PA Real Estate U Practice pt.2 Flashcards
The responsibility of the broker to an independent contractor salesperson
Supervision, reporting salesperson’s commission to the IRS, providing salesperson with independent contractor agreement
Terry has just sold a $900,000 home for their client. The listing agreement state that Terry would recieve a 6% commission. Terry agreed to do a 50/50 split with the buyer’s broker. What is the final broker’s commission that Terry will recieve after the split with the buyer’s broker?
900,000 * .06 = 54,000 / 2 = 27,000
Process by which all the parties to a real estate transaction conclude the details of a sale or mortgage. The process includes the signing and transfer of documents and distribution of funds.
Closing
A property recently sold for $480,000. What is the commission owed if the seller agreed to a 4% commission rate?
480,000 * .04 = 19,200
First-time home buyers want to buy a house they can afford. They have no idea what they might qualify for, and their agent said they should get pre-qualified before they begin looking at houses. Who do they need to talk to?
A mortgage broker or banker
As a means to exercising precaution, an agent should have a prospective buyer do this before viewing a property
Obtain a pre-approval from a lender
the supply of willing and able consumers, which can be few or numerous.
Demand
Lays out both the obligations of the broker and the duties of the salesperson
independent contractor agreements
What type of property is a factory considered?
Industrial
What form of payment does the IRS allow a broker to pay their salespeople?
A percentage of commission received from a transaction the salesperson has worked on.
Where should an agent meet with a prospective buyer prior to showing any properties?
At the agent’s office.
What factors can affect the definition of zoning definitions?
The community, county, or state the property is in.
The amount of a certain good or service that is available in the market is known as what?
Supply
For real estate agents, liability insurance is written on a ___ basis
by-claim
A history of conveyances and encumbrances affecting the title from the time the original patent was granted, or as far back as records are available, used to determine how title came to be vested in current owner.
Chain of title
A summary of all transfers, conveyances, legal proceedings, and any other facts relied on as evidence of title, showing continuity of ownership, together with any other elements of record which may impai title.
Abstract of Title
A title which a reasonable purchaser, informed as to the facts and their legal importance and acting with reasonable care, would be willing and ought to accept
Marketable Title
An attorney’s written evaluation of the condition of the title to a parcel of land after examination of the abstract of title
Opinion of Title
Insurance to protect a real property owner or lender up to a specified amount against certain types of loss, e.g. defective or unmarketable title.
Title Insurance
Lauren has just acted as salesperson for the seller on a $450,000 home, with a 6% commission. The buyer’s broker on the sale had agreed to a 50/50 split, and Lauren has a 50/50 split with her broker. How much money will Lauren receive from this transaction?
450,000 * .06 = 27,000 *.05 = 13,500 * .05 = 6,750
A person or organization acting as the agent for others in negotiating the purchase and sale of real property for a fee is known as:
Real estate broker
A salesperson and their sponsoring broker agree to a 50/50 commission split. If a property sells for $520,000 with a 6% commission, how will the salesperson earn on the deal if the broker also splits the comission with the buyer’s broker at 50%?
520,000 * .06 = 31,200 *.50 = 15,600 * .50 = 7,800
An agreement between members of a trade to exclude other members from fair participation in the trade.
Group Boycott
Conspiring to establish fixed fees or prices for services or products
Price fixing
An agreement between members of a trade to refrain from competition in specific market areas
Market allocation
Federal legislation including the imposition of civil and punitive damages for anti-trust activities.
Sherman Anti-Trust Act
A contract where one transaction depends upon another
Tie-in Arrangement
The practice on the part of unscrupulous speculators or real estate agents of including panic selling of homes at prices below market value, especially by exploiting the prejudices of property owners in neighborhoods in which the racial make-up is changing or appears to be on the verge of changing.
Blockbusting
An illegal lending policy of denying real estate loans on properties in older, changing urban areas, usually with large minority populations, because of alleged higher lending risks without due consideration being given by the lending institution to the credit worthiness of the individual loan applicant.
Redlining
A federal law requiring the disclosure to borrowers of settlement (closing) procedures and costs by means of a pamphlet and forms prescribed by the United States Department of Housing and Urban Development
Real Estate Settlement Procedures Act (RESPA)
The practice in which real estate brokers guide prospective home buyers towards or away from certain neighborhoods based on their race. This practice is highly illegal.
Steering
Volunteers from state or private agencies who enforce fair housing by claiming to be home seekers, thereby finding out of brokers deal fairly with all clients/customers
Testers
Houses in Bellvue have a history of selling for over $200,000, but the market has hit a slump recently. Over the last 12 months, the average sale price has dropped to under $150,000. A group of real estate agents get together and decid that none of them will sell a Bellvue home for less than $200,000. This is considered what type of illegal activity?
Price Fixing
Under the Fair Housing Act, it is illegal to deny entry into what?
the MLS
If a lender refuses to lend money to purchase a home in a specific area based only on the demographic makeup of the neighborhood, they could be accused of what?
Redlining
The Fair Housing Amendments Act of 1974 made it illegal to discriminate on the basis of what?
Sex
A bookkeeping entry on the right side of an account, recording the reduction or elimination of an asset or an expense, or the creating of or addition to a liability or item of equity or revenue.
Credit
Adjustments of interest, taxes, and insurance, etc., on a pro rata basis as of the closing or agreed upon date.
Proration
Penalties for violating an anti-trust law include:
Up to three years in jail, up to a $1M fine for a business, or up to a $100,000 fine for an individual
In order to be exempt from the FHA, a single family homeowner can sell or rent one home in how many years?
2 years
These 4 types of property are not covered by the FHA
-Owner-occupied buildings with 4 or fewer units.
-Single-family homes sold or rented directly by owner if they own no more than 3 such homes
-Housing operated by religious org or private clubs
-Certain senior housing meeting specific criteria
The Pennsylvania Human Relations Act is administered and enforced by:
Pennsylvania Human Relations Commission
Created to help enforce the Sherman and Clayton Anti-Trust Laws
The Federal Trade Commission Act
A neighborhood in a city has suddenly become very popular. The area had previously been primarily served by two established real estate agencies, but the surge in popularity has brought more agents wishing to do business in the area. The two established agencies agree to only share listings with each other, and not with any of the newer agencies that have come to the neighborhood. What are the two agencies guilty of?
Group Boycott
The practice of panic selling of homes at prices below market value, especialy by exploiting the prejudices of property owners in neighborhoods in which the racial make-up is changing or appears to be on the verge of changing.
Blockbusting
According to RELRA, how old must one be to become a real estate broker?
21
An illegal lending policy of denying real estate loans on properties in older, changing urban areas, usually with large minority populations, because of alleged higher lending risks without due consideration being given by the lending institution to the credit worthiness of the individual loan applicant
Redlining
The exemption under the FHA that applies to buildings with four or fewer units in which the owner lives in one of the unit us often referred to as:
The Mrs. Murphy exemption
Housing for Older Persons Act (HOPA) defined housing for older people who are what age?
55 and up
A change to a building or facility that affects or could affect the usability of the building or facility or portion thereof. Include, but are not limited to, remodeling, renovation, rehabilitation, reconstraction, historic restoration, resurfacing of circulation paths or vehicle ways, changes or rearrangement of the structural parts or elements, the plan configuration of walls or full-height partitions.
Alteration
Guidelines drafted by the Access Board that describe the minimum requirements that a building should exhibit in order to be accessible
Americans with Disabilities Act Accessibility Guidelines (ADAAG)
Federal agency designated to enforce the Fair Housing Act (FHA)
Department of Housing and Urban Development (HUD)
Federal agency that has the authority to enforce all provisions of the Americans with Disabilities Act (ADA), but focuses primarily on ADA Title II: public services by State and local government) and ADA Title III: public accomodations
Department of Justice (DOJ)
A physical or mental impairment that substantially limits one or more major life activities, a record of such an impairment, or being regarded as having such an impairment:
Disability
A continuous, unobstructed way of pedestrian passage by means of which the altered area may be approached, entered, and exited, and which connect the altered area with an exterior approach (including sidewalks, streets, and parking areas), an entrance to the facility, and other parts of the facility
Path of travel
Areas housing the major activities for which a facility was intended. Areas include, but are not limited to: the customer services lobby of a bank, the dining area of a cafeteria, the meeting rooms in a conference center, etc.
Primary function areas
Private entities that own, operate, lease or lease to places of public accomodation. Places include: restaurants, hotels, theaters, convention centers, retail stores, shopping centers, dry cleaners, etc.
