Chapter 1: Real Estate Math Flashcards
Criteria for Adjustments
Appraisers usually compare 3-6 homes but usually only include 3 on the report.
Extraction
Land value is estimated by deducting the depreciated cost of improvements in a property from the total sales price of the property
Zoning variance
Allowing a property use that differs from the applicable ordinance for a variety of justifiable reasons
Zoning variance
Allowing a property use that differs from the applicable ordinance for a variety of justifiable reasons
Zoning variance
Allowing a property use that differs from the applicable ordinance for a variety of justifiable reasons
Topography
Physical features and contours of land
PITI
An acronym for principal, interest, taxes & insurance
Topography
Physical features and contours of land
Testate
property owner dies with valid will in place
Topography
Physical features and contours of land
Income Approach
Assumes property is purchased based on anticipation of income.
Assumes an investor will not pay more for a similar property with a similar income.
Restrictive covenants
limitations placed on use of land by developer of residential subdivision
Testate
property owner dies with valid will in place
Interest
Buyers perspective - amount paid in return for the use of money
Lenders perspective - money earned from a loan investment
Real estate auction types
Absolute - Sold to highest bidder regardless of price
Minimum Bid - The auctioneer will accept bids at or above a published minimum price
Reserve - High bid is reduced to an offer, not sale. A minimum bid isn’t published, seller reserves right to accept or reject the highest bid within a specified time period - anywhere from immediately following the auction up to 72 hours after it concludes
Testate
property owner dies with valid will in place
Restrictive covenants
limitations placed on use of land by developer of residential subdivision
Real estate actions
Absolute
Minimum
Reserve
Restrictive covenants
limitations placed on use of land by developer of residential subdivision
Data Collection - Specific Data
Information and details about the subject property, as well as data about comparable properties costs, income and expenses, sales, and other relevant information.
Real estate auction types
Absolute - Sold to highest bidder regardless of price
Minimum Bid - The auctioneer will accept bids at or above a published minimum price
Reserve - High bid is reduced to an offer, not sale. A minimum bid isn’t published, seller reserves right to accept or reject the highest bid within a specified time period - anywhere from immediately following the auction up to 72 hours after it concludes
Valuation
Investment value - ROI
Insured value - Face amount a casualty or hazard insurance policy will pay if deemed unusable
Mortgage value - The value the lender places on a property as collateral for the loan. Especially in case of a foreclosure - to recover the debt.
Use Value - Income, appreciation, specific use (residential, agricultural, commercial, or recreational)
Tax benefits - Capital gains, tax losses, tax deferrals and depreciation for an owner
Exchange value - What realtors are concerned about, found from comparing similar properties
Real estate auction types
Absolute - Sold to highest bidder regardless of price
Minimum Bid - The auctioneer will accept bids at or above a published minimum price
Reserve - High bid is reduced to an offer, not sale. A minimum bid isn’t published, seller reserves right to accept or reject the highest bid within a specified time period - anywhere from immediately following the auction up to 72 hours after it concludes
Real estate actions
Absolute
Minimum
Reserve
Real estate actions
Absolute
Minimum
Reserve
Capitalization rate
Rate of return
Ground rent capitalization
Ground rent of the subject is capitalized at market rates
Farmer Mac
Est 1988 to ensure liquidity and a secondary market for ag. real estate & rural housing
CO
cert of occupancy received once inspected and cleared for occupation and use
Sunshine law
Law that mandates that meetings of governmental agencies and departments bs open to the public.
URAR
Uniform Residential Appraisal Reports
Sales Comparison Approach
Examine price or price per unit area of similar properties recently sold or currently being sold in the marketplace to come up with comparable value assessments.
Most reliable if comparable sales exist. If no comparable sales have been made, this cannot be used.
Special use permit
Authorization for a use that is not consistent with the zoning ordinance in a literal sense but is beneficial or essential to the public welfare and does not materially impair other uses in the zone
Compound Amount
Initial deposit (1 + Interest rate) to the nth degree which is the number of periods
Comps in the same neighborhood
Can have significantly different value due to location
Comps in the same neighborhood
Can have significantly different value due to location
Farmer Mac
Est 1988 to ensure liquidity and a secondary market for ag. real estate & rural housing
CO
cert of occupancy received once inspected and cleared for occupation and use
Sunshine law
Law that mandates that meetings of governmental agencies and departments bs open to the public.
Loan flipping
Getting a buyer to pay a higher interest rate, charging new fees & points
Principles of Value
Anticipation, assemblage, change,conformity, competition contribution
Predatory Lender
Preys on individuals that call into the B, C or D credit category.
Those who don’t speak good english, poorly educated and elderly.
Physical Deterioration
Decay or disintegration, cracks, settling, structure defects, termite damage.
Special use permit
Authorization for a use that is not consistent with the zoning ordinance in a literal sense but is beneficial or essential to the public welfare and does not materially impair other uses in the zone
Use Variance
Gives permission to use land for purpose not allowed by current zoning because, owner is deprived of all economic use or benefit, hardship is unique & not universal, will not change character of area, not self created hardship
Adjustment Period
Time when interest rate changes, every one; three, or 5 years
Illegal Nonconforming Use
When a property use conflicts with ordinances that were in place before the use commenced
Adjusting Comps
Collect and analyze information
Choose comps in the area
Compare sellers property and do some adjusting to the value of the comps
non-conforming use
differs from current zoning
Farmer Mac
Est 1988 to ensure liquidity and a secondary market for ag. real estate & rural housing
CO
cert of occupancy received once inspected and cleared for occupation and use
TDR
Transfer of development rights
Partnership VS Corporation
Partnerships do not pay income taxes.
Individual partners pay taxes.
A corporation on the other hand has double taxation.
The corporation pays tax on its corporate profit and then the stockholders pay taxes on their dividends.
Sunshine law
Law that mandates that meetings of governmental agencies and departments bs open to the public.
OTS
Savings Institutions are chartered, regulated, examined & supervised by this.
