CA RE Practice Flashcards
Real estate is affected by:
Supply and Demand
Pricing
Costs incurred in bringing properties to market
Value aspects of desire, usefulness, scarcity, and ability to pay
Most MLS state commission split will be __________.
Divided b/w listing and selling broker
7 Types of Property
Residential
Industrial
Commercial
Agricultural
Special-purpose
Recreational
Investment
7 Types of RE Specialization
Property Type
Clients
Geography
Business Type
Transactions
Auction Sales
Mortgage Loans
Safe Harbor Test
Used to establish a person is indeed an independent contractor
3 conditions of the safe harbor test
Properly licensed
Gross income is based on production not hours worked
Written agreement which states independent contractor status
Errors and Omissions Insurance
Covering broker and salesperson for negligent acts
Protects broker against embezzlement by a licensee
Fidelity bond
4 Requirements for Written Agreement b/w RES and Broker
Each person’s responsibilities to the other
Broker’s supervision
Licensee’s duties
Licensee’s compensation program
Largest and most prestigious real estate organization in the world
National Association of REALTORS® (NAR)
NAR requires a mandatory ___ course every __ years
Ethics
4
Oldest and largest minority trade association in the United States
National Association of Real Estate Brokers (NAREB)
State Division of NAR
California Association of REALTORS® (CAR)
Two components of Structural/Systemic Racism
Interpersonal
Institutional
Housing and Community Development Act
Added Sex to List of Discrimination Classes (1974)
Fair Housing Amendments Act
Added Handicap and Familial Status to Discrimination Classes (1988)
American Disabilities Act (ADA)
Prohibits discrimination in the “full and equal enjoyment of goods and services” provided by public places, and it applies to the lease and operation of commercial facilities (1992)
7 Classes Protected by Federal Fair Housing Act
Race including Ancestry
Religion
Color
National origin
Sex
Handicap
Familial status
HUD will determine if there is reasonable cause to charge discrimination or dismiss complaint within _____ days
100
Conciliation
HUD can attempt to resolve the complaint by getting assurance from the person against whom the complaint was filed that he or she will remedy the alleged violation
If Administrative Law Judge determines discrimination occured, the respondent can be ordered to (4)
Compensate for actual damanges
Provide injunctive or other equitable relief
Pay civil penalty
Pay reasonable attorney’s fees
Civil Penalties for Discrimination
$11k if no priors
$27.5k if 1 charge during past 5 years
$55k if 2+ charges during the past 7 years
3 CA Fair Housing Laws
Unruh Act
Rumford Fair Housing Act (Fair Employment and Housing Act)
Holden Act (Housing Financial Discrimination Act)
Unruh Act
Protects people from being discriminated against because of their sex, race, color, religion, ancestry, national origin, disability, medical condition, marital status or sexual orientation.
Unruh Act Damages
3x actual damages (no less than $250)
Rumford Fair Housing Act/ Fair Employment and Housing Act (3 Prohibitions)
Discrimination in the sale, rental, lease, negotiation or financing of housing based on race, color, religion, sex, marital status, familial status, disability, national origin, ancestry, sexual orientation or source of income.
Eviction of a person in retaliation for seeking to uphold the rights under this act.
Refusal to reasonably accommodate a handicapped or disabled person.
Before any remedies are awarded for Rumford Act, the aggrieved party would have to _________.
Waive all rights under the Unruh Act
Holden Act/ Housing Financial Discrimination Act
Prohibits financial institutions from discriminating in loan activities based on race, color, religion, marital status, national origin, ancestry, or sex.
Prohibits redlining
Violations of the Holden Act may be filed with the ________
Department of Financial Institutions under the Division of Business Oversight
United States v. Mohamed Bacchus and Alan Zander (E.D. Pa.)
property management company discriminated on the basis of familial status when they refused to allow the complainant to move his pregnant girlfriend and her child into his unit.
Clinton-Brown v. Hardwick in 2020
Sellers withdrew their listing and the buyers sued, claiming discrimination based on race under the Fair Housing Act and the state’s fair housing laws
When a client gives a broker a deposit for the purchase of a property, the broker must do one of three things:
Give the funds to the broker’s principal.
Deposit the funds directly into escrow.
Deposit the funds into his or her trust account.
Broker is permitted to hold an uncashed check at the ________’s request before an offer is accepted or at the ________’s request after the offer is accepted.
buyer’s
seller’s
A broker may deposit money into the trust account to cover reasonable service charges on the account, but this amount cannot exceed _______.
$200
Any broker-owned funds, such as earned commissions, must be disbursed from the account _______ (time).
within 25 days after deposit.
The broker must maintain a record of _____
the receipt and disbursal of all the funds in the account, including interest, if applicable.
Trust accounts must be reconciled ______, except in months when there was no activity.
monthly
Trust accounts must be available for inspection by _____
Real estate commissioner
All trust account records must be kept for ______
Three (3) years
Which California Fair Housing law provides protection from discrimination by business establishments?
