Tx- Marketing I (SAE)
Alimony, child support and other similar ongoing obligations
"Other" debts
A 1st time buyer may make a penalty free withdrawal from IRA of up to
$10,000
If a property is worth $320,000 and has loans of $10,000 against it, the owner's equity is
$310,000 ($320,000 - $10,000 = $310,000)
VAs loan guaranty amount has been raised from time to time by Congress from the original amount of $2,000 to its current amount of ______
$417,000.00
A small multifamily property generates $50,000 in rental income, $10,000 in expenses, and $35,000 in debt service. The property appreciates about $25,000 each year. What is the cash flow on this property
$5,000 ($50,000 - $10,000 - $35,000 = $5,000)
IRAs max contribution in 2015 was
$5,500
Investor A exchanges a building worth $200,000 for investor B's building worth $150,000, a car worth $20,000 and $30,000 in cash, investor A has a taxable boot of
$50,000 ($20,000 + $30,000= $50,000)
The VA reimburses lenders for loss up to _____ in the event of default by a VA borrower
$60,000
VA reimburses lenders for loss up to ____ in the event of default by VA borrower
$60,000
Net Present Value (NPV)
(-) discounted present value of investment from the cost implementing that alternative difference between present value of cash inflows and outflows over a period of time
Common method of predicting the price of a stock
(P/E)
Less widely used as a predictor of the price of REITs
(P/E)
Tells investors how much in dividends they will receive per dollar of stock purchased
(P/E)
A loss in value with any structure due to changes in tastes, technical innovations, market standards or any outdated style. The item in question may be curable, such as lack of air conditioning in Florida, or incurable, such as exceptionally low ceilings in a warehouse, depending on the costs of correcting the item as compared to the benefits expected if the correction is made
(Preferred) Functional Depreciation
All complaints must be filed with HUD within ___ of the date that the alleged act of discrimination took place
1 year
1 point is __ of a loan amount
1%
Origination fee is to be ___ of the loan amount
1%
Bonus Deductible must meet:
1. Be in the interior of the property 2. Be made of non-residential property 3. Be made by landlord/tenant/sub lessee 4. Be made 3 yrs after construction 5. Not be improvements to internal structure of building that benefit a common area 6. Not be made by or for a tenant related to the landlord
Most conventional primary lenders follow these set limits on the amount of money they will lend
1. The limits are ment to decrease the risk of default and 2. Primary lenders look to sell conventional loans on the secondary market to secondary lenders (Freddie Mac or Fannie Mae
Mortgage-backed securities are attractive to investors for 2 reasons
1. They cost less than purchasing an entire loan and they are more easily liquidated 2.They are guaranteed
What is a basis point
1/100 of a percent
Property rehabilitation before 1936 ___% credit
10
Long term real estate cycles generally run from
10 to 15 years
Within ____ of receiving any complaint, HUD must notify a complainant as to whether it intends to act on the complaint
100 Days
1031 Exchange reports proceeds from real estate transactions and files form ____ to IRS
1099s
Appraisal foundation requires ______ hours for certification
120-135
There are ____ major FHA programs under the National Housing Act
14
Vacation rental property to qualify as a business property- Taxpayer may not employ the property for personal use for either more than ____ days, a year or 10% of the days actually rented at rental value during tax year, whichever figure is greater
14
Yard signs account for ____% of sales transactions
14
During the next decade or so $____ will transfer from one generation to the next
14 trillion
Recent study, only ____% of real estate licensees display the Equal Housing Opportunity logo on their business cards
16
Alyssa purchased raw land $1,000 per acre. She pays $80 per acre for annual real estate taxes and has various expenses of about 8% per year. By how much per year must land appreciate in order for Alyssa to break even
16% ($1,000 × .08 = $80) ($80 + $80= $160) (160/1000= 16%)
The Code of Ethics has how many Articles?
17
1031 exchange transactions must be completed within ____ days
180
Deferred Exchange Requirements: Replacement property must close sale no later than ____ days after close of escrow for sale of phase 1 or exchanger must acquire property by the date required to file tax return (including extension) for 1 year transfer of relinquished property occurred
180
Deferred Exchange Requirements: Replacements property must close sale no later than ____ days TOTAL (NOT 45 + ___ days)
180
EATs holding CANNOT exceed ____ days
180
Investor has ___ days minus time EAT held replacement property
180
Reverse Exchange must be completed in a ____ day period
180
The replacement property must be received within _____ days
180
Penalty Free Withdrawal
1st time buyers to withdraw up to $10,000 from their IRA for principle residence purchase, make withdrawal ANYTIME WITHOUT any penalties
FNMA Underwriting Guidelines: 90% loans require ___ months mortgage payments in reserve escrow account
2
Most sources of income will be included in an underwriters income analysis provided a ___ year history can be established
2
Property held for ____ years likely indicates NOT acquired for resale
2
•Phone or personal solicitations of property owners who have been identified by a real estate sign, MLS or other information service showing property listed with another realtor •Mail or other forms of written solicitations of prospects who properties are listed with another realtor. "For Sale" or "For Rent" signs
2 Basic Solicitation Types
General Partnership
2 or more parties must agree to conduct business together for a profit
75% loan to value (LTV) ratio, investors pay _____% of purchase price
25
Company's spend _____% of budget on advertising and marketing
25
SEP IRA (Simplified Employee Pension), Employer contributions up to _____% of employees compensation or $40,000 whichever is less
25
Front-End Ratio
25%-28%
Typical nonconforming ratios are
28 and 36 (housing expense to income/total debt service ratio)
Conventional loans Expense To Income Ratio for the proposed housing expense (principal, interest, taxes and insurance) should NOT exceed ___ of the borrowers stable monthly income
28%
Total Debt Ratio
28%-36%
FHA loan requires a housing expense to income ratio not to excess _____. Housing expenses include PITI
29%
______ does NOT qualify for an investment property
2nd Home
FNMA Underwriting Guidelines: 98% loans require ___ months mortgage payments in reserve escrow account
3
Simple, Employers matching contributions cannot equal more than ___% of employees salary
3
Baird Exchange (Baird publishing exchange)
3 party 1031 exchange 2 individuals (exchanger and another party) trade properties recipient of relinquished property sells property, he/she has acquired to 3rd party
Alderson Exchange
3 party 1031 exchange 3rd party buyer procures property that an exchanger wants to acquire in an exchange transaction
Exchanger must identify the replacement property conforming to at least one of 3 rules
3 property rule, 200% rule and 95% rule
Short term real estate cycles generally run from
3 to 5 years
FHA loan rules require a minimum down payment of _____ for new purchase loans
3.5%
A leasehold with ______ or more to run (including all option periods in the contract) can also be exchanged
30 years
98% loan to value ratios are
33 and 40%
The appraisal foundation intends to further the education requirements for certification and licensing by _____
35 to 60%
Conventional lenders consider borrowers income if the Total Debt Service Ratio, the proposed total housing expense (principal, interest, taxes,hazard insurance, mortgage insurance and other recurring liabilities) does NOT exceed ____ of the borrowers stable monthly income
36%
For a conventional loan, the borrowers total debt service should not exceed
36% of stable monthly income
A lender will lend up to ___ times the veterans eligibility
4
Land, labor, capital and management
4 agents of production
End Result Ethics, Rules and Laws Ethics, Social Contract Ethics and Individual Conscience Ethics
4 approaches to making ethical decisions
Seller may pay any or entire veterans closing costs, including the loan origination fee. VA puts a ____ limit on any Seller contribution
4%
FHA requires a total debt service ratio of _____. Debts paid in full in 9 months are not included, long term debts and revolving debts are included.
41%
VA qualifying ratio ____ of gross income
41%
VA uses 1 ratio to qualify buyers: a debt to income ratio of ____
41%
VA uses one ratio to qualify buyers: a debt to income ratio of ____
41%
Deferred Exchange Requirements: Timing is Paramount: Replacement property/properties must be properly identified no later than ____ calendar days (even holidays) after closing of escrow for the sale of exchangers phase 1 property (relinquished property)
45
The replacement property must be identified within _____ days
45
Donor has an additional ____ years to carry forward any unused deductions
5
Funds are often distributed to investor as early as ____ years of age without account holder paying a tax penalty
59 1/2
The eligibility amount used is ____ of the VA loan amount or total eligibility available
60%
To qualify for reverse mortgage, one of the homeowners must be at least how old
62
Funds will be distributed when account holders turn what age
65 (accepted retirement age)
Minimum distribution age ____ must be accepting some income from the funds in retirement accounts (and paying taxes)
70
At least ___ of an Savings and Loans Associations (S&Ls) assets must be housing related for it to meet the QTL test
70%
There are ___ steps of the appraisal process
8
When a LTV loan that is greater than ___ is made, escrow accounts are required on all loans, regardless if conventional, FHA or VA
80%
At the end of the year both investor and EAT report exchange to IRS on form _____
8824
Farming Techniques: Licensees should only make cold calls between
8am-9pm
Appraisal foundation requires ____ hours of coursework for licence
90
Currently the Appraisal Foundation requires ___ hours of instruction for licensure
90
Veterans are eligible for VA loans who served
90 days of wartime service and 181 days of continuous peacetime service
FNMA Underwriting Guidelines: Co borrower must be a member of the immediate family and take title to collateral property with a ___ loan
90%
FNMA Underwriting Guidelines: ____ % loans require 3% limit on seller contribution toward buyer closing costs
98
1979 the _____ court ruled that the 1031 section of the revenue code did not disallow deferred exchanges. This changed the face of tax favourable transactions in general, now there was solid legal support for non simultaneous exchanges
9th Circuit
Some Charitable Gift Annuity (CGA) income tax solution benefits include
A client can avoid paying any taxes up front, Creates an immediate income cash flow, Provides a benefit from a sizable income tax deduction
The primary text benefit in owning a non income property such as residence is
A deduction for mortgage interest
Complaints of discrimination brought under the Civil Rights Act of 1866 must be taken directly to
A federal court
An investment syndicate is to be set up to allow all members to share equally in the managerial decisions, profits and losses involved in the venture
A general partnership
The Equal Credit Opportunity Act (ECOA)
A lender must judge an applicant only on the basis of income, net worth, job stability, and credit rating as required by
Compared to a stock portfolio, a real estate investment would be considered
A more management intensive investment
When used for real estate investments, the form of ownership used by a syndication is usually
A partnership
Laissez-faire
A policy or attitude of letting things take their own course, without interfering.
Raden
A radioactive gas formed during the natural breakdown of uranium in soil, rock and water
A real estate investor may expect _____ concerning her investment
A rate of return higher than the prevailing interest rate
What is a REIT
A real estate investment trust
Tax device that allows cash flows from an underlying block of commercial mortgages to be passed through to security holders without income taxes at the level of the trustee or agent
A real estate mortgage investment conduit (REMIC)
Ethics
A set of beliefs that govern the actions and conduct of a group of professionals
What is a lien theory state in contrast to a title theory state
A state in which a mortgagor (borrower) retains title to a property when a mortgage lien is created
If a property owner has the right to redeem his or her property after a tax sale, the owner has
A statutory right of redemption
Which of the following entities can legally levy annual real property taxes
A tax district
Business Plan
A written description of the business operational and financial goals and strategies that the business will use to achieve them
Accessibility Guidelines are NOT mandatory. Builders and developers may choose to depart from the guidelines and meet the legal requirements of the ____
ADA
A teaser rate is typically associated with which type of loan
ARM
Why a borrower might NOT want an adjustable rate mortgage (ARM)
ARM rates can increase to levels above market interest rates for conventional loans. Negative amortization or increase in principal balance of the loan. Attractive because lower interest rates lower than those for conventional loans (typically 1-3 points lower)
_______ do not contribute to a property's value, an appraiser does NOT consider it
Above Ground Pools
A clause in the mortgage document that, if enforced, makes the entire balance of the mortgage due to the lender immediately upon default
Acceleration Clause (Alienation Clause)
Buses and trains, as well as their stations, must be ______ to disabled persons
Accessible
An appraiser will take on many roles as he or she prepares the report: broker, surveyor, economist and possibly even _____
Accountant
Risk Management: A company's risk management plan should involve 2 key components: A lawyer and an
Accountant
Replacement property is _____ before the relinquished property is sold
Acquired
In regard to discrimination, remember that the _____ and its results are what truly matters, not the intent behind the action
Action
Professional Standards Hearing Panel's authority is limited to selecting penalties from disciplining ____
Actions List
Office space: Site is the
Actual location of office space
The subject property has a swimming pool but the comparable does not. How should you account for this in valuing calculations?
