Real Estate Exam 1

Front 1

real estate

Back 1

tangible assets of land and buildings (improvements to, on, and raw land); the bundle of rights associated with the ownership and use of the physical assets; and the industry or business activities related to the acquisition operation and disposition of the physical assets

Front 2

improvements on the land

Back 2

any fixed structures such as buildings, fences, walls,and decks

Front 3

improvements to the land

Back 3

components necessary to make the land suitable for building construction or other uses. infrastructure.

Front 4

personal property

Back 4

things that are movable and not permanently affixed to the land

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acre

Back 5

43,560 square feet or 209 feet square. 640 acres in one sq mile

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user market

Back 6

potential occupants, both owner-occupants and tenants, or renters competing for physical location space. where rental rates are determined.

Front 7

capital market

Back 7

the financial sector of the economy that serves to allocate financial resources among households and firms requiring funds

Front 8

investment-grade property

Back 8

also known as insitutional grade real estate, large, new and fully leased commerical properties located in major metro areas, over $10 mill, targeted by institutional investors such as pension funds and foreign investors

Front 9

real property

Back 9

rights associated with ownership of land and all permanent attachments.

synonymous with the term real estate
includes tangible ownership rights and improvements

includes air, up to reserved air space or tallest structure and beneath earth as far as technology allows (minerals, oil, gas, and water)

Front 10

land

Back 10

commonly used to refer to a parcel that does not include any structures but may include some improvements to the land

Front 11

property

Back 11

anything that can be owned or possesed (tangible or intangible)

Front 12

assessment lien

Back 12

lien assessment by local gvnt to ensure that those who receive benefit of neighborhood improvements will be charged "fair share"

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attach

Back 13

to place a lien on real property

Front 14

community property

Back 14

rights to 1/2 all property acquired out of fruits of marriage. found in states of Spanish tradition plus LA, WI, AK

growing superior to elective share

Front 15

condominium

Back 15

ownership form that combines fee simple estate for ownership of individual units and tenancy in common for ownership of common areas. (not a type of construction)

Front 16

condominium by laws

Back 16

official rules and reg that govern condo ownership

Front 17

condominium declaration

Back 17

master deed creating or establishing condo corporation

Front 18

cooperative

Back 18

a form of individual ownership of apartments, the property is owned by a corp., of which each resident is a shareholder entitled to a proprietary lease for a particular apartment.

not a true form of co-ownership. owners are mutually liable for any specific liens.

Front 19

deed restrictions

Back 19

limitation imposed on the use of land and structures by clauses in the deed.

when ambiguous, court rules in favor of current land owner.

courts reluctant to enforce if there's been a change in neighborhood, public policy, or delayed enforcement

Front 20

dominant parcel

Back 20

a parcel that benefits from a servient parcel in an easement appurtenant

Front 21

dower/curtsey

Back 21

a common law provision that grants a wife/husband 1/3 life estate in all of the real property of a decedent husband

Front 22

easement

Back 22

a right that the owners of another property may have to use one's land for a specific and limited purpose.

cannot be granted orally

Front 23

easement appurtenant

Back 23

a right of use that involves a relationsip b/w two parcels of land (dominant and servient)

affirmative e.a. gives dominant intrusive use of servient (drainage, walls, parking lots)
negative e.a. allows no intrusion and only restricts placement of buildings to protect views, sunlight, etc

"runs with the land." cannot be separated from parcels involved

Front 24

easement in gross

Back 24

also referred to as commercial easements. the right to use land for a specific, limited purpose unrelated to any adjacent parcel

may be multiple servient but no dominant

transferable to another owner without transfer of land title or ownership.

ex: rights of ways for railroads, roads, irrigation, electric cables, access for oil, timber, hunting.

exclusive- recipient can convey access to others
nonexclusive-rights limited to one user only.

Front 25

elective share

Back 25

provision that gives a surviving spouse a share of most of the wealth of the decedent (1/3 all instate real property and personal property)

must be chosen by explicit "election" within specific time

25 states

Front 26

estate

Back 26

interests in real property that include exclusive(!) possession

Front 27

fee simple absolute

Back 27

an estate in land that provides the owner with a complete set of legal rights, limited only by the powers of the gvnt

Front 28

fee simple conditional (w/ reverter interest)

Back 28

ownership that is subject to a condition or trigger event.
complete ownership unless condition occurs with may revert ownership to previous owner

Front 29

fixture

Back 29

personal property that becomes real property by virtue of its permanent attachment to the realty.

requirements:
1. manner of attachment (would removal cause damage?)
2. character of the article and manner of adaptation (custom fit)
3. intention of the parties in contract or action
4. relation of the parties.

Hint 29

articles are personal property of the landlord if
1. it is a trade fixture
2. it is an agricultural fixture
3. it is a residential landlord installation

Front 30

freehold (ownership) estates

Back 30

estate interests in real estate having unlimited duration; titled interests

ownership with inheritance
> fee simple absolute
> fee simple conditional w/ reverter interest
ownership without inheritance
> ordinary life estate w/ remainder interest
> legal estate (homestead dower) w/ remainder interest

Front 31

general lien

Back 31

a security interest or lien that arises out of actions unrelated to ownership of property.

usually court issued because owner is sued.

includes federal tax liens.

homesteads usually protected from these.

Front 32

interests

Back 32

bundle of rights held by owners of real property

can be possessory (estate) or non possessory (easement, lien, restrictive covenant)

Front 33

joint tenancy

Back 33

a form of co-ownership in which two or more owners hold equal shares and have equal rights of possession. the surviving partners divide the interests of a deceased partner

Front 34

leasehold estates

Back 34

the interest or rights of a lessee or tenant in a leased property, including the possessory interests that are a temporary conveyance of the rights of exclusion, use, and enjoyment, but not the right of disposition.

tenancy for years
periodic tenancy
tenancy at will
tenancy at sufference

Front 35

legal life estate

Back 35

also called legal estate (homestead dower) w/ remainder interest

life estate created by action of law
if spouse dies, other spouse gets life estate and children get vested remainder

Front 36

license

Back 36

the permission to use another's land for a specific and limited purpose

Front 37

lien

Back 37

an interest in real property that serves as security for a loan obligation.

