Texas Principals of Real Estate - Part 2 (part 1)

A property owner wants to build a new fence around his property. The fence will cost $20 per linear foot. If the property measures 175' x 200', how much will the fence cost to build...?

$15,000 (175x2, 200x2 and then multiply the total by$20)

What did an owner originally pay for his home if he sold it for $200,000, which yielded a 10% profit...?

$181,818.18 (200,000/110% or 1.1)

The annual taxes on a property are $4,800. If the property is sold at the mid-date of the year, how much of the annual property taxes will the seller be responsible for...?

$2,400 (4,800/2)

What did an owner originally pay for his home if he sold it for $360,000, which yielded a 15% profit...?

$313,043.48 (360,000/115% or 1.15)

A house is appraised at $360,000. If the local property tax rate is $2 per $100 of appraised value, what is the amount paid in annual property taxes...?

$7,200

A house is appraised at $240,000. If the local property tax rate is $3 per $100 of appraised value, what is the amount paid in annual property taxes...?

$7,200 (240,000/100 * 3)

Incurable

.............. depreciation cannot be fixed at an economically feasible cost

12'-5" is equal to...?

12.417 (12 5/12)

What is the area of a room that measures 15'-6" x 13'-3"...?

205.375 sqft (15.5 x13.25)

How many hours of appraisal education is required to become a general certified real estate appraiser...?

300 hours

Three investors purchased a property for $580,000. Investor A contributed $157,000, while investor B contributed $220,000. What percentage of ownership was left for the third investor...?

35% (157,000 + 220,000/580,000 = .65. 100-65 = 35%)

How many hours of appraisal education is required to become an appraiser trainee...?

75 hours

Mortgage Broker

A broker who arranges a mortgage loan between a lender and a borrower for a fee.

Radon

A colorless, odorless, radioactive gas present in the soil that enters a home through small spaces and openings

Asbestos

A fibrous mineral found in many building materials that when improperly distributed, can cause serious lung diseases

Sales Comparison/Market data approach

A means by comparing similar type properties, which have recently sold. Commonly used in comparing residential properties.

Interest

A monthly mortgage payment primarily consists of which of the following in the early stages of the loan?

Balloon Mortgage

A mortgage in which the scheduled payment will not amortize the loan over the mortgage term; therefore, the debt to be fully satisfied, a final payment called a balloon payment =, larger than the uniform payment is required.

Adjustable rate mortgage (ARM)

A mortgage loan which bears interest at a rate subject to change during the term of the loan, predetermined or otherwise.

Conventional Loan

A mortgage securing a loan made by investors without governmental underwriting, i.e., which is not FHA insured or VA guaranteed. The type customarily made by a bank or savings and loan association.

Term Mortgage

A mortgage that requires the mortgagor to pay interest only during the mortgage term, with the principal due at the end of the term.

Gross rent multiplier

A number which, times the gross income of a property, produces an estimate of value of the property

Building Code

A systematic regulation of construction of buildings within a municipality established by ordinance or law.

Second mortgage, home improvement loans, investor loans

A term loan is typically used for which of the following?

Urea-formaldehyde foam insulation

A type of foam containing formaldehyde, a gaseous compound used for home insulating until the early 1980's

Building area

A variance may be granted for a change in the permitted ............. or use?

Commercial Industrial Residential

A zoning district may include which of the following uses...?

Zoning

Act of city or country authorities specifying type of use to which property may be put in specific areas.

PITI

An acronym denoting that a mortgage payment includes principal, interest, taxes and insurance.

Cost Approach

An analysis in which a value estimate of a property is derived by estimating the replacement cost of the improvements, deducting therefrom the estimated accrued depreciation, then adding the market value of the land.

Comparative Market Analysis

An analysis of the competition in the marketplace that a property will face upon sale attempts

Appraisal

An estimate of the value of property resulting from an analysis of facts about the property is known as?

Income approach

An investor is in the process of purchasing an office building. The bank providing the mortgage for the property requires an appraisal to be done. Which of the following appraisal methods will the appraiser most likely use to determine the value of the office building...?

