Real Estate Sales Exam Flashcards
Voluntary Alienation
Property Conveyed or transferred voluntarily
How can Voluntary Alienation be accomplished?
Dedications, gifts, public grants, and sales
Dedication
Term used for a specific type of voluntary transfer of property from an individual to the government
Consideration
No money or other thing of value is exchanged for the property
Public Grants
Transfers of property in which the government gives a piece of property to someone
Grantor
Person selling the property
Grantee
The person buying the property
Involuntary alienation
Property that can be taken against your wishes or for some other reason it can be lost
What are the forms of involuntary alienation
adverse possession, avulsion and erosion, eminent domain, foreclosure, forfeiture and partition.
Adverse Possession
The loss of your property or some rights to your property because of continues use by someone else
Prescriptive Easement
The original owner can lose complete title (ownership) to the property or only a right to use part of the property
Tacking
The ability of a party claiming possession to count or accumulate the necessary amount of time of possession during the ownership’s of more than one owner
How do you get title to property through adverse possession?
The person claiming title must file a lawsuit or otherwise initiate an action to quiet title in court
Avulsion
The sudden loss of land, can occur by natural processes. Earthquakes, landslides and mud slides.
Erosion
Loss of land through a gradual process
Accretion
Gaining land by natural forces
Eminent Domain
The taking of land against your wishes by the government or other public agency
Foreclosure
Losing your property involuntarily to pay a debt
Partitioning
is a legal preceding that is undertaken to divide a single piece of property that is owned in shares
Will
A document that determines how a deceased persons real property and personal property are to be distributed after death.
Testator
The person for whom the will is drafted
Devisee
Anyone who receives title to real estate through a will
Devise
The gift of real property
Codicil
An addition or change to an existing will made by the person for whom the will was written
Contract
An agreement either to do or not to do something. The agreement must be made voluntarily by legally competent parties.
Express Contract
Created when parties to the contract clearly state in words what they agree to do or not
Implied Contract
Created by the actions of the parties
Bilateral Contract
One in which two parties each agree to do something, in effect exchanging promises
Unilateral Contract
A one-sided agreement in which only one party is obligated to do what is promised
Exercising the Option
The buyer is free to buy or not to buy, but the seller must sell the property to the buyer at the stated price if the buyer whats to buy it within the years time.
Statute of Frauds
Requires most real estate contracts to be in writing for them to be enforceable
Uniform Commercial Code (UCC)
Governs sales and contracts involving personal property like a car
What makes a contract valid?
Legally competent parties Mutual Agreement Lawful Object Consideration Agreement in writing
Void Contract
One in which one or more of the required elements are missing. A contract to do something illegal is a void contract
Unenforceable Contract
One that seems valid, and may in fact have all the elements of a valid contract but for one reason or another cannot be enforced by one party against another.
Voidable Contract
Usually involves a situation in which one of the parties may not have the legal ability yo enter into a contract but may confirm the contract at a later time.
Executory Contract
One in which one or more of the terms of the contract have not been completed
Executed Contract
One in which everything is completed
Listing agreement
Is between an agent and a property seller
Exclusive right to sell listing agreement
Requires that compensation be paid to the broker regardless of who sells the property
Exclusive agency listing agreement
One in which a fee is owed to the broker only if the broker sells the property.
Open Listing Agreement
Owner agrees to pay a fee to any broker producing a successful buyer
Buyer Agency Agreements
Are formed between an agent and someone who wants to purchase a property
Exclusive buyer agency agreement
requires that the buyer pay the agent whether or not the agent finds the buyer the house that the purchaser buys
Exclusive agency buyer agency agreement
The buyer is obligated to pay the agent only if the agent produces a property that the buyer buys
Open Buyer agency agreement
Buyer essentially says he will pay any agent who finds him a property
What are the elements of a valid contract
Legally Competent Parties
A contract that must be in writing
A legal description of the property
Words of mutual agreement to buy and sell the property
Consideration, what is being paid or exchanged and any other financial terms
Signatures of both or all parties; The signing of a contract for the sale of a property gives the buyer equitable title which isn’t yet ownership and which can be conveyed in a deed.