Front 38

mechanic's lien

Back 38

liens that arise from constuction and other improvements to real estate

Front 39

mineral rights

Back 39

rights to the subsurface, including rights to oil, gas, coal , and other substances that are mined, and can be separated from land ownership

Front 40

mortgage

Back 40

a lien on real property as security for a debt. special contract by which the borrower conveys to the lender a security interest in the mortgaged property

Front 41

ordinary life estate

Back 41

estate in which the property owner retains all rights of exclusive possession, use and enjoyment for life while a subsequent owner holds a remainder interest that follows the life estate

Front 42

periodic tenancy

Back 42

any lease agreement that has no definite term at the start

Front 43

personal rights

Back 43

personal freedoms derived primarily from the Bill of Rights and other amendments and clauses to the U.S. constitution

Front 44

property rights

Back 44

rights in property that include exclusive possession, use (enjoyment), disposition and exclusion

Front 45

property tax lien

Back 45

automatic lien placed by local governments to assure payment of property taxes

Front 46

remainder estate

Back 46

the ownership interest subsequent to a life estate, which upon death of owner of life estate becomes fee simple absolute

Front 47

reverter

Back 47

an uncertain interest held by the previous owner (or heirs) associated with a conditional fee

Front 48

right of survivorship

Back 48

the rights of surviving partners in a joint tenancy to divide the interests of a deceased partner

Front 49

rule of capture

Back 49

the owner of an oil or gas well could claim all that is pumped from it, regardless of whether oil/gas has migrated from adjacent property

vs. ownership principle (oil is just another mineral)

Front 50

separate property

Back 50

property husband or wife acquired prior to marriage, or gifts or inheritance received during the marriage

Front 51

servient parcel

Back 51

a parcel that is constrained or diminished by an easement appurtenant

Front 52

specific lien

Back 52

an interest that derives directly from events related to a property, such as property tax and assessment liens, mortgages, and mechanic's liens, and judgment liens (in that order of superiority)

Front 53

tenancy at sufference

Back 53

a tenancy that occurs whena tenant that is supposed to vacate does not, but continues to pay rent and the landlord accepts it

Front 54

tenancy at will

Back 54

a tenancy granted by landlors to allow tenants to remain in possession without written agreement

Front 55

tenancy by the entirety

Back 55

a form of joint tenancy ownership for husband and wife. spouse does not simply have to get life estate and children get remainder. spouse owns entire estate.

Front 56

tenancy for years

Back 56

a leasehold interest for a definite period of time exceeding one year

Front 57

tenancy in common

Back 57

the "normal" form of direct co-ownership, which is as close to fee simple absolute as possible, subject tot he provision that the owner cannot use the property in a manner that infringes on rights of coowners

Front 58

timeshare

Back 58

property occupancy arrangement in wh multiple individuals have use of property at different time intervals. may involve true ownership, leasehold interests, or simple permission to occupy (license).

never a financial investment.

Front 59

easement by estoppel

Back 59

the right of use created if a landowner gives an adjacent landowner permission to depend on her land

Front 60

accretion

Back 60

growth in size by addition or accumulation of soil to land by gradual, natural deposits

Front 61

acknowledgement

Back 61

confirmation that a deed reflects the intention and action of the grantor

Front 62

actual notice

Back 62

an assertion of real property interests that is open, continuous, and apparent to all who examine the property even if it is not recorded.

Front 63

adverse possession

Back 63

involuntary conveyance of real property rights by an individual demonstrating a use that is 1. hostile to the interests of owner 2. actual 3. open and notorious 4. continuous 5. exclusive

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baseline

Back 64

a point of reference that runs east and west and is a feature of government rectangular survey

Front 65

chain of title

Back 65

a set of deeds and other documents that traces the conveyance of the fee and any interests that could limit it, down from the earliest time to the current owner

Hint 65

possible breaks in chain of title:
conveyance of only partial interest
conveyance by adverse possession
fraudulent documents
inconsistent property descriptions
faulty separation of water and mineral rights
inferior deed
missing spousal signature

Front 66

checks

Back 66

a component of a grid system, defined as an area of 24 x 24 miles

Front 67

covenants

Back 67

legally binding promises for which the grantor becomes liable

Front 68

covenants against encumbrances

Back 68

a promise that the property is not encumbered with liens, easements, or other such limitations except as noted in the deed

Front 69

covenant of quiet enjoyment

Back 69

a promise that the property will not be claimed by someone with a better claim to title

Front 70

dedication

Back 70

to convey certain lands of a subdivision to the local government

Front 71

deed

Back 71

a special form of written contract used to convey a permanent ownership interest in a real property. must be in writing.

can convey fee simple absolute or lesser interests such as life estate, conditional fee or easement.

types of deeds:
1. general warranty deed
2. special deed
3. deed of bargain and sale
4. quitclaim deed
5. judicial and trustee's deed

Hint 71

elements of the deed:
1. grantor and grantee
2. recital of consideration
3. words of conveyance
4. covenants
5. habendum clause
6. exceptions and reservations clause
7. description of land
8. acknowledgment
9. delivery

Front 72

deed of bargain and sale

Back 72

a deed that conveys the land itself rather than ownership interests through warranties. used by business to reduce liability

Front 73

delivery

Back 73

an observable, verifiable intent that the deed is to be given by the grantor to the grantee

Front 74

devised

Back 74

conveyance or distribution of a decedent's real property though a will

Front 75

doctrine of constructive notice

Back 75

a common law tradition stating that if a person is capable of knowing about a claim or rule, they can be bound by it

Front 76

easement by prescription

Back 76

an acquisition of a right of easement by open, notorious, and continuous assertion of the right, hostile to the subservient land owner's interest.

