CE Shop Exam Prep

Four Significant Factors that Influence Value

"DUST" Demand Utility Scarcity Transferability

What is the maximum amount a claimant can receive from the Guaranty Fund for a single transaction?

$50,000.00

The living room of Trixie's house is 15 feet by 13 feet. The dining room is 12 feet by 13 feet. How many square feet is this entire area?

(15 × 13) + (12 × 13) = 195 + 156 = 351 square feet

In order to adjust the sale prices of the comparable properties, the appraiser must apply the elements of comparison in this order.

1. financing terms and cash equivalency, 2. conditions of sale, 3. market conditions, 4. location, and 5. physical characteristics.

Area of a Triangle

1/2 base length x height

In order to qualify as one of the five real estate professional members of the Maryland Real Estate Commission board, how many years of real estate experience must you have?

10

IRS rules say that residential income-producing properties are depreciated over

27 1/2

The Maryland Real Estