Chapter 3 Flashcards
allodial system
form of ownership
- all land in U.S is held under the alluvial system
- created by England in 13th century, king decided that individuals do not have to pay duties to the king or fight in the king’s wards in order to own land
police power
right of the government ot regulate and control the way land is used
- most common example of police power is zoning
- examples: wetlands legislation, environmental protection legislation, and health and fire codes
setback
amount of space required between the lot line and the building line.
buffer zone
area of land separating one land use from another such as residential from commercial
eminent domain
right of the government to take private land for public use
condemenation
action of taking the land
-examples schools, parks, hospitals, government buildings, roads, and utilities
4 Government rights to property
P-police power
E-eminent domain
T-taxation
E-escheat
inverse condemnation
landowner sues the government, to force the government to buy his land
Taxation
right the government retains to tax real property
-assessed value is property value for tax purposes
special assessment tax
local government is providing a benefit to a limited number of property owners, such as curbs or sidewalks in a neighborhood
municipal improvement district
property owner will receive a tax bill, similar to a special assessment until the improvement is paid for or the improvement district designation is removed
escheat
if a person dies interstate (without will) and without heirs, the government will take title to his real property under the right of escheat
estate
interest, or nature of the interest a person has in real property. 4 categories- 1. freehold estates 2. leasehold estates 3. statutory estates 4. equitable estates
freehold estate
individual owns real property
- ownership of property includes certain rights or privileges
- bundle of rights associated with ownership
- fee simple is considered best type of ownership as it places the least number of limitations on the owner
- ownership is always an estate of inheritance
indefeasible
cannot be defeated unless someone as a more significant legal claim
life estate
ownership for the duration of someone’s life
- owner is called life tenant
- has all rights and privileges, duties, and responsibilities of a fee simple owner, except that the ownership terminates upon the death of the life tenant.
leasehold estate
- possession without ownership
- real property that is less than a freehold estate
- lessor-person giving the use
- lessee-tenant
4 categories of leasehold estates
- estate for years is any lease with a specific starting and ending date
- periodic estate- lease that automatically renews itself for like periods. ex; month to month or week to week lease
- estate at will-very loose agreement.
- tenancy at sufferance-created when a lease expires and the tenant remains on the premises.
holdover tenancy
still asking you to move even though you paid
-which is sometimes considered a periodic estate.
requirements of a valid lease
- competent parties (lessor and lessee) -landlord and tenant
- let and take agreement
- adequate consideration (rent)
- legal purpose
- description of the property (street address is sufficient)
sublet
assigned
- transfer of some or all of the rights and or lease space under a lease to another with liability remaining with the original tenant.
gross lease
one which the landlord pays all the expenses of the property
- tenant simply pays a flat rent
- tenants under a net lease pay rent plus a portion of the expenses of the property such as taxes, maintenance, or utilities
- percentage lease- tenants rent is based in whole or part on the business receipts
- tenant may pay a base rent plus a percent of receipts or merely a percent of receipts or a base rent plus a percent of receipts above specific minimum.
statutory estates
created by statue or law
- two most familiar to us in Texas are community property and homestead
- homestead laws exist in many states
- homestead protection is limited to one property per person or family.
Texas Homestead Exemption
tax benefit that should not be confused with homestead protection.
dower and curtesy
English law
equitable estate
freehold owner will often grant specific rights in property to others.
-rights or privileges create an interest that is less than ownership or possession but nonetheless exists.
lien
claim against property to secure payment for debt
- a lien is an encumbrance
- mortgage becomes a lien when it is recorded
option
gives a buyer the right to purchase a property within a preset period at a preset price
easement
gives one the right to use or pass over another’s property for a specific purpose
easement in gross
belongs to a person or corporation and does not belong to the land
easement appurtenant
right for the benefit of a piece of land.
dominant
two parcels of land with a road across one parcel the owner who crosses over the other owner’s land is dominant.
-dominant estate would be landlocked without the easement
servient
property with the road is servient to the dominant estate.