Add the contributing value of the pool to the price of the comparable
ARM means
Adjustable Rate Mortgage
Index + Margin =
Adjustable Rate Mortgage (ARM)
____ are amortized loans where the interest rate changes or "adjusts" at predetermined periods, usually annually
Adjustable Rate Mortgages (ARMs)
The original cost of the asset plus capital improvements minus depreciation
Adjusted basis
If an investor purchases a property for $200,000, makes $100,000 in improvements, and takes $50,000 in depreciation, the investors
Adjusted basis is now $250,000 ($200,000 + $100,000= $300,000) ($300,000 - $50,000= $250,000)
Period of time between changes in either the interest rate and/or the monthly payment
Adjustment Interval
Comparable property plus or minus ____ equals the subject property value
Adjustments
Methods of recruiting salespeople: Although brokers will mainly use ____ mediums to reach consumers, brokers should also remember that these messages also reach potential recruits
Advertising
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
Affected estate taxation and planning
ROTH IRA are created with ____ tax dollars
After
4 key communication skills: Set the _____
Agenda
Real estate salespeople CANNOT complete the negotiation of any
Agreement
The absence of qualified intermediaries can create certain drawbacks for those involved in an
Alderson Exchange
Taxpayer (A) gives their relinquished property to a buyer (B) they give cash to 3rd party (C) from whom (B) receives a replacement property which is conveyed to (A) in exchange for relinquished property. (Buyer (B) bought 3rd parties (C) property with money he would have used to buy taxpayer (A) property and exchanged it for (A) property)
Alderson Exchange (ABC Exchange)
3 party exchanges come in 2 types, commonly known as the
Alderson Exchange and The Baird Exchange
Investor may continue to exchange properties and NOT pay taxes until one of these conditions are met
All accumulated gain from sale of original property to sale of any exchanged properties becomes taxable or the loan becomes due when investor liquidates his investment for good
Code of Ethics- Article 9
All agreements shall be in writing and get agreements expressed in clear and specific language, initialing a contract party will be given a copy of what they signed or initiated
Code of Ethics- Article 8
All monies the realtor handles must be kept separate from their own funds
What is a feature of month to month lease
Allows for rent increases
Commercial Property transactions are NOT normally included under the Federal Fair Housing Act, they are covered by other laws, such as the
Americans With Disabilities Act
ADA
Americans with Disabilities Act
Latin term "killing off slowly over time "
Amortization
Promissory Notes: Equal monthly payments that contribute to both principal and interest until the entire loan is paid constitute an ____ note
Amortized
The VA does set a limit on the _____ of the loan it will guarantee
Amount
What are the 3 factors that determine cash flow
Amount of rent received, Operating expenses and method of debt repayment
Tying Arrangement
An agreement to sell one product only if the buyer agrees to buy another, different product
Is addition to income, credit and employment data, a mortgage lender requires additional documentation, usually including
An appraisal report
Economic Growth
An areas ability to expand and develop
What is similar to a mutual fund
An equity REIT
London Interbank Offered Rate (LIBOR) interest rates are often used on adjustable rate mortgages to establish
An index
Morals
An individuals opinion of right and wrong
An investor may defer federal income taxes on a portion of the gain on the sale of a property, provided all sales proceeds are not received during the year of the sale. This describes
An installment sale
General Recommendations: Take fair housing courses _____ to ensure awareness of all current and new laws
Annually
Contract with an insurance company for a lump sum or scheduled premiums
Annuity
Value may change due to a predicted event
Anticipation
____ can file an ethics complaint
Anyone
Boot
Anything of value that taxpayer receives in exchange other than a replacement property
The act or process of developing an estimate of value
Appraisal
Monitors the education requirements for all types of appraisal licences and certifications and has set education requirement to increase between 35% and 60% over the next 2 years
Appraisal foundation
A VA certificate of reasonable value includes an ______ of the home and an expiration date after which the certificate is no longer usable
Appraised Value
Appraisers evaluating single family homes, most frequently on behalf of the buyer or the buyer's lender, receive an _____
Appraiser's Fee
Requires that candidates prove their ethical character and field competency beyond the average state and federal requisites
Appraisers (NAIFA)
Real estate trends, agricultural movements and city planning to acquire the information needed to assess the value of any property
Appraisers must keep up with
CGA in real estate equity exchange program enables the client to exchange their _____ real estate for a guaranteed tax favorable income stream and suffer no losses via taxes, real estate fees or closing cost
Appreciated
An increase in the value of a property owning to economic forces beyond the control of the investor
Appreciation
Correct term for increase in present value of the property over time
Appreciation
Increase in the present value of a property over time
Appreciation
A parcel of property that increases in value because of its location in the center of an affluent and rapidly growing neighborhood is an example of
Appreciation through intrinsic value
Deferred Exchange Requirements: 180 day period may be shortened when phase 1 closing occurs between October 15th and December 31st unless taxpayer files a timely extension with IRS by ____ the following year
April 15th
Commercial Brokerages
Apts, warehouse, shopping centers and office buildings, land, business opportunities, parcels or land for mobile homes
All parties to the dispute advised the local board in writing that they choose NOT to _____ before the board, they may not have to arbitrate
Arbitrate
If all parties declined to participate in mediation it does not relieve realtors of the duty to ______
Arbitrate
Reach authorative judgement or settlement
Arbitrate
Realtors are required by NAR to ________ matters that involve disputes between realtors of different firms regarding contractual and non contractual matter in nature
Arbitrate and Litigate
If dispute is settled by mediation, no ____ hearing needed
Arbitration
Settlement
Arbitration
Occurs between willing buyer and willing seller with each party completely knowledgeable about the market. A purchaser of property between relatives (father & son) would NOT be an _______
Arm's Length Transaction
A transaction in which neither the seller nor buyer act under undue duress
Arms length transaction
Market value, Mortgage loan value, Capitalization value, Book value, Inheritance tax value and Value in use
Assessed Value
The value determined by the local taxing authority, which it uses for ad valorem taxation
Assessed value
A tangible or intangible item of value
Asset
If the buyer defaults, both the buyer and seller may be responsible for any deficiency
Assumption
In an _____ of a mortgage, the purchaser signs an agreement to assume the obligation of the original mortgage.
Assumption
According to the person facing the decision, anything related to the situation that is assumed to be true in which the conclusion can be drawn
Assumptions
The writers job is to capture the readers _____ and deliver the message clearly and effectively
Attention
An _____ provides the instruments that assure that a plan meets ERISA guidelines
Attorney
When discriminatory action requires immediate solution HUD will attempt to establish temporary solution to the complaint or ask the _____ to handle the suit in court while it works on completing a full investigation
Attorney General
To successfully defer capital gains taxes in a 1031 exchange the exchange must be defeasible under _____
Audit
Managerial Style: The ______ style is similar to dictatorial but its not as authoritative
Autocratic
Standards Of Care provides the _________ degree of skill, care and diligence exercised by members of the same profession
Average
When preparing a document writers should ____ jargon
Avoid
If 3rd party CANNOT be found seller (C) in ____ Exchange may be stuck with property they don't want
Baird
Taxpayer (A) and seller (C) exchange property, (C) sells property (A's) relinquished property to (C holds title) 3rd party buyer (B) for cash
Baird Exchange (ABC Exchange or Missouri Waltz Exchange)
The appraisal principle that states that the highest property values are realized when improvements are proportional to one another and the land in size and type
Balance
____ regulators must adopt policies regarding the performance and utilization of appraisals
Bank
Banking regulators and federal legislation will NOT allow _____ to accept appraisals if the appraiser has any type of interest, even if disclosed
Banks
A measurement of how much is invested in the property for tax purposes
Basis
Federal reserve economic analysis compile a report before every Federal open market committee meeting
Beige Book
2 qualifications for a FHA insured loan
Being of legal age and having proof of U.S. citizenship or possessing a green card
CGA is a ____ contract which an individual donates an irrevocable gift to a non profit organization
Binding
Mortgage on more than 1 property. Make sure the agreement includes a release clause that permits 1 or more properties to be released from the obligation of mortgage upon repayment of a determined amount of the mortgage balance. Most commonly used for subdivision developers
Blanket Mortgage
State laws passed requiring registration of securities to protect the public from investing schemes are commonly called
Blue sky laws
Non like property will be deemed ____ at taxed on fair market value of property received
Boot
Graduated Payment Mortgage (GPM) advantages:
Borrower qualifies on the basis of the lower initial payments
Describe the company's purpose, philosophy, service and products
Brochures
Seller remodeling MUST obtain _______, if not the seller will need to tear down project and redo it or pay significant fines
Building permits
The ownership rights of real property are described as the
Bundle of legal rights
_____ organizations can participate in 1031 exchange
Business
Under a buydown plan the subsidizing party- borrower, seller, builder, etc- establishes a ____, which is collected in cash at closing
Buydown Fund
Caveat Emptor
Buyer beware
Plausible Assumption Resold
Buyer pay only so much
Whose responsibility is it to disclose how long a property has been listed?
Buyers agent
Which are methods used by the Federal Reserve System to regulate the money supply
Buying securities, changing the discount rate, and controlling banking reserves
There is no longer a ____ on the total penalties which may be imposed against a defendant
CAP
Equal to the NOI divided by the net present value of the property
CAP Rate
Most widely used method of valuing income producing real estate
CAP Rate
There's no management, CPA, legal or planning fees associated with a _____. This allows 100% of the value of the property to work for the annuitant(s) without loss of principal
CGA
Net Operating Income (NOI)
Calculate used to analyze income generating real estate investments NOI (=) all revenue from property(-) all necessary operating expenses (cap rates & cash flows)
Land _____ be depreciated
Cannot
Baird Exchange, taxpayer (A) does NOT pay _____ taxes on property they relinquished. Seller (C) has to pay those taxes when they sell to 3rd party (B)
Capital Gains
Personal property exchange includes many types of ______ transport equipment (airplanes, boats, trains, auto, trucks, production machinery, materials handling equipment, telecommunication devices and medical and data processing equipment
Capital equipment
If an investor's adjusted basis in a property is $400,000 and the property has a net selling price of $500,000, the investor has a $100,000
Capital gain (Gaining $100,000 on property)
The difference between the net sales proceeds of an asset and its adjusted basis
Capital gain (or loss)
Deferred Exchange Requirements: Exchanger cannot sell property and use part of the proceeds for an exchange, must use it all or else pay _____ taxes on unused portion
Capital gains
Trading and funding of long term loans
Capital market
The interest rate used in the income capitalization approach to appraisal that represents an expected annual rate of return on one's investment
Capitalization Rate
The remaining positive or negative amount of income an investment produces after subtracting all operating expenses and debt services from gross income
Cash Flow
Improve value, Insurable value, Appraised value, Exchange value, Liquidation value and Investment value
Cash Value
Mold
Causes wheezing, throat irritation and tightness in chest
Methods of recruiting salespeople: Before holding a seminar, brokers should select a ____ location for the meeting
Central
A VA appraisal is known as a:
Certificate of Reasonable Value
States must develop and maintain a system of licensure and ____ for appraisers
Certification
_______ property tax credit of 20% cost rehabilitation
Certified Historic
A report involving a property worth one million or a 1 unit to 4 unit residential complex with a value over $250,000 must completed by a
Certified appraiser
Non Qualified Product Applications
Charitable gift annually (CGA) and ROTH IRA
If the complainant feels that discrimination occurred even after the conciliation process, they can take the issue to the
Civil Courts
After Martin Luther Kings assassination congress passed
Civil Rights Act 1968
The fair housing law that 1st protected people against discrimination in housing based on race was the
Civil Rights Act of 1866
Business letters, memos, emails, texts, websites and messages must be written ______ so the reader can extract the meaning and understand the information
Clearly
A veteran and non veteran or a veteran and non veteran, unmarried partner cannot be ______ on a loan
Co Borrowers
The following may be used as ______ for a loan: Tenant's leasehold rights, Lenders receivable mortgage rights and farmers unharvested crops
Collateral
2 more businesses joined together to push out another business
Collusion
MLS is an arrangement when broker agrees to share their listings in exchange for a share of the ______
Commission
All adjustments are made to the ____ purchase price
Comparable
All adjustments are made to the _____ purchase price, NOT the subject property
Comparable
Farming Techniques: CMA provides sellers with recent sales information of ______ properties within their neighborhood
Comparable
Properties which are sustainably equivalent to the subject property to be used in the process of determining value of a subject property
Comparables
What is needed when using the sales comparison approach to find a listing price?
