Principles of Real Estate 2 Flashcards
(165 cards)
1
Q
Yearly Interest Calculation
A
Yearly interest= Interest Rate x Principal
2
Q
Compound Interest Calculation
A
Compound Interest Future Value= Principal(1+Interest Rate)^periods
3
Q
Loan-To-Value Ratio
A
Percentage of value lender is willing to finance
4
Q
Ad Valorem Taxes Calculation
A
Annual Taxes= Assessed Value x Tax Rate
5
Q
Points
A
- Point is 1% of loan amount
- Point Value= Percentage Points x Loan Amount
6
Q
One Acre
A
43,560 square feet
7
Q
Area of Rectangle
A
Length x Width
8
Q
Area of Triangle
A
1/2 Base x Height
9
Q
Commission Value
A
Sales Price x Commission Percentage
10
Q
Useable Area
A
% x Total Area
11
Q
Seller’s Net
A
100%- Commission Rate x Sales Price
12
Q
Appreciated Value
A
100%+Appreciation% x Original Cost
13
Q
Depreciated Value
A
100% - Depreciation% x Original Cost
14
Q
Profit
A
% x Original Cost
15
Q
Sales Price
A
% x List Price
16
Q
Assessed Value
A
% x Market Value
17
Q
Monthly PITI
A
Qualifying Ration x Gross Monthly Income (GMI)
18
Q
Net Income
A
Capitalization Rate x Market Value
19
Q
Volume
A
Length x Width x Height
20
Q
Appreciation
A
increase in value due to market forces
21
Q
Ad Valorem Taxes
A
- according to value
- per hundred or thousand (mills)
22
Q
Special Assessment Tax
A
providing benefits such as curbs
23
Q
Municipal Improvement Tax Bill
A
until improvement is paid for or permanent
24
Q
Two Year Right of Redemption
A
has 2 years to pay expenses for tax auction if lose homestead property
25
Requirements of a valid lease
- Competent Parties
- Let and Take Agreement
- Adequate Consideration
- Legal Purpose
- Description of Property/ Street Address
26
Appraisal Characteristics of Value of Real Property
- Demand
- Utility- must be able to fulfill need
- Scarcity- if too abundant, value reduced
- Transferability- ability to transfer title
27
Approaches to Appraisal
- Sales Comparison
- Cost Approach
- Income Approach
28
Sales Comparison
focused on recent sales in area
29
Cost Approach
how much a new structure of size and type would currently cost
30
Income Approach
- uses the income the property generates to estimate fair value
- net income/capitalization rate
31
Gross Rent Multiplier
Sales Price/ Monthly Rent
32
Tax advantages of real estate investment
- tax-sheltered income- depreciation
- Favorable capital gains tax treatment- on sale
- Deferred taxation on exchanges
33
Government's Rights in Land
PETE
- Police Power
- Eminent Domain
- Taxation
- Escheat
34
Police Power
right to regulate and control how land is used
35
Eminent Domain
right to take private land for public use
36
Escheat
transferring real estate to the state when a person dies without will or heirs
37
Certified Commercial Investment Member
- Designation by National Association of Realtors
- Program for commercial real estate professionals regarded as gold standard
- 200 hours of course work and experience
38
Purpose and timing of a buyer’s final walkthrough
1-3 days before closing to verify condition of property
39
Loan Estimate
- Estimate of settlement charges borrower is likely to pay
- Provided no later than 3 business days after receipt of application
- Delivered no later than 7 days before consummation
40
Factors considered by appraisers in addition to the principles of value
- Property and lender information
- Neighborhood description
- Site description
- Improvements to site
- Analysis of market data (Sales Comparison Approach)
- Cost Approach Analysis
- Income Approach Analysis
- Reconciliation of Values
- Additional Support Documents
41
Closing
documents signed and funds disbursed
42
Funding
transferring funds to title or escrow
43
Underwriting
evaluating loan application to determine risk
44
Servicing
collecting payments, maintaining records, collecting taxes, remitting funds and following up on delinquencies
45
Origination