Unruh Civil Rights Act
General Law of Agency applies to ______. Each state’s licensing laws directly affect ________.
all business transactions
agency relationship among licensees, clients, and public
Associate Licensees
Licensees who work under broker supervision
Agency relationship is between ______ (buyer or seller) and __________ (acting on their behalf)
Principal
Agent
3 Principles Governing Agency Relationship
Mutual consent
Agreement to form
Fiduciary
Duties Agent Owes to Principal
Care
Obedience
Accounting
Loyalty
Disclosure
Duty related to carelessness or negligency
Care
Duty related to following principal’s directions (as long as they’re legal)
Obedience
Duty related to ensuring all monies, documents, and other property are safe
Accounting
Trust account records must be kept for ____ years
3
Duty related to placing client’s interests above all else
Loyalty
Duty related to informing client of all material facts that may affect client’s interest in the transaction
Disclosure
Easton v. Strassburger
Agent is responsible for discovering anything that may be deemed important to their client
California law allows dual agency if _____
Buyer and seller are informed of the situation and give their written consent.
Divided Dual Agency
Neither party is informed of the situation
Designated Agency
Avoids potential conflict of interest for dual agency (one agent assigned to one principal)
Not allowed in CA
Transaction broker
Not agent to either party, just facilitates transaction
Not allowed in CA
Time when Disclosure Regarding Real Estate Agency Relationships should be provided by the listing agent to seller, selling agent to seller, and selling agent to buyer
Listing agent must provide to the seller prior to securing the listing agreement.
Selling agent must provide to the seller “as soon as practicable” prior to presenting a purchase offer.
Selling agent must provide to buyer “as soon as practicable” prior to the execution of the buyer’s offer to purchase.
3 Parts of Real Estate Transfer Disclosure Statement
*Items in home and operational status
*Significant defects or malfunctions in home
*Misc items such as environ. hazards, easements, encroachments, improvements, zoning or neighborhood concerns
Buyer must receive a copy of the real estate transfer disclosure statement __________. If not, buyer has the right __________.
prior to the execution of an offer to purchase
to cancel offer within 3 days after delivery
Agent’s Inspection Disclosure Exemptions
NONE
If an agent does not comply with Agent’s Inspection Disclosure, a buyer has ____ (time) to file suit
2 years from date of possession
4 Important things to look for during Agent’s Inspection
Structural defects
Deterioration
Water damage
Insect damage
California Civil Code states that if the buyer receives a copy of ____________, the seller and seller’s agent are not required to furnish any additional information, unless they ______.
The Homeowner’s/Commercial Property Owner’s Guide to Earthquake Safety
Have actual knowledge of hazards affecting the property
Natural Hazard Disclosure Statement Inclusions (6)
Special flood hazard area.
Area of potential flooding.
Very high fire hazard zone.
State fire responsibility area.
Earthquake fault zone.
Seismic hazard zone.
California Civil Code states that if the buyer receives a copy of ____________, the seller and seller’s agent are not required to furnish any additional environmental information, unless they ______.
Residential Environmental Hazards Guide
have actual knowledge of environmental hazards on the property
Homes built prior to _______ must provide a booklet entitled (for lead hazards) ________, which is included in ______
1978
Protect Your Family from Lead in Your Home
Combined Hazards Book
Sellers or landlors of residences built prior to _______ must provide ________ to buyers, regardless of ___________
1978
Lead-Based Paint and Lead-Based Paint Hazards Disclosure
whether or not the owner knows if lead-based paint was ever used on the property
Combined Hazards Book Includes (3)
Earthquake hazards
Lead-based paint
Other Environmental hazards
Military ordinance disclosure
If seller knows property is within 1 mile of a former military training site
2 Disclosures Not Required
Death > 3 years
AIDS (Prohibited under Fair Housing Act)
When selling lots or units in a common interest subdivision, the subdivider or agent must give the buyer _____ and _____.
Public report
Statement called Common Interest Development General Information.
Recission Rights
Rights to rescind (or cancel) a contract
2 Types of Subdivisions with Unqualified Right of Recission & Timeframes
Timeshare buyers (7 days)
Undivided interest buyers (midnight of the 3rd day following the day of purchase)
Seller financing arrangements on all one-to-four-unit residences must be disclosed to both the seller and the buyer using ___________. If seller is carrying back a note, it falls on ______.
Seller Financing Addendum and Disclosure
Whoever is arranging the credit
Seller Financing Addendum and Disclosure must be made before ________ and a copy must be kept on file by the arranger for ____
Any note is executed
3 years
Any real estate broker who solicits or negotiates loans on behalf of borrowers or lenders which will be secured directly or collaterally by liens on real property must deliver ____________
Mortgage Loan Disclosure Statement (MLDS)
MLDS must be delivered to the borrower within _____
3 business days of receipt of loan application
Real Estate Settlement Procedures Act (RESPA) was passed in ____ and implemented as ________
1974
Regulation X
3 Situations where RESPA does not apply
Loans used to finance purchase of 25 acres or more
Loans used to finance purchase Vacant Land
Transactions where buyer takes over or assumes an existing first lien loan
RESPA provisions apply to _____
any federally related mortgage loan secured by a first or subordinate lien on a residential real property designed for one to four families
TILA/RESPA Integrated Disclosure Rule (TRID) Requirements (3)
Give copy of the booklet “Your home loan toolkit” at the time of loan application
Loan estimates of closing costs within 3 days of loan application
At least 3 business days before settlement or anticipated close of escrow, borrower must receive Closing Disclosure form
5 Disclosures of Regulation Z
Amount financed
Finance charge
Annual percentage rate
Total of payments
Payment schedule
Truth in Lending Act
Requires a creditor to furnish certain disclosures to the consumer before making a contract for a loan.
