Property Disclosures Flashcards
Latent Defects
Courts have ruled that a seller is responsible for revealing to a buyer any hidden, or latent, defects in a property. A latent defect is one that is known to the seller but not to the buyer and that is not discoverable by ordinary inspection. All buyers have the right to know the condition of the property they are seeking to buy as well as all material facts related to the property, regardless of
representation.
Environmental Hazards and Endangered Species
Sellers must provide information related to these
issues, giving the buyer the right to inspect the property to be satisfied with the property condition.
Aluminum Wiring
Many home built in the mid 1960’s and early 1970 have aluminum wiring. The main issue with the aluminum wiring is that over time the connections may oxidase and loosen to a point that they short or spark and could start a fire
Polychlorinated Biphenyl (PCB)
Is present in many products and materials produced before 1979. These include, among other items, transformers and capacitors, fluorescent light bulbs, caulking, tape and adhesives. PCB has been ban in the United States since 1979
Septic Systems
These systems usually treat the effluent in some manner or create an artificial drain and filtration system. These systems can be quite complicated. Permits are required to install any septic system, modify any septic system, and to renew any septic system. It is recommended that
homeowners try to avoid any obstructions that may clog the drain lines. Solid waste settles naturally to
the bottom of the septic tank. Therefore, it is recommended that the tank be pumped out every 3-5 years, depending on the amount of waste from the household and the number of people living there.
Material Fact
A material fact is anything a reasonable person would find important in making a decision to contract. Anything related to the condition of the property or the condition of the title is a material fact and must be disclosed to buyers.
Need for Inspection
Buyers have the right to inspect any property they contract for sale. Licensees should encourage such inspections. Using a licensed or certified inspector, the buyer should besatisfied with the condition of the property since the seller does not warrant the condition of the
property.
Obtaining/Verifying Information
The buyer should inspect the property to determine the interests of any party in possession or other
interests that cannot be determined from inspecting the public record. In a final walk-through of the property, the buyer can check that all the fixtures included in the contract are present, that no damage has been done, and that any repairs have been properly completed.
Material Facts
As an agent of the seller, a real estate broker is responsible for all the disclosure of any material facts regarding the property. The many material facts to be disclosed are varied. Some of them include but not limited to structural defects, working condition of appliances and fixtures, systems or equipment in need of repair, previous inspections available, recent repairs done on the property, obligations related to membership in property owners associations, potential annexation, and more.
Common Interest Ownership Properties
Cooperative Ownership: Title to the land and improvements is held by the cooperative, which is a
type of corporation. Each purchaser receives stock in the cooperative thus becoming a stock-holder.
The purchaser receives a proprietary lease in the unit for the life of the cooperative. Owners control the property through their stock ownership. Ownership of stock and not ownership of real property.
Condominium Ownership
The owner of a unit holds fee simple title to his/her unit and also a specified share of the indivisible parts of the building and land, known as the common elements.
The individual unit owners own these common elements as tenants in common.
Time-Shared Ownership
Multiple purchasers buy undivided interests in real estate with a right to use the facility for a fixed time period. Maintenance and other common expenses are prorated among the unit owners.
Commercial Property/Income Property
Real Estate investment involves purchasing real estate that will show a return of appreciation or income, greater than the original purchase price, considering
the expenses related to it.
Appreciation
Property held for a period of time that is expected to increase in value and show a profit when it is sold.
Income
The amount of money an investor receives from income producing properties. Cash flow is the amount of money remaining after all expenditures have been paid, including taxes, operating costs, and mortgage payments.
Leverage
The use of borrowed money to finance the bulk of an investment.
Equity Buildup
That portion of the payment directed toward the principal rather than the interest, plus any gain in property value due to appreciation.
Capital Gains
The difference between net selling price and adjusted basis of property
Boot
Money or property given to make up any difference in value or equity between two properties in an exchange. A term used in conjunction with the IRS tax laws.
Risk
Investors seek to minimize risk by spreading their capital in more than one investment.
Consumer Price Index (CPI)
The most common index used to evaluate future lease rates
Alternative Minimum Tax
A type of flat-rate tax that applies to taxpayers who have certain types of income. A 26% or 28% rate applies to broadly based income of individuals. A 20% rate applies to corporations. If this tax exceeds the regular income tax, then the alternative minimum tax is to be paid
instead of the regular income tax.
Depreciation
Is an allowable expense to reduce taxable income, therefore it is an expense - not a straight deduction. Land is not depreciated. Depreciation can only occur on improved property.
Recapture
To recover the tax benefit of a deduction or a credit previously taken.
Title and Abstract
Insuring that good title is transferred to the buyer and overseeing the entire process of closing a transaction
Business Sales
Business sales are regulated by the Uniform Commercial Code (UCC) when personal property is used as security for a loan.
Exception
As used in the conveyance of real estate, the exclusion of some part of the property conveyed, with the title of that excepted part remaining with the grantor.
Reservation
A right retained by the seller in a real estate transaction.