Front 77

easement by prior use

Back 77

an implied right of use that allows the owner of a landlocked parcel the right to use a previously existing path across another property for access and egress

Front 78

easement by necessity

Back 78

a created implied right of use that allows the owner of a land-locked parcel the right to use a path across another property for access and egress

Front 79

encroachment

Back 79

unauthorized intrusion of a building or other improvements onto property owned by another

Front 80

general warranty deed

Back 80

highest form of deed in which the grantor becomes liable for all possible covenants, or legal promises, assuring good title

Front 81

grant deed

Back 81

a deed containing an implied promise that the grantor actually has title and that it is not encumbered in any way except what is in deed

Front 82

grantee

Back 82

recipient of a conveyance of a real property interest

Front 83

grantor

Back 83

the person or entity conveying the real property interest. must be competent and of majority age.

Front 84

habendum clause

Back 84

clause in a deed that defines or limits type of interest being conveyed

"for use as" implies easement
"for so long as" implies conditional fee with reverter
"and his/her heirs and assigns forever" implies fee simple absolute

Front 85

implied easement

Back 85

right of use not created by an explicit deed or explicit clause in a deed. often created when subdivision map placed in public records.

Front 86

intestate

Back 86

conveyance of a decedent's property without a will

Front 87

judicial deed

Back 87

deed issued through court ordered proceeding

Front 88

laws of descent

Back 88

the laws and procedures controlling how a state will convey a decedent's estate among heirs if no will exists

Front 89

marketable title

Back 89

title to real property that is free of reasonable doubt

Front 90

marketable title laws

Back 90

state laws intended to limit the number of years that title search much "reach back" through the "chain"

Front 91

metes and bounds

Back 91

method of describing real estate in which a mete is a unit of measure (foot, mile) and a bound is a boundary marker

Front 92

patent

Back 92

special type of deed that conveys title to real property owned by government to a private party

Front 93

plat lot and block number

Back 93

an unambiguous means to provide a description of property that identifies each parcel in a surveyed map of a subdivision

Front 94

principal meridian

Back 94

a line of geographic reference that runs north and south in a government rectangular survey

Front 95

probate

Back 95

state law that governs the disposition procedure of the conveyance of real property upon the death of an owner

Front 96

quitclaim deed

Back 96

deed that conveys an individuals property rights to another but has none of the covenants of the warranty deed

Front 97

range line

Back 97

a feature of a government rectangular survey that separates townships by east and west

Front 98

recording statutes

Back 98

state laws requiring documents that convey an interest in real property to be placed in the public records in order to be binding to the public

Front 99

reliction

Back 99

receding water line that leaves dry land to be added to an adjacent landowner's property

Front 100

section

Back 100

a specifically surveyed and identified square mile within the framework of the rectangular survey system

Front 101

special warranty deed

Back 101

identical to a general warranty deed except that the covenant against encumbrances applies only to the time that the grantor owned the property

Front 102

statute of frauds

Back 102

all deeds, long term leases, and mortgages must be in writing to be enforceable

Front 103

testate

Back 103

conveyance of real property upon the death of a property owner in accordance with a will

Front 104

tier line

Back 104

a feature of gvnt rectangular survey that serves to number townships north or south of the base line

Front 105

title abstract

Back 105

a compilation of all documents summarizing the chain of title into a chronological volume and then given to an attorney for final interpretation

Front 106

title abstract with attorney's opinion

Back 106

traditional evidence of title

Front 107

title insurance

Back 107

insurance paying monetary damages for loss of property from unexpected superior legal claims or litigation to protect title. deemed superior to the traditional abstract.

Hint 107

does not protect against physical damage or easements, government restrictions or encroachments

Front 108

title insurance commitment

Back 108

a commitment to issue a title insurance policy

Front 109

title search

Back 109

the task of examining the evidence of title in public records

Front 110

Torrens certificate

Back 110

a rarely used means of providing evidence of title

Front 111

township

Back 111

a unit within the gvnt rectangular survey system having an area of 6x6 miles and containing 36 fully described, one sq mile sections

Front 112

trustee's deed

Back 112

a deed issued by the trustee in a court supervised disposition of property, for example by an executor and administrator of an estate, a guardian of a minor, a bankruptcy trustee, or an attorney in divorce proceedings

Front 113

words of conveyance

Back 113

early in the deed will be words such as "does hereby grant, bargain, sell, and convey unto..." that serve to assure the grantor clearly the intents to convey an interest in real property and indicates the type of deed offered by the grantor

Front 114

covenant of seizin

Back 114

a promise that the grantor truly has good title, and that he or she has the right to convey it to the buyer

Front 115

trustee

Back 115

in mortgage lending, a person who holds the deed on behalf of both the borrower and lender in a deed of trust

Front 116

ad valorem taxes

Back 116

property taxes that are based on the market value of the property

Front 117

affordable housing allocation

Back 117

a requirement that encourages or mandates a "reasonable and fair" component of new housing construction for lower income families

Front 118

assessed value

Back 118

the value determined as the basis on which an owner's property tax liability is calculated, usually a percentage of market value

Front 119

board of adjustment

Back 119

in local zoning law, a board of citizens, appointed by the governing body, to hear and make determinations on appeals for zoning variances. determinations are final. can only be appealed in court.

Front 120

comprehensive plan

Back 120

a local gvnts general guide to a community's growth and development based on goals and objectives.

purpose is to correct market failure

growth management laws require:
comprehensive plan submitted to state agency
large scale developments must have econ. and envir. impact st.
concurrency
affordable housing allocation

Hint 120

challenges to public land use planning:

changing notion of best practice
limited experience
insufficient theory and information
inability to foresee future well

Front 121

concurrency

Back 121

the requirement that public facilities and services, including roads, sewers, and schools be available at the same time the new development is completed

Front 122

condemnation

Back 122

the legal procedure involved with eminent domain, the right of government to acquire private property without the owner's consent, for public use in exchange for just compensation

Front 123

economic and environmental impact statements

Back 123

studies of the effect that a new development will have on the economy or environment of the region

Front 124

effective tax rate

Back 124

the percentage amt by which income taxes reduce the going-in IRR on a property acquisition or development

also: tax paid/market value

Front 125

eminent domain

Back 125

the power of the government in the US to take private property for public use and pay the owner just compensation