Truth in Lending allows the consumer the right to rescind the contract until ______.
midnight of the third business day following the completion of the loan
Notice of Transfer of Loan Servicing
If a loan is secured by a one-to-four-unit property, the lender must notify the borrower when the loan collection is transferred to another entity.
Notice of Adverse Action - (Equal Credit Opportunity Act)
A lender or creditor who denies an application for credit must provide the applicant with a statement of reasons or a written notification of the applicant’s right to obtain such a statement
ECOA Timeframe to Provide Applicant with Statement
Within 30 days after receiving the completed loan application.
Geographical farm
can be a neighborhood, a subdivision or an area where the homes share some common characteristics, such as age or family types
2 Methods to Price Property
Competitive market analysis (CMA)
Appraisal
Fair Market Value
most probable price a property should bring in an open and competitive market
3 Things to Look at During CMA
Prices of properties currently on the market.
Prices of recently sold properties (3-6 mths).
Properties that were listed and did not sell.
1 Reason Property Fails to Sell
Overpricing
Estimated Seller’s Proceeds
Estimates all the costs the owners are apt to incur
Listing Agreement
Legally-binding contract that creates an agency relationship authorizing a broker to serve as the agent for a principal in a real estate transaction
5 Common Types of Listings
Open Listing (Buyer or Seller)
Exclusive-Authorization-and-Right-To-Sell (Seller)
Exclusive Agency (Seller)
Net Listing (Seller)
Exclusive-Authorization-To-Acquire Property (Buyer)
Open Listing
non-exclusive contract, authorizing a broker to serve as the agent for either the sale or the purchase of property
Exclusive-authorization-and-right-to-sell
Broker has the exclusive right to market the property for a specified period of time
Even if the seller himself finds the buyer with no help from the broker, the seller still owes the broker the commission.
All exclusive listing contracts must contain a __________
definite termination date
Exclusive agency
one broker the exclusive right to market and sell the property, while the owner retains the right to find a buyer and sell the property without owing the broker a commission.
Net Listing
not technically a type of listing agreement
Discouraged in CA
an owner sets a minimum amount that he wants to receive from the sale of the property and lets the broker have as commission any amount above the set minimum.
Exclusive-Authorization-To-Acquire-Property
authorizes the broker to act as the agent of the buyer rather than the seller
Paragraphs of Listing Agreement
Paragraph 1 - Exclusive Right to Sell
Paragraph 2 - Listing Price and Terms
Paragraph 3 - Compensation to Broker
Paragraph 4 - Items Included and Excluded
Paragraph 5 - Multiple Listing Service
Paragraph 6 - Benefits of Using the MLS
Paragraph 7 - Public Marketing of Property
Paragraph 8 - MLS Data on the Internet
Paragraph 9 - Seller Representations
Paragraph 10 - Broker’s and Seller’s Duties
Paragraph 11 - Deposit
Paragraph 12 - Agency Relationships
Paragraph 13 - Security and Insurance
Paragraph 14 - Photographs and Internet Advertising
Paragraph 15 - Keysafe/Lockbox
Paragraph 16 - Sign
Paragraph 17 - Equal Housing Opportunity
Paragraph 18 - Attorney Fees
Paragraph 19 - Additional Terms
Paragraph 20 - Management Approval
Paragraph 21 - Successors and Assigns
Paragraph 22 - Dispute Resolution
Paragraph 23 - Entire Contract
Paragraph 24 - Ownership, Title and Authorit
unless the terms are specified, a seller is not required to pay a commission when refusing a full price offer unless ___________.
the offer is all cash
Subparagraph A-2 (Safety Clause)
In Paragraph 3 of Listing Agreement
broker and sellers agree to a specific number of days after the listing expiration during which the broker may still receive a commission
For Safety Clause, ____________ must be given to the owner within __________
list of persons to whom the original broker showed the property during the listing period
three calendar days after the listing expiration.
Subparagraph A-3 (of Para 3 in Listing Agreement)
broker is still entitled to a commission if the seller makes the property unmarketable by any voluntary act during the listing period.Subparagraph B
Subparagraph B (of Para 3 in Listing Agreement)
if a party other than the seller prevents the completion of the sale, the commission due will be the lesser of the commission due under paragraph 4A or one-half of the damages recovered by the seller, after expenses
Subparagraph C (of Para 3 in Listing Agreement)
additional compensation to the broker, such as advertising fees, transaction fees, or MLS fees
Subparagraph D (of Para 3 in Listing Agreement)
Indicates broker has informed the seller of the firm’s policy of dealing with cooperating brokers and how the commissions are divided.
Subparagraph E (of Para 3 in Listing Agreement)
Indicates that the seller will have escrow pay the broker’s commission directly from the sale proceeds.
