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Real Estate > Principles of Real Estate 2 > Flashcards

Principles of Real Estate 2 Flashcards

1
Q

Yearly Interest Calculation

A

Yearly interest= Interest Rate x Principal

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2
Q

Compound Interest Calculation

A

Compound Interest Future Value= Principal(1+Interest Rate)^periods

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3
Q

Loan-To-Value Ratio

A

Percentage of value lender is willing to finance

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4
Q

Ad Valorem Taxes Calculation

A

Annual Taxes= Assessed Value x Tax Rate

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5
Q

Points

A
  • Point is 1% of loan amount

- Point Value= Percentage Points x Loan Amount

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6
Q

One Acre

A

43,560 square feet

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7
Q

Area of Rectangle

A

Length x Width

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8
Q

Area of Triangle

A

1/2 Base x Height

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9
Q

Commission Value

A

Sales Price x Commission Percentage

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10
Q

Useable Area

A

% x Total Area

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11
Q

Seller’s Net

A

100%- Commission Rate x Sales Price

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12
Q

Appreciated Value

A

100%+Appreciation% x Original Cost

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13
Q

Depreciated Value

A

100% - Depreciation% x Original Cost

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14
Q

Profit

A

% x Original Cost

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15
Q

Sales Price

A

% x List Price

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16
Q

Assessed Value

A

% x Market Value

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17
Q

Monthly PITI

A

Qualifying Ration x Gross Monthly Income (GMI)

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18
Q

Net Income

A

Capitalization Rate x Market Value

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19
Q

Volume

A

Length x Width x Height

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20
Q

Appreciation

A

increase in value due to market forces

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21
Q

Ad Valorem Taxes

A
  • according to value

- per hundred or thousand (mills)

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22
Q

Special Assessment Tax

A

providing benefits such as curbs

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23
Q

Municipal Improvement Tax Bill

A

until improvement is paid for or permanent

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24
Q

Two Year Right of Redemption

A

has 2 years to pay expenses for tax auction if lose homestead property

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25
Q

Requirements of a valid lease

A
  • Competent Parties
  • Let and Take Agreement
  • Adequate Consideration
  • Legal Purpose
  • Description of Property/ Street Address
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26
Q

Appraisal Characteristics of Value of Real Property

A
  • Demand
  • Utility- must be able to fulfill need
  • Scarcity- if too abundant, value reduced
  • Transferability- ability to transfer title
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27
Q

Approaches to Appraisal

A
  • Sales Comparison
  • Cost Approach
  • Income Approach
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28
Q

Sales Comparison

A

focused on recent sales in area

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29
Q

Cost Approach

A

how much a new structure of size and type would currently cost

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30
Q

Income Approach

A
  • uses the income the property generates to estimate fair value
  • net income/capitalization rate
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31
Q

Gross Rent Multiplier

A

Sales Price/ Monthly Rent

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32
Q

Tax advantages of real estate investment

A
  • tax-sheltered income- depreciation
  • Favorable capital gains tax treatment- on sale
  • Deferred taxation on exchanges
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33
Q

Government’s Rights in Land

A

PETE

  • Police Power
  • Eminent Domain
  • Taxation
  • Escheat
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34
Q

Police Power

A

right to regulate and control how land is used

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35
Q

Eminent Domain

A

right to take private land for public use

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36
Q

Escheat

A

transferring real estate to the state when a person dies without will or heirs

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37
Q

Certified Commercial Investment Member

A
  • Designation by National Association of Realtors
  • Program for commercial real estate professionals regarded as gold standard
  • 200 hours of course work and experience
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38
Q

Purpose and timing of a buyer’s final walkthrough

A

1-3 days before closing to verify condition of property

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39
Q

Loan Estimate

A
  • Estimate of settlement charges borrower is likely to pay
  • Provided no later than 3 business days after receipt of application
  • Delivered no later than 7 days before consummation
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40
Q

Factors considered by appraisers in addition to the principles of value

A
  • Property and lender information
  • Neighborhood description
  • Site description
  • Improvements to site
  • Analysis of market data (Sales Comparison Approach)
  • Cost Approach Analysis
  • Income Approach Analysis
  • Reconciliation of Values
  • Additional Support Documents
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41
Q

Closing

A

documents signed and funds disbursed

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42
Q

Funding

A

transferring funds to title or escrow

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43
Q

Underwriting

A

evaluating loan application to determine risk

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44
Q

Servicing

A

collecting payments, maintaining records, collecting taxes, remitting funds and following up on delinquencies