-dominant estate benefits from the easement while the servient estate is encumbered.
encumbrance
place limitations on property owners
-a claim, lien, charge, or liability attached to and binding real property
covenants, conditions and restrictions (CC&R’S)
deed restrictions that control the use of property and architectural style
- most common private controls of land
- found in a a document called Declaration of Restrictions and are imposed by the grantor, who is usually the developer of the subdivision.
appurtenance
right or privilege or improvement that belongs to and passes with land, but is not necessarily part of the land.
ex: easements and leases that are binding on a new owner when the property is sold. Fixtures and improvements are also appurtenances.
encroachment
intrusion of one’s property onto another’s property.
-neighbor’s fence that crosses a boundary, or tree limbs extending over a boundary are examples of encroachments.
-encroachments must always be disclosed. A survey is required to determine if an encroachment
exists
single-family hoe
embodies the “American Dream”
- most subdivision of home of similar price/style
- not attached to another dwelling like a townhouse or condominium
condominiums
multifamily complexes with individually owned units
- may be new construction or conversion of existing property ex: apartment complex
- 3 interests created when sold: 1. fee simple ownership of the unit. 2 Fee simple ownership in an undivided interest in the common area such as parking lots, swimming pools, and community centers. 3. An easement to the airspace occupied by the unit
cooperatives
share characteristics as condominiums with a difference in ownership. Cooperatives do not own property, owned by a corporation.
townhouse
single-family homes, sold as a distinct living unit on an individual lot. Units share a common wall (party wall) Owner owns the land beneath the structure.
mixed-use development
building types or combinations of buildings that allow for a mix uses. Residential, office, retail, and entertainment venues are located in proximity to each other.
timeshare
gives owner right to occupy a property for a specified time interval often by a week
capital gain
an assist is sold the sale results in capital gain or loss for the seller. When a primary residence is sold capital gain on the sale may be exempt from federal income taxation. Tax exempt limits are -250,000 for an individual return -500,000 if married and filing jointly
-home must have been the principal residence of the seller for at least two of the five years prior to the sale.
equity
financial value of real estate minus the su of all mortgage debt
- equity is the difference between the financial value and the sum of all mortgages on the property.
- equity build-up occurs through a combination of loan amortization and appreciation.
- equity is affected by the property’s market value
homeowners insurance
contract between the insurance company and the policy holder
-protect them from losses related to the structure, personal possessions, and liability.
windstorm damage
not covered by standard Texas homeowners policies. Most do not offer windstorm coverage. The majority of windstorm insurance policies are underwritten by the Texas Windstorm Insurance Association (TWIA) TWIA is a pool of all property and casualty (P&C) insurance companies authorized to write coverage in Texas.
flood insurance
covers direct physical loss caused by flood, which is defined as an excess of water o land that normally is dry
personal property coverage
contents coverage is not included with building property coverage. “renters insurance” When a tenant leases a home or apartment the landlord’s insurance policies protect the landlord from loss; personal property of the tenant is not included.
estate in severalty
involves ownership of real estate by one individual or entity
co-ownership
involves ownership of real estate by two or more entities
tenancy in common
first and most common type of co-ownership
-common in ownership of real estate by two or more entities in undivided interests. Own real estate in undivided shares
joint tenancy
- less common ownership by more than one
- right of survivorship of the tenants
- 4 units required: 1. time-owner must acquire their interest at the same time. 2 title-they must acquire their interest from the same source (will, contract, deed, etc) 3. interest- they must hold equal shares 4. possession- possession of the property must be shared equally.
community property
concept of Spanish law and marriage is regarded as a partnership. Most property acquired during the marriage is owned equally by both spouses and cannot by conveyed or sold without the signature of both parties.
trust
entity created for the benefit of another. All trusts include an individual known as a trustor.
sole proprietorship
venture that is owner by one individual. Owner has total control of the business. Downside of the form of ownership is that the owner also has full liability for the financial and personal obligations of the business.