Public accommodations
A walking surface that has a running slope steeper than 1:20
ramp
Easily accomplished and able to be carried out without much difficulty or expense
Readily achievable
A unit intended to be used as a residence, and that is primarily long-term in nature.
Residential Dwelling Unit
An approach to the design of products, places, policies, and services that can meet the needs of as many people as possible throughout their lifetime, regardless of age, ability, or station. AKA: ‘inclusive design’ or ‘design for all’
Universal Design (UD)
Covered by Title I of the ADA
Employment
Covered by Title II of the ADA
Public Services: State and Local Government
Covered by Title III of the ADA
Public Accommodation and Services Operated by Private Entities
What is the length of a ramp that rises 12” and has a slope of 1:12
12’ 0”
A handicap parking space is required when more than how many parking spaces are provided in total?
more than 1 space
What is the minimum clear floor space required for a handicapped individual?
30”x48”
What is the minimum width of a handicapped van parking space?
132”
What is the minimum clear width of a handicap ramp?
36”
John needs to install an handicap ramp to make his building ADA compliant. What is the maximum allowable slope of a ramp?
1:12
Mark would like to install an ADA compliant entrance door to his building. What is the required push-side clearance Mark must provide at tthe entrance door?
12”
What year was the ADA signed into law?
1990
What year was the ADA Amendments Act signed into law?
2008
New construction or alterations that began construction on or after March 15th, 2012 must comply with what ADA document?
2010 ADA Standards for Accessible Design
According to ADA, what is the maximum tread depth of a stair?
11”
What is the minimum clear width of a walking surface?
36”
What is the minimum ‘pull-side’ clearance at an accessible door?
18”
What is the maximum slope of a curb ramp?
1:12
What must be provided within residential units of buildings containing four or more units?
Accessible routes
Your client would like to install a new ADA compliant lavatory in their bathroom. What is the maximum rim or countertop height of the lavatory?
34”
What type of law is the ADA considered to be?
Civil Rights
This document outlines the minimum requirements for newly designed and constructed or altered State and Local government facilities, public accommodations, and commercial facilities to be readily accessible to and useable by individuals with disabilities
2010 ADA Standards for Accessible Design
The Americans with Disabilities Act affords similar protections against discrimination to americans with disabilities as what other set of laws?
Civil Rights Act of 1964
What type of buildings are exempt from complying with ADA site requirements?
Utility buildings not open to the general public
Accessible bathtubs must be installed with what kind of seat?
Permanent or removable seat
What are required in bathrooms to help handicapped individuals maneuver in and out of a wheelchair?
Grab bars
A handicap ramp is comprised of what two components?
the landing and the ramp run
What are required for ramps that rise greater than 6”?
Handrails
What is the maximum kitchen counter height in an accessible kitchen?
34”
Why does the pull-side clearance at an accessible door require more space than the push-side?
More space is needed to open the door and maneuver backwards
ADA Title that covers Telecommunications
Title IV
What is the minimum width of an accessible pass-through kitchen?
40”
Your client would like to install an ADA compliant toilet in their bathroom. What is the required seat height above the finished floor?
17” - 19”
The Civil Rights Act of 1968 expanded the law of 1866 but still did not include the following:
Family Status
If a claim is made accusing a person or entity of violating the Civil Rights Act, it goes directly to which organization?
Federal Court
The Fair Housing Amendments Act of 1974 made it illegal to discriminate on the basis of:
Sex
Recently, agents in a town have noticed that the commissions they have been able to negotiate with potential sellers have gotten lower and lower. A 6% commission has become impossible to negotiate, and many ar resorting to going below 3% to get listings. The three largest agencies in the town agree to not take any listinging for below 4% so that they can bring the average commission back up. What are they guilty of?
Price-fixing
Under Megan’s Law, agents should provide the following information to buyers:
The Megan’s Law disclosure
If an agent is found distributing fliers in a neighborhood, which encourages homeowners to sell their home due to a new religious group moving in, the agent would be accused of what activity?
Blockbusting
A new start-up comes to a city and offers real estate services that make heavy use of technology and an app that has become popular that use the MLS service. The start-up offers potential clients the opportunity to sell their homes for just a 1.5% commission. The other brokerages in the city decide to pull all their listings from the MLS and create their own listing database. They are guilty of:
Group boycotts
the Serman Anti-Trust Act was enacted in 1890 in order to:
to stop practices that restrain trade and to encourage competition in the marketplace
This act supplemented the Sheman Anti-trust Act to prevent anti-competitive practices
The Clayton Anti-trust Act
The relationship between a principal and the principal’s agent, which arises out of a contract, either expressed or implied, written or oral, wherein the agent is employed by the principal to do certain acts dealing with a third party,
Agency
One who acts for and with authority from another called the principal
Agent
A person upon whom the powers of an agent have been conferred, not by the principal, but by an agent as authorized by the agent’s principal
subagent
An agency relationship in which the agent acts concurrently for both of the principals in a transaction
Dual Agency
An agent with full authority over real property of the principal, for example: a property manager.
General Agent
An agent who works only for the buyer or the seller
Single Agent
An agent with limited authority to act on behalf of the principal, such as created by a listing contract
Special Agent
The agent who has complete authority over any activity of the principal, for example: power of attorney
Universal agent
An agency relationship created by oral or written agreement between the principal and the agent
Express Agency
Agency that exists as a result of the actions of the parties
Implied Agency
A person who has been given the appearance of being an employee or acting (agent) for another (principal), which would make anyone dealing with the ostensible agent reasonably believes they were an employee or agent
Ostensible Agency
A person in a position of trust and confidence, as between principal and broker; broker as such owes a certin loyalty which cannot be breached under the rules of agency
Fiduciary
That duty owed by an agent to act in the highest good faith toward the principal and not to obtain any advantage over the latter by the slightest misrepresentation, concealment, duress, or pressure
Fiduciary Duty
An agent’s duty to place the client’s interest above those of all others, including the agent’s own self-interest
Loyalty
This fiduciary relationship obligates the agent to act in the good faith at all times, obeying the client’s instructions in accordance with the contract.
Obedience
The degree of caution and concern for the safety of themselves and others an ordinarily prudent and rational person would use in the circumstances. This is a subjective test of determining if a person is negligent
Reasonable Care
OLD CAR
Obedience, Loyalty, Disclosure, Confidentiality, Accountability, Reasonable Care
An agent’s compensation for performing the duties of an agncy, in real estate practice, a percentage of the selling price of property, percentage of rentals, etc. A fee for services
Commission
Sydney’s brother Lawrence is a real estate salesperson in a prestigious brokerage that is a member of several active MLS services. Sydney wants to sell her condo, and she wants to negotiate a listing agreement with her brother that will allow him to make 100% of the commission. What should she do?
Sydney should negotiate a listing agreement with Lawrence’s broker. It’s very unlikely she’ll be able to get 100% for Lawrence, but she may be able to negotiate a listing agreement that gives Lawrence a significant split of any commissison as a subagent.
Franz has been so helpful for Frank and Pat in finding the house of their dreams. He’s shown them houses that are on the MLS listed with other agencies as well as listings he has in his office. When Frank and Pat talk about how stressful the search is, Franz says “don’t worry, i’ve got your back” Frank and Pat believe Franz is working for them, but they’ve never discussed it directly. What is this an example of?
Implied Agency
Leila is representing buyers, Steven and Angie. The buyer wants to place an offer on a home that is listed at $800,000. It’s been on the market for over a year and the seller’s broker mentioned that the owner would gladly take any offer that was over $700,000. Steve and Angie love the house and are worried that if they don’t bid correctly, they might lose out. They think they should offer above asking price, and suggest putting in an offer of $825,000. What is Leila’s responsibility to her clients?
It is Leila’s responsibility to let Steve and Angie know that a much lower offer would very likely be accepted. She should mention how long the house has been on the market and the likelihood that an offer significantly below the asking price will likely be accepted.
The broker is the ___, the subagent is the ___, and the principal is the ___
agent, salesperson, client
You are required to protect your principal’s secrets, unless it is unlawful to do so. If you know anything that can compromise your client’s bargaining position, you have to keep ti to yourself and not share it with the other party to the transaction. This describes which duty to your client?