Office of Thrift Supervision
Special use permit
Authorization for a use that is not consistent with the zoning ordinance in a literal sense but is beneficial or essential to the public welfare and does not materially impair other uses in the zone
Covenant
A guarantee included in a deed to benefit a property that’s sold or to benefit a property that’s kept when an adjoining property is sold
Reit - Equity Trusts
Gives small investors opportunity to pool money to participate as owners of larger and more efficient and profitable investments. Usually broken down by specialization.
Usually earns income from rent.
Loan flipping
Getting a buyer to pay a higher interest rate, charging new fees & points
Predatory Lender
Preys on individuals that call into the B, C or D credit category.
Those who don’t speak good english, poorly educated and elderly.
Assessed value
Ad valorem - based on value
Estimated by a taxing authority, IRS, local school or fire district
Loan flipping
Getting a buyer to pay a higher interest rate, charging new fees & points
Interstate Land Sales Full Disclosure Act
Authorizing a nationwide program of registration of subdivisions marketed in interstate commerce intended to protect consumers by making relevant information available to them when they are considering purchasing land
Mortgage Fees
Origination - typically 1% of loan amount. This fee is negotiable.
Points = prepaid interest, 1/8 for each discount points
Injunction
A court action which prevents the owner from using a property in a way that’s contrary to the recorded restrictions
Use Variance
Gives permission to use land for purpose not allowed by current zoning because, owner is deprived of all economic use or benefit, hardship is unique & not universal, will not change character of area, not self created hardship
Adjustment Period
Time when interest rate changes, every one; three, or 5 years
Illegal Nonconforming Use
When a property use conflicts with ordinances that were in place before the use commenced
Discount Points
These charges are designed to offset any losses the lender might suffer when selling the loan to a secondary mortgage market.
Discount points raise the effective interest rate of the loan.
Yield is increased by 1/8 percent for each discount point.
4 points x 1/8 percent = 4/8 = .50 %
Predatory Lender
Preys on individuals that call into the B, C or D credit category.
Those who don’t speak good english, poorly educated and elderly.
non-conforming use
differs from current zoning
Condemned value
The value set by a county or municipal authority for a property which may be taken by eminent domain
Freddie Mac
Assembles loans into a pool of mortgages and issued a security backed by the mortgage
TDR
Transfer of development rights
Partnership VS Corporation
Partnerships do not pay income taxes.
Individual partners pay taxes.
A corporation on the other hand has double taxation.
The corporation pays tax on its corporate profit and then the stockholders pay taxes on their dividends.
Adjustment Period
Time when interest rate changes, every one; three, or 5 years
Use Variance
Gives permission to use land for purpose not allowed by current zoning because, owner is deprived of all economic use or benefit, hardship is unique & not universal, will not change character of area, not self created hardship
non-arms-length
relative to relative, under market price.
Unreliable as indicators.
Negative Amortization Cap
Limits the amount of unpaid interest that the lender can add to the principal balance.
Usually a negative amortization cap limits the total amount the borrower can owe to 125% of the original loan
Illegal Nonconforming Use
When a property use conflicts with ordinances that were in place before the use commenced
Commercial Bank Loan Types
Construction : last from 3 - 12 months
Home improvement - up to 5 years
Manufactured housing loans - 10 years or sometimes longer
Covenant
A guarantee included in a deed to benefit a property that’s sold or to benefit a property that’s kept when an adjoining property is sold
Survey
Official document giving the dimensions and showing the property boundaries
Loan to Value
Ratio between borrowed funds and market value of property being financed
non-conforming use
differs from current zoning
Reit - Equity Trusts
Gives small investors opportunity to pool money to participate as owners of larger and more efficient and profitable investments. Usually broken down by specialization.
Usually earns income from rent.
Mortgage fraud
A crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or obtain a larger loan than would have been obtained had the lender known the truth.
Short sale
Agent selection Declaration and proof of hardship Property valuation Short sale application Short sale agreement Finding a buyer Negotiation Closing
Taking
Taking clause of the 5th amendment, private property cannot be taken for public use without just compensation
Loan-To-Value Ratio
Loan amount/Value
TDR
Transfer of development rights
Partnership VS Corporation
Partnerships do not pay income taxes.
Individual partners pay taxes.
A corporation on the other hand has double taxation.
The corporation pays tax on its corporate profit and then the stockholders pay taxes on their dividends.
ARM
Adjustable-rate mortgage - Interest rates can change & either go up or down during the time of the loan
DIF
Depositor insurance fund. Insured the deposits and protects the depositors of insured banks and to resolve failed banks
Reit - Mortgage Trust
REMT’s
Real estate mortgage trusts
Reits and REMTs usually are owned by a parent company or commercial bank
REMTs receive income mainly from mortgage interest, loan origination fees, profits earned from buying and selling mortgages.
These trusts participate in long term permanent financing but are more apt to invest in short term or senior and junior loans with potential for higher profits.
Building codes
Establishing the standards for virtually every aspect of a construction project which allows the county and municipalities to protect the public against the hazards of unregulated construction
Points
Pre-paid interest and paid at closing and usually 1% of the loan amount.
Items usually included in the cost of obtaining a new real estate loan.
One-time service charge to the borrower for making the loan.
Interstate Land Sales Full Disclosure Act
Authorizing a nationwide program of registration of subdivisions marketed in interstate commerce intended to protect consumers by making relevant information available to them when they are considering purchasing land
Mortgage Fees
Origination - typically 1% of loan amount. This fee is negotiable.
Points = prepaid interest, 1/8 for each discount points
Deed restrictions
A clause in a deed that places limits on how the property may be used
Injunction
A court action which prevents the owner from using a property in a way that’s contrary to the recorded restrictions
Conventional Loan
Cash equivalent sale
Covenant
A guarantee included in a deed to benefit a property that’s sold or to benefit a property that’s kept when an adjoining property is sold
Small income, PUD, co-ops, condos, & commercial reports
Freddie Mac & Fannie Mae use other forms
Reit - Equity Trusts
Gives small investors opportunity to pool money to participate as owners of larger and more efficient and profitable investments. Usually broken down by specialization.