Comparables
Code of Ethics- Article 7
Compensation received must be revealed to the other parties involved in the transaction
1. Always remember that to best serve the interest of our nation, land should be utilized for its highest and best use and there should be a wide distribution of land ownership 2. Realtors should always perform their duties with integrity and honor 3. Always stay informed of current events and issues that affect real estate and be ready and willing to share with others the knowledge and experience that you have gained 4. Any Realtor having personal knowledge of conduct that violates NAR Code of Ethics should bring this matter to the attention of the local board or association 5. Treat others as you would like to be treated
Concepts contained in the preamble to NAR Code of Ethics
Sometimes complaints may be the result of a simple misunderstanding, or an investigation may reveal issues that require additional clarification. HUD can hold an informal meeting/conference to help resolve the issue
Conciliation
Atmosphere
Conditions under which message is sent and received
Conventional loans that adhere to FNMA and FHLMC guidelines are referred to as ____ loans
Conforming
Conventional loans are divided into 2 categories
Conforming and Non Conforming
"Focuses on what lies within each person"
Conscience
"The voice within"
Conscience
The Equal Credit Opportunity Act (ECOA) requires lenders to
Consider the income of a spouse in evaluating a family's creditworthiness
Interim Financing
Construction Loan
Used for financing new construction or renovating existing improvements
Construction Loan
Builders of new homes must furnish veterans with certain _____ before the VA will guarantee a loan
Construction Warranties
Builders of new homes must furnish veterans with certain ______ before the VA will guarantee a loan
Construction Warranties
Economic Factors: _______ refers to the willingness of buyers and sellers to enter the market
Consumer confidence
Deceptive Trade Practices Act (DTPA)
Consumer protection act that protects the public from false and misleading acts
Annuities
Contracts for lump payments or premiums created with after tax dollars
Agreed in contract
Contractual
Installment debts that cannot be paid off by paying the minimum payments in 12 months or less will be included in the applicants total long-term debt ratio, for ____ loans
Conventional
Monthly payment stability and borrower will not be able to take advantage of a drop in interest rates without refinancing
Conventional Fixed Rate Mortgage
Loan offered by primary lenders such as commercial banks and credit unions, savings and loans associations and mortgage banks
Conventional Loans
Loan that is neither federally insured or federally guaranteed
Conventional Loans
Annexation
Converting personal property into real property
Corporations are NOT required to file a certificate of business name. But ARE required to have
Corporate license from TREC
Money paid for a good or service supplied
Cost
Reproduction cost of (-) Improvements depreciation (+) Site value (=) Property value
Cost Approach
This approach is for non-income producing properties other than single family residences
Cost Approach
When choosing this approach an appraiser must receive construction costs
Cost Approach
1. Establish the improvements reproduction cost 2. Find the depreciation in dollars on the existing building 3. Establish the value of a comparable parcel 4. Make the necessary adjustments to the comparable parcel 5. Combine the figures from the previous steps into the cost approach formula 6. State the value of the subject property
Cost Approach To Appraisal Steps
A method of appraising property based on the depreciated reproduction cost (new) of all improvements, plus the market value of the site
Cost approach
In real estate, one of the most important economic characteristics is the ____
Cost of credit
The amount of money it costs to borrow funds, or the interest paid on a long term loan, is the
Cost of credit
The amount one pays on borrowed money, an interest rate
Cost of credit
Operating Expenses
Cost to maintain and run business
The Accessibility Guidelines only apply to ______ dwellings such as buildings consisting of 4 or more dwelling units if such buildings have one or more elevators and ground floor dwelling units in other buildings consisting of 4 or more units
Covered Multifamily
2 primary figures on the Request For Verification Of Deposit Form the underwriter looks at are
Current balance on deposit and Average balance for the previous 2 months
Receivers
Customers
Certificates that establish a veterans eligibility in writing and can be obtained with the following forms
DD-214 (discharge form) VA Form 26-1880 (application form) DD-13 (statement of service if veteran is still on active duty) DD-1747 (unavailability of base housing)
An appraiser should always include both the type of value assessed as well as the assessment ____
Date
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) is sometimes called
Death Tax Bill
When a company issues bonds that are a claim against its general assets, they are called unsecured bonds or
Debentures
Conservative, they are passive investment managers that require security interest in the property being financed
Debt investors
All investors fall into 1 of 2 categories
Debt investors or Equity investors
The debt ratio formula used to qualify borrowers is
Debt payments divided by gross income
NOT considered in NOI calculation
Debt services and leasing commissions
DTI
Debt to income ratio
Determines civil penalties that the Attorney General can potentially collect from businesses that engage in false, misleading or deceptive conduct
Deceptive Trade Practices Act (DTPA)
4 key communication skills: Get your customer involved in their _____
Decision
Asset Management
Decision making process involved in maximizing returns on real property investments
What is asset management
Decision making process involving in maximizing returns on real estate investment
Physical commodities diminish. Once demand no longer justifies the high maintenance on a property, the property enters into its 3rd stage
Decline
Liens on the title limit the transferability of title and consequently ____ the property's value
Decrease
When suppy increases, real estate prices usually
Decrease
Once additional improvements or maintenance on an improvement no longer yield a positive cash flow or value contribution
Decreasing returns
In deriving taxable income on an investment property, it is generally legal to
Deduct interest payments from income
Sequential Deeding
Deed is transferred to a qualified intermediary who transfers the deed to receiving party and the process is repeated for the 2nd exchange property. Leads to a total of 4 title transfers
In a 2 party exchange the 2 principals trade
Deeds and balance equities
The property given up as often sold prior to finding or buying the property being acquired. (require- replacement property (-) or (+) equity and fair market value)
Deferred or Delayed Exchange
Would be exchanger now faces a failed exchange and obligated to pay taxes that would have been deferred
Delay closing
An economic concept that implies not only the presence of a "need" but also the existence of monetary power to fill that need
Demand
To bring about ___ the purchasing power must be available to satisfy the perceived need
Demand
4 value criterions
Demand, Utility, Scarcity and Transferability
A method of allocating the cost of an aging asset over its estimated useful life. For income tax purposes, depreciation is a provision for the estimated wear and tear of an asset. Depreciation deductions can be claimed as a tax deduction on real estate improvements, not land, regardless of whether the market indicates an increase or decrease in the value of the property
Depreciation (accounting)
A loss in value from where, use, or obsolescence (disuse)
Depreciation (real estate)
To derive the properties adjusted basis, the basis is adjusted by adding any improvements made and deducting
Depreciation expenses taken
The Appraisal Process: Collecting a detailed ____ of the property is especially important in the sales comparison approach to appraisal
Description
Equal Credit Opportunity Act (ECOA)
Designed to make credit available to every financially qualified applicant
Occurs through wear and tear or exposure to the elements
Deterioration
2 causes of depreciation
Deterioration and obsolescence
Market Analysis
Determine target audience and marketing strategies, customer base- age, income, education
Pro Forma Projection
Determines cash flows for investments/assets
Appraisal Process Step 4
Determining The Highest and Best Use •Depends on the information gathered in step 3
Managerial Style: The _____ style is not popular with many companies because it is inconsistent with their business philosophy
Dictatorial
Investor buys directly and manages personally
Direct
Employers may NOT discriminate against an individual with a ______ when they are making decisions about hiring
Disability
Physical or mental impairment that substantially limits one or more of an individual's major life activities, record of having such impairment and being regarded as having such an impairment
Disability
Another name for a Permanent Buydown is
Discount Point or Point
The Feds member banks borrow funds from their district federal reserve banks at an interest rate that is considered to be the
Discount Rate
Using words, phrases, symbols, visual aids or media in the advertising of real estate that may indicate the advertisers preference for or prejudice against members of a protected class
Discrimination in Advertising
Civil rights act of 1964
Discrimination of race, color and national origin
Brokers need to offer which services
Diverse array of services
ECOA "Marital Status" differs in important ways from "Familial Status" established by Federal Fair Housing Act. Under The ECOA, lenders may NOT deny a loan to an individual merely because that person is _______
Divorced or Widowed
If an investor decides to liquidate property previously acquired through 1031 exchange and is NOT acquiring replacement property in this transaction. Capital gains taxes are ____ on the capital gain accumulated since the purchase of the initial property
Due
Articles 1-9
Duties To Clients and Customers
Articles 15-17
Duties To Realtors
Articles 10-14
Duties To The Public
The Fair Housing Act defines a _____ as any building, structure, or portion of a building that is occupied as/or designed or intended for occupancy as a residence by one or more families. This also includes any vacant land offered for sale or lease for the construction of a building, structure, or portion of a building that is intended to be occupied as a residence
Dwelling
Individuals seeking housing are granted additional protection against discrimination by the federal
ECOA
Economic Factors: Gross domestic product measures the total amount of _______ activity and standard of living in a country
Economic
Include the local median income and interest rates
Economic
Local median income, interest rates and the availability of financing
Economic characteristics
• Job opportunities in the area •Salary/wage levels •Inflation
Economic factors
Broker well rounded training program
Economic trends, environmental issues, company policies and procedures, ordinances and code of ethics
Market characteristics influence value. These characteristics fall under one of the following categories
Economic, Social, Governmental or Physical
All the sources of income, including rent, minus vacancy and collection expenses (non-payment, late payment, etc)
Effective gross income
4 key communication skills: Listen and respond with _____
Empathy
401K
Employees can place up to $18,000 in pre-tax dollars into account
Simple (Savings incentive match plan for employees)
Employer sponsored plan typically used in small companies.
The Americans With Disabilities Act (ADA) addresses discrimination in 4 general areas
Employment, Public Services, Public Accommodations and Telecommunications
List advantages and disadvantages of decision. (pragmatic approach) obey the law, this approach tries to find solution that makes the most people happy
End Result Ethics
Certified Public Accountant (CPA)
Endorses or makes modifications to tax strategies and provides consultative services to attorney in financial planner
Lenders use an income ratio in qualifying to
Ensure a borrower has the earning power to make the loan payments
Philanthropy Protection Act 1995
Ensures the viability and integrity of a Charitable Gift Annuity (CGA)
Individual partnership interest may NOT transfer in a 1031 exchange, small investments and business properties are owned by partners. If name is under partnership, then _____ partnership must participate in the exchange
Entire
If a veteran sells his or her home to another party who does not assume the VA loan, it is important to calculate the veterans remaining _____ in order to determine what loan amount the veteran can get to purchase a new home
Entitlement
There is no required down-payment on VA loans, if the sales price and the VA appraisal amounts are _____ and the veteran has full entitlement
Equal
ECOA
Equal Credit Opportunity Act
Lender may NOT discriminate against a potential borrower because of the borrower's age or the fact that the borrower receives money from public assistance programs
Equal Credit Opportunity Act
Deferred Exchange Requirements: To defer recognition of all gain, exchanger must acquire replacement property the price _____ than net sale price of relinquished property equity amount- downpayment on replacement property
Equal or greater
General Recommendations: Be careful to treat all parties involved in a transaction _____
Equally
Title VII Of the Consumer Protection Act
Equilal Credit Opportunity Act (ECOA)
Amount of a property that the investor has actually paid for
Equity
That portion of a property's value owned by the legal owner, expressed as the difference between the property's market value and all loan balances outstanding on the property
Equity
Funds applied to the actual principle on a loan, rather than the interest, plus any gain in property value through appreciation
Equity (equity buildup)
Mortgage loan where the lender has a partial equity interest in the property or receives a portion of income from the property during ownership (if its an income producing property)
Equity Participation Mortgage
A pool of large scale income properties wherein shares are sold to investors
Equity REIT
What is the difference between an equity REIT and a real estate syndicate
Equity REITs pool properties and sell shares to investors, while real estate syndicates pool several investors funds to purchase one property
What is the final cash flow from real estate
Equity build up
Sarah is a real estate investor, she owns several homes in Galveston that she rents out on both short and long term leases. She has mortgages on the homes that she pays monthly. What is the portion of her mortgages that is applied to the principle for each loan considered
Equity buildup
Utilize venture capital and unsecured investment money that usually demands a very high interest rate and take a more active, although unsecured, role in their investment
Equity investors
When the Internal Revenue Service (IRS) eliminated tax deductions for interest paid on consumer loans but preserved the deductions for interest paid on home loans, more interest was created in
Equity loans
3 types of REITS
Equity, Mortgage, Hybrid
Risk Management: _______ insurance covers certain claims against the company due to oversights and mistakes
Errors and omissions
This insurance covers the claim resulting from the oversights and mistakes of company's salespeople
Errors and omissions insurance
For loans less than 80%, no ____ account is required
Escrow
____ accounts held by the lending institution to which the borrower pays monthly installments for property taxes, insurance and special assessments
Escrow
Real estate salespeople have NO control over
Escrow accounts and funds
Philosophy
Establishes the company's attitudes towards its services, products, customers and employees
Business Plan
Establishes the company's mission statement, goals and strategies
In the income capitalization approach, an appraiser
Estimates net income and applies a capitalization rate to it
Appraisal Process Step 5
Estimating The Land Value •Appraiser evaluates land parcel separate from any improvements upon it •Appraiser locates similar parcels to adjust and compare with subject land parcel •Completes with Sales Comparison Approach
Appraisal Process Step 6
Estimating Value With Each Of 3 Approaches
Societal Standards and Principles
Ethics
Best describes the relationship between ethics and morals
Ethics are essentially comprised of a set of principles based on morals
Some unacceptable words/phrases for newspaper advertisements
Ethnic Landmark, Oriental, Mentally Handicapped, Exclusive, Couple, Family, Private and Integrated
Discounted Cash Flow (DCF)
Evaluate the price of a property and the return of several alternatives
Puffing
Exaggerated or superlative comments or opinions.
