Class Flashcards

Question

Vicarious Liability

Answer 1

Vicarious liability is a situation in which one party is held partly responsible for the unlawful actions of a third party. According to Section 442-c of the New York Real Property Law, a broker is vicariously liable for a salesperson's actions only when "the broker had actual knowledge of such violations or if the broker retains the benefits from the transaction after he knows that the salesperson has engaged in some wrongdoing".

Answer 2

The Sherman Anti-Trust Act made the following actions illegal: 1) Price fixing 2) Group boycotts 3) Market allocation 4) Tie-in arrangements

Answer 3

Misrepresentation means making an intentionally false statement to induce someone to contract. Misrepresentation consists of: 1) A false representation of a material fact. 2) A person making the false representation knew or should have known it to be false. 3) A person acts or does not act based on the misrepresentation. 4) A person who relies on the misrepresentation in acting or not acting. Positive misrepresentation means the broker concealed a material defect from the buyer. Self-dealing is another example of positive misrepresentation. Unintentional misrepresentation occurs when the broker makes a false statement to the buyer about the property and the broker does not know whether the statement is true or false.

Answer 4

The Property Condition Disclosure Act requires the seller to submit to the buyer, a Property Condition Disclosure Statement, prior to signing the contract of sale. If the statement is not signed, the buyer shall receive a $500 credit against the purchase price of the property. Most seller attorneys advise their clients NOT to sign the statement, as it opens them up to a vast amount of liability.

Answer 5

Real property is the land and improvements, and all legal rights, powers, and privileges of real estate ownership. Real property includes the bundle of rights. Everything that is not real property is personal property. Personal property is also known as chattel.

Answer 6

A fixture is personal property that attaches permanently to the land or improvements and becomes part of the real property.A few typical examples of a fixture include: - chandelier - custom book shelves - wall-to-wall carpeting - plumbing fixtures

Answer 7

Trade fixtures are items of personal property that a business operator installs in rented building space. Unlike a typical fixture, a trade fixture is considered personal property of the business owner. It is assumed the business owner will take the trade fixtures with them when moving out of the rented space. A display case is a common example of a trade fixture.

Answer 8

Fee simple absolute provides the most complete form of ownership. 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. Most properties in New York have a Fee Simple Absolute deed, unless specified otherwise!

Answer 9

When title to real estate is in the name of only one person or entity, it is an estate (ownership) in severalty. Think of it as a single individual owns real estate, therefore, the ownership is 'severed' from all others.

Answer 10

Joint tenancy: Joint tenancy is a form of co-ownership by two or more persons, each of whom has an undivided interest WITH the "right of survivorship". Tenancy in common: Tenancy is common is a form of co-ownership by two or more persons, each of whom has an undivided interest, WITHOUT the "right of survivorship". Remember: the difference between joint tenancy and tenancy in common is the "right of survivorship". A tenancy in common does NOT include the "right of survivorship". Tenancy by the entirety: This form of co-ownership is limited to married couples.

Answer 11

The 4 possible unities include: 1) Time 2) Title 3) Interest 4) Possession

Answer 12

A life estate is ownership, possession, and control of a property for someone's lifetime. For example: Joe will grant ownership of his property to Sarah until the death of Nancy. Once Nancy passes away, the ownership of the property will revert back to Joe (or Joe's heirs). A life estate is a form of fee simple estate. A life estate may be formed when a couple owns property as a tenancy by the entirety. If one spouse dies, the other spouse gains full ownership of the property. When the remaining spouse dies, the property is transferred to the children.

Answer 13

A leasehold estate is a non-freehold of limited duration, providing the right of possession and control but not title. There are a few types of leasehold estates you should be familiar with: Estate for years: An estate for years exists for a fixed period of time. It can be as short as a day and as long as many years. Once the term of the lease ends, the rental agreement is automatically terminated. Most residential leases are an estate for years. Periodic Estate: A periodic lease automatically renews itself for another period at the end of each period unless one party gives notice to the other party at a time specified in the lease before the lease ends. Estate at Will: The duration of an estate at will is for an unknown period of time. This is an open-ended estate.

Answer 14

Littoral Rights = Lake Littoral rights apply to property bordering a stationary body of water. Riparian Rights = River (stream) Riparian rights belong to the owner of a property bordering a flowing body of water.

Answer 15

Real estate values are driven by the concept of supply and demand. When demand (the number of buyers in the market) is greater than supply (the amount of available homes to purchase), prices will increase. When supply is greater than demand, prices will decrease.

Answer 16

An easement is the right to cross or otherwise use someone else's property for a specified purpose. An easement is a non possessory interest in land owned by another. The common term for an easement is "right-of-way". Easements "run with the land".

Answer 17

An encroachment is a building, part of a building, or obstruction which intrudes upon the property of another. In other words, a part of one’s property crosses over the property line of an adjoining property. Common encroachments include: - a fence that was partially built onto the neighbor’s property. - a tree that has grown to cantilever over the property line. - a deck that was built slightly over the property line. - a garage or shed, part of which was built over the neighbor’s property line.

Answer 18

A lien is a claim or charge against the property of another. Mechanic’s Lien: This type of lien applies to individuals or companies who have “supplied labor or materials that improve a property”. For example, if a roofing contractor does not get paid for work performed on a person’s property, they may file a mechanic’s lien against the property. A mechanic’s lien is a type of involuntary, specific lien. Mortgage Lien: This is the most common type of lien. When a homeowner obtains a mortgage, they are granting the lender a mortgage lien on their property. If the mortgage is not paid, the lender may exercise the mortgage lien and demand full payment of the loan through the sale of the property (also known as foreclosure). A mortgage lien is another example of a voluntary, specific lien. Tax Lien: When a taxpayer is delinquent in paying property taxes, a tax lien attaches against the property. A tax lien takes the highest priority among other liens (even higher than a mortgage lien).

