Real Estate State Exam Flashcards
Article 12A, Licensee
- Tells you the things you can and cannot do with a “Real Estate License Law”
- Violations of Article 12A can result in loss of license for 1 year, $1,000 fine, or 1 year in jail
Capital Gains Tax Exemption
- Selling real estate allows tax exemption for gains of single people up to $250,000
- For married couples, you’re tax exempt for gains up to $500,000
- If you sell for 1 million, but bought it for $600k, your gains are only 400k and you’re exempt
Property Condition Disclosure Statement
- A 6-page form the seller must fill out and provide detailing the conditions of the property
- Failure to provide the disclosure statement means the seller must pay $500 at closing
CFCs
- Chloro-fluro-carbons are gases that leak out of air conditioners into the air and can damage the ozone layer
- CFC emissions are regulated by the “Clean Air Act”
PCBs
- Polychlorinated biphenyls are liquids used to cool power plants, which can seep into soil or groundwater
- Banned in 1979 because they can cause caner
- Covered by The Clean Water Act
USTs
- Underground storage tanks filled with gas, propane and other chemicals
- USTs are regulated by the NYS Dept. of Environmental Conservation and enforced by the Federal Environmental Protection Agency
Actual Geographic Location, or Blind ad
- Licensees (brokers and salespersons) must use advertisements that contain specific location of property and acknowledgment that they have a license
Fee Simple Absolute
- Freehold (not leasehold) ownership
- Fee simple is the fullest/most common form of freehold interest, with the entire bundle of rights
Bundle of Rights (for RE Owners)
- Full bundle of rights including:
1) Possession (access and use)
2) Quiet Enjoyment (no noise, danger etc.)
3) Exclusion (keep people out)
4) Control (build, tear down, lease, farm, etc.)
5) Disposition (sell, give away, etc.)
Bundle of Rights (for leasees)
1) Possession (access and use)
2) Quiet enjoyment (no nuisance, danger, etc.)
3) Exclusion (keep people out)
- not control or disposition
Deed
Document showing ownership. Must have following elements
- Competent grantor
- Identifiable grantee
- Consideration (payment)
- Words of conveyance
- Legal description
- Signatures of all grantors
- Delivery and acceptance
Title
The idea of ownership
Conveyance
Transfer of title by deed (ownership can travel between owners in a conveyance of title)
Assignment
When a lease is assigned to a new tenant who will have the same lease terms and is responsible for the rent (if the renter has to leave for half a year and doesn’t want to sublet/sublease)
CERCLA (Comprehensive Response, Compensation & Liability Act)
- Pays for the cleanup and assigns liability fr those responsible for uncontrolled hazardous waste or toxic spills
Sheathing
Panels (made of plywood or OSB) that are nailed to wall studs and roof rafters to keep rain out
Flashing
A flexible material (usually aluminum) which covers cracks
Survivorship
- When the other owner gets ownership after a death, regardless of what the dead person’s will says
General Requirements of a Broker
- 120 hours of class (75 salesperson + 45 broker)
- Age 20
- Enough deals to get 3500 points
What is Tax Depreciation?
- A tax break given by the IRS based on the idea that buildings have a lifespan
- Cannot depreciate land or your home
Office building depreciation period:
39 years
Apartment building depreciation period:
27.5 years
Amortized Mortgage
Fixed-rate mortgages are loans paid off in equal amounts each month (interest doesn’t change)
Balloon Payment
A non-amortized mortgage where there is a large final payment, typically when the buyer pays the interest at the beginning and the principal at the end of the payment
Which groups does the New York State Fair Housing Law protect?
- Race
- National Origin
- Religion
- Gender
- Disability
- Family status (kids)
(^all Federally protected too)
+
- Age
- Marital Status
- Sexual Orientation
- Military Status
Reciprocity
When you’re real estate license is good in other states as well (NYS has reciprocity with about 12 other states)
Mortgagor vs. Mortgagee
Borrower and bank
What does a mortgage broker do?
Compares loans from different banks
Grantor vs. Grantee
- Giving up the real estate (all grantors must sign deed)
- Receiving the real estate (doesn’t have to sign deed)
Encumbrance
Something that burdens the real estate and makes it hard to sell (liens, deed restrictions, easements)
Brown v. Board of Education
1954 Supreme court decision that banned segregation in schools
Pro Forma
A financial document that predicts future income of a property (typically over the next 10 years)
Wall Stud
A wall column/vertical beam that is part of the house frame
Rafter and Eave
A roof beam which is placed diagonally on a house and reaches down past the roof (eave is where the rafter sticks out over the wall)
How long should you keep RE records in residential brokerage vs. commercial brokerage?
