Real Estate Chapter 1

Question 1

Land

Answer 1

Legally considered to include the surface of the earth, which includes any naturally attached components, the subsurface to the center of the earth, and the air above to infinity.

Question 2

o Real Estate:

Answer 2

Actual physical land (unimproved land or raw land) and everything, both natural and man-made, that is permanently attached or appurtenant to it (referred to as improvements)

Question 3

o Real property:

Answer 3

Land and its attachments, as well as all of the interests, rights, and benefits of ownership associated with the property. Could be legally referenced as land, tenements, and hereditaments. Also commonly referred to as realty.

Question 4

o Personal Property:

Answer 4

Property that is not real property, thus not fixed to the land. Also referred to as chattel or personalty.

Question 5

o Physical Characteristics of land that give inherent value

Answer 5

• Immobility
• Indestrubctability
• Uniquness

Question 6

o Immobility

Answer 6

 Real estate can’t move from one place to another
 Hurts in a bad market, helps in a good market

Question 7

o Indestructability

Answer 7

 Real estate can’t be destroyed, even though natural events can physically change a property and its improvements. Thus, real estate will always have some value by virtue of its existence, but the marketplace can impact the usefulness of the land

Question 8

o Uniqueness

Answer 8

 Non homogeneity or heterogeneity, even if two houses look the same, they are still held to be unique because of specific locations. Makes land a scarce commodity. Value is derived from perceived scarcity due to uniqueness. Can be good or bad.

Question 9

Economic characteristics of land for it to achieve maximum value

Answer 9

• Scarcity
• Location
• Improvements

Question 10

Scarcity

Answer 10

 Limited supply of real estate (close to jobs, schools, etc?)

Question 11

Location

Answer 11

 Exact position of real estate (neighborhood, schools, jobs)

Question 12

o Improvements

Answer 12

 Man made addition to real property. Fixtures (buildings, pipelines, pavements, sewers, roads, driveways), vacant land is unimproved

Question 13

Permanence of investment

Answer 13

o Piece of real estate’s physical characteristics of immobility and indestructibility creates PoI. Means real estate investments tend to be comparatively stable and long term

Question 14

 Highest and best use

Answer 14

• Use of a property that is legally permitted, physically possible, financially feasible, and maximally profitable. Greatest economic advantage to owner.

Question 15

Bundle of rights

Answer 15

All real property rights that are
conferred with ownership, including the right of
possession, right of quiet enjoyment, right of
disposition, right of exclusion, right of control. Also
called Bundle of Sticks.

Question 16

Public restrictions

Answer 16

Public restrictions (zoning ordinances, building codes, environmental laws) are restrictions imposed by the government,

Question 17

Private restrictions

Answer 17

(restrictive covenant in a deed: deed restrictions, subdivision regulations by developer, CC&R’s imposed by HoA) are imposed by individuals.

Question 18

o Risk

Answer 18

 Possibility of losing principle or potential income of investment. Risk is probability of the actual rate of return earned will differ from expected.

Question 19

o Liquidity:

Answer 19

Ability to convert asset into cash quickly at a price close to value

Question 19

o Leverage:

Answer 19

Using borrowed funds to increase potential return on investment.
 Use of “OPM” other peoples money

Question 20

Marketability

Answer 20

Ability to convert an asset to cash quickly at any price

Question 21

Investment goals

Answer 21

• Receiving continuous cash flow
• Earning RoI when property is sold
• Building Equity Through Appreciation
• Creating tax shelter through tax deductions

Question 22

 Provisional broker:

Answer 22

Entry level status

Question 23

 Full broker:

Answer 23

provisional broker who has met additional education requirements, provisional designation removed from license

Question 24

Broker in charge

Answer 24

Broker in charge of deals, must be one in every office

Question 25

 Independent contractor:

Answer 25

self employed person paid for jobs rather than hours worked, responsible for paying own taxes. Licensee not usually employed by brokerage. Paid for jobs completed not hours worked.

Question 26

Condos

Answer 26

Joint ownership where condo owners share airspace with specific units and use of common elements (streets, swimming pools)

Question 27

 Cooperatives:

Answer 27

Co-op, building owned and used for and by non profit

Question 28

 Cooperatives:

Answer 28

Co-op, building owned and used for and by non profit

Question 29

 Converted use:

Answer 29

industrial, office, retail converted to residential

Question 30

 Manufactured housing:

Answer 30

Mobile homes (but they’re actually attached)

Question 31

Timeshare

Answer 31

Purchase of ownership interest in property for fixed or variable time period

Question 32

- Appurtenance—

Answer 32

A right that goes along with ownership of real property; usually transferred with the property but may be sold separately. | Tangible or physical (barn, yard, deck, easements, etc)

Question 33

Heterogeneity

Answer 33

A characteristic of real property indicating its diversity or uniqueness.

Question 34

- Personal Property—

Answer 34

Any property that is not real property. It is moveable, thus not fixed to the land. Includes tangible items that are not permanently attached to or part of real estate and any property that is not real property. Also called Chattel or Personalty.

Question 35

- Situs

Answer 35

A place where something exists; an area with preferred features, giving it value to the property; the exact location or position of a piece of real estate. Also called Location or Area Preference.

Question 36

- Tax Shelter—1

Answer 36

Any method used to reduce taxable income, thereby reducing the amount of tax paid to a government. 2. Property or other investments that give owners certain income tax advantages, such as deductions for property taxes, mortgage interest, and depreciation.

Question 37

- Tenements

Answer 37

Everything of a permanent nature associated with land and ordinarily transferred with the land. Tenements are both tangible (e.g., buildings) and intangible (e.g., air rights).

Question 38

Four broad forces impacting real estate market

Answer 38

physical, economic, government, social

Question 39

Types of investment real estate

Answer 39

Residential (rental units) Office Retail Industrial Mixed use