Confidentiality
Bailey is a real estate salesperson working with Lenore who wants to buy a home, and who has signed a buyer’s agreement with Bailey’s office. Bailey shows Lenore a house, which her office has the exclusive listing on, but it will expire in less than a week. Lenore says it’s not exactly what she’s looking for, bt maybe she should just put an offer on it. Bailey saw a new listing on MLS that morning that sounds like it is exactly what Lenore was looking for. What should Bailey do?
Bailey should tell Lenore about the new listing
In a strong rental market, agents are charging the renters for their fees. Justing rents a $2200 apartment and charges 10% of the annual rent as his fee. What commission has he earned on this rental?
$2640
Ideally, what is the best type of agency relationship to enter into?
express agency
A real estate salesperson operates as a ___ agent
Special
A property manager operates as a ____ agent
general
Why is dual agency problematic?
-If both parties are not made aware of it being in effect, then it is always illegal
-It can occur without the agent realizing it
-It makes it difficult for the agent to uphold their fiduciary responsibility to both principals
A branch of the real estate business involving the marketing, operation, maintenance and day-to-day financing of rental properties
Property Management
A person who manages properties for an owner as the owner’s agent
Property Manager
Items generally included in a property management proposal and/or contract for management services
description of the property
length of agreement
management authority
financial reporting
management fee
accounting responsibilities
insurance and risk management
owner’s responsibility and objectives
termination terms
A contract between the owner of a property and someone who agrees to manage it
Management agreement
A document that sets forth the duties of the manager when employed by the owner
Management proposal
Expenditures creating future value. Incurred when a property owner spends money to upgrade a building in an effort to add value and/or extend the useful life of the building.
Capital Expense
Money set aside by a property owner for long-term capital expenditures to a property
Capital Reserve Budget
A maintenance task performed to identify, isolate, and rectify a problem with a property so that the property can be restored to an acceptable condition
Corrective Maintenance
An amount of money set aside by the owner for a specific period for the property manager to manage the property effectively
Operating Budget
Keeping property and equipment in good state of repair so as to minimize the need for more costly repair work or replacement
Preventative Maintenance
An accounting report issued periodically by the property manager to the owner outlining all income and expenditures for that accounting period
Property Management Report
Property expenditures that vary depending on the operations of the property
Variable Expense
Carol is a property manager who works closely with investors who have residential portfolios in a college town. When establishing the length of service terms, she understands that…
Length of service terms are flexible, and she must consider both her income and the owners’ financial goals
Rebecca manages a 300-unit multi-family complex that offers exceptional amenities, but has a less-than-stellar vacancy rate. She decides to host an open house to attract families with small children. The bounce-houses, cotton candy machine rental, door prizes, & food and beverage will cost about $3500. She checks her management authority guidelines to make sure she can spend this amount without owner approval as what kind of expense?
Advertising and Marketing
John is a property manager who runs a large commercial property. What must John have knowledge of to preperly maintain the HVAC and electrical systems?
building systems
A _____ is a group of independent businesses under one roof.
A mall
Who is usually responsible for maintaining common areas like corridors, shared security offices, walkways, and elevators in a mall or shopping center?
The management company
A document that sets forth the duties of the manager when employed by the owner
Management Proposal
Type of expense incurred when a property owner spends money to upgrade a building in an effort to add value and/or extend the useful life of the building?
Capital Expense
Why is it important to screen prospective tenants and to conduct credit and reference checks?
It is the best way to protect the owner’s investment.
What can the property manager legally ask for from a prospective tenant to confim that there are not financial issues that might be problematic?
Employment, previous rental history, credit history
Meeting tenants’ needs and addressing their concerns, resolving disputes fairly, and keeping the property maintained, safe, and desirable so that the owner’s return on investment is as expected.
Tenant Relations
Which fee typically covers basic services, like accounting, reporting, and tenant screening?
The management fee.
What do supervisors need a general working knowledge of to properly maintain HVAC, electrical, and plumbing in a building?
building systems
Property management positions with large firms often require what kind of degree to ensure candidates have a thorough knowledge of general accounting principles (GAO), financial reporting, and basic knowledge about day to day duties of operating a business
BA in Business Administration
A maintenance task performed to identify, isolate, and rectify a problem with a property so that the property can be restored to an acceptable condition.
Corrective maintenance
An amount of money set aside by the owner for a specific period for the property manager to manage the property effectively
Operating Budget
The operational duties that include collecting, depositing and disbursing rent, and detailing expenses on operating statements
Manager accounting responsibilities
Mall managers may offer special pricing and incentives to these types of stores because they attract more consumers with brand recognition
Anchor stores
Three weeks after Justin signed a management agreement with a local property management company, a tornado ripped through the area, totally destroying the building. He should be able to get out of the contract if the agreement included what clause?
Early termination clause that requires the property to be habitable
An estate in real property wherein there is an undivided interest in common in a portion of real property coupled with a separate interest in space called a unit, the boundaries of which are described on a recorded final map, parcel map, or condominium plan
Condominium
An apartment building, owned by a corporation and in which tenancy in an apartment unit is obtained by purchase of shares of stock of the corporation and where the owner of such shares is entitled to occupy a specific apartment in the building.
Cooperative
A structure transportable in one or more sections, designed and equipped to contain not more than two dwelling units to be used with or without a foundation system.
Mobile Home
A system for the construction of dwellings and other improvement to real property through the on-site assembly of component parts (modules) that have been mass-produced away from the building site
Modular
A form of sub-division of real property into rights to the recurrent, exclusive use or occupancy of a lot, parcel, unit, or segment of real proerty, on an annual or some other periodic basis, for a specified period of time.
Time-Share
Monetary gain resulting from the increase in the market value of an investment, excluding additions of capital. For example, a house which sold five years after it was purchased for 50% more than the purchase price.
Appreciation
At resale of a capital item, the amount by which the net sale proceeds exceed the adjusted cost basis (book value). Used for income tax compuations & are called “short” or “long” based upon the length of the holding period after acquisition. Usually taxed at a lower rate than ordinary income.
Capital gains
A method of depreciation under which improvements are depreciated at a constant rate throughout the estimated useful life of the improvement.
Straight Line Depreciation
The trade or exchange of one real property for another without the need to pay income taxes on the gain at the time of trade.
Tax-Deferred Exchange
Types of closing costs that are tax deductible are _____ & _____, while _____ are not tax deductible.
Discount Points & Loan Origination Fees / Origination Points
Include charges for property inspections, a title search, lawyer fees, notary public services and other add-ons, all of which are not tax deductible items
Origination points
Types of points that qualify as depreciation expenses, which can be amortized along with certain other expenses of buying, building, or improving real estate holdings over the life of the real property
Discount points and origination points
Type of insurance coverage usually only required on conventional loans with a down payment less than 20% or a refinance with less than 20% equity.
Private Mortgage Insurance (PMI)
What type of loan offers a low down payment option for home buyers?
FHA insured loan
What happens if there is a tax for the city and the school district?
The tax rate is equal to the city tax plus the school tax
Patty is working with a commercial real estate investor. While touring an older manufacturing property, the client mentions that much of the equipment will have to be updated in a few years because it is fast becoming obsolete. Which depreciation method did Patty most likely bring up during this discussion because it depreciates assets based on wear and tear, obsolescece, and damage?
Alternative Depreciation System
Why do property buyers need to worry about tax liens?
They may be responsible for paying the lien after taking ownership of the property
What types of properties are not subject to property taxes?
Government buildings, educational buildings, and nonprofit buildings
Who is responsible for updating the assessed value of a property?
The local tax assessor
What can a homeowner do if they feel their property is over assessed?
Protest the assessment
George has done some research about insurance policies online. He is planning to add more rental properties to his portfolio this summer and asks his agent if she knows whether he will qualify for replacement value cost (RVC) NFIP coverage. How will the agent respond?
No, because in order to qualify for RVC coverage, George must live in a home 80% of the time.
While explaining the differences in insurance options, Kelly tells a potential buyer that she has a homewners policy that covers the total loss up to a maximum value. So, if her home is covered, what will the insurance company do?
Reimburse her (or the morgage company) the maximum amount listed in her policy, regardless of repair costs.
What type of tax statement includes assessments from a variety of agencies such as school taxes, water district taxes, road and bridge fees, and both city and county property taxes?
An annual combined appraisal district tax statement
What type of tax statement includes assessments from a variety of agencies such as school taxes, water district taxes, road and bridge fees, and both city and county property taxes?
An annual combined appraisal district tax statement
An investor has several multi-family buildings he wants to sell in the next year. His real estate agent tells him that he can force the appraised value to rise by doing what?
