Prins Flashcards
Contracts for the sale of real estate and leases of more than one year
Must be in writing to be enforceable
Parol evidence rule
Written contracts take precedence over oral agreements.
If there is evidence in writing (such as a signed contract) the terms of the contract cannot be altered by evidence of oral (parol) agreements purporting to change, explain or contradict the written document.
Contracts can be terminated or discharged by
+ Agreement of the parties
+ Performance of the contract
+ Impossibility of performance
+ Operation of law
Release of contract
To give up a right as releasing one from their obligation to perform under a contract, or to relinquish a right to an interest in real property, or
To give freedom, as letting out of prison, or
The writing that grants a release.
Assignment
The act of transferring an interest in property or some right (such as contract benefits) to another. It is used commonly by lawyers, accountants, business people, title companies and others dealing with property.
Novation
Agreement of parties to a contract to substitute a new contract for the old one. It extinguishes (cancels) the old agreement. A novation is often used when the parties find that payments or performance cannot be made under the terms of the original agreement, or the debtor will be forced to default or go into bankruptcy unless the debt is restricted. While voluntary, a novation is often the only way any funds can be paid.
A new contract is created which terminates the original agreement and absolves the original party from liability.
Executed
To finish, complete or perform as required, as in fulfilling one’s obligations under a contract or a court order.
To sign and otherwise complete a document, such as acknowledging the signature if required to make the document valid.
Time is of Essence clause
A phrase often used in contracts which in effect says: the specified time and dates in this agreement are vital and thus mandatory, and “we mean it”. Therefore any delay-reasonable or not, slight or not-will be grounds for canceling the agreement.
Impossibility of Performance
If a law changed after the contact was arranged but before the full performance of the contract.
The application of law may change the rights and liabilities of the parties, without their consent. Contracts can be terminated by OPERATION OF LAW under
Bankruptcy
Statute of Limitations
Alteration of contract
Restatement Second, section 20
No contract arises unless both parties have the same meaning in mind. === Peerless
Unilateral agreement
I NOT necessary in creating a valid contract that would be binding and enforceable on all parties.
In Writing
Contracts for the sale of real estate must be ___ _______
in order to be enforceable.
Novation
If the parties to a contact agree to substitute a new contract for the old one, this is called _____.
Unilateral Recission
Which of these is NOT listed as a way that a contract can be terminated?
Performance of the contract
Agreement of the parties
Impossibility of performance
Default - Breach of Contract
Failing to perform any term of a contract, written or oral, without a legitimate legal excuse. This may include not completing a job, not paying in full or on time, failure to deliver all the goods, substituting inferior or significantly different goods, not providing a bond when required, being late without excuse, or any act which shows the party will not complete the work (anticipatory breach).
Breach of contract is one of the most common causes of law suites for damages and/or court-ordered “specific performance” of the contract.
Unilateral agreement
I NOT necessary in creating a valid contract that would be binding and enforceable on all parties.
In Writing
Contracts for the sale of real estate must be ___ _______
in order to be enforceable.
Reformation
The correction or change of an existing document by court order upon petition of one of the parties to the document.
Reformation will be ordered if there is proof that the parties did not intend the language as written or there was an omission due to mistake or misunderstanding.
Quite often a party petitions for reformation when one or both parties realize the effect of the document as written is different from what was expected but it has already been recorded or filed with a governmental agency.
This may have even occurred from a clerical error.
Unilateral Recission
Which of these is NOT listed as a way that a contract can be terminated?
Performance of the contract
Agreement of the parties
Impossibility of performance
Default - Breach of Contract
Failing to perform any term of a contract, written or oral, without a legitimate legal excuse. This may include not completing a job, not paying in full or on time, failure to deliver all the goods, substituting inferior or significantly different
A breach of contact does not relieve the obligations of the breaching party. The non-defaulting party has legal recourses which may be obtained by filing suite in a court of law. These remedies would include:
Rescission Reformation Injunction Specific performance Compensatory damages Consequential damages Attorney fees and costs Liquidated damages Punitive damages
Consequential Damages
Damages claimed and/or awarded in a lawsuit which were caused as a direct foreseeable result of wrongdoing.
Foreseeable means that each side should have reasonably known at the time of the contract that there would be potential losses in the event of a breach.
Reformation
The correction or change of an existing document by court order upon petition of one of the parties to the document.
Reformation will be ordered if there is proof that the parties did not intend the language as written or there was an omission due to mistake or misunderstanding.
Quite often a party petitions for reformation when one or both parties realize the effect of the document as written is different from what was expected but it has already been recorded or filed with a governmental agency.
This may have even occurred from a clerical erri
Injunction
A writ (order) issued by a court ordering someone to do something or prohibiting some act after a court hearing.