partnership
more easily created than a corporation and can be created with a simple written or oral agreement. Must have one or more general partners. General partner may take part in the day to day management of the business and has full personal liability for partnership related issues including everything from financial obligations to personal injury lawsuits
corporate ownership
are created by filing with the office of the secretary of state. 3 components: 1 shareholders (stockholders) who are the owners of the corporation 2. A board of directors- elected by the shareholders who represent the interests of the shareholders 3. corporate officers- who are responsible for the overall management of the operation of the business.
agency
relationship exists when one person (the agent) acts for or on behalf of another person (the principal)
client
principal is also known as the client
fiduciary
relationship based on trust, agent must always remain loyal to the principal.
universal agent
full authority to conduct business on behalf of the client
-universal agent can sign documents and bind the client in the same manner in which the client would do in person.
general agent
individual has the right to represent a principal in a particular type of transaction or business. Example: general agent in real estate is the property manager. Primarily responsible for preserving the value of an investment property while generating income as an agent for the owners
special agent
relationship is the most limited of all the agency relationships and is also referred to as “limited agency”
OLD CAR
agents duties O-obedience L-loyalty D-disclosure C-confidentiality A-accounting R-reasonable care
express authority
specific oral instructions given to the agent by the principal
implied agency
behavior of the parties creates implied agency relationship. License holder behaves in a manner that makes a party reasonably believe that he or she is being represented an implied agency relationship may have been created.
ostensible agency
exists when actions lead another person to assume that one is an agent
agency by ratification
agent acts without prior authorization and upon learning of this action the principal accepts it
agency coupled with an interest
license holder owns a property that is being sold or interested in buying a property.
single agency broker
not act as a dual agent when his/her buyer-client is interested in purchasing one of the brokers in-house listing
transactional broker
facilitates a buyer and a seller to reach an agreement in a real estate transaction
dual agency broker
agrees to represent both the buyer and the seller with their written permission
listing side
occurs when the seller retains the services of a broker (owner of property) ex: Joe and I
selling side
occurs when the buyer retains the services of a broker. The agent working with the buyer is referred to as the selling agent. ex: couple who bought our house
cooperative sale
property listed by one firm and later sold by another
subagency relationship
created automatically with no discussion or action needed on the part of the listing or selling firm
intermediary
process is a set of rules that make it possible to bring client buyers and sellers together while at the same time representing their best interests.
information about brokerage services
provides consumers with necessary information regarding agency relationships with license holders.
independent contractors
engaged in a principal agent relationship which is the general agency relationship that exists between the broker and sponsored license holder
deceptive trade practices act (DTPA)
Texas law that allows an aggrieved consumer to sue a seller of goods for damages.
Texas Real Estate License Act (TREC)
1939
-protect public against unscrupulous brokers and sales agents
Broker
person who exchange for a commission or other valuable consideration or with the expectation of receiving a commission or other valuable consideration performs for another person one of the following acts
business entity
domestic entity or foreign entity those terms are defined by section 1.00.2 business organizations code
certificate holder
means a person registered under subchapter K
COMMISSION
MEANS THE teXAS rEAL eSTate Commission
License holder
means the broker or sales agent licensed under this chapter
residential rental locator
person who offers for consideration to locate a unit in an apartment complex for lease to a prospective tenant.
sales agent
person who is sponsored by a licensed broker fo the purpose of performing an act
subagent
license holder who -represents a principal through cooperation with and the consent of a broker representing the principal and is not sponsored by or associated with the principals broker
sunset act
in business only as it is necessary, unless continued in existence as provided by that chapter, the commission is abolished
ch7 summary
chapter 601 of the business and commerce code allows a consumer in certain transaction to cancel the transaction until midnight on the third day after agreeing to purchase the good or service. This right is commonly referred to as a “three day right of remission.” Section 1101.55 expressly exempts real estate brokerage transactions from this right of cancellation.