Adding amenity packages based on trends in the local area.
A seller has accepted an offer from John. John wants to remodel and add an outdoor pool when he has enough equity built up to cover the project. Which loan arrangement will help him build equity faster than the others?
Making a 40% down payment upfront
Don is a real estate agent working with a retired Marine who plans to purchase her first home. His client admits she doesn’t have a large nest egg for a down payment but has an exceptional credit history and earns an above-average salary in a civilian job. Why would Don recommend a VA loan over an FHA loan?
The VA offers 100% financing
What does 10 mills equal?
1 percent of the assessed value of the property
What is the major difference between a mobile home and a modular home?
Modular homes are built on-site
When should a property owner challenge an assessed value?
When they can back up the value of the home in another way
What things can change the tax rate from year to year?
the budget needs of the local taxing jurisdiction.
A list of the three most common homeowner policy coverage areas:
-Buildings
-Building contents
-Medical coverage for people who are hurt in the property
Candice wants to buy a new home. She doesn’t have a lengthy credit bureau file and s looking for a loan vehicle that will not require a large down payment. She is surprised to learn that the _____ considers non-borrower income and nontraditional credit sources when reviewing mortgage applications.
Fannie Mae HomeReady mortgage program
Carolyn found a home that she can afford. It is not in a known flood plain, and she doesn’t want to buy flood insurance since her mortgage lender doesn’t require it. What reasons would her agent recommend purchasing flood insurance anyway?
-Policies are lower in low-risk areas
-Coverage is minimal compared to the average residential claim related to flood damage
-The price of the average flood insurance policy through NFIP is only $700/yr
While talking to a client about non-federal tax liabilities, Dana mentioned local property taxes. She told her client that tax assessments are based on _____, but every district offers discounts to certain groups, such as people over 65 and permanently disabled individuals
Market Value
What is a designated special assessment district?
An area responsible for paying a special tax assessment.
A buyer is looking for a multi-family option that includes common area maintenace and will allow him to take advantage of tax incentives for homeowners. Why might his agent recommend he choose a condo over a co-op?
Cooperatives are never fully owned, you only purchase the exclusive right to use
Peggy does not have any savings other than $126,000 in a 401k. what IRS rules will affect whether she can use any, or all, of her retirement fund to purchase a home?
-She can withdraw up to $50,000 to spend on a home purchase
-She can use 401k savings for a down payment or to buy down points
-She will avoid taxes and fees as long as she makes all payments on time, including interest
Brenda has lived in her home for ten years. Her job is transferring her to another state, and she can’t decide whether to convert her home to a rental property or sell it outright. Her real estate agent reminds her that if she sells her property, she can deduct mortgage origination points when reporting _____ on her federal taxes.
Capital Gains or Losses
What is the millage rate?
It is the same thing as the tax rate
The IBC classifies any structure with occupied living space higher than 75 feet above _____ as a high-rise building.
the lowest level of fire department access
What types of property taxes are homeowners likely to pay?
Local government, county, and school district related taxes
Most homeowners insurance policies cover specific events that fall into what two different categories?
Perils and non-perils
How much can sellers offer in concessions for VA loans?
up to 4%
David is talking to a prospective buyer about estimating how much money he will have to gather up prior to closing on a $312,000 home with a $250,000 loan. Assuming the PMI is 1%, how much should he add to cover the full PMI coverage?
250,000 * 0.01 = $2500
Lisa is a real estate agent who also helps clients lease single-family homes. She advises every potential tenant to purchase HO-4, aka _____, because it is a perils content policy
Tenant Coverage
A lien imposed by law upon a property to secure the payment of taxes
Tax Lien
An assessment made against a property to pay for a public improvement by which the assessed property is supposed to be especially benefited
Special Assessment
A geographic area in which the market value of real etate is enhanced due to the influence of a public improvement and in which a tax is apportioned to recover the costs of public improvement
Special Assessment Districts
A horizontal structural element. Joists, trusses, and girders are examples of these
Beam
A vertical structural element
Column
A block of hardened concrete, with or without hollow cores, designed to be laid in the same manner as the brick or stone. Commonly used in load-bearing exterior walls
Concrete Masonry Unit (CMU)
A thin, continuous sheet of metal, plastic, rubber, or waterproofing used to prevent the passage of water through a joint in a wall, roof, or chimney.
Flashing
The widened part of a foundation that sperads a load from the building across a broader area of soil.
Footing
The portion of a building that has the sole purpose of transmitting structural loads from the building into the earth
Foundation
Depth in the earth to which the soil can be expected to freeze during a severe winter.
Frost Line
One of a parallel array of light, closely spaced beams used to support a floor deck or flat roof.
Joist
A beam that carries the load of a wall across a window or door opening. Also referred to as a header.
Lintel
Walls that support the floor or roof of a building. They are considered structural walls and help transfer the load of a building down to the foundation and footings.
Load Bearing Wall
The portion of exterior wall that projects above the level of the roof.
Parapet
An interior non-load bearing wall. typically comprised of wood or metal studs with gypsum board on either side.
Partition
A structural wall that is shared between two adjoining properties. Commonly built using concrete masonry units; however, many older buildings use brick
Party Wall
A framing member that runs up and down the slope of a steep roof
Rafter
A type of roof covering that consists of individual overlapping elements. These elements typically consist of wood, slate, asphalt, metal, plastic, or composit material
Shingled Roofing
The strip of wood that lies immediately on top of a concrete or masonry fundation in a wood frame construction. Also refers to the horizontal bottom portion of a window
Sill
Roofing systems that are composed of insulation, a single-ply membrane, flashing, and adhesive. the three most common types of these membranes include TPO, EPDM, and PVD
Single-ply Roofing
One of an array of small, closely spaced parallel wall framing members, made of wood or metal
Stud
A vertical layer of masonry that is one masonry unit thick
Wythe
Wood members that are cut to pre-defined size and used in framing wooden buildings
Dimensional Lumber
What should be provided beneath the basement floor slab to help prevent moisture from entering the basement?
Vapor Barrier
What should be applied to the outside face of foundation walls in buildings that have basements?
Waterproofing
The primary support of a stair, located on each side of the stair
Stringer
A type of flooring system that utilizes pipes or tubing carrying hot water, or electric resistance heating cables
Radiant flooring
Where are roof drains located?
The low points of the roof
A material of low permanence that prevents moisture from entering a cold space where it can condense into a liquid
Vapor Retarder
A brick veneer wall typically uses what type of drainage system?
Rainscreen
What is the typical width of a foundation wall?
12 inches
these are the major categories of cold-formed metal framing:
- U members
- S members
- F members
What is used to frame around a floor opening in a cold-formed metal frame building?
Box beam
If the slope of a roof is 6:12, how many inches of rise will there be for ever foot of run?
6 inches
Vapor retarders can be made of these materials:
-Aluminum foil
-Treated paper
-Polyethylene film
What are roof rafters covered by that enhances the stiffness of the roofing system?
Sheathing
Made of galvanized sheet steel that is rolled or pressed into shapes that can be used for construction.
Cold-formed metal framing
Sub-flooring in wood frame construction typically consists of this material.
Plywood
What horizontal structural member supports a floor?
Joist
What is the most common type of roof shingle?
Asphalt shingles
Also referred to as a lintel
Header
The overhanging lower edge of the roof rafter, over the exterior wall
Eave
The widened part of a foundation that spreads a load from the building across a broader area of soil
Footing
If the footing of a building is above the frost line, what will it be exposed to?
Expansion and contraction of the soil water
The vertical face of a stair
Riser
Non-load bearing walls that are used to form the spaces of a building. Made of cold-formed metal framing or wood framing, and finished wth gypsum board.
Interior partitions
Where should handrails be mounted for stairs?
34”-38” above the stair treads or nosing
Included in large spaces at the perimeter of a wood floor, along the wall, that allows for expansion and contraction.
Expansion joint
The minimum slope of a tile roof
4:12
Types of seams used in copper roofs
Standing seam and lap seam
Metal roofing seam made by folding the adjoining edges against each other, then folding their upper portion over in the same direction.
Standing Seam
Made by folding up the adjoining edges of metal roofing against each other, folding them over, and flattening the interlock.
Lock Seam
Metal roof seam created when two overlapping edges of metal roof panels are joined together, secured with fasteners and sealed with a sealant.
