Real Estate Principals - Chapter 1 Flashcards
1
Q
Land
A
surface, all natural things attached to it, subsurface, and air above the surface.
2
Q
Real Estate
A
land + manmade permanent attachments
3
Q
Real Property
A
real estate + bundle of rights
4
Q
Physical characteristics of real estate
A
Immobility: Land cannot be moved from one site to another, it’s location is forever fixed.
Indestructibility: Land is permanent and cannot be destroyed because it extends below the ground and into the sky. It does not depreciate. Only improvements depreciate.
Non-homogeneity: No two pieces of real estate are the same
5
Q
Land versus real estate
A
Land is only the surface and all natural elements above and below.
Real estate is land + and manmade attachments.
6
Q
The Bundle of rights (PUTEE)
A
Possession Use Transfer Exclusion Encumberable
7
Q
Legal Title vs Equitable title
A
Legal title - Full ownership of property and the bundle of rights as they apply to it.
Equitable title - An interest that gives a lien holder or buyer the right to acquire legal title to a property if certain conditions occur.
8
Q
Property Characteristics
A
Can be real or personal
Tangible or intangible.
9
Q
Real property rights (AWSS)
A
Airspace - Air rights
Surface (of the earth) - Surface rights
Subsurface = Subsurface or mineral rights
Water rights :
Doctrine or prior Appropriation : State controls water usage, state grants usage permits.
Riparian rights - Applies to rivers and streams. If Waterway is navigable, owners own land to waters edge. If it is not navigable, owners own land to midpoint of waterway.
Littoral rights - Lakes and seas. Abutting property owners own to high water mark. State owns underlying land.
10
Q
Real property includes (LAF)
A
Land
Attachements
Fixtures
11
Q
Personal property includes (CTE)
A
Chattel
Trade fixtures
emblements.
12
Q
Real vs personal property defined by..
A
Owners intention, adaptation, functionality, relationship of the parties, or contract provisions.
13
Q
Trade fixtures
A
Personal property items temporarily attached to real estate in order to conduct business.
14
Q
Emblements
A
Plants or crops that are considered personal property despite being attached to land.
15
Q
Severance
A
Real property is converted to personal property
16
Q
Affixing
A
Personal property is converted to real property
17
Q
Are Factory built housing - mobile homes & manufactured homes - real or personal property?
A
Real if permanently affixed to ground, otherwise personal
18
Q
Federal regulation of real property interests
A
Grants rights of ownership : ex. land grants
controls broad land usage standards: ex federal flood zones
Regulate anti discrimination : ex fair housing laws, FHA, EPA
19
Q
State regulation of real property interest
A
Governs real estate business : License laws
Sets regional usage standards : ex water rights, development regulation
20
Q
Local regulation on real property
A
Levies real estate taxes : property assessing
Controls specific usage : Zoning, building permit tax levies.
21
Q
Judicial regulations of real property
A
Applies to case law and common law to disputes
Contrasts to statutory law.
22
Q
Another word for possession and rights of possession
A
Estate in land - Right of possessions
Freehold estate.
23
Q
Examples of non possessions
A
Private : Encumbrance
Public : Public interest
Leasehold : Limited duration
24
Q
Freehold estate
A
A right of title to land
25
Fee simple Estate
Absolute ownership of real property; a person has this type of estate where the person is entitled to the entire property with unconditional power of disposition during the person’s life and descending to the person’s heirs or distributees.
26
Fee simple absolute
An inheritable estate in land providing the greatest interest of any form of title.
27
Fee Simple determinable
An estate that will end automatically when the stated event or condition occurs. The interest will revert to the grantor or the heirs of the grantor.
28
Fee simple on condition
A defeasible fee (title), recognizable by words ‘but if’. Reverts to previous owner per conditions.
29
Three type of conventional life estates
Limited - to lifetime of tenant/named party
Ordinary - Estate passes to remainderman or previous owner when life tenant dies
Pur Aute Vie: Limited to lifetime of another Passes to remainerman or previous owner.
30
Legal life estate
Created by operation of state law as opposed to a property owners agreement. Designed to protect family survivors
Homestead: Rights to ones principal residence.
A freehold estate created for the duration of the life or lives of certain named persons; a non-inheritable estate.
31
Homestead: Rights to ones principal residnece
- Laws protect homestead from creditors
- Family must occpy the homestead
- cannot be conveyed by one spouse
- Endures over life of head of household
- Interests extinguished of property destroyed.
32
Leaseholds: Estate for years
Specific; stated duration, per lease; expires at end of term
33
Leaseholds : Periodic
Lease term renews automatically upon acceptance of rent
34
Leaseholds : Estate at will
For indefinite period subject to pay rent payment; cancelable with notice.
35
Leasehold: Estate at sufferance
Tenancy against landlords will and without agreement
36
Forms of ownership: Tenancy in Severalty
Sole ownership of a freehold estate: passes to heirs
37
Forms of ownership: Tenancy in common
- Co-tenants own individually own undivided interests
- Any ownership share possible
- No survivorship of ownership after death
- Can convey title to outside parties
38
Forms of ownership: Joint tenancy
- Equal undivided interest jointly owned
- Survivorship
- requires four unities to create: time, title, interest, possession
39
Forms of ownership : Tenancy in entireties
- Husband and wife on equal, undivided interest
| - Now applies to same sex couples in some states.
40
Types of ownership: Community property
Joint property ownership by spouses as opposed to separate party
41
Joint tenancy Four unities: Unity of Ownership
Owners hold single title jointly
42
Joint tenancy four unities: Equal ownership
Owners always hold equal shares
43
joint tenancy four unities: transfer
May transfer interest to new owner as a tenancy in common interest with remaining joint tenants
44
Joint tenancy four unities : Survivorship
On death, interests and rights pass to other joint tenants
45
Required for four unities to be valid (PITT)
Possessions : Acquire same possessory rights
Interest: Acquired equal, undivided interests
Time: acquire interests at same time
Title: acquire interests with same deed
46
Community property: Separate
- Acquired before marriage
- Acquired by gift or inheritance
- Acquired with separate property funds
- Income derived from separate property
47
Community Property: Community
All other property acquired during marriage.
48
Estates in trust : Trustor
Gives title, deed, trust agreement to trustee
49
Estates in trust: Trustee
Trustee renders fiduciary duties to trustor and beneficiary
50
Estates in trust: Beneficiary
Receives ownership benefits
51
Estates in trust : Living / testamentary trust
Conveyance of real, personal property during ones lifetime
52
Estates in trust : Land trust
Grantor and beneficiary are same party; beneficiary uses, controls property but does not appear on public record.
53
Condominiums
- Ownership of a unit of airspace plus an undivided interest in the common elements as tenant in common with other owners
- May be sold, encumbered or foreclosed WITHOUT affecting other unit holders.
- Creation : By developers declaration
- Individually taxed
- Managed by condo association
- Owners share common area expenses.
54
Cooperatives
- Ownership of shares in owning corporation and proprietary lease in a unit
- Corporation has sole, undivided ownership
- Owners potentially liable for expenses of entire co-op; creditors may foreclose on entire property
55
Time Shares
- Lease or ownership interest in property for periodic use on a scheduled basis
- Lease: tenant leases property per the leases schedule
- Freehold: tenant in common own undivided interests, pay expenses per separate agreement
56
Encumbrances
- Non-possessory interests limiting legal owners rights
| - Do no include possession
57
Encumbrances affecting use
Easements, encroachments, licenses, deed restrictions
58
Easements affecting ownership, value, transfer
Liens
| deed conditions.
59
Easements : Charachteristics
- Rights to use portions of another's property
- Affirmative easement : allows a use
- Negative easement : Prohibits use
60
Easements: Appurtenant
- Attaches to the estate
- Dominant tenenments right to use or restrict adjacent servient tenement
- By necessity to landlocked owners
- Party wall easement in a shared structure: To not damage or destroy
61
Easements : In Gross
- Does not attach to the estate
- Personal - nontransferable, end upon death of easement holder
- Commercial - transferrable, granted to business
62
Easement : by prescription
- Property used without permission; can come to exist regardless of owners consent
- obtainable through continuous, open, adverse use over a period of time which varies by state
63
Easement : by license
- Personal right to use a property
- Does not attach
- Non-transferrable
- revocable
- Ceases upon death of owner
64
Encroachment
- Unauthorized intrusions of one owner's real property onto another's
- May require survey to detect
- May become prescriptive easements if not remedied over prescriptions period.