process of creating a loan
46
Consummation
contract is executed
47
Loan Processing
build file for underwriting decision
48
Appraisal Principles
- Highest and Best Use*
- Principle of Contribution*
- Principle of Change*
- Principle of Anticipation*
- Principle of Substitution*
- Principle of Conformity*
- Principle of Increasing and Decreasing Returns*
- Principle of Supply and Demand*
- Principle of Regression/ Progression*
- Principle of Competition*
- Principle of Balance*
49
Highest and Best Use
legal use that gives highest return in money
50
Principle of Contribution
property’s value is equal to the sum of the contributory value of each of its components
51
Principle of Change
forces of change can be specific or external to the property
52
Principle of Anticipation
purchase price is affected by the expectation of future benefit and appeal
53
Principle of Substitution
value influences by the cost of acquiring a substitute or comparable item
54
Principle of Conformity
value maximized when there is a reasonable degree of homogeneity
55
Principle of Increasing and Decreasing Returns
improve property when the value of the improvement exceeds the cost
56
Principle of Supply and Demand
supply is short, prices go up. Supply high, prices go down
57
Principle of Regression/ Progression
lower-priced properties in the area will cause a decline in value
58
Principle of Competition
absence of competition will cause prices to increase
59
Principle of Balance
mixed land use should result in maximum value for all properties
60
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
- Passed in 1980
- Clean up sites contaminated with hazardous substances
- Authority to federal, state natural resource agencies and native american tribes
- Responsibility to EPA
- Safe Harbor- may be exempt from liability
61
Depreciation
reduction in value due to deterioration or obsolescence
62
Physical Deterioration
loss in property value due to daily wear and tear
63
Functional Obsolescence
loss in desirability of style, layout, or function of an element of a property over time
64
External Obsolescence
loss in value of property cause by factors outside of the property itself
65
Types of depreciation considered by an appraiser
- Physical Deterioration
- Chronological Age
- Effective Age
- Functional Obsolescence
- External Obsolescence
66
Requirements of a valid deed and transfer of title
- Must have grantor
- Must have grantee
- Consideration be given by the grantee to the grantor
- Must have words of conveyance
- Legal description
- Must be executed, signed and delivered
67
Types of Leasehold Estates
- Estate for years
- Periodic Tenancy
- Tenancy at Sufferance
- Tenancy at Will
68
Estate for Years
set term. Survives death and sale
69
Periodic Tenancy
renews automatically. Survives death and sale
70
Tenancy at Sufferance
tenant occupies against owner’s wishes
71
Tenancy at Will
tenant occupies with permission for uncertain time
72
Special Warranty Deed
promises to defend title only against claims during their ownership
73
Bargain and Sale Deed
no guarantees or warranties. Implies ownership
74
Quitclaim Deed
no guarantees, warranties or covenants. Does not claim to own property
75
Gift Deed
consideration is love and affection
76
Guardian's Deed
minor’s interest is conveyed
77
Sheriff/Trustee's Deed
foreclosure
78
Correction Deed
corrects error in previous deed
79
Tax Deed
property sold by government at a tax sale
80
General Warranty Deed
greatest degree of protection
81
Fixed- Rate Mortgage
- Rate does not change
- Amortized loan
- Payment applied to interest first
82
Adjustable-Rate Mortgage
rate changes
83
Advantages of ARM Loans
- Lower interest rate
- Higher loans
- Falling rates
84
Disadvantages of ARM Loans
- Early refinancing
- Unpredictable home mortgage payments
- Long-term cost
- Confusion
85
Blanket Mortgage
