Acronym Definitions

Question 1

What does ASC stand for and what do they do?

Answer 1

Appraisal Sub-Committee

Question 2

What does FIRRIA stand for and what is it?

Answer 2

Financial Institutions Reform, Recovery, and Enforcement Act of 1989 - revamped regulations for savings & loans and real estate appraisals.

Question 3

What is AMC and what does it stand for?

Answer 3

Apprraisal Management Company

Question 4

What is USPAP? What does it stand for / why is it important?

Answer 4

The Uniform Standards of Professional Appraisal Practice (USPAP)

Question 5

What is TAFAC? what does it stand for?

Question 6

What is FannyMae & Freddy Mac?

Question 7

What is OCC and what does it stand for?

Question 8

(NCUA)

Answer 8

National Credit Union Administration

Question 9

Question: It has come to my attention that a local appraiser is paying a home inspection firm a $25.00 referral fee for each appraisal assignment the home inspector refers to the appraiser. Are appraisers required by USPAP to disclose the payment of cash or other things of value to clients in order to obtain assignments?

Answer 9

Yes. any fee paid to obtain an assignment is necessary to disclose, but the amount paid is not.

Question 10

Question: A potential client has asked me to complete a form indicating what my appraisal fees would be for different assignments. The form asks me to indicate my appraisal fees according to appraised value, e.g., to list the fee for assignments with appraised values between $100,000 and $299,000, $300,000 to $499,000, etc. Is it a violation of USPAP to quote fees in this manner?

Answer 10

Response: Yes. This is in violation of USPAP. Completing and submitting such a form to a potential client establishes a compensation arrangement for assignments that is contingent on the amount of the value opinion. This is prohibited by the Management section of the ETHICS RULE, which states, in part:

Question 11

USPAP UNETHICAL APPRAISALS

Answer 11

It is unethical for an appraiser to accept an assignment, or to have a compensation arrangement for an assignment, that is contingent on any of the following:

the reporting of a predetermined result (e.g., opinion of value);
a direction in assignment results that favors the cause of the client;
the amount of a value opinion;
the attainment of a stipulated result; or
the occurrence of a subsequent event directly related to the appraiser's opinions and specific to the assignment's purpose. (Bold added for emphasis)

Question 12

Fannie Mae and Freddie Mac created the Uniform Mortgage Data Program (UMDP) initiative, which is intended to standardize data provided by lenders to these two mortgage giants. A key part of this initiative is the Uniform Appraisal Dataset (UAD).

Question 13

Electronic Data Interchange (EDI).

Question 14

If an appraiser is looking for information on zoning ordinance for a property, where would he have most success looking?

Answer 14

Local Gov Website

Question 15

In a UAD rating system, which is the best & the worst rating you could put in the report?

Answer 15

C1 = best C6 = Worst

Question 16

Today, most appraisals are delivered by

Answer 16

sharing through a comprehensive electronic system

Question 17

the web to find the most demographic info

Answer 17

census.gov

Question 18

The type of EDI transmission that involves two computers connecting with no intermediary over the internet is known as

Answer 18

Point to Point

Question 19

the website that serves as a portal for almost any gov agency

Answer 19

usa.gov

Question 20

UAD compliance would be required for

Answer 20

• A VA LOAN
• A Conventional loan going to be sold to fannie mae
  and an FHA loan.

Question 21

What is Real Property?

Answer 21

As we stated previously, real estate is the physical being (i.e., land and improvements). Conversely, real property is the rights and benefits inherent in the ownership of real estate.

Question 22

What is the bundle of rights theory

Answer 22

he bundle of rights theory is defined as

“The concept that compares property ownership to a bundle of sticks with each stick representing a distinct and separate right of the property owner, e.g., the right to use real estate, to sell it, to lease it, to give it away, or to choose to exercise all or none of these rights.”

Question 23

Eminent domain is defined as

Answer 23

Some people incorrectly use the terms “eminent domain” and “condemnation” interchangeably. Eminent domain is the right of the government to take the property. Condemnation is the process by which the government exercises this right.

Question 24

escheat

Answer 24

“The right of government that gives the state titular ownership of a property when its owner dies without a will or any ascertainable heirs.”

Question 25

mechanics lien

Answer 25

“A legal claim placed on real estate by someone who is owed money for labor, services or supplies contributed to the property for the purpose of improving it. Typical lien claimants are general contractors, subcontractors and suppliers of building materials. A mechanics’ lien claimant can sue to have the real estate sold at auction and recover the debt from the proceeds.”

Question 26

deed restriction

Answer 26

“A provision written into a deed that limits the use of land. Deed restrictions usually remain in effect when title passes to subsequent owners.”

Question 27

Conditions, Covenants and Restrictions (CC and Rs)

Answer 27

“A list of expressed assurances and limitations on land use; often found in contracts between a land subdivider and a lot purchaser. CC&Rs should be specified in the conveyance. Also referred to as conditions, covenants and restrictions or condominium covenants.”

Question 28

“A pledge of a described property interest as collateral or security for the repayment of a loan under certain terms and conditions” is the definition of

Answer 28

a mortgage

Question 29

Public limitations on private property rights include all of the following EXCEPT
CC&Rs
taxation
eminent domain
escheat

Answer 29

CC&RS

Question 30

what is eminent domain

Answer 30

known as “taking” of private land to make it public i.e to extend a highway (but taking someone elses property)

Question 31

what is escheat?

Answer 31

Escheatment is the process of turning over unclaimed or abandoned property or accounts to the state.

Question 32

Metes & Bounds

Answer 32

“A system for the legal description of land that refers to the parcel’s boundaries, which are formed by the point of beginning (POB) and all intermediate points (bounds) and the courses or angular direction of each point (metes).”

Question 33

Metes

Answer 33

“Metes” refers to the “bearing” or direction relative to North or South. For this we need to remember the rules for circular or angular measurement.

1 Full Circle = 360°

1°= 60’ (60 “Minutes”)

1’ = 60” (60 “Seconds”)

1° = 3,600” (60 Seconds per Minute x 60 Minutes per Degree)

Question 34

Bounds

Answer 34

“Bounds” are the distances that a boundary runs at that prescribed angle. Distances are usually indicated in feet (using decimals instead of inches).

Question 35

acre

Answer 35

For measuring land area, the most important unit of measurement is the acre, which consists of 43,560 square feet.

Question 36

Gunter’s Chain

Answer 36

Many of our modern units of measurement are based on Gunter’s Chain. Edmund Gunter was born in Wales in 1581. He was educated at Oxford as a priest, but had a love of mathematics. He invented an early slide rule (Gunter’s Scale) and studied Trigonometry.

In 1607, he designed a chain divided into 100 links. It was flexible, could be carried over shoulders and didn’t stretch or shrink, as cords did.

Gunter’s chain was a brilliant combination of the traditional 4-sided English system of measurement (it was easy to halve and quarter a distance or double it and redouble it) and the new system of decimals based on 10 - invented in 1585 by Dutch engineer Simon Stevin.

In Gunter’s combination system an acre was 10 square chains.

Question 37

Multiply 66 feet by 10.

Multiply that by 8. What do you get? 5,280

Answer 37

The answer is 5,280. Did you ever wonder how come there are 5,280 feet in a mile? Because 10 chains make a furlong and there are 8 furlongs in a mile

Question 38

which legal system came into usage in the 1950s with the development of large subdivision

Answer 38

lot & block.

Question 39

true or false, the lot & block system always gives the size and dimensions

Answer 39

FALSE

Question 40

what is lock & block

Answer 40

The lot and block survey system is a method used in the United States and in Canada to locate and identify land, particularly for lots in densely populated metropolitan areas, suburban areas and exurbs. It is sometimes referred to as the recorded plat survey system or the recorded map survey system

Question 41

The Rectangular Survey System

Answer 41

“A land survey system used in Florida, Alabama, Mississippi, and all states north of the Ohio River or west of the Mississippi River except Texas; divides land into townships and ranges approximately six miles square, each normally containing 36 one-square-mile sections of 640 acres, except when adjusted for the curvature of the earth.”

This survey system, sometimes called the government survey system, came along later, after metes and bounds, and is the basis for descriptions in most states that were settled after the 13 original colonies in the Northeast and Middle Atlantic states. It is based on standardized measurements and consistent squares and rectangles, as opposed to the irregular shapes commonly found in metes and bounds descriptions.