65
Deed restrictions
- Conditions, covenants imposed on property by deed or subdivision plat
- Goes with the property upon transfer
- Established to control quality, standards of a subdivision
- Apply to land use, type of structure, setback, minimum house size etc.
66
Deed conditions
- Created upon property transfer
| - If violated, ownership may revert to previous owner.
67
Deed covenants
- Created by mutual agreement
| - Enforceable by injunction
68
Liens
_ claims attaching to real and personal property as security for debt
- Recorded on title effectively reducing equity in the amount of the lien
- Does not convey ownership unless a mortgage in a title theory state
- Lien attaches to the property
- property can be encumbered by multiple liens.
- Lien terminates upon payment, recording satisfaction
69
Lien : Voluntary
Mortgage lien
70
Lien : Involuntary
Taxes
71
Lien : General / Specific
- Against any and all assets / against car or house
72
Lien : Superior / Junior
Paid before juniors / paid after superiors by date of recording
73
Lien Priority
- Order in which liens against a property are satisfied
- Determined by superior vs. junior class and by date of recordation
- The highest priority lien is paid by foreclosure proceeds before any other lien.
74
Foreclosure
- Liquidation or transfer of collateral property by judicial, non-judicial or strict foreclosure.
75
Foreclosure : Mortgage lien foreclosure
Liquidation of collateral property by judicial, non- judicial or strict foreclosure
76
Foreclosure : Judicial foreclosure
Lawsuit by creditor followed by court ordered public sale to enforce lien; May entail deficiency judgements, redemptions rights.
Deficiency judgement - Judgement by court on borrow to forfeit other property to pay off shortfalls from foreclosure
Redemption right - Borrower's right to reclaim property before or after foreclosure sale.
77
Non-judicial foreclosure
"Power of sale" granted to lender to avoid a suit and deficiency
78
Strict foreclosure
- Court orders legal transfer of title directly to lender without public sale
79
Deed in lieu of foreclosure
"Power of sale granted to lender; no suit; no deficiency judgement; no redemption period after sale.
80
Lien vs title theory state
- Lien theory state : lender of mortgaged property holds equitable title rather than legal title; borrower holds legal title
- Lien Title theory state - lender holds legal title to the mortgaged property until the mortgagor satisfies the terms and obligation of the loans
81
Notice
How ownership is evidenced to the public
82
Actual notice
Knowledge acquired directly through demonstrable evidence eg presenting or inspecting a deed visiting a party in possession
83
Constructive Notice
Knowledge one could have obtained as presumed by law imparted by recording in public records "for all o see"
84
Types of voluntary transfer
Deed
Will
public grant
85
types of involuntary transfer
```
Descent (Without will, with heirs)
Escheat (Without will or heirs)
Foreclosure
eminent domain
Adverse possession
```
86
Deeds of conveyance
- Grantor grants deed to grantee
| - Legal title transfers upon intentional delivery and grantee's experience
87
Requirements for deed validity
- grantor
- grantee
- in writing
- legal description
- granting clause
- consideration
- grantor's signature
- acknowledgement
- Delivery and acceptance
88
Deed types
Quitclaim deed - "I may or may not own and might defend
| Special purpose deed - used for different purposes, interests, conveyed, or by different parties
89
Will : Key characteristics
- Will transfers estate to heirs upon death
- Maker = owner; devisor or tetstor
- Heir = beneficiary or devisee
90
Types of wills
Witnessed : in writing and two witnesses
Holographic: will in testor's handwriting
Nuncupative: Oral will written by witnesses; generally nott valid for property transfer
91
Things that make a valid will
```
Legal age
mentally competent
entitled "last will and testament"
signed
witnessed
voluntary
```
92
Dies testate w/ heirs : Order of title transfer
- First to creditors
- Then to homestead
- then to heirs by will
93
Order of title transfer : Dies intestate w/ heirs
First to creditors
then to homestead
then to heirs by law of descent
94
Order of title transfer : Dies intestate, no heirs
First to creditors
| then to state by escheat
95
Adverse possession
- Unwanted owner may claim ownership to a property
- Must show "claim of right" as reason
- Must be notorious possession (unconcealed)
- Must be hostile (possessor claims ownership)
- Must be continuous for a statutory period
96
Features of title records
- Instruments affecting title must be recorded
- Gives public notice of ownership, condition of title
- Determines property marketability
- Protects lien holders; establishes chronology for lien
97
Chain of title
Successive property owners from original grant to present
98
Cloud on title
Unrecorded claims
99
Suit tot quit title
Lawsuit to settle claims
100
Abstract of title
Written chronology of recorded owners, transfers, encumbrances
101
Forms of title evidence
- Title insurance
- Attorney's opinion of abstract
- title certificates
- Torens registration
102
Lease : tenant rights
Use
possession
Quiet enjoyment
Profits
103
tenant obligations
Pay rentt
mainttain premises
follow rules
104
Landlord rights
Receive rent
Repossess upon expiration
Monitor tenant compliance
105
Landlord obligations
Property condition
Habitability
Support services
106
Lease Estate types : Gross Lease
Landlord pays expenses; tenant pays higher rent than net
107
Lease state types : Nett lease
Tenantt pays some or all expenses; rent is less than gross
108
Percentage Lease
Landlord receives rent minimum plus percentage of retailer's sales
109
Groud lease
Landlord owns and leases ground but does not own improvements
110
Proprietary Lease
For Cooperative unit owners; Indefinite term; assigned to new unit owner on sale
111
Leasing of rights
Leasehold transfer of rights for limited use; ex air, mineral, water rights
112
Uniform Residential and tenant rights : Purposes
```
Balance landlord and tenant rights
standardize leases
have uniform eviction procedures
protect tenants
Serve as model for state legislation
```
113
Concurrency
A planning policy that requires developers to correct foreseen negative impacts of a development during the construction period of the project itself rather than afterwards
114
Deed restriction
A provision in a deed that limits or places rules on how the deeded property may be used or improved
115
Land use conrtol
regulation of how individual owners use property in a municipality or planning district. control patterns are in accordance with a master plan
116
Land use planning : Goals of land use control
Preserve property values, promote highest and best use; safeguard public health, safety and welfare; control growth; incorporate community consensus
Process: Develop plan; create administration; authorize controls
117
Types of zones
```
Residenttial
commercial
iondustrtial
agriculttiral
public
PUD and - Planned unit development
```
118
Non conforming use
Legal if existted prior to zoning creation, illegal otherwise
119
Variance
Use exception granted based on hardship
120
Special exemption amendementt
Based on public interest change of zones
121
Contract
An agreement between two or more parties who have a meeting of the mind and have pledged to perform (or refrain from performing) some act.
A valid contract is legally enforceable by meeting certain requirements of contract law.
If a contract does not meet requirements, it is not valid and the parties to it cannot resort to a court of law to enforce its provisions
122
Contract validity
- Competent parties - Legal age, mental competency, legitimate authority
- mutual consent - Clear and unequivocal offer and acceptance with an underlying meeting of the minds
- Valuable Consideration - Exchange of valuable consideration for performance by the other party; not "love and affection"
- Legal purpose : Promise, intent and content must be lawful; if illegal, contract is void
- Voluntary act of good faith - No duress, coercion, fraud or misrepresentation
123
Conveyance contract requirements
- Must be in writing
- Must contain legal description
- Must be signed by one or more parties
- Exception: per statue of frauds, leases for one year or less.
124
Requirements of an Offer
- Intention to enter into contrtact
- Must contain all intended terms
- Must be in writing
- Expires in "reasonable time" or date and time specified
125
Requirements of acceptance
- Unequivocal and manifest agreement to offer
- no changes to offer whattso ever
- Signed, preferrably dated,
126
Completed contrtact
- Communication of acceptance to offeror
| - If by mail, offer is communicated upon mailing
127
Counteroffer
- New or amended terms of a received offer
| - Origin offer is void
128
Revoking an offer
- May be done at any point prior to offeree's communication of acceptance
129
Causes of a termination of offer
Acceptance
- rejection
- revocation
- expiration
- counteroffer
- death or insanity of either party
130
Contract preperation
- Restricted unless licesnsed as attorney or a party to the contract
131
Bilateral vs unilateral
Bilateral : Both parties have duty to perform
| Unilateral : One party performs only if other party performs.