covers more than one property
86
Package Mortgage
Includes real and personal property
87
Budget Mortgage
Payment includes PITI, principal, interest, taxes, insurance
88
Balloon Note
- Partially amortized final payment is much larger
- Lower interest rate
- High cost of refinancing
89
Collateral- Dependent Loans (Hard Money Loans)
Funds secured by value of parcel
90
Wraparound Mortgage
- Low interest rate
| - Seller financing, new loan takes secondary lien original not repaid
91
Open-End Mortgage
- Additional borrowing on same note
- Home Equity Line of Credit
- Minimum withdrawal is $4,000
92
Participation Loan
- 2+ lenders own a share
- Share appreciation mortgage
- Lender collected PI and shares when sold
93
Reverse Annuity Mortgage
- At least 62 years old
| - Due upon sale or death
94
Sub-Prime Loans
- Risk-based pricing
- Borrowers rated A-F
- Interest is based on rating
95
Mortgage Insurance Premium
- Part of FHA loan
- Covers claims when borrower defaults on loan
- Pays up-front and annual premium
- Can be added to loan even if it exceeds appraised value
96
Private Mortgage Insurance
- Allows lenders to increase LTV
- Required when LTV exceeds 80% in conventional loans
- Insures difference between down payment and 80% LTV
97
Graduated Lease
-payments begin at lower, fixed rate and increase as it matures
98
Gross Lease
- landlord pays charges. taxes, insurance, repairs
| - tenant only pays rent
99
Net Lease
- tenant pays rent plus expenses
100
Percentage Rent
- rent is based of gross receipts of tenant's business
101
Lease Option
- allows tenant to buy at preset price and terms for given period
- binding only on seller
102
Sale and Leaseback
- one party sells property and leases it back
103
Inverse Condemnation
Landowner sues government to force them to buy land
104
Types of Title to Real Property
- Clear/Good
- Marketable
- Equitable
105
Clear/Good Title
title can be transferred to another
106
Marketable Title
title a reasonable buyer would accept as clear
107
Equitable Title
interest created by legal document who has not gone to closing yet
108
Chain of Title
history of all previous owners
109
Abstract of Title
complete history of title
110
Attorney's Opinion of Title
opinion regarding state and transferability of title
111
Cloud on the Title
claim or encumbrance on title
112
Patent
original conveyance of land from government
113
Title Commitment
statement of condition of title from title company
114
Roles and Responsibilities of a Sponsoring Broker
- Advise agent of scope of authorized activities
- Ensure competency
- Written policies and procedures
- Education
- Background checks
115
Constructive Notice of Ownership
- Legal concept that a person received notice of a document even if not delivered directly
- Places burden on future buyers and lenders
- Public records
- Taking possession of property
116
Right of First Refusal
A tenant has the right to match or better any offer the landlord may receive
on the property before the property is sold to someone else.
117
Lease Purchase
- tenant makes lease payments.
- Tenant agrees to purchase at agreed time and price.
- Binding on both parties
118
Covenant
promise made to another
119
Covenant of Seizin
grantor owns property and has right to convey and has not conveyed it before
120
Covenant Against Encumbrances
only limitations in title are listed in deed and no unpaid claims
121
Covenant of Quiet Enjoyment
uninterrupted use of property
122
Covenant of Further Assistance
grantor responsible for documentation needed to transfer title
123
Covenant of Warranty Forever
promises have no expiration date
124
Restriction
limitation placed on new owner
125
Reservation
reserves rights for grantor
126
Real Estate Mortgage Investment Conduits
- hold commercial and residential mortgages in trust and issue interests in these securitized mortgages to investors.