Market Allocation
Example: The Brokers in a certain area meet and agree that some brokers will handle residential property under $100,000, others will handle residential property over $100,000, others will handle commercial property
Inflation Predictors: The ______ rate is the amount of a foreign currency that a dollar can buy
Exchange
One who takes title to property to meet the requirements of IRS section 1031 and Treasury Revenue Ruling 2003-37 to facilitate a reverse exchange
Exchange Accommodation Titleholder (EAT)
1031 Exchanges
Exchange of property (real & personal) held for productive use (in trade or business) or investment
Identification Period (45 day rule)
Exchanger conducting a deferred exchange must identify a replacement property within 45 days of selling
Acquisition Period (180 day exchange period)
Exchanger deferred exchange must close the sale of replacement property within 180 days of closing sale
3 property rule
Exchanger may identify a Max of 3 property (replacement) without regard to fair market value
Mortgage Boot
Exchangers amount is effectively reduced
Before writing a purchase offer or presenting CMA realtor shall ask if they are a party to any _______ agreement
Exclusive Representation
1995 CGA Antitrust Relief Act
Exempts CGAs from antitrust laws: 1933 securities act, 1934 securities exchange act, 1940 investment company act
The ratio of the housing expense of a borrower, or PITI, to the net income of the borrower
Expense to income ratio
Methods of recruiting salespeople: One of the most important criteria of hiring employees is ____
Experience
The Fair Housing Amendments Act of 1988
Extends discrimination to include gender, handicapped status, and family status
Reduction in property's value caused by factors outside the physical boundaries of the subject property, such as social, environmental, or political factors, also known as "economic depreciation". Usually cannot be rectified by owner
External obsolescence
Zoning laws, supply and demand, or a changing highest and best use cause
External obsolescence
A government loan designed to preserve the nations existing housing stock by facilitating renovation and restoration. Down-payment as little as 3% and loan amounts up to 110% of the homes after improved value
FHA 203K Property Rehabilitation Program
Help low and moderate income families become homeowners by lowering some of their mortgage costs. Lower down-payments but the expense of mortgage insurance premium paid by the borrower and the low limits on the loan amount
FHA Insured Mortgage
Federally Insured Loan
FHA Loans
Debts with 6 or more payments remaining will be included in the applicants total long-term debt ratio, for ____ loans
FHA and VA
Federal Home Loan Mortgage Corporation, aka Freddie Mac, purchases first mortgages on residences
FHLMC
Federal National Mortgage Association, aka Fannie Mae, supplies home mortgage funds through a congressionally chartered, shareholder company
FNMA
Statement or assertion of verified information about something that is the case or has happened
Facts
The Secretary of the Department of Housing and Urban Development (HUD) is in charge of enforcing
Fair Housing Law
Code of Ethics- Article 10
Fair Housing- No discrimination based on race, color, sex, familial status, national origin, religion, handicap, sexual orientation or gender identity
Value of the property without deductions taken for any loans or other liabilities secured by the property
Fair market value
Rising interest rates cause _______ property values because most property is purchased with borrowed money and the purchasers who are paying more in interest are willing to pay less for the property itself
Falling
An example of a principle plus business property
Family Farm Property
Issues what are known as mortgage backed securities Mortgages are purchased on an administered price system
Fannie Mae
____ is now a privately owned purchaser of FHA,VA and Conventional loans
Fannie Mae
The major organization's operating in the secondary mortgage market are
Fannie Mae, Freddie Mac and Ginnie Mae
Major participants in the secondary residential mortgage market are
Fannie Mae, Ginnie Mae and Freddie Mac
______ governments provide tax credits for real estate
Federal & State
In 1989, the Texas Congress passed the Texas Fair Housing Act. It created a body known as the Texas Commission on Human Rights. They are both analogous of the
Federal Fair Housing Act and HUD
The largest holder of mortgage loan debt for 1 to 4 family units are
Federal and related agencies
The Access Board (Architectural and Transportation Barriers Compliance Board)
Federal organization that issues guidelines to ensure that buildings, facilities and transit vehicles are accessible and usable by people with disabilities
Fair housing protected classes are established by
Federal, State and Local Laws
Sarah believes a real estate agent has kept her from seeing certain property for rent because she is a woman. What actions should she take if she wants legal satisfaction for her complaint
File a complaint with HUD and/or file suit against the offending parties in a state or federal court within the prescribed time period
Decision reached after careful consideration of all facts, assumptions, effects on people and groups, available resources (people and written) and results applying 4 approaches to decision
Final Decision
________ section of business plan includes cash flow statements, income, profit and loss statements, balance sheets and 1 year budget
Finances
A lender may ask only questions that are relevant to an individuals ______ standing. This means that while asking if someone is divorced is inappropriate, asking if someone must pay alimony is acceptable
Financial
Risk Management: A risk management plan allows companies to decide how they wish to allocate _______ resources to prepare for lawsuits
Financial
The provisions of _____ are aimed at protecting federally insured banks from fraudulent or incompetent appraisals and preventing dishonest industry pressure
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)
______ makes investments strategy recommendations
Financial Planner
Tax favourable transactions involve qualified products require a broad range of skills, parties whos special skills will help a licensee to craft a quality transaction
Financial planner, A certified public accountant, Lender
Non Qualified Products
Financial products purchased with after tax dollars
When nonprofit organization gets a donation, in return they agree to pay 1 or 2 persons (annuitants) a ____ of income for life (annuity)
Fixed Stream
A (CGA) provides guaranteed _____ favourable income stream for up to 2 people- 1 donor and possibly for another person whom the annuity is assigned after the donors death
Fixed and tax
Conventional Loans
Fixed monthly payments that go towards principle and interest on loan and slowly amortize the loan balance until paid off
Real property held for business or investment is considered like kind to all other such property. Exceptions are ____
Foreign property and partnership interests
1099s
Form used to report sale or exchange of home to IRS
Reliable appraisers should have all of the following
Formal Education, Field Experience, Complete Objectivity and Competency
Seller (C) of the exchange does NOT want to take title to sell (A) property. 4th party (accommodator or intermediary) is brought in, who buys (A's) property, exchanges it with seller (C) for (seller C's) property
Four Party Exchange (Accommodation Exchange)
Exchanger must prove intent to conduct exchange before the sale of relinquished property or else exchanger and any associated real estate licensees may be liable for _____
Fraud
Since 1973, the DTPA has been the most important tool in the Attorney General's fight against ______ practices
Fraudulent Business
Securities sold are known as participation certificates (PCs) Created during the Savings and Loans crisis of the 80s
Freddie Mac
___ buys VA, FHA, Conventional and Adjustable Rate loans that meet its underwriting criteria
Freddie Mac
___ was created to provide a secondary market for conventional loans during the Saving and Loan crisis of the 80s
Freddie Mac
The 2 largest purchasers of home loans on the secondary market are
Freddie Mac and Fannie Mae
Outdated layout or design
Functional Obsolescence
The ____ fee takes the place of the Mortgage Insurance Premium in FHA loans
Funding
____ is the cost of receiving a VA guarantee
Funding Fee
4 written communications are effective for distributing information and providing a printed document for _____ references
Future
Appraisal Process Step 3
Gathering, Recording and Verifying Data •Begins with gathering general information relating to geographic and economic characteristics of the area where property is located
A property manager would be what kind of agent
General
All members own and manage
General Partnership
Owned by the Government
Ginnie Mae
Wholly owned by the government Activities are under the direct supervision of HUD The only issuer of government guaranteed MBSs
Ginnie Mae
What is needed to establish the significant cash flows required for a return on real estate investment
Good asset management plan
Commercial Broker and salespeople must be able to explain why property is a
Good investment
Include property taxes, zoning laws and rent controls
Governmental
____ controls influence property use and distribution
Governmental
____ controls property taxes, zoning laws and rent controls
Governmental
Not available in today's mortgage market, must be aware if listing a property. This loan was designed to negatively amortize and are sometimes referred to as negative amortization loans. Payments increase over the next 5 years until they level off sufficient amount that fully amortizes the loan over remaining loan term period
Graduated Payment Mortgage (GPM)
+P*
Greater than the current price level P, inflation is expected
Acts as a screening committee for complaints, they decide if there is a possible violation of the NAR code
Grievance Committee
Mediation occurs prior to or after the ____ reviews the allegations
Grievance Committee
The arbitration process begins with the request for arbitration that is reviewed by the _____
Grievance Committee
GDP
Gross Domestic Product
Commissions on in house sales, Referral fees, Appraisal fees & Cooperating transaction commissions are examples of
Gross Income
Sales Price (-) Adjusted Basis (-) Depreciation Example: Purchase for $50,000, Depreciates $40,000 and Sells for $65,000 ($65,000 - $40,000 - $10,000 = $15,000 $15,000 / $65,000 = 23.08%
Gross Profit
The formula for determining taxable income produced by an income property is
Gross income minus expenses minus building depreciation
Net Income
Gross income minus total operating expenses
A new property experiences a period of ____ in which its short supply will drive up demand and consequently, value
Growth
Inflation Predictors: Strong economic ____ measured by the gross domestic product or GDP can also indicate future inflation
Growth
Fixed interest rate with an average 1 full percent below the 30 year fixed mortgage rate. Payments increase annually reducing principal and paying off loan in 12 to 17 years depending on amount of increase of payments. Typically 3%, 5% or 7.5% per year
Growth Equity Mortgage (GEM)
The principle of change states that no commodity remains constant and value always shift as a result of natural phenomena and market demands. This occurrence creates what is called inclining in declining periods, or the 3 stages of a community's existence:
Growth, Stability and Decline
Veterans pay a one time up front funding fee as the cost of receiving the _____ loan
Guaranteed
Members of the public who feel they have been or are being discriminated against may file a suit with
HUD
Limited Partnership
Has 2 types of partners- limited and general. (Limited- investor / general- assume personal liability NOT business liability)
A disabled person is someone who
Has a physical or mental impairment that affects his or her performance of major life activities
Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards
Hazard Insurance
Companies with telephone service must offer communication access for people with speech or ______ impairments
Hearing
(P/E)s above 16 are
High ratios
The one most profitable and efficient use of any given tract of land, which must be legal, financially viable, productive and physically plausible
Highest and best use
When considering a proposed or possible expansion site, office location, project or investment, such organizations may use appraisers to evaluate a number or of financial feasibility principles, including the ______
Highest and best use
Enacted in 1973, to provide lawful protection for consumers during business transactions and gave the Attorney General authority to seek civil penalties in the amount of $2000 per violation
History of DTPA
The practice of redlining is specifically prohibited by
Home Mortgage Disclosure Act
For this exemption to apply, the housing is occupied only by persons who are 62 years of age or older and 80% of the housing units have at least one occupant who is 55 years old or older
Housing for Older Persons
Commercial Brokers and salespeople must have a clear understanding of
How location, taxes and purchase arrangements affect the return on investment
A VA certificate of eligibility determines
How much of a loan the VA will guarantee
A homeowner borrows money from a lender and gives the lender a mortgage on the property as collateral for the loan. The homeowner retains title to the property. This is an example of
Hypothecation
V (value) =
I/R ( I= net operating income/R= capitalization rate)
Which describes a retirement vehicle that is purchase using pre-tax dollars
IRA
•Co-owners each hold separate title to property themselves •No more than 35 co-owners •Co-owners cannot act as a partnership for business or tax purposes •Co-owners must obtain rights to sell, lease and manage the property •Proceeds and liability must be shared among co-owners •Co-owners must share profits, losses, and debt in proportion to their respective interests
IRS
International Population
Immigration and international corporations moving workers from country to country
Appurtenance
Immovable or fixed to the land
It is best to offer _____ to referring and referred tenants to increase likelihood of a successful referral
Incentives
The exchanger must use the replacement property as an investment, rental or for the production of _____
Income
Most reliable for commercial or income producing properties
Income Capitalization Approach
When choosing this approach an appraiser must know a property's investment return and figures relating to personal investment amounts
Income Capitalization Approach
Appraisers only use the income capitalization approach for ____ properties
Income Producing
Underwriters approve or deny a mortgage loan application based on an evaluation of
Income and Assets, Credit and Property
2 of the financial rewards the investments offer are
Income and tax benefits
A method of estimating the present value of the property's anticipated income benefits
Income capitalization approach
Real property objective that is also real property security objective
Income stream
Tax Deferred
Income that is not subject to taxes immediately but that will later be subject to taxes. (Not tax free)
5 concerns a lender verifies when qualifying the buyer
Income, Credit, Net Worth, Source Of Funds and Debts
Ownership Benefits
Income, appreciation, tax shelter: depreciation and interest deductions
When demand increases, real estate prices
Increase
Inflation
Increase in price goods and services that causes decrease in purchasing power of the buyer
Estate Tax Relief
Increase in unified estate tax credit
When the money spent on a particular improvement yields a proportionate or greater value contribution
Increasing returns
Inclining and declining periods for the property as a whole, is ascertained by 2 determining periods
Increasing returns and decreasing returns
Exchanging property under section 1031 is NOT tax free transaction. Tax deferred ______ until replacement property is sold or exchanger dies
Indefinitely
An appraiser calculates the value of the building and the value of the land ____
Independently
An ___ for an ARM is always based on external, economic factors that the lender does not control
Index
Published measure of interest rates on certain types of investments
Index
IRS will NOT permit ____ ownership interest exchange even if assets are real estate partnership
Individual
Cannot use this approach when managing an office, each person has their own personal ethical code
Individual Conscience Ethics
Uses individual and personal believes in order to establish a standard for decision making
Individual Conscience Ethics
Tax Deferred Exchange (1031 Exchange)
Individual can sell investment property and defer taxes associated with transaction
IRA (Individual Retirement Account)
Individual retirement plans, they are like 401Ks in that interest accured in them is nontaxable
Economic Factors: In order to manage _____ the government will adjust the interest rates
Inflation
Even without appreciation the value can increase through
Inflation
How can I property increase in value without appreciating
Inflation
The increase of money in circulation coupled with a rise in prices, resulting in a deadline in the value of money, is called
Inflation
The beginning rate on the ARM. It will stay the same until adjusted either up or down on adjustment date specified in the mortgage
Initial Interest Rate
All ARMs have 4 basic features:
Initial interest rate, Adjustment interval, Index and Margin
Installment payments extended into another tax year
Installment Sales
Fixed beginning and ending date example: car loan
Installment debts
A borrowers recurring liabilities can be broken down into 3 categories
Installment, Revolving and Other
Refers only to the amount for which an insurance company insures a property
Insurable value
Remind sellers that any ______ made will show up on report. The buyers insurance company runs before writing policy for buyer
Insurance claims
Demonstrable discriminatory ____ is NOT sufficient to establish discrimination legally
Intent
Affirmative misrepresentations and affirmative concealment, when person making the misrepresentation is aware of the true facts. Example: Builder didn't build home right and was falling apart. (promise made without any intent of performing it and saying something is a fact, when it is not true)
Intentional Fraud
___ is the rent paid on money
Interest
___ are determined by the market, individual lenders, but are influenced by the Federal Reserve Systems open market activities and its primary lending discount rate ( the interest rate the FED charges to other banks)
Interest Rates
Tax Deferral
Interest free, No term loan from the IRS on the taxes due
Adjustable Rate Mortgage (ARM)
Interest rate lower than market rate for conventional loans, rate is adjusted at set intervals (adjustment periods)
______ are negatively correlated, interest rates are high consumers pay more on rent and have less money for rent on real estate
Interest rates and property values
Individual partnership CANNOT exchange their individual partnership _____
Interests
Many of the real estate related activities for commercial banks include construction loans, also known as
Interim financing
Cost effective way to provide information to customers
Internet
To be exempt from federal income tax, real estate investment trust (REITs) must be structured to
Invest at least 75% of its assets in real estate, other REITs, securities or cash
____ properties pose complex value calculations. An experienced appraiser often needs to gather the necessary data and complete computation before submitting a valuation
Investment and Commercial
The rational behind 1921 act was to maintain the continuity of ______ (allow investors to have truly liquid assets that they could sell to buy other assets without losing money in the exchange) and to make it easier and simpler for the government to monitor and regulate exchanges
Investment liquidity
Legislation provides protection to the ____ and establishes the Charitable Gift Annuity (CGA) as a distinctive investment option
Investor
Leverage, Diversification, Management relief, Consolidation, Cash flow and Increase depreciation
Investor Motives
How does Cap Rate Analysis work?