132
Executed vs excuatory
Executed : Fully performed
| Executory : Performance yet to be completed
133
Causes of termination of contract
- Performance
- infeasibility
- Mutual agreement
- Cooling-period rescission
- Revocation
- Abandonment
- Lapse of time
- Invalidity of contract
- Breach of contract
134
Rescission
- Cancel contract; return deposits
135
Forfeiture
- Defaulting party gives up something according to contract terms
136
Liquidated damages
Damages due to a damaged party as stated in contract
137
Suit for damages
Civil suit for money damages not covered by contract
138
Specific performance
Suit to force party to fulfill contract promises
139
Agency in Real estate
Principal (Client) hires agent (broker) to find ready, willing, and able customer (buyer, seller, tenant, landlord)
- Client - Agent relationship governed by fiduciary duties of trust, confidence & good faith
140
Universal Agency
- Represent in all matters
| - Can contract for principal
141
General agency
- Represent in business matters
| - Agent can contract for principal
142
Special
- Represent in single business transaction
- Normally agent cannot contract for principal
- Characterizes the brokerage relationship
143
Agency creation : Express
Express written OR oral agreement (listing)
- Established for special transaction
- Contains an express expiration
144
Agency creation : Implied
- Can be intentional or unintentional
- Can obligate the agent to fiduciary duties and professional standards of care
- not allowed to exist in some states.
145
Voluntary termination
- Fulfillment
- Expiration
- Mutual agreement
146
Involuntary termination
- incapacity
- Abandonment or destruction of property
- Renunciation
- Breach
- Bankruptcy
- Revocation of license
147
Agent's fiduciary duties to client
- Skill care and diligence : proactive; competent, act within bounds of expertise
- Loyalty : place client interest above customer and self
- Obedience : provided actions, instructions are legal
- Confidentiality: Extends beyond listing term indefinitely
- Full Disclosure: Property condition; customers; material facts
- Accounting: Proper handling of monies and documents
148
Obligations owed to customers
- Honesty and fair dealing
- Reasonable care & skill
- Proper diclosure
149
Puffing
Licensee boasting about property's benefits (legal)
150
Fraud
- Misstatement of failure to disclose material fact
- Knowledge that statement was false or fact should have been disclosed
- Party relied on misstatement
- Party was damaged by misstatement
151
Misrepresentation
```
Misstatement or concealment of fact
Intentional misrepresentation
Intentional omission
Negligent misrepresentation
Negligent omission
```
152
Single agency
Seller or buyer agency
| Tenant or landlord representation
153
Subagency
- Outside brokers and agents who help listing agent
- Listing brokers own agents
- Disallowed in some state
154
Dual agency
- Representing both sides
- Potentially illegal or conflict of interest
- Must disclose & obtain written consent
155
Objectives of disclosure
- Declare
- Explain
- Offer choice
- Obtain documented consent
156
Seller agent disclosures to client
- In writing
| - On or before is executed
157
Seller agent disclosures to client
- In writing
| - On or before listing is executed
158
Seller agent disclosures to customer
- In writing
- Upon first face-to-face contact or upon substantive communication, depending on state law
- Oral disclosure permitted but must have written follow-up
159
Buyer agent disclosures to seller
- in writing
- Upon first contact with listing agent or seller
- Substantive contact is assumed
160
Dual agent disclosures
- "Informed, written consent"
| - May not disclose price or financing positions or motivations unless authorized
161
Listing Agreement : Key characteristics
- Broker's enforceable contract of employment
- Establishes special agency relationship
- Defines roles of parties
- Creates fiduciary duties for the agent
- Describes agent's scope of authority
162
Parties to a listing agreement
- Listing broker - Fiduciary of buyer client or seller client
- Sub agent - Fiduciary of listing broker's client
- Customer - non-fiduciary principal in transaction
163
Authority in a listing agreement
- Limited agency agreement
- Broker may not contract for client unless specifically authorized
- Clients liable only for brokers acts within scope of authority
164
Contract law of a listing agreement
- Unilateral contract
- Oral listing is valid and enforceable
- Exclusive listing in some states must be written to be enforceable
- Personal service contract - not assignable
165
Exclusive right to sell
Given to one broker
usually must be written
- Must expire
- Broker get commission if property transfers during period
166
Exclusive Agency
- Exclusive excepting owner
- Oral or written
- Must expire
- Broker get commission unless owner sells
167
Open listing
- Non-exclusive
- Oral or written
- No stated expiration
- Procuring cause gets commission
168
Net listing
- All sale proceeds above a sellers minimum price go to the broker
- Discouraged if not illegal
169
Multiple listing
Listing placed in MLS
170
Buyer agency agreements
- Create a fiduciary relationship w/ buyer
- If exclusive, buyer agrees to only work with the buyer representative in procuring a property
- Must have an expiration date along with other requirements of a valid listing
171
Compensation
- Negotiated between agent and principal
- Where disputed among agents, agent with procuring cause is owed commission
- Based on results: find ready willing and able customer
172
Causes for termination of listing agreement
- Performance
- Infeasibility
- Mutual agreement
- Revocation
- Abandonment
- Breach
- Expiration
- Invalidity
- Incapacitation or death
- involuntary transfer
- Destruction of property
173
Agents performance
- May perform only authorized tasks
- Must verify owner and property data
- May delegate duties to salespeople and other brokers.
174
Revoking a listing
- Clients always have power to revoke during period
| - May incur liability for commission or damages.
175
Why can broker?
- Sole proprietorship
- For-profit corporation
- General or limited partnership
- Joint venture
176
Who cannot broker?
- Non-profit
- Business trust
- Cooperative association
177
Broker - Agent legal relationship
Salesperson
- is agent & fiduciary of broker
- Acts in brokers name
- Is subagent of client
Sales person may not
- Have two employers
- Be paid by other parties
- Bind clients contractually
178
Salesperson's employment status
- Employee or independent contractor
| - Defined by agreement
179
Agent to broker responsibilities
- Obtain & sell listing
- Follow policies & employment provisions
- Promote ethics and brokers reputation
180
Broker to agent responsibilities
- Provide data, office support, compensation, training
| - Uphold ethics, policies, and employment agreement
181
Agent compensation
- Commissions per schedule after splits w/ cooperating broker
182
Comingling
- Mixing brokers personal or business funds with trust funds
| - Includes failing to deposit funds in a timely manner
183
Conversion
- Using trust funds for personal or business purposes
184
Advertising requirments
- No misleading ads
- Ads must contain brokers ID
- Broker is responsible for content
- No blind ads (concealed identity)
- Must disclose if agent owns property
185
Telephone Consumer Protection Act
- regulated unsolicited telemarketing calls
- Solicitors must identify themselves, how they can be contacted
- Must comply with any do-not-call requests
- Consumers can place phone numbers on Do-Not-Call list
186
CAN SPAM Act
- Bans sending unwanted email "commercial" messages to wireless devices
- Requires express prior authorization
- Requires an "opt Out" choice to terminate the senders messages
187
Sherman Antitrust Act & Clayton Act
- Was enacted in 1890 to stop any monopolies and encourage fair competition.
- Outlaws predatory pricing and exclusive dealing
- No Collusion
- No price fixing
- No market allocation. Colluding to restrict competition in a market segment in exchange for a competitors reciprocal agreement.
188
Key Charachteristics of a sales contract
- Binding, bilateral contract for purchase and sale
- The enforceable "blueprint" for closing
- Contract is executory, or to be fulfilled
- Expires upon closing
- Must be in writing
- For validity must.... Contain valuable consideration, identify property, be signed by all
189
Creation of a sales contract
- Created by unqualified acceptance of an offer
| - gives buyer equitable title, and power to force specfiic performance
190
Deposit or earnest money escrow for a sales contract
- Secures contract validity and buyers equitable interest
- Varies in amount
- Deposit controlled by disinterested party (escrow) who must act according to escrow instructions
191
Contingencies
- Conditions that must be met for the contract to be enforceable
- Must be clear
- Have expiration date
- Require diligence to satisfy
192
Buyer default
- Seller can cancel, claim liquidated damages or sue for specific performance (i.e. buyer deposit)
193
Seller defauls
Buyer can cancel or sue for damages or specific performance
194
Options on a seller contract (i.e. if a RE Agent has an option to purchase)
- Optionor gives option to optionee to buy at a given time and price; optionee must pay for option right
- Unilateral contract: seller must perform, buyer does not.