Question 42

rectangular survey system conversions

Answer 42

1 Township = 36 Square Miles (6 x 6 miles)

1 Section = 1 Square Mile (5,280 x 5,280 feet)

1 Square Mile = 640 Acres

¼ Section = 160 Acres

Quarter-Quarter Section = 40 Acres

Question 43

A lot contains .85 acres.

It sells for $72,000. How much did it sell for per SF (square foot)?

a. $1.94

b. $2.12

c. $3.65

d. $7.17

Answer 43

43,560 x .85 = 37,026 square feet

$72,000 ÷ 37,026 = $1.94

Question 44

The rectangular survey system is also known as the

Answer 44

government survey system

Question 45

A rectangular lot measures 8 chains and 36 links by 4 chains and 24 links. How many acres is that?

Answer 45

3.55

Question 46

A rectangular lot measures 8 chains and 36 links by 4 chains and 24 links. How many acres is that?

Question 47

Free Simple Estate

Answer 47

“Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.”

Question 48

Estate is defined as

Answer 48

“A right or interest in property. Defines an owner’s degree, quantity, nature, and extent of interest in real property. There are many different types of estates, including freehold (fee simple, determinable fee, and life estate) and leasehold. To be an estate in land, an interest must allow possession (either now or in the future) and be differentiated primarily by its duration.”

Question 49

A fee simple estate is:

Answer 49

Inheritable
Transferable
Perpetual

Question 50

Partial Interest

Answer 50

“Divided or undivided rights in real estate that represent less than the whole, i.e., a fractional interest such as a tenancy in common, easement, or life interest.”
(if one or more of the bundle of rights is mising, it is a partial interest)

Question 51

life interest

Answer 51

“Life Interest (formerly Life Estate). Rights of use, occupancy, and control, limited to the lifetime of a designated party, sometimes referred to as the life tenant.”

Question 52

Leased fee interest is defined as

“The ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires.”

Question 53

Leasehold interest is defined as

“The right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease.”

Question 54

An easement is defined as

Answer 54

The right to use another’s land for a stated purpose.”

Under the rights of an easement, someone else is allowed to enter a property and therefore the owner has relinquished the exclusive right to occupy and use the property. This creates a partial interest or diminished estate for the owner.

Question 55

easement in gross

Answer 55

An easement that benefits a legal person or entity (individual, corporation, partnership, LLC, government entity, etc.) and not a particular tract of land; an easement having a servient estate but no dominant estate.”

Question 56

easement appurtenant.

Answer 56

“An easement that is attached to, benefits, and passes with the transfer of the dominant estate; runs with the land for the benefit of the dominant estate and continues to burden the servient estate, although such an estate may be transferred to new owners.”

Question 57

An affirmative easement is defined as

Answer 57

“The right to perform a specific act on a property owned by another.”

Question 58

Negative Easement

Answer 58

“An easement preventing a property owner from certain, otherwise permitted, uses of his or her land, e.g., agreeing not to do something such as building a wall or fence blocking an adjoining property’s view.”

Question 59

conservation easement

Answer 59

“An interest in real property restricting future land use to preservation, conservation, wildlife habitat, or some combination of those uses. A conservation easement may permit farming, timber harvesting, or other uses of a rural nature as well as some types of conservation-oriented development to continue, subject to the easement.”

Question 60

A drainage easement, or drainage right of way, is defined as:

Answer 60

“The right to drain surface water from one owner’s land over the land of one or more adjacent owners.”

Question 61

A historic preservation easement is defined as:

Answer 61

A type of easement in gross that protects historically or architecturally significant properties by prohibiting or requiring review of future alterations or additions to protected features. When only some or all of the exterior surfaces and not the interior are protected, such an easement is often called a façade easement. The Internal Revenue Code allows a charitable gift deduction for the voluntary grant of qualifying historic preservation easements on some types of historic buildings.”

Question 62

facade easement

Answer 62

More precisely, a facade easement is an interest in real property that has the effect of prohibiting alteration of the exterior of an existing improvement; generally imposed on historically significant structures to ensure their preservation.

Question 63

a license is defined as

Answer 63

“For real property, a personal, unassignable, and typically revocable privilege or permit to perform some activity on the land of another without obtaining an interest in the property.”

Question 64

encroachment

Answer 64

“Trespassing on the domain of another.”

Question 65

True or False? Fee simple estate is not limited by the governmental powers of taxation, eminent domain, police power, and escheat.

Answer 65

False

Question 66

Which is the fullest and most complete type of estate?

Answer 66

Fee Simple

Question 67

True or False? When a property is leased, two separate estates are created.
True
False

Answer 67

True

Question 68

tenancy in severalty. The definition is simply:

“An estate in property held by one owner.”

Question 69

Tenancy in common is defined as:

“An estate held by two or more persons, each of whom has an undivided interest.”

Answer 69

People who are owners can have different percentage of ownership. If a owner dies, that ownership is passed on to the heirs & not the other owners.

Question 70

Joint tenancy is defined as:

“Joint ownership by two or more persons with the right of survivorship.”

Answer 70

ALL must own equal interest to eachother.

Question 71

Difference between tenancy in common & Joint tenancy

Answer 71

Right of survivorship -
Tenancy in common - passed onto heirs
Joint tenancy - goes to other owner

Question 72

Tenancy by the entirety is defined as:

Answer 72

“An estate held by a husband and wife in which neither has a disposable interest in the property during the lifetime of the other, except through joint action.”
Right of survivorship is same as joint tenancy - but the survivor must be a spouse

Question 73

A land trust is defined as:

Answer 73

“A legal vehicle for partial ownership interests in real estate in which independently owned properties are conveyed to a trustee; may be used to effect a profitable assemblage or in some cases to facilitate the assigning of property as collateral for a loan. “

Question 74

A partnership is defined as

Answer 74

“A business arrangement in which two or more persons jointly own a business and share in its profits and losses.”

Question 75

A general partnership is defined as:

Answer 75

“An ownership arrangement in which all partners share in investment gains and losses and each has personal and unlimited responsibility for all liabilities.”

• partners can own different percent of the property, or be equal partners*
  this is the most common type

Question 76

A limited partnership is defined as:

Answer 76

“An ownership arrangement consisting of general and limited partners. General partners manage the business and assume full liability for partnership debt, while limited partners are passive and liable only to the extent of their own capital contributions.”
(example a doctor doesn’t want to be liable for becoming a partner because of li,ited real estate knowledge, so he becomes a partner this way

Question 77

a corporation is defined as

Answer 77

“In law, an organization that acts as a single legal entity in performing certain activities, usually business for profit; also includes charitable, educational, and religious organizations.”

Question 78

A syndication is defined as:

Answer 78

A private or public partnership that pools funds for the acquisition and development of real estate projects or other business ventures.”

Syndications can be used to purchase, develop, manage and dispose of real estate. Syndications are created when someone purchases real property with the intent to transfer the rights to a limited partnership which will then sell interests to investors.

Question 79

A real estate investment trust (REIT) is defined as:

Answer 79

A corporation or trust that combines the capital of many investors to acquire or provide financing for all forms of real property. A REIT serves much like a mutual fund for real property. Its shares are freely traded, often on a major stock exchange. To qualify for the favorable tax treatment currently accorded such trusts, 90% of the taxable income of a REIT must be distributed among its shareholders, who must number at least 100 investors; no fewer than five investors can own more than 50% of the value of the REIT during the last half of each taxable year. The US Securities and Exchange Commission (SEC) stipulates that REITs with over 300 investors have to make their financial statements public.”

Question 80

A condominium is defined as:

\

Answer 80

“A multiunit structure, or a unit within such a structure, with a condominium form of ownership.”

Question 81

The concept of condominium ownership is defined as:

Answer 81

“A form of fee ownership of separate units or portions of multiunit buildings that provides for formal filing and recording of a divided interest in real estate.”

Question 82

cooperative ownership

Answer 82

A form of property ownership in which each unit owner holds stock in a cooperative apartment building or housing corporation. Stockholders receive a proprietary lease on a specific apartment and are obligated to pay a monthly maintenance charge that represents the proportionate share of operating expenses and debt service on any underlying mortgage, which is paid by the corporation. This proportionate share is based on the proportion of the total stock owned.”

Question 83

A planned unit development (PUD) is another type of ownership that features individual ownership of a parcel combined with shared ownership of common areas. A PUD is defined as

Answer 83

“A type of building development designed as a grouping of complementary land uses, such as housing, schools, recreation, retail, office, and industrial parks, contained within a single master development; usually includes common area and common area maintenance obligations in the form of owners association dues.”