Answer 19

A deed is also called an instrument of conveyance. - The Grantor is the Seller (conveys the deed). - The Grantee is the Buyer (receives the deed). - The grantor of a deed must be at least 18 years old and mentally competent. Essential Elements of a Deed: - Must be in-writing (according to the Statute of Frauds). - Include a grantor (the person conveying title to the property). - Include a grantee (the person receiving title). - Contain a granting clause, which includes words of conveyance. - Provide evidence of consideration (something of value). - Include a legal description of the property. - Include an habendum clause (this clause begins with the words “to have and to hold”). - Include limitations and subject-to clause (any deed restrictions or easements must be noted). - The signature of the grantor (the grantee is not required to sign the deed). - Acknowledgement/recording (the deed must be notarized and recorded). - Delivery and acceptance (a valid deed must be delivered to the grantee).

Answer 20

The transfer of the title of land from one to another. The means or medium by which title of real estate is transferred. A deed is a document used to convey title legally to real property. A deed is also called an instrument of conveyance.

Answer 21

When a person dies and leaves no valid will, the laws of intestacy determine the order in which the property is distributed to the heirs. The heirs take title by descent, or the way they are related to the decedent (deceased person). The typical order of descent is spouse, children, parents, and siblings, followed by relatives who are more distant. According to law, the person appointed by a court to distribute the intestate decedent’s property is an administrator or administratrix.

Answer 22

The deed must contain an adequate formal legal description. The legal description describes where the property is located and the size of the lot. There are 3 acceptable types of property descriptions: 1) Metes and bounds 2) Description by reference, lot and block 3) Monuments

Answer 23

A survey is a drawing prepared by a licensed surveyor, which shows the exact dimensions of a property and any improvements located on the property (including a garage, deck, fend, driveway). A survey is drawn using the metes and bounds method.

Answer 24

The Full Covenant and Warranty deed contains the broadest form of guarantee of title of any type of deed and provides the greatest protection to the grantee. The Full Covenant and Warranty deed includes the following covenants: 1) Covenant of seisin – assures the grantee that the grantor holds the title specified in the deed. 2) Covenant of right to convey – assures the grantee that the grantor has the legal capacity to convey the title and has the title to convey. 3) Covenant against encumbrances – assures the grantee that no encumbrances against the title except those set forth in the deed itself exist. 4) Covenant of quiet enjoyment – assures the grantee that they will have quiet enjoyment and possession of the property. 5) Covenant for further assurances 6) Covenant of warranty

Answer 25

Deed restrictions are a form of encumbrance on real property. A deed restriction is an imposed restriction in a deed for the purpose of limiting the use of real property, such as: 1) A restriction against the sale of liquor on a property. 2) A restriction as to the size, type, value or placement of improvements that may be erected on the property. Deed restrictions are in the form of restrictive covenants and/or conditions (CC&R’s).

Answer 26

Title is a legal right to ownership of a property.

Answer 27

Chain of title refers to the sequence of historical transfers of title to a property. It runs from the present owner all the way back to the original owner of the property.

Answer 28

An abstract of title is a condensed history of title. It is a summary of all links in the chain of title.

Answer 29

A deed is an official legal document that's used to transfer ownership of a property. A deed is used as evidence that someone owns a property. The seller’s attorney uses the old deed to prepare a new deed for the closing.

Answer 30

– In New York State, an individual must be at least 18 years of age to enter into a contract. – Minors (less than 18 years old) CANNOT enter into a contract. The contract is voidable if signed by a minor. – In New York State, an individual must be mentally and emotionally capable to enter into a contract.

Answer 31

Generally, the purchaser signs the contract of sale first because the purchaser is the party making the offer. The purchaser is stating the purchase price he/she wants to offer and the terms.

Answer 32

A bi-lateral contract includes two parties. Most contracts in real estate are bi-lateral. A few common examples include listing contracts, sales contracts, buyer representation agreements and independent contractor agreements. A uni-lateral contract is an “open contract” where one party promises to pay another party if the other party performs a specific action. An open listing contract is an example of a uni-lateral contract.

Answer 33

The down payment is the portion of a property’s purchase price that is paid in cash and is not part of the mortgage loan. The down payment must be placed in a separate escrow account. The following people generally hold the deposit/down payment: - Listing agent (seller’s broker) - Seller’s attorney

Answer 34

A deposit that a buyer makes at the time of submitting an offer to demonstrate the true intent of the purchase; also referred to as a binder, good faith deposit, and escrow deposit. An earnest money deposit is usually binding.

Answer 35

The division of certain settlement costs between buyer and seller. These items can include real estate taxes, fuel, a survey, water and sewer charges, rent, and security deposits. Proration ensures fair apportionment of expenses between buyer and seller.

Answer 36

A contract may be discharged or terminated in the following ways: 1) Agreement of the parties If both parties agree to terminate the contract, a release of contract can be performed. Novation: This is the act of either: 1) replacing an obligation to perform with a new obligation; or 2) adding an obligation to perform; or 3) replacing a party to an agreement with a new party. 2) Full performance When the duties of the contract are performed by both parties, full performance is achieved. This is the most common and desirable way to discharge a contract. 3) Impossibility of performance If there is a change in the law which makes full performance of the contract illegal, the contract may be discharged due to impossibility of performance. In another example, if a property is destroyed by fire, the listing contract between the owner and broker may be discharged due to 'impossibility of performance'. 4) Operation of law This includes the statue of limitations.

Answer 37

The following contract remedies may be pursued by the non-breaching party. 1) Specific performance: This is an order from the court requiring specific performance means that the contract is to be completed as the parties originally agreed. 2) Compensatory damages: Compensatory damages equal the amount of money actually lost due to the breach of contract. 3) Liquidated damages: Liquidated damages are damages agreed to be paid in the contract. 4) Reformation: A doctrine that permits the court to rewrite a contract.

Answer 38

The right of first refusal may be added to a sales contract or a lease. It allows the holder to purchase (or lease) a property if the seller decides to sell or another purchaser (or lessee) comes along. The holder of the right of first refusal can match the offer from the third party or forfeit their claim to purchase or lease the property.

Answer 39

The ‘use provisions’ is a clause in a lease that requires a tenant reasonably use the space for its intended use. For example, a tenant cannot continuously throw loud, late-night parties, which disturb the other tenants in the building.