- If option is exercised, option becomes bilateral sale contract
- Options are assignable
195
Option contract requirements
- Non-refundable consideration for the option right
- Price and terms of the sale
- Option period expiration date
- Legal description
- Must be in writing
- Must meet contract validity requirements
- Option should be recorded
196
Option agreement common clause provisions
- How to exercise option
- Terms of option money forfeiture
- How option money will be applied to purchase price
197
Essential for contract for deed
- Purchase price is paid over time in installments
- Seller retains title, buyer takes possession, equitable title
- At the end of period, buyer pays balance, gets legal title
198
Interests and rights for contract for deed
- Seller may encumber or assign interst
- Seller remains liable for underlying mortgage
- Buyer may use, posess, profit,
- Buyer must take periodic payments, maintain the property and purchase at the end of term
199
Seller Default of contract for deed
Buyer may sue for cancellation and damages or specific performance
200
Buyer default of contract for deed and recourse
Seller may sue for specific performance or damages, or may need to foreclose
201
Factors infuenceing supplu and demand
- Cost, availability of financing
- Availability of developable land
- Construction costs
- Capacity of infrastructure
- Governmental regulation and police powers
- Changes in the economic base
- In- and out- migrations of major employers
- Labor availability
- Land avaialbility
202
Government influence on the Real Estate Market
- Local zoning power
- Local control and permitting of new development
- Local taxing power
- Federal influence of interest rates
- Environmental regulation and legislation
203
Market indicators
- Vacancy rates
- building permits
- Prices - Increases indicate rising demand or declining supply or both. Decreases indicate falling demand or rising supplyor both.
204
Principals of value : Supply and Demand
- When demand exceeds supply, scarcity exists, values rise.
- When supply exceeds demand, surplus exists, values decline.
- When supply and demand are equal, the market is in balance, values stabilize.
205
Principals of value : Utility
- A propertys use in the marketplace contributes to demand for it
206
Transferability
- How readily or easily title or rights to real estate can be transferred affects the property's value
207
Principals of value : Anticipation
- The benefits of a buy expects to derive from a property over a holding period influence what the buyer is willing ot pay
208
Principals of value : Substitution
- A buyer will pay no more for a property that the buyer would have to pay for an equally desirable and available substitute property
209
Principals of value : Contribution
- The contribution to va;ue of an improvement in equal to the shange in market value that the addition and improvemnt causes
210
Change
- Market conditions affect the benefits that can arise from the property
211
Principals of value : Highest and best use
- A property achieves its maximum value when it is put to whichever use generate4s the greatest income and return. the highest and best use must be legally permissible physically possible, financially feasible, and maximally productive
212
Principals of value : Conformity
- A property's maximal value is attained when its form and use are constant with the surrounding properties and uses.
213
Principals of value : Progression and regression
- the value of a property is influenced by the values of neighboring properties
214
Principals of value : Assemblage
Conjoining adjacent properties can create a combined value in the excess of the values of the unassembled properties. The excess value is called plottage value
215
Principals of value : Subdivision
The division of a single property into smaller properties can result in a higher total value
216
Types of value : Market value
An estimated price at which a property will sell at during a particular time; this type of value is the one generally sough tin appraisals and used in brokers estimates of value
217
Types of value : insured value
The face amount of a casualty or hazard insurance policy will pay in case a property is rendered unusable
218
Types of value : Reproduction value
The value based on the cost of constructing a precise duplicate of the subject property's improvements, assuming current construction costs
219
Types of value : Replacement value
- The value base don the cost of constructing a functional equivalent of the subject property's improvement assuming current construction costs
220
Types of value : Salvage value
the nominal value of a property that has reached the end of its economic life; also an estimate of the price at which a structure will sell if it is dismantled and moved
221
Types of value : Assessed value
The value of a property as estimated by a taxing authority as the bases of ad valorem taxation
222
Types of value : Depreciated value
- Value established by subtracting accumulated depreciation from the purchase price of a property
223
Types of value : Book value
the value of the property as carried on the accounts of the owner; the value is generally equal to the acquisition price plus capital improvements minus accumulated depreciation
224
Type of Value : Investment value
the value of an income property as indicated by the capitalized value of the cash flow the property generates
225
Market value requirements
- A cash transaction
- Reasonable market exposure
- Parties have market and property use information
- There is no pressure to complete the transaction
- Transaction is arms length : parties are not related
- Marketable title
- No hidden influences
226
Appraisal process
- Identify the purpose
- Assimilate the relevant data
- Assess the highest and best use
- Assess the highest and best use
- Estimated value of the land
- Apply the three approaches to value
- Reconcile the values form the approaches
- Compile the report
227
Sales comparison approach
- Identify comparable sales
- Compare comps to the subject and make adjustments
- Weight values indicated by adjusted comparables for final value estimate of the subject.
228
Adjusting comparables : Rules for selecting comparables
- Must be physcially similar
- In subject vicinity
- Recently sold in arms length sale
229
Rules for Adjusting comparables
- Vener adjust the subject property
- Deduct from comparable if better than subject
- Add to comp if worse than subject
- remember (Subtract if superior)
230
Cost approach
Reproduction - Make precise replica
| Replacement - make a funcitnal equivalent
231
Steps in cost approach
- Estimate land value
- estimate replacement cost of improvements
- Estimate total depreciation
- Subtract : Cost of imporvements - depreciation = depreciated improvements cost
- Add land back in: land value + depreciated improvements = value estimate property
232
Depreciation
Depreciation
Deterioration
Functional obsolescence
Economic obsolescence
Curability - Cost to cure is less than resulting contribution to value
Incurable: cost to cure exceed contribution value
233
Income Approach to Valuation
Baed on the principal of anticipation; the expected future income stream of a property underlies what and investor will pay for the property
Also based on principal of substitution
234
Steps in income approach
- Estimate potential gross annual income
- Estimate effective gross income : Total potential income - vacancy
- Estimate net operating income (NOI) : Effective income - expenses
- Select and apply capitalization rate : NOI / Cap rate
235
Gross rent multipliers
- Simplified income based methods to estimate value
- Method consists of applying a multiplier to the estimated gross rent of the subject property
- Multiplier is derived from market data on sales price and gross rent
- Does not necessarily produce accurate estimates
GRM formula = Price / monthly rent
Value = GRM * monthly rent
236
Competitive market analysis
- Identify comparables sold, for sale properties, and expired listings
- Compile comparison data for each comparable: price, sale date, location, age, lot size, site aspects, living area, bedrooms, etc.
- Complete adjustments for differences
- Derive total adjustments for each comparable
- Reconcile all value-adjusted comps to the subject to identify a value estimate
237
FIRREA : Financial institutions reform, recovery and enforcement Act
- Enacted in 1989 to regulate appraisal practices
- Requires that competent individuals whose professional conduct is properly supervised perform all appraisal used in federally related transactions
- As of Jan 1, 1993, federally related appraisals must be performed only by state-certified appriasers
238
USPAP : Uniform standards of Professional Appraisal Practice
- Competency standards established by the Appraiser qualifications board of the Appraisal foundation
- Requires recognized appraisal methods
- Must exercise a defined level of due diligence
- Must properly report results.