Lawful Object: This requirement is usually pretty easy to meet because the object of the real estate sales contract is to sell the real estate
Uniform vendor and purchaser risk act
requires the seller to bear any loss that occurs before title is passes to the buyer
Contingency Clause
Statement that requires that a specified condition must be met for the contract to be completed
Mortgage Contingency
allows for the possibility that the buyer may not be able to afford to buy the house
Inspection Contingency
An agreement that requires an inspection of the house by a home inspector
Conditional Sales Contract
May be used to purchase property without immediately paying the full price and without obtaining a mortgage
Lease
A form of real estate contract that gives someone exclusive use of a property for a period of time for a fee.
Discharging a Contract
ending the contract in one of several appropriate ways
What are the ways a contract can be discharged
Performance Assignment and Delegation Death Impossibility of Performance Mutual Agreement Novation Operation of Law Partial Performance Rescission Substantial Performance
Forfeit the Contract
The seller formally declares the contract forfeited.
Rescind the contract
After a buyer defaults the seller declares the contract rescinded. This statement puts everyone back in the same position as when the contract never existed
File suit for compensatory damages
The seller brings a lawsuit against the buyer for monetary damages that the seller believes he has experienced because the buyer defaulted on the contract.
File suit for specific performance
Is to force the buyer to buy the house.
Lease Fee Estate
The owners interest in a property in a lease situation
Leasehold Estate
The tenants interest in the property
Estate for years
A lease agreement with a definite starting and end date
Periodic Estate
Occurs when the original agreement doesn’t contain any definite period of time
Holdover tenant
When a lease with an ending date ends and the tenant doesn’t move out and the landlord continues to accept the rent.
Estate at will
When the landlord allows the tenant to occupy the premises, but there is no definite period of time when the arrangements will expire.
Estate at sufferance
Occurs when a tenant who had a legal right to occupy the premises continues to occupy the space after the right of occupancy has expires.
Uniform Residential Landlord and Tenant Act
Provides additional terms and conditions that should be addressed in the lease.
Rent Control
Any type of government control over what a landlord may charge a tenant
Gross Lease
Where the tenant pays the same rent each month, and the landlord pays all the buildings expenses, such as maintenance and taxes
Ground Lease
Lease where someone rents an empty vacant piece of land specifically to erect a building on it
Net Lease
One where the tenant pays building expenses on top of base rent
Triple Net Lease
Requires the tenant to pay all expenses such as taxes, utilities, maintenance and insurance
Percentage Lease
Minimum monthly rental charge plus a percentage of the gross earned by the business
Proprietary Lease
A lease that is given to the owner of a cooperative apartment. The owner doesn’t actually own the apartment itself but rather shares in the corporation that owns the building
Actual Eviction
Occurs when the landlord sues for possession of the premises
Constructive eviction
Occurs when the landlords actions are such that the premises become uninhabitable
Rentable Space
Space that a tenant pays for when renting nonresidential space, say in an office building or shopping mall
Useable Space
The square footage that the tenant is allowed to use exclusively
Add-on factor
The difference between the rent-able space and the usable space
Comprehensive Environmental Response, compensation and liabilty act (Cercla)
This laws purpose is to identify sites of environmental pollution and provide funds for cleanup
Strict
This means that the property owner has no excuse with respect to his liabilty
Joint and Several
If more than one person is responsible for the hazardous waste site, the law is enforceable on the group as well as on each individual
Retroactive Liability
All previous owners also can be held responsible for the hazardous waste site
What are three things the environmental protection agency administer?
The clean water act, The toxic substance control act, Resource Conservation and recovery act.
Who is The Hazardous Material Transportation Act (HMTA) enforced by?
The United States Department of Transportation
What is the leaking underground Storage Tank Program (LUST)
Created in 1984 as part of the resource conservation and recovery act administered by the epa. This program targets underground storage tanks used for storage of hazardous substances such as chemicals or oil based products like motor fuel.
What is OSHA and what does it stand for?
The occupational safety and health administration. They are responsible for providing monitoring regulations regarding worker safety particularly in factories.
What three essential functions does the Superfund Amendments and Reauthorization Act of 1986 perform?
Provide increased funding to the superfund for environmental cleanup
Creating stronger standards for cleanup of hazardous waste
Creating innocent landowner immunity
Innocent Landowner Immunity
Where a property owner has been innocent of all involvement with a hazardous waste site and under certain circumstances may claim immunity from responsibility
What is the (SDWA)?
The safe drinking water act, which established standards for the testing and quality of public water supplies. It requires that the public be notified if the drinking water contains contaminants above acceptable levels
Mitigation Measures
Things that might be done to minimize or eliminate the environments impact of the project
Asbestos
Is a mineral that has been widely used in residential and commercial construction because of it resistance to the transfer of heat and its resistance to fire.