Usually earns income from rent.
Demand Accounts
Personal business/checking accounts that can be withdrawn at any time by the depositor
Rarely used for mortgage lending
RHS
Rural Housing Service created in 1994 to meet housing and community development needs of rural America.
Reit Trusts
Equity
Mortgage
Hybrid
Neighborhood
Ownership makeup(rental, owner occupied) Vacancy Consistent Current land use Land contour streets utilities irritants community status access schools public service government issues
Freddie Mac
Assembles loans into a pool of mortgages and issued a security backed by the mortgage
Interest Rate Caps
To protect borrowers from unlimited increases.
The first cap (periodic cap) sets the amount of increase or decrease allowed in each adjustment period.
The second cap (overall or aggregate cap) sets a maximum interest-rate increase over the life of the loan. A 2% increase in interest rate results in approximately a 15% increase in monthly payment.
Ceiling or lifetime caps
Farms for sakes
Independently owned and large scale production or corporate
Interstate Land Sales Full Disclosure Act
Authorizing a nationwide program of registration of subdivisions marketed in interstate commerce intended to protect consumers by making relevant information available to them when they are considering purchasing land
Mortgage Fees
Origination - typically 1% of loan amount. This fee is negotiable.
Points = prepaid interest, 1/8 for each discount points
Injunction
A court action which prevents the owner from using a property in a way that’s contrary to the recorded restrictions
Limited Liability Companies
Give limited liability protection of corporations without the regulations associated with corporations.
LLC’s have operating agreements that are similar to corporation bylaws, but unlike corporations, they do not have permanent existence
Reit - Hybrid Trust
Ability to invest in real estate and finance
Negative Amortization Cap
Limits the amount of unpaid interest that the lender can add to the principal balance.
Usually a negative amortization cap limits the total amount the borrower can owe to 125% of the original loan
Condemnation Suit
Needed to initiate squiring of property by eminent domain
Loan Types
Conventional & Gov Backed
Adjusting Comps
Collect and analyze information
Choose comps in the area
Compare sellers property and do some adjusting to the value of the comps
Add-On Interest
Add-on rate determines interest by calculating it as a percentage of the original loan (principal) rather than on the balance due before each payment.
Typically used for home improvement loans and many private mortgage companies use it for junior liens.
Resulting in more interest and higher payments and can almost double the simple interest rate.
Survey
Official document giving the dimensions and showing the property boundaries
Pending Sales
Homes whose offers have been accepted by the sellers, the sales haven’t closed. Sales usually remain pending for 30-60 days.
Pending sakes are less reliable than a sold home.
Anything can happen to overturn the sale.
If a pending comparable is a very close match to the home you are trying to list you can contact the listing agent and see if the pending sale is close to the asking price.
The agent cannot give out the actual final price.***Violation of the agents fiduciary duty to the seller.
Cost Approach
Special-use properties such as public or governmental structures, county courthouses, marinas, and unique properties
Newer structures that haven’t suffered any significant depreciation
Not good for older structures.
Mortgage fraud
A crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or obtain a larger loan than would have been obtained had the lender known the truth.
Predatory Lender
Prays on customers who may fall into sub prime lending categories, particularly those who do not speak good english, poorly educated & elderly
Short sale
Agent selection Declaration and proof of hardship Property valuation Short sale application Short sale agreement Finding a buyer Negotiation Closing
Ginnie Mae
Owned within HUD, est. 1968 to promote home ownership
Taking
Taking clause of the 5th amendment, private property cannot be taken for public use without just compensation
Freddie Mac
Assembles loans into a pool of mortgages and issued a security backed by the mortgage
Negative Amortization Cap
Limits the amount of unpaid interest that the lender can add to the principal balance.
Usually a negative amortization cap limits the total amount the borrower can owe to 125% of the original loan
DIF
Depositor insurance fund. Insured the deposits and protects the depositors of insured banks and to resolve failed banks
Gross Rent or Gross Income Multipliers
GRM & GIM
Gross Rent or Income Multipliers
Used for single family homes & duplexes
Reit - Mortgage Trust
REMT’s
Real estate mortgage trusts
Reits and REMTs usually are owned by a parent company or commercial bank
REMTs receive income mainly from mortgage interest, loan origination fees, profits earned from buying and selling mortgages.
These trusts participate in long term permanent financing but are more apt to invest in short term or senior and junior loans with potential for higher profits.
To specialize in land brokerage
farms, ranch, recreation, timberland, and other specialty properties
Undeveloped tracts of land
transitional & developmental land
Subdivision and lot wholesaling
site selection, assemblage, appraisal, auction, farm & land management, market analysis, land planning & zoning environmental issues, water rights, government regulations, land title defects, vacant land contracts & financing
Loan Types
Federal Housing Administration (FHA)
Department of Veterans Affairs (DVA or VA)
Rural Housing Service (RHS)
Texas Department of Housing & Community Affairs (TDHCA)
Incentive Zoning
Allows developers to provide specific amenities and benefits in exchanges for zoning incentives.
Building codes
Establishing the standards for virtually every aspect of a construction project which allows the county and municipalities to protect the public against the hazards of unregulated construction
Survey
Official document giving the dimensions and showing the property boundaries
Credit
An amount that is paid to a party at closing for items paid prior to closing.
Transfer of development rights (TDR)
A method for protecting land by transferring the right to develop from one area and giving it to another.
Taking
Taking clause of 5th amendment which says, in part, the private property cannot be taken for public use without just compensation
Deed restrictions
A clause in a deed that places limits on how the property may be used
Mortgage fraud
A crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or obtain a larger loan than would have been obtained had the lender known the truth.
Taking
Taking clause of the 5th amendment, private property cannot be taken for public use without just compensation
Short sale
Agent selection Declaration and proof of hardship Property valuation Short sale application Short sale agreement Finding a buyer Negotiation Closing
Per Diem
Daily rate
Can be calculated by 365-day year or 360-day year (where every month is considered to have 30 days)
Secondary mortgage market
market for banks to repackage & sell mortgages as securities to institutional investors.