Specific Performance
The right of a party to a contract to demand that the defendant (the party who it is claimed breach the contract) be ordered in the judgment to perform the contract.
May be ordered instead of (or in addition to) a judgment for money if the contract can still be performed and money cannot sufficiently reward the plaintiff.
Example - when a defendant was to sell a property and did not, a judge may order the defendant to actually complete the sale.
Specific Performance is the opposite of Rescission.
Compensatory Damages
Damages recovered in payment for actual injury or economic loss, which does not include punitive damages (as added damages due to malicious or grossly negligent action.
The court will award the actual amount of money lost by the aggrieved party.
Consequential Damages
Damages claimed and/or awarded in a lawsuit which were caused as a direct foreseeable result of wrong
Attorney’s fees and costs
are only recoverable if they are expressly provided for in the contract.
The would have had to have been specifically stated as a remedy in the event of a breach.
Real Estate Contracts
Every time you appraise a property that is under contract, it is imperative that you analyze that agreement of sale. Standards Rule 1-5(a) in 2012-2013 USPAP, on page U-20
When the value of opinion to be developed is market value, an appraiser must, if such information is available to the appraiser in the normal course of business:
(a) analyze all agreements of sale, options, and listing of the subject property current as of the effective date of the appraisal.
Punitive Damages
Damages awarded in a lawsuit as a punishment and example to others for malicious, evil or particularly fraudulent acts.
Punitive damages are not recoverable for breach of contract, even if the breach was willful.
Earnest Money
Something of value given by a buyer to a seller to bind a bargain.
If a seller defaults, a BUYER may
+ Rescind the contract and recover the earnest money deposit
+ File a suite calling for specific performance, to force the seller to sell the property
+ Sue the seller for compensatory damages
If a buyer defaults, a SELLER may
+ Declare the contract FORFEITED. The right to forfeit is usually provided in the terms of the contract and the seller generally is entitled to retain the earnest money and any payments received from the buyer.
+ Rescind the contract
+ Sue for specific performance (this may require the seller to offer a valid deed to show READINESS TO PERFORM)
+ Sue for COMPENSATIORY DAMAGES
Real Estate Contracts
Every time you appraise a property that is under contract, it is imperative that you analysze
Some things contained in a Real Estate contract…
The sale price Date of sale Sales concessions Owner of record Legal description Personal property
Effective Date of Value
To estimate the value of the property as of a certain date.
Sales Concessions
+ Paying closing costs
+ Buying down the interest rate of the purchaser’s mortgage
+ Offering private financing at a favorable rate
+ Making repairs
+ Offering rebates
Uniform Residential Appraisal Report (URAR)
1004 Single Family
1073 Condo
Lease
A contract in which the rights to use and occupy land or structures are transferred by the owner to another for a specified period of time in return for a specified rent.
A contract arrangement in which rights of use and possession are conveyed from a property’s title owner (called landlord or lessor) in return for a promise by another (called a tenant or lessee) to pay rents as prescribed by the lease. In practice, the rights and the duties of the parties can be complex, and are dependent upon the specified terms of their contract.
Flat Rental Lease
A lease with a specific level of rent that continues throughout the lease term.
Gross Lease
A lease in which the landlord received stipulated rent and is obligated to pay all of the property’s operating and fixed expenses; also called full-service lease.
Net Lease
A lease in which the landlord passes on all expenses to the tenant.
Graduated Rental Lease (Step-up or Step-down leases)
A lease that provides for specified changes in rent at one or more points during the lease term.
Lease III
It is more important and necessary steps in appraising income-producing property. You must understand the nature of the economic framework under which the property is operating and make reasonable assumptions about future performance.
Revaluation Lease
A lease that provides for periodic rent adjustments based on the market rental rate of the space.
Escalator Lease
A lease that requires the lessor to pay expenses for the first year and the lessee to pay any necessary increases in expenses as additional rent over the subsequent years of the lease.
Overage Rent
The percentage rent paid over and above the guaranteed minimum rent or base rent; calculated as percentage of sales in excess of a specified breakpoint sales volume.
Data found on typical lease:
Date Legal description Name of lessor (landlord) Name of lessee (tenant) Lease term Occupancy date Rent amount - plus any percentage clause, graduation or escalation provisions Payment terms Rent concessions Covenants Right of assignment or right to sublease
Lease III
It is more important and necessary steps in appraising income-producing property. You must understand the nature of the economic framework under which the property is operating and make reasonable assumptions about future
Acceptance may occur as
Either an express act or an implied act.
A real estate contract is an
Bilateral agreement
A firm agreement to perform an act, refrain from acting or make a payment or delivery is the definition of an
Promise
The _______ rule state that written contracts take precedence over oral agreements.
Parol evidence
A lease that provides for specified changes in rent at one or more points during the lease term, e.g., step-up and step-down leases, or leases with a set percentage adjustment” is a ____ lease.