Question 84

The minimum characteristics of a PUD include:

Answer 84

A homeowner association that holds title to the common area
Mandatory membership of all unit owners
The right of unit owners to vote in the operation of the association
Lien supported assessment of the members

Question 85

Timesharing is:

Answer 85

Limited ownership interests in, or the rights of use and occupancy of, residential apartments or hotel rooms. There are two forms of timesharing: fee timeshares and non-fee timeshares. Fee timeshares may be based on timeshare ownership or interval ownership. There are three types of non-fee timeshares: a prepaid lease arrangement, a vacation license, and a club membership.”

Question 86

Fee timesharing is where the purchaser receives a deed that conveys title to a unit for a specific part of a year.

Nonfee timesharing is defined as:

“A limited interest in real estate in which the purchaser receives only those rights specifically granted by the developer, usually the right to use a timeshare unit and the related premises; does not impart legal title to the property.”

Question 87

“Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat” is the definition of

Answer 87

Fee Simple

Question 88

The fullest and most complete type of estate is

Answer 88

fee simple

Question 89

The most desirable form of timesharing is called ___________ timesharing.

Answer 89

fee

Question 90

“An easement preventing a property owner from certain, otherwise permitted, uses of his or her land” is the definition of

Answer 90

negative easement

Question 91

“An easement that benefits a legal person or entity (individual, corporation, partnership, LLC, government entity, etc.) and not a particular tract of land” is the definition of a(an)

Answer 91

easement in gross

Question 92

A remainderman is found in which type of estate?

Answer 92

life interest

Question 93

“An estate held by two or more persons, each of whom has an undivided interest” is the definition of

Answer 93

tenancy in common

Question 94

The landlord’s ownership interest in a leased property would be

Answer 94

leased fee

Question 95

A drainage easement is an example of a(n)

Answer 95

negative easement

Question 96

A deed is defined as:

Answer 96

“A written, legal instrument that conveys an estate or interest in real property when it is executed and delivered.”

Question 97

A grantor is
A grantee is

Answer 97

A grantor is the seller of a property, the grantee the buyer.

Question 98

A grant deed is

Answer 98

“A deed containing, or having implied by law, some but not all of the usual covenants of title; esp., a deed in which the grantor warrants that he or she (1) has not previously conveyed the estate being granted, (2) has not encumbered the property except as noted in the deed, and (3) will convey to the grantee any title to the property acquired after the date of the deed.”

Question 99

A quitclaim deed is defined as

Answer 99

“A form of conveyance in which any interest the grantor possesses in the property described in the deed is conveyed to the grantee without warranty of title.”

This is the weakest form of deed. It really says nothing other than: If I do own any interest in this property - it’s all yours!

Question 100

A bargain and sale deed

Answer 100

“A deed that conveys real estate from a seller to a buyer but does not guarantee clear title; used by court officials and fiduciaries to convey property they hold by force of law, but to which they do not hold title.”

Question 101

A Tax Deed

Answer 101

“A deed that conveys title to a property purchased at a tax sale; may or may not convey absolute title, free of all prior claims and liens, depending on state law.”

This is essentially a bargain and sale deed, but is used specifically for tax sales where properties have been taken over for non-payment of real estate taxes.

Question 102

A Warranty deed

Answer 102

“A deed that conveys to the grantee title to the property free and clear of all encumbrances, except those specifically set forth in the document.”

This is the best and most powerful type of deed. The grantor warrants or guarantees that the title being conveyed is free and clear of all encumbrances. If, at a later date, a cloud on the title appears or someone else makes a claim against the title, the grantor must make it right.

Question 103

A deed of trust / trust deed

Answer 103

A legal instrument similar to a mortgage document, except that three parties are involved in securing the debt: the borrower, a lender, and a trustee who holds property title when the deed of trust is executed and delivered. The trustee transfers title to the lender if the borrower defaults and to the borrower if the note is repaid. Also called a trust deed.”

Question 104

reconveyance

Answer 104

“Passing of title to real property back to the original owner; e.g., in a deed of trust arrangement, upon liquidation of the debt the property is reconveyed from a third-party trustee to the trustor (borrower).”

Question 105

What is a contract?

Answer 105

“A legally binding agreement between two or more persons that represents their promise to do or not to do a particular thing. In many jurisdictions statutes of frauds, or their equivalent, may render a real property contract voidable if it does not consist of a signed, written agreement.”

Question 106

Uniform Code

Answer 106

There are variations from state to state, but generally they cover the sale of any “goods” valued over $500. Goods are defined as “all things (including specially manufactured goods) which are movable at the time of identification …investment securities (Article 8) and things in action. ‘Goods’ also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty.”
- Doesn’t deal much with real estate, more posessions of goods to do with real estate. Has to have a written contract.

Question 107

Statue of Frauds

Answer 107

Every state has a statute of frauds that requires certain documents to be in writing. Generally, this includes real property titles and conveyances, leases for more than one year, wills, contracts not to be performed within one year from the making thereof, and contracts not to be performed within the lifetime of the promisor. The original statute was enacted in England in 1677 to prevent fraudulent land claims.

Question 108

mutual assent

Answer 108

We said a contract is an agreement. This should be a mutual assent to the same terms. The consent of the parties to a contract should be free, mutual and communicated by each to the other.

Usually this procedure of mutual assent is established by the process of offer and acceptance.

Question 109

acceptance

Answer 109

Acceptance is defined in the Restatement Second as:

“A manifestation of willingness to be bound by the terms of an offer made in a manner invited or required by the offer.”
Acceptance may occur as an express act or an implied act.

Question 110

Express contract

Answer 110

In an express contract, the existence of the contract and its terms are stated in words or the writings of the parties. An express contract may be either oral or written.

Examples of express contracts include listing agreements, purchase offers, mortgages, leases, and installment contracts. Obviously, it is preferable to have them in writing, and most are.

Question 111

Implied contract

Answer 111

In an implied contract, the existence of the contract and its terms are inferred or implied from the conduct of the parties. The contract is created by the actions of the parties who perform the terms of the contract.

Question 112

Bilateral Agreement

Answer 112

A bilateral contract is one in which both parties have made promises to each other. One promise is in exchange for another. A real estate sales contract is a bilateral agreement; Party A agrees to sell the property and Party B agrees to buy the property - under certain specified terms.

Question 113

Unilateral Agreement

Answer 113

A unilateral contract is one in which one party makes a promise in order to induce another party to do something. The second party is not legally compelled to comply. However, if the second party accepts and performs, then the first party must keep the promise.

Question 114

Which type of deed is similar to a mortgage document?

Answer 114

grant deed
bargain and sale deed
trust deed
warranty deed

Answer: Trust deed

Question 115

Which is the best type of deed for the buyer?
grant deed
bargain and sale deed
trust deed
warranty deed

Answer 115

Answer; Warrenty Deed

Question 116

In a trust deed state, title to a property is vested in the __________ until the mortgage lien is satisfied.

Answer 116

mortgagor
grantee
grantor
trustee

Answer: trustee

Question 117

The statute of limitations for suing for breach of an oral contract is __________ for written contracts.

Answer 117

Answer: Shorter than

Question 118

Executed Contract

Answer 118

An executed contract is one that has been fully performed. The promises have been fulfilled according to the terms of the contract, and there is nothing left to be done. An example would be a real offer to purchase after all contingencies have been met and the closing has occurred. File it away!

Question 119

execuatory contract

Answer 119

An executory contract is one that is not been fully performed or completed. Something is still left to be done. A good example of this is a listing contract. A real estate agent tries to sell the property during the term of the contract. A mortgage would also be considered an executory contract until it is finally paid off or satisfied.

Question 120

A Valid Contract

Answer 120

A valid contract is one that is binding and enforceable on all parties. It contains all the valid elements of a contract and is still in force. That is akin to a real estate purchase transaction that has cleared all the contingencies but has not yet closed escrow.

Question 121

Void Contract

Answer 121

A void contract is one that has no legal force or effect even though it contains the elements of a valid contract.

It could be “null and void” because it contains some illegal element that could not be enforced. For example, a contract could contain a clause that requires racial discrimination. Or, it could be for an illegal purpose such as to commit a crime or some act in violation of a legal use. Voiding a contract could also be the result of an act of God that is beyond the control of the parties; such as a fire or flood that destroys a property.

Question 122

Voidable Contract

Answer 122

A voidable contract is one that results from the failure of the parties to meet some legal requirement.