3 vs. 7 years
What organizations or groups of people have property tax exemptions?
- Government (don’t tax themselves)
- Religious organizations
- STAR (School Tax Relief)
- Seniors
- Veterans
- Disabled people
- Agrigultural properties (farms)
If a home/building was built before ___, then renters/owners must receive a Lead-Based disclosure form to sign
1978
Riparian vs. Littoral ownership
- Owning the rights to part of a river
- Owning rights to the use of lake water
The ___ the agent. The ___ is the subagent
Broker, salesperson
Actual cash value (formula)
Actual cash value = replacement cost (of destroyed home) - depreciation
Acknowledgement
When a notary public certifies the signature and date of a document
Sale-Leaseback
When an owner sells a building but remains as a tenant
Zoning vs. Spot Zoning
- When the government allows real property in certain area to be used for specific purposes
- When the government illegally favors a person or property over others (lets rich man build a 2 family home in a zone with just 1 family homes)
Valuation vs. Evaluation
Valuation is an appraisal or analysis of property value, while evaluation is an idea or opinion of what the highest and best use of a property is
Privary vs. Secondary Mortgage Markets
- Banks sell mortgages to people
- Banks sell mortgages to other banks
Title Report / Title Abstract
When you research the past owners and all information/documents associated with a property dating back 40-60 years and summarize it
Step Mortgage
When the interest increases in 2 steps
- low fixed interest rate for first few years
- Then interest rate adjusts to market rate
General Agent vs. Special Agent
- Person who handles multiple things (Property manager)
- Person who focuses on one thing (brokers and salespeople
Proprietary lease
A co-op buyer gets a stock certificate and a proprietary lease that allows them to live in the apartment associated with their shares
Alteration Agreement
A document that gives you permission to make changes to a co-op unit
Non-conforming/grandfathered Zoning
When a building doesn’t have to conform to zoning laws of the area because it was built before the zoning laws were established
What is the Municipal Engineer’s office in charge of?
a City’s infrastructure, including roads, sewers, electric lines, subway tunnels, etc.
Contingency
Means if a specific condition is not met, someone can back out of a deal and not lose their deposit
Escalation Clause
Allows the landlord to increase the rent of a commercial tenant when unforeseen expenses become inevitable (if heating oil prices go up for example)
1866 Civil Rights Act
Gave people the right to own real estate regardless of their race
Specific vs. General lien
- A debt against your real estate property (if you don’t pay your mortgage the bank can take your house)
- If you don’t pay your income taxes the government can take anything (your salary, dog, jewelry)
- Mortgage lien is voluntary because you’re choosing to borrow money from the bank and promising to pay it off
Tenants in Common
2 or more unmarried people who own real estate together but do not have survivorship (join tenants have survivorship)
What are the 3 initial buyer costs?
1) Survey
2) Home inspection
3) Appraisal
Offering Plan/CPS-1
Detailed book that must be sent to the State Attorney General in Albany before a condo or co-op building can be built
SEQRA, State Environmental Quality Review Act
You must write an explanation regarding why you want to a building permit in a sensitive area (and you must explain how your building will effect the environment)
Kickback
A payment for RE services to an unlicensed person (illegal)
REIT (Real Estate Investment Trust)
a Company that buys RE and sells shares to investors
- the company does not pay income tax so shareholders are not double-taxed like C-corps
Negative Amortization
When a mortgagor makes regular payments but the principal goes up until it is paid off instead of down like regular amortization
Fiduciary Duties include:
1) Obedience
2) Loyalty
3) Disclosure
4) Confidentiality
5) Accountability
6) Reasonable care and skill
^ OLD CAR
Easement
When someone else can use your real estate land (government to do work or neighbor can drive over part of your land)
Flip Tax
A fee paid buy the buyer or seller to the Co-op after a sale is made (seller may have to pay a 10% fee to the co-op)
Non-conforming loan
A loan that doesn’t conform to FNMA (Fannie Mae) guidelines
Continuing Education
A RE license is valid for 2 years and then you must take 22.5 hours of continuing Ed within the 2 years to renew it
- 3 hours must about fair housing
Usury
Illegal charging higher interest than the legal limit
(on the test), who does the co-broke represent?
the Seller client
Capital Reserve Fund
$ set aside each month for unexpected repairs and large improvements to a building
Index Lease
a very long lease (maybe 25 years for a supermarket) that uses economic indicators such as the Consumer Price Index to determine rent increases in the future
Seizin
Ownership of something (a deed contains the covenant of seizin, which is a promise that the grantor owns the RE)
Acceleration Clause
Ability for the bank to speed up the mortgage and ask that the borrower pays more now if they’re defaulting on their payments
General Business Law 36B
A warranty on new construction. It covers:
- 1 year workmanship
- 2 years trades (plumbing, electrical etc.)