Investor uses a projection of the NOI of a property in 10 years and the expected rate at which future investors will desire to capitalize his/her income to determine future value for property. Investor can compare future value with sale price to predict return on investment
FHA does NOT insure loans to ____, only homeowners
Investors
One of the disadvantages of investing in real estate is
Investors need expert help
Veterans service cut short due to injury or reasons out of their control, such as _____ may still be eligible for VA loans
Involuntary reduction in force
Basics of The Professional Standards Enforcement Process: 2 Basic Types of Cases
Issues of ethics in relation to possible violations to the NAR code and Request for arbitration related to a money dispute between 2 realtors usually from different firms
How does the secondary mortgage market aid borrowers seeking a mortgage loan
It cycles funds back to primary lenders so they can make more loans
How is a tax credit treated for income tax purposes
It is a direct reduction in tax due
Sam wants to rent out his home, but wants to exclude families with children because of his belief that they cause damage. Under what conditions would federal fair housing laws allow Sam to rent on these terms
It is a single family house, and the owner owns only one other rental home in addition to his own residence
Why is it risky for an investor to purchase raw land with the expectation that there will be growth in the area in the future
It's intrinsic value and potential appreciation is difficult to determine
How the ADA affects the real estate industry
It's most noticeable effects are on the operations and construction of real estate brokerages and on broker representation in transactions involving commercial property
Money award for dispute not paid voluntarily, arbitration award can be taken to court enforced through ___ processes
Judicial
Insurance companies only insure improvements and not the ____
Land
Lessor
Landlord
General Recommendations: Never conduct business with individuals who are unwilling to comply with the _____
Law
Insurance policies protect a company from unexpected events such as
Lawsuits and accidents
Only a plan that fits the following criteria may be the highest and best use
Legal, Financially viable, Productive and Physically Plausible
There is no limit on the amount of a loan a veteran can obtain, the _____ determines this
Lender
Margin
Lender adds fixed rate
______ are a source of funding for various transactions
Lenders
A national list of all licenced and certified appraisers is available to ____ institutions
Lending
-P*
Less than P, deflation is expected
How is a loan qualifying ratio used to determine the maximum monthly payment a borrower can make, with respect to the borrows gross monthly income and long term debt? The borrower's total housing expense ratio (X) the borrower's gross monthly income (=) the maximum allowed housing expense with respect to housing expenses. Then, the total debt service ratio is (X) by the difference between gross monthly income and the long term debt to find the maximum allowable housing expense with respect the borrows debt. The LESSER OR GREATER of the 2 maximum expenses is the maximum allowable housing expense?
Lesser (Choosing the lesser expense gives a figure less than or equal to both maximum housing expense figures)
John has purchased an investment property through the use of borrowed funds. In doing so, he is taking advantage of
Leverage
Risks generally are directly proportional to ______
Leverage
The relationship between the yield rate of an investment and the interest rate of funds borrowed to finance the investment. If the yield rate is greater than the loan rate, positive leverage results. If the yield rate is less than the loan rate, negative leverage results
Leverage
The use of loaned funds to finance an investment
Leverage
A buyer makes a minimal down payment and borrows a balance needed to purchase real property. This is called
Leveraging
Appraisers for bank use must be either certified or _____
Licensed
Any report involving a 1 unit to 4 unit residential complex/dwelling worth less than $250,000 or most non residential property worth less than $250,000 may be completed by a
Licensed appraiser
IRS form 8824
Like-Kind
Deferred exchange requirements: Replacement property must be of ______ to relinquished property
Like-kind
General partner manages, limited partners own but do not manage
Limited Partnership
The assumability of an FHA insured loan is
Limited by when the loan was originated
The loan becomes due when investor _____ his investment for good
Liquidates
The degree to which an investment is readily marketable, or convertible to another form of asset. If immediately salable, an investment is liquid; the longer it takes to sell, the more illiquid the investment. Real property is relatively illiquid in comparison with other types of investment
Liquidity
Appraisal Process Step 2
Listing The Necessary Data and Its Sources •Which approach/approaches will be used
Take claim or dispute to court of law- go to law
Litigate
Risk Management: A company can protect its self from lawsuits by purchasing insurance or by setting up a ______ fund
Litigation
An amount paid to the lender to lower the lending rate, loan discounts are expressed in points, where one point equals 1% of the loan, 8 points is equivalent to a 1% interest rate reduction
Loan Discount
The fraction of the appraised value of the property offered as collateral which the lender is willing to lend
Loan to value ratio
Voluntary dispute resolution process, offered by _______ they appoint a mediator who help resolve the dispute, mutual agreement between parties
Local Boards and Associations
FHA loan limits vary depending upon ____ of properties
Location
Office Space
Location, size, site
Mortgages, deeds of trust, stocks, and bonds
Long term financing
SEP IRA (Simplified Employee Pension)
Low cost pension plan useful for small businesses.
Temporary Buydown Advantages
Low initial payments and The borrower is most often qualified on the basis of the lower initial payments
ARM advantages
Low initial payments and the borrower is most often qualified on the basis of the lower initial payments
(P/E)s below 16 are
Low ratios
What is a feature of long term leases
Lower rates
Farming Techniques: _____ include newsletters, postcards, flyers, brochures that licensees wish to send to prospects
Mailings
The business owner identifies the owners and employees in the ________ section of the business plan
Management
_______ section, owners identify owners and sales agents of the business plan and explain how their skills will benefit the company
Management
Business plans serve as a ________ that allows business owners to track their progress
Management tool
Exchange Accommodation Titleholder (EAT)
Many qualified intermediaries perform this service. Exchanger hires to satisfy the legal requirements of a reverse exchange. (Job- purchase & hold title- Replacement property )
An additional amount the lender adds to the index to account for business expenses
Margin
The sales comparison approach is also called the ____ data approach
Market
Anti-trust laws prohibit competing firms from dividing their markets to insulate themselves from each others competition
Market Allocation
Brokers need to understand which trends
Market and economic trends
The sales comparison approach, is also called the
Market data approach
The most profitable price which a property should bring in a competitive and open market
Market value
After creating a business plan you should make a
Marketing plan
Sellers Disclosure
Material fact seller knows about property
200% rule
May identify any number of properties as long as the fair market value does not exceed 200% of aggregate fair market value of relinquished property
95% rule
May identify any number of property without regard to aggregate fair market as long as exchanger acquires 95% of aggregate fair market value of all replacement properties prior to the end of the 180 day of acquisition period
Discrimination: This definition does NOT concern itself with weather a real estate professional _____ to be discriminatory
Meant
Taking a ____ in a appraisal society helps one maintain his or her professional credentials and keep up-to-date in the appraisal field
Membership
Lead
Metallic element found in rocks and soils, can cause damage to brain and kidneys
Mortgage Broker
Middleman who initiates loan process bringing together lender and borrower
What is the degree of risk associated with real estate investment
Moderately high
Short term financing
Money market
Making Home Affordable Program, Home Affordable Modification Program, and Home Affordable Reference Program are government programs that have the potential to lower a homeowners ________
Monthly mortgage payment
Growth Equity Mortgage (GEM) disadvantages
Monthly payment increases overtime and must determine if able to make payments as they increase over the years
The term Realtor has competency, fairness and high integrity resulting from adherence to a ideal of ____ conduct in business relations
Moral
Personal Beliefs
Morals
A financial institution experiencing disintermediation is best described as
More funds being withdrawn than deposited
Promissory Notes: A ____ loan actually includes 2 documents: a mortgage and a promissory note
Mortgage
___ control the greatest share of the primary lending market. They manage capital, not from personal deposits but from large investors like insurance companies and retirement funds
Mortgage Bankers
Payments on amortization loans are calculated by using
Mortgage Constant Factors
_____ can be obtained from amortization tables, financial calculators or financial programs on personal computers
Mortgage Constant Factors
1st time buyers can apply for ________ before obtaining a home loan allowing tax credit for a portion of their mortgage interest
Mortgage Credit Certificate (MCC)
Fannie Mae does NOT own or sell Mortgage-backed securities, a lender brings a ______ to Fannie Mae and Fannie Mae exchanges the guaranteed securities with the lender for the mortgages
Mortgage Package
A property's equity represents its current value less
Mortgage indebtedness
Which of the following circumstances would create a voluntary lien
Mortgage on the property
Fannie Mae issues ______ which are investment instruments like stocks, which pay returns to their holders
Mortgage-backed securities (MBSs)
VA and FHA appraise properties before insuring or ____
Mortgaging
Deferred Exchange (Delayed Exchange/Starker)
Most common 1031 exchange, exchanger sells property they are relinquishing before buying replacement property
The Cap Rate
Most widely used method of valuing income producing real estate cap rate (=) NOI (Net Operating Income) (÷) net present value of property
Cash Flow
Movement of money in and out of the business
Growth Equity Mortgage (GEM) Advantages:
Much like a fixed rate loan that borrower self accelerates. 2 differences: Never a prepayment penalty and The structure of the loan makes acceleration mandatory rather than optional
Tax-exempt
NOT subject to taxes
Realtors should recognize that the interest of the ____ and its citizens require the highest and best use of land and the widest distribution of land ownership
Nation
Federal Reserve System (The Fed)
Nations Monetary Manager (Has a role in creating conditions favorable to high employment, stable values, internal growth of the nation and rising levels of consumption)
Asbestos
Naturally occurring mineral fibers found in rocks linked to cancer of lungs and stomach
Who would be a good candidate for CGA
Need to fund life insurance for long term care, Have low mortgages, Own properties that are not producing income, Are younger investors who want to defer income for retirement, No longer want to manage the property, Need income and tax relief, Own highly appreciated real estate
If payment being made is NOT sufficient to cover the interest due for any payment period, then the unpaid interest is added to the principal balance
Negative Amortization or Deferred Interest
Failing to perform some duty required to perform under law, or failing to perform duty in accordance with industry standards (pending lawsuit)
Negligence
Statement made by a person who did not know that the statement was false, they had no reasonable basis believing its truth or should have known of its falsity Example: Landslide- Realtor saw the area and had an idea about it but didn't say anything
Negligent Misrepresentation
The applicants current assets, including the source of funds being used for any down payment and settlement costs
Net Worth
An annual representation of realized profit (gross income minus operating expenses)
Net operating income
Managerial Style: Most ____ managers fall victim of laissez-faire style because they want employees to like them
New
1031 Exchange
New property is effectively a continuation of the exchangers old investment
Deferred Exchange Requirements: Is personal property for private use for real property or foreign real property for domestic property like-kind to relinquished property?
No
The city recently zoned a land filled nearby the home. May this prevent an arms length sale?
No
=P*
No inflation is expected
Non-accelerating inflation rate of unemployment (NAIRU)
No pressure for either inflation or deflation
Does ECOA apply to all lenders?
No, ECOA applies only persons or institutions that make loans on a regular basis
Conventional loans that do NOT adhere to FNMA and FHLMC guidelines are referred to as ____ loans
Non Conforming (Jumbo Loans)
Not bound or secured by a contract
Non Contractual
Expressed with persons facial expressions, body language and gestures. Includes smiling, eye contact, scowls, fidgeting and touching
Non verbal communication
Property held for resale (inventory or dealer property)
Not exchangeable, requires exchange property to be acquired with the intent to hold for investment (no minute holding period, sufficient to prove held for investment)
Terminating one agreement by replacing it with another, usually including a new party or parties
Novation
Any personal interest in a particular property must be disclosed to all revelant parties
Objectivity
Annuity
Obligation to pay specific sum to recipient
Changing laws and tastes most commonly cause _____
Obsolescence
Disuse
Obsolescence
Signs placed directly on a property for rent/lease can be effective tools in increasing the ____ rate
Occupancy
Adjustment related to location
Off site features
LLC (Limited Liability Company)
Offers businesses the benefit of both partnership and corporation
Which department was the U.S. Treasury instrumental in creating to establish a national currency to finance the Civil War
Office of the Comptroller of the Currency (OCC)
Adjustment related to physical differences between 2 properties
On site features
Factors for which an appraiser may adjust the comparables purchase price are grouped into 3 categories
On site features, off site features and sale conditions
The Appraisal Process: Identifying the property with a complete legal description is part of step ___ in the process
One
Banks offer _____ where they provide both interim and permanent loan, allowing the borrower to save costs
One Time Closing Loans
Charitable Gift Annuity (CGA)
One option offering a simple and dynamic income and tax solution
Sole Proprietorship
One owner has complete control over the business
P*
One reliable predictor of inflation
Allows mortgagors to borrow additional funds at a later date on top of the original loan amount
Open End Mortgage
Manager can encourage feedback by asking
Open-ended questions (How, What, Who, When or Where)
Commissions paid to salespeople, MLS fees, Rent, Legal services, Office supplies & Marketing costs are examples of
Operating Expenses
All the costs associated with maintaining and running the property
Operating expenses
The ______ section allows the business owner to establish how he/she wishes to run the business
Operations
_____ section, how the owner wishes to run the business- managed/hiring/insurance/lease agreement
Operations
Expense of time and money relative to other applications, or expense opportunities
Opportunity cost
HUD got assistance from: •The Southern Building Code Congress International •The National Association of Home Builders •The National Coordinating Council on Spinal Cord Injuries in developing a series of proposals defining the phrase "Reasonable Accommodation" ______ became the basis for HUDs final accessibility guidelines
Option One
USPAP does NOT allow ____ reports
Oral
Inflation Predictors: P* is = to the quotient of long run aggregate demand and the federal boards estimate of potential domestic ______
Output
Cap Rate Analysis
Overlooks the deeper reasons behind NOI
Loan discount points may only be deducted from homeowners gross income if the points are
Paid in cash at closing
Deferred exchange requirements: Each _____ of real estate involved in exchange must be held for investment or use in trade or business
Paracel
Securities sold by Freddie Mac are called _____ they work the same way as Fannie Maes Mortgage-backed securities (MBSs)
Participation Certificates (PCs)
Managerial Style: Organizations that use _____ style thrive on the talents and insights of its employees
Participative
NAR established a guide for implementing Standards Of Care called
Pathways to professionalism
When taxpayer remains in same taxbracket or moves to lower taxbracket
Paying smaller taxes
Annuity
Payment received every year
Recession
Period of reduced economic activity
Capital Gains Exemption
Permits capital gains (single-$250,000 & married filling jointly-$500,000) must have owned home for at least 5 years, been principle residence for 2-5 yrs before sale, sale of home must be only exempted sale taxpayer has made in past 2 yrs
Taxpayer Relief Act (TRA-97)
Permits capital gains on the sale of a personal residence of up to $500,000 for married couples filing jointly and $250,000 for singles.