Friable
The tendency to break down and give off dust and fibers that can be highly dangerous if inhaled
Asbestosis
A sometimes fatal disease that makes breathing difficult
Mesothelioma
A cancer of the lining of the lungs
What are the three ways to deal with asbestos?
Leave it alone
Remove it
Deal with it: Encapsulation
Encapsulation
Sealing the asbestos in place.
Brownfields
Former industrial, factory, manufacturing or storage sites that may have environmental
Building-Related Illness
Describes various health issues related to the indoor air quality of buildings
Lead Based Paint Hazardous Reduction Act
Requires that homeowners in homes built before 1978 fill out lead paint disclosure form and give it to a buyer when they sign a sales contract
Earnest
Deposit Money
Radon
Odorless, tasteless, radioactive gas produced by the decay of natural materials such as rocks that are radioactive
Sick Building Syndrome
Symptoms that people sometimes experience when inside a building for period of time, but which end when the person leaves the building.
Landfills
Areas that are excavated, filled with solid waste and then covered.
Carbon Monoxide
A potentially deadly gas that occurs naturally in the burning of gas, oil, or other fuels. It can be lethal in the case of faulty furnace or oil burner and were there is improper ventilation.
Chlorofluorocarbons
Gases that were once used in aerosol cans and in the freon of older air conditioners. Thought to be responsible for the depletion of the ozone layer around the earth.
Performance
Is the ideal way to end a contract because all parties have fulfilled their obligations
Assignment and Delegation
Someone else takes over or is assigned the obligations of one of the parties to the contract.
Impossibility of Performance
In a situation where the action that was contracted cannot be performed legally, the possibility of performing the task can be declared impossible
Mutual Agreement
Both parties to the contract agree to cancel it. They can agree with no penalty to either party, or they agree to some exchange of money to pay for any damage or loss to one or the other parties.
Novation
Is a situation in which a new contract with different terms replaces an old one.
Operation of law
This type of situation can relate to some legal issue that arises that cancels the contract. For example a contract that is made on the basis of fraud is canceled when the fraud is discovered.
Partial Performance
Discharging a contract for partial performance refers to an acceptance by one party of incomplete work by the other party and an agreement that the incomplete work will constitute fulfillment of the terms of the contract
Rescission
A rescission of a contract sometimes is called a unilateral rescission. Rescission is when one party decided not to fulfill it obligations under the contract and considers the situations to be as if the contract never existed.
Substantial Performance
With the work under contract nearly completed, a substantial performance discharge of the contract may be in order. Under these circumstances.
Forfeit the Contract
The seller formally declares the contract forfeited.
Rescind the Contract
After a buyer defaults, the seller,
File suit for compensatory damages
The seller brings a lawsuit against the buyer for monetary damages that the seller believes he has experience because the buyer defaulted on the contract
File suit for specific performance
The purpose of this kind of lawsuit, which the seller brings against the buyer, is to force the buyer to buy the house.
Domestic Water
Used to describe what you drink, cook with and take a shower in.
Federal Safe Drinking Water Act
Requires that public water supply systems be tested regularly
Sanitary Waste
Is what goes out the drain pipe of your house from the sinks, showers, toilets and washing machines.
Septic System
Individual on-site septic disposal systems
Leachate
The liquid stuff that comes out of the septic tank after all the solids have settles to the bottom of the tank
Appraisal
An estimate of the opinion of value
Subject Property
The property being appraised
What are the reasons an appraisal may be done?
Buying Eminent domain Estate Valuation exchange of ownership mortgage approval property taxes selling taxes other than property taxes
What affects Real Estates Value?
Access to employment amenities and services hazards and nuisances nearness to transportation neighborhood compatibility safety schools traffic
Market Value
Is the value that appraisers deal with the most. It is the value we’re most often concerned with in a typical real estate transaction
Arms Length Contract
Implies that no relationship exists between the parties and that the buyer and seller each act in his or her own best interest
Value in Use
Is the value a property has to a specific person who may use it for a specific purpose that’s generally unavailable to the typical buyer
Investment Value
The value to a specific investor with a specific plan for the property
Assessed Value
The value placed on a property for tax purposes
Valorem
Latin for according to the value
Economic Influence
Value just doesn’t happen, people have to create it, most of these are personal actions
Anticipation
All property value is created by the anticipation of the future benefits the property will provide
Balance
You find a balance between land value and building value in any given area. Overall property values and builders profit on new homes are maximized when that balance is maintained.