Front 126

exclusionary zoning

Back 126

zoning that tends to exclude lower income groups and is prohibited

Front 127

externalities

Back 127

the unaccounted effects that a land use imposes on surrounding parcels

Front 128

extraterritorial jurisdiction

Back 128

control by a community of an area larger than the community or jurisdiction for planning and zoning purposes, granted by the state legislature, which allows local gvnts to plan and control urban development outside their boundaries until annexation can occur

Front 129

growth moratorium

Back 129

a temporary prohibition of further development in a community or jurisdiction

Front 130

homestead exemption

Back 130

a provision in some state that allows specified taxpayers (usually owners of their full time residence) to apply for a deduction of a certain amount from the properties assessed value in calculating annual property tax liability

Front 131

impact fees

Back 131

a fee charged by a community and paid by a developer that is commensurate with externalities created by a development. intended to cover impact on roads, schools, sewer systems, and fire protection

Front 132

inverse condemnation

Back 132

action, initated by a property owner, against the government to recover the loss in property value attributed to government activity

Front 133

just compensation

Back 133

market value of property taken by the government in its exercise of eminent domain

Front 134

millage rate

Back 134

dollars of tax per $1,000 of property value. a millage rate of 20 means that a person owning a property with a $100,000 value would pay $2000 in tax

Front 135

mills

Back 135

units used to state the amount of property tax assessment; the number of dollars per $1000. twenty mills means $20 per each $1000

Front 136

new urbanism

Back 136

school of planning though that seeks to revive residential neighborhood features of the preautomobile era, including sidewalks, houses with front porches located close to streets, narrow, grid pattern streets, and supporting non residential services interspersed within neighborhoods

Front 137

nonconforming use

Back 137

a land use inconsistent with current zoning classification, but which is permitted to remain because it predated the current zoning. to be allowed to remain the use must be uninterrupted and the property structures cannot be substantially improved

Front 138

performance standards

Back 138

an approach to land use control that addresses concerns for urban systems such as traffic, watershed, greenspace, and air quality through detrimental activities

Hint 138

certain uses under a specific zoning code may be allowed if it meets the standards rather than disallowed

Front 139

planned unit development

Back 139

a development project, often involving a mixture of land uses and densities not permitted by normal zoning. it is allowed because the entire development is viewed as wholly integrated

Front 140

public purpose

Back 140

in eminent domain cases, expansion by courts of the public use concept, no longer requiring actual physical use by the condemning agency to take property

Front 141

public use

Back 141

in eminent domain, requirement of actual physical use by the condemning agency to justify condemnation

Front 142

regulatory taking

Back 142

under precedents of supreme court, the degree of land regulation that is considered to constitute effective taking of the property. if this degree of regulation is reached, the gvnt must compensate the property owner for loss of value

i.e. property may be regulated to an extent but if zoning regulation goes too far it will be recognized as taking

Front 143

smart growth

Back 143

planning concept similar to new urbanism, also emphasizing "compact" urban development

Hint 143

mixed land uses
compact building design
housing opps ad choices for a range of household types
walkable neighborhoods
distinctive communities
preservation of open space, farmland and natural beauty
reinvestment in existing communities
transportation choices
predictable, fair and cost effective development decisions
citizen participation in development decisions

Front 144

special assessments

Back 144

property taxes levied to finance special improvements to benefit adjacent property owners. Ex: property owners in a subdivision could be forced to pay for installation of sanitary sewers

applied as pro rata not ad valorem

Front 145

taxable value

Back 145

assessed value less any applicable exemptions, to determine amt of property tax owed

Front 146

tax assessor

Back 146

the local public official in charge of determining the taxable value of property in jurisdiction as the basis for property taxation. also called the county property appraiser

Front 147

tax base

Back 147

all of the taxable properties in the jurisdiction

Front 148

tax exempt properties

Back 148

usually including churches, synagogues, public schools and government property.

Front 149

tax rate

Back 149

the initial interest rate on an adjustable rate mortgage if it is less than the index rate plus the margin at the time of origination

Front 150

toxic waste

Back 150

hazardous materials sucha s asbestos, fiberglass, lead paint, radon, PCBs and leaking underground storage tanks

Front 151

urban service area

Back 151

an area delineated around a community within which the local gvnt plans to provide public services and facilities and beyond which urban development is discouraged or prohibited

Front 152

variance

Back 152

zoning ordinance provides a relief mechanism for cases where regulations impose exceptional hardship and loss of value.

Hint 152

owner must show true hardship
condition must be unique to the lot and not common to others in vicinity
variance must not materially change the character of the neighborhood

Front 153

accrued depreciation

Back 153

in cost appraisal, the identification and measurement of reductions in the current market value of a property from today's reproduction cost

due to:
physical deterioration
functional obsolescence
external obsolescence

Front 154

adjustments

Back 154

additions or subtractions from a comparable sale price or cost with are required to make the comparable property more comparable to subject

Front 155

appraisal

Back 155

an unbiased written estimate of the FMV of the property

Front 156

appraisal report

Back 156

the document the appraiser submits to the client and contains the appraiser's final estimate of market value, the data upon which the estimate is based, and the calculations to arrive at the estimate

Front 157

arms-length transaction

Back 157

a transaction b/w two parties that have no relationship with eachother and who are negotiating on behalf of their own best interests. a fairly negotiated transaction and reasonably representative of market value

Front 158

comparable properties

Back 158

properties similar to subject property used in the sales comparison approach to calculate a single indicated value for the subject property

Front 159

elements of comparison

Back 159

the relevant characteristics used to compare and adjust the sale prices of the comparable properties in the sale comparison approach

Front 160

external obsolescence

Back 160

losses of property value caused by forces or conditions beyond the borders of the property. the losses are deducted from a building's reproduction cost in the cost approach to estimating market value

Front 161

functional obsolescence

Back 161

losses in value of a building relative to its reproduction cost because the building is not consistent with modern standards or with current tastes of the market

Front 162

highest and best use

Back 162

the use of a property found to be 1. legally permissible 2. physically possible 3. financially feasible and 4. maximally productive

Front 163

indicated value

Back 163

the final value estimate for the subject property resulting from application of one of the major approaches in the appraisal process