For example, if a minor signs a contract to purchase real estate, it usually is voidable within a reasonable time after the minor reaches legal age. However, the parties are not required to void the contract. Most courts consider a voidable contract to become a valid contract if the eligible party does not act to disaffirm the agreement within a reasonable time.

Question 123

Unenforcable contract

Answer 123

An unenforceable contract is one that appears to be valid but would not be enforceable in court. For example, if one party tries to enforce an otherwise valid contract after the statute of limitations has expired, that contract would be unenforceable.

Other examples would be contracts that are vague and poorly worded, or verbal contracts in situations where written ones are required, as in real estate. However, even though they may not be enforceable in court, unenforceable contracts may still be considered valid if both parties still wish to complete performance.

Question 124

Step 1 to a valid contract:
competency

Answer 124

For a contract to be valid, the parties have to have the capacity to enter into a contract. Minors, for example, do not have the capacity to contract. The legal age, or age of majority, varies from state to state. Check your own state to determine the legal age.

The general rule is that the contract of a minor is voidable at the minor’s option. The minor can hold an adult to a contract, but the adult cannot legally hold the minor to a contract.

Another consideration is the mental capacity of the parties. Under the Restatement Second of the Uniform Commercial Code (UCC), a contract is voidable if a party “by reason of mental illness or defect is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of this condition.”

Question 125

Step 2: Mutual Agreement

Answer 125

Lack of mutual agreement could be evidenced by such things as:

Fraud
Misrepresentation
Mutual mistake
Undue influence
Duress
Contracts signed by a party under undue influence or duress are voidable by that party or a court. This might result if a party is elderly, sick, under great stress or under the influence of drugs or alcohol.

Question 126

Step 3: Consideration

Answer 126

An agreement must be based on good and valuable consideration; something of value. This could be:

Money
Property
A promise of performance or a promise to pay
Forbearance: a promise to refrain from doing something

Question 127

Step 4: Agreement written & signed

Answer 127

Obviously, there is a potential for misunderstanding in oral contracts. All states have adopted variations of the statute of frauds. Contracts for the sale of real estate and for leases of more than one year need to be in writing to be enforceable.

The parol evidence rule states that written contracts take precedence over oral agreements. The law.com Legal Dictionary defines the parol evidence rule this way: “if there is evidence in writing (such as a signed contract) the terms of the contract cannot be altered by evidence of oral (parol) agreements purporting to change, explain or contradict the written document.”

Question 128

Release of Contract:

Answer 128

Contracts are created by the actions of parties and can be dissolved in like manner. Generally, this is called a release of contract.

Release is defined as

“1) v. to give up a right as releasing one from his/her obligation to perform under a contract, or to relinquish a right to an interest in real property. 2) v. to give freedom, as letting out of prison. 3) n. the writing that grants a release.”

Question 129

Assignment;

Answer 129

Another option is an assignment or novation of the contract. One party may wish to withdraw without actually ending the agreement.

Assignment is defined as

“n. the act of transferring an interest in property or some right (such as contract benefits) to another. It is used commonly by lawyers, accountants, business people, title companies and others dealing with property.”

Question 130

novation

Answer 130

n. agreement of parties to a contract to substitute a new contract for the old one. It extinguishes (cancels) the old agreement. A novation is often used when the parties find that payments or performance cannot be made under the terms of the original agreement, or the debtor will be forced to default or go into bankruptcy unless the debt is restructured. While voluntary, a novation is often the only way any funds can be paid.”

Question 131

A time is of the essence clause:

Answer 131

A contract may call for a specific time by which agreements must be performed. There may be a “time is of the essence” clause. A time is of the essence clause is defined as

“n. a phrase often used in contracts which in effect says: the specified time and dates in this agreement are vital and thus mandatory, and ‘we mean it.’ Therefore any delay - reasonable or not, slight or not - will be grounds for canceling the agreement.”

Question 132

Impossibility of performance

Answer 132

Generally speaking, even if a party is unable to perform the obligations of a contract, they are still liable. The only way to prevent this is to insert in the contract provisions for relief in the event of impossibility.

An example of impossibility would be if a law changed after the contract was arranged but before the full performance of the contract. Suppose a contract was signed to drain lowland areas and since then it became declared as a protected wetland area. It would now be an illegal act, and the contract would be void.

Question 133

Operation of Law

Answer 133

The application of law may change the rights and liabilities of the parties, without their consent. Contracts can be terminated by operation of law under:

Bankruptcy
Statute of limitations
Alteration of contract
A filing of a petition for bankruptcy under federal law terminates any contracts in existence as of that date.

Question 134

Interpretation

Answer 134

In the Restatement Second, Section 20, the case of Raffles v. Wichelhaus (1864) 159 Eng.Rep. 375 is cited. Here, the seller agreed to sell cotton to the buyer. Shipment was to be made from Bombay on the ship named Peerless. However, there were two ships named “Peerless;” one was to sail in October and the other in December. Defendants intended to accept the cotton on the ship that sailed in October and refused to accept the cotton on the ship that sailed in December. It was held by the court that there was no binding or enforceable contract. The rule of the Peerless case is that no contract arises unless both parties have the same meaning in mind.

Question 135

The general rule of contracting with minors is that a contract with a minor is
illegal and unenforceable
voidable at the minor’s option
null and void
valid and fully enforceable in most states

Answer 135

Answer: Voidable at the minors option

Question 136

Breach of contract (sometimes called default) is defined as

Answer 136

“n. failing to perform any term of a contract, written or oral, without a legitimate legal excuse. This may include not completing a job, not paying in full or on time, failure to deliver all the goods, substituting inferior or significantly different goods, not providing a bond when required, being late without excuse, or any act which shows the party will not complete the work (“anticipatory breach”). Breach of contract is one of the most common causes of law suits for damages and/or court-ordered “specific performance” of the contract.”

Question 137

Recission

Answer 137

Rescission is defined as

“n. the cancellation of a contract by mutual agreement of the parties.”

Rescission may be applied when the contract has not been performed and there is a breach by one party. After a suit, a court may order the parties placed back in their original position; as if the contract had never existed. Basically, the contract is canceled and both sides are excused from any further performance. Any deposit money is returned.

Question 138

Reformation

Answer 138

n. the correction or change of an existing document by court order upon petition of one of the parties to the document. Reformation will be ordered if there is proof that the parties did not intend the language as written or there was an omission due to mistake or misunderstanding. Quite often a party petitions for reformation when one or both parties realize the effect of the document as written is different from what was expected but it has already been recorded or filed with a governmental agency.”

Question 139

Injunction:

Answer 139

n. a writ (order) issued by a court ordering someone to do something or prohibiting some act after a court hearing. The procedure is for someone who has been or is in danger of being harmed, or needs some help (relief) or his/her attorney, to a) petition for the injunction to protect his/her rights; to b) get an ‘order to show cause’ from the judge telling the other party to show why the injunction should not be issued; c) serve (personally delivered) the order to show cause on the party whom he/she wishes to have ordered to act or be restrained (‘enjoined’); partake in a hearing in which both sides attempt to convince the judge why the injunction should or should not be granted. If there is danger of immediate irreparable harm at the time the petition is filed, a judge may issue a temporary injunction which goes into effect upon it being served (deliver or have delivered) to the other party. ……. A final and continuing injunction is called a permanent injunction. Examples of injunctions include prohibitions against cutting trees, creating nuisances, polluting a stream, ………. or removing funds from a bank account pending determination of ownership. So-called ‘mandatory’ injunctions which require acts to be performed, may include return of property, keeping a gate to a road unlocked, clearing off tree limbs from a right-of-way, turning on electricity or heat in an apartment building, or depositing disputed funds with the court.”

Question 140

Specific performance

Answer 140

“n. the right of a party to a contract to demand that the defendant (the party who it is claimed breached the contract) be ordered in the judgment to perform the contract. Specific performance may be ordered instead of (or in addition to) a judgment for money if the contract can still be performed and money cannot sufficiently reward the plaintiff.”

Question 141

Compensatory action

Answer 141

Compensatory damages are defined as

“n. damages recovered in payment for actual injury or economic loss, which does not include punitive damages (as added damages due to malicious or grossly negligent action).”

The court will award the actual amount of money lost by the aggrieved party.

Question 142

Consequental damages

Answer 142

Consequential damages are defined as “n. damages claimed and/or awarded in a lawsuit which were caused as a direct foreseeable result of wrongdoing.” Foreseeable means that each side should have reasonably known at the time of the contract that there would be potential losses in the event of a breach.”