Subparagraph F (of Para 3 in Listing Agreement)
owner’s warranty that he or she is not obligated to pay a commission to any other broker if the property sells within the listing period, except if the property is sold to any of the listed prospective buyers
Paragraph 4 - Items Included and Excluded
List any personal property that may be included as part of the sale or any real or personal property that is being excluded from the sale
Paragraph 5 - Multiple Listing Service
broker will provide the transaction terms to the Multiple Listing Service, unless the seller signs a form to withhold the listing.
Paragraph 9 - Seller Representations
indicates that the seller is unaware of any legal, financial or physical reasons that would affect the seller’s ability to sell the property.
Paragraph 10 - Broker’s and Seller’s Duties
broker agrees to use due diligence to achieve the purpose of the listing agreement
Paragraph 11 - Deposit
authorizes the listing agent to accept and hold any deposits on the seller’s behalf which will be applied to the purchase price.
Paragraph 12 - Agency Relationships
explains that the broker represents the seller
also informs the seller that the broker represents other sellers
Paragraph 13 - Security and Insurance
states that the broker is not responsible for loss or damage to the property, even with a lockbox present
Paragraph 15 - Keysafe/Lockbox
defines a lockbox and states that persons using the lockbox are not insured against theft, damage, vandalism, etc. which could be attributed to lockbox use
Paragraph 16 - Sign
seller checks a box if he or she does not want a sign on the property
Paragraph 17 - Equal Housing Opportunity
states that the property is offered in compliance with all anti-discrimination laws.
Paragraph 18 - Attorney Fees
states that the loser of a suit or arbitration of any disagreement must pay the associated costs.
Paragraph 19 - Additional Terms
provides space for any agreement or terms not covered by any other section
Paragraph 20 - Management Approval
states that if an associate licensee entered into this agreement, the broker has a right to cancel within 5 days
Paragraph 21 - Successors and Assigns
states that the agreement is binding on the seller and the seller’s successors and assigns
Paragraph 23 - Entire Contract
states that this agreement supersedes all previous discussions, negotiations , and agreements between the seller and the broker
Paragraph 22 - Dispute Resolution
Subparagraph A says that the broker and the seller agree to mediate any disputes that arise from this agreement before taking any other action.
Subparagraph B explains arbitration, but arbitration will not be executed unless both the broker and seller have initialed the appropriate spaces at the end of the paragraph.
Paragraph 24 - Ownership, Title and Authority
warrants that the owners are the only title-holders of the property and therefore have authorization to sell it
4 Paragraphs of Listing Agreement related to MLS
Paragraph 6 - Benefits of Using the MLS
Paragraph 7 - Public Marketing of Property
Paragraph 8 - MLS Data on the Internet
Paragraph 14 - Photographs and Internet Advertising
Subparagraph ___ of Paragraph ____ of the listing agreement should not be explained to sellers
B of 22
Advise them to consult an attorney
California law requires that the sellers receive _____ at the time the signatures are obtained.
a copy of the listing agreement
If the owner is married, _______ should sign the agreement, even if ______.
both spouses
the property is held in the name of only one of the spouses.
Because of California’s community property laws, a buyer might have difficulty suing for specific performance if _______.
both seller signatures are not on the listing agreement
List of Listing Packet Forms
Completed Residential Listing Agreement (RLA)
Seller’s Advisory (SA)
Disclosure Regarding Real Estate Agency Relationships (AD)
Seller’s Affidavit of Nonforeign Status and/or California Withholding Exemption (AS)
Real Estate Transfer Disclosure Statement
Supplemental Statutory and Contractual Disclosures (SSD)
Smoke Detector Statement of Compliance (SDS-11)
Water Heater Statement of Compliance (WHS-11)
Lead-Based Paint and Lead-Based Paint Hazards Disclosure, Acknowledgment and Addendum (FLD-11)
Natural Hazards Disclosure Statement (NHD) and Combined Hazards Book
Home Warranty Application or Waiver
Seller’s Advisory (SA)
Talks about some things regarding disclosures that sellers need to think about and do as they market their property.
Disclosure Regarding Real Estate Agency Relationships (AD)
describes the agency relationships available in California
Seller’s Affidavit of Nonforeign Status and/or California Withholding Exemption (AS)
deals with an IRS requirement that a buyer may need to withhold income tax if the seller is a “foreign person”
Buyer should also get a copy of the form
Supplemental Statutory and Contractual Disclosures (SSD)
disclose awareness of a number of factors, such as death on the property, insurance claims against the property, location in or near an industrial zone, etc.
Smoke Detector Statement of Compliance (SDS-11)
requires at least one operable smoke detector in every single-family dwelling
Water Heater Statement of Compliance (WHS-11)
law requiring water heaters to be strapped, braced or anchored to resist earthquake motion
Notice to Buyers and Sellers - Defective Furnaces in California
explains that the Consumer Product Safety Commission has issued a warning for a certain type of horizontal gas-fired attic furnace, manufactured by Consolidated Industries, which has been known to cause fires
Not a standard form
Things to Include on Weekly Activity Report
Number of inquiries on the property that week.
Number of showings.
Advertising done that week.
Open houses held.
Number of open house visitors.
Comments made by other agents or prospective buyers.
2 Forms of Advertising
Institutional
Product
Institutional advertising
aims at increasing sales by informing the public of the company’s capabilities.