real estate brokerage
person engaged in real estate brokerage if the person, with the expectation of receiving valuable consideration, directly or indirectly performs or offers, attempts, or agrees to perform for another person any act described
texas real estate commission
commission membership
9 members appointed by governor with consent of senate
-6 members brokers
-3 members of public
-each member must be a qualified voter
-serve staggered 6 yr term
governor shall designate a commission member who is a licensed broker as presiding officer
-$75 each day member performs the member’s official duties
TREC powers
issues sales agent broker licenses
- enact rules regulations that have full force and effect of the law and advice with reference to these rules and laws
- suspend revoke license
- place license holder on probation require additional education
- subpoena books, records witnesses if license holder fails to respond to subpoena
- file action against a license holder on its own motion
- assess administrative penalties of up to 5,000 per day against licensed individual
- promulgate forms which are mandatory for license holders
rules relating to contract forms
commission may adopt rules in the public’s best interest that require license holders to use contract forms prepared by the Texas Real Estate broker-lawyer committee and adopted by the commission
-commission may not prohibit a license holder from using for the sale, exchange, option or lease of an interest in real property a tract form that is prepared by property owner, attorney, a listing contract form adopted by commission that relates contractual obligations between seller of real estate and license holder
1970 Legislature created the Real Estate Center
located at Texas a&m
- purpose is to collect and compile data about real estate and matters relating to real estate in Texas.
- portion of each license holder’s annual recertification fee goes to Real Estate center to fund operation
real estate recovery trust account
reimburse aggrieved persons who suffer actual damages caused by an act described
- license holder
- certificate holder
- person who does not hold a license or certificate and who is an employee or agent of a license certificate holder
canons of professional ethics and conduct
act and rules describe a wide range of lawful and unlawful behavior. Requirement that brokers ethically do business imposes far more than a strict application of rules and laws. Ethics is defined as a set of moral principles and as a theory or system of moral values.
fiduciary
primary duty of the real estate agent is to represent the interest of his or her client, and his/her position, respect, should be clear to all parties concerned in a real estate transaction, faithful and observant to trust
integrity
real estate broker or sales agent has a special obligation to exercise integrity in discharge of his/her responsibilities including employment of prudent and caution to avoid misrepresentation
civil rights act of 1866
essentially prohibited discrimination in housing based on race or color by affording all persons in the U.S
civil rights act of 1968
prohibits discrimination based on race, color, religion, and national origin.
-sex/gender added in 1974 followed by physical handicap and familial status in 1988
7 protective categories
- race
- color
- religion
- sex/gender
- national origin
- familial status
- handicap status
steering
channeling, taking buyers or renters to or away from a particular area based on the reface religion etc of the buyer or rent and is the most common cause for complaint under the law.
blockbusting
any attempt to induce panic selling in a neighbor hood for financial gain.
-also known as panic peddling
reasonable accommodation
rules policies practices or services if necessary for the disabled person to use the housing
Voluntary Affirmative Marketing Agreement (VFMA)
having and adhering to standard office procedures for working with customers and holding regular meetings on fair housing practices are required to demonstrate compliance
American with Disabilities Act
expansive law that affects almost all public accommodations including retail stores, real estate offices, concert venues government buildings professional offices restaurants bars and hotels
Consumer Financial Protection Bureau (CFPB)
AUTHORITY TO EXAMINE AND ENFORCE consumer protection regulations for all mortgage-related business large non-bank financial companies and banks and credit unions with assets greater than 10 billion
Equal credit opportunity act
1974 prohibits discrimination in lending based on race, color, religion, national origin sex marital status age or the receipt of income from a public assistance program
community reinvestment act
passed to ensure that banks would serve the needs of the community in which they were chartered to do business.
redlining
practice of refusing to provide financing in a particular area because of location.
fair credit reporting act
federal law designed to protect consumers against unfair credit reporting practices and protect credit privacy.
metes and bound
uses terminal points and angles to describe a parcel of land. “beginning at a point.”
momument
permanent marker installed on the land by a surveyor
-reference point for the beginning of a meters and bounds survey
one acre of land contains
43,560 sq ft
lot and block
commonly used in residential subdivisions and commercial developments
recorded map or plat
method describing land most often
rectangular survey system
lot and block number for a particular property one can go to the recorded map and find the property. lot and block is the most common type of property description used in subdivisions.
government survey system
1785
needed a survey and account for the vast lands to the west commonly referred to as the “western frontier”
grid
concept behind the system is the overlay of a grid on land
- each square will describe all of the property within.