Question 143

Liquidated Damages

Answer 143

n. an amount of money agreed upon by both parties to a contract which one will pay to the other upon breaching (breaking or backing out of) the agreement or if a lawsuit arises due to the breach. Sometimes the liquidated damages are the amount of a deposit or a down payment, or are based on a formula (such as 10% of the contract amount). The non-defaulting party may obtain a judgment for the amount of liquidated damages, often based on a stipulation (clear statement) contained in the contract, unless the party who has breached the contract can make a strong showing that the amount of liquidated damages was so ‘unconscionable’ (far too high under the circumstances) that it appears there was fraud, misunderstanding or basic unfairness.”

Question 144

Punitive damages

Answer 144

damages awarded in a lawsuit as a punishment and example to others for malicious, evil or particularly fraudulent acts.”
These damages are reserved for the more serious acts such as fraud. The general rule is that punitive damages are not recoverable for breach of contract, even if the breach was willful

Question 145

Earnest money is defined in the Merriam Webster Dictionary of Law as
\

Answer 145

“something of value given by a buyer to a seller to bind a bargain.”

Question 146

Real Estate Contracts

Answer 146

Every time you perform an appraisal on a property that is under contract for purchase, it is imperative that you analyze that agreement of sale. Standards Rule 1-5(a) in the 2020-2021 USPAP says:

“When the value opinion to be developed is market value, an appraiser must, if such information is available to the appraiser in the normal course of business:

(a) analyze all agreements of sale, options, and listings of the subject property current as of the effective date of the appraisal;”1

Question 147

Arms Length Transaction

Answer 147

An arm’slength transaction refers to a business deal in which buyers and sellers act independently without one party influencing the other. Arm’s length transactions assert that both parties act in their own sellf-interest and are not subject to pressure from the other party. They also assure others that there is no collusion between the buyer and seller. In the interst of fairness, both parties usually have equal access to information related to the deal.”

Question 148

Date of Value

Answer 148

We need to know the date of sale. That identifies a particular point in time when there was a “meeting of the minds,” i.e., when the parties agreed to the transaction.

The price that results from a negotiated meeting of the minds should reflect the economic conditions that were in play at that point in time.

In some cases, a contract is signed and then an extended period of time elapses before the closing is scheduled. If a contract is signed in January, it reflects the state of the market then; even though the closing may not be scheduled until October.

Our task is to estimate the value of the property as of a certain date. This is called the effective date of value.

If we are asked to appraise the property in July, we are expected to come to an opinion of the value of the property at that point. It may have gone into contract in January for $200,000 but it might be worth more or less than that amount in July if the market is appreciating or declining. After all, real estate values are subject to change.

Question 149

Sales Concession

Answer 149

Sales concessions are sometimes employed as a marketing tool when the market is slow or extremely competitive. They can include such items as

Paying closing costs
Buying down the interest rate of the purchaser’s mortgage
Offering private financing at a favorable rate
Making repairs
Offering rebates

Question 150

Personal Property

Answer 150

The contract of sale should also specify if there is any personal property included in the sale price. Any personal property included in the purchase contract needs to be identified in the appraisal. That does not mean the appraiser would include these personal property items in the real property appraisal; it merely means the appraiser must identify the personal property items that are included in the sales contract, as part of the appraiser’s analysis of the contract.

Question 151

Reporting

Answer 151

Once you analyze the contract of sale, you may extract some of that information to use in your appraisal report.

The most common appraisal report form that is used in residential mortgage appraising is the Uniform Residential Appraisal Report (URAR) that has been developed by Fannie Mae and Freddie Mac. Here is the beginning section, the Subject Section, at the top of page one of this six-page form.

Question 152

UAD

Answer 152

For an appraisal report prepared for a Fannie Mae, Freddie Mac, FHA, or VA loan, the data entry protocols of the Uniform Appraisal Dataset (UAD) are applicable to this section of the form. There are specific formatting requirements for an appraiser to use when reporting the results of his/her analysis of the sales agreement and any seller concessions that were noted in the agreement.

Question 153

A lease

Answer 153

A contract in which the rights to use and occupy land, space, or structures are transferred by the owner to another for a specified period of time in return for a specified rent.”

Question 154

A flat rental lease

Answer 154

a lease with a specified level of rent that continues throughout the lease term.”

This is the easy kind, such as a two-year lease at $500.00 per month or $6,000 annually. In periods of stability, this is the most common type of lease. However, because the rental amount is locked in and the economy can change, many landlords only want to use flat rental leases for short-term situations.

Question 155

A gross lease

Answer 155

A lease in which the landlord receives stipulated rent and is obligated to pay all of the property’s operating and fixed expenses; also called full-service lease.”

Question 156

A net lease

Answer 156

A lease in which the landlord passes on all expenses to the tenant.”

Question 157

A graduated rental lease

Answer 157

A lease that provides for specified changes in rent at one or more points during the lease term, e.g., step-up and step-down leases, or leases with a set percentage adjustment.”

They are sometimes called “step-up” or “step-down” leases, depending on the direction of movement of the rental payment. A step-up lease allows a landlord to anticipate increasing future expenses to be offset by a corresponding increase in future income. It works great if your crystal ball is working clearly the day the lease is executed. The step-up lease may also be advantageous to the tenant, as it allows lower payments in the beginning while a business is being established. It also just makes common sense. We said earlier in this course that there is a relationship between income and value. Property values are usually expected to increase, and higher values should be reflected in higher rents.

Question 158

Index Lease

Answer 158

“A lease, usually for a long term, that provides for periodic rent adjustments based on the change in an economic index.”

The consumer price index (CPI) is most often the index to which the lease is tied, but it could be any recognized index. The CPI reflects the basic rate of inflation. Adjustments in the rent usually are made annually, but could be in any frequency that is negotiated. This usually seems to be fair and reasonable for both sides, as they are offered some protection against the inevitable fluctuations in the economy and purchasing power.

Question 159

A reevaluation lease

Answer 159

A lease that provides for periodic rent adjustments based on the market rental rate of the space.”

Question 160

Escalator Lease

Answer 160

A lease that allows for the lessor to seek reimbursement of operating expenses after specific criteria have been met, e.g., the lessor is required to pay expenses for the first year but the lessee will pay any necessary increases in expenses as additional rent over the subsequent years of the lease.”

Question 161

A percentage lease

Answer 161

A lease in which the rent or some portion of the rent represents a specified percentage of the volume of business, productivity, or use achieved by the tenant.”

They are typically used for retail properties, where the tenant might be a supermarket or department store. A straight percentage lease may have no minimum rent but most include a guaranteed minimum rent and an overage rent.

Question 162

An overage rent:

Answer 162

The percentage rent paid over and above the guaranteed minimum rent or base rent; calculated as a percentage of sales in excess of a specified breakpoint sales volume.”
In this case, the landlord becomes a risk taker and shares in the business fortunes of the tenant. For example, the landlord may get overage rent in the amount of 1% of annual sales in excess of $2 million dollars. However, there is no guarantee, and the landlord might never see anything above the base rent.

Question 163

Lease Analysis

Answer 163

As we have seen, there are many variations on the theme. As we start to develop the income estimate for our appraisal, we need to carefully analyze any leases that are in place. Perhaps there is a long-term lease with an AAA (i.e., good credit risk) tenant that has 20 years left to run. This obviously will have a strong impact on the appraised value. It certainly would be preferable to a month-to-month lease with a start-up tenant who has had credit problems in the past.

The type of lease itself and the described type of rent need to be thoroughly analyzed. Then, we have to research the market and ascertain if the current contract rent is market rent or not. If all or part of the property is vacant, we have to estimate the market rent for that space.

You need to examine the existing leases in detail. It is important to understand all the nuances and details of the income stream. Also, it is necessary to accurately compare the subject’s financial characteristics with those of comparable sales and rentals.