Rank appraisers in order of experience

Appraisal trainee, state licensed real estate appraiser, certified residential real estate appraiser, general certified real estate appraiser

Appraisers 3 c's:

Close, current and comparable

home equity loan

Credit line offered by mortgage lenders that allows a homeowner to borrow money against the equity in their home.

Characteristics of value:

DUST Demand-need or desire for possession or ownership backed by financial means to satisfy the need Utility-capacity to satisfy future owners' needs and desires; how future owners can make good use of property Scarcity-a finite supply Transferability-the relative east of transfer of ownership rights from one person to another

Sales comparison approach

David is in the process of buying his first house. David's lender requires an appraisal to be done on the property. Which of the following appraisal methods will most likely be used to determine the value of David's house...?

Laches

Delay or negligence is asserting one's legal rights

Wrap around mortgage

Financing device whereby a lender assumes payments on existing trust deeds of a borrower and takes from the borrower a junior trust deed with a face value in an amount equal to the amount outstanding on the old trust deed and the additional amount of money borrowed.

Subsidy Buydown

Funds provided usually by the builder or seller to temporarily reduce the borrowers monthly principal and interest payment

Income approach

Generally applied to income producing property, involves a three step process. 1. Find annual net income 2. Set an appropriate capitalization rate or "present worth" factor 3. Capitalize the income dividing the net income by capitalization rate

Flexible payment loan

In this type of loan, a borrower initially pays a reduced interest rate, which gradually increases to the market rate after a period of time?

Interstate Land Sales Full Disclosure Act:

It is a federal law that regulates the interstate advertising, sales, and leasing of land through a series of registration requirements and anti-fraud provisions, and is under the jurisdiction of the Department of Housing and Urban Development ("HUD")

Deed Restriction

Limitations in the deed to a property that dictate certain uses that may or may not be made of the property.

Which of the following is used by lenders to increase the lenders yield on the loan without increasing the annual interest rate?

Loan discount points

Tax increment reinvestment zones

Local governments use which of the of the following to help attract new businesses to an area...?

Fully amortized

Most deed of trust loans are:

Flexible payment loans

Negative amortization may occur in which of the following types of loans?

Freddie Mac

Nickname for Federal Home Loan Mortgage Corporation. A corporation wholly owned by the federal home loan bank system that purchases FHA, VA and conventional mortgages

How much experience is needed to become a real estate appraiser trainee...?

No experience is needed

Negative Amortization

Occurs when monthly installment payments are insufficient to pay the interest accruing on the principal balance, so that the unpaid interest must be added to the principal due

Appraiser

One qualified by education, training and experience who is hired to estimate the value of a real and personal property based on experience, judgment, facts and use of formal appraisal processes.

Value

Present worth of future benefits arising out if ownership to typical users/investors

Police power

Public control of land-use is primarily done through which of the following...?

Assessed value

Tax assessor produces which of the following types of value?

Uniform residential loan application

The Fannie Mae form 1003 is also known as the?

Reserve requirements

The Federal Reserve regulates the flow of money and interest rates indirectly by controlling which of the following requirements for its member banks...?

Federal reserve system

The US Central bank is also known as:

Primary mortgage market

The activity of lenders making mortgage loans to individual borrowers

Secondary Mortgage Market

The buying and selling of existing deeds of trust and promissory borrowers

Public ownership of land, public land-use controls, deed restrictions

The control and regulation of land use is accomplished through which of the following means...?

Reproduction cost

The cost of replacing the subject improvement with one that is the exact replica, having the same quality workmanship, design and layout, or cost to duplicate an asset.

Replacement cost

The cost to replace a structure with one having utility equivalent to that being appraised, but constructed with modern materials and according to current standards, design and layout

Loan Origination Fee

The financing charge that the lenders require

Market Value

The highest price in terms of money which a property will bring in a competitive and open market and under all conditions required for a fair sale, i.e. the buyer and seller acting prudently, knowledgeably and neither affected by undue pressures.