Answer 40

In an assignment, the assignee is responsible for paying the rent directly to the landlord. The assignee takes responsibility of the lease. In a sublease, the original tenant is still responsible to the landlord for the lease payments under the lease contract. In a sublease arrangement, the sub-lessee pays the rent to the tenant (lessee) and the tenant pays the landlord.

Answer 41

Eviction is a legal proceeding by a landlord to recover possession of real property. There are 2 types of eviction: Actual eviction: Actual eviction occurs when the landlord removes the tenant from the property without aid or control of the court system. Actual eviction is wrongful use of self-help. Constructive Eviction This occurs when the tenant is prevented from the quiet enjoyment of the property. In other words, the landlord deliberately renders the property unfit or unsuitable to live in. An example may be refusing to repair a broken toilet or bathtub.

Answer 42

Mortgagor is the borrower (typically the person buying the house) Mortgagee is the lender or bank who provides a loan to the borrower or homeowner. This may seem counter-intuitive. Many students think of the bank as the ‘mortgagor’ since people always say “I’m taking out a mortgage”. But in fact, the homeowner gives the bank a mortgage. A mortgage is really a legal document that allows the lender to foreclose on the property if the borrower defaults on the loan. The borrower gives the mortgage to the lender, and in return for this security, the lender gives the borrower a loan.

Answer 43

This is the most common type of loan. The borrower makes installment payments (usually once a month). Over time the balance on the loan decreases. At the end of the term of the loan (30 years for examples), the loan balance reaches $0 and the loan is paid in full. In a fixed-rate mortgage, the borrower pays both principal and interest with each mortgage payment.

Answer 44

This is an interest-only loan. The balance of the loan always remains the same. At the end of the term of the loan, the borrower must pay the full balance back.

Answer 45

In this type of loan, the monthly payment fluctuates based on a standard index. These are considered high-risk loans for borrowers because the monthly payment may increase to an amount the borrower cannot afford.

Answer 46

A blanket mortgage is a type of commercial mortgage in which two or more parcels of real estate are pledged as security for payment of the mortgage debt. A blanket mortgage usually contains a release clause, which allows certain parcels of property to be removed from the mortgage lien when the loan balance is reduced by a certain amount.

Answer 47

A purchase money mortgage is a type of seller financing in which a mortgage is given by the buyer to the seller to cover part of the purchase price. In this type of loan, the seller becomes the mortgagee and the buyer becomes the mortgagor.

Answer 48

A wraparound mortgage is another type of seller financing. The seller extends to the buyer a junior mortgage, which wraps around the existing in addition to any superior mortgages already secured by the property.

Answer 49

A type of short-term loan, typically taken out for a period of 2 weeks to 3 years. A bridge loan is a type of gap mortgage in which funds are provided over and above an already existing loan until more permanent financing is in place. A bridge loan allows a buyer to obtain a new property without having to sell his/her current property.

Answer 50

In a graduated payment mortgage, the monthly payments are lower in the early years of the mortgage term, but increase at specific intervals until the payment amount is sufficient to amortize the loan over the remaining term. The monthly payments are low in the early years because the borrower does not pay all of the interest that is then added to the principal balance.

Answer 51

A construction mortgage is a form of interim, or temporary, short-term financing for creating improvements or buildings on a property.

Answer 52

Occurs when the monthly payment is less than full interest and does not pay any principal. The interest that is unpaid accrues and the principal balance owed increases.

Answer 53

Conventional Conventional loans are loans issued by commercial lenders without any participation by an agency of the federal government. Conventional loans with an loan-to-value ratio greater than 80% need to obtain private mortgage insurance (PMI). Government Loans Government loans involve some kind of participation by a government agency. The most common type of government loan is an FHA-insured loan. Mortgage insurance premium (MIP) is paid upfront when obtaining an FHA-insured loan. VA-guaranteed loans are another example of government loans. These loans are offered to Veterans.

Answer 54

A pre-payment penalty clause states that the borrower cannot pay off the loan at any time before expiration of the full mortgage term without a financial penalty for early payoff.

Answer 55

The primary mortgage market is where lending institutions originate mortgages. Example: Bank of America gives a loan to the home buyer. The secondary mortgage market is where the loans originated in the primary mortgage market are bought and sold.

Answer 56

A consumer protection statute, first passed in 1974. Also known as Regulation X. The purpose of RESPA is: 1) To help consumers become better shoppers for settlement services and 2) To eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

Answer 57

The Truth in Lending Act of 1968 is United States federal law designated to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed. TILA requires four main disclosures: 1) Annual percentage rate 2) Finance charge 3) Amount financed 4) Total amount of money to be paid toward the mortgage in principal and interest payments With regards to advertisements, the only specific item that may be stated in an advertisement, without making a full disclosure is the annual percentage rate.

Answer 58

LTV is a financial term used by lenders to express the ratio of a loan to value of an asset (property) purchased. LTV compares the amount financed to the purchase price. For example: If a property is being purchased for $500,000 and the buyer obtains a $400,000 mortgage, the LTV will be 80%. $400,000 is 80% of $500,000 (400,000/500,000 = 0.80).

Answer 59

1 point equals 1% of the loan amount. For example: If a lender charges 1-1/2 points as a loan origination fee, the fee will equal 1.5% of the loan amount. A buydown allows the borrower to obtain a lower interest rate by paying additional points upfront to the lender. A buydown may also be referred to as discount points.

Answer 60

Usury laws govern the amount of interest that can be charged on a loan.

Answer 61

Inflation occurs when there is an increase in money and credit relative to available goods, resulting in higher prices.

Answer 62

Zoning determines the usage allowed for a building or subdivision. Zoning also determines the ‘bulk’ of a house or building, meaning the maximum size of the structure (height, square footage, size of floor plate).

Answer 63

The Zoning Board of Appeals is a local appointed Board that has the power to review administrative rulings made by the Planning Board or another legislative body. One of the main duties of a Zoning Board of Appeals is to maintain the essential character of neighborhoods. It is the interpreter of the zoning ordinance. The Zoning Board of Appeals is also responsible for granting variances.