Conventional Loan Limits
65% for land acquisition
75% for land development
80% for multi-family & commercial
85% for one to four family residences
Sunshine law
open meeting law
police power
power of state to regulate in order to promote public health, safety, morality & welfare
DIF
Depositor insurance fund. Insured the deposits and protects the depositors of insured banks and to resolve failed banks
Comps in the same neighborhood
Can have significantly different value due to location
Syndicates
Corporate is a separate legal entity established by the filing of articles of incorporation with the Secretary of State. Corporations can own property in corporate name.
Residential Appraisals
Single family appraisals are usually conducted on The Uniform Residential Appraisal Report.
URAR.
Highest & Best Use
Legally permissible
Physically possible
Financially feasible
Maximally productive
RHS
Rural Housing Service created in 1994 to meet housing and community development needs of rural America.
Reit Trusts
Equity
Mortgage
Hybrid
Data Collection - General Data
This is information about the property’s location - country, region, city and neighborhood.
The neighborhood helps the appraiser determine those social, economic, physical, and political influences that directly impact the property’s value and potential.
Building codes
Establishing the standards for virtually every aspect of a construction project which allows the county and municipalities to protect the public against the hazards of unregulated construction
Reit - Mortgage Trust
REMT’s
Real estate mortgage trusts
Reits and REMTs usually are owned by a parent company or commercial bank
REMTs receive income mainly from mortgage interest, loan origination fees, profits earned from buying and selling mortgages.
These trusts participate in long term permanent financing but are more apt to invest in short term or senior and junior loans with potential for higher profits.
Classes of Depreciation
Physical Deterioration
Functional Obsolescence
External Obsolescence
Interest Rate Caps
To protect borrowers from unlimited increases.
The first cap (periodic cap) sets the amount of increase or decrease allowed in each adjustment period.
The second cap (overall or aggregate cap) sets a maximum interest-rate increase over the life of the loan. A 2% increase in interest rate results in approximately a 15% increase in monthly payment.
Ceiling or lifetime caps
Home Value
Is based on ….
location
property condition
financing trends
improvements
supply & demand
Farms for sakes
Independently owned and large scale production or corporate
Deed restrictions
A clause in a deed that places limits on how the property may be used
PUD
produces high density of residential housing units, a max use of open spaces and greater development flexibility, resulting in lower priced homes and minimum maintenance cost
Higher density than allowed in current zoning
Limited Liability Companies
Give limited liability protection of corporations without the regulations associated with corporations.
LLC’s have operating agreements that are similar to corporation bylaws, but unlike corporations, they do not have permanent existence
Reit - Hybrid Trust
Ability to invest in real estate and finance
Income Ratio
Establishes the borrowers capacity to pay the loan by limiting the percentage of gross income they may spend on housing costs.
Land Value Estimate
- Direct sales comparison
- Extraction
- Allocation
- Subdivision development analysis
- Land résiduel
- Ground rent capitalization
Mortgage
Needs a note to be legally valid
Judicial foreclosure
Allows the sale of mortgaged property under the supervision of the court. Proceeds go to satisfy the mortgage, other lien holders and finally the borrower.
A public sale is advertised for the first Tuesday of the next month. It is sold to the highest bidder.
Texas Supreme Court has publicized rules of civil procedure for judicial foreclosures.
Zoning ordinance
enacted by local government to specify land usage for every parcel within jurisdiction
Condemnation Suit
Needed to initiate squiring of property by eminent domain
RHS
Rural Housing Service created in 1994 to meet housing and community development needs of rural America.
Loan Types
Conventional & Gov Backed
Determining parcel size
26,136 / 43,560 = .60 or 60 percent of an acre
Reit Trusts
Equity
Mortgage
Hybrid
Procuring Cause
The actions taken by a broker which results in the owner being able to make a sale.
intestate
property owner dies with no will in place
Principal of Substitution
A buyer won’t pay more for a property than they would pay for a property that is similar in characteristic and amenities
Recently sold properties
Since it’s closed, it’s safe to assume that the selling price was arrived at mutually by a willing seller & buyer
Legal non confirming use
When an existing property use conflicts with ordinances that were in place before the use commenced
Arms-length Transaction
Both parties are dealing from equally bargaining positions.
Reflects a property that has been exposed on the open market for a reasonable period of time.
Reproduction Value
Cost to construct a precise duplicate
Predatory Lender
Prays on customers who may fall into sub prime lending categories, particularly those who do not speak good english, poorly educated & elderly
Estimate effective gross income
Vacancy losses & credit losses
Ginnie Mae
Owned within HUD, est. 1968 to promote home ownership
Interest Rate Caps
To protect borrowers from unlimited increases.
The first cap (periodic cap) sets the amount of increase or decrease allowed in each adjustment period.
The second cap (overall or aggregate cap) sets a maximum interest-rate increase over the life of the loan. A 2% increase in interest rate results in approximately a 15% increase in monthly payment.
Ceiling or lifetime caps
Writing Conventional Loans
Standards that are provided by Freddie Mac & Fannie Mae so that the loan can be sold in a secondary mortgage market
5 Types of Residential Specialty
FSbO First time buyer Vacation properties Working with investors Working as a buyers agent
Commercial real estate - complex, multifaceted & business only
Malls, office parks, restaurants, gas stations, convenience stores and office buildings
Feed in Lieu of Foreclosure
A defaulting borrower who faces foreclosure may avoid court actions and costs by voluntarily feeding the property to the mortgagee.
This transfers legal title to the lender.
The transfer, however, does not terminate any existing liens on the property
Compound interest
Interest which is computed on the principal amount plus accrued interest.
Interest may be compounded daily, monthly, semiannually or annually.
Approaches to Value
Cost, Income, and Sales Comparison
Texas Veterans Home Improvement Program
Introduced to provide below market interest rate loans to qualified Texas Vets for home repairs & improvements to existing homes.