Question 164

Lessor
Lessee

Answer 164

Lessor - Landlord
Lessee - Tenant

Question 165

If a buyer in a real estate transaction defaults on the contract, the seller may
rescind the contract
declare the contract forfeited and keep the earnest money
sue the buyer for specific performance
any of these

Answer 165

Any of these

Question 166

1 of 15
Which would NOT be a required element of a valid deed?
must be recorded
legal description
must be in writing
a granting clause

Answer 166

Answer: Must be recorded

Question 167

1 of 15
Which would NOT be a required element of a valid deed?
must be recorded
legal description
must be in writing
a granting clause

Question 168

A reconveyance may be employed if there is a
grant deed
deed of trust
sheriff’s deed
quitclaim deed

Answer 168

Deed of trust

Question 169

Which is true of an express contract?
an example would be a listing agreement
the terms must be stated in words
Both A and B

Answer 169

Both a & b

Question 170

A deed that conveys to the grantee title to the property free and clear of all encumbrances, except those specifically set forth in the document” is the definition of a _______________ deed.
bargain and sale
warranty
tax
quitclaim

Answer 170

Warranty

Question 171

A deed that conveys to the grantee title to the property free and clear of all encumbrances, except those specifically set forth in the document” is the definition of a _______________ deed.
bargain and sale
warranty
tax
quitclaim

Answer 171

Quitclaim

Question 172

A deed that conveys to the grantee title to the property free and clear of all encumbrances, except those specifically set forth in the document” is the definition of a _______________ deed.
bargain and sale
warranty
tax
quitclaim

Question 173

A market:

Answer 173

1. A set of arrangements in which buyers and sellers are brought together through the price mechanism; the aggregate of possible buyers and sellers and the transactions between them. See also real property market.

Question 174

Supply & Demand

Answer 174

In economic theory, the principle that states that the price of a commodity, good, or service varies directly, but not necessarily proportionately, with demand, and inversely, but not necessarily proportionately, with supply. In a real estate appraisal context, the principle of supply and demand states that the price of real property varies directly, but not necessarily proportionately, with demand and inversely, but not necessarily proportionately, with supply.”

Question 175

A real property market

Answer 175

Buyers and sellers of particular real property and the transactions that occur among them.”

Question 176

An active market

Answer 176

“A market characterized by numerous transactions.””

Question 177

A buyers market

Answer 177

“A market in which buyers have the advantage; exists when market prices are relatively low due to an oversupply of property or reduced buyer demand.”

Question 178

Sellers market

Answer 178

An active market in which the sellers of available properties can obtain higher prices than those obtainable in the immediately preceding period; a market in which a few available properties are demanded at prevailing prices by many users and potential users.”

Question 179

a depressed market

Answer 179

A market in which a drop in demand is accompanied by a relative oversupply and a decline in prices.”

Question 180

We could classify the real property market as an imperfect market. An imperfect market is defined as

Answer 180

“A market in which product differentiation exists, there is a lack of important product or market information, and some of the producers and/or consumers are significant enough to affect the price and quantity of goods by their actions alone.”

Question 181

A market area:

Answer 181

The geographic region from which a majority of demand comes and in which the majority of competition is located. Depending on the market, a market area may be further subdivided into components such as primary, secondary, and tertiary market areas, or the competitive market area may be distinguished from the general market area.”

Question 182

Long term cycles

Answer 182

Long-term cycles are usually caused by national or even international changes, such as opportunities for outsourcing local jobs or unemployment trends.

Question 183

Short term cycles

Answer 183

short-term (based on the availability of mortgages and the prevailing interest rate).

Two factors are typically responsible for short-term real property cycles:

the level of interest rates; and
the amount of credit available.

Question 184

Amenity

Answer 184

A tangible or intangible benefit of real estate that enhances its attractiveness or increases the satisfaction of the user. Natural amenities may include a pleasant location near water or a scenic view of the surrounding area; man-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.”

Question 185

Investment Choices

Answer 185

First, you could put the money under your mattress or bury it in your backyard. To reduce the risk even further, you could put it in a safe or in a bank deposit box. You could look at it and play with it all you wanted, but it’s not going to grow. You don’t have to worry about the return OF your money (because you still have it), but the return ON your money is zero. By the way, this is not considered an investment, as there is no expectation of profit (principle of anticipation).

Question 186

Monetary Policy

Answer 186

The efforts by a central bank, such as the Federal Reserve in the United States, to influence the level of economic activity in the country by regulating the availability of money and the rate of interest.”

Question 187

The Fed

Answer 187

The supply of money in the U.S is regulated by the Federal Reserve System (the Fed). Founded in 1913, the Fed consists of 12 regional banks. The Board of Governors of the Federal Reserve System is made up of 7 individuals who are appointed to 14-year terms by the President of the United States; appointees must be confirmed by the U.S. Senate. The Fed establishes our nation’s monetary policy.

Question 188

The Money Market

Answer 188

The interaction of buyers and sellers who trade short-term money instruments.”

Short term typically means one year or less, but can be for longer periods. These would include:

Treasury bills - three months,six months or one year
Treasury notes – one to ten years
Certificates of deposit – up to seven years.
Commercial paper – a corporation’s promissory notes
Municipal notes - short term obligations of local governments

Question 189

The Capital Market * Think Capital Gains*

Answer 189

“The interaction of buyers and sellers trading long- or intermediate-term money instruments.”

Question 190

The “price” of money is
its yield
an interest rate
change
its discount rate
YOU ANSWERED INCORRECTLY
Money. We measure how much money costs by the interest rate we have to pay.

Answer 190

Interest Rate

Question 191

From the 1930s to 1960s, mortgages were held locally.

Answer 191

The primary sources of mortgage capital were:

State or federally chartered savings banks
Savings and loan institutions
Commercial banks
Credit unions

Question 192

Savings Banks

Answer 192

Savings banks are either mutual or stockholder owned. Mutual savings banks are similar to savings and loans and invest large amounts of their depositor’s money in residential mortgages. Around 1990, many mutual savings banks went public and converted into stockholder-owned institutions.

Question 193

Commercial banks are privately-owned institutions that were obviously oriented towards business loans but dabbled in residential loans. Their loans were usually short term, but they played an important role - they supplied loans to builders and developers for construction and development.

Question 194

If banks wanted to loan out funds for mortgages, the sources were limited to:

Answer 194

Depositors
Sale of stock or shares of ownership in the bank or thrift
Repayment of existing mortgages
Borrowing of funds from the Federal Reserve

Question 195

The Secondary Mortgage market

Answer 195

“A market created by government and private agencies for the purchase and sale of existing mortgages, which provides greater liquidity for mortgages. In the United States, Fannie Mae, Freddie Mac, and Ginnie Mae are the principal operators in the secondary mortgage market.”

Question 196

Fannie Mae vs. Ginnie mae

Answer 196

Fannie Mae buys mortgages (single-family and multi-family) from lenders, which may be insured or not, and either keeps them or sells them as mortgage-backed securities.
Ginnie Mae guarantees securities that are backed by government-insured or -guaranteed loans (VA, USDA, FHA) and also manages a portfolio of mortgages owned by the federal government.

Question 197

Thrift

Answer 197

Note: “Thrifts” is an abbreviation for a Savings & Loan Association which is a local lending institution whose primary function is originating and servicing residential mortgages in the local market. Most “thrifts” were taken over by the federal government (Resolution Trust Corporation) after the financial crisis in 1987 so there are a relatively small number of “thrifts” still operating.

Question 198

Mortgage Assumption

Answer 198

When mortgage rates are going up or in a state of flux, it may be attractive for a buyer to purchase a house and take over its existing mortgage, rather than getting a new one at a higher or less stable rate. This is called a mortgage assumption.

Question 199

A contract for deed

Answer 199

A contract in which a purchaser of real estate agrees to pay a small portion of the purchase price when the contract is signed and additional sums, at intervals and in amounts specified in the contract, until the total purchase price is paid and the seller delivers the deed; used primarily to protect the seller’s interest in the unpaid balance because foreclosure can be exercised more quickly than it could be under a mortgage. Also called land contract or installment (sale) contract.”

Question 200

Note and Trust Deed

Answer 200

The Contract for Deed sale is different than a seller-financed Note and Trust Deed transaction which is permitted in many states. In a seller-financed Note and Trust Deed transaction, a seller is financing the sale for the buyer, just as in the Contract for Deed sale, except that in this case, the seller delivers a warranty deed and legal title is passed right away to the buyer and the seller holds a Deed of Trust on the property in the same manner as a third-party institutional lender.

Question 201

A “wrap-around contract” is a variation of seller financing, and offers buyers an alternative to a new mortgage from a financial institution. The seller keeps the existing mortgage on behalf of the buyer, plus lends additional money to cover the price paid above the balance of the underlying loan.

This kind of seller financing is also called an “All Inclusive Deed of Trust” or “All Inclusive Mortgage.”