Answer 64

A non-conforming use is a preexisting use of a property that no longer complies with the current zoning regulations. The non-conforming use is “grandfathered” in. For example, a property owner has been using his building as a manufacturing facility for the past 30 years; however, the neighborhood has since been re-zoned for residential use. The owner is generally allowed to continue the non-conforming use. When the property is sold, the non-conforming use must be terminated and comply with the current zoning laws.

Answer 65

Variance is the authorization to improve or develop a particular property in a manner not authorized by the local zoning code.

Answer 66

A use variance allows a homeowner to use their property in a way that is not currently permitted by the local zoning code. For example: convert an existing structure into a medical office where the zoning only permits residential use for the property.

Answer 67

An area variance allows the property owner to expand the building on their property to a size larger than is permitted by zoning. This can include total square footage of the building as well as size and height of the building. For example: add an additional story to a building, which will make the building taller than is permitted by zoning.

Answer 68

The primary purpose of building codes is to ensure a safe, properly functioning environment for the occupants. The New York State Building code provides minimum standards for all buildings in New York. If the Federal or City building code is more stringent on a particular issue, the more stringent Code will supersede the State code.

Answer 69

If a property owner dies intestate (without having a valid will), the decedent’s property is distributed to their heirs. If the deceased property owner does not have any heirs, the property reverts to the State. This is known as escheat.

Answer 70

Eminent domain is the right of the government to acquire private property for necessary public use. The property owner must receive fair compensation. Condemnation is the act of taking private property for public use. Remember: eminent domain is the RIGHT to take private property, while condemnation is the actual ACT of doing so.

Answer 71

Condemnation is the act of taking private property for public use. Remember: eminent domain is the RIGHT to take private property, while condemnation is the actual ACT of doing so.

Answer 72

Percolation is the movement of water through soil.

Answer 73

Platform framing is the most common type of framing used in residential construction.

Answer 74

Balloon framing is an alternative to platform framing; however, it is considered illegal in New York State.

Answer 75

A footing is a horizontal concrete member, set in the soil, which supports a building’s foundation wall. The footing is located at the bottom of the foundation wall. The footing is the lowest structural member in a house/building.

Answer 76

The sill plate is a horizontal wood member that sits on top of the house’s foundation. It is used as a nailing surface for the floor system. A sill plate is considered the lowest horizontal beam and wood member in the frame of a house.

Answer 77

Studs are vertical wood members used to construct walls.

Answer 78

Joists are horizontal beams or timbers that support a floor.

Answer 79

Roof components – the lowest part of the roof that projects beyond the wall of the structure.

Answer 80

Roof components – The area under the roof extension.

Answer 81

Roof components – The area of material facing the outer edge of the soffit.

Answer 82

Also known as the slope. Typically used in describing the slope of a roof, driveway, sidewalk, etc. The slope of the roof is known as the 'pitch of the roof'.

Answer 83

Flashing is added at joints/bends/corners on the exterior of a house (typically made of metal and/or rubber materials), which prevents water from entering the house. For example, flashing is added around the base of a chimney (where the chimney meets the roof).

Answer 84

Sheathing refers to panels that span between wall studs and cover the exterior wall or interior walls. Sheathing is typically made of plywood on the exterior of the building, and gypsum board on interior walls. Sheathing on the exterior wall is typically covered with by wood, vinyl, or aluminum siding, or bricks. Sheathing on interiors walls (gypsum board) is painted.

Answer 85

Siding materials on buildings can be metal (such as aluminum), wood or vinyl. Behind the siding is a layer of sheathing.

Answer 86

Urea Formaldehyde Foam Insulation (UFFI) is a type of foamed in-place insulation that releases formaldehyde gas. UFFI contains large amounts of formaldehyde, which is why it has rarely been used by building contractors since the 1980s.

Answer 87

R-value is a measurement of the ability of insulation to slow the transfer of heat or cold. In other words, it is the degree of resistance to heat transfer of a wall. The higher the R-value, the greater the insulating power. Generally, the higher the R-value, the thicker the insulation.

Answer 88

BTU stands for British Thermal Unit. BTU is a measure of heat energy. It measures the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

Answer 89

Specifications – A document provided by Architects that describes the quality of construction.

Answer 90

Blueprints – Architectural drawings that describe the layout and construction of a house. These drawings describe the quantities used in construction.

Answer 91

A forced warm air system consists of a furnace that contains a fan, a heat source such as gas or oil, and filters. The system extracts cool air from in and out doors and passes this cool air through the heat sources. The warmed air flows through ducts to the rooms. A forced warm air system provides cooling as well as heating through the same ducts.

Answer 92

A device used in electrical systems to protect against excessive current. The fuse melts and opens the circuit, causing electric power to stop when overheating occurs.

Answer 93

Circuit breakers perform a similar function but are more convenient and safer than fuses. Circuit breakers trip; that is, they switch off the electric power for a given circuit when the current increases beyond the system’s capacity.

Answer 94

Environmental Issues - CFCs are synthetic chemical substances used in refrigerators and air conditioners, Styrofoam products, aerosol dispensers, and cleaning agents. CFCs have been shown to lead to the depletion of the ozone layer. Most home air conditioning units use HCFCs, known as Freon.

Answer 95

Environmental Issues - PCBs were widely used as dielectric and coolant fluids, for example in transformers, capacitors, and electric motors. PCBs have been known to leak in to the ground from electrical transformers. PCBs appear in groundwater and soil.

Answer 96

Environmental Issues - Radon is a colorless, odorless gas that is emitted from soils, rocks and water as a result of radioactive decay. Radon from surrounding soil enters a home through small spaces such as cracks in concrete, floor drains, sump pump openings, wall and floor joints in basements, and pores in hollow block walls. Remember: radon typically enters the house through the basement or cracks in the foundation.