2nd home might be rented out and could qualify as a rental property if owner uses for personal use for more than 14 days, one year or 10% of days it is actually rented. It's NOT an investment or rental property for that tax year, it will be treated as a 2nd ______ residence
Personal
Exchanges of like kind
Personal Property Exchange
Chattels
Personal property
Business aircraft for another business aircraft, Livestock for other livestock, Mexican gold coins for Australian gold coins, Restaurant equipment for other restaurant equipment are
Personal property exchanges
Personal Property Exchange
Personal property held for investment or for productive use in a trade or business can qualify for tax deferred exchange
All persons that will probably be affected by whatever decision is reached
Persons Affected
An adequate physical description is so important that many appraisers use a ___ to record the property's condition
Photo Journal
The location of the property, its age, its condition
Physical
1. Proximity to shopping, schools, places of worship, public transportation 2. Climatic conditions 3. Physical hazards or natural hazards 4. Character in soil- Farmland 5. Size- width, depth and shape of lot 6. Action of the sun 7. Topography- varying from level land and hillside property
Physical Characteristics
Real property posseses seven basic characteristics that fall into 2 categories
Physical and economic
Capital
Physical assets that can be used to produce income. Business net worth
The location of the property, it's age, its condition, and the climate in which it is located all affect value
Physical characteristics
People who were previously addicted to illegal drugs, people who are present or former alcoholics, and people with AIDS can all be considered disabled if they have serious ______ impairments arising from these conditions
Physical or Mental
When looking at comparables, Ann finds one recent sale that is almost the same as the subject property as far as features, but the sale did not occur in arms length. What should she do?
Pick a different property
Neglecting proper ______ can cause beneficiaries a great deal ranging from 41% to 72% of their networth. Losses include: highly appreciated assets such as stocks, bonds and real estate as well as pension funds that may have been established
Planning
Business plans serve as __________ that allow business owners to prepare for any potential roadblock or complication
Planning tools
Lenders manage the risk of a loan going into default by the amount the buyer is required to
Pledge as collateral
____ are what lenders charge borrowers for providing a loan
Points
Broker must have made available to sales agents with policies and procedures of brokerage firm
Policy Manual
•Building codes •Mass transportation system •Adequate fire and police protections •Legislation with attention to solution of community problems
Political or Governmental influences
If the property converting its capital at a low rate
Poor management, ill repair, high vacancy from low demand
Income from interest, stocks dividends, and royalties is
Portfolio Income
Letter of warning, Letter of reprimand, Education, Fine not to exceed $2,500, Probation for 1 year or less, Suspended from board membership- not less than 30 days nor more than 1 year, Expulsion from board membership for a period of 1-3 years, Suspension or termination of MLS, Administrative processing fee (if found in violation) not to exceed $500 (court costs)
Potential Professional Standard Hearing Panel discipline actions
A property's maximum profit opportunity providing for no vacancies or collection losses
Potential gross income
Net operating income equal to
Potential gross income minus vacancy and credit loss minus expenses- Annualization Formula
Disadvantages of an ARM
Potential of negative amortization and Potential higher payments in the future
Boycotting
Practice of unfairly excluding brokers from real estate professional associations or withholding patronage- (support, privilege) from other businesses
Standards Of Care conforms to establish
Practices
In 1862 to the U.S.'s 1st income law was enacted to help support the expenses created by the Civil War
Pre-Starker Exchange Law
Introduction
Preamble
The ____ of the NAR Code of Ethics contains concepts which all realtors are expected to aspire
Preamble
Take Priority
Precedence
The price of earnings ratio
Predicting the price of a stock is the price to earnings ratio (P/E). Tells investors how much in dividends they will receive per dollar of stock purchase
The "no ____ penalty" provision applies to ALL VA loans
Prepayment
___ is the accepted contracted amount, transaction charge or the value at which the property actually sells
Price
An agreement between competing real estate brokers to fix prices each will charge a 3rd party violates state and federal antitrust laws
Price Fixing
Commercial banks, Credit unions and Life insurance companies are examples of ______ participants
Primary market
Making a deposit into a credit union is an example of investing in a
Primary market
_______ residence cannot qualify as like kind replacement property
Principal
Implies 2 things progression and regression
Principal of conformity
When all homes in a given area are of similar design, age, size, maintenance, and market appeal, value increases
Principal of conformity
PITI
Principal, Interest, Taxes, Insurance
Proper relationships between supply and demand, land, labor, capital, management and consumers and producers increases value
Principle of balance
No commodity remains constant and value fluctuates due to natural phenomena and market demands
Principle of change
The availability of similar properties in a local area affects the value of the particular property in question
Principle of competition
An improvement to home is only worth as much as it adds to the property's market value and does not relate to improvements actually cost
Principle of contribution
Property values are influenced by outside factors such as currency rates, world conflict, the stock market, a change in tax code, and/or the development of governmental services
Principle of externalities
The price someone is willing to pay for a property is only as high as the amount that it takes to acquire a similar or comparable property
Principle of substitution
Popular and less expensive way to advertise
Print Media
When a loan is less than 80% LTV, _____ may be cancelled
Private Mortgage Insurance
___ insures lenders against losses due to non repayment of low down payment conventional mortgages
Private Mortgage Insurance
Title VIII of the Civil Rights Act of 1968 applies to the sale of
Privately owned single family residences listed with a broker
Discounted Cash Flow Analysis
Production of income, gaining ground in valuation of real property
Marketing section, business plan writer should describe the need for
Products and services offered, establish customer profile, pricing techniques and explain advertising techniques
If the Grievance Committee agrees that there was a violation of NAR code they recommend the case to the _______
Professional Standards Hearing Panel
Members of the Professional Standards Committee, they provide due process by hearing sworn testimony, witnesses and evidence.
Professional Standards Hearing Panel
Higher values attained when homes conform to one another.
Progression
Title VIII of Civil Rights Act of 1968 (Fair Housing Act)
Prohibits discrimination in real estate practice, based on race, color, national origin, religion, sex, familial status.
The Federal Fair Housing Act Of 1968
Prohibits discrimination in residential housing based on race, color, national origin and religion
Civil Rights Act Of 1866
Prohibits, without exception, all discrimination based on race in any real estate transaction
Both ______ must be in the U.S.
Properties
Code of Ethics- Article 1
Protect and promote clients interest
Code of Ethics- Article 4
Protect clients from unfair treatment realtor must disclose in writing any interest they have in a property. Disclosing if realtor is listing the property, has interest in the property or has family linked to the property
Why are anti-trust laws important?
Protect free enterprise, make price fixing, boycotting, market allocation and tying arrangements illegal
General Recommendations: Never use ______ classes as a basis for advertising a prospect about renting or buying a property
Protected
Acceleration Clause
Protects the lender in the event of default. It makes the entire loan due upon default
Senate Bill 1212 increase the DTPA's penalty
Provision
Some _____ TV stations have specific blocks of programs that show advertisements for real estate
Public
Real Estate Investment Trust (REIT)
Publicly traded company that owns and operates commercial real estate
Exchanger becomes liable for tax burden until they relinquished the property unless they
Purchase a property that is NOT like kind to relinquished property or Does NOT purchase any like kind replacement property after 180 days
What is it called when an investor refinances existing holdings and uses the proceeds to buy more properties
Pyramiding
______ plan holder may purchase or sell an asset whenever it is convenient and without time restraints
Qualified
Investor and EAT sign _____ stating EAT is holding property for like kind exchange under Revenue Procedure 2000-37
Qualified Exchange Accommodation Agreement (QEAA)
Revenue procedure 2000- 37- Requires exchanger to sign contract 5 days no later with EAT called
Qualified Exchange Accommodation Arrangement (QEAA) - Safe harbor reverse exchange
Savings and Loans Associations (S&Ls) are chartered by the government and must meet the ____ test to retain that charter and receive benefits from the Federal Home Loan Bank System
Qualified Thrift Leader (QTL)
Licensee may suggest or approximate market value, his or her opinion should never replace that of a
Qualified licensed or Certified real estate appraiser
All income reported by the applicant is verified by the lender
Quality
The applicants income must be sufficient to repay both the mortgage loan and all other recurring debts
Quantity
3 tests of a borrower's income
Quantity, Quality and Durability (How much, How well and How long income can be expected to last)
An individual has invested in a real estate trust that will derive income using the net profits from the rental and sale of rental properties. She has invested in a
REIT
What type of trust would be used by investor to earn money from apartments, houses, offices and shopping centers
REIT
Discrimination is the unfair treatment of a person because of ___ sex, color, religion, national origin, familial status or disability
Race
ECOA Prohibits Discrimination Based ON
Race Color Religion National Origin Sex Age Marital Status Public Assistance Dependence
7 protected classes of the Federal Fair Housing Act
Race, Religion, Sex, National Origin, Color, Disability and Familial Status
Reaches customers quickly but expensive and ineffective
Radio and TV
An investors percentage yield based off a property's income
Rate of return
Realtors continuously strive to become and remain informed on issues affecting _____ and share fruit of their experience and study with others
Real Estate
Who develops an opinion of value?
Real Estate Appraiser
Investors buy trust certificates; trust invests in real estate assets and investors share returns per ownership percent
Real Estate Investment Trust
Real estate brokerage start up requirements
Real estate brokers license and funding
The UPS and Downs of real estate activities are described as
Real estate cycles
Mortgage REITs
Real estate investment trusts that extend credit to the owner of real estate
Equity REITs
Real estate investment trusts that hold income-producing properties
Hybrid REITs
Real estate investment trusts that invest in both properties and mortgages.
Senders
Real estate licensees
NAR Code of Ethics
Real estate professionals provide highest level of professionalism in transactions and interactions with customers and clients
National Association Of Realtors (NAR)
Real estate professionals who adhere NAR code of ethics
All interest, benefits and rights involved in owning real estate
Real property
George is a real estate investor, he has a 100% ownership in several houses in the DFW area. What type of investments are the houses considered
Real property assets
Severance
Real property becomes personal property when it is 'severed" from the land. Uninstall, unattach
Jill owns Ginnie Mae certificates as part of her real estate investments. What type of investments are the certificates considered
Real property securities
Sale price minus taxpayers basis in property NOT all realized gain is recognized at time of sale in 1031 exchange. Recognition of gain is deferred until replacement property is sold
Realized Gain
Listing Broker refuses to disclose listing expiration date
Realtor may contact owner to secure information and may discuss terms upon which realtor might take further listing or take listing to become effective upon expiration of any existing exclusive listing. (same with buyer/tenant agency agreements) Realtor can contact buyer/tenant
Code of Ethics- Article 6
Realtor must not mislead into believing the use of services or products will benefit buyer/seller beyond its regular scope. Realtor is free to promote services and products but must reveal any benefits they will receive from buyer/sellers use of services/products
Code of Ethics- Article 11
Realtor shall be competent in the services he performs and shall not attempt to provide services outside his scope of expertise without getting assistance from a person who is competent in the area where the realtor is lacking
Code of Ethics- Article 12
Realtor shall be honest and advertising and identify his professional status in each ad. Must disclose realtors firm when advertising
Code of Ethics- Article 13
Realtor shall not practice law if they are not authorized to do so, they should recommend to obtain qualified legal counsel in order to resolve any disputes
Code of Ethics- Article 16
Realtor shall not solicit a seller/buyer already bound by a listing contract/buyers representation agreement or owner that has existing property management with another realtor
____ are zealous to maintain and improve the standards of their calling
Realtors
Code of Ethics- Article 17
Realtors must arbitrate rather than litigate matters that involve disputes with other realtors of different firms. Their realtor relationship that are either contractual or non contractual
Code of Ethics- Article 5
Realtors shall not use their expertise in order to gain an unfair advantage over buyer/seller in order to promote professional services. Any interest realtors have in a property must be fully disclosed to all involved parties
Code of Ethics- Article 2
Realtors should avoid misrepresentation, fully disclose property condition, restrict advice to matters that are within agents expertise and keep confidential matters confidential
Code of Ethics- Article 15
Realtors should be truthful in all representations in statements they make about competitors. Unless they are certain of a competitors business or practice the realtor should not disclose any uncertain information to buyer/seller
NAR Code of Ethics was adopted in 1913- for conducting business in a proper fashion. What are the 2 disclosures that precede the body of NAR Code of Ethics
Realtors used in this code and preamble, deemed to include Realtor Associate ®️s and Obligations higher than those mandated by law, obligations of the law must take precedence
A VA certificate of ______ includes an appraised value of the home and an expiration date after which the certificate is no longer usable
Reasonable Value
The Appraisal Process: Combining the data from each approach the Appraiser uses is called ____
Reconciliation
When an appraiser uses more than 1 method, they have to combine the data from each of the approaches is called _____
Reconciliation
Appraisal Process Step 7
Reconciliation Of The Final Values Estimate •Appraiser places the most weight on the data and approach that are most relevant to the subject property
Some lending institutions limit the number of loans or the loan to value ratio in certain areas of a community or city
Redlining
Tax credit are NOT ______ in taxpayers taxable income. They ARE ________ reductions in amount of taxes due. Example: $100 taxes & has $50 tax credit, $50 taxes owed
Reductions, Dollar for dollar
Emblements
Refers to crops which require annual planting.
Refund Annuity
Refunds any unpaid sum to the annuitants estate when they die
Federal Fair Housing laws describe specific behaviors and practices that violate the Act. Discriminatory conduct includes
Refusing sale due to a person's membership in a protected class, not making reasonable accommodations for a prospective tenants disability and changing the terms of a sale due to ones membership in a protected class
Ill placement or a lack of conformity adversely affects value
Regression
The Appraisal Foundation, FIRREA and USPAP work together to _____ the appraisal profession
Regulate
Because a real estate investment can take a long time to sell, real estate investments are considered to be
Relatively illiquid
Ownership Risks
Relatively illiquid, management intensive, negative leverage and price movements
When a client does NOT want to work with current Broker and when asked if they sought assistance from Broker/Manager of company? The client replys that the Broker/Manager show them the home and they don't want to be associated with that brokerage. What should the broker do?