Lap Seam
Minimum slope of a metal roof
3:12
Helps expel solar-heated air from the attic or roof, which reduces the cooling load for the building. Also helps prevent ice-dams from forming on the roof by maintaining a cold roof temperature
Roofing Ventilation
A low protective wall that aligns with the exterior walls of a building. Often they are simply an extension of the exterior wall.
Parapet
The load of the building itself, consisting of the weight of the materials used to construct the building plus and permanent fixtures. aka: gravity load
Dead Load
Temporary loads imposed by people, furniture, or the weather (wind or snow)
Live Loads
Type of rafter used at the diagonal intersection of planes
Hip rafter
Rafters of a slope roof are fastened to this at the top of the roof.
Ridge Beam
What are foundation walls typically constructed of?
Cast-in-place concrete
When cold-formed metal joinsts are used in a building, what may be used for sub-flooring in place of plywood?
Concrete metal deck
What may be required if a copper roof has a slope of less than 3:12?
Soldered seams
Rather than being supported by rafters, what are flat roofs supported with?
Joists
What does a brick veneer wall include, which helps allow water that entered the building cavity to drain back out to the exterior?
Weep holes
These are all benefits of using wood construction
-Minimal heat loss
-Renewable material
-Quicker to build
party walls are typicaly built of what material?
CMU
The 4 parts of a listing contract:
- Duration of the listing contract
- Sales Price
- Sale Commission
- Exceptions to commission
A listing agreement employing a broker as the sole agent for the seller of real property under the terms of which the broker is entitled to a commission if the property is sold through any other broker, but not if a sale is negotiated by the owner without the services of an agent.
Exclusive Agency Listing
A listing agreement employing a broker to act as agent for the seller of real property under the terms of which the broker is entitled to a commission if the property is sold during the duration of the listing through another broker or by the owner without the services of an agent.
Exclusive Right to Sell Agreement
An employment contract between principal and agent authorizing the agent to perform services for the principal involving the latter’s property. They are entered into for the purpose of securing persons to buy, lease, or rent property.
Listing Agreement
A listing which provides that the agent may retain as compensation for the agent’s services all sums received over and above a net price to the owner
Net Listing
An authorization given by a property owner to a real estate agent wherein said agent is given the nonexclusive right to secure a purchaser. This right may be given to any number of agents without liability to compensate any except the one who first secures a buyer who meets the terms of the listing.
Open Listing
What should an agent do if the seller wishes to list their property at a different price than is suggested, despite being given an explanation and CMA?
List the property for sale as requested by the seller.
An analysis of the competition in the marketplace that a property will face upon sale attempts
Comparative Market Analysis (CMA)
Your client added a pool, central air, and skylights that can increase the value of a property. These would go into what category of a CMA?
Additions and upgrades
This clause prevents the seller from canceling a listing agreement without the real estate agent’s written agreement.
Termination clauses
These types of properties should NOT be used as a comparable property in a CMA:
-Short sales
-Foreclosure auctions
-properties sold at a much higher price than the target property
These features will require adjustments to the value of the target property when conducting a CMA:
-Number of bedrooms
-Size of the property
-Condition of the property
A house sells and two months later, the new owners contact the sellers reporting a leaky upstairs bathroom. The seller admits to knowing about the issue and that he covered it up, and is now refusing to pay for damages since it didn’t come up in the inspection. Is the seller responsible for paying for this damage?
Yes, since they lied about the material defect prior to the sale, the new owners have a good chance of getting the money from the seller.
If a licensee represents both the seller and the buyer, or landlord and tenant, and also presents alternative properties to prospective buyers and tenants, are they in breach of duty to the seller or landlord?
No, they are are permitted to represent both parties as long as they are showing other people’s properties as well. They may need to have both parties sign a waiver, should a contract be forged.
A broker spreads rumors about the declining value of homes in the area, attempting to get owners to sell cheaply. This causes some sellers to sell their homes at lower prices not related to the intrinsic value of the real estate. What is the term used to describe this bad faith transaction?
Panic Selling
An agent has four comparables in a CMA he is working on: $100,000, $300,000, $302,000, $298,000. Which one should he consider discarding before giving the CMA to his client?
$100,000
A broker signs an Exclusive Right to Sell Agreement with a seller for a duration of 6 months. Two weeks later, Malia finds a buyer through another broker and tells Justin the listing agreement is null and void. Is justin owed a commission?
Yes, an Exclusive Right to Sell Agreement entitles him to a commission regardless of whether he finds the buyer or not.
These are all required in a written agreement signed by a broker and principal where the consumer may pay a fee or commission to the broker:
-Commissions and fees
-Notification that a Real Estate Recovery Fund exists and information on how to contact them
-Notice to all parties of any agency relationship that exists between the broker and the buyer or seller
These are all provisions of the Truth-in-Advertising laws pertaining to real estate:
-If ‘sales volume’ or ‘production’ are mentioned, list only closed transactions
-Production and ‘market’ position claims must identify the municipality of the market
-if the number of offices are listed, then only include branch offices licensed by the Commission
A sold listing that has had the fully executed deed delivered
closed transaction
These are all prohibited acts under the PA real estate law:
-Not providing copies of the listing, sale, lease, or other contracts to everyone who signs them
-Representing more than one person in a transaction without written consent
-Placing ‘for sale’ or ‘for rent’ signs or advertising any property without written consent of the owner
A kind of agreement that means two parties agree that services will be performed, but more than one party may be contracted to perform the same services.
Non-exclusive agreement
The sum of all adjustments made to a comparable property
Net adjustment
An association of real estate agents providing for a pooling of listings and the sharing of commissions on a specified basis
Multiple Listing Service (MLS)
Before an open house, these are the steps to take:
Communicate with the seller: choose dates/times, clarify goals, manage expectations
Consider your target buyer: what type of person is likely to want the home?
Evaluate the property: what cleaning/decluttering needs to be done? Should it be staged with furniture? when is the lighting best?
Advertise the open house: mailers, social media, newspapers, reach out to agent contacts
On the day of the open house, these are the things you should do:
Set-up: arrive early & double-check the house, put out sign-in sheet/guest book & business cards
Talk to everyone: encourage people to leave their info, ask them about their home buying/selling plans.
Have a pre-created tour of the house and info to send each person directly after the open house ends.
An effective real estate agent website includes the following:
-A well written bio emphasizing what makes you stand out as an aent
-A professional photo
-All of your listings, including those that have sold, are in contract, closed, and available for sale
-Contact information: phone number & email, and a contact form for potential clients
Which of the following platforms has typically been the most effective way to share information regarding a property?
Multiple Listing Service
The MLS requires all of this information on listings
-Listing price
-Listing Expiration date
-Property class
-Property info: Address, County/State, School district, #bedrooms, #bathrooms, patio, garage, pool, etc
This is a software that allows agents to integrate MLS listings on their website
IDX
An agent who represents the buyer in a real estate transaction
Buyer agent
Basic duties for a buyers agent include:
-Finding the appropriate property for the buyer
-Negotiating an offer with the listing agent
-Resolve setbacks that come up in the process
-Recommend other professionals when needed
Fiduciary duties that the seller’s agent owes to the buyer as a customer include:
-Full disclosure of material facts
-honesty
-reasonable skill and care
Any fact that may have a significant and reasonable impact on the market value of the property
Material Defect
The buyer’s agent owes the following duties to their client, including:
-Obedience
-Loyalty
-Disclosure
-Confidentiality
-Accounting
-Reasonable Skill & Care
This type of fraud is the intential failure to reveal a material fact that impacts a real estate transaction
Passive Fraud
intentionally hiding a property flaw just to make a sale results in this:
Fraudulent misrepresentation
These are possible consequences of making incorrect statements that could be considered fraudulent:
-Loss of license
-Civil court penalties
-Regulatory sanctions
This type of fraud happens when a real estate licensee makes a claim that they know is false
Active fraud
These are the three kinds of misrepresentations in real estate:
Fraudulent, negligent, innocent
Intentional misrepresentation is also known as:
Active fraud
It is difficult to prove false advertising because the consumer has to show that the statement was:
Deceptive
Intentional non-disclosure is also known as:
Passive Fraud
Making a statement that is not intentionally wrong, but is not correct because the agent or broker fails to confirm the accuracy prior to making the false statement
Negligent misrepresentation
As an agent, your buyer will rely on your expertise in specific neighborhoods to help guide their decision. How should you best manage this relationship?
There should always be an honest assessment of the relative pros and cons of an area
T/F: IF defects are found by the buyer after the preilminary inspection, but not brought to the attention of the seller, the buyer cannot sue for material defects at a later date.