Answer 97

Environmental Issues - Asbestos is a naturally occurring mineral fiber sometimes found in older homes. It is hazardous to health when a possibility exists of exposure to inhalable fibers (also known as friable asbestos). If friable asbestos is present, an asbestos professional must be used to remove the asbestos. Asbestos was commonly used in insulation (around boilers, ducts, pipes, sheeting, and fireplaces), floor tiles, ceiling tiles, roof shingles and flashing. Asbestos can lead to asbestosis, which is a chronic lung disease caused by inhaling asbestos fibers.

Answer 98

Environmental Issues - Lead can be present in drinking water (from lead pipes), interior and exterior paint (from lead-based paint), dust within a home, and soil around a home. The Residential Lead-Based Paint Hazard Reduction Act of 1992 sets forth the procedures in disclosing the presence of lead-based paint for sales of properties built before 1978. Remember: “Lead-based paint 1978”

Answer 99

An appraisal is an estimate of a property’s value by an appraiser who is usually presumed to be an expert in his/her work. An appraisal is specific to a certain date in time. An appraisal may be used to help determine the market value of a property. Residential properties are typically appraised using the sales comparison approach.

Answer 100

A CMA is a property evaluation that determines property value by comparing other properties currently on the market, properties that have recently sold, and expired listings. In other words, a CMA is an analysis of the competition in the marketplace that a property will face upon sale attempts. A CMA is NOT an appraisal. Instead, it is an opinion of value. A CMA is typically prepared by a real estate agent.

Answer 101

Residential market analysis is a study of the property being listed. The analysis views the property in light of the conditions in the marketplace. These conditions determine how the agent should market the property. A residential market analysis will analyze the following: 1) Recently sold properties 2) Current competing properties 3) Recently expired properties 4) Buyer appeal 5) Market position 6) Positives and negatives of the property being marketed 7) Area market conditions 8) Recommended terms 9) Market value range

Answer 102

Market value is the most probable price that a property should bring if exposed for sale in the open market for a reasonable period of time, with both the buyer and seller aware of current market conditions, neither being under duress. Market value applies to an “arm’s length transaction”. Also known as ‘Fair Market Value’. Market value is driven by supply and demand in the competitive marketplace.

Answer 103

Market price refers to the actual selling price of a property. Remember: market value is the probable price, while market price is the actual selling price.

Answer 104

There are two types of costs associated with construction: 1) Direct costs: also known as hard costs, they include the cost of labor and materials. 2) Indirect costs: costs that create and support the project. These include architectural and engineering fees, attorney fees, and financing costs, among others.

Answer 105

One of the causes of depreciation. It is the loss of desirability and usefulness caused by new inventions, changes in design, and improved processes for production, or from the influence of external factors. Obsolescence may be either economic or functional. Functional Obsolescence can be an outdated design or floor plan.

Answer 106

The Civil Rights Act of 1866 has no exemptions and contains the blanket statement that ‘citizens have the same rights to inherit, buy, sell, or lease real and personal property. The Civil Rights Act of 1866 is primarily interpreted to prohibit racial discrimination.

Answer 107

The Fair Housing Act was included as part of the Civil Rights Act of 1968. The initial protected classes under the Fair Housing Act included: - Race - Color - Religion - National origin

Answer 108

The Housing and Community Development Act of 1974 added sex as a protected class to the Fair Housing Act.

Answer 109

The 1988 Amendment to the Civil Rights Act added two new protected classes: – Persons with mental or physical disabilities – Familial status

Answer 110

Blockbusting The practice of inducing homeowners in a particular neighborhood to sell their homes quickly, often at below market prices, by creating the fear that the entry of a minority group or groups into the neighborhood will cause a precipitous decline in property values. Steering: The practice in which real estate brokers guide prospective home buyers towards (or away) from certain neighborhoods based on their race. Redlining The refusal to lend money within a specific area for various reasons. This practice is illegal. Before the Fair Housing Act, some lenders circled certain local areas with a red line on the map, refusing to make loans within the circled areas based on some characteristic of property owners in the area. Testers Testers are volunteers, employees of federal programs, and people from civil rights groups who visit real estate offices posing as prospective home buyers to see if race influences the information or services that the broker or salesperson offers.

Answer 111

The practice of inducing homeowners in a particular neighborhood to sell their homes quickly, often at below market prices, by creating the fear that the entry of a minority group or groups into the neighborhood will cause a precipitous decline in property values.

Answer 112

The practice in which real estate brokers guide prospective home buyers towards (or away) from certain neighborhoods based on their race.

Answer 113

The refusal to lend money within a specific area for various reasons. This practice is illegal. Before the Fair Housing Act, some lenders circled certain local areas with a red line on the map, refusing to make loans within the circled areas based on some characteristic of property owners in the area.

Answer 114

Testers are volunteers, employees of federal programs, and people from civil rights groups who visit real estate offices posing as prospective home buyers to see if race influences the information or services that the broker or salesperson offers.

Answer 115

1 side x 1 side = area of a square width x depth = area of a rectangle ½ base x height = area of a triangle (remember a triangle is equal to ½ of a rectangle) In order to determine the area of an irregularly shaped lot, you must simply break down the lot into squares, rectangles, and triangles and add the areas of each together.

Answer 116

1 Acre = 43,560 square feet 1 Hectare = 2.47 Acres

Answer 117

The percentage of a consumer’s monthly gross income that goes towards paying debts. Formula: Recurring Monthly Debt / Gross Monthly Income

Answer 118

Commissions are typically calculated as a percentage of the sales price (not the listing price). For example: The broker and client agree to a 6% commission. If the property was listed for $355,000, but the final sales price is only $330,000, the commission will be calculated as followed: $330,000 x 0.06 = $19,800 You may be asked to calculate the final sales price of property based on the commission given and the net amount the seller receives (after paying the commission). For example: If a seller nets $213,750 (amount they receive after paying the broker their commission) from the sale of their house, what was the final sales price if they paid the broker a 5% commission? To answer this type of question, divide the net received by the seller by difference between the 100% and the commission rate: $213,750 / 0.95 (100% minus 5% commission) = $225,000