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45
Q

Origination

A

process of creating a loan

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46
Q

Consummation

A

contract is executed

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47
Q

Loan Processing

A

build file for underwriting decision

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48
Q

Appraisal Principles

A
  • Highest and Best Use*
  • Principle of Contribution*
  • Principle of Change*
  • Principle of Anticipation*
  • Principle of Substitution*
  • Principle of Conformity*
  • Principle of Increasing and Decreasing Returns*
  • Principle of Supply and Demand*
  • Principle of Regression/ Progression*
  • Principle of Competition*
  • Principle of Balance*
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49
Q

Highest and Best Use

A

legal use that gives highest return in money

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50
Q

Principle of Contribution

A

property’s value is equal to the sum of the contributory value of each of its components

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51
Q

Principle of Change

A

forces of change can be specific or external to the property

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52
Q

Principle of Anticipation

A

purchase price is affected by the expectation of future benefit and appeal

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53
Q

Principle of Substitution

A

value influences by the cost of acquiring a substitute or comparable item

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54
Q

Principle of Conformity

A

value maximized when there is a reasonable degree of homogeneity

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55
Q

Principle of Increasing and Decreasing Returns

A

improve property when the value of the improvement exceeds the cost

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56
Q

Principle of Supply and Demand

A

supply is short, prices go up. Supply high, prices go down

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57
Q

Principle of Regression/ Progression

A

lower-priced properties in the area will cause a decline in value

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58
Q

Principle of Competition

A

absence of competition will cause prices to increase

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59
Q

Principle of Balance

A

mixed land use should result in maximum value for all properties

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60
Q

Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)

A
  • Passed in 1980
  • Clean up sites contaminated with hazardous substances
  • Authority to federal, state natural resource agencies and native american tribes
  • Responsibility to EPA
  • Safe Harbor- may be exempt from liability
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61
Q

Depreciation

A

reduction in value due to deterioration or obsolescence

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62
Q

Physical Deterioration

A

loss in property value due to daily wear and tear

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63
Q

Functional Obsolescence

A

loss in desirability of style, layout, or function of an element of a property over time

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64
Q

External Obsolescence

A

loss in value of property cause by factors outside of the property itself

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65
Q

Types of depreciation considered by an appraiser

A
  • Physical Deterioration
  • Chronological Age
  • Effective Age
  • Functional Obsolescence
  • External Obsolescence
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66
Q

Requirements of a valid deed and transfer of title

A
  • Must have grantor
  • Must have grantee
  • Consideration be given by the grantee to the grantor
  • Must have words of conveyance
  • Legal description
  • Must be executed, signed and delivered
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67
Q

Types of Leasehold Estates

A
  • Estate for years
  • Periodic Tenancy
  • Tenancy at Sufferance
  • Tenancy at Will
68
Q

Estate for Years

A

set term. Survives death and sale

69
Q

Periodic Tenancy

A

renews automatically. Survives death and sale

70
Q

Tenancy at Sufferance

A

tenant occupies against owner’s wishes

71
Q

Tenancy at Will

A

tenant occupies with permission for uncertain time

72
Q

Special Warranty Deed

A

promises to defend title only against claims during their ownership

73
Q

Bargain and Sale Deed

A

no guarantees or warranties. Implies ownership

74
Q

Quitclaim Deed

A

no guarantees, warranties or covenants. Does not claim to own property

75
Q

Gift Deed

A

consideration is love and affection

76
Q

Guardian’s Deed

A

minor’s interest is conveyed

77
Q

Sheriff/Trustee’s Deed

A

foreclosure

78
Q

Correction Deed

A

corrects error in previous deed

79
Q

Tax Deed

A

property sold by government at a tax sale

80
Q

General Warranty Deed

A

greatest degree of protection

81
Q

Fixed- Rate Mortgage

A
  • Rate does not change
  • Amortized loan
  • Payment applied to interest first
82
Q

Adjustable-Rate Mortgage

A

rate changes

83
Q

Advantages of ARM Loans

A
  • Lower interest rate
  • Higher loans
  • Falling rates
84
Q

Disadvantages of ARM Loans

A
  • Early refinancing
  • Unpredictable home mortgage payments
  • Long-term cost
  • Confusion
85
Q

Blanket Mortgage

A

covers more than one property

86
Q

Package Mortgage

A

Includes real and personal property

87
Q

Budget Mortgage

A

Payment includes PITI, principal, interest, taxes, insurance

88
Q

Balloon Note

A
  • Partially amortized final payment is much larger
  • Lower interest rate
  • High cost of refinancing
89
Q