- grid system needs a reference point which is known as an initial point
range lines
working from the initial point surveyors establish north/south lines at six mile interval
township lines
establish east/west lines at 6 mile intervals
informal reference
parcel of land is the street address
land surveying
technique profession and science of accurately determining the terrestrial or three dimensional position of points and the distances and angles between them
partition
division of property between multiple owners
listing agreement
employment contract between a seller or landlord and the broker
open listing
gives seller the right to list the property with multiple competing brokers and to sell the property personally without liability for payment of a commission
exclusive agency
seller agrees to list the property with only one broker during the listing term with the provision that the seller can sell the property independently without paying a commission.
exclusive right to sell
property during the listing term because they receive a commission even if the owner sells the property.
net listing
seller establishes a minimum net amount for his/her proceeds at closing
multiple listing services (MLS)
exclusive right to sell and exclusive agency listing agreements usually call for the broker to place the listing
COMPARATIVE MARKET ANALYSIS (CMA)
shared information is also used by agents to prepare a CMA
-agent uses sales information from the MLS data to show a seller the market value of the property.
broker’s price opinion (BPO)
brokers written opinion of value
- most often requested by an attorney a relocation company or by a lender working a short sale a BPO is very similar to a CMA
- brokers typically receive a fee for preparing a BPO
procuring cause of sale
individual who through a series of uninterrupted activities or actions brought about the completion of a contract
Sherman anTI-Trust act and Clayton act
any attempt by a group of brokers or between a group of brokerage firms to set the commission rates in their area would be considered illegal price fixing.
-all commissions are negotiable between the broker and his or her client, and are not set by any Board of REALTORS or between companies or by TREC
deceptive trade practices act (DTPA)
affects brokerage business
-many lawsuits relation to property condition issues are filed under the DTPA
puffing
marketing that uses adjectives and opinions rather than details or facts
removal of mold
remediation
- must provide a certificate of mold remediation no later than 10 days after the work is complete.
- certificate verifies the mold has been removed
contract
agreement between two or more parties to do something or to refrain from doing something
implied contract
individuals enter contracts everyday without any thoughts
express contrcat
acceptance of the offer
bilateral contract
sale between a buyer and seller is a bilateral contract because both parties have duties to perform.
- sellers primary duty-show up at closing and sign a deed conveying ownership to the buyer
- buyers primary duty-show up at closing and pay the agreed consideration (sale price)
option
an agreement between a buyer and seller or landlord and tenant. A seller in exchange for some form of consideration (an option fee) gives the buyer the right to purchase the property at some preset price and terms for a specific period
unilateral contract
option agreement, only one party is obligated to perform. A unilateral contract lacks mutuality
promulgated forms
write residential contract forms that with few exceptions are mandatory for license holders.