Change
Nothing remains the same. Physical, Governmental, Economic and social changes all affect property value
Competition
Describes the fact that in real estate the supply side tries to meet the demand side until their demand is satisfied.
Conformity
Value is created and sustained when real estate characteristics are similar.
Contribution
In real estate terms, a building or faucet is worth the value the market places on it, not its cost,
Externalities
Real estate, because it stays in a fixed location, is affected by everything that happens around it
Highest and best use
States that every property has a single use that results In the highest value of the property.
Increasing and Decreasing Returns
Sometimes called diminishing returns, relates to adding improvements to a piece of real estate. Increasing returns come in then an improvement adds more value to the real estate that its cost
Opportunity Cost
For every investment opportunity you choose you lose other investment opportunities
Plottage Principle
States that the whole is sometimes greater that the sum of its parts. You can out together four individual 5 acre parcels of land each worth 50,000 to create a single 20 acre piece of property.
Regression and Progression
This principle says that the higher values of larger homes tend to have a positive effect on the lesser value of the smaller home.
Substitution
The economic principle says that a buyer will try to pay as little as possible for the property that meets the buyers needs.
Supply and Demand
Because only so much land can be found in any particular location, and therefore only so much of anything can be built, the balance between supply and demand affects value
Surplus Productivity
The difference between the costs and the selling price
Comparables
Analyzing the sale of other similar properties
Substitution
This principal states that no one pays more than necessary for a piece of real estate that meets that persons needs
Hypothecation
The process of using property as security for a loan
Mortgage
A document prepared by the lender and signed by the borrower
Promissory Note
An agreement to repay a loan according to certain terms and conditions
Mortgagor
You are giving the mortgage to the bank
Mortgagee
The bank accepts the mortgage in return for lending you the money
Lien theory
The mortgagor retains both the legal title equitable title to the property. The mortgagee is granted a lien on the property.
Legal Title
The title of ownership that normally transfers in a property sale.
Title Theory
The mortgagor gives legal title to the mortgagee but keeps equitable title.
The intermediate theory
The borrower retains title to the property and the mortgage is a lien. If the borrower defaults on the loan, title is conveyed to the lender.
Acceleration Clause
Enables the lender to require the entire debt to be repaid immediately.
Points
Additional interest, a point equals 1 percent of the loan amount.
Yield
Overall profitability of the mortgage as an investment
Annual Percentage Rate (APR)
The combination of the interest that is paid along the way plus the points charged in the prepaid interest combine to form the APR
Buydown
When points are paid to lower the interest rate
Seller incentive
Builders of new home may pay points to lower the interest rate for a few years to attract buyers to their development. When a seller pays this, it’s usually referred to as a seller incentive
Escrow Account
Is required by most lenders, is an account held by the bank on behalf of the borrower that is used by the lender to pay the taxes and insurance on the property,
Primary Market
is composed of the lenders who lend money to people who want to buy a property. The primary market is where you go to get a mortgage loan.
Secondary Market
Composed of financial institutions to which the banks sell the mortgages to get more money to lend to you
Primary Mortgage Market
Where consumers, you and I go to borrow money to buy real estate
Federal Reserve System
A key player in financial markets that affect the availability of money for real estate mortgage loans
Reserve Requirement for banks
which is the requirement that the fed imposes on banks to maintain a specified amount of their assets as reserve funds in cash
Discount Rate
This is the rate of interest that member banks charge eachother for loans between banks
Packages or Pools
Its mortgage loans, these loans have value because the notes on which theyre based are promises to repay specific amounts of principal and interest plus they are backed by a mortgage that enables the lenders to sell the properties if the debts are not repaid
Fannie Mae
Federal National Mortgage association, privately owned corporation chartered by congress. Fannie Mae sells stocks and bonds to raise money to buy conventional bank mortgage loans.
Ginnie Mae
The government national mortgage association is a government agency administered by the us department of housing and urban development. Ginnie mae provides investors with an opportunity to invest in mortgages by selling pass through certificates to investors
Freddie Mac
The federal home loan mortgage corporation is a privately owned corporation that also provides a secondary market for mortgages.