REITS
Reits must follow certain tax and dividend guidelines otherwise the company is forced to suspend.
Reits are chartered in the state in which they are headquartered and are subject to the regulations and statutes of that state.
As-of-right zoning
uses automatically allowed in the zoning code
Mortgage Brokers
Facilitate the loan and receive a fee.
Texas Secure and Fair Enforcement for Mortgage Licensing Act of 2009 (Texas SAFE Act)
mortgage loan originators must have a valid license
Farms for sakes
Independently owned and large scale production or corporate
Subprime Borrowers
Anyone below A paper credit
Securities and Exchange Commission
Syndicated intending to make profit for many people from the efforts of a few, must comply with the rules and regulations of whom
Limited Liability Companies
Give limited liability protection of corporations without the regulations associated with corporations.
LLC’s have operating agreements that are similar to corporation bylaws, but unlike corporations, they do not have permanent existence
Reproduction Cost
Require duplicating the design, materials, and craftsmanship of the original improvement as closely as possible.
Reit - Hybrid Trust
Ability to invest in real estate and finance
Eminent domain
The right of government to acquire property, for public purpose, after paying just compensation
Fair Credit Reporting Act
or Consumer Credit Protection Act of 1970
Keeps credit info confidential
Obtains authorization before getting info
Reveals source of credit info to consumer
Pre-approval
the formal process that only a lender can do.
Issue max loan amount and issue pre-approval letter
Pre-approval letters typically last 3 or 4 months
Substitution
When a buyer will not pay more for a home than what the buyer would pay for another home that is equally attractive & available
Condemnation Suit
Needed to initiate squiring of property by eminent domain
Balloon Loan
Partially amortized with a large payment due at the end.
Sometimes extensions are allotted on the payment, but usually not.
To specialize in land brokerage
farms, ranch, recreation, timberland, and other specialty properties
Undeveloped tracts of land
transitional & developmental land
Subdivision and lot wholesaling
site selection, assemblage, appraisal, auction, farm & land management, market analysis, land planning & zoning environmental issues, water rights, government regulations, land title defects, vacant land contracts & financing
Loan Types
Federal Housing Administration (FHA)
Department of Veterans Affairs (DVA or VA)
Rural Housing Service (RHS)
Texas Department of Housing & Community Affairs (TDHCA)
Incentive Zoning
Allows developers to provide specific amenities and benefits in exchanges for zoning incentives.
Texas Department of Housing and Community affairs (TDHCA)
Department which offers mortgage loan funds & down payment assistance to eligible first home buyers of all professions
Escheat
The right of government to ownership of property, which is left by a deceased property owner who leaves no will and died without descendants
Adjustable Rate Loans
Became popular in the 1980’s when interest rates were at an all time high
- index
- margin
- adjustment period
- interest rate caps
- calculated rate
- initial rate
- mortgage payment adjustment period
- payment cap
- negative amortization cap
My first Texas Home
A taxable mortgage program offering mortgage loans and more competitive, fixed, low interest APR w. down payment and closing assistance of 5% of the mortgage loan for first time homebuyers.
Loan Types
Conventional & Gov Backed
non-arms-length
relative to relative, under market price.
Unreliable as indicators.
Texas Veterans Land Board’s VLB
Created in 1983 to assist Texas veterans in purchasing a home with low-interest rate loan with little or no money down.
Acre
43,560 square feet
Acre of land has a road frontage width of 120 feet.
43,560 / 120 = 363
Transfer of development rights (TDR)
A method for protecting land by transferring the right to develop from one area and giving it to another.
Terminating Partnerships
Agreement
Bankruptcy of a partner or partnership
Court order that results when a partner petitions the court for a dissolution of the partnership
Death of a general partner
Taking
Taking clause of 5th amendment which says, in part, the private property cannot be taken for public use without just compensation
Judicial Foreclosure
In the event of defaulting by the purchaser, the lender has legal right to satisfy the debt through a judicial foreclosure. Proceeds from the sale are used to repay the remaining debt on the mortgage loan.
Doctrine of laches
Stated that if a property owner is lax in protecting their rights they might lose them
FHFA
conservator of Fannie Mae & Freddie Mac. Ensures both are running properly as a reliable source of funding for finance & community investment
What should you do to convert fractions to decimals?
To convert fractions to decimals, divide the numerator by the denominator.
Depreciation value
A value established by subtracting accumulated depreciation from the purchase price.
Depreciation value = Purchase price of a property - Accumulated depreciation
Rental value - An estimate of the rental rate a property can command for a specific period of time.
Predatory Lender
Prays on customers who may fall into sub prime lending categories, particularly those who do not speak good english, poorly educated & elderly
Spot Zoning
Singling out a small area of land of section in an existing neighborhood and placing in a different zone from that of neighboring property
Secondary mortgage market
market for banks to repackage & sell mortgages as securities to institutional investors.
Area variance
Permission to vary one or more of the dimensional or physical requirements of the applicable g law, code, or ordinance in connection with some proposed construction
Conventional Loan Limits
65% for land acquisition
75% for land development
80% for multi-family & commercial
85% for one to four family residences
Sunshine law
open meeting law
What business forms can syndications take
Limited Partnership
General Partnership
Corporation
Real Estate Investment Trust
police power
power of state to regulate in order to promote public health, safety, morality & welfare
Ginnie Mae
Owned within HUD, est. 1968 to promote home ownership
Syndicates
Corporate is a separate legal entity established by the filing of articles of incorporation with the Secretary of State. Corporations can own property in corporate name.
Nonconforming use
Use of property that clearly differs from current zoning
Small income properties, PUD, co-ops, condominiums, and commercial reports.
Freddie Mac and Fannie Mae use other reports
Use variance
Permission to use the land for a purpose not allowed by the current zoning
Partially Amortized Loan
Balloon Loan
Regression
Value of a more expensive property goes down when surrounded by less expensive.