Question 202

A mortgage

Answer 202

“A pledge of a described property interest as collateral or security for the repayment of a loan under certain terms and conditions.”

Question 203

A conventional loan is defined as:

“A mortgage that is neither insured nor guaranteed by an agency of the federal government, although it may be privately insured.”

Question 204

A conventional loan is defined as:

“A mortgage that is neither insured nor guaranteed by an agency of the federal government, although it may be privately insured.”

Question 205

A guaranteed mortgage is defined as

“A mortgage in which a party other than the borrower assures payment in the event of default, e.g., a VA-guaranteed mortgage or a SBA-guaranteed mortgage.”
An example of this type of mortgage is a loan that is guaranteed by the Veterans Administration (VA). In the event of a default, the VA would reimburse the lender for any losses.

Question 206

A mortgage in which a party other than the borrower assures payment on default by the mortgagor in return for the payment of a premium, e.g., FHA-insured mortgages, private mortgage insurance (PMI).”

Answer 206

An example of an insured mortgage would be an FHA mortgage. FHA is the name of the mortgage insurance program that is operated by the U.S. Department of Housing and Urban Development (HUD). HUD/FHA does not lend money; instead they charge the borrower an up-front mortgage insurance premium (UFMIP) based on a percentage of the loan amount, plus a monthly mortgage insurance premium (MIP). The FHA mortgage insurance program is funded entirely by mortgage insurance premiums paid by borrowers; no taxpayer money is involved. In the event of a default on an FHA loan, HUD reimburses the originating lender for losses incurred.

Question 207

A first mortgage

Answer 207

“A mortgage that has priority over all other mortgage liens on a property.”

Question 208

a junior lien

Answer 208

A lien placed on property after a previous lien has been made and recorded; a lien made subordinate to another by agreement; e.g., second and third mortgages; also called second lien or third lien.“

Question 209

Amortization is defined as

“The process of retiring a debt or recovering a capital investment, typically through scheduled, systematic repayment of the principal; a program of periodic contributions to a sinking fund or debt retirement fund.”

Answer 209

It comes from the Latin “amort”, which means “to kill.” So by making the scheduled payments, the borrower is literally “killing off” the loan.

Question 210

A fixed rate mortgage

Answer 210

“A mortgage with an interest rate that does not vary over the life of the loan.”

Question 211

A mortgage that is not fully amortized at maturity, and thus requires a lump sum, or balloon, payment of the outstanding balance.”

Question 212

reverse mortgage. They are defined as:

“A type of mortgage whereby age-qualified homeowners systematically borrow against the equity in their homes, receiving regular (usually monthly) payments from the lender. Borrowed funds and accrued interest come due when the last surviving borrower dies or permanently vacates the premises. Under current HUD guidelines, all of the mortgagors must be at least 62 years of age. When the loan is due, the estate usually has approximately twelve months to repay the balance of the reverse mortgage or sell the home to pay off the loan amount. All remaining equity is paid to the vacating homeowner or the estate. An FHA insurance program ensures that the vacating homeowner or estate is not liable if the loan balance exceeds the value of the home at the time the loan is due. Also called a reverse-annuity mortgage or home equity conversion mortgage.”

Question 213

Discount points are defined as:

“A percentage of the loan amount that a lender charges a borrower for making a loan; may represent a payment for services rendered in issuing a loan or additional interest to the lender payable in advance; also called points. Each discount point is 1% of the original loan amount.”

Question 214

Most ___________ were chartered primarily to provide residential mortgages for the local areas.

Answer 214

Savings & Loans

Question 215

Another name for a contract for deed is a(n)
deed of trust
leasehold contract
installment sale contract
wrap-around contract

Answer 215

Installment Sale Contract

Question 216

A point is __ percent of ___ loan

Answer 216

1 percent of mortgage loan

Question 217

Which of the following is a guaranteed loan?
VA
FHA
Conventional
ARM

Answer 217

VA

Question 218

Which of these is NOT a primary participant in the secondary mortgage market?
FHA
Fannie Mae
Freddie Mac
Ginnie Mae

Answer 218

fha

Question 219

The primary participants in the secondary mortgage market are
FHA and VA
Fannie Mae and FHA
Freddie Mac, Ginnie Mae and HUD
Fannie Mae, Freddie Mac, and Ginnie Mae

Answer 219

fannie mae freddie mac ginnie mae

Question 220

Elements of Value:

Answer 220

For any economic good to have value it must possess four elements:

Desire
Utility
Scarcity
Effective purchasing power

Utility & Scarcity are supply factors, while desire & effective purchasing power is demand.

Question 221

Functional Utility

Answer 221

The ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards; the efficiency of a building’s use in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms.”

Appraisers recognize functional utility as an element of value.

Question 221

Community Planning

Answer 221

Most community planning did not occur until the 1960s and 1970s. It was in the aftermath of, and in some cases a result of, urban or suburban sprawl. It was felt that there should be a general direction expressed and plans laid down for general land usage. These community planners looked at which parts of the community should be residential, which should be retail or commercial, and where any industrial usage should occur.

Question 222

Zoning:

Answer 222

A property’s zoning is one of the strongest determinants of its value. I’m sure you understand that a property could have different values depending on whether it was zoned for and permitted only one unit residential use, commercial or retail use, or industrial use. An acre could be worth $20,000 or $200,000, depending upon the allowed usage under zoning.

Question 223

Building Codes

Answer 223

Like zoning laws and regulations, building codes can have an impact on values in an area. A strong building code can result in properties that meet health and safety standards. Such properties can be more valuable and also sustain their value over longer periods of time.

Building codes and subdivision regulations typically dictate requirements for land development. They may stipulate minimum requirements for road development, water and sewer easements, well and septic systems, footings and foundation specifications, etc.

Question 224

U.S. Army Corps of Engineers

Answer 224

Their mission is planning, designing, building and operating water resources and other civil works projects including:

Navigation
Flood control
Environmental protection
Disaster response
Ecosystem restoration
Wetlands and waterways regulation & permitting
They keep the canals running and dredge the rivers. They occasionally make the news, especially after a major hurricane or flood or other natural disaster.

Question 225

Utilities

Answer 225

The availability of public utilities to a site constitutes another value-influencing factor. If you have a piece of land with no utilities provided, in order to place a dwelling on that property, a well has to be drilled and a septic system installed. This will certainly cost thousands of dollars - sometimes tens of thousands of dollars. In some areas, there is uncertainty as to whether or not adequate systems can be built. If a piece of property can easily be connected to public water and sewer at the street, it should be worth more.

Question 226

Value vs. Price

Answer 226

Value is an OPINION. the value changes over time.

Price is a FACT. once something is paid for, that price is fact, although the value might not be the same as the price.

Question 227

“The monetary relationship between properties and those who buy, sell, or use those properties” is the definition of

Answer 227

Value

Question 228

Appraisers are cautioned to identify the exact definition of market value, and its authority, applicable in each appraisal completed for the purpose of market value. (USPAP, 2016-17 ed.)

USPAP also requires that certain items be included in every appraisal report. Among these items, the following are directly related to the definition of market value:

Identification of the property rights to be appraised.
Statement of the effective date of the value opinion.
Specification as to whether cash, terms equivalent to cash, or other precisely described financing terms are assumed as the basis of the appraisal.
If the appraisal is conditioned upon financing or other terms, specification as to whether the financing terms are at, below, or above market interest rates and/or contain unusual conditions or incentives. The terms of above- or below-market interest rates and/or other special incentives must be clearly set forth; their contribution to, or negative influence on, value must be described and estimated; and the market data supporting the opinion of value must be described and explained.

Question 229

Market Value

Answer 229

In the first line of the definition says that market value is “The most probable price that the specified property interest should sell for…” (emphasis added)

It doesn’t say the highest possible price, or the lowest possible price. It specifically states the most probable price. It’s not a guarantee, but it lays out the probability that market value is the most likely price that would happen among a series of prices that could theoretically occur. Remember what I said before about, what if a property could sell 10 times over, what would be the most likely price? That’s market value.

Question 230

arms length transaction

Answer 230

arm’s length transaction. This is defined as

“A transaction between unrelated parties who are each acting in their own best interest.”

Question 231

exposure time

Answer 231

an opinion, based on supporting market data, of the length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal.3

Question 232

The concept of asking price is important in developing an opinion of reasonable exposure time. A house may be offered on the market for $129,000 for 15 months with no takers. The owner then reduced the asking price to $79,900 and the house sold for $75,000 two months later. The raw days-on-market listed in the local MLS for this property may be 17 months, but an informed appraiser will look at this sale and conclude that the reasonable exposure time indicated by this sale was actually two months.