- promulgated means “to make known by open declaration; publish”
- form prepared by the property owner pr prepared by an attorney and required by the property owner is also authorized
TREC has only 2 promulgated lease form
- buyers temporary residential lease- buyer occupies the property for no more than 90 days prior to closing
- seller’s temporary residential lease- seller occupies the property for no more than 90 days after closing
valid contract
one that meets all of the requirements of law
void contract
invalid from the beginning and does not affect on the parties
voidable contract
one that cannot be enforced against one or more of the parties
unenforceable contract
one that cannot be enforced due to some flaw in the contract passage of time or other issues that make enforcement impossible
5 elements must exist for a contract to be considered valid and enforceable
- competent
- offer and acceptance
3 legal purpose
4 in writing-required by law
5 consideration
mutual rescission
contract terminated both parties agree
mutual consent
mutual agreement “meeting of the mind”
-determination of mutual consent is usually a question of fact and is completed by the process of offer and acceptance
statue of frauds
contracts for the conveyance of ownership in real estate must be in a writing to be enforceable
valid and enforceable contract for the sale of real estate must be in writing
an oral agreement to coney would be considered voluntary and not enforceable in the case of disagreement
executory contract
contract that is binding on the parties with one or more of the parties having contractual duties that have-not yet been performed
effective date is the date that acceptance was communicated to the offering party
default
when a party to a contract fails to perform under the contract
failure to perform is also commonly referred to as a breach of contract
when a party is in default or break the other party is known as the injured party
buyer default
seller has several options: liquidated damages-seller can choose to accept the buyer’s earnest money as liquidated damages releasing all parties from any further obligation
- monetary damage- injured party may seek such other relief as may be provided by law. award of monetary damages by the court
- specific performance- injured party files a court action seeking an order of the court directing the defaulting party to perform according to the terms of the contract. specific performance is the only remedy that would possibly result in the full executions of the transaction
seller default
buyer becomes the injured party
- following options: -refund earnest money, buyers acceptance of an earnest money refund terminates the contract releasing both parties from any further obligation under the contract
- monetary damages
- specific performance
fully executed
sale finally closes
-TREC promulgated contract forms all representations made by seller and buyer ‘survive closing” which means that both parties remain liable beyond closing for their representations made in the contract
assignment
contract transfers all of the rights related to the contract to another party
- assignee assumes primary liability for performance under the contract and the assignor unless released remains secondarily liable
- all contracts are assignable with some exceptions
novation
occurs when a new contract is substituted for an existing one. new agreement may include new parties which becomes a novation of the parties
property
property includes improvements- are all man made additions to the land including the house garage and other permanently installed and built in homes
accessories-while not necessarily permanently installed or built in are commonly conveyed to the buyer in the sale
exclusions
should be indicated on the document so that there is no confusion as to what is included and excluded in the sale
earnest money
“deposit” paid upfront by the buyer to show that he or she is serious in intent. Must be delivered within 3 days after the effective date
earnest money is required enter the amount and number of days
TREC promulgated contracts require that earnest money be delivered to the escrow agent by the buyer within 3 days after the effective date of the contract
title policy
owners title policy can be paid for by either the buyer or seller. In most cases the title policy is paid for by the seller. The title policy is generally issued by the title company that is holding the earnest money.
policy contains 9 exceptions promulgated by the Texas Department of Insurance
- restrictive covenants common to the platted subdivision in which the property is located
- certain taxes, standby fees, and assessments. The title policy ensures that all property taxes and assessments are paid for.
3 Liens created as part of the financing described in the contract.
4 utility easements created by the dedication deed or plat for the subdivision in which the property is located
5 reservations or exceptions otherwise permitted in the contract as may be approved by the buyer in writing - the standard printed exception as to martial rights
7 the standard printed exception as to waters tidelands beaches streams and related matters
8 the standard printed exception as to discrepancies conflicts shortages in area or boundary lines
9 exception or exclusion regarding minerals approved by the Texas Department of Insurance.
proration
process of dividing ongoing expenses between the buyer and the seller at closing
generally calculated through the day of closing for taxes maintenance fees and rents that the seller pays for on closing days
escrow
services are performed when something of value, such as a deed, money, or written instrument is put into the custody of a third person to be retained until the occurrence of a contingency or performance of a contract
option
gives the buyer the unrestricted right to terminate the contract within the option period
cooperative sales
if one firm has listed the property and another firm is working with the buyer. The broker working with the buyer is referred to as the “other broker”
in house sale
sale is an in house sale if the same broker is representing the seller and is also working with buyer. Because it is an in house there is no “other broker” and information is left blank.3$33#333