True
You are a broker representing buyers of real property. Prior to the sale, you collect $300 for an inspection of the property. You are legaly required to keep this money in a separate account set aside for the transaction. You cannot commingle this money with any personal or business acounts urelated to the sale. to do so would be a breach of the fiduciary duty of _____, which you owe to the buyer, your client.
Accounting
T/F: The buyer’s broker has no duty to inspect the property since they do not have expertise in the fields needed to do so.
True
This party can be held financially responsible for material defects if they do not make them known before a closing.
Seller
A marketing tactic where a salesperson or marketing material exaggerates a property’s features or benefits to attract buyers. The tactic is legal because it is considered more of an opinion than a factual misrepresentation
Puffing
A written agreement or contract between seller and purchaser in which they reach a “meeting of the minds” on the terms and conditions of the sale.
Agreement of Sale
A response to an offer to enter into a contract, changing some of the terms of the original offer. It is a rejection of the original offer and does not create a binding contract unless accepted by the party who made the original offer.
Counter Offer
Generally, an agreement to agree. It outlines the terms between parties who have not formalized an agreement into a contract. They are not binding and cannot be enforced.
Letter of Intent (LOI)
Elements required for the formation of a legally binding contract involving the invitation to act on certain terms by one person to another person and an indication by that person to adopt those terms.
Offer and Acceptance
A state law, based on an old English statute, requiring certain contracts to be in writing and signed before they will be enforced at law, e.g., contrat for the sale of real property
Statute of Frauds
the illegal mixing of personal funds with money held in trust on behalf of a client.
Commingling
The misappropriation of another’s property, such as if an agent keeps money meant for holding in escrow
Conversion
Additional pages of material that are added to and become part of a contract.
Addendum
An action to compel performance of an agreement, e.g., sale of land as an alternative to damages or recission.
Specific Performance.
The substitution or exchange of a new obligation or contract for an old one by the mutual agreement of the parties.
Novation
A sum agreed upon by the parties to be full damages if a certain event occurs.
Liquidated Damages
A seller sells real estate to a buyer. According to the real estate contract, the seller was required to pay off all liens prior to closing, but has not done so. The closing is completed, the buyer has the deed, and the seller has the money. Has there been full performance?
No, this is partial performance.
A contract to make another contract
Collateral contract
Under what circumstances could a buyer be entitled to compensatory damages?
If there is damage to the property that is discovered after the closing.
Jess is interested in buying Sam’s real estate. They enter into a contract. The contract allows Jess to inspect the property. While inspecting the property, Jess damages a water pipe and causes $10,000 damage to the house. What type of damages can Sam claim?
Compensatory damages
What is an amendment?
A document that changes the term of a contract
When a buyer is unable to obtain a mortgage as stated in the contract and the contact is canceled, it is an example of what?
Termination by contingency.
Stan is selling his real estate to Brian pursuant to a real estate contract. Brian’s attorney examines the title and finds that there is an easement on the property that will not allow it to be sold and used for the purpose that Brian needs. The contract allows Brian to back out if there is a significant title problem. What remedy is available to the seller?
None. The contact will be canceled for impossibility and contingency
What are the two types of damages generally available for breach of contract?
Compensatory damages and liquidated damages
What is the result when a contract is terminated?
The contract is void and has no legal affect.
What penalties could a licensee face for unauthorized practice of law?
Suspension or loss of their license
What are the public policy grounds for making specific performance a rare remedy?
Courts do not want to force people into transactions that they do not want to join into & will opt for a monetary remedy where available
When the contract cannot be performed because of an event beyond the control of the parties.
Impossibility of performance
What is required to obtain liquidated damages?
A liquidated damages clause in the contract.
If the buyer on a real estate contract refuses to close for no valid reason allowed by the contract, what remedy is available to the seller?
The seller gets to keep the earnest money as damages
What prevents the buyer from backing out of a real estate contract?
Earnest money
Jim is a seller on a real estate contract, and Bill is the buyer. Jim receives the purchase price from Bill, and Jim hands Bill a deed for the real estate, but Jim did not sign it. What remedy is available to Bill?
Specific performance to sign the deed. The parties clearly wanted the transaction to go forward.
What is contained in a letter of intent?
The basic terms of the real estate contract.
What is usually the result of a situation of impossibility of performance of a contract?
Both parties go their separate ways in the condition before the contract was signed.
When do damages usually occur in a real estate closing?
When the real estate contract is breached.
What is the name of the process when a contract is canceled by both parties?
Termination by mutual agreement
Real estate is being sold, and the parties agree that some of the personal property will remain with the home, but some of it will not. What is the best way to handle this situation?
An addendum lising the personal property.
Brian and Seth ask licensee Larry to help them draft their real estate contract. Seth asks Larry about what would happen if he cancels the contract before the closing, and Larry tells him that he could get sued or may have to pay money. Was this a legal exercise of the licensee’s job?
No, it is unauthorized practic of law to give legal advice.
If the seller in a real estate contract fails to appear for the closing, and has not taken any of the purchase price, what remedy is available to the buyer?
Receiving a refund of the earnest money
What can be enforced due to partial performance of a contract?
Specific performance or termination of the contract
How would a corporation sign a real estate contract?
Through an agent appointed by the corporation, usually a corporate officer
In theory, can a real estate contract be written on a napkin?
Yes, if all the required terms are there.
What could happen to a party that does not follow a court order for specific performance?
Sanctions from the court or imprisonment.
Gary is selling his real estate. There are numerous liens on the property because Gary is really bad about paying his debts. Deb wants to buy the property and demands that Gary pay off the liens before title passes. What is this called?
Condition precedent
Jim and Evan enter into a real estate contract. The contract allows evan to get a mortgage at 5% interest. But after due diligence, Evan can only get a mortgage at 8% interest. What will happen to the real estate contract?
Termination by contingency
If the escrow agent cannot determine who gets the earnest money, what can he do?
File an interpleader case in court and let a judge decide.
When can extrinsic evidence be used in court?
If there is an ambiguity within the contract itself.
Bret is the buyer on a real estate contract. He’s obligated to pay $100,000 to buy a new home. However, for other reasons, Bret goes into bankruptcy. What will likely happen to the contract?
The trustee will terminate the contract by operation of law
How can the insurance contingency cause a contract to be canceled?
If the buyer cannot obtain title insurance because of a defect in the title.
If a bankruptcy is discharged, what happens to payment obligations under a contract?
Payment obligations are canceled
When part of an expense related to the property is divided by the buyer and seller based on the closing date.
Proration
The interest earned by an investor on an investment (or by a bank on money it has loaned)
Yield (aka return)
What does PITI stand for?
-Principal
-Interest
-Taxes
-Insurance
A person whose principal business is the originating, financing, closing, selling, and servicing of loans secured by real property for institutional lenders on a contractual basis.
Mortgage Banker
A broker who arranges a mortgage loan between a lender and a borrower for a fee.
Mortgage Broker
A mortgage securing a loan made by investors without governmental underwriting, which is not FHA insured or VA guaranteed. This type of loan is customarily made by a bank or savings and loan association.
Conventional Loan
The percentage of a property’s value that a lender can or may loan to a borrower
Loan to Value Ratio (LTV)
Mortgage guarantee insurance available to conventional lenders on the first, high risk portion of a loan.
Private Mortgage Insurance (PMI)
A fully amortizing loan in which the interest rate on the note remains the same throughout the term of the loan.
Fixed-rate mortgage
A straight, non-amortizing loan in which the lender receives only interest during the term of the loan and principal is repaid in a lump sum at maturity.
Interest-only mortgage
A mortgage loan which bears interest at a rate subject to change during the term of the loan, predetermined or otherwise.
Adjustable Rate Mortgage (ARM)
A mortgage loan in which payments are insured byt the Federal Housing Administration
FHA-insured loan
The amount paid by a mortgagor for mortgage insurance on an FHA-insured loan.
Mortgage Insurance Premium (MIP)
A loan made to qualified veterans for the purchase of real property wherein the Department of Veterans Affairs guarantees the lender payment of the mortgage.
VA guaranteed loan
A type of loan used to fund the purchase of more than one piece of real property. Often used for subdivision financing.
Blanket Mortgage
Obtaining a lower interest rate by paying additional points to the lender
Buydown
A loan secured for real estate, which is for the purpose of funding the construction or improvements of buildings upon the property.