Graduated rental
A lease with a specific level of rent that continues throughout the lease term is the definition of an ______ lease.
Flat Rental
Which item would NOT be typically found in a real estate contract?
Appraised value
Sales price
Date of sale
Personal property
Appraised value
An agreement of parties to contract to substitute a new contract for the old one is called?
Novation
The weakest form of deed is the _____ deed?
Quitclaim
Which would NOT be a required element of a valid deed?
Must be recorded
Legal description
Must be in writing
A grantee clause
Must be recorded
Damages awarded in a lawsuit as a punishment and example to others for malicious, evil or particularly fraudulent acts is the definition of ______ damages.
Punitive
Supply and Demand
In economic theory, the principle that states that the price of a commodity, good, or service varies directly, but not necessarily proportionately; with demand and inversely, but not proportionately, with supply.
In a real estate appraisal context, the principle of supply and demand states that the PRICE of real property varies DIRECTLY, but not necessarily proportionately, with DEMAND and INVERSELY, but not necessarily proportionately, with SUPPLY.
If there’s a SHORTAGE of something, I can probably get a better price for it.
If there’s an OVER SUPPLY, I may have to cut my price.
A contract in which one party make a promise in order to induce another party to do something is an _____ contract?
Unilateral
An ______ contract is one that is not been fully performed or completed.
Executory
A law changed after the contract was arranged but before the full performance of the contract. This would be an example of?
Impossibility
Market
A set of arrangements in which buyers and sellers are brought together though the price mechanism; the aggregate of possible buyers and sellers and the transactions between them.
A gathering of people for the buying and selling of things; by extension, this purpose.
Supply and Demand
In economic theory, the principle that states that the price of a commodity, good, or service varies directly, but not necessarily proportionately; with demand and inversely, but not proportionately, with supply.
In a real estate appraisal context, the principle of supply and demand states that the PRICE of real property varies directly, but not necessarily proportionately, with DEMAND and inversely, but not necessarily proportionately, with supply.
Real Estate Market
Buyers and sellers of particular real estate and the transactions that occur among them.
Active Market
A market characterized by numerous transactions.
Buyer’s Market
A market in which buyers have the advantage; exists when market prices are relatively low due to an oversupply of property or reduced buyer demand.
Seller’s Market
An active market in which the seller’s of available properties can obtain higher prices than those obtainable in the immediately preceding period; a market in which a few available properties are demanded at prevailing prices by many users and potential users.
Depressed Market
A market in which a drop in demand is accompanied by a relative oversupply and a decline in prices.
A farmer’s market is an example of a market at work.
True
Which type of market is MOST likely to be characterized by higher prices and a shortage of homes for sale?
Seller’s Market
According to the principle of supply and demand, the price of a commodity varies _____ with supply.
Inversely
A GOOD Market, in classic economic theory, exhibits the following characteristics:
Homogeneous products Prices are relatively low Prices are stable Products are easily transportable Organized market mechanism A large number of buyers and sellers Buyers and sellers are knowledgeable Buyers and sellers act rationally Little regulation or government intervention Supply and demand operate freely
Homogeneous Products
Each parcel is unique no two are the same; differ in many aspects such as style, design, age, condition, topography, land size, subsoil conditions, property rights, etc.
Stable prices
The real estate market is a dynamic market that is fluid and subject to constant and immediate change.
Low Prices
Real Estate is a big-ticket item. Capital investment
Little regulation
real estate is one of the most regulated industries:
Zoning Building codes Health and safety codes Rent controls Mortgage limits Building moratoriums
Organized Market Mechanism
Real estate market is a loose affiliation of disparate components; different for virtually every piece of real estate.
Large numbers of buyers and sellers
You may have a house for sale but realistically there are only two or three buyers.
Knowledgeable Buyers and Sellers
Buyers and sellers of real estate are typically novice.
District
A neighborhood characterized by homogeneous land uses, e.g., apartment, commercial, industrial, agriculture.
Little regulation
real estate is one of the most re
Supply and Demand for Real Estate
Amount of supply is very rigid and slow to change.
The demand side of the equation is dynamic and subject to immediate change.
Imperfect market
A market in which product differentiation exists, there is a lack of important product or market information, and some of the producers and/or consumers are significant enough to affect the price and quantity of goods by their actions alone.
Neighborhood
A group of complementary land uses; a congruous grouping of inhabitants, buildings, or businesses
District
A neighborhood characterized by homogeneous land uses, e.g., apartment, commercial, industrial, agriculture.
Market Area
The area associated with a subject property that contains its direct competition.
What two factors are typically responsible for short-term real estate cycles
The level of interest rates
The amount of credit available
When interest rates go up real estate markets tend to slow down or decline and vice versa.