Front 164

investment value

Back 164

the value of the property to a particular investor, based on his or her specific requirements, discount rate, and expectations

transactions only occur when a buyer's investment value exceeds the seller's

Front 165

market conditions

Back 165

the relationship b/w supply and demand for a particular type of real estate in a local market at a specified point in time

Front 166

market value

Back 166

the price a property should sell for in a competitive market when there has been a normal offering time, no coercion, arms length bargaining, typical financing and informed buyers and sellers

Front 167

nonrealty items

Back 167

items of personal property

Front 168

physical deterioration

Back 168

loss of value of a building from its reproduction cost, resulting from wear and tear over time

Front 169

property adjustments

Back 169

five sale price adjustments made to comparable property transaction prices: location, physical characteristics, legal characteristics, use, and non realty items

Front 170

reconciliation

Back 170

the process of forming a single point estimate from two or more numbers. use in sales comparison approach to develop a single indicated value from several final adjusted sale prices of comparables, and in final reconciliation to develop a final estimate of value from two or more indicated values

Front 171

repeat-sale analysis

Back 171

estimation of the rate of property appreciation through statistical examination of properties that have sold twice during the sample period. normally, the analysis is by statistical regression.

Front 172

replacement cost

Back 172

the cost to build a new building if equal utility to an existing building but is not an exact replica.

methods of estimating replacement cost:
quantity survey method
cost per sq ft or cubic ft
unit in place

Front 173

reproduction cost

Back 173

cost to build a building that is like the old one in every detail

Front 174

restricted appraisal report

Back 174

provides a minimal discussion of the appraisal with large numbers of references to internal file documentation. client just wants information for himself

Front 175

self-contained appraisal report

Back 175

includes all the detail and information that were relevant to deriving market value of the other conclusions within the report. most self-contained appraisal reports use the narrative reporting option: longest and most formal format for reporting. self contained are typical in appraisals of major income producing property

Front 176

subject property

Back 176

property for which an appraisal of FMV is produced

Front 177

summary appraisal report

Back 177

summarizes the conclusions of the appraisal. majority of data and techniques used are kept in appraiser's work file. use the form reporting option. efficient and convenient. usually required by mortgage lenders when households are purchasing or refinancing a single family home.

Front 178

transactional adjustments

Back 178

in an appraisal, adjustments to comparable property transaction prices that concern the nature and terms of the deal

Front 179

transaction price

Back 179

prices observed on sold properties

Front 180

Uniform Standards of Professional Appraisable Practice (USPAP)

Back 180

rules governing the appraisal process and reporting of appraisals that are developed by the appraisal standards board of the Appraisal Foundation. appraisers are obligated by law to follow these.

Front 181

capital expenditures

Back 181

expenditures for replacements and alterations to building (or improvement) that materially prolong its life and increase its value.

included in reconstructed op statement as an allowance or reserve

prorated as constant annual expense over expected life

Front 182

direct capitalization

Back 182

the process of estimating the value of a property by dividing a property's annual net operating income by an overall capitalization rate.

V = NOI/Ro

NOI is projected stabilized income over next 12 months
direct market extraction determines Ro

value estimates based on ratio or multiple of expected first year NOI
multiplier obtained from comparable sale prices

sometimes considered more reliable than direct CF because requires fewer explicit forecasts

Front 183

direct market extraction

Back 183

method of estimating the appropriate cap rate from comparable property sales

Ro = NOI/V or Ro=NOI/Sale Price

Front 184

effective gross income

Back 184

the total annual income the rental property produces after subtracting vacancy losses and adding miscellaneous income

Front 185

fee simple estate

Back 185

the complete ownership of a property, may either be absolute or conditional

Front 186

going-in cap rate (Ro)

Back 186

the overall capitalization rate, the ratio of the first-year net operating income to the overall value (or purchase price) of the property

Ro is a cap rate, NOT a discount rate

If Ro is 0.099, similar properties sell for about 1/0.099 or 10.1 times their estimated first year NOI

y = R + g

Front 187

going-out cap rate (Ri)

Back 187

the ratio of estimated net operating income in the year following sale to the overall value of the property at the time of sale.

usually assumed to be 1/4 to 3/4 of a percentage pt higher than going in rate.

reflects assumption that the income producing ability of properties will decline over time

Front 188

income capitalization

Back 188

the process of converting periodic income into a value estimate

Front 189

internal rate of return (IRR)

Back 189

the rate of interest (discount) that equates the present value of the cash inflows to the present value of the cash outflows, that is the rate of discount that makes the NPV equal to zerpo

Front 190

leased fee estate

Back 190

the bundle of rights possessed by the landlord in a leased property, made up primarily of the right to receive rental payments during the lease term and ultimately repossess the property at the end of the lease term

Front 191

natural vacancy rate

Back 191

the proportion of the PGI not collected when the use (rental) market is in equilibrium

Front 192

net operating income

Back 192

the type of income to a property used in direct capitalization.

calculated by deducting from PGI vacancy and collection losses and adding other income to obtain EGI. subtract all operating expenses including mgt expense and a reserve for replacements and other nonrecurring expenses.

focuses on income after operating taxes but before mortgage payments and income tax.

NOI is the property's dividend, not the investors dividend.

Front 193

net sale proceeds

Back 193

the expected selling price less selling expenses

Front 194

operating expenses

Back 194

necessary expenditures incurred during year that do not materially add value but keep property operating and competitive in market

does not include mortgage payments or tax depreciation

Front 195

overall capitalization rate (Ro)

Back 195

the type of cap rate used in direct cap, calculated by dividing comp properties' NOI by their selling prices

Front 196

potential gross income

Back 196

the total annual income the property would produce if it were fully rented and had no collection losses

normal range for vacancy and collection losses is 5-15% of PGI

Front 197

pro forma

Back 197

a (five year) cash flow forecast prepared to facilitate discounted cash flow analysis

Front 198

reconstructed operating statement

Back 198

a statement of property income and expenses formatted for the purposes of appraisal and investment analysis. differs from typical management operating statement in treatment of certain epenses, including management fees, mortgage pmts, and vacancy and collection losses