Collateral- Dependent Loans (Hard Money Loans)

A

Funds secured by value of parcel

90
Q

Wraparound Mortgage

A
  • Low interest rate

- Seller financing, new loan takes secondary lien original not repaid

91
Q

Open-End Mortgage

A
  • Additional borrowing on same note
  • Home Equity Line of Credit
  • Minimum withdrawal is $4,000
92
Q

Participation Loan

A
  • 2+ lenders own a share
  • Share appreciation mortgage
  • Lender collected PI and shares when sold
93
Q

Reverse Annuity Mortgage

A
  • At least 62 years old

- Due upon sale or death

94
Q

Sub-Prime Loans

A
  • Risk-based pricing
  • Borrowers rated A-F
  • Interest is based on rating
95
Q

Mortgage Insurance Premium

A
  • Part of FHA loan
  • Covers claims when borrower defaults on loan
  • Pays up-front and annual premium
  • Can be added to loan even if it exceeds appraised value
96
Q

Private Mortgage Insurance

A
  • Allows lenders to increase LTV
  • Required when LTV exceeds 80% in conventional loans
  • Insures difference between down payment and 80% LTV
97
Q

Graduated Lease

A

-payments begin at lower, fixed rate and increase as it matures

98
Q

Gross Lease

A
  • landlord pays charges. taxes, insurance, repairs

- tenant only pays rent

99
Q

Net Lease

A
  • tenant pays rent plus expenses
100
Q

Percentage Rent

A
  • rent is based of gross receipts of tenant’s business
101
Q

Lease Option

A
  • allows tenant to buy at preset price and terms for given period
  • binding only on seller
102
Q

Sale and Leaseback

A
  • one party sells property and leases it back
103
Q

Inverse Condemnation

A

Landowner sues government to force them to buy land

104
Q

Types of Title to Real Property

A
  • Clear/Good
  • Marketable
  • Equitable
105
Q

Clear/Good Title

A

title can be transferred to another

106
Q

Marketable Title

A

title a reasonable buyer would accept as clear

107
Q

Equitable Title

A

interest created by legal document who has not gone to closing yet

108
Q

Chain of Title

A

history of all previous owners

109
Q

Abstract of Title

A

complete history of title

110
Q

Attorney’s Opinion of Title

A

opinion regarding state and transferability of title

111
Q

Cloud on the Title

A

claim or encumbrance on title

112
Q

Patent

A

original conveyance of land from government

113
Q

Title Commitment

A

statement of condition of title from title company

114
Q

Roles and Responsibilities of a Sponsoring Broker

A
  • Advise agent of scope of authorized activities
  • Ensure competency
  • Written policies and procedures
  • Education
  • Background checks
115
Q

Constructive Notice of Ownership

A
  • Legal concept that a person received notice of a document even if not delivered directly
  • Places burden on future buyers and lenders
  • Public records
  • Taking possession of property
116
Q

Right of First Refusal

A

A tenant has the right to match or better any offer the landlord may receive
on the property before the property is sold to someone else.

117
Q

Lease Purchase

A
  • tenant makes lease payments.
  • Tenant agrees to purchase at agreed time and price.
  • Binding on both parties
118
Q

Covenant

A

promise made to another

119
Q

Covenant of Seizin

A

grantor owns property and has right to convey and has not conveyed it before

120
Q

Covenant Against Encumbrances

A

only limitations in title are listed in deed and no unpaid claims

121
Q

Covenant of Quiet Enjoyment

A

uninterrupted use of property

122
Q

Covenant of Further Assistance

A

grantor responsible for documentation needed to transfer title

123
Q

Covenant of Warranty Forever

A

promises have no expiration date

124
Q

Restriction

A

limitation placed on new owner

125
Q

Reservation

A

reserves rights for grantor

126
Q

Real Estate Mortgage Investment Conduits

A
  • hold commercial and residential mortgages in trust and issue interests in these securitized mortgages to investors.
  • Freddie Mac and Fannie Mae
127
Q

Secondary Mortgage Market

A
  • Purchase and sale of existing mortgage to investors

- Designed to provide better liquidity

128
Q

Real Estate Investment Trusts

A
  • Small investors can invest in larger commercial properties by purchasing shares in organization that owns it
  • Minimum of 100 investor
  • Two types equity and mortgage
  • Listed with securities and exchange commission
129
Q

Equity REIT

A

Purchases commercial property

130
Q

Mortgage REIT

A

Invests in mortgages and pays dividends

131
Q

Advantages of a REIT

A
  • High returns/low risk
  • Portfolio diversification
  • Capital appreciation
  • Liquidity of shares
  • Properties managed by professionals
132
Q