Product advertising
directed toward the particular properties a company has for sale
“AIDA” standard for writing good advertising
Attention
Interest
Desire
Action
Blind ad
Any ad that does not identify the advertiser as a broker (illegal in CA)
Penalty for Advertising as a Broker w/o License
Up to 6 months in county jail
Penalty for Advertising a False Statement
Up to $1k
Up to 1 yr in county jail
License suspension/revocation
Bait-and-switch advertising
Advertising property or credit terms for a property that an agent doesn’t intend to sell or that is actually not available just to attract buyers for other properties the agent has for sale
Equity
Paid-off share of owned property
Typical Formula for Determining Buyer Eligibility
28% of Gross Monthly Income (before tax) = Monthly Mortgage Payment + Taxes + Insurance
Switch sheet
list of comparable properties that are priced 15-20% higher or lower than an advertised property
Floor time
When a licensee is on floor duty, any new caller who does not ask for a specific agent by name becomes that licensee’s prospect
4 Categories of Information To Collect
Demographics
Current information
Needs and wants
Financial information
5 Closing Techniques
Assumptive Close
Alternative Close
Bonus Close
Ownership Close
Standing-Room-Only Close
Assumptive close
acting as if the person has already made the decision to buy
Alternative close
offering more than one alternative to the prospects and having them choose
Bonus close
offers an inducement for the sale
Ownership close
similar to the assumptive close, except that you act as if they already own it and you talk about how it will fit into their lives
California Residential Purchase Agreement Sections
Identifying the Buyer and Property
Agency Disclosure
Terms of Purchase
Condition of Property
Disclosures
Title
Cancellation
Repairs
Escrow Instructions
Time is of the essence
Liquidated damages
If the buyers or sellers are married, ______ should sign the purchase agreement.
Each spouse
When someone authorized by power of attorney signs a purchase agreement on behalf of one of the parties. How should they sign it?
Signor Name, by Behalf Name, his/her attorney in fact
C.A.R. purchase agreement form requires evidence of authorization to sign within _____ (timeframe)
3 days
Within 3 days of seller’s acceptance, buyer must provide _______
verification that they have the funds to close
Timeframe can be changed if both parties agree
Parts of Terms of Purchase paragraph in Purchase Agreement
Good Faith Deposit
Loan Terms
Broker Compensation
Loan Contingency
Additional Contingencies
Possession
Closing Costs
Purchase agreement gives the buyer the right to inspect the property one last time during the _______ (unless otherwise specified) prior to closing
five days
Buyer has _______ after acceptance either to remove contingencies and proceed with the sale, or to ___________.
17 days
cancel the agreement
Liquidated Damages
a sum of money that the parties agree in advance will be the total compensation in the event of a breach
Cannot be more than 3% of purchase price
What’s important to know about the Liquidated Damages paragraph?
This paragraph must be initialed by both parties for it to apply.
What happens if the parties do not initial the section of dispute resolution that deals with binding arbitration?
If they don’t initial it, binding arbitration will not be part of the agreement and they could choose to settle a dispute in court.
Loan Origination Fee
Typically 1 percent of loan amount
Covers lender ‘s cost for generating the loan
Points
Typically 1 percent of loan amount
one-time service charge to the borrower for making the loan
Discount Points (Discount Charges)
means of raising the effective interest rate of the loan
designed to offset any losses the lender might suffer when selling the loan to the secondary mortgage market
_____% for each discount point. So. a charge of 4 points would increase a 7.25% mortgage to _____
1/8
7.75%
Wise choice for someone who plans to own the property for a short time and believes the property will appreciate during that time
interest-only loan
Conversion options
allow the borrower to convert the ARM to a fixed-rate loan at certain times during the life of the loan
Balloon payment loans are ______ loans
partially amortized
Growing Equity Mortgage (GEM)
fixed-rate loan in which payments increase by a predetermined amount each year, reducing the outstanding balance of the loan
Reverse Annuity Mortgage (RAM)
Borrower pays a fixed rate of interest and then repays the loan either when the home sells or from the borrower’s estate upon his or her death
2 Types of Caps in an Adjustable Rate Mortgage
Interest caps
Periodic caps
Loan-to-value ratio
ratio of debt to the value of the property
Most secure loan
Conventional loan
Loan that is typically uninsured
Conventional loans
2 Types of FHA Loans
Fixed-rate 10- to 30-year loans
One-year-adjustable loans
FHA Loan Borrowers must have cash for ______
down payment and closing costs
FHA Loan Borrowers are charged ______ as a premium for the insurance (can be paid by seller)
Percentage of loan
FHA properties must be ______
Appraised by an approved FHA appraiser
Available for one-to-four family residences and some condo units
Unlike an FHA loan, which is____, a VA loan is _____
insured
guaranteed
For most VA Loans, ___ downpayment is required
No
Maximum VA loan terms
30 years for one-to-four family homes
40 years for farms
Types of VA Loans
Fixed-rate
Adjustable Rate
For VA Loans:
Interest rates are ______
__ Monthly Mortgage Insurance Premium
Buyer’s closing costs are limited to ____
Negotiable
No
No more than 1% of loan origination fee + Reasonable costs
VA charges a _____ fee which can be paid ______
funding
At closing or financed with the loan
Release of liability
approved by VA so original veteran borrower is not liable for repayment of loan
does not release the veteran’s liability to the lender. veteran must negotiate directly with the lender for that release.