Answer 119

Cash on cash return (COC) is a percentage return on money invested in a property by an investor. The formula to determine COC is: Annual Cash Flow / Down Payment = Cash on Cash Return Remember: you must use the ANNUAL cash flow. If a question only states the monthly cash flow, you must multiple that number by 12 months. For example: If an investor purchased a property for $1,200,000 with a down payment of 25%, what is the cash-on-cash return if the property produces a monthly cash flow of $5,000? First, you must determine the investor’s down payment. To determine this, simply multiple $1,200,000 by 25%. $1,200,000 x 0.25 = $300,000 Next, determine the annual cash flow. Since the cash flow is stated as monthly cash flow, you will have to multiple $5,000 by 12. $5,000 x 12 - $60,000 Finally, divide the annual cash flow by the down payment: $60,000 / $300,000 = 0.20 or 20%

Answer 120

You may be asked to calculate the amount paid in monthly interest on a loan. For example: A borrower has a $230,000 loan with an interest rate of 5%. What is the amount paid in interest each month? To find the answer, first multiply $230,000 x 5%: $230,000 x 0.05 = $11,500 Since the 5% interest rate is an annual interest rate, $11,500 is what the borrower pays each years in interest. For this reason, you simply have to divide $11,500 by 12 to determine the amount of interest paid each month. $11,500 / 12 = $958.33

Answer 121

The Building Department is responsible for enforcing the building code and issuing building/construction permits. In order to begin construction or renovation on a property, the property owner must first submit construction drawings for approval. Once the construction drawings are approved, a building permit may be issued, which allows the building contractor to commence work on the property.

Answer 122

Oversees and upholds the quality and aesthetics of a neighborhood, town, or city. The following are functions of the Architectural Review Board: – promotes the orderly and harmonious development of the municipality. – protects a municipality’s cultural heritage

Answer 123

A local elected or appointed government board charged with recommending to the local town or city council the boundaries of the various zoning districts and appropriate regulations to be enforced therein. The following are functions of the planning board: – prepare and amend a master plan for the community. – implement the master plan through site plan and subdivision ordinances and recommendations to other agencies. – make investigations, maps and reports, and recommendations that relate to the planning and development of the municipality. – recommend amendments to the zoning ordinance or map

Answer 124

Established to review proposed projects within historic districts for compliance with standards established for new development or alteration or improvement of historic buildings and landmarks. The following are functions of the Historic Preservation / Landmark Commission: – recommend to the municipality the adoption of ordinances preserving historic districts, landmarks, and historic sites. – review and approve application for construction, alteration, demolition, and relocation of a historical property. – recognize sub-districts within a preservation district. Allows the commission to adopt guidelines regulating properties in the sub-district.

Answer 125

The Municipal Engineer performs the following basic functions: – Estimate the costs of paving, sewers and sidewalks, and other public works projects. – Supervise streets and other public works activities – Issue permits to private contractors for street openings and curb and gutter construction. – Assume responsibility for sewage, water supply, distribution systems.

Answer 126

The NYS Department of Health performs the following basic functions: – Drinking water safety, including standards for private and community well construction and well water safety and regulation. – Septic tank approval. – Certain wastewater treatment approval

Answer 127

There are a few Homeowners Insurance Policies you should know: HO-1: Basic Policy - This is a basic policy that insures the home and its contents against perils, including fire, theft, or vandalism. An HO-1 policy does not cover falling objects. HO-3: Special Form Policy – The most widely used and recommended homeowners policy. It covers the home for all risks or physical loss except damage caused by flood, earthquake, war, or nuclear accident. HO-4: Tenants or Cooperative Owners Policies – Commonly referred to as renters insurance, regardless if you are renting a home, condo, or apartment. This policy also covers cooperative owners since they hold a proprietary lease (not real property) HO-6: Condominium Unit Owners Policies – Insure against damage to the contents of an apartment, cooperative, or condominium.

Answer 128

Insurance policy that covers amounts above those covered under one or more other primary policies, and which does not pay until the losses exceed a certain sum. - Also called excess insurance.

Answer 129

Flood insurance is often not covered in a homeowner’s insurance plan. It may be purchased separately. Homeowners in Special Flood Hazard Areas (SFHA) should obtain flood coverage. The Federal Emergency Management Agency (FEMA) administers the National Flood Insurance Program (NFIP), which helps homeowners in SFHA obtain flood coverage

Answer 130

Liability insurance is an example of a monoline policy. It protects against claims alleging that one’s negligence or inappropriate action resulted in bodily injury or property damage.

Answer 131

Commercial general liability insurance is a basic business liability policy that covers four forms of injury: bodily injury that results in actual physical damage or loss, property damage that results in actual physical damage or loss, personal injury, and advertising injury. CGL may be purchased by landlords for their rental/income properties

Answer 132

- Actual cash value means that the insured is reimbursed for the replacement cost minus the physical depreciation of the lost or damaged property. - Replacement cost means that the insured is covered and reimbursed for the actual cost of replacing the damaged property. For example, if a refrigerator is destroyed in a fire, the replacement cost will be the cost of buying another refrigerator.

Answer 133

The NYPIUA is a pool of all insurance companies writing fire insurance in New York. It offers fire and extended coverage as well as coverage for vandalism, malicious mischief, and sprinkler leakage to consumers who are unable to purchase this type of insurance from individual insurance companies

Answer 134

Real estate agents must carry liability insurance.

Answer 135

Real estate offices should be equipped with security cameras in order to record possible break-ins.

Answer 136

Parking lots outside of real estate offices should have adequate lighting.

Answer 137

Market value is the amount a property would sell under normal conditions. The assessed value is a percentage of the market value. The assessed value is used to calculate property taxes. The assessor applies a level of assessment (LOA) to the market value of each property in a city, town, or county to determine the assessment roll. For example: If a town chooses to assess properties at 30% of market value, a property with a market value of $200,000 will have an assessed value of $60,000.

Answer 138

Property is taxed on an ad valorem basis, that is, according to value. In New York, the real property tax is based on the fair market value of real property.