Front 199

reversion

Back 199

the cash proceeds from a sale

Front 200

selling expenses

Back 200

costs associated with disposition of a property

Front 201

terminal capitalization rate (Rt)

Back 201

rate used to convert annual net cash at the end of an expected holding period into an estimate of future sale price

Front 202

terminal value (Vt)

Back 202

the sale price that the end of an expected holding period

V5 = NOI6/Rt

Front 203

buyer agency agreement

Back 203

a contract for real estate brokerage services b/w a buyer and an agent. broker receives compensation for successfulyl locating a property for buyer to purchase

Front 204

designated agent

Back 204

in case a brokerage firm is agent for both a seller and a buyer, the firm sometimes designates one salesperson to serve the buyer and one for the seller. the two are presumed to maintain privacy and serve interest of party they represent

Front 205

dual agency

Back 205

a person or firm has an agency and fiduciary relationship to both parties

Front 206

errors and omission insurance

Back 206

indemnifies proessionals if they make an error in their profession or if they omit something important from their analyses

Front 207

exclusive agency listing

Back 207

an agreement b/w a seller of a property and a broker in wh the seller agrees to pay commission to broker if anyone other than owner finds a buyer, during the period of agreement

Front 208

exclusive right of sale listing

Back 208

an agreement b/w seller and broker in wh the broker is assured of receiving a commission of the broker or anyone else, including owner, finds a buyer during the period of agreement

Front 209

fiduciary relationship

Back 209

the special duties and obligations to a principal required of an agent, including complete loyalty, confidentiality, obedience, disclosure, accounting, care, skill and due diligence

Front 210

general agent

Back 210

one who is empowered to represent a principal ,often a business firm, in its business relationships. can contract and bind the principal within the confines of the business or employment relationship

Front 211

law of agency

Back 211

the legal rights, duties, and liabilities of principal, agent, and third parties as a result of the agency relationship b/w them

Front 212

listing contract

Back 212

an agreement b/w owner and real estate broker that obligates the broker to attempt to sell the property under specified conditions and terms. obligates property owner to pay a commission to broker if successful in obtaining a ready, willing, and able buyer on terms.

creates an agency relationship

Front 213

market segmentation

Back 213

identification and delineation of submarkets

Front 214

multiple listing service

Back 214

sharing of property sales listings by a number of real estate brokers with an agreement as to how costs and commissions are to be shared

Front 215

net listing

Back 215

type of contract in which sellers specify the amount they will accept from the sale, with brokers keeping all proceeds in excess of that amount

Front 216

open listing

Back 216

agreement b/w seller of property and a broker that provides for the broker to receive a commission if he or she sells property. no exclusive protection provided to broker

Front 217

real estate commission

Back 217

responsible for overseeing the implementation and admin of a states real estate license law.

Front 218

recovery fund

Back 218

reserve of funds collected from real estate license fees to pay for losses to clients legally judged to have been caused by a licensed salesperson or broker

Front 219

special agent

Back 219

a person to whom a principal has granted authority to handle a specific business transaction or to perform a specific function. real estate brokers and salespersons are special agents

Front 220

subagency

Back 220

the agency role of a broker is extended to one or more additional brokers, who also become a fiduciary of the principal and are empowered to act on his behalf. shares commission with original broker.

Front 221

submarket

Back 221

segment of market in which all properties considered to be close substitutes by homogeneous group of buyers

Front 222

transaction broker

Back 222

one who facilitates a real estate transaction but is not an agent of buyer or seller. has fiduciary duties but not bound by strict fiduciary responsibilities of agents. status must be disclosed in writing

Front 223

universal agent

Back 223

one to whom a principal delegates the power to act in all matters that can be delegated in place of the principal

Front 224

assignment

Back 224

the transfer of the original lessee's rights under the lease contract to another tenant. original lessee and new tenant may be coliable if rent not paid

Front 225

closing

Back 225

event at which possession and title are transferred

Front 226

consideration

Back 226

anything of value given to induce another party to enter into a contract

Front 227

contract conditions

Back 227

specific requirements that must be satisfied by or for a party to contract

Front 228

contract for sale

Back 228

legal doc b/w buyer and seller that states the purch price and other details of trans and the detailed manner in which ownership rights are to be transferred. most important contract in real estate

Front 229

contract terms

Back 229

detailed requirements of fully enforceable contract, such as down payment, seller financing ,provisions for inspections, etc

Front 230

contracts with contingencies

Back 230

an agreement for sale that makes the sale conditional on the buyer's obtaining something such as financing or a favorable engineering report

Front 231

earnest money

Back 231

a cash deposit by a buyer at the time of the offer to establish credibilty of the offer and to provide recourse to the seller if the buyer reneges

Front 232

equitable title

Back 232

the right of someone to obtain full, legal title to real estate, provided the terms and conditions of the document creating equitable title (a contract for sale) are fulfilled

obtained when contract for sale of real estate fully signed

Front 233

escrow

Back 233

the status of real estate transactions that are closed through the help and intercessions of a third party, called an escrow agent. deed is delivered to escrow agent for delivery to the buyer on performance of a condition (payment of purchase price)

Front 234

escrow agent

Back 234

a person or company that performs the closing function for a fee. collect all needed documents and funds.

Front 235

legal title

Back 235

ownership of property (freehold estate), for real estate a lawful claim, supported by evidence of ownership

Front 236

personal performance

Back 236

a contract that requires a service or action on the part of one party. includes leases and mortgage loans, which require regular payments. not fully assignable in that the lessee or mortgagor remains liable for the obligation

Front 237

prorating

Back 237

allocation of costs and revenues b/w buyer and seller of real property at closing based on time of ownership by each party

Front 238

recording

Back 238

filing of a document with appropriate public office

Front 239

rescission

Back 239

the termination of a contract by cancellation. under the Truth-in-Lending Act a borrower's right to cancel a loan contract with in three days that is secured by his or her principal residence

Front 240

compounding

Back 240

calculation of future values, given assumptions about the amt or amts invested and the interest rate paid

Front 241

discounting

Back 241

equating the value of future benefits from a real estate investment to an equivalent current value (PV)

Front 242

hospitality property

Back 242

motels, hotels, and many types of restaurants

Front 243

industrial property

Back 243

includes warehouses and structures that house light manufacturing

Front 244

investment yield

Back 244

growth in the invested dollars of the investment. stated as a percentage growth or return

Front 245

multifamily property

Back 245

residential property classification that includes apartment

Front 246

net present value

Back 246

difference b/w the PV of the cash inflows and the PV of the cash outflows

Front 247

opportunity cost

Back 247

the return the investor is forgoing on an alternative investment of equal risk in order to invest in current asset.