Construction Loan
A method of financing in which the loan that finances the purchase of a home also finances the purchase of personal items such as a washer and dryer, refrigerators, stove, and other specified appliances.
Package Mortgage
A form of secondary financing for the purchase of real property. The seller extends to the buyer a junior mortgage which wraps around the exisiting one in addition to any superior mortgages already secured by the property.
Wrap-around Mortgage
A step above pre-qualification, an evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan from a lender, or the maximum amount that the lender would be willing to lend.
Pre-Approval
A process whereby a loan officer takes information from a borrower and makes a tentative assessment of how much the lending institution is willing to lend them
Pre-qualification
An individual at a lending institution who determines credit worthiness in order to qualify an applicant for a loan
Underwriter
The criteria with which a lender determines the credit worthiness in order to qualify them for the loan
underwriting
What is in the loan commitment letter?
It identifies the borrower, conditions of the loan, interest rates, and financial terms.
Who establishes the criteria for owner financing?
The buyer and seller work out terms
If Jeff wants to obtain a VA loan, where does he apply for it?
After getting a Certificate of Eligibility from the VA, he can work through any VA approved lender.
Can wraparound loans help your buyer purchase a home?
Yes, but this is a type of owner financing that the lender must approve.
Matt has a pre-qualification letter from a lender. Has he been approved?
Not, it means he’s supplied information, but that information is not yet verified. He must have a pre-approval letter once the lender evaluates the info.
What is a mortgage banker?
A middleman that packages and sells loans to third parties, but also manages payments
What is the biggest difference in credit unions and typical banks?
Credit unions are member-owned, and not profit-driven organizations
If you receive an offer from a mortgage broker, will your loan come from that broker?
Not necessarily, mortgage brokers work with numerous lenders and the mortgage could come from multiple sources.
What is the collateral in a blanket mortgage?
Whatever asset the buyer uses to obtain the loan, such as another home’s equity
Why is the Uniform Loan Application important?
It provides information that backers of loans, such a Fannie Mae and Freddie Mac require.
What is the most commonly used mortgage application?
THe 1003 mortgage application aka Uniform Loan Application
Jack is ready to buy a home and can make a 10% downpayment. Can he qualify for a conventional loan?
Most often, conventional loans require 20% down
If Bob just got a job, could he qualify for a home loan?
In some cases, if he has a down payment and a good credit score.
When the seller is willing to accept payments from the buyer over time to purchase the home.
The seller purchased a Money Mortgage
Your home buyer has a credit score of about 600. What type of loan should they apply for?
FHA loans only require credit scores of at least 500
How can you explain to Dave why his lender is charging him more for a home loan than his friend?
Like with stock market, lenders assign risk to each investment. high risks have to yield a high return. Higher interest rates are charged to high-risk borrowers.
If Jessica wants a stable monthly payment, what should she look for in a loan?
A fixed interest rate loan
Can private mortgage insurance be canceled later?
Yes, after the borrower proves he will maintain his loan payments and accumulates equity in the home.
Are commercial banks a good bet for your buyer who wants to sit down and talk to an agent?
No, they could be located nationwide and typically don’t have actual branches.
Should high-risk borrowers work with a mortgage broker?
Yes, they have accesss to numerous lenders including high-risk lenders.
If Nora fails to make a payment on her loan but has private mortgage insurance, will that stop foreclosure?
No. PMI pays a fee to the lender, but it does not stop foreclosure nor compensate for the entire amount lost.
What impact does a high-valued home have on the cost of a loan?
A higher valued home is more risk, increasing the potential interest rate and costs.
If your buyer has pre-approval for a VA loan, can he buy a home in need of significant repairs?
Potentially, but VA loans require a home inspection and must meet safety standards
What makes credit unions less expensive?
Credit unions don’t have middlemen, which can reduce costs
If a home buyer wants an FHA loan, can he get it through a savings and loan association?
Most offer them, but not all favor these loans.
How can your client obtain a loan to build a home?
They can obtain a construction loan through a traditional mortgage lender
Are conventional loans risky to lenders?
Yes, they carry more risk than federally backed programs
With a low down-payment, is a savings and loan association best for a borrower?
It may be one option, but these loans tend to offer only 95% percent of the home loan as financing.
Steve wants to buy a home that’s in pretty bad need of repairs. Are conventional loans a good option?
They can be because other loans have high restrictions imposed by the backers, however interest rates may be higher
Will a borrower need to pay closing costs on their VA loan?
Maybe, but these are often paid by the seller and are typically lower.
The name given to the federal statutes and regulations (Regulation Z) which are designed primarily to ensure that prospective borrowers and purchasers of credit receive credit cost information before entering into a transaction
Truth-in-Lending Act (TILA)
An illegal lending policy of denying real estate loans on properties in older, changing urban areas, usually with large minority populations, because of alleged higher lending risks withot due consideration being given to the credit worthiness of the individual loan applicant.
Redlining
A federal law requiring the disclosure to borrowers of settlement (closing) procedures and costs by means of a pamphlet and forms prescribed by the United States Department of Housing and Urban Development
Real Estate Settlement Procedures Act (RESPA)
Under RESPA, how many days does the borrower have to review the closing disclosure?
3 business days
For first-tier violations under TILA, lenders can pay up to how much in fines?
$5,000
These are all examples of adverse credit actions
-denying a credit increase request
-closing an existing account
-denial of credit to an applicant
-approving a credit application in a lesser amount than what was requested
If a commercial applicant generates more than $1 million in revenue, and asks about an adverse credit decision, the lender must provide a response within how many days?
- The ECOA gives the lender 60 days to respond due to the given circumstances
In what year was RESPA enacted?
1975
The ECOA applies to what forms of credit?
-Car loans
-Credit Cards
-Home Loans
-Small Business Loans
-Student Loans
When a lender applies a neutral policy that results in certain groups being unfairly burdened or excluded, this is referred to as what?
Disparate Impact
How many different types of loans are covered by TILA?
- TILA applies to most types of consumer credit, including closed-end credit (car loans and home mortgages), and open-end credit (credit cards & home equity lines of credit)
When a lender takes action to force an appraisal to come in low
Lowballing
The government has up to how many years to bring a claim for a RESPA violation?
3 years
For how many months must a lender keep the applicants records on file?
25 months
Under RESPA, after the initial escrow report, how often must lender provide borrowers with updated reports?
Annually
If a person feels a violation of Section 8 of RESPA has occurred, how much time do they have to make a claim?
1 year
A right set forth by TILA of a borrower to cancel a home equity loan or line of credit with a new lender, or to cancel a refinance transaction done with another lender than the current mortgage, within 3 days of closing
Right of Rescission
Lenders may ask about alimony payments, however…
The borrower is not required to answer, and the lender must give them notice of this option
The Equal Credit Opportunity Act (ECOA) became law in what year?
1974
After a borrower submits a loan application, the lender has three days to provide which document to the borrower?
Loan Estimate
These are the main four parts of the ECOA
-Definition of discrimination
-Applicant rights
-Reasoning for the credit decision made of the borrower
-Record Keeping
If a person walks into a bank and is told they can’t apply for a mortgage because they are black, this would be an example of what type of discrimination?
Overt Evidence of Disparate Treatment
Creditors who violate the ECOA can be held liable in an individual lawsuit for up to how much?
$10,000
The organization in charge of enforcing TILA
Consumer Financial Protection Bureau
Section 10 of RESPA covers what part of the loan process?
Lender Escrow Requirement
If a person feels that a lender has discriminated against them in the loan process, they can file a claim with what organization?
Department of Housing and Urban Development
If a title company offers you money in exchange for bringing your business there, they are in violation of which section of RESPA?
section 8
If a commercial applicant generates less than $1 million in revenue, and asks about an adverse credit decision, the lender must provide a response within how many days?
30 days.
When an applicant’s approval criteria is “on the line”/middle of the road and the lender has more discretion as to whether or not to issue an approval, they approve for certain types of people and deny for others based on discriminatory reasons
Comparative Evidence of Disparate Treatment
An estimate of the value of property resulting from an analysis of facts about the property. An opinion of value.