Preparing for a CMA
Collect & analyze info
choose comps
compare with comps
estimate price
Reits & Tax Exemption
Shares must be owned by at least 100 investors
5 Persons or fewer cannot hold more than 50% of shares during the last half of the tax year
At least 75% of trust assets must be made up of cash, real estate, mortgage notes, or government securities
Income from sticks and bonds purchased with the proceeds of new capital may qualify as part of the 75% - but only during the first year after raising funds
No more than 30% of gross annual income can come from gains from sale of securities held for less than a year or real estate held for less than 4 years
At least 90 % of income must be distributed to shareholders within one year after the end of each fiscal year and the trust will not pay income taxes at the corporate level
To specialize in land brokerage
farms, ranch, recreation, timberland, and other specialty properties
Undeveloped tracts of land
transitional & developmental land
Subdivision and lot wholesaling
site selection, assemblage, appraisal, auction, farm & land management, market analysis, land planning & zoning environmental issues, water rights, government regulations, land title defects, vacant land contracts & financing
Anticipation
The benefits a buyer expects to receive over the period of time he or she has the property
Market Price
An amount a purchase agrees to pay and a seller accepts.
Potential gross income
Rent scheduled to be collected plus additional sources of income
Loan Types
Federal Housing Administration (FHA)
Department of Veterans Affairs (DVA or VA)
Rural Housing Service (RHS)
Texas Department of Housing & Community Affairs (TDHCA)
Incentive Zoning
Allows developers to provide specific amenities and benefits in exchanges for zoning incentives.
Area of Triangle
1/2 base x height
Reit Rules Cont
Reit shareholders have the same rights as stockholders in any corporation
Sales Comparison Approach
Making adjustments by adding or deducting value.
Comparable vs Subject …comparable is being compared to the subject
Building permits
Documentation from a government agency giving permission to begin the construction or renovation of a building or improvement.
FIRREA
Financial Institutions Reform, Recovery and Enforcement Act
This was in response to the savings & loan crisis.
Includes provisions to regulate appraisal.
PUD
produces high density of residential housing units, a max use of open spaces and greater development flexibility, resulting in lower priced homes and minimum maintenance cost
Higher density than allowed in current zoning
REO
Real estate owned, generally a great deal, esp for first-time home buyers and investors
SML
Department of savings and mortgage lending
Taking
Taking clause of 5th amendment which says, in part, the private property cannot be taken for public use without just compensation
Transfer of development rights (TDR)
A method for protecting land by transferring the right to develop from one area and giving it to another.
Secondary mortgage market
market for banks to repackage & sell mortgages as securities to institutional investors.
Mortgage
Needs a note to be legally valid
Judicial foreclosure
Allows the sale of mortgaged property under the supervision of the court. Proceeds go to satisfy the mortgage, other lien holders and finally the borrower.
A public sale is advertised for the first Tuesday of the next month. It is sold to the highest bidder.
Texas Supreme Court has publicized rules of civil procedure for judicial foreclosures.
Mortgage Payment Adjustment Period
When the lender will change the amount of monthly payment to reflect change in interest rate
CCR
Deed restrictions
Covenants, conditions and restrictions
Conventional Loan Limits
65% for land acquisition
75% for land development
80% for multi-family & commercial
85% for one to four family residences
Sunshine law
open meeting law
Zoning ordinance
enacted by local government to specify land usage for every parcel within jurisdiction
Debit
Taken from that party
police power
power of state to regulate in order to promote public health, safety, morality & welfare
REMIC
Real Estate Mortgage Investment Conduit
Real Estate Mortgage Investment Conduit
Hold commercial & residential mortgage pools into different maturity and risk classes.
Corporation, trust, association or partnership
SEQ, Plain Vanilla, Clean Pay or Current Pay
Most basic REMIC structure
Principal on these classes is retired sequentially.
Only one class begins to receive principal payments from underlying securities after the principal on any previous class has been paid off.
TAC - Targeted Amortization Classes
Pay a targeted principal payment schedule at a single, constant prepayment speed. TAC’s may provide protection against increasing prepayments and early retirement of the investment
Support or Companion Classes
Support or companion classes have the most volatile cash flow behavior. Prepayment variability from the underlying mortgage related collateral cannot be eliminated; it can only be redistributed. PACs, TACS & other support classes rely on companion classes to absorb this variable
Accrual Classes
Investors in an accrual class receive no cash flow from the securities until certain other classes are paid off
IO/PO
Interest Only & Principal Only
Complex securities that are extremely sensitive to interest rate changes because prevailing rates affect prepayments
Leverage
Is the use of borrowed funds to increase potential return of an investment. The higher the ratio of borrowed funds to equity - the greater degree of leverage.
Investment Benefits
Positive cash flow, tax benefits, appreciation
Investors can lose money via - negative cash flow and loss realized at the time of the sell
Various Real Estate Syndications
General partnership
Limited partnership
Corporation
Reits
General Partnership
An active partner in the partnership with unlimited personal liability for the debts of partnership
Limited partnership
Partnerships in which the partners have limited personal liability as opposed to the unlimited liability of a general partnership
Corporations
A legal entity established by the filing of articles of incorporation with the Secretary of State. Shareholders of a corporation have limited liability and do not participate directly in managing the corporation.
LLC
Corporate structures that give limited liability protection of corporations without the regulations associated with corporations.
Statute of Frauds
A lease for a period exceeding one year must be in writing and signed by both parties in order to be enforceable because of the Statute of Frauds
Agency Disclosure
Tenants entering a lease agreement for more than one year and are contemplating option to buy - an information about brokerage services form must be given at the first substantial dialogue
Sex Offender Laws
I do not need to disclose sex offenders. Send them the public sex offender registry so I don’t end up in court.
Lead - Based Paint
Properties build before 1978
Sellers & landlords must give buyers and renters the pamphlet, developed by EPA, HUD & consumer product safety commission (CSPC) titled “protect your family from lead in your home”
Must be in sales contracts & lease agreements
Sellers, lessors and real estate agents share responsibility for ensuring compliance
American with Disabilities Act & Fair Housing Amendments Act
Enacted January 1, 2009
ADA
Outlined design and construction requirements for covered multi-family dwellings for first occupancy after March 13, 1991
Applied to
Multifamily with an elevator and four or more dwelling units
Ground-floor dwelling units in a building that has 4 or more
Public use area
Common use area
Individual apartments at a housing facility
Leasehold Estates
Estate for years
Estate from period to period
Estate at will
Estate at sufferance
Estate for Years
Continues for a definite fixed period of time.