Front 248

risk

Back 248

possibility that actual outcomes will vary from what was expected when the asset was purchased

Front 249

time value of money

Back 249

standard techniques for quantifying the effects of time and risk on value

Front 250

adjustment period

Back 250

number of inital years in which an ARM remains fixed before the interest rate is allowed to be adjusted

Front 251

annual percentage rate

Back 251

appx of the mortgage loan's annual effective borrowing cost in the absence of an early payoff. includes effect of up front financing costs on the true cost of borrowing

Front 252

closing costs

Back 252

also called settlement costs, costs in addition to the price of a property, usually including mortgage origination fee, title insurance, attorney's fee, and prepayable items such as taxes and insurance payments collected in advance at closing and held in an escrow until account needed

Front 253

discount points

Back 253

upfront financing costs charged by lenders to increase the yield on a loan

Front 254

early payment mortgage

Back 254

loans where the borrower makes additional payments to reduce outstanding principal more quickly than scheduled

Front 255

effective borrowing cost

Back 255

the true borrowing cost, including the effect of all upfront financial cost. similar to APR but allows for effect of early payoff

Front 256

interest-only mortgages

Back 256

during life of loan, borrowers make interest, but no principal, payments. therefore the remaining mortgage balance is not reduced over life of loan

Front 257

lender's yield

Back 257

implied discount rate, or internal rate of return, on a loan given all of the cash inflows and outflows on the loan to the lender

Front 258

level payment mortgage

Back 258

a fully amortizing loan with equal periodic payments

Front 259

loan balance

Back 259

outstanding principal balance on loan. always equal to original balance of loan if loan is interest only. declines over time if loan is self amortizing

Front 260

monthly loan constant

Back 260

loan payment factor used to determine payments on a level payment, fixed rate loan

Front 261

real estate professions

Back 261

1. brokerage, leasing and property mgt
2. appraisal and consulting
3. site selection, acquisition and property development
4. construction
5. mortgage finance and securitization
6. corporate and institutional real estate investment
7. government activities: planning, land use regulation, environmental protection and taxation

Front 262

Real Estate Investment Trusts (REITs)

Back 262

a corporation or trust that uses the pooled capital of many investors to purchase and manage income property (equity REIT) and/or mortgage loans (mortgage REIT)

Front 263

public capital markets

Back 263

1. small homogeneous shares of ownership in assets, trade in public exchanges
2. many buyers and sellers
3. price quotes available for all to see
4. high degree of liquidity
5. informationally efficient

Front 264

private capital markets

Back 264

1.absence of centralized market and price lists
2.assets trade infrequently (lack of transparency)
3. common for whole assets to be trade in single transaction (indivisibility)
4. less liquidity than public markets
5. higher transaction costs

Front 265

property (asset) market

Back 265

1. market for ownership claims to real estate assets
2. buyers/owners receive rights to CF generated by leasing space to tenants
3. integrated, not segmented like space market

Front 266

local government influences on real estate

Back 266

affects rental rates through property taxes

quality and value of real estate by bridges, roads, mass transit, schools, social services, zoning codes, fees

Front 267

state government influence on real estate

Back 267

license agents
building codes
fair housing laws
environmental protection
law enforcement
public services

Front 268

national government influence on real estate

Back 268

income tax
housing subsidies
flood insurance programs
financial reporting
consumer protection

Front 269

real estate supply theory

Back 269

increase in supply by producers decreases rents and property values, which reduces feasibility of new construction, so interest rates increase and property values decrease

Front 270

rights

Back 270

non revocable and enduring claims or demands that our government is obligated to enforce

Front 271

forms of co-ownership

Back 271

indirect co-ownership through a single entity
> LLC, partnership, corporation, REIT

direct co-ownership
> tenancy in common
> joint tenancy
> tenancy by the entirety
> condominium
> ownership interests from marriage
>>dower/curtsey, elective share, and community property

timeshare

cooperative

Front 272

modes of conveying real property

Back 272

with a deed:
voluntary
> normal transaction
> patent
involuntary
> probate
> bankruptcy
> divorce
> condemnation
> probate

without a deed:
voluntary
> implied easement
> easement by prior use or necessity
> easement by estoppel
> dedication
involuntary
> easement by prescription
> title by adverse possession
> action of water

Front 273

land descriptions

Back 273

basic reference points:
base line (e-w) principle meridian (n-s)

measures of distance:
range lines (separates e-w), township lines (separates n-s)

units:
checks (24 sq. mi)
township (6 sq. mi)
section (1 sq. mi)

Front 274

market distortions

Back 274

monopolies
externalities
incomplete information
uncertainty and value stability

Front 275

counterarguments to land use controls

Back 275

zoning restricts the supply of modestly priced housing

zoning may force grocery stores, hair salons, etc farther away from residential neighborhoods they serve

Front 276

environmental legislation

Back 276

Clean Air Act (1970)
Clean Water Act (1972-77)
Safe Drinking Water Act (1974)
Resource Conservation and Recovery Act (1976)
Toxic Substances Control Act (1976)
Comprehensive Environmental Response Compensation and Liability Act (1980)
Occupational Safety and Health Act (1970)
Endangered Species Act (1973)

Hint 276

CERCLA established the Superfund and gave EPA authority to clean up abandoned or uncontrolled toxic sites.

OSHA ensures that employers provide employees with an environment free from recognized hazards, such as exposure to toxic chemicals, excessive noise levels, mechanical dangers, heat or cold stress, or unsanitary conditions.

Endangered Species Act is designed to protect critically imperiled species from extinction as a "consequence of economic growth and development untempered by adequate concern and conservation."