Appraisal
One qualified by education, training, and experience who is hired to estimate the value of real and personal property based on experience, judgement, facts, and use of formal appraisal process
Appraiser
Three reasons an appraisal may be used:
-Transfer of Property
-Financial Reasons (refinancing or 2nd mortgage)
-Tax Purposes
Factors that go into determining value in an appraisal:
-Scarcity
-Transferability
-Utility
-Demand
Different types of Property Value:
-Investment Value
-Insured Value
-Value-in-use
-Assessed Value
-Mortgage Value
A valuation placed upon a piece of property by a public authority as a basis for levying taxes on the property
Assessed Value
The value of an asset or asset group that is covered by an insurance policy; can be estimated by deducting cost of non-insurable items (eg land value) from market value
Insured Value
The highest price in terms of money which a property will bring in a competitive and open market and under all conditions required for a fair sale, i.e. the buyer and seller acting prudently, knowledgeably and neither affected by undue pressures.
Market Value
The total dollar expenditure for labor, materials, legal services, architectural design, financing, taxes during construction, interest, contractor’s overhead and profit, and entrepreneurial overhead and profit (may or may not equal value)
Cost
The specific value of an investment to a particular investor or class of investors based on individual investment requirements; distinguished from market value, which is impersonal and detached
Investment value
The ability to transfer ownership of property from one person to another
Transferability
The ability to give satisfaction and/or excite desire for possession. The more useful a property, the higher the value.
Utility
Present worth of future benefits arising out of ownership to typical users/investors
Value
When value is tied to the benefits the property may offer buyers in the future
Principle of Anticipation
When the fluctuation of supply and demand, interest rates, and property conditions have an impact on the value of property
Principle of Change
When supply vs demand, or available houses vs number of buyers affects the values of property
Principle of Competition
When the uniqueness of a home, based on other homes in the area, drives the value down on a property
Principle of Conformity
When the features of a home impacts the value of the property based on what buyers for that type of property are looking for.
Principle of Contribution
When a property at the time of appraisal is most likely to produce the greatest net return to the land and/or buildings over a given period of time; that use which will produce the greatest amount of profit. This is the starting point for an appraisal
Highest and Best Use
When the ability to acquire another property that is both desirable and similar in a short period of time
Principle of Substitution
When the value of the surrounding properties decreases, thus decreasing the value of the properties nearby.
Principle of Regression
When the value of the surrounding properties increases, thus increasing the value of the properties nearby.
Principle of Progression
A valuation method which compares a subject property’s characteristics with those of comparable properties which have recently sold in similar transactions
Sales Comparison Approach
Three steps to the Sales Comparison:
- Property Identification
- Compare the Properties
- Final Valuation
Steps to the Cost Approach of appraisal (and the formula to calculate it):
- Valuation of Land
- Cost of Development
- Depreciation
- The Math Matters
Value = Replacement cost - depreciation + value of land
An analysis in which a value estimate of a property is derived by estimating the replacement cost of the improvements, deducting the estimated accrued depreciation, then adding the market value of the land
Cost Approach
Valuation of the property by using net operating income and dividing it by the capitalization rate
Income Capitalization Approach
The final stage in the appraisal process where the appraiser reviews the data and estimates the subject property’s value
Reconciliation
This figure is calculated using the rental amounts the property is generating and subtracting the normal expenses of the property, not including mortgage payment
Net Operating Income
This rate is determined by the return the investor is anticipated to get on the property.
Capitalization Rate
Appraisal steps for the Income Capitalization Approach:
- Determine Market Rent
- Vacancy and missed payments
- Total operating expenses
- Capitalization Rate
- Determining Value
The use of borrowed capital (mortgage) to increase the potential return of an investment.
Leverage
The idea that money available at the preent time is worth more than the same amount in the future due to its potential earning capacity.
Time Value of Money
When the cap rate of an investment is higher than the interest rate on the mortgage, what will an investor have?
positive leverage
When the cap rate is less than the interest rate of the mortgage, it creates:
Negative Leverage
The income a property produces before debt service and any capital expenditures.
Net Operating Income (NOI)
The rate of return on a real estate investment based on the NOI of a property
Capitalization rates (CAP rates)
The formula for calculating CAP rates:
CAP rate = NOI/ Purchase price (or current market value)
Cash on Cash Return. The annualized return an investor will earn on ther initial cash investment
Return on Investment
IF an investor were to purchase a property using all cash, the return on investment would equal:
The capitalization rate for year one
Income earned from laundry facilities at a rental property will be included under which of the following line items?
Other Income
IN what cases is the cost approach to appraisal used?
-FNMA Manufactured Housing Loans
-Special use buildings
-Property in the process of bieng built or rebuilt
What is the purchase price of a property if an investor were to earn a 10% cash-on-cash return on $350,000 in cash flow after year one?
350,000 * 10 = 3,500,000
Which valuation method is commonly used to value residential properties?
Sales Comparison Approach
IF three homes used for comparison all have different square footae, what does the appraiser do?
get the average square feet and cost per square foot for the new property
An investor is looking to purchase a property for $3,000,000. if the investor is purchasing at a 5% cap rate, what is the NOI of the property?
3,000,000 * 0.05 = 150,000
An investor’s downpayment on a property is equal to their initial _____ in the property
Equity
What goes into a land valuation?
-Shape
-Size
-Location
-Frontage
This may be used to reduce the taxable income on a property:
Write-off of interest paid on the mortgage
If a property has an effective gross income of $1,250,000 and expenses totalling $680,000, what is the net operating income?
1,250,000 - 680,000 = 570,000
What is the effective gross income of a property that has an NOI of $400,000 and expenses totaling $520,000?
400,000 + 520,000 = 920,000
When a unit is not being rented, what should it be classified as?
vacancy
An investor purchased a property for $2,600,000 using all cash. What is the NOI on the property after year one if the investor earned a 10% cash-on-cash return?
2,600,000 * 0.10 = 260,000
How often is the square foot method of valuation used?
Seldom because it is the least accurate
If an investor purchased a property for $2,000,000 using all cash, what would be their return on investment in year one if the property yielded $260,000 in cash flow?
260,000 / 2,000,000 = 0.13 or 13%
What does unit-in-place value take into consideration?
direct and indirect costs for a specific piece of construction
An office building would be valued using what method?
Income capitalization approach (income method)
The NOI plus the total expenses of a property equals:
Effective gross income
Is data from recent sales enough to establish value?
No, combining recent sales only gives you an estimate
What is the value of a property with an NOI of $320,000 and a going cap rate of 5%?
320,000 / 0.05 = 6,400,000
These items are expenses found on a pro-forma
-Property taxes
-Management fees
-Marketing expenses
Is it necessary to have a lease agreement to determine the occupancy of a commercial property?
No, appraisers can determine whether a property will remain occupied based on average occupancy of similar properties.
What value is used for establising taxes?
Assessed Value
Does it matter if a sale was forced becaue of foreclosure or divorce?
Yes, this is considered a “fire sale” and may not be a true reflection of value
What is an arm’s length sale?
When the buyer & seller are unrelated
What value is most commonly used for commercial property?
Value in use
Can all property be valued using the sales comparison approach?
Typically, this approach is used for residential property
If the home for sale has more bathrooms or additional bedrooms than the homes sold, what does the appraiser do?
Add the value of extra rooms to the value of the home
Formula for cost approach:
Value = Replacement cost - Depreciation + Value of land
The top line in the income section of a pro-forma lists:
Potential gross income
What defines how much risk a property presents?
Capitalization rates: the higher the rate, the more risk
The cost approach is primarily use to value what type of buildings?
Special purpose buildings, like schools, hotels, hospitals, etc
What is a cost approach appraisal?
The cost of buying a property. Defined as an analysis in which a value estimate of a property is derived by estimating the replacement cost of the improvements, deducting therefrom the estimated accrued depreciation, then adding the market value of the land.
Formula to determine how much is paid in interest each year:
Yearly Interest Payment = Loan Amount * Interest Rate
Information needed to determine the monthly payment on a fully amortizing loan
-loan amount
-term of the loan
-interest rate
-factor derived from mortgage payment table
Steps to using the factor number to determine monthly payments on a loan
- get the factor from the mortgage payment table
- divide the loan amount by $1,000
- multiply the factor number
Formula for determining monthly payments (on loan only):
(Loan amount / 1000) * factor# = Monthly principal + interest
Formula for calculating Transfer Tax:
(Purchase Price / 100) * 0.10 = transfer tax
Formula for calculating Intangible Tax
(Mortgage / 500) * 1.50
Formula for calculating Origination Fee:
Origination fee = 1% of loan amount = Loan * 0.01
Formula for Loan to Value Ratio:
Loan amount / Value of home
According to the capital gains tax law, a single person may exclude up to $250,000 in capital gains from taxation on the sale of a home if they have lived in the house for at least:
two of the past five years