Question 233

Value In Use:

Answer 233

“The value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of the appraisal. Value in use may or may not be equal to market value but is different conceptually.”

This may come into play in appraising commercial or industrial properties. A factory may be specialized and have a substantial value for one use only. An example might be a bottling plant which has been built and configured for that use.
But what if that use is no longer economically viable or is illegal under the current zoning? A property that has a specific use may be desirable to a limited market of purchasers. Care should be taken when appraising to identify if there is a market for that use.

Question 234

Investment Value

Answer 234

“The value of a property interest to a particular investor or class of investors based on the investor’s specific requirements. Investment value may be different from market value because it depends on a set of investment criteria that are not necessarily typical of the market.”

Question 235

A type of value for insurance purposes.”

You may be asked to do an appraisal for this type of value, instead of market value. Basically, this would require you to come up with the value of the part of a property that would be replaced in the event of a total loss by fire, hurricane, or other catastrophic event.

Usually this means the building improvements only and does not include the land or other site improvements such as a well or septic system. (Although site improvements can be included, if the client and/or the assignment specifies their inclusion.)

Question 236

Assessed value is defined as:

“The value of a property according to the tax rolls in ad valorem taxation; may be higher or lower than market value, or based on an assessment ratio that is a percentage of market value.”

Answer 236

ChatGPT answer:
Assessed value is defined as:

“The value of a property according to the tax rolls in ad valorem taxation; may be higher or lower than market value, or based on an assessment ratio that is a percentage of market value.”

Question 237

Assessed value is defined as:

“The value of a property according to the tax rolls in ad valorem taxation; may be higher or lower than market value, or based on an assessment ratio that is a percentage of market value.”

Question 238

Market value of the going concern is defined as:

“The market value of an established and operating business including the real property, personal property, financial assets, and the intangible assets of the business.” (like Customer loyalty)

Question 239

Book value is defined as

Answer 239

With respect to a business enterprise, the difference between total assets (net of depreciation, depletion, and amortization) and total liabilities of an enterprise as they appear on the balance sheet. It is synonymous with net book value, net worth, and shareholder’s equity

Question 240

The Salvage Value

Answer 240

The price expected for a whole property, e.g., a house, or a part of a property, e.g., a plumbing fixture, that is removed from the premises usually for use elsewhere.

Question 241

Exposure time is a _____________ developed by the appraiser.

Answer 241

Retrospective Value

Question 242

What type of value is based on the market value of an established, operating business, as if sold in the aggregate?
book value
investment value
salvage value
market value of the going concern

Answer 242

market value of the going concern

Question 243

he principle of anticipation is defined in The Dictionary of Real Estate Appraisal, Sixth Edition (Appraisal Institute, 2015) as:

“The perception that value is created by the expectation of benefits to be derived in the future.”

Question 244

he principle of change is defined as:

“The result of the cause and effect relationship among the forces that influence real property value.”

Question 245

The principle of supply and demand is defined as:

“In economic theory, the principle that states that the price of a commodity, good, or service varies directly, but not necessarily proportionately, with demand, and inversely, but not necessarily proportionately, with supply. In a real estate appraisal context, the principle of supply and demand states that the price of real property varies directly, but not necessarily proportionately, with demand and inversely, but not necessarily proportionately, with supply.”

Question 246

Principle of Competition

Answer 246

. Among competitive properties, the level of productivity and amenities or benefits characteristic of each property considering the advantageous or disadvantageous position of the property relative to the competitors.”

Question 247

The principle of substiution

Answer 247

The appraisal principle that states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution. This is the primary principle upon which the cost and sales comparison approaches are based.”

Question 248

The principle of contribution is defined as:

Answer 248

The amount a component of a property adds to the total value of the property. Contribution may or may not be equivalent to the cost to add the component.
The concept that the value of a particular component is measured in terms of the amount it adds to the value of the whole property or as the amount that its absence would detract from the value of the whole.”

Question 249

Principle of Externalities
The principle of externalities is defined as

“1. The principle that economies outside a property have a positive effect on its value while diseconomies outside a property have a negative effect on its value.

2. In appraisal, off-site conditions that affect a property’s value. Exposure to street noise or proximity to a blighted property may exemplify negative externalities, whereas proximity to attractive and well-maintained properties or easy access to mass transit may exemplify positive externalities.”

Question 250

he principle of balance is defined as:

“The principle that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium.”

Question 251

The principle of conformity is defined as

“The appraisal principle that real property value is created and sustained when the characteristics of a property conform to the demands of its market.”

This principle is closely aligned with the principle of balance. It postulates the premise that properties fare better when they meet the expectations of the market.

Question 252

Principal of Progression
Principal of Regression

Answer 252

Progression - A house in a higher income neighborhood that is not worth much will become worth more.

A house in a lower income neighborhood that is worth more will be worth less in that neighborhood.

Question 253

opportunity costs

Answer 253

“The cost of options forgone or opportunities not chosen.”

Question 254

The agents of production are defined as:

“Land, labor, capital, and entrepreneurial effort (also known as coordination).”

Question 255

The principle of surplus productivity is defined as

“The net income that remains after the costs of various agents of production have been paid.”

Question 256

The principle of increasing and decreasing returns is defined as

“The concept that successive increments of one or more agents of production added to fixed amounts of the other agents will enhance income, in dollars, benefits, or amenities, at an increasing rate until a maximum return is reached. Then, income will decrease until the increment to value becomes increasingly less than the value of the added agent or agents. Also called law of increasing returns or law of decreasing returns.”

Question 257

Highest and best use is defined in The Dictionary of Real Estate Appraisal, Sixth Edition (Appraisal Institute, 2015) as:

“1. The reasonably probable use of property that results in the highest value. The four criteria that the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity.

Question 258

There are four criteria used in determining the highest and best use of a property. The highest and best use of a property must be:

Legally permissible
Physically possible
Financially feasible (sometimes called “economically feasible”)
Maximally productive

Question 259

Highest and best use

Answer 259

Remember that the concept of highest and best use applies to both vacant land and improved property.

If you are appraising vacant land, your highest and best use analysis will probably be the most important step in your whole appraisal.

If you are appraising property that has already been improved, you shouldn’t make the assumption that the existing improvements represent the highest and best use of the site. It is quite common, particularly as a property ages, that the neighborhood will change enough to create a newer and better highest and best use.

Question 260

Highest and best use - as if vacant

Answer 260

Highest and best use of a land or a site as though vacant is defined in the Fifth Edition of The Dictionary of Real Estate Appraisal (Appraisal Institute, 2010) as:

“Among all reasonable, alternative uses, the use that yields the highest present land value, after payments are made for labor, capital, and coordination. The use of a property based on the assumption that the parcel of land is vacant or can be made vacant by demolishing any improvements.”

Question 261

Highest & Best use as improved

Answer 261

Highest and best use as improved is defined in the Fifth Edition of The Dictionary of Real Estate Appraisal (Appraisal Institute, 2010)as

“The use that should be made of a property as it exists. An existing improvement should be renovated or retained as is so long as it continues to contribute to the total market value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing building and constructing a new one.”

Question 262

when to Raze & Remove the improvement

Answer 262

We need to consider the cost of razing and removing the current improvements when developing this opinion. For example, a large, old, shabby but habitable single-family dwelling may have a current as-is value of $85,000, and the site may be worth $100,000 if vacant. Sounds like it would be a good idea to raze the dwelling, right? Not so fast. Let’s say that because of the size and construction of the old house, and the proximity to the adjoining houses, it would cost $20,000 to raze the house and remove it. At this point, the current value of the improved property ($85,000) added to the cost of razing and removing the dwelling ($20,000) would exceed the value of the vacant lot ($100,000). So at this time, it would not be economically feasible to raze and remove the dwelling.

Question 263

The net income that is left over after the four agents of production are paid is returned to the
seller
land
lender
borrower
YOU ANSWERED INCORRECTLY
Surplus Productivity. The land is felt to be the most basic component and nothing would be possible without it.

Question 264

In the agents of production theory, the return on land would be __________ and the return on labor would be ________.
profit, wages
rent, interest
rent, wages
interest, profit
YOU ANSWERED INCORRECTLY
Agents of Production. Those are the correct two choices.
Rent, Wages