Which would NOT be an example of a homogenous product?
a gallon of milk
a tube of toothpaste
a building lot
a new automobile
A building lot
Which of these would be considered the most Inefficient market?
The real estate market
In real estate a market is defined in terms of
Competition
Market Area
The area associated with a subject property that contains its direct competition is the definition of
A neighborhood consists of ____ land uses, while a district consists of ____ land uses.
Complementary, homogeneous
A market is defined in terms of _____?
Competition
All of following are characteristics of a good market EXCEPT?
prices are stable
small number of buyers and sellers
buyers and sellers act rationally
little regulation
Small number of buyers and sellers
A neighborhood characterized by homogeneous land use, e.g., apartment, commercial, industrial, agricultural is the definition of?
District
All of the following would be participants in the real estate market EXCEPT?
real estate agents
attorneys
developers
economists
Economists
Value is composed of two components
Return ON investment
The interest paid
Return OF investment
The principal
Which would typically NOT be an example of regulation of the real estate industry?
building codes
rent controls
zoning regulations
interest rates
Interest Rates
True or False? Stocks are considered a good investment because the return OF your investment is guaranteed.
False
Amenity
A tangible or intangible benefit of real property that enhances its attractiveness or increases that satisfaction of the user.
Natural amenities may include a pleasant location near water or a scenic view of the surrounding area.
Man-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.
Money
Currency (i.e., minted coins and paper money) in the hands of the public plus demand deposits at commercial banks (M1)
Currency plus demand and time deposits at commercials banks (M2)
Currency plus demand and time deposits plus the liabilities of nonbank financial intermediaries (M3)
The five components into which economists and statisticians desegregate the money supply, i.e., transactions money (M1), broad money (M2), additional near-monies (M3), liquid assets (L), and total credit (D).
A commodity, such as gold or silver, that is legally established as an exchangeable equivalent of all other commodities and is used as a measure of their comparative values on the market.
Money is a commodity that is bought and sold on the market, just as lumber, shares of stock or real estate.
Value is composed of two components
Return ON investment
The interest paid
Return OF investment
The prinicipal
Federal Reserve Bank
Regulate the supply of money
Founded in 1913
Consists of 12 regional banks
7 on the Board of Governors
appointed by the US President to serve 14-years terms and confirmed by senate.
Establishes nations monetary policy
True or False? Stocks are considered a good investment because the return OF your investment is guaranteed.
False
You are an investor who owns a parcel of real estate. You want to cash out your investment, and it takes you a year to market your property and close the sale. What investment factor does this demonstrate?
Liquidity
Money
Currency (i.e., minted coins and paper money) in the hands of the public plus demand deposits at commercial banks (M1)
Currency plus demand and time deposits at commercials banks (M2)
Currency plus demand and time deposits plus the liabilities of nonbank financial intermediaries (M3)
Standard unit of exchange
In 1266, King Henry, III introduced in Britain the STERLING SYSTEM linking weights to coinage.
Federal Reserve Bank
Regulate the supply of money
Founded in 1913
Consists of 12 regional banks
7 on the Board of Governors
When was the Fed founded
1913
The Fed consists of ____ regional banks?
12
Who owns the Fed?
No one, it is independent
To who is the Fed accountable?
Congress and the American people
Money market
The interaction of buyers and sellers who trade short-term money instruments:
Treasury bills (3 mos, 6 mos, 1 year)
Money market
The interaction of buyers and sellers who trade short-term money instruments.
Typically one year or less…
Treasury bills - 3 mos, 6 mos or one year
Treasure notes - one to ten years
CDs - up to 7 years
Commercial paper - a corps promissory note
Municipal notes - short term obligations of local governments
Capital Market
The interaction of buyers and sellers trading long-term or intermediate-term money instruments.
Typically longer that one year
Mortgages
Bonds
Stocks
Supply, Cost
As part of its monetary policy, the Fed can influence both the _______ of money and the ______ of money.
How are members of the Board of Governors of the Fed selected?
They are appointed by the President and confirmed by the Senate.
Which of these entities needs to invest money as a fundamental part of their operations?
government
insurance companies
Pension funds
All of these
Governments
Insurance companies
Pension funds
The “price” of money is
an interest rate
To compensate for a higher risk, investors demand a
Higher return
Which of the following typically incurs the highest burden of management?
Real estate
How do investors typically compensate for higher risk in an investment?
They demand a higher rate of return
The return ON investment is usually accomplished through
interest payments
The interest rate that is charge by the Fed when lending money to banks is called the ____ rate
Discount
Which is NOT a short-term money instrument?
One year Treasury bill
One year Treasury note
7 year CD
5 year balloon mortgage
5 year balloon mortgage
The supply of money in the US is regulated by the
Federal Reserve Bank