- Freddie Mac and Fannie Mae
127
Secondary Mortgage Market
- Purchase and sale of existing mortgage to investors
| - Designed to provide better liquidity
128
Real Estate Investment Trusts
- Small investors can invest in larger commercial properties by purchasing shares in organization that owns it
- Minimum of 100 investor
- Two types equity and mortgage
- Listed with securities and exchange commission
129
Equity REIT
Purchases commercial property
130
Mortgage REIT
Invests in mortgages and pays dividends
131
Advantages of a REIT
- High returns/low risk
- Portfolio diversification
- Capital appreciation
- Liquidity of shares
- Properties managed by professionals
132
Disadvantages of a REIT
- Subject to market conditions
- Reliance on debt
- Paying for rising property taxes
- 90-100% income is dividends and not reinvested
- Must pay management fees
133
Voluntary Alienation
transfer of title that is a free act
134
Involuntary Alienation
transfer of ownership against will of owner
135
Foreclosure
sale of property due to default
136
Adverse Possession
acquires title from the rightful owner through hostile,
| actual, and continuous occupation of the land for the statutory period
137
Real Estate Syndicate
- Two or more parties join to create and operate real estate investment
- Do not have title in property, it is a securities investment
- Registration with SEC if 35+ people or across state lines
138
Real Estate Settlement Procedures Act (RESPA)
- Consumer Financial Protection Bureau (CFPB) Regulation X
- Ensures consumers are provided with information regarding mortgage settlement and protected from unnecessarily high settlement charges
- Prohibits undisclosed referral fees and kickbacks
139
Coverage of RESPA
-Applicable to all federally-related mortgage loans
one-to-four family structure
-Manufactured home
-And any of the following loans
-made by lender, creditor or dealer
-Made or insured by agency of federal government
-Made in connection with HUD program
-Made and intended to be sold to FNMA, GNMA, FHLMC
-Subject of a home equity conversion mortgage or reverse mortgage
140
Community Reinvestment Act (CRA)
prohibits redlining and ensures banks serve needs of community in which they do business
141
Equal Credit Opportunity Act (ECOA)
- 1974
- All consumers given equal chance for credit
- Prohibits discrimination on protected classes, and for receiving public assistance
- Does not prevent obtaining information
142
Truth in Lending Act (TILA)
-Disclosure of key terms in lending arrangement and all costs
143
Regulation Z
-Advertisement must disclose key terms
144
Easement
Gives one right to use or pass through another’s property
145
Easement in Gross
Belongs to person or corporation and not land
146
Easement Appurtenant
Right to benefit from piece of land
147
Creation of Easements
- Grant
- Reservation
- Implied grant
- Prescription- continuous use without permission
- Necessity
- Condemnation
148
Termination of Easements
- Merger
- Release
- Abandonment
- Death
149
Clouds on a title typically discovered during the commitment process
- Unreleased liens
- Judgments filed lis pendens (pending lawsuits)
- Unpaid taxes
150
Complete Application
- Property Address
- Estimated Value
- Name of borrower
- Social Security Number
- Income
- Loan Amount
151
Pre-Approval
- Requires application
| - Issued after underwriting
152
Pre-Qualification
- When basic information is provided
- No obligation to lender or borrower
- Buyer with Conditional Qualification Letter will not receive Loan Estimate
153
Pre-Approval/Qualification Benefits
- Buyers more realistic with pricing
- Agent understands buyer’s ability to pay
- Agent can avoid showing overpriced properties
- Sellers ensure buyer has enough income to close
154
Intestate Succession
person dies with no will
155
Probate
judicial proceeding to confirm validity of will
156
Formal Will
prepared by attorney
157
Holographic Will
handwritten
158
Nuncupative Will
oral or deathbed will, only valid for personal property
159
Codicil
addition to existing will
160
Fannie Mae
- Formerly known as Federal National Mortgage Association (FNMA)
- privately-owned
- Exclusively on secondary market
- Addresses imbalance of mortgage credit by making funds available to capital deficient areas
- Allows lenders to originate mortgages for sale
- Standardizes mortgage loans
161
Short Sale
property is sold for less than mortgage owed
162
Quick Sale
sale of property in defaulted mortgage before foreclosure
163
Deed in Lieu of Foreclosure
borrower conveys all interest in property to lender to satisfy default
164
Equitable Redemption
redeem property by making late payments
165
Types of Agency Employment Contracts
- Listing
- Buyer Representation Agreement
- Management Agreement