2 Conditions for Release of Viability
Buyer assumes all of the veteran’s liabilities on the loan.
VA and the lender approve the buyer and approve the assumption agreement
VA doesn’t set a maximum on _______
the amount of the loan a veteran can get - only the amount of the loan that it will guarantee
Unlike the insured FHA loan or the guaranteed VA loan, the CalVet loan is actually a _________.
land contract
When a veteran is approved for a CalVet loan, the state _______ using a contract of sale
purchases the property and resells it to the veteran
CDVA offers ______ rates
Below market interest
Typical CalVet loan terms
30 yrs
CalVet Guaranteed Loans Down Payment Requirements
No for VA Loans
Only 3% for non-VA Loans
When is a lender required to terminate a borrower’s private mortgage insurance?
After the borrower has accumulated 22% of equity in the property and is current with the loan payments.
Purchase Money Mortgage
buyer borrows from the seller in addition to the lender.
Installment Land Sales Contract/ Contract Deed
buyer does not receive legal title until the final payment is made
Lease purchase arrangement
tenant enters into two agreements simultaneously - an agreement to purchase and a lease
Blanket Mortgage
Covers more than one piece of property
Interest rates on construction loans are usually ______ than on other loans because the risk is ______.
higher
greater
3 Risks for Construction Loans
Inadequate protection against mechanics’ liens.
Potential delays in construction completion.
Financial failure of contractors or subcontractors.
Wraparound Loan
allows a borrower who has an existing loan to get another loan from a second lender without paying off the first loan
Package Loan
one that includes all the personal property and appliances that are installed on the property
Open-End Loan
expandable loan which gives a borrower a limit up to which he or she may borrow
Sale and Leaseback
used by commercial enterprises to free up money that has been tied up in the real estate to use as working capital in the business.
Bridge Loan
short-term loan that covers the period between the end of one loan and the beginning of another
Down Payment Assistance Programs in CA
MyHome Assistance Program
School Teacher and Employee Assistance Program
MyHome Assistance Program
offers a deferred-payment junior loan of an amount up to the lesser of three and half percent (3.5%) of the purchase price or appraised value to assist with down payment and/or closing costs.
School Teacher and Employee Assistance Program
first-time homebuyers who are school employees and must be up to 4% of the purchase price and can only be combined with an eligible CalHFA first mortgage loan
Federal Reserve System created by ______ with the purpose of ______________
Federal Reserve Act of 1913
helping to stabilize the economy through the judicious handling of the money supply and credit available in the US
The Fed has a Board of Governors consisting of _______ who are appointed by the _________ and a total of __ Federal Reserve District Banks.
seven members
President
12
4 Tools Used by Fed to Influence/Stabilize the Economy
- Set the Rate of Growth in the money supply
- Regulates Reserve requirements for all institutions offering checking accounts
- Sets a Discount Rate of interest to member institutions.
- Engages in open market operations through buying or selling Government Bonds.
7 Types of Primary Lenders
Savings associations.
Commercial banks.
Credit unions.
Insurance companies.
Investment groups.
Mortgage bankers.
Mortgage brokers.
Savings Associations
promote thrift and home ownership
Commercial banks
act as a safe depository and lender of mostly short-term loans.
2 Types of Fiduciary Lenders
Savings associations.
Commercial banks.
Fiduciary Lenders
have a fiduciary responsibility to protect the funds of the depositors, which they invest in loans
Credit Unions
generally provide short-term installment and home improvement loans to their member depositors, but have now ventured into mortgages
Insurance companies
supply loans for very large and expensive properties
Investment Groups
invest in large real estate projects
Mortgage banking companies
originate loans with their own money and money from their investors. The intention is to sell off the loans later and receive service fees.
Mortgage brokers
locate potential borrowers and submit preliminary loan applications to the lenders for approval
Do not lend money or service loans
California law allows real estate licensees to act as ____________ and receive compensation for soliciting and negotiating loans for buyers.
mortgage loan brokers
When negotiating a loan for a prospect, within __________ or prior to ____________, you must make certain that the borrower receives a ________
three business days of receiving a completed loan application
the signing of any loan documents
completed loan disclosure statement
3 Types of Secondary Lenders
Federal National Mortgage Association (FNMA or Fannie Mae)
Government National Mortgage Association (GNMA or Ginnie Mae)
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)
Federal National Mortgage Association (FNMA or Fannie Mae) buys _______ in exchange for _______
Conventional, FHA and VA loans
mortgage-backed securities
Government National Mortgage Association (GNMA or Ginnie Mae) helps _______ by guaranteeing _______
Fannie Mae
VA, FHA Loans
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) sells ______ using ______ as security
bonds in the open market
the mortgages.
What do Fannie Mae and Ginnie Mae do that Freddie Mac does not?
Guarantee payment of mortgages
Underwriting
evaluation process of a lender assessing the risk of granting the loan to the buyer
Loan Commitment
Lender gives the applicant a written notice that specifies the terms of the agreement the lender is willing to grant.
