the owner sets a minimum net proceeds figure and the agent's commission is whatever the sale price exceeds that minimum by. See Listing Agreement for how it compares to exclusive and open listings.
P
Property, Plant and Equipment (PP&E)
The broader asset category that includes Furniture, Fixtures and Equipment (FF&E) plus buildings, permanent fixtures, and land. See Furniture, Fixtures and Equipment for the full comparison.
Q
Qualified Intermediary
Also called a 1031 exchange accommodator. An independent party — not your CPA, attorney, or anyone otherwise representing you in the transaction — who holds and transfers the sale proceeds during a 1031 exchange so you never take direct possession of the funds. Fees typically run around $1,000 for a single property, with discounts for additional properties.
Quitclaim Deed
A quitclaim deed transfers whatever ownership interest the grantor has, with no guarantee that title is clean. It's faster than a warranty deed and common between parties who already trust each other — family transfers, adding a spouse to title, divorce settlements, or fixing an error in a prior deed. It doesn't relieve anyone of an existing mortgage obligation.
Why it matters: Relevant if a business owner is also moving real estate between family members or entities as part of estate or succession planning around a business sale.
R
REALTOR®
A trademarked title, not a job description. REALTOR® identifies a member of the National Association of REALTORS® (NAR) who has agreed to NAR's Code of Ethics. Not every licensed real estate agent is a REALTOR® — membership is optional, though most working agents join for MLS access and NAR's professional liability coverage.
W
Warranty Deed
A warranty deed certifies that a property is being sold free of liens, mortgages, or other claims — and gives the buyer legal recourse against the seller if a title problem surfaces later. This is the strongest form of ownership guarantee in a deed; a quitclaim deed, by contrast, offers none.