Answer 139

The assessor is an elected or appointed local official who has the legal authority to independently estimate the value of real property in an assessing unit. In other words, the assessor determines assessed values of property, which are ultimately used to determine how much one pays in property taxes.

Answer 140

Property owners can protest the assessed value of their property. Their grievances are heard by the Board of Assessment Review. The property must make a case that the assessor’s assessment of their property is wrong. For that reason, the burden of proof is on the property owner to prove the assessor incorrect. The law presumes that the assessor is correct. The four grounds for review in New York are unequal assessment, excessive assessment, unlawful assessment, and misclassification.

Answer 141

Properties owned by religious organizations and government-owned properties are exempt tax assessments.

Answer 142

Special assessments are assessments made against a property to pay for a public improvement by which the assessed property is supposed to be especially benefit from. A special assessment may be for such things as streets, sidewalks, sewers, rural drainage ditches and other public improvements. The special assessment is a lien against the property until paid. If the lien is not paid, the taxing unit may execute on the lien.

Answer 143

Tax Assessing Units may elect to establish separate tax rates for homestead and non-homestead properties. Homestead properties include: – 1-3 family houses – Condominiums – Mixed-use properties when they are mostly residential – Mobile homes – Vacant land under 10 acres – Farm land / farm dwellings Non-homestead includes everything else: – Commercial – Industrial – Special franchise – Utility properties In summary: Homestead = Residential Non-homestead = Commercial

Answer 144

Condominiums are considered real property. For that reason, condo owners receive a deed a closing. - Condominiums are considered freehold estates. - For tax purposes, a condominium is classified as a residence.

Answer 145

Cooperatives are NOT considered real property. The owner of a co-op receives a proprietary lease at closing. A proprietary lease is considered personal property. Co-ops are considered a leasehold estate. The leasehold estate gives the right to possession of an apartment and use of the common areas.

Answer 146

A condop is a building that includes condominium and cooperative ownership in the same structure. In other words, the building is part condo, part co-op.

Answer 147

The Board of Directors manages a cooperative. The Board oversees the maintenance, finances, and policy decisions of the cooperative.

Answer 148

Rules in a cooperative that cover common issues including garbage disposal, maintenance, noise, pet restrictions, and conflict resolution. House rules are generally more detailed than items in the proprietary lease and deal with the day-to-day behavior of tenants and general operations.

Answer 149

The by-laws are the owner’s rights and obligations for a condominium. The by-laws may include: - The powers and duties of the Board of Managers - Sublet provisions - Restrictions on the use of units and common spaces

Answer 150

If a prospective buyer is looking to purchase a unit in a cooperative, the Board of Directors will most likely want the buyer to submit a board package. The board package includes mostly financial documents. The Board of Directors will review the buyer’s board package and use it to help determine if they will approve the buyer’s application or not. If the buyer’s application is not approved, they cannot purchase a unit in the cooperative.

Answer 151

Condominium contracts typically contain a ‘Right of First Refusal’ clause. The clause allows the condominium association the first opportunity to purchase the condominium when it goes up for sale.

Answer 152

The developer of a new condominium or cooperative building (or the conversion of a building into a condo/coop) must file an Offering Plan with the NY Attorney General’s office. The first part of the Attorney General’s review is called the preliminary prospectus or “red herring”. the Attorney General can suggest any changes to the project. Once the Attorney General accepts the prospectus, it is known as a black book or offering plan. Although the Attorney General does not regulate price, proper disclosure of price must be accepted by the Attorney General. If the developer of a new condominium building is changing the prices of all (or a group) apartment, he/she must file the changes with the Attorney General for acceptance.

Answer 153

CPS-1 stands for Cooperative Policy Statement. It is used by real estate developers to test the market before building a condominium or cooperative building. The CPS-1 must be filed with the Attorney General. The CPS-1 statement includes rules on how the development may be advertised. The developer cannot declare a firm price. The CPS-1 period lasts 120 days from the date of acceptance of the CPS-1 statement by the Attorney General, but can extend up to an additional 60 days. During this period, developers can advertise and take names of people who are interested, but cannot take deposits or sell the properties. They can talk about price ranges, but nothing specific.

Answer 154

In a gross lease, the landlord pays all expenses. These include property taxes, insurance and maintenance. The residential lease is a common example of a gross lease.

Answer 155

In a net lease, the tenant pays some or all of the expenses. For example, in a triple net lease, the tenant pays all of the expenses in addition to the rent. A net lease, in particular a triple net lease, is commonly used by commercial tenants. A large company may have a triple net lease and rent an entire office building.

Answer 156

A lease of property in which the rent is based upon the percentage of the volume of sales made upon the leased premises, usually provides for minimal rent. A percentage lease is typically used with retail tenants.

Answer 157

A ground lease is a long-term lease of unimproved land, usually for construction purposes. For example, a lessee may be given a 99-year ground lease for a large vacant property. The lessee will build a large multi-family building on the property. At the end of the 99-year lease, the lessor (the original land owner) will take back the land and any improvements on the land (including the multi-family building). A ground lease is also known as a land lease.

Answer 158

A loft lease is for the rental of floor space this is not generally divided into rooms. A loft lease is typically for an open, unfinished space.

Answer 159

A graduated lease is a lease in which the rent changes from period to period over the lease term. The lease contract specifies the change in rental amount, which is usually an increase in stair-step fashion.

Answer 160

An escalation clause allows landlords to raise rents during the term of the lease. Lease escalation clauses call for the increased costs to the tenant for different reasons at specified times during the lease term. These clauses protect the property owner against increases during the lease term.

Answer 161

A use clause defines how the tenant can and cannot use the space.

Answer 162

Usable square footage is the area contained within a building that is actually occupied by a commercial tenant. Usable space typically does not include elevators, stairs, mechanical spaces, etc.. Rentable square footage is the total area of a space, some of which cannot be used. Rentable square footage equals the entire space, including the usable square footage and the tenant’s pro rata share of the building’s common areas, such as the lobby, hallways, and restrooms. The difference between the rentable and usable area in a commercial space is known as the loss factor.