239
Mortgage transaction : Elements
- Promissory note, promise to repay loan
| - Mortgage: pledge of property as collateral for loan
240
Mortgage transaction : Mechanics
- Borrower gives lender promissory and mortgage
| - Lender gives borrower funds and records a lien
241
Mortgage transaction : Hypothecation
- Use a real property as collateral for a mortgage loan
242
Mortgage transaction : Financial Components : Original Principal
Capital amount borrowed on which interest payments are calculated
243
Mortgage transaction : Financial Components : Loan balance
Remaining unpaid principal at any point in the life of the loan
244
Mortgage transaction : Financial Components : Interest
Charge for the use of money; rate fixed or variable
245
Mortgage transaction : Financial Components : Annual Percentage rate
Includes interest and all other finance charges; lender must on residential properties
246
Mortgage transaction : Financial Components : Point
One percent of the loan amount
247
Mortgage transaction : Financial Components : Loan origination fee
Charged by lender at origination to obtain required return
248
Mortgage transaction : Financial Components : Term
Period of time for repayment of interest and principal
249
Mortgage transaction : Financial Components : Payment
The periodic payment of interest and/or principal
250
Mortgage transaction : Financial Components : Down payment
Borrowers cash payment applied to the purchase price
251
Mortgage transaction : Financial Components : Loan-to-value Ratio
The loan's share of the total value of the property
252
Mortgage transaction : Financial Components : Equity
At closing, the borrowers cash invested in the property; thereafter, the difference between the market value and the loan balance
253
Trust deed transaction : Elements : Promissory note
Trustor's promise to repay loan
254
Trust deed transaction : Elements : Deed of trust
Title to property as collateral for loan
255
Trust deed transaction : Mechanics
- Trust deed conveys title from the borrower/trustor to a third party trustee
- Trustee holds title on behalf of the lender/beneficiary until debt is repaid
256
Trust deed transaction : Promissory note
Legal instrument executed by borrower stating debt amount, loan term, method and timing of repayment, interest rate, promise to pay; may repeat other provisions from mortgage document or deed of trust; negotiable instrument assignable to a third party
257
Mortgage clauses : Payment of principal and interest: Prepayment and late payment charges
- Borrower must make timely payments according to the terms of the note
- Later payments of early payoffs may trigger penalties
258
Mortgage clauses : Funds for taxes and insurance
- Borrower must make monthly payments to cover taxes and hazard insurance
- Borrower may also have to pay flood insurance and mortgage insurance premiums
- Escrow account : Reserve account for periodic payments of taxes and insurance
- Real estate settlement procedures act (RESPA) limits funds the lender can require for this purpose
259
PITI
- Borrowers monthly payment for principal and interest paid is called a P&I payment (Principal and interest)
- The amount which includes the escrow payment is called PITI (Principal, interest, taxes, insurance)
260
Mortgage Clauses : Charges and liens
- Borrower is liable for paying any charges, liens, or other expenses that may have priority over the mortgage or trust instrument
261
Mortgage Clauses : Hazard or property insurance
Borrower must insure property as lender requires
262
Mortgage Clauses : Occupancy, preservation, maintenance and protection of the property
- Borrower must take and maintain occupancy as the borrower's principal residence according to requirements
- Borrower must not abuse or neglect the property including use for ilegal purposes, creating hazardous waste on the property or destroying improvements.
263
Mortgage Clauses : Protection of the lender's rights in the property
- Lender may take actions to protect its rights in the property if the borrower jeopardizes the property's value. the Cost of these action would be charged to the borrower
- Applies to loans that are not backed by the Federal housing Administration (FHA) or veterans Administration (VA) and that have a down payment of less than 20% of the property value
264
Mortgage Clauses : Inspection
Lender may inspect the property with reasonable cause to fear damage to the collateral
265
Mortgage Clauses : Condemnation
If the property is condemned or taken by eminent domain, lender reserves a claim on any resulting proceeds.
266
Mortgage Clauses : Transfer of property or a beneficial interest in borrower
- If borrower sells the property without the lenders approval, the lender may demand immediate repayment of the loan balance. This alienation clause aka, due on sale clause, allows lender to prevent unapproved loan assumptions.
- The requirement to repay the loan before the scheduled due date is called acceleration.
267
Mortgage Clauses : Borrowers right to reinstate
- If lender holds borrower in default, borrower has the right to reinstatement by performing certain actions, usually paying overdue payments plus expenses to the lender.
- Clause is called a redemption clause
- Gives the borrower time to satisfy obligations and prevent a forced sale.
268
Mortgage Clauses : Releases
- Agreement to release the lien obligation when borrower has paid off the loan
- Release clause, aka defeasance clause, may require lender to execute a satisfaction of mortgage, aka release of mortgage
- If deed of trust, lender directs trustee to execute release of deed or deed of reconveyance to the borrower as trustor
- release of deed or satisfaction
269
Escalation Clause
- Allows lender to increase the loan's interest
270
Loan Qualification : Equal Credit opportunity act
- Lenders must evaluate applicant according to applicants own income and credit information
- Lender cannot deny based on : Discounted income from part time work, Future plans to have a family, Location factors, Protected classes
271
Loan Qualification : Income qualification
- Income ratio and debt ratio qualify borowers income; income ration applied to gross income determies housing expense maximum; debt ratio takes revolving debt into account.
- Income ratios: 25%-28% conventional, 31% FHA-insured
- Debt ratios: 36% conventional; 43% FHA, and 41% FA
272
Loan Qualification : Cash qualification
Lender verifies applicants sources of cash for down payment; extra cash enhances income qualification evaluation
273
Loan Qualification : Net worth
- Extent to which applicant's assets exceed liabilites as a further source of reserves
274
Loan Qualification : Credit evaluation
Lender obtains credit reports to evlauate applicatns payment behavior
275
Loan Qualification : Loan commitment
- Written pledge by lender to grant loan under specific terms, lock-in, conditional, take-out
276
Loan Qualification : Loan to value ratio
- Relationship of loan amount fo property value
| - Expressed as percentage
277
Law affecting mortgage lending and regulation Z : Truth in lending and Reg Z
- Reg Z implements "Truth-in-lending simplification and reform act" and "Consumer credit report act"
- Lender must disclose finance charges and APR prior to closing
- Borrower has limited right of rescission, but excludes primary residence
- Lender must follow advertising requirements for full disclosure of costs, loan mechanics
278
Laws affecting mortgage lending : Equal credit opportunity act
- Prohibits discrimination in lending based on : Race or color, religion, gender, national origin, sex, marital status, age, dependenc upon public assitance
- Licensees assiting in qualifying must also comply
- Denied applicants must get notice within 30 days
279
Laws affecting mortgage lending : Real Estate Settlement Procedures Act (RESPA)
- Standardizes settlement practices & ensures buyers understand settlement costs
- Lender must :
- Provide CFPB booklet explaining loans, settlement costs and procedures
- Provide CFPB Loan estimate of settlement costs within three days of application
- Provide CFPB Closing disclosure three days before loan Consummation
280
Laws affecting mortgage lending : National Flood insurance Act
- Borrowers of "Federally-related loans" must obtain flood insurance if property is in designated flood-hazard area
- Flood zone maps indicate where homeowners must obtain insurance
281
The Mortgage Market : Supply and demand for money
- Relationship between supply and demand for money affects interest rates, consumer prices, availability of mortgage money, regulate by federal reserve
282
The Mortgage Market : Federal Reserve control of money supply among banks
- Sells T-bills to reduce money supply and increase interst rate. Buys T-bills to increase supple and decrease rate
- Sets the reserve requirement for member banks
- Increase reserves to tighten money and raise interest
- Decrease reserves to loosen money and lower interest rates
- Set the discount rate for member banks
- Increase discount rate tightens money making it more expense
- Decrease rate to increase money supply and make
283
The Mortgage Market : Federal home bank system (FHLBS) :
- Counterpart to the Fed for savings and loan associations
284
The mortgage market : Federal Deposit Insurance Corporation (FDIC)
- Insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category
285
The mortgage market : The primary mortgage market
- Originates mortgage loans directly to borrowers
- Includes savings and loans, commercial banks, mutual savings banks, life insurance companies, mortgage bankers, credit unions
286
The mortgage market : the secondary mortgage market
- Buys exisitng loans to provide liquidity to primary lenders; Fannie Mae, Ginnie Mae, Freddie Mac, Investment firms, life insurance companies, pension funds.
287
The mortgage market : Role of FNMA, GNMA, and FHLMC
- FNMA buys conventional, FHA and VA backed loans and pooled mortgages; guarantees payment on mortgage-backed securities
- GNMA Guarantees payment on Certain types of loans
- FHLMC buys and pools mortgages, sells mortgage backed securities.
288
The mortgage market : mortgage loan originator
Solicits, negotiates mortgage loans; requires MLO license
289
The mortgage market : Mortgage broker
An intermediary who brings mortgage borrowers and mortgage lenders together, but does not use its own funds to originate mortgages
290
The mortgage market : Mortgage banker
- Person or entity whose funds or services loans for others and/or who sells mortgages to the secondary market.