- 6 years material defects
Blanket Mortgage
Covers more than 1 property
Bridge Mortgage (swing loan)
Using one property to finance purchase of another
Package Mortgage
Mortgage for both real estate and personal property (furnished condo and a boat)
Wraparound Mortgage
When the seller sells the building but keeps the mortgage and doesn’t pay it off. Instead the buyer’s payments wrap around and and help pay the seller’s existing mortgage (rare mortgage)
Straight term mortgage
Borrow pays just interest until it is paid off and then just pays the principal until it is paid off
Adjustable Rate Mortgage (ARM)
Interest rate fluctuates up and down with the market
Participation (shared equity) Mortgage
Bank takes a smaller mortgage and also shares the project’s income and profits when it is sold
Purchase Money Mortgage
Instead of getting a mortgage, the buyer pays principal and interest to the seller every month (seller financing)
Stagflation
Prices go up (but the market is cool, unlike inflation when the market is hot)
How long does a 2nd home need to be rented in order to make the income non-tax deductible?
14 days
Commingling
When someone puts the money into their account, when it should be held in escrow
Net Operating Income =
Effective Gross Income (assuming every unit is rented at market value, no collection loss/vacancy) + other income (laundry, vending machines) - expenses
Constructive Eviction
When a tenant is forced out because the landlord turns off is heat/electricity or makes is apartment otherwise uninhabitable (it’s illegal)
Estate at Sufferance
When the tenant’s lease expires but he stays in the apartment (landlord must get a legal court order to evict him)
- if the landlord accepts payment, he is leasing it on a month to month basis
Points
Points are cash a borrower pays to the bank at closing in exchange for a lower interest rate
- If interest rates are 5%, borrower might be able to pay 1 point in exchange for a 4.75% interest rate
What are the 4 types of Deeds?
1) Full covenant and warranty
- Best deed for the buyer
2) Bargain and sale
- Most common deed, and contains some promises
3) Quitclaim
- Used in divorces or disputes over ownership
4) Judicial
- Written by the court
Insurance Deductible
The Dollar amount you must pay before insurance takes over payment
- if Homeowner policy has a $1,000 deductible and damages to your home are $5,000 insurance will pay $4,000 in coverage
Umbrella Insurance
Insurance covers you from 10k to 100k (if you’re only insured up to 10k
Defeasance Clause
To defeat, or pay off a mortgage
- If a mortgage is defeasible, it means you are able to pay off the interest and principal completely
FEMA (Federal Emergency Management Agency
A government agency that offers insurance to people in flood zones when private insurance companies will not
Where are both hot air and cold air delivered from in your house? (not generated)
Forced Warm Air ducts/systems
Where do heat and cold air com from?
Furnace and a compressor
BTUs (British Thermal Units)
Are a measure of heat energy
- The amount of energy needed to cool or heat one pound of water by one degree Fahrenheit
Property Manager Qualifications
Does NOT need a RE license if he buys/sells units for 1 owner and is a salaried employee
- Does need a RE license if he’s making commission off multiple owners
Eminent Domain
The government has the right to condemn private real estate and take ownership of it for public use
- buildings were torn down to build the Barclay’s center (owners were still paid FMV)
Police Power
The Government's right to protect the people through: - taxes - Military development - People needing a RE licence - Zoning etc.
Leverage
Using borrowed money to finance purchases
Exclusive Agency vs. Exclusive right to sell
- Exclusive broker gets commission if he sells, but not if the seller sells it himself
- With exclusive right to sell, the broker gets commission as long as a deal is made (best option)
Annual Tax formula
$ Value X % assessment X % tax rate = $ Annual Tax
Mechanic’s lien
Debt attached to a house when a mechanic (someone who repairs or improves a property) is not paid
- Lien’s have to be renewed every year
Steering
Showing real estate in areas based on discrimination (showing blacks only cheaper spaces)
Blockbusting
Trying to scare owners in certain neighborhoods into selling because of discrimination (telling them refugees are moving in and they should sell)
Redlining
When banks refused mortgages in areas based on discrimination
R-Factor vs. R-Value
- R-factor is the # rating for a materials resistance to heat
- R-value is how much of that material you have
(If you buy a double-layered window of R-30 glass, the R-value = R-60)
Radon
- A gas that comes naturally from underground and can get into well water (in private rural areas) or in the air of a home
- Proper ventilation can help remove it (2nd leading cause of lung cancer in USA)
Value of Commercial Real Estate Formula:
Investors use the known face of last year’s net operating income and divide it by the rate of return that they want
$ Income = $ Value X % rate of return
- To solve for Capitalization rate, solve for the % rate of return using IRV
How many square feet are in 1 acre?