Any specific length of time measured in days, weeks, or months.
Definite beginning and ending date.
Not necessary to give notice to landlord fir termination
No automatically renewal
Common in commercial and apartment leases
Estate from Period to Period
Periodic tenancy - week, year or month.
M2M is most common.
Requires notice to terminate - 30, 60 or whatever is agreed to in the lease.
No definite ending date, renews itself.
Most apartment leases.
Estate at Will
Usually occurs when there is no lease or where the tenancy is not a consideration. Given with permission and no agreement about rent. This estate can be terminated by either party at either time with proper notice
Estate at Sufferance
A tenant that stays on property after a lease ends without consent.
This is called a hold over tenant. If owner allows M2M tenancy is created.
Landlords Rights & Obligations
Receive rent
Re-possess the property following the lease term
Monitor the tenants obligations to maintain the premises
Provide the necessary building support and services
Maintain condition of property
Landlords Rights & Rules
When giving an application to a renter, the landlord must give printed notice of his selection criteria. It must include why an applicant can be denied. Criteria such as criminal history, previous rental history, current income, credit history or failure to provide accurate or complete information on the application form are some of the reasons.
Conveyance of Leased Property
Landlord may sell, assign, or mortgage the leased fee interest. However, transferring and encumbering the leased property does not extinguish the obligations and covenants of a lease. Buyers & creditors must take their interest subject to terms of the lease, lease is transferred with property
Contract Requirements & Conditions
Parties - must be legally capable to enter agreement, certain age, sanity etc.
Property description - identify the property by legal description or other locally accepted reference.
Exclusive possession - Must provide irrevocable right to exclusive possession during the lease term, provided the tenant meets all obligations
Legal & permitted use - Intent that is legal but not permitted might cause default
Consideration - The lease contract must be accompanied by consideration to landlords rights conveyed.
Offer & Acceptance - Party must accept lease and communicate acceptance
Signatures - Landlord must sign lease, tenant doesn’t need to but should to enforce terms.
Oral vs Written -Any term longer than one year must be in writing because of the statute of frauds
Key components to a Lease
Capacity to contract Demising clause Description of the premises Clear statement of term Specification of rent and how it is to be paid In writing Signatures Delivery
Security Deposit
Much be returned after 30 days of vacating premise for residential and 60 days for a commercial lease.
A landlord that refuses to return a security deposit can be liable for 3 times the deposit plus $100 and any applicable attorney fees.
Can be refundable or non-refundable.
Section 92.052
Devines the landlord’s obligation for repair of a property
Conditions to maintain -
Materially affects the health or safety of an ordinary tenant
Arises from the landlords failure to provide and maintain in good operating condition a device to supply hot water of a minimum temp of 120 fahrenheit
Tenant repairs
Under certain conditions a tenant may make trésors and deduct from rent.
When it involves a overflow, raw sewage, or flooding from broken pipe
When involving a breach of agreement, when water service stops
If it involves heating or cooling
When receiving written notification of breach of health or safety
Repair & Deduct Section 92.0561
Deduction for repairs for any month must not exceed one months rent or $500, whichever is greater
If rent is subsidized, deduction may apply to fair market rent
Subleasing
No one can sublease a property without the landlords consent.
Default
Landlord or tenant who violated any of the terms and covenants of the lease has breached contract and is in default
Texas Property Code Section 24
Process for a suit for possession is in the Texas Property Code, Section 24
Tenant Default allowed by State
If military is called to active duty
I’m some cases of family violence. Delinquent rent is still due & landlord must give written notice or else tenant is relieved of delinquent rent too.
Constructive Eviction
Nullifying the tenants lease obligations if landlord fails to provide services and maintain property condition.
In order for this to work, tenant must also vacate premises.
Lease Termination
Term Expiration
Notice
Voluntary Agreement
Property destruction
Condemnation - Taking by eminent domain
Foreclosure PTFA - protecting tenants at foreclosure act, required to give tenant 90 days notice, tenant has 90 days to get it together
Breach of Contract - Although contract was breached the landlord may not physically remove a tenant from the unit, permanently lock out a tenant, turn off utilities or remove a door without court order
Landlord default - tenant must move out for validity
Abandonment - If a tenant abandons leased property & demonstrates no intention to fulfill the lease, the landlord may take possession and pursue legal recourse.
Death or Sale
Nothing changes in lease agreement.
BUT any tenant that is 62 or older can terminate a lease if they have been accepted into an adult care facility, residential health care facility, or a housing unit that receives subsidies for housing for senior citizens. They can cancel a lease if moving due to a relatives home for health care reasons
Gross Lease
Full service lease. Requires landlord to pay the property’s operating expenses, including utilities, repairs & maintenance while tenant only pays rent.
Office & industrial properties.
Residential are usually gross leases with the exception that tenants will pay utilities.
Residential Leases
May be net or gross.
Commercial Lease
long term - up to 25 years
negotiable due to financial magnitude
have serious financial consequences; must express all points of agreement & be very precise
The Uniform Residential Landlord and Tenant Act (URLTA)
It’s important because it prompted legislation at the state level that empowered the courts to nullify residential leases that violated URLTA guidelines, important where a lease gave unfair advantages to the landlord
Covenant
A promise in a written contract or a deed of real property
Conveyance
The act of transferring an ownership interest in a property from one party to another
Leasehold estate
An ownership of a temporary right to hold land or property in which a lesser or a tenant holds rights of real property by some form of title from a lessor or landlord. ( Less-than-freehold estate)
Free holds
Any estate free from hold of any entity besides the owner
Option to renew
A lease provision that gives the tenant the right to extend the lease for an additional period of time and sets forth the terms for the new renewed lease.