Farmer Mac
The federal agriculture mortgage corporation serves as a secondary mortgage market for farm loans
Federal Housing administration (FHA)
An agency under the supervision of the U.S department of housing and urban development that insures loans made by primary lenders
203 B Loan rules? FHA
FHA Loans are limited to owner ocuppied one to four houses
the buyer at closing pays a fee called a mortgage insurance premium (MIP) The MIP is based on a percentage of the loan
An FHA approved appraiser must make an estimate of the properties value. Standards govern whether the condition of the property and the neighborhood qualify for FHA assurances
Department of Veteran Affairs (VA)
Provides a loan guarantee program to eligible veterans and their spouses
Farm Service Agency
Is an agency of the us department of agriculture that sponsors programs targeted at agricultural and rural areas
Private Mortgage Insurance
Insurance coverage that the borrower purchasers that protects the lender
Equity
The difference between the value of the property and all debt attributable to the property
Loan to Value (LTV)
The percentage of value of the property that can be borrowed
Qualifying Ratio
What a borrower can afford to pay for a mortgage loan.
PITI
Principle, Interest, Taxes, Insurance
Front End Ratio
A lender may say a buyer can afford to pay 28 percent of total gross income in monthly payments
Back end ratio
The lender established that the borrowers total monthly debt payments including PITI cant be greater than 36 percent of the borrowers total gross income
Blanket Mortgage
A loan that covers more than one piece of property
Partial Release
Is a provision that allows the lien to be removed separately from each parcel as it is sold to a buyer and the bank is paid a portion of the loan amount.
Construction Loan
Is made to finance a construction project. A typical case is when someone who owns property hires a builder to build a house
Home Equity Loan
Seeks to use the equity that a mortgagor has built up in a property either for improving the property or for some other use
Home Equity
Is the difference between the value of the property and the debt attributed to the property
Open Mortgage
A mortgage loan that can be paid back at anytime without a prepayment penalty
Prepayment Penalty
A loan that can be reopened and borrowed against after some of it has been paid down
Open End Mortgage
is a loan that covers real estate and personal property being sold with the real estate
Package Mortgage
A loan that covers real estate and personal property being sold with the real estate
Purchase Money Mortgage
Is the mortgage loan used to buy real estate. The term sometimes is used to mean the mortgage that a seller takes back as part of the sale price of the property.
Usury Rate
State government set rates for interest that cannot be exceeded
Imputed Interest Rate
Is the interest rate that the IRS says should have been charged based on market conditions
Reverse Mortgage
These loans enable a property owner to use the equity in the property without selling the property. Money may be paid out in periodic payments,a lump sum, or a line of credit to a certain amount of the owners equity in the house
Sale Leaseback
Isn’t acutally a mortgage but can be a source of project financing and a means of obtaining the equity in a property
Shared Equity Mortgage
Allows for a share of the profit on the property to be given to someone else in return for help purchasing the property.
Temporary Loan
Also called interim financing is used when funds are needed for short periods of time to complete a real estate transaction
Wraparound Mortgage
A new mortgage that literally wraps around the old mortgage. A seller sells a property to a buyer but the seller doesn’t pay off an existing mortgage.
Principal
The amount they borrowed
Interest
What the bank charges you to use its depositors money
Fixed rate of interest
Means that throughout the lifetime of the loan, the interest rate and the amount of the monthly mortgage payments do not change
Adjustable rate mortgage
Is a mortgage for which the interest rate is subject to change during the life of the loan
Index
A rate over which the lender has no control
Payment Cap
Means that even if the rate adjustments reach their maximum each year if the resulting monthly payment increases to more than a specified amount, that payment cap keeps the payment within reasonable limits
Negative Amortization
Which means the loan balance increases by the amount owed but not paid
Amortized Loan
The primary feature of an amortized loan is that at the end of the loan term. The loan is completely paid off.
Straight Loan
Calls for the payment of interest only during the term of the loan
Partially amortized loans
Are combinations of amortized loans and straight loans
Balloon Payment
An amount paid off in a single payment
Growing Equity Mortgage(GEM)
Uses a fixed interest rate but payment of principal increases
Foreclosure
Is the process by which the lender takes over ownership of the property and sells it for nonpayment of the debt
Deficiency judgement
Borrower must cover the portion of the mortgage loan debt that the property sale didn’t cover
Equitable Redemption
A right that exists after the foreclosure but before the sale of the property. During a specified time frame the borrower may pay off the debt and reclaim the property
Statutory right of redemption
The right to redeem the property after the sale is called
Deed in lieu of foreclosure
When a buyer voluntarily signs the property over to the lender by executing a deed to avoid a foreclosure action
Subordinate Liens
Liens on the property that are paid after the mortgage lien