Disadvantages of a REIT

A
  • Subject to market conditions
  • Reliance on debt
  • Paying for rising property taxes
  • 90-100% income is dividends and not reinvested
  • Must pay management fees
133
Q

Voluntary Alienation

A

transfer of title that is a free act

134
Q

Involuntary Alienation

A

transfer of ownership against will of owner

135
Q

Foreclosure

A

sale of property due to default

136
Q

Adverse Possession

A

acquires title from the rightful owner through hostile,

actual, and continuous occupation of the land for the statutory period

137
Q

Real Estate Syndicate

A
  • Two or more parties join to create and operate real estate investment
  • Do not have title in property, it is a securities investment
  • Registration with SEC if 35+ people or across state lines
138
Q

Real Estate Settlement Procedures Act (RESPA)

A
  • Consumer Financial Protection Bureau (CFPB) Regulation X
  • Ensures consumers are provided with information regarding mortgage settlement and protected from unnecessarily high settlement charges
  • Prohibits undisclosed referral fees and kickbacks
139
Q

Coverage of RESPA

A

-Applicable to all federally-related mortgage loans
one-to-four family structure
-Manufactured home
-And any of the following loans
-made by lender, creditor or dealer
-Made or insured by agency of federal government
-Made in connection with HUD program
-Made and intended to be sold to FNMA, GNMA, FHLMC
-Subject of a home equity conversion mortgage or reverse mortgage

140
Q

Community Reinvestment Act (CRA)

A

prohibits redlining and ensures banks serve needs of community in which they do business

141
Q

Equal Credit Opportunity Act (ECOA)

A
  • 1974
  • All consumers given equal chance for credit
  • Prohibits discrimination on protected classes, and for receiving public assistance
  • Does not prevent obtaining information
142
Q

Truth in Lending Act (TILA)

A

-Disclosure of key terms in lending arrangement and all costs

143
Q

Regulation Z

A

-Advertisement must disclose key terms

144
Q

Easement

A

Gives one right to use or pass through another’s property

145
Q

Easement in Gross

A

Belongs to person or corporation and not land

146
Q

Easement Appurtenant

A

Right to benefit from piece of land

147
Q

Creation of Easements

A
  • Grant
  • Reservation
  • Implied grant
  • Prescription- continuous use without permission
  • Necessity
  • Condemnation
148
Q

Termination of Easements

A
  • Merger
  • Release
  • Abandonment
  • Death
149
Q

Clouds on a title typically discovered during the commitment process

A
  • Unreleased liens
  • Judgments filed lis pendens (pending lawsuits)
  • Unpaid taxes
150
Q

Complete Application

A
  • Property Address
  • Estimated Value
  • Name of borrower
  • Social Security Number
  • Income
  • Loan Amount
151
Q

Pre-Approval

A
  • Requires application

- Issued after underwriting

152
Q

Pre-Qualification

A
  • When basic information is provided
  • No obligation to lender or borrower
  • Buyer with Conditional Qualification Letter will not receive Loan Estimate
153
Q

Pre-Approval/Qualification Benefits

A
  • Buyers more realistic with pricing
  • Agent understands buyer’s ability to pay
  • Agent can avoid showing overpriced properties
  • Sellers ensure buyer has enough income to close
154
Q

Intestate Succession

A

person dies with no will

155
Q

Probate

A

judicial proceeding to confirm validity of will

156
Q

Formal Will

A

prepared by attorney

157
Q

Holographic Will

A

handwritten

158
Q

Nuncupative Will

A

oral or deathbed will, only valid for personal property

159
Q

Codicil

A

addition to existing will

160
Q

Fannie Mae

A
  • Formerly known as Federal National Mortgage Association (FNMA)
  • privately-owned
  • Exclusively on secondary market
  • Addresses imbalance of mortgage credit by making funds available to capital deficient areas
  • Allows lenders to originate mortgages for sale
  • Standardizes mortgage loans
161
Q

Short Sale

A

property is sold for less than mortgage owed

162
Q

Quick Sale

A

sale of property in defaulted mortgage before foreclosure

163
Q

Deed in Lieu of Foreclosure

A

borrower conveys all interest in property to lender to satisfy default

164
Q

Equitable Redemption

A

redeem property by making late payments

165
Q

Types of Agency Employment Contracts

A
  • Listing
  • Buyer Representation Agreement
  • Management Agreement

Real Estate (6 decks)

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