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58 Cards in this Set
- Front
- Back
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Real estate brokers
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Serve as intermedaries, bringing buyers and sellers together
May be regarded as facilitators of value Usually paid commission, normally percentage of price |
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Law of agency
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Consists of a relationship in which one party(principal) authorizes another party (agent) to act as their representative in dealing with a third party
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Net commission
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Difference between required price and actual price
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Principal
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Typically the seller, (however it may be buyer if broker is hired by the buyer)
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Universal agent
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Power to act for principal in all matters
Medical documents, taxes and other business with govt, insurance |
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General agent
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Power to act within limits of a business or employment relationship
Within a specific business i.e. property manager |
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Special agent
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Power to act in a specific event or transaction
i.e. brokers |
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Fiduciary responsibilities
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Disclosure- being completely open and honest
Confidentiality Accounting- Keeping principal informed about financial aspects of assignment Obedience Loyalty- never subordinating the best interest of the principal Skill and care |
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Listing contract
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Creates agency relationship between seller and broker
Contract for services, not for real estate |
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Buyer agency agreement
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Creates agency relationship between buyer and broker
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Transaction broker
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Assists with transaction, but does not represent either party
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Subagency
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Salespersons or other brokers who work for, or through another broker have a fiduciary responsibility to both the broker and the broker's principal
MLS- multiple listing service |
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Dual agency
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Representing both buyer and seller
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Problem of dual agency
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Salesperson works closely with buyer but is distant from seller
FTC Study (1984): 74.2 percent of buyers believed the sales agent worked for them |
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Exemption from licensure
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Attorneys, resident managers, government employees, trustees, executors, and those with power of attorney
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General requirements for licensure
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Minimum age, high school diploma, good reputation
Prelicensing education requirement Pass state licensing exam Minimum experience (for broker’s license) |
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Industry certifications
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Realtor® or Realtor-Associate®: Affiliation, through local board, with National Association of Realtors
CCIM: Certified Commercial Investment Member SIOR: Society of Industrial and Office Realtors |
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Title VIII of Civil Rights act of 1968
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1968 prohibits discrimination by race, color, religion, national origin, sex, familial status, and handicap
Exempted owner occupants in 1-4 family residents |
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Open listing
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Gives broker the right to market
Owners not precluded from listing property with other brokers Only the broker who finds a buyer is due commission Owner may sell the property and not be responsible for paying commission |
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Exclusive agency listing
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Sellers list their property with one broker, but remain the right to sell the property themselves
Requires seller to pay broker commission if sold by broker Rarely used |
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Exclusive-right-of-sale listing
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Sellers list their property with one broker
Requires seller to pay broker commission if sold by anyone other than the owner, including other brokers MLS only accepts this listing |
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Broker license
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The most complete type of real estate license
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Real estate commission
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State agency empowered to grant, revoke, suspend, and discipline real estate brokers working in the state
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Contract for sale
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The most important document in real estate
-Determines price and terms of transaction -Defines property interest being conveyed -Determines the grantee |
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Requirements of contract for sale
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Competent to act (18 or older)
Lawful intent Offer and acceptance Consideration No defects to mutual assent Must be in writing Property properly described |
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Legal title
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Ownership of a freehold estate
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Equitable title
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Right to obtain legal title
Buyer receives equitable title when a contract for sale of real estate is fully signed |
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Advantages and risks of form contracts
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Neutral (not prepared by opposite party)
Ready-made treatment of details May treat some issues too lightly- Bar Assn. Realtors jointly drafted contract form Perpetual struggle on contract detail Inappropriate and inadequate application of a form contract |
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Who handles funds for a transaction?
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The broker usually handles funds for a transaction
Must also put deposits in the escrow account |
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Contingent contract
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Obligation of a party to perform depends on one or more conditions being met
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Assignment
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One party’s contractual rights and obligations are transferred to someone else
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Escrow agents
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Third party who holds moneys or documents on behalf of contract parties
Distributes items in accordance with contract Money is disbursed with closing statement Can be attorney, financial institution, or title company |
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Suit for damages
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Always an option to both parties
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Liquidated damages
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Seller can retain deposit if buyer backs out
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Rescission
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Mutual agreement to cancel
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Real Estate Settlement Procedures Act
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Requires lenders to provide a good faith estimate of closing costs
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Specific performance
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Buyer can force seller to convey title
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Market value
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The price a typical buyer would pay if the property were placed on the market
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Investment value
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The price a particular investor is willing to pay, given the investor's unique tax situation, financing opportunities, required rate of return, and expectations of the property's future cash flows
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Mortgage value
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The present worth of the lender's rights to receive a series of expected mortgage payments from the borrower over a specified period
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What affects property value
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Magnitude of expected cash flows
Timing of expected cash flows The riskiness of expected cash flows |
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Risk
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The possibility that actual outcomes will vary from what is expected
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Risk averse
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Investors who require greater returns for their willingness to bear more risk
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Risk neutral
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Investors who require no additional compensation for additional risk
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Risk seeking
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Investors who are unconcerned with less compensation for additional risk
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Lump sum
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A receipt, or expenditure, of cash occurring in a single time period
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Annuity
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(PMT) An amount of money received every period (i.e., a series of equal lump sums). An ordinary annuity is received at the end of every period; an annuity due is received at the beginning of every period
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Compounding
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The calculation of the FV, which includes earning a return on previous returns that are reinvested.
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Discounting
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The calculation of a present value, which assumes that the investor is earning a constant return on cash flow returns that are reinvested
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Internal rate of return
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The discount rate at which NPV = 0, the rate of return at which the present value of the cash inflows equals the present value of the cash outflows.
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Amortization
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Partial repayment of principal
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Effective cost
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The true borrowing cost
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Effective yield
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The yield actually earned by the investor
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Interest only loans
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Mortgage loans which do not require any amortization of principal
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Time value of money
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Understanding that individuals require compensation to forego receiving and using their money at an earlier date
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Net present value
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Present value of cash inflows-present value of cash outflows
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Why is IRR decision criterion misleading?
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Assumes cash inflows can be reinvested at IRR rate
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Overall capitalization rate
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The ratio between a property's income and its value
CFt/SP |