43,560 sf
Who protects the State’s wetlands? What about the State’s water?
- Army Corps of Engineers
- NYS Department of Health
In the countryside, how far does the water well and septic tanks have to be from each other?
Well must be at least 50 ft from the septic tank and 100 ft from the absorption field
Before installing a septic tank, what test do you have to run to make sure the soil is ok?
Percolation test (times the movement of water through soil)
What are the 4 essential elements of a contract?
1) Meeting of the minds
2) Lawful objective
3) Consideration
4) Competent parties
- can be oral, not just written
Is a Mobile Home real estate or personal property?
RE if it is permanently connected to a foundation (it also has insurance)
- but if it is on the move, it is just personal property and may or may not have insurance (much like a recreational vehicle or car insurance)
Net Listing (and formula for net price)
Illegal
- When the seller says he’ll sell for $1 million, and anything about that the broker can keep as commission
$ net price / % to seller = $ sale price
Cash on cash return (formula)
$ income / $ cash down payment = % cash on cash return
Accession Rights
Rights to all that ones property produces (RE can however grow or shrink due to natural forces):
- Erosion: gradual loss of land
- Accretion: gradual increase in land, when river deposits mud
- Avulsion: loss of land through sudden event like hurricane sandy
- Reliction: gradual increase in land because water decreases, like in a drought
Contract Deposit
10% deposit when a sales contract is signed (money is held in escrow) before the closing when the buyer’s full downpayment is due
Block and Lot vs. Plats
- Used to determine where city buildings are
- Used to determine where
An Estate for Years
A lease with a definite end date
- A summer sublet that ends sept 1
A Periodic Estate
Automatically renews until either the landlord or tenant cancel it
- Month to month lease is periodic
An Estate at Will
Open-ended lease whose timelines is unknown, and landlord or tenant can cancel whenever
- Living at home with parents
If a person has a will they are ___ . If a person does not have a will, they are ___ .
- Testate
- Intestate
Chattel is another word for?
Personal property (cars, furniture, money, bank accounts, etc.) - Trees on the land are part of the RE, but the apples falling from it are chattels
4 reasons you can dispute a property tax:
1) Unlawful - getting a bill you don’t owe, for a different county
2) Excessive assessment - your RE is assessed at more than in is worth in terms of FMV
3) Unequal - Different assessment rate than everybody else
4) Misclassified - Taxed as an office or store
Life Estate vs. Life estate Pur Autre Vie
- Limited ownership (and limited bundle of rights) where you only get to own the RE for your lifetime
- Getting a life estate for the lifetime of someone else (Joe can own the house as long as he is taking care of his father Jack…once Jack dies, the house goes to Jack’s brother)
Void vs. Voidable contracts
- Has no force of law, for instance a contract to kill someone would be automatically void
- Can be made void (if seller says its mixed use but it isn’t, buyer can still build just residential, but if he wants to mix commercial/residential, he can make the contract void)
Unenforceable contract
Has the elements of a valid contract but cannot be enforced (the lease signing of someone under 18)
Predatory Lending
When people give mortgages that are unfair, deceptive or help exploit someone
(giving a loan but also giving/charging them for life insurance even if they didn’t ask for it)
RESPA (RE Settlement Procedures Act)
Protects homebuyers and requires that banks must:
- Give a good faith estimate of closing costs within 3 days
- Give buyer a booklet explaining closing costs
- Use standard HUD1 balance sheet at closing (for certain loans)
Escheat
When you die with no will (intestate) and without any heirs
- NYS takes your property
Broker Agency (very rare)
When the broker has the vicarious liability for all the co-brokers, instead of the seller
Commercial Mortgages
More risky, so banks require higher down payment as well as higher interest and a shorter term lease
Mills
In some cities, tax is not per cent, but per mill
- Mill is 1000
So 190 mills = 190/1000 = 19%
Appurtenance
Legal rights associated with real property (air rights, water rights or easements - the right to use someone’s land)
Right of first refusal in a condo
A co-op board can opt not to sell to someone, but a condo board must buy the unit themselves in order to prevent a potential invasive buyer from owning it
Equitable Right of Redemption
If a property is foreclosed, the owner can buy it back through paying the full amount of mortgage before it is sold at a foreclosure auction
Wall Studs vs. Joists
- Vertical members that support the wall
- Beams horizontal along the floors or ceilings
Deed Restriction/restrictive Covenant for Setbacks
House can’t have a yard that’s built all the way onto the street
CC&Rs (Covenants, conditions and restrictions)
ex. All blinds must be white (so the building looks good from the street)
Installment Sale
Buyer pays in monthly increments until they receive the deed at the closing, instead of at the beginning
Pocket Card
Your personal RE license (looks like a drivers license)
- Your sponsoring broker holds your paper license
If a broker dies, how many days can the administration remain open to complete pending deals?