291
Types of mortgages : Conventional mortgages
- Originated by banks and private financial institutions
- No government related insurance or guarantees as with FHA or VA
- typically require 20% down payments; smaller down payments may require PMI
- Assumptions require approval
292
Mortgage structure : Amortized
Payments include increasing increments of principal which retire loan balance over loan term
293
Types of mortgages : Fixed rate
Interest rate does not change - can have for amortized or interest only loans
294
Types of mortgages : Adjustable loans
Interest rate fluctuates up or down with an index; payments may also vary
295
Types of mortgages : Adjustable Loan Characteristics : Mechanics
Rate adjusts up or down with index payments or may not change
296
Types of mortgages : Adjustable Loan Characteristics : Negative amortization
Loan balance increases if payments are less than what is owed given the balance and rate i.e. unpaid monthly amounts are added to the principal balance
297
Types of mortgages : Adjustable Loan Characteristics : Rate and payment caps
Maximum amounts the interest rate or payment can increase in a given adjustment periods or over the life of the loan: protects borrower from unaffordable increases
298
Types of mortgages : Adjustable Loan Characteristics : Index and margin
Interst rate tied to any number of financial indicies; margin equals a fixed point spread between the index and the interest rate
299
Types of mortgages : Adjustable Loan Characteristics : Teaser rates
To attract borrowers, adjustable loans may have low initial rates which increase over subsequent adjustment periods to a more permanent market level.
300
Types of mortgages : Custom mortgages : Partially amortized w/ a balloon:
Payments will not retire principal balance over the life of the loan, thus requiring a lump sum payment, of a "balloon" payment at end of term.
301
Types of mortgages : Custom mortgages :Interest only loans
Loans where payments are interest only, and the principal balance is retired in full at maturity using a balloon payment
302
Types of mortgages : Custom mortgages : Biweekly mortgages
Loan payments are every two weeks, a device reduced total interest paid, but also shortens risk period for lender
303
Types of mortgages : Custom mortgages :Package mortgage
Mortgage loans which also finance articles of personal property as part of the purchase transaction
304
Types of mortgages : Custom mortgages : Home equity loans
Funds borrowed using the homeowners equity for collateral; funds can be used for any purpose
305
Types of mortgages : Custom mortgages : Purchase money mortgage
A seller-financed loan to the buyer of portions of the purchase price using the property as collateral; usually accompanied by a senior underlying first mortgage.
306
Types of mortgages : Custom mortgages : Reverse annuity mortgage
A financial arrangement where the homeowner pledges equity to a llender in exchange for periodic payments of the pledged equity; In essence it is the periodic receipt of equity liquidation in exchange for an increase of debt owed ont he propertyy
307
FHA Loans
Insured loans granted by approved lenders to qualified borrowers
308
FHA Loans : Loan term
15, 30 years
309
FHA Loans : Qualifying ratio
- Income ratio : 31%
| - Debt: 43%
310
FHA Loans : Minimum downpayment
3%
311
FHA Loans : Mortgage Insurance
- Required at 78% LTV or above
| - Premium = One-time 1.75-2.25%
312
Investment Terminology : Appreciation
An increase in the value of a property owing to economic forces beyond the control of the investor
313
Investment Terminology : Asset
Tangible or intangible item of Value
314
Investment Terminology : Basis
A measurement of how much is invested in the property for tax purposes; adjusted basis is the original cost of the asset plus capital improvements minus depreciation.
315
Investment Terminology : Capital gain (or loss)
The difference between the net sales proceeds of an asset and its adjusted basis
316
Investment Terminology : Cash Flow
The remaining positive or negative amount of income an investment produces after subtracting all operating expenses and debt service from gross income
317
Investment Terminology : Cash flow
The remaining positive or negative amount of income an investment produces after subtracting all operating expenses and debt service from gross income
318
Investment Terminology : Equity
That portion of a property's value owned by the legal owner, expressed as the difference between the property's market value and all loan a balances outstanding ON the property
319
Investment Terminology : Leverage
The relationship between the yield rate of an investment and the interest rate of funds borrowed to finance the investment; If the yield rate is greater than the loan rate, positive leverage results; if the yield rate is less than the loan rate, negative leverage results
320
Investment Terminology : Tax Shelter
An investment that produces depreciation or other non-cash losses that a tax payer can deduct FROM other income to reduce tax liability
321
Investment Characteristics : Ownership benefits
- Income
- Appreciation
- Tax shelter : Depreciation and interest deductions
322
Investment Characteristics : Ownership risks
- Relatively Illiquid
- Management intensive
- Negative leverage and price movements
323
Investment entities : Direct
Investor buys directly and manages personally
324
Investment entities : Syndicate
Group of investors who combine funds to buy, develop, and/or operate a property
325
Investment entities : General Partnership
All members own and manage
326
Investment entities : General partnership
All members own and manage
327
Investment entities : Limited partnership
general partner managers; limited partners own but do not manage
328
Investment entities : Real Estate investment Trust
- Investors buy trust certificates; trust invests in real estate assets
- Investors share returns per ownership percent
329
Taxation of Real estate investments : Income producing investments are taxed on...
- The annual income they make plus on any gain realized when sold
330
Taxation of Real estate investments : Taxable income
- Gross income minus allowed expenses and deductions
| - Net income from the investment is added to the investors other ordinary taxable income
331
Taxation of Real estate investments : Cost recovery, or depreciation
- Deduction of a portion of property's value from gross income each year over depreciable life of asset
- Depreciable life defined by tax laws
332
Taxation of Real estate investments : Depreciable basis
- The non-land, or improvement portion of an income producing property
- Cannot depreciate land value
333
Taxation of Real estate investments : Depreciation schedules / terms
27.5 years to 39 years
334
Taxation of Real estate investments : Capital gains and loss
- The taxable gain (Profit) or loss incurred when the income property is sold
- If sales proceeds exceed the current adjusted basis there is a gain; if less, then it is a loss
335
Taxation of Real estate investments : Adjusted basis
The cost of the investment plus capital improvements less depreciation
336
Taxation of Real estate investments : Interest
- Deductible from income for tax purposes
| - Cannot deduct principal
337
Tax Liability on sale of residence :
- Seller of principal residence owes taxes on capital gain that results from sale unless excluded
- Capital gain is the amount realized minus the adjusted basis
- Gains tax exclusion: up to $250,000 for a single seller and $500,000 for a married couple can be excluded from gains tax every two years.
338
Taxing authorities : Taxing entites
Property tax, or ad valoren taxation - not to be confused with an income property's annual tax on taxable income
No federal ad valorem taxation - Can impose a tax lien, but onot annual property tax
States may levy property taxes - Typically delegated to county and local jurisdictions. States may also impose tax liens
339
Taxing authorities : Tax districts which levy property tax
- Counties, Cities, Municipalities, townships, Special tax districts, established to collect funds for schools, fire, protection, parks, community colleges, libraries, road maintenance, other public services
340
Property tax calculation : Property tax
- Ad valorem tax levied annually on the taxable value of a property in order to help fund government and public services
- Taxable value is based on assessed value.
341
Property tax calculations : Tax base
The total of all assessed values in a jurisdiction excluding exemptions
342
Property tax calculations : Tax rate
- Also the millage rate
| - Rate applied to taxable value of each property to determine its tax levy
343
Property tax calculations : Equalization factors
Value-adjusing factors applied to assessed value to increase fairness, evenness of tax levies
344
Property tax calculations : Assessed value
The valuation of properties for tax purposes, completed by assessors
345
Property tax calculations : Homestead exemptions
- A tax exemption of a portion of the assessed value of a principal residence
- Granted to the homeowner, provided : He or she is the head of the family & has resided at the property for the required length of time.
346
Property tax calculations : Other exemptions
- Properties immune from ad valorem tax - government owned properties
- Exempt from taxes - properties owned by non-profit organizations.
347
Property tax calculations : Tax rate mills
- Tax rate stated as mills ($.001), of
- Dollars per $100 of assessed value, or
- Dollars per $1,00 of assessed value, or
- As a percentage of assessed value
348
Property tax calculations : Tax billing and collections
- Individual tax bill - rate * taxable value
| - Taxable value - assessed value minus exemptions and adjustments
349
Property tax calculations : Special assessments
- Leveled against specific properties that will benefit from the planned improvement
- Assessment amount based on pro rata share of benefitting properties
- Create voluntary or involuntary tax lien
350
Tax lien enforcement : Process
- tax certificate issuance
- Certificate buyer pays taxes due
- Application for a tax deed
- Tax sale and foreclosure
351
Tax lien enforcement : Sale of tax certificates
- Tax certificate buyer pays taxes due
| - After a period of time may apply for a tax deed
352
Tax lien enforcement : Tax deed conveyance
- Conveys title in the tax sale
353
Tax lien enforcement : Tax sale
- Buyer must pay taxes due
- Defaulted tax payer may be able to redeem property
- If not redeemed, state issues tax deed to convey title to buyer.