Security Deposit
Money that a tenant deposited with the owner of the property to pay for damages beyond normal wear and tear.
Subletting
Transfer by a tenant, the sublessor, of a portion of the leasehold interest to another party, the subleases, through the execution of a sublease. Also called subleasing.
Assignment
Transfer of entire leasehold interest by a tenant, the assignor, to a 3rd party the assignee
Suit for possession
Legal suit filed by a landlord if tenant is in default
Gross lease or full service
Requires the landlord to pay the property’s operating expenses, including utilities, repairs, & maintenance
Tenant only pays rent
Net lease
tenant is required to pay rent in addition to some or all maintenance and operating expenses, tax, insurance & utilities repairs
Graduated lease
Lease where rent payments start at a fixed amount & increase and the lease term matured
Land lease
Lease where the landowner grants the tenant a leasehold interest in the land only in exchange for rent
Percentage lease
A lease whose rental is based on a percentage of the monthly or annual gross sales made on the site
Proprietary lease
Lease which conveys a leasehold interest to an owner of cooperative. It died not stipulate rent, as the rent is equal to the owners share of periodic expenses.
Index lease
Lease which provided for the adjustment of rent according to changes in price index
Property Managers
Apartments Shopping Centers Condos Duplexes Industrial Complexes Office Complexes
Individual property managers
Real estate broker who manages properties for one or more owners. Such a manager may be part of a small property management firm.
Individual Building Manager
Usually manages a single large property. Working directly for an owner requires no license.
Resident Manager
Lives on property and may be employed by a broker.
Real estate asset manager
Acts as the property owners agent and adviser for the property. These managers plan and direct purchase, development & disposition of real estate on behalf of business investors.
Focusing on long term strategy rather than day to day.
Property management proposal
Description of property, including land and all improvements
List of required maintenance
Info on how maintenance records will be kept
Info on account procedures
Schedule of property inspection d
Proposed budgets - operating, capital, stabilized
Info on proposed management fee
Management Fee
A negotiated item. Often a base fee and or percentage of the collected rents. The manager may also receive additional compensation for leases that are renewed and for the supervision of repair projects undertaken
Agreement Termination
Section outlined what circumstances the agreement will be cancelled or renewed & notice required.
Property Manager Skills
Supervision
Accounting - Understand generally accepted accounting principals (GAAP) & be able to prepare and interpret monthly and yearly reports
Building system knowledge - Understand how various building systems work
Bargain and sale covenant
I own but won’t defend
Types of deeds
full covenant and warranty deed, special warranty deeds, bargain and sale deed with covenants, bargain and sale without covenants, quitclaim deed, executors deed, referee’s deed
Alienation
Transfer of title to real estate
Conveyance
When the transfer uses a written document.
A living owner makes a private grant by means of conveyance or deed.
A private grant that occurs when the owner dies is a transfer by will.
Voluntary Alienation
Unforced transfer of title by sale or gift from an owner to another party.
Public Grant
Unforced transfer of title by sale or gift from government entity to private party.
Private Grant
Transfer of title by sale or gift from one private party to another.
Deed
Elements -
Grantor Grantee Act of conveyance Consideration Legal description Habendum clause Designation of limitations Exemptions and reservations affecting the title Signature of the grantor Delivery and acceptance of the deed Acknowledgement Recording
Grantor
Transfers title to real property.
Must be competent. Someone who is mentally handicapped cannot convey title to real estate.
Must be 18 + and alive at time of transfer
Quitclaim Deed
Only conveys what present interest a person may have without representations or warranties of title.
Warranty Deed
Usually required by buyers, title insurance companies, and lenders on real estate transactions.
This guarantees absolute ownership interests.
Special Warranty Deed
The seller guarantees that they have not personally done anything to adversely impact the title being conveyed to the buyer
General Warranty Deed
The seller covenants with the buyer that the seller has done nothing to impact title and nor has anyone else within “chain of title”
Best title for a buyer to receive.
Grantee
receives property from grantor, must be living on time of delivery or it is void
Act of Conveyance - Granting Clause
Expresses grantor’s present desire and intention to transfer legal title to the grantee.
Words are contained in the granting clause.
“I hereby grant John Doe all of (legal description of property) together with all the appurtenances and rights to said premises”
Consideration
The deed must be accompanied by valuable (monetary) or good (love and affection) consideration, but the amount not need to reflect the actual price in most cases.
legal description criteria
provides sufficient data for surveyor to locate parcel
identifies the property as unique and distinct from all other properties
provides accuracy and consistency over time
Habendum Clause (to have and to hold)
describes the type of estate being conveyed, it usually follows the granting clause and reaffirms the extend of ownership being transferred
Designation of Limitations
Dictate how a property may be used. Restrictions spelled out in the deed.
Subject to clause
subject to easement on the property
Signature of the Grantor
Deed must be signed by grantor but not grantee.
PMI
Private Mortgage Insurance Program
defeasance clause
a provision indicating the borrower will receive title once all payments are met
Savings accounts
Give bank long term funds it needs for investment ventures including real estate loans
Syndicates
Corporate is a separate legal entity established by the filing of articles of incorporation with the Secretary of State. Corporations can own property in corporate name.
TXDOB
Texas Department of Banking
intestate
property owner dies with no will in place
Supply & Demand
How many properties are available in the area, property prices, number of prospective buyers, and price buyers are willing to pay
Income Approach Steps
Estimate potential gross income Estimate effective gross income Estimate Net operating income Select capitalization rate Apply rate
Allocation
A typical ratio of land value to total value is derived from comparable properties and applied to the subject
Legal non confirming use
When an existing property use conflicts with ordinances that were in place before the use commenced
Cluster zoning
Zoning in which density is determined for an entire area, rather than a lot by lot basis
Deficiency Judgment
If the sale does not yield sufficient funds to cover amounts owed the mortgagee may ask the court for this.
Straight line method
Estimate accrued depreciation because it’s easier than breakdown but less precise.