Assignment of Mortgage
document that allows original lender to sell mortgage loan
2 Step Process for Lender to sell a mortgage in the secondary market
Signs the note over to a third party investor or other mortgage company
Executes a document called an assignment of mortgage.
3 Steps of Underwriting
Qualify the buyer.
Qualify the property.
Decide yes or no to the loan.
Truth in Lending Act is implemented by _______ and it requires ______
Regulation Z
lenders to disclose to buyers the true cost of obtaining credit, so that borrowers can compare the costs of various lenders.
Regulation Z does not apply to ______
Commercial loans
Agricultural loans over $25,000
4 Provisions of Regulation Z
Disclosure of costs
Right to rescind the transaction
Advertising offers
Noncompliance penalties
Reg Z requires lenders to make disclosures using _________ within _________
Loan Estimate form
three business days of loan application.
Right to Rescind for Borrower with Reg Z
3 Days for refinancing and home equity loans
Not for residential first mortgage loans
Ads subject to Regulation Z disclosure contain one of these items
Amount or percentage of down payment
Installment payment or amount
Specific finance charge
Number of installments
Period of repayment
Indication that there is no charge for credit
penalty for violation of Regulation Z is ______, up to _______ plus __________.
twice the amount of the finance charge or a minimum of $100
$1,000 max
Court costs, attorney fees and any actual damages
Willful violation of Regulation Z is a _______ that is punishable by _______
misdemeanor
a fine of up to $5,000 or one year in prison, or both
Equal Credit Opportunity Act Discrimination Classes
Race
Color
Religion
National origin
Sex
Marital status
Age
Dependency on public assistance
ECOA requires lenders to inform an applicant who was rejected the reasons for the denial. This notice must be _______ and given within _______.
in writing
30 days
Requirements for Mortgage Lenders subject to Home Mortgage Disclosure Act
Assets exceeding $10M
1+ offices in a certain geographic location
Mortgage Lenders subject to Home Mortgage Disclosure Act must ________
send annual reports to the government, detailing all mortgage loans the institution has given or purchased
RESPA prohibits lenders from paying________ to parties who may have referred the borrower to the lender.
kickbacks and unearned fees
Who supervises the Truth in Lending Act?
The Fed
Escrow
a disinterested third party holds all money and documents relating to a transaction until all of the terms and conditions of the escrow instructions have been satisfied.
In many cases, the _____ serves as the basis for the escrow instructions
purchase contract
Entities that can act as escrow agents without having a license
Attorneys.
Banks.
Brokers.
Insurance companies.
Title companies.
Trust companies.
Savings and loan associations.
In CA, majority of escrows are handled by _____ and remaining are handled by _______
title insurance or independent escrow companies
attorneys who routinely perform escrows or brokers who handle their own escrows
5 Step Escrow Process
- Select the escrow company.
- Deliver the purchase contract to the escrow holder.
- Open the escrow.
- Complete all items outlined in the escrow instructions.
- Close the escrow.
Title insurance is paid for one time, when ____. It stays in effect until _____ and protects against _________
the property passes from one owner to another
the property sells again
any losses that may result from imperfections in the title
No title insurance policy protects against:
Defects known to the insured but not disclosed to the title insurer.
Government zoning regulations.
ALTA-R policy is recommended for ________ and does not include ____
owners of one-to-four unit, owner-occupied residences
survey
RESPA does not apply to ______-
seller-financed loans or loan assumptions w/o term changes or >$50 charge
TRID Rule Effective Date
Oct 2015
TRID Rule
copy of “Your home loan toolkit” booklet
Loan Estimate of settlement costs within 3d of application
Closign disclosure must be delivered to the borrower at least 3 days before closing
If a RE office gives borrowers info about different loans, does prequalification and initiates the loan application process, the office may charge a fee IF _____ and the broker must -_____
As long as only the borrower pays the fee
tell the prospective borrower that other mortgage products are available that are not part of the broker’s system
3 Sections of Closing Disclosure First Page
Closing Info
Transaction Info
Loan Info
4 Columns of Closing Disclosure Second Page
Description of costs
Costs paid by borrower
Costs paid by seller
Costs paid by others
City’s or county’s operating revenue comes mostly from _______
assessing and collecting taxes on real property
County Assessor
determines the amount of real property taxes based on the assessed value of the property
County Collector
responsible for collecting property taxes taxes, which are paid annually or semi-annually.
Prop 19 Permits Exemptions to Prop 13 IF
at least one of the homeowners must be 55 years of age or older, and
the replacement property must be purchased within two years of the original sale.
Prop 13
maximum annual tax on real property is limited to 1% of “full cash value,” or market value, plus a max 2% increase in market value per year
Prop 19
allows the transfer of property from one spouse to another or children, without triggering a reassessment
Fiscal year starts on _____ and ends on ___
July 1
June 30
Timeframe for Buyer to Inform County Recorder/Assessor of Property Acquisition & Penalty
45 days
$100 or 10% of Taxes, whichever is greater
Homeowner’s Exemption Amount
$7000
Veteran’s Exemption Amount
$4000
One CAN/CANNOT apply both the veteran’s exemption and homeowner’s exemption
CANNOT
Senior Citizen’s Property Tax Postponement Eligibility
seniors
household income of $51,762 or less
Special Assessment Tax is Levied _____ (timeframe) and is done to ______
Only once
offset costs of specific local improvements
Documentary Transfer Tax and is computed at the rate of _____
Apply to the transfer of properties located in the county
55 cents for each $500 of consideration
2 Additional Income Tax Deductions for Income-Producing Property
Operating Expenses
Depreciation of Improvments (not land)
Capital Gains:
Deduction Amount
Frequency
Eligibility
Up to $250k for single, $500k for couple
Every 2 years
Seller must live in the home for 2 out of the last 5 years
How to deduct loss on a personal residence?