354
Fair Housing Laws : Anti discrimination
- Federal and state laws prohibit discrimination in housing
- Citizens entitled to live wherever they wish without discrimination
- State fair housing laws reflect national laws with certain differences
- Fair housing and local zoning - Fair housing does not preempt local zoning, but zoning cannot be discriminatory against protected classes
355
Fair Housing laws : Civil Rights Act of 1866
- No discrimination in selling or leasing housing based on race
356
Fair Housing laws : Civil Rights Act of 1866 : Executive order 11063
No race discrimination involving FHA or VA-backed loans
357
Fair Housing laws : Civil rights Act 1968
- Title VIII (Fair Housing Act)
- No housing discrimination based on race, color, religion, national origin
- Certain exceptions permitted
358
Fair Housing laws : Forms of illegal discrimination
- Discriminatory misrepresentation
- Advertising
- Unequal services
- Steering
- Blockbusting
- Restricting access to market
- Redlining
359
Fair Housing laws : Title VIII Exemptions
- Selling, leasing single family home without broker or discriminatory advertising, with conditions
- 1-4 Unit rental building where owner is occupant
- Leasing facilities owned by private clubs
- Facilities owned by religious organizations and leased to members
360
Fair Housing laws : Jones vs. Mayer
Discrimination in selling/renting residential housing based on race is prohibited without exception or exemption
361
Fair Housing laws : Equal opportunity
- Brokers must display
- Affirms compliance with fair housing laws
- Failure to display can be construed as discrimination
362
Fair Housing laws : Fair Housing Amendments Act of 1988
No discrimination based on
- Sex
- Against the handicapped
- Families with children
Exemptions
- Government-designated retirement housing
- Retirement community (62+ years of age)
- Retirement community if 80% of dwellings have one person who is 55+
- 1-4 unit dwellings where owners have no more than 3 homes
363
Fair Housing laws : Discrimination by the client
- Laws apply to owners as well as agents
- Agent liable if goes along with client discrimination
- Agent should withdraw from relationship with discriminatory client
364
Fair Housing laws : Violations and enforcement
- File HUD compliant
- File suit in court
- May obtain injunction, damages
- Violators subject to prosecution
365
Fair Housing laws : Fair Financing Laws : Equal credit opportunity Act
- EqualLenders must be fair, impartial in loan qualifying
- May not discriminate baed on race, color, religion, national origin, sex, marital status, age
- Must state reasons for denial
366
Fair Housing laws : Fair Financing Laws : Home mortgage disclosure Act
- Prohibits redlining
| - Lenders must report location of loans
367
Fair Housing laws : Americans w/ disability Act
- Purpose is to prohibit discrimination against persons with disabilities
- Applies to accessing public, employment, education, transportation facilities
- Applies to private employers with 15+ employees and public employees
Title 1 : Employment - Must have equal opportunity, enforced by ECOA
Title 2 : State, local government
ADA requirements : Landlords must modify housing to be accessible without hinderance. Access must be equivalent to that provided to non-disabled persons
Penalties - Violations can result in citation, license restriction, fines, injunctions
368
Property disclosures : Residential property conditions : Seller disclosure form
- Sellers (not agents) must complete form in many states for prospective buyers
- Describes property condition at time of sale on state-approved forms
369
Property disclosures : Residential property conditions : Owners role
- Seller must affirm whether or not problems exist with property or its systems
- If unknown seller must so state; if a defect is known seller must disclose
- If seller is unaware of a problem s/he can state "now representation" which removes liability for not disclosing
- Seller must sign, deliver to buyer must acknowledge receipt
370
Property disclosures : Residential property conditions : Licensee's role
- Must disclose any material facts that are known or reasonably should have known
371
Property disclosures : Residential property conditions : Right of recission
- If seller does not complete and deliver form, buyer receives a right to rescind contract and reclaim deposit
- Right to cancel continues until closing or occupancy
372
Property disclosures : Residential property conditions : Property condition and material facts
- Material fact = a fact affecting the property's value or the prospects decision to contract
- Property stigmas are not material facts (previous crime, suicide, disease, etc.)
- No requirement to disclose non-material facts
- Material facts can include the surrounding area in addition to the immediate premises
373
Property disclosures : Residential property conditions : Environmental Issues
- If built before 1978 must disclose possible lead hazard
- Aesbostes must be removed if found
- Air quality - can/should test for carbon monoxide, radon, formaldehyde, other toxic chemicals prior to sale
- Septic systems - can release contaminants into soil
374
Property disclosures : Residential property conditions : Clean Air Act
- Controls air pollution, air quality on national scale. Creates pollutant - emission standards
375
Property disclosures : Residential property conditions : Clean Water Act
- Governs, sets standards for controlling water pollution. Applies to all waters connected to navigable waterways
376
Property disclosures : Residential property conditions : Warranties : Purpose & scope
- Aka home service contracts, to cover service, repair of systems, appliances
- Typically annual contracts with costs depending on property size, location, type, degree of coverage
- May be included in purchase price of a home
377
Property disclosures : Residential property conditions : Warranties : Limitations
- Pre-exisitng conditions, accidental breakages, poor installations, outdoor systems, certain appliances etc.
- Homeowner must use warranty company to have services performed
378
Property disclosures : Residential property conditions : Inspections : Process
Inspection detec oversights or need for repairs
- Identify need for maintenance procedures
- Inspections uncover system, pest infestation, environmental issues
- Licensee disclosure duties - In most states licensee must disclose known, material facts on residential properties
- When not require, licensees should suggest professional inspections / audits
379
Property disclosures : Residential property conditions : Home owners association disclosures
- Must disclose if subject to common interest plan
- Must disclose associations membership obligation, dues, restrictions
- Association must provide required disclosure documents, forms, timing, requirements
- Seller responsible for disclosures, agents must ensure seller complies
380
Code of Ethics : Sources of practitioner ethics
- Federal, state legislation
- State license regulation
- Industry self-regulation via trade associations, institutes
- Pre-dominant influence in practitioner ethics is the Code of Ethics of the National Association of Realtors - Covers all aspects of practice and transactions
381
Code of Ethics : Duties to clients
- Honesty in representing values, property condition
- Respecting other broker-client relationships
- Submitting all offers
- Avoiding commingling, conversion
- Maintaining transaction files
- Maintaining confidentialities
- Managing client property completely
382
Other Professional Practices : Duties to customers
- Honesty & fair dealing
- Disclosing sources of compensation
- Conducting honest advertising that is not misleading
383
Other professional practices : Disclosures
Comply w/ federal, state and ethical disclosure requirements including disclosure in ads
384
Other professional Practices : Professional relationships
- Avoid disparagement of competitors
- Do not exploit unfair advantages
- Arbitrate difference, disputes rather than litigate
- respect agency relationships of others
- Conform to accepts standards of co-brokerage practices
385
Settlement Process
- Identify selling terms & costs
- Determine non-prorated debits an d credits
- Complete prorated debits & credits
- Complete closing statement
- Disburse funds
386
Key Points on closings
- Seller must prove marketability of title (via title insurance)
- Must remove all encumbrances before title transfer
- Escrow officer disburses buyers funds, loan monies once conditions are met
- Conditions include survey, inspections, title insurance reserves, PMI
387
RESPA : Purpose
- Clarify, disclose costs; eliminate kickbacks, undisclosed fees
388
RESPA : Applicability
- For residential property
- Federally-related mortgage, including VA, FHA
- Regulated by Consumer Financial Protection Bureau
389
RESPA : Informaiton booklet
Lender must provide CFPB booklet, "Your Home Loan Toolkit"
390
RESPA : Loan Estimate
Lender must provide CFPB's H-24 Loan estimate of settlement costs within three days of application
391
RESPA : Closing disclosure
Lender must use CFPB's H-25 Closing Disclosure
392
Referral fees & kickbacks
- RESPA prohibits payment of referral fess & kickback
| - Business relationships between firms involved in the transaction must be disclosed
393
Truth in lending integrated disclosures Rule (TRID) : Key Points
- Combines financial disclosure requiremenrs of RESPA & Truth in lending act
- Replaces "Good faith Estimate" and HUD-1 Forms
- uses new "Loan Estimate" form and "closing disclosure" form
394
Truth in lending integrated disclosures Rule (TRID) : Form & procedures
- Lender must provide mandatory: "your home loan toolkit" booklet at loan application
- Loan estimate form: 3 business days after loan application
- Closing disclosure : 3 business days before consummation
- Terms in both forms must generally be the same
395
Truth in lending integrated disclosures Rule (TRID) : Good faith
- Loan estimate costs based on best information available
| - Closing disclosure costs equal estimate costs within certain tolerances
396
Truth in lending integrated disclosures Rule (TRID) : Types of charges
- No limitation or increase over estimate
- 10% tolerance charges
- 0 tolerance charges
397
Truth in lending integrated disclosures Rule (TRID) : Applicable transactions
- Most closed-end consumer mortgages, including: Construction loans, loans secured by vacant land, loans and trusts
- Not covered: home equity loans, reverse mortgages, loans on mobile homes, loans by small lenders (No more than 5 loans per year)
398
Truth in lending integrated disclosures Rule (TRID) : The H-25
5 pages, variable loan type
399
Debits & Credits : Amount buyer must produce
Excess of buyers debits over credits
400
Debits & Credits : Amount seller must receive
Excess of sellers credits over debits
401
Debits & Credits : Buyers credits
- Earnest money
- Loan amount
- Sellers share of prorations buyer will pay
402
Debits & Credits : Buyers Debits
- Purchase price
- Expenses (per agreement or custom)
- Buyer's share of prorations prepaid by seller
403
Debits & Credits : Seller credits
- Purchase price
| - Buyers share of prorated items prepaid by seller
404
Debits & Credits : Seller debits
- Expenses (per agreement or custom)
- Seller's share of prorated items the buyer will pay
- Loan balance and other liens to be paid off.