Spot Zoning

The illegal rezoning of certain property in a zoned area to permit a different type of use than that authorized for the rest of the area

Net Operating income

The income approach determines value by applying a capitalization rate to the...?

Yield

The interest earned by a bank on the money it has loaned

Primary residence

The lender will most likely provide a higher LTV for which of the following property types?

Amortization

The liquidation of a financial obligation on an installment basis, also, recovery over a period of cost or value. (The period in which the loan is paid off)

Discount Rate

The minimum interest rate set by the Federal Reserve for lending to other banks

Market value is equal to:

The most probable price a property will bring in the market

Truth in Lending

The name given to the federal statutes and regulations which are designed primarily to insure that prospective borrowers and purchasers on credit receive cost information before entering into a transaction.

Market price

The price paid regardless of pressures, motives or intelligence is referred to as the:

S&L

The primary function of a .......... is to promote thrift and home ownership?

Loan to value ratio

The relationship between the amount of a mortgage loan and the lenders opinion of the value of property pledges to secure payment of the loan

Fannie Mae

The shortened name for federal national mortgage association, a privately owned corporation that purchases FHA, VA, and conventional mortgages.

1978

The use of lead-based paint in residential properties was banned in what year...?

cost approach

This appraisal method consists of an analysis in which a value estimate of a property is derived by estimating the replacement cost of the improvements, deducting therefrom the estimated accrued depreciation, then adding the market value of the land...?

Principal of change

This principle holds that it is the future, not the past, which is of prime importance in estimating value:

Pre-Approval

What do lenders require from all borrowers prior to issuing a loan?

Determine the value of the land as if it were vacant

What is the first step an appraiser takes when valuing a property using the cost approach...?

Local banks, mortgage baking companies, credit unions

Which of the following is a source of real estate financing...?

Only shingled roofs can be used Only brick facades can be used A minimum of 50% of the open space on a property must be grass

Which of the following is an example of a deed restriction...?

Employment history, current monthly housing expenses, list of asset and liabilities

Which of the following is asked on a residential loan application?

Homebuyers who only intend to live at the property for a few years.

Which will most likely benefit from a balloon mortgage?

Bond

Written notice of an obligation given by a corporation or government entity. A surety instrument

Ginnie Mae

nickname for the Government National Mortgage association, a US government agency that purchases FHA and VA mortgages.

Federal Reserve System

the federal banking system of the US under the control of central board of governors involving a central bank in each of twelve geographical districts with broad powers in controlling credit and the amount of money in circulation

A lender is willing to provide a mortgage up to 90% of a property's $360,000 contract price. How much will the borrower have to put up as a down payment...?

$36,000 (360,000*.9 = 324,000. 360,000- 324,000 = 36,000)

6 steps of an appraiser:

1. State the problem purpose of appraisal 2. List data needed and sources to be consulted 3. Gather record and verify data from step 2 4. Determine highest and best use of property 5. Estimate value by all different value approaches 6. reconciliation - single sole value

Real Estate Settlement Procedures Act

A federal law requiring the disclosure to borrowers of settlement procedures and costs by means of a pamphlet and forms prescribed by US dept of housing and urban development.

Discount Points

A fee charged by the lender at settlement that results in increasing the lender's effective yield on the money borrowed. One discount point equals one percent of the loan amount.

Economic Obsolescence

A loss in value due to factors away from the subject property but adversely affecting the value of the subject property

Variance

A permitted deviation from specific requirements of a zoning ordinance because of the special hardship to a property owner.

Mortgage Banker

A person whose principal business in the originating, finiacing, closing, selling and servicing of loans secured by the real property for institutional lenders on a contractual basis.

Planned urban development

A planning and zoning term describing land not subject to conventional zoning to permit clustering of residences or other characteristics of the project which differ from normal zoning.

Non conforming use

A property use that doesn't conform to current zoning requirements, but is allowed because the property wasn't being used in that way before the present zoning ordinance was enacted.

Friable

A quality of some asbestos that causes it to crumble allowing toxic particles to escape into the air and lodge into peoples lungs.