Rely on community standards, customs and arbitration by personal standards hearing panel of their local board or association of realtors in order to resolve issue
When suppy decreases and demand decreases, real estate prices
Remain stable
Physical barriers which interfere with the activities of disabled persons must be _____
Removed
A return on land is called
Rent
Price tenant pays to use property
Rent
Investments in real estate have 3 main flows
Rent, Appreciation & Equity
Which of the following is one of the cash flows in real estate investment
Rent, Appreciation and Increase in equity
Asset management decisions
Rent/Lease, Renew/Replace & Hold/Sell
Salvage value, Depreciated value, Replacement value, Leased fee value, Leasehold value and Going concern value
Rental Value
Fair Housing law does NOT apply to the rental of rooms or units any dwelling containing living quarters occupied by no more than 4 families living independently of each other, if the owner actually occupies one of the living units as his residence
Rental of Rooms or Units in Owner Occupied Property
Farming Techniques: Most presentations are geared towards 1st time homebuyers and current
Renters
Operating expenses include
Repairs, Utilities and Taxes
Acquired
Replacement property (phase 2 property)
The Reverse Exchange (Reverse Starker)
Replacement property is transferred before the settlement of the relinquished property
Improvement Exchange
Replacement property may need to be built or may require construction or improvements before use. Occurs when the exchanger uses exchange proceeds to make these changes to the replacement property
Like-Kind (IRS form 8824)
Report each exchange investment or business property
Verification of the source of the borrowers down payment and settlement costs is made through the _____
Request Verification Of Deposit Form
Under federal fair housing laws, the owner of a 10 unit apartment building may legally
Require families without children to pay the same security deposit that families with children must pay
Home Mortgage Disclosure Act (HMDA)
Requires lenders to report income and ethnicity data of loan applicants, as well as the type of loan applied for, where the property is located, and weather the application was approved, denied, or withdrawn
Community Reinvestment Act (CRA)
Requires lenders to serve their local communities first- to meet the deposit and credit needs of their low income and moderate income housing communities
All persons, periodicals and books that offer information on how other people have handled identical or similar situations
Resources
Assets
Resources owned by a business. Tangible and intangible items that can be used to cover liabilities of a business or be converted into cash, such as office equipment and property.
ROTH IRA
Retirement account funded by after tax monies allows monies to collect interest tax free
Qualified Products
Retirement vehicles which are purchased using pretax dollars (401K, simples, SEP IRAs and individual IRAs)
Details how investors may obtain advance rulings on the tax status of tendency in common investments
Revenue Procedure 2000-22
Provides guidelines and regulations that define a legally valid Reverse Exchange involving a title parking agreement.
Revenue Procedure 2000-37
Lender makes monthly payments to borrower up to predetermined max amount. Interest is charged only on the balance received by the mortgagor. Loan is repaid upon the sale of the property or the death of the owners
Reverse Annuity Mortgage
Allow replacement property to be acquired prior to the disposition of the exchanged property. Parks title with EAT (beneficial owner of property), Investor exchanges relinquished property with EAT for replacement property gaining title and all ownership benefits associated with replacement property. EAT leases relinquished property to Investor rent free
Reverse Exchange
In a _______ investor advances $130,000 to EAT. At closing EAT enters into contract with buyer, deeds property to buyer and receives $150,000 from sale. Pays out closing costs and other fees. Then repays investor $130,000 advance for the purchase of replacement property.
Reverse Exchange
Replacement property is acquired before the relinquished property is sold
Reverse Exchange
Open- end line of credit with minimum monthly payments example: credit cards
Revolving debts
Inflation
Rise in general prices
All agencies involved in _____ conservation or construction hire appraisers
Road
8 points increases the investors yield by 1%
Rule of Eights
FHA ____ for down payments don't vary from state to state, but the amount of your down payment could vary
Rules
Believe that values and laws are necessary in society because they are based on fundamental morals truths and all laws and rules should apply to everyone equally
Rules and Laws Ethics
IRS Code refers qualified intermediary as ____ they will be the party that receives cash proceeds from the sale of taxpayer's property. Instead of taxpayer they will hold the proceeds in escrow or trust account until taxpayer purchases replacement property
Safe Harbor
Reverse Exchanges may still be structured outside 2000-37 guidelines, but lack the IRS ___ protection
Safe Harbor
Creative financing may have influenced the comparable purchase price. The appraiser would adjust for all these conditions
Sale conditions
The Fair Housing Act is primarily intended to prohibit discrimination in the
Sale, Rental and Advertisement of Dwellings
The ____ to appraisal is most commonly used for residential homes
Sales Comparison Approach
When choosing this approach the appraiser must have access to the purchase prices of comparable properties
Sales Comparison Approach
To establish the value of land an appraiser uses the
Sales comparison approach
Originally established by government for the purpose of offering long-term, single family home loans
Savings and Loans Associations (S&Ls)
In limited supply
Scarcity
____ is the unavailability of a desired commodity
Scarcity
Real estate loans are bought and sold on ____ market
Secondary
Syndications often come under securities registration laws administered by the federal
Securities and Exchange Commission (SEC)
Qualified Intermediary
Seeks only to facilitate the exchange between the principles. Intermediary is required if the exchange is to qualify for tax benefits. Impartial party not directly involved in the exchange cannot be exchangers salesperson, broker, lawyer accountant or escrow officer (disqualified parties)
Borrower pre-pays principal amounts of the loan before they are due, shortening the life of the loan
Self Acceleration
This privilege allows lenders to evaluate their lending practices, if they find discriminatory practices in their business, they are allowed to remedy these without federal lawsuits
Self Testing
4 key communication skills: Maintain or enhance customer
Self esteem
Seller of the real estate provides financing for the sale by taking back a secured note in the form of a mortgage, land contract or deed of trust ( Real estate professional should advise BOTH buyer and seller to seek legal counsel before agreeing to this financing agreement)
Seller Financing
4 components- communicate a message
Sender, receiver, atmosphere and message
Us Treasury bills, notes, and securities, to Euros and certificates of deposit
Short term financing
Requires an appraiser to collect the recent purchase prices of properties ___ to the property she or he is appraising
Similar
Small companies often use a ____ as an alternative to a 401K
Simple
2 annuities that can be brought through insurance companies
Simple (straight) annuity and Refund annuity
Charitable Gift and Annuity (CGA) is one option offering a ______ income tax solution
Simple and Dynamic
Stops payment when annuitant dies
Simple annuity
______ closings often thought to create significant danger and legal exposure for exchanger, may unforeseen events can cause closing to be delayed one or both properties
Simultaneous
Can create significant danger and legal exposure for the exchanger
Simultaneous Exchange
Deferred Exchange Requirements: Can exchange 1 investment for several or consolidate several investment properties by replacing with _____ property
Single
For this exemption to apply, it is important that the person making the sale or arranging the rental NOT be in the business of selling or renting dwellings
Single Family Residence Sold By Owner
4 general circumstances under which a dwelling is exempt and NOT covered by the Federal Housing Act
Single Family Residence Sold By Owner, Rental Of Rooms Or Units In Owner Occupied Property, Dwellings Belonging To Religious Organizations Or Private Clubs and Housing For Older Persons
The sale or rental of a single family residence is NOT bound by the act if the property owner does not own more than 3 single family residence at 1 time. The owner is not the most recent resident of the property being sold, that owner is only granted one exempt sale in any 24 month period. Owner does not use the facilities or services of a real estate licensee, broker, salesman or anyone engaging in the business of selling or renting dwellings. Owner does not use any discriminatory advertising
Single Family Residences Sold by Owner
Some acceptable words/phrases for newspaper advertisements
Sober, Bachelors Apartment, Seniors, Family Room, Security Provided, Secluded and No Smoking
Relate to the local populations
Social
Consider their community's best interest when making an ethical decision. Example: National association of realtor (NAR) members agree to hold themselves to higher standard than the law. "Believe in helping others and working for the common good"
Social Contract Ethics
Sometimes change is difficult because the established community belief system. Fearful and skeptical of new practices presented. Also they believe that the supreme authority is the state
Social Contract Weakness
____ that affect property value relate to the local populations: mainly their ages, preferences, family, sizes, etc.
Social conditions
•Marriage/divorce rates •Birth/death rates •Social atmosphere- quality of school system, parks, culture centers •Attitudes toward law and order •Social comparison- people with comparable interest, similar social and economic status
Social conditions
Mobile Population
Social group is constantly on the move, they are constantly purchasing, renting and selling due to job change, promotion and job location transfer
Appraisers usually use the sales comparison approach to value to appraise vacant lots as well. Such differences might include
Soil integrity, terrain, size and or shape, zoning ordinances, favorable location and the presence of utilities
Promissory Notes: The note is a negotiable instrument that can be ___ to another investor or lender
Sold
Office space: Size is the
Space
Real estate agent would be what kind of agent
Special agent
Jargon
Special words or expressions
Commercial Services
Specialize in offering services to real estate investor, commercial/industrial "user" or both. / property management
Economic Factors: GDP= consumer ______ + business and residential investment + government expenditure- Trade Deficit
Spending
Some change in market taste, environment, market strength, etc is inevitable. Consequently, either by natural phenomena, ageing materials, or altering taste, the value levels off. A property enters its 2nd stage when steady value increase stops
Stabilization
Is a realtor allowed to disclose confidential information given to him by client?
Standard Practice 1-9: A realtor can withhold confidential information as long as it doesn't violate laws
Establishes a level of SERVICE the party has a right to expect
Standards Of Care
Performs the brokers dutys of due diligence and the duty to be CAREFUL
Standards Of Care
Broker will ensure that this is delivered to consumers by their sales associates
Standards of care
Appraisal Process Step 1
State The Problem •Identify the property with a complete legal description •Establish which property rights are to be appraised •State the type of value the appraisal seeks to define •Note effective date, value changes over time •Clarify any limitations
If realtor becomes aware of damaging practice to the public they should tell the ___
State real estate commission
Balance Sheet
Statement that itemizes assets, liabilities, and net worth
The American recovery and investment act of 2009 is also called the
Stimulus package
1031 does NOT apply to any exchanges of
Stock-in-trade (inventory or raw materials) or any property held primarily for sale, Stocks, bonds or notes, Other securities or evidences of indebtedness or interest, Interests in partnerships, Certifications of trust or beneficial interest, Chooses in action (actionable claims or receivables), Cannot involve property held for personal use such as home or a boat, Cannot exchange real property for personal property
Simple (straight) Annuity
Stops payment when annuitant dies, regardless of principal (+) interest has been paid
Referral Network
Structured organizations that enable brokers to refer one another and help customers find a broker who can fulfill their needs
Methods of recruiting salespeople: When offering licensing courses, brokers should be careful because many states have laws that prohibit the solicitation of
Students
Adjustments are ALWAYS made to the comps, NEVER to the _______ for CMAS
Subject property
Comparable property purchase price (+) adjustments (=)
Subject property value
Allowing one lien to take or have priority over other liens or debt is known as
Subordination
The sales comparison approach to appraisal utilizes 2 value principles: Contribution and _____
Substitution
Appendices (Appendix) Section
Summarize findings and company highlights
In appraisal, _____ relate to the availability and demand for a particular kind of home within a given neighborhood
Supply and demand
Entrepreneurial Incentive is also called ______
Surplus Productivity
An appraiser estimates the _____, which refers to the net income minus the expenses of ownership (wages from labor and management, property taxes, maintenance etc)
Surplus productivity
A private or public business venture to own property
Syndicate
Nonhomogeneity and Heterogeneity are
Synonymous terms (No 2 pieces of real estate are exactly alike)
Standards Of Care are influenced by
TREC, TRELA, Code of ethics and Court decisions
Taking advantage of which strategy reduces taxes to an investor in low income housing
Tax Credits
A conveyance instrument for property that is sold to enforce a tax lien
Tax Deed
1st concept of Charitable Gift Annuity (CGA) was 1st put into place by Harvard University in 1917, in response to estate ______
Tax Legislation
_____ may also defray cost of seniors long term health care or assistant living care
Tax Savings
An investment that produces depreciation or other non cash losses that a taxpayer can deduct from other income to reduce tax liability
Tax Shelter
Improvement/construction costs can increase the value of replacement property that makes it at least = to the value of the relinquished property allowing the transaction to remain ______
Tax deferred
National Community Foundation (NCF) and New Life Corporation Of America (NLC)
Tax exempt (non profit organizations) under internal revenue code are the leading edge of charitable strategies that create income and tax relief for individuals or families owning highly appreciated real estate
CGA has 3 tiers of income and pays individuals at each tier accordingly
Tax free income, Capital gain income and Ordinary interest income
The availability of ______ is considered a benefit of real estate investment
Tax shelters
Gross Profit % (X) (Payment Amount - Interest) Example: Payment-$800, Interest-$200, Gross Profit- 23.08% 0.2308 (X) ($800 - $200)= $138.48 Seller pays 28% on capital gains 0.28 (X) $138.48= $38.77
Taxable Gains
2 transfers of direct deeding trade, pay fewer title transfer fees and generally pay smaller amounts of _____
Taxes
For income tax purposes, a homeowner may deduct, from gross income, real estate
Taxes
State, County, City, School, Junior College, MUD (municipal utility district), Fire District and/or FM Road
Taxes
Escrow accounts generally contain the following payments
Taxes, Hazard Insurance and Private Mortgage Insurance
Escrow accounts generally contain the following payments:
Taxes, Hazard Insurance and Private Mortgage Insurance
Direct Deeding (non sequential deeding)
Taxpayer deeds their relinquished property directly to the buyer
In replacement property is understood to be = to his or her basis in relinquished property minus the net boot received
Taxpayers Basis
Basis (Tax Basis)
Taxpayers cost for obtaining and maintaining property. Taxpayers investment on property
Provides the borrower with the temporary help they need without chance of negative amortization and with a predictable payment structure. There is a higher loan fee for this type of loan
Temporary Buydown
Lessee
Tenant
HUD investigates some complaints by using ___. The goal here is to determine whether that business treats the members of different groups in a fair and equal way
Testers
Actors, for instance a white couple and a black couple, who are given similar (fake) identities and financial data, who attempt to rent units from the same landlord to determine whether the landlord is violating provisions of the Fair Housing Act
Testers or Shoppers (undercover operatives)
Undercover (buyer, seller, tenant, landlord) whose mission is to get a housing provider to commit a violation
Testers or Shoppers (undercover operatives)
Texas has a Fair Housing Program that has been judge "substantially equivalent" to that of HUD. Complaints may also be filed with this Program or HUD. (Complaints filed with HUD will be referred to the _____)
Texas Commission on Human Rights
National, non profit organization founded in 1987
The Appraisal Foundation
____ sets the minimal education requirements for the appraisal industry
The Appraisal Foundation
2 boards make up The Appraisal Foundation
The Appraisal Standards Board (ASB) and The Appraiser Qualifications Board (AQB)
Every applicant for a brokers or salesperson's licence in Texas is required to pledge to comply with
The Canon Of Professional Ethics and Conduct
Which of the following laws gave all citizens the same basic property rights regardless of race or color
The Civil Rights Act 1866
Ginnie Maes activities are under the direct supervision of
The Department of Housing and Urban Development (HUD)
Which laws or regulations prevent mortgage lenders from discriminating in extending credit to potential borrowers
The Equal Credit Opportunity Act
3 government sponsored agencies which are the chief operators in the secondary market are
The Federal National Mortgage Association (FNMA or Fannie Mae), The Federal Home Loan Mortgage Company (FHLMC or Freddie Mac) and The Government National Mortgage Association (GNMA or Ginnie Mae)
The most important principle to consider is
The Highest and Best Use
Which laws or regulations require mortgage lenders to provide an estimate of closing costs to a borrower and forbid them to pay kickbacks for referrals
The Real Estate Settlement and Procedures Act
The 1st step in establishing the federal government's practice of not recognizing gain or loss on like-kind exchanges, this act specifically referenced exchanges of property without a "readily realizable market value"
The Revenue Act of 1921
The Texas Real Estate License Act (TRELA) is administered by
The Texas Real Estate Commission (TREC)
The 3 overriding considerations of a lender's mortgage loan decision are
The ability to repay, the value of the collateral, and the profitability of the loan
Enforces the Uniform Standards of Professional Appraisal Practices (USPAP) which outlines the ethical in professional standards of real estate appraisal
The appraisal standards board (ASB)
Responsible for establishing the rules for completing an appraisal and compiling its report
The appraisal standards board (ASB)
Develops the minimum standards for state agencies to use in their respective licencing and certification laws for real estate appraisers
The appraiser qualifications board (AQB)
Establishes the minimum qualifications for licencing, certification and recertification of appraisers nationwide
The appraiser qualifications board (AQB)
Capital Gain
The difference between the adjusted basis of property and its net selling price
Of all the factors that influence value, the single most important principle to consider is
The highest and best use
A borrower's PITI payment is also called
The housing expense ratio
The key feature of an adjustable mortgage loan is that
The interest rate may vary
Ginnie Maes role in the secondary market is
The largest issuer of mortgage-backed securities and only government guaranteed mortgage-backed securities
The 2 sources of capital most commonly used when borrowing money are:
The money market and The capital market
All investors desire their investments to increase in value. However,
The more the investor stands to gain, the greater risk that the investor may lose
This action is allowed under federal fair housing laws
The owner of a duplex who resides in one of the units refuses to rent the other unit to a non Christian
At the closing of a mortgage loan
The parties complete all loan origination documents and the loan is funded
Annuitant
The party receiving the benefits of an annuity, similar to the insured on an insurance policy. The annuitant usually also owns the annuity, although you can buy an annuity to benefit another party, who would then be the annuitant.