Answer 163

A pro forma is an accounting statement that forecasts income and expenses for a period of time, typically five or more years. Pro forma statements are typically used by investors to estimate their rate of return for a particular property.

Answer 164

Leverage is the use of borrowed capital (mortgage) to increase the potential return of an investment. Leverage is also known as “other people’s money”.

Answer 165

Debt is what the investor owes. Equity is how much cash the investor has in the property. If a property is valued at $1,000,000, and the total debt is $600,000, then the debt ratio of 60%. The equity ratio would be 40% ($1,000,000 - $600,000 = $400,000, which is 40% of $1,000,000).

Answer 166

The net operating income is equal to the gross income from a building minus operating expenses. NOI is essentially the cash flow from a property before paying any debt service (mortgage payment) or taxes.

Answer 167

The capitalization rate is the annual return that an investor expects to receive from a commercial property. The formula for Capitalization Rate is: Net Operating Income / Value = Capitalization Rate For example: If a property sold for $1,200,000, and the net operating income is $60,000, what is the capitalization rate for the property? $60,000 / $1,200,000 = 0.05 or 5% The Cap Rate equals 5%

Answer 168

ROI is a percentage return on money invested in a property by an investor. ROI, like COC, is usually calculated on a yearly basis, meaning you must multiply the monthly cash flow by 12 and divide it by the down payment. Formula: Cash Flow (on a yearly basis) / Down Payment.

Answer 169

Real estate is considered an illiquid asset because it cannot quickly or easily be sold.

Answer 170

Time value of money is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. It is a process that calculates the value of an asset in the past, present, or future. It is based on the idea that the original investment or principal increases in value over a certain time.

Answer 171

Industrial investment properties include the following: – Heavy manufacturing – Light manufacturing – Multi-tenant – Owner Occupied – Self Storage – Special Purpose – Warehouse / Distribution

Answer 172

Active income – Money earned through salaries or in a business in which the taxpayer actively participates. (Example: a typical full-time job). Passive income – Money earned from investing in a business venture or partnership. (Example: income earned from a rental property). Portfolio income – Money earned from Interest, annuities, dividends, and royalties. (Example: income earned from investing in stocks, bonds, mutual funds).

Answer 173

Any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments. One of the advantages that real estate offers to investors is a tax shelter, which allows investors to only pay income taxes on a portion of their properties cash flow (or pay no taxes at all).

Answer 174

A 1031 tax-deferred exchange allows an individual to defer capital gains taxes on real estate bought and sold for investment purposes. In order to qualify for a tax-deferred exchange (1031 Exchange), the properties must be “like-kind”. For example, commercial properties must be exchanged for other commercial properties. This may be an office building for a shopping mall, an apartment building for a tract of land, or an office building for an apartment building.

Answer 175

Depreciation is a paper loss required for estimated wear, tear, and obsolescence of a property. The IRS allows real estate investors to depreciate their investment properties. Residential Properties Residential buildings and improvements are depreciable over 27.5 years using straight-line depreciation. Commercial Properties Commercial buildings and improvements depreciate over 39 years using straight-line depreciation. Straight-line depreciation means that the portion allocated to the building is divided by 27.5 to determine an equal amount of depreciation allowance each year.

Answer 176

Adjusted basis is the original cost or other basis plus certain additions and minus certain deductions such as depreciation and casualty losses.

Answer 177

Capital gain is the profit realized from the sale of any capital investment including real estate. Capital gain occurs when an investor sells the property for more than the adjusted basis.

Answer 178

A special exclusion in the IRS law gives home sellers a tax break on capitals gains when they are selling their home. Home sellers may be eligible to exclude up to $250,000 if single or up to $500,000 if married of the capital gain on the sale of the residence.

Answer 179

The IRS allows homeowners certain deductions on their income taxes. These include: 1) Property taxes: this applies to property taxes paid on a primary resident and second homes/vacation homes. 2) Mortgage interest

Answer 180

The following closing costs are NOT tax deductible: 1) Appraisal fees 2) Notary fees 3) Preparation costs for the mortgage 4) Mortgage insurance premiums 5) VA funding fees

Answer 181

Certain qualified individuals may be eligible for a partial exemption in their property taxes. These include: – Veterans – Senior Citizens – Disabled The STAR program allows qualified owner-occupied, primary residences to be exempt from school property taxes.

Answer 182

The NYS Department of Financial Services registers and licenses all companies and individuals who conduct mortgage related services in New York. - This includes mortgage broker licenses.

Answer 183

When a mortgage broker representing the buyer is also the real estate broker representing the seller in the same transaction, a dual agency is created. The dual agency relationship must be disclosed at the first substantive contact between the mortgage broker and the prospective buyer. The buyer/borrower and the seller must sign a Mortgage Broker Disclosure Form.

Answer 184

Corrective Maintenance: A maintenance task performed to identify, isolate, and rectify a problem with a property so that the property can be restored to an acceptable condition. In other words, corrective maintenance does NOT involve major repairs or capital expenditures. An example of corrective maintenance would include fixing a leaky faucet. Preventative Maintenance: Preventative maintenance involves keeping property and equipment in a good state of repair so as to minimize the need for more costly repair work or replacement. An example of preventative maintenance would include changing air filters in air conditioners and furnaces.

Answer 185

A management agreement is signed between the property owner and the property manager. This contract creates an agency relationship in which the owner is the principal and the property manager is the agent for the purposes specified in the agreement. The management agreement creates a general agency relationship between the owner and property manager.

Answer 186

The operating statement is used by property managers to project the net operating income for the property. The operating statement defines all of the income and expenses for the property.

Answer 187

A stabilized budget is a forecast of income and expenses as may be reasonably projected over a short term, typically five years.

Answer 188

Money set aside by a property owner for long-term capital expenditures to a property. Also known as a replacement reserve.

Answer 189

When a property manager works for only one owner, a real estate license is not required. However, when an individual (or company) serves as a property manager for more than one owner, at least a real estate salesperson license is required. You do not need a real estate license to negotiate a mortgage.

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