120
Express vs. Implied Agency
- When a client says they want you to represent them, so you have them sign a contract
- Implied is always just oral (try to convert them to express agency)
PITI
Principal, Interest, Tax and Insurance (the cost of owning a home)
Housing Qualifying Ratio
A percent of a family’s gross annual income that banks use to determine how much annual PITI the family can afford
- If a family’s income is $100,000 per year and bank’s HQR is 28%, they can afford $28,000 in annual PITI
($Annual household income X %Housing qualifying ratio = Max annual PITI
1890 Sherman Anti-Trust Act
Stops one company from dominating an industry or from brokers conspiring with each other and makes these things illegal in RE:
- Price-Fixing (competing brokers agree to charge the same commission rate
- Group boycott: (brokers agreeing not to do business with a specific company)
- Market allocation: (brokers divide up their territories like gangs would and keep clients in their own territory)
- Tie-in: (“You can buy this RE as long as you use my friend as your lawyer”)
Adverse Possession
If someone lives openly in an abandoned property for 10 years, they can go to court and claim ownership
Proration
Diving expenses of a building (elevator cost/units in building = what everyone pays for elevator)
Debit = you pay
Credit = you get paid
Promissory Note
A negotiable instrument which promises to be paid, but can also be sold on the secondary market
What is an Arm’s length transaction?
A deal where the buyer and seller are not related by family or business
Habendum Clause
A clause in the deed that tells what the owner will do with the RE, who will ‘have and hold’ (own) the RE
Alienation
Transfer of ownership
Amps vs. Volts
- Electrical service to a building
- Force that pushes the electricity through a wire
Circuit Breakers vs. Fuses
- Fuse is a little bulb with a wire that breaks if the circuit gets overloaded, stopping electrical flow
- A circuit breaker has toggle switches and are newer, safer, and easier to use
1031 Exchange
A tax break/shelter, where building owners delay capital gains and trasnfer taxes by ‘trading’ property instead of selling it
Percentage Lease
When retail stores pay a base rent + a % of their gross sales (good for seasonal stores like ski shops)
What are some other licenses issued by Dept. of State?
- Home inspector
- Appraiser
- Apartment Information Vendor
- Apartment Sharing Agent (last 2 cost $400)
(mortgage bankers and mortgage brokers are licensed by Dept. of Financial Services)
Lis Pendens
A pending lawsuit
Calculating Interest Formula
Current Mortgage X interest rate / 12 months
($150,000 X 6%)/12 = $750 interest
…mortgage interest is deductible on your income tax
Negotiable Instrument
- A promise to pay which can be transferred from one person to another
Severalty vs. Entirety
- Means one owner (ownership is cut off from anyone else)
- Entirety is ownership by a husband and wife
Slab on Grade (construction)
When the concrete foundation is on top of the ground (without a basement)
Footing (construction)
(or footer) The underground concrete base that supports the foundation
Sill Plate
Bottom piece of a frame that sits on top of the foundation and provides a nailing surface to attach the house frame to the foundation (metal or wood board)
Estoppel
Legal term that means you ‘stop’ someone from contradicting a previous agreement or going back on a promise
Gross lease vs. Net lease
- A residential apartment lease where you pay the landlord rent, and maybe electricity or heat as well
- A commercial lease where you pay a lower rent but also some of the landlord’s costs like
…example would be if an industrial factor pays a triple net lease, so in addition to rent (RE tax, maintenance, and insurance)
Statutes
Written laws