Client turns it into income-producing property
Depreciation Schedule for Commercial Buildings
39 years
Capital gains are taxed at a____ rate than ordinary income
lower
3 Step Process for Determining Profit or Loss of Property Sale
- Calculate adjusted cost basis
- Calculate adjusted sale price
- Calculate gain
Adjusted cost basis
original purchase price, plus improvements, minus depreciation (not applicable on personal residences).
Installment Sales
one in which the buyer makes payments for a property over more than one calendar year
Progressive taxes
one in which the rate increases as the amount to be taxed increases
Adjusted sale price
Sales price minus any sales expenses.
Gain
Subtract adjusted cost basis from adjust sales price
Regressive Taxes
one that uses the same rate regardless of income
Tax-Deferred Exchanges/ 1031 Exchange
property owners can exchange one investment property for another as long as the transaction qualifies (tax-free!)
boot
Any cash or relief one party receives in addition to the actual property during exchange
Like-Kind Property for Section 1031
Apartments and residential rentals.
Commercial property.
Industrial property.
Farms or land.
Foreign Investment in Real Property Tax Act (FIRPTA)
requires a buyer to withhold estimated taxes equal to 15% of the sale price (10% for dispositions before February 17, 2016) in any sale or exchange of property owned by a foreigner (not a US citizen).
FIRPTA requirement exemption
Residential property that sells for <$300k and used as the buyer’s personal residence
If foreign seller’s last known address is ______, the buyer may be required to set aside ___ of the sales price for the Franchise Tax Board.
outside of California
3.3%
CA FIRPTA Exemptions (4)
<$100k sales price
seller’s primary residence
Seller-signed CA residency declaration
Waiver from the Franchise Tax Board
Brokers & Buyers must keep documentation regarding foreign sales for ______
5 years
Max Property Tax Exemption for Totally Disabled Veteran
$224,991
Installment Dates for Property Taxes
Nov 1 (first)
Feb 1 (second)
Limited vs General Partnership
In LP, one general partner is liable for all debts & obligations and other partners are liable to their investment.
In GP, all partners have unlimited personal liability for all debts & obligations
Potential Gross Income
The total income the property would produce at full occupancy with no deductions for expenses
Vacancy factor
An allowance for vacancies and uncollectible rents.
Effective gross income
Potential gross income adjusted for vacancy.
Net operating income
Effective gross income minus operating expenses. This figure represents the amount of income available as a return to the investor.
Savings banks typically finance ______
Single-family residence loans
Commercial banks typically finance ______
Interim Financing
Life Insurance companies typically finance ______
Large commercial projects
Sellers typically finance ______
Land and special purpose projects
Uniform Commercial Code (UCC)
body of law that standardizes a number of business practices
3 Actions the UCC requires buyer to do
Demand that the seller provide a schedule of all the tangible property involved in the sale.
Demand the list of all creditors from the seller.
Give notice to the creditors of the impending sale.
UCC complaince ensures _______-
New buyer is not liable for debts owed to creditors prior to sale
Institute of Real Estate Management (IREM) was formed in ______
1933
3 Types of IREM Certifications
Certified Property Manager© (CPM©)
Accredited Residential Manager© (ARM©)
Accredited Management Organization© (AMO©)
Certified Property Manager© (CPM©)
individuals who meet a certain level of education and experience requirements.
Accredited Residential Manager© (ARM©)
resident managers who have a lesser degree of training and on-site experience
Accredited Management Organization© (AMO©)
reserved for companies who meet certain IREM guidelines and employ at least one CPM©.
3 Types of Property Managers
Individual PM
Individual Building Manager
Resident Manager
Individual PM
usually a real estate broker who manages properties for one owner or a number of owners
Individual Building Manager
usually manages a single large property
Resident Manager
lives on the property and may be employed by a real estate broker, a managing agent or an owner to manage a property on a part-time or full-time basis
CA law requires a resident manager for any property of ______ units or for any mobile park of _____
16+
50+
2 PM Reports Provided to Owner
Monthly account statements.
A detailed annual statement.
Most property managers base their fees on ______
percentage of the gross rents collected
3 General Responsibilities of a PM
Renting the units promptly at the highest market rent possible.
Keeping operational and other costs within budget.
Preserving and enhancing the physical value and prestige of the property.
4 Responsibilities Outlined in Management Contract
Terms and period of the contract.
Policies pertaining to the management of the premises.
Management fees.
Authority and powers given by the owner to the manager.
recapture clause
In % clause, indicates that if the tenant does not obtain the desired gross sales, the owner has the right to terminate the lease
Graduated Lease