2 financial ratios used to estimate the value of an investment
The price to earnings ratio and The cap rate
Graduated Payment Mortgage (GPM) disadvantages:
The principal balance increases instead of decreases in the 1st few years making it hard for borrower to continue making payments due to the payment increase
Relinquished Property
The property given up (phase 1 property)
Simultaneous Exchanges
The sale of both relinquished property and the replacement property had to close on same day
synonymous
The same as
The ownership of the qualified product is exempt from _______
The section 1031 "like kind rule"
A broker who acts as a subagent represents
The seller
As long as the cost of a contributions of keep does not rise above the value of it to a property, then it justifies maintaining
The theory of increasing and decreasing returns
How does knowing how to apply the various methods of ethical decision help a decision maker?
They can evaluate from various points of views and pick the right one that benefits all parties
The reason lenders consider the loan to value ratio important in underwriting is that
They want to ensure there is more than enough collateral to cover the loan amount
Savings and Loans Associations (S&Ls) are known as
Thrift Lenders
In real estate, transferability refers to
Title
A _______ will research a property's title to ensure it is clean and can be legally transferred
Title Company
A lender lends money to a homeowner and takes legal title to the property as collateral during the payoff period. They are in a
Title Theory State
Legal grey area, exchangers parked titles to replacement properties with qualified interm. until exchangers relinquished other properties primarily issue constructive ownership
Title parking
Bonus Deduction
To qualify for 50% 1st year deduction, depreciciable leasehold improvements
Multiple Leg Exchange
Transaction with series of exchanges (groups)
A commoditys ability to change hands is known as ____
Transferability
The possession and control of all the rights which constitute ownership of property
Transferability
When property is _______ to recipient, NO taxes are due immediately. Partial elimination of the capital gains tax with the rest of the tax spread over the life expectancy of the donor(s)
Transferred
Deed
Transferring title
A property owner has an easement appurtenant (goes with the land) on her property. One day the property is sold to another party who is opposed to the easement. Following the closing, this particular form of easement
Transfers with the property
Index
Treasury Securities
Possible decision that must be more closely considered before becoming a final decision
Trial Decision
Payments to contractors/suppliers made by the exchange facilitator from funds held in the _____
Trust Account
Shareholders in a real estate investment trust (REIT) generally receive most of the _____ each year
Trust's income
In a lien theory state, who holds the equitable title
Trustor
Who are the essential parties involved in a estate in trust
Trustor (giving), Trustee (receiving), and Beneficiary (benefit from later)
Which laws are regulations require mortgage lenders to disclose financing costs and annual percentage rate to a borrower before funding a loan
Truth In Lending Laws and Regulation Z
Illegal _____ involve a seller of the tying product who has substantial or dominant market power in the tying product
Tying Arrangements
Temporary Buydown disadvantages
Typically expensive and requires a large payment at closing and its only temporary, the borrower will have increased monthly payments that may be difficult to afford
The Appraisal Process: An appraiser must complete his/her report in accordance with ____ standards
USPAP
The process by which an applicant is qualified for and then receives a loan
Underwriting Process
Inflation Predictors: Falling ______ often accompanies economic growth, more people have jobs means more disposable income in circulation
Unemployment
A widely used form for VA, FNMA, HUD, FHLMC, and FMHA loans and estimating the market value of properties
Uniform Residential Appraisal Report (URAR)
An annual publication printed by the appraisal foundation that defines key appraisal terminology and offers guidelines for completing non biased and accurate appraisals
Uniform Standards of Professional Appraisal Practice (USPAP)
Code of Ethics- Article 3
Unless contrary to the best interests of his/her principal, Realtor shall cooperate with other brokers
Promissory Notes: An ____ note has no collateral pledge for the loan and is a promise backed only by the signature of the borrower
Unsecured
Standards of care are:
Used as criteria to measure whether negligence has occurred
What is leveraging
Using borrowed money to finance the bulk of an investment
Financial leverage is described as
Using other people's money to acquire something of value
A lender who charges a rate of interest in excess of legal limits is guilty of
Usury
For a commodity to be valuable, it must fulfill some purpose, known as ____
Utility
The power of a good to render a service or fill a need
Utility
No insurance fee, no down-payment required, limited to veterans only, must pay a funding fee to receive the guarantee and the guarantee is only partial, affectively limiting the amount of a loan a veteran can usually take; although no legal limits
VA Guaranteed Mortgage
Federally guaranteed loan
VA Loans
____ allow several veterans to purchase 1 to 4 family unit homes together, even if they are not married or related, provided they intend to occupy the property
VA Stipulations
Taxpayers may exchange ______ properties if the properties are selling as investments, businesses or for income production and will hold properties they are buying for one or more of the same purposes
Vacation Rental
Tax law remains undecided whether ______ are to be considered like kind property that is held for investment or use in trade or business
Vacation or 2nd homes
Worth of an item relative to some function or indicator for a given date
Value
Attributes a property's worth to its ability to fulfill its intended purpose, which applies mainly to commercial businesses
Value in use
Opportunity Cost
Value of the next best alternative cost that do not show up on any financial statement
2 types of communication
Verbal and Non Verbal
Oral communication: Conversation, discussion or meeting
Verbal communication
Lender sends a ____ to the employer requesting information regarding the length of employment, gross salary and other income
Verification Of Employment Form
The amount of money a veteran is entitled to under the VA loan program, based on the veterans record and the amount of entitlement currently being used
Veterans Entitlement
Since the passage of this amendment the Attorney General can now seek up to $20,000 for each ____ of the DTPA
Violation
Licensees should consider a 1031 exchanges for clients
Want the ability to transfer or dispose of property at their discretion, Desire current tax deduction using depreciation, Cannot or do not want to defer income until age 59 1/2, Are willing to pay capital gains taxes at time of sale, Are willing to conduct the transaction according to section 1031s like-kind restrictions
A mortgage banker operating as a correspondent lender typically does not have his own funds to lend, so he establishes a line of credit with commercial banks that is called
Warehousing
Donors can use their tax savings and tax favourable income to provide funding for a _____ and provide beneficiaries with full inheritance value of property, tax free
Wealthy Replacement Trust or Irrevocable Life Insurance Trust
Properties that will appreciate over time
Well kept properties located in desirable areas
Code of Ethics- Article 14
When a realtor is charged with unethical practices they must appear before the board and disclosed facts pertaining to the case to the board
When does a tying arrangement become illegal?
When buyer cannot receive the product that they wish to buy without 1st buying a different product
This Insurance protects the company against claims that its sales agents were neglect or caused physical or mental damage
Workers compensation insurance
Insurances needed to protect from lawsuits and accidents
Workers compensation insurance (required by law), liability insurance and errors and omissions insurance
A ____ mortgage is a second loan that encompasses a preexisting loan, along with additional funds
Wraparound
Buyer makes payments to the seller and the seller pays the lender
Wraparound Mortgage
Standard a practice 1-7 of code of ethics: Listing brokers (realtors) shall submit seller/landlord offers and counter offers until closing or execution of lease unless they waive in ____
Writing
Appraisal Process Step 8
Writing and Presenting The Value Report •Appraiser completes report in accordance with USPAP standards and presents to client
Executive Summary
Written description that provides the reader with an overview of business plan
Internal Rate Of Return (IRR)
Yeild of the investment within itself, when all cash inflows and outflows to the investment have been discounted to zero
Deferred Exchange Requirements: Is improved real estate for unimproved real estate and residential property to commercial property like-kind to relinquished property?
Yes
The buyer is a seller's son-in-law. May this prevent an arms length sale?
Yes
The home is put up for sale for tax delinquency. May this prevent an arms length sale?
Yes
The seller failed to disclose the untreated mold growth in the bathroom. May this prevent an arms length sale?
Yes
The sellers company transferred her to a new city and she must move immediately. May this prevent an arms length sale?
Yes
Filled with or showing strong desire to get something done
Zealous
Some private mortgage companies have introduced a program called _____ , which allows the buyer to incorporate the PMI into the monthly payment
Zero Option Mortgage Premium (ZOMP)
Cash Boot
in an exchange the exchanger receiving distribution of a portion of cash from sale (Taxable)
The purchase price is either = or ____ than market value
less
Scarcity
shortage, short supply
To substitute entitlement, the purchaser must meet the following qualifications:
•Be a veteran •Have at least as much entitlement as the original mortgagor •Agree in writing to substitute her or his entitlement •Qualify for the assumption
2 primary figures on request for verification of deposit form the underwriter looks at
•Current balance on deposit •Average balance for the previous 2 months (varies by lender)
General rules when trying to decide if a transaction is at arms length
•Forced sales (foreclosure, tax sale, estate liquidation, etc) Do NOT constitute a sale at arms length •If the principals know each other outside the sales transaction, then it is NOT at arms length •Extremely creative financing and/or little or no down payment will compromise an arms length sale
Disadvantages of ZOMP
•It cannot be cancelled after LTV drops below 80% •It has an amortizing MIP (Mortgage Insurance Premium) over 30 years
Growth Equity Mortgage (GEM) Benefits:
•Lower initial interest rate •Simplicity of the loan •Known/predictable payments •Equity builds up quickly •Reduced interest costs •No chance of negative amortization
FHA Advantages
•No penalty charge for making loan payments earlier than they are due •Can be made on a graduated payment schedule •Lower down payments
VA Eligibility Requirements
•Spouses of veterans killed or missing in action or prisoners of war •Veterans who served during WWII, The Korean War, Gulf War or peacetime efforts following these wars •90 days of wartime service •U.S. citizens who served in the armed forces of a government allied with the U.S. in WWII •181 days of continuous peacetime service •Selected Reservists or National Guard members who have served at least 6 years are eligible
FHA Disadvantages
•Takes between 15-30 days longer than processing a conventional loan •There is a maximum loan amount
Once a veteran has used their entitlement, it cannot be reused until:
•The original loan is paid off in full •The VA is notified of the fact that it has been paid off by the original lender •The house is disposed of (no longer owned by the veteran)
Advantages of ZOMP
•There is no cash requirement at closing •The mortgage payments include the monthly portion of the amortized 1 time premium are usually smaller than the mortgage payments including a share of the traditional renewal premium •The policy is self canceling when the home is sold