Front 277

environmental assessments

Back 277

Phase I EVA (noninvasive)
>Air and water samples
>Historical property records
>Site inspection

Phase II EVA
>More invasive tests to confirm indications from Phase I
Phase III EVA
>Complete assessment of extent of the problem
>Determination of remediation needs
>Estimation of remediation cost
>Prescriptions for future prevention

Front 278

property tax rate

Back 278

Rt = (Eb - Io) / (Vt - Vx)

Rt tax rate
Eb budgeted expenditures
Io income from sources other than property tax
Vt total assessed value of all properties
Vx value of property exemptions

Front 279

equity right of redemption

Back 279

owner has right to pay unpaid taxes plus interest and penalties within a certain amount of time before foreclosed and sold to the public

Front 280

criticisms of property tax

Back 280

it is regressive
it varies among geographic areas
it is poorly administered

Front 281

value calculations are required when

Back 281

a property acquisition is contemplated
a structure is modernized, renovated, abandoned, demolished
a site is developed
a property is used as collateral for a loan

Front 282

appraisal framework

Back 282

1. identify the problem
2. determine the scope of work
3. collect data and describe property
4. perform trend analysis
5. determine value of land
6. apply three approaches to valuation
7. reconcile indicated values from the three approaches
8. report final value estimate

Hint 282

1. identify the problem
> id client and users
> id use
> id purpose of assignment
> id effective date of valuation
> id relevant characteristics of property
> id important assumptions or conditions (assuming arms length and asking if specific market conditions exist)

2. determine the scope of work
> must be consistent with similar appraisals
> must be clearly described
> id personnel and time requirements
> outline of appraisal report must be provided

3. collect data and describe property
> market area data
> subject property data
> comparable property data
> look at alternative investments and future land use data

4. perform trend analysis
> market analysis
> highest and best use
>>as though vacant
>>as though improved

5. determine value of land
> separately from buildings

6. apply three approaches to valuation
> sales comparison
> income approach
> cost approach

7. reconcile indicated values from the three approaches

8. report final value estimate
> self contained
> summary
> restricted

Front 283

approaches to valuation

Back 283

sales comparison:
easily understandable applicable to almost all 1-4 family residential properties and some income producing properties

income approach:
dominant approach for income producing property
assumes property's value as expected future cash flows
not suitable for homes or properties of public use
use either 1) direct capitalization models 2) discounted CF models

cost approach:
necessary when sales or income data absent
most used for specialty property (schools, churches) and insurance appraisals
estimate cost of replacing property new and subtract loss in value due to obsolescence.
value of land estimated separately and then added to depreciated cost of building

Front 284

sales comparison approach

Back 284

comparable sales must represent arms length transactions
sources of market data: public records, MLS, private data service

transactional adjustments (applied first in order):
property rights conveyed
financing terms
conditions of sale
expenditures made imm. after purchase (must be added to selling price)
market conditions*

property adjustments (no particular order):
location*
physical characteristics
economic characteristics (not for personal residences)
use
nonrealty items

* normally made in percentages

Front 285

indicated value by the cost approach

Back 285

est. reproduction costs of improvements - estimated accrued depreciation = depreciated cost of building improvements + estimated value of site

Hint 285

major assumption: cost of creating a good equals its value

Front 286

discounted CF analysis

Back 286

method of estimating property value under the income approach

project net CF for a standard holding period
discount all future CF at required yield
required:
an estimate of expected holding period of typical buyer
estimates of NCF over entire expected holding period, including net income from sale
appraiser must select appropriate yield

Front 287

types of commercial leases

Back 287

straight lease
step up or graduated lease
indexed lease
percentage lease

Front 288

expert knowledge brokers can provide

Back 288

prices and terms in the current market
marketing approaches that work
legal obligations of buyers and sellers
properties in market
potential customers and their needs
procedures and requirements of transaction

Front 289

persons exempt from licensure/requirements for licensure

Back 289

attorneys, resident managers, government employees, trustees, executors, and those with the power of attorney

minimum age, HS diploma, good reputation, pre-licensing education, pass state licensing exam, minimum experience (for broker's license)

Front 290

selecting a broker

Back 290

single agent:
dealing honestly and fairly
loyalty
confidentiality
full disclosure

transaction broker:
dealing honestly and fairly
limited confidentiality
disclosing all known facts, affective value that are not readily observable to buyer

Front 291

innovations in brokerage

Back 291

buyer brokerage
unbundling of brokerage services
> advertising
> document preparation
> administration of transactions
discount brokerage
electronic marketing for local brokerage firms

Front 292

form contracts
(advantages and risks)

Back 292

part 1: points particular to the deal
(items negotiated, items that characterize the property)
part 2: items that must be clear
(provisions for survey, proration, disbursement of funds, recourses in case of default)
part 3: handling of funds


advantages:
neutral
ready made treatment of details
> proration
> inspections
> performance dates
local real estate boards are good source

risks:
may treat some issues too lightly
inappropriate and inadequate application of a form contract

Front 293

roles of broker and lender in transaction

Back 293

selling broker: no legal role after contract is signed
listing broker: may handle closing if no lender involved
lender: handles closing

Front 294

real estate settlement procedures act

Back 294

applies to virtually every home loan

requirements:
borrower must be provided info booklet
borrower receives good faith estimate of closing costs
closing statement must be HUD-1 form
closing statement available 24 hours before closing
kickbacks to closing vendors prohibited
limit to lender escrow deposit requirement

Front 295

financial items in a closing

Back 295

purchase price
earnest money deposit
assumed mortgage
purchase money mortgage prorated items
interest on assumed mortgage
existing insurance
property taxes

Front 296

elements of deeds

Back 296

grantor/grantee
recital of consideration
words of conveyance
covenants
habendum clause
exceptions and reservations clause
description of land
acknowledgment
delivery

Front 297

possible breaks in title chain

Back 297

only partial interest
conveyance by adverse possession
fraudulent documents
inconsistent property description
faulty separation of water/mineral rights
inferior deed
missing spousal signature

Front 298

counterarguments to zoning

Back 298

restricts supply of modestly priced housing
forces businesses away