405
30 day 12-month proration
Monthly amount = Annual amount / 12
Daily amount = monthly amount / 30
Proration = (monthly amount * number of months) + (Daily amount * number of days)
406
365 day method
Daily amount = annual amount / 365 OR
Daily amount = Monthly amount / no. of days in the month
Proration = Daily amount * number of days
407
Four Risk Management Strategies : Avoidance
Refrain from risk activity - E.g. assuring buyers a property will appreciate
408
Four Risk Management Strategies : Reduction
- Reduce profitability of loss
- Reduce severity of loss
- Share responsibility for a decision
409
Four Risk Management Strategies : Transference
- Pass the risk to another party
- Get E&O insurance
- By contract; Insurance
410
Four Risk Management Strategies : Retention
- Accept risk
- Take responsibilities for consequences
- Eg. pricing strategy on a listing
411
Risk management procedures : Education
- Knowledge and skill reduce risk
| - Understand forms and contracts
412
Risk Management Procedures : Disclosure
- Provide information to reduce misunderstanding & lawsuits
413
Risk Management Procedures : Disclosure areas
- Agency
- Property condition
- Fiduciary / statutory duties
- Personal interest in selling a property
- Documentation and record keeping
- Maintain evidence of compliance, transaction record keeping
414
Insurance Types- Toe Manage Risk
- general liability
- Errors and omissions (E&O to cover negligence in discharging service duties)
- Fire Hasard
- Flood
- Casualty
- Workers
- Personal property
- Consequential loss
- Surety bond
415
Primary Areas of Risk : Agency
- Fulfill agency disclosure requirements
- Discharge fiduciary duties and duties to customers
- Avoid conflict of interest
- Uphold legal confidentialities
416
Primary Areas of Risk : Property disclosures
- Seller's property condition disclosure
- Material facts disclosure
- Lead paint, infestations, mold, radon
417
Primary Areas of Risk : Listing and selling
- Listing agreement accuracy
- Comparative market analysis results
- Closing cost estimates
- Advertising
- Authorizations and permissions
- Exceeding expertise
418
Primary Areas of Risk : Contracting process
- Contracts for real estate must be in writing
- Inaccuracy endangers contract
- Avoid unauthorized practice of law - May fill in blanks on standard contract forms. Do not give legal advice to public
419
Primary Areas of Risk : Fair housing
- Advertising may not state preference, limitation or discrimination based on race, color, religion, national origin, sex, handicap, familial status
- Licensee must not be involved with discriminatory action of a client or customer
- Make sure listing and purchase contract are in compliance
420
Primary Areas of Risk : Antitrust
- Cannot collude on prices; Fix prices
- Cannot conspire with other companies to restrict trade or unjustly impair a competitor
- Cannot create monopolies
- Cannot allocate markets among competitors
421
Primary Areas of Risk : Rules and regulations
Prime cause of discipline
- Commission of prohibited acts
- Practicing with an expired license
- Disclosure failures
- Earnest money mishandled
422
Primary Areas of Risk : Misrepresentation : Unintentional
- Inaccurate information conveyed unknowingly
| - Occurs most often in measurements, property characterizations
423
Primary Areas of Risk : Misrepresentation : Intentional
- Fraud
| - Knowingly conveying false information
424
Primary Areas of Risk : Ways to avoid misrepresentation
- Measure and calculate areas accurately
- Do not over-rely on measurements by others
- refrain from exaggeration
- Avoid stating opinions a consumer might take for expertise
425
Primary Areas of Risk : Recommending providers
Risks include
- Consumer dissatisfaction
- Possible liability for undisclosed business relationship
Best practices
- Do not recommend vendors
- Provide list of trusted vendors with a disclaimer and no recommendation
426
Primary Areas of Risk : Trust fund handling
- Mishandling of earnest money deposits
- Commingling trust funds
- Conversion of trust funds
- Errors in use of trust accounts
427
Management Functions : Types of manager
- Individual, managing properties for multiple owners; building manager, employed to manage a single property; resident, employed to live and manage on-site
- May specialize in a property type
- Manger is a fiduciary of the principal
- Specific functions determined by management agreement
428
Management Functions : Reporting
- Monthly, quarterly, annually
| - Annual operating budget, cash flow report, profit and loss statements, budget comparison statement
429
Management Functions : Budgeting
- Operating budget: Rental rates, capital expenditures, reserves, salaries and wages; projects income based on past performance and current market
- Expenses, variable and fixed, capital expenditures: outlays for major renovations and construction; cash reserve set aside for variable expenses.
430
Management Functions : Renting
- Keep property rented and tenanted
- Select compatible tenants and collect scheduled rents
- Legal issues: compliance with fair housing laws, American with Disabilities ACT and ECOA
431
Management Functions : Property Maintenance
- balance costs of services, owner financial objectives and tenant needs
- Routine preventive, or collective; staffed in-house or contracted out
432
Management Functions : Construction
- Tenant alterations, renovations, expansion, environmental remediation
- Legal concerns : ADA
433
The Management agreement : Components
- Names; description; lease term; owner's purpose; responsibilities; authority; budget; allocation of costs; reporting; compensation; equal opportunity statement
434
The Management agreement : Rights Duties and liabilites
- Landlord: receive rent; receive premises in specified condition; enter and inspect; examine books; contract, hire vendors, set rents; pay management fee; comply with laws
- Manager: hire and fire; contract; perform management tasks without interference; maintain financial records, make reports, budget, collect rent, find tenants, maintain property, meet owner goals; liability for trust funds; comply with laws
435
Leasing considerations : Landlord rights
Enter premises, receive payment, retake on termination, pursue remedies
436
Leasing considerations : Landlord responsibilities
Provide habitable conditions, maintain heating, cooled, electrical, plumbing, keep clean and in repair
437
Leasing considerations : Tenants rights
Quiet enjoyment, habitable conditions, right to sue for default
438
Leasing considerations : Tenant responsibilities
Pay rent, obey rules, give proper notice, return property in prescribed conditions, use only for intended purpose
439
Leasing considerations : Evictions : Actual
Legal procedure; notice, suit judgement, taking
440
Leasing considerations : Evictions : Constructive
Tenant vacates on account of landlord failure to maintain premises
441
Leasing considerations : Termination of a lease
Expiration, performance, agreement, abandonment, breach, notice, deconstruction of premises, condemnation, foreclosure, death of either party (Tenancy at will), death of landlord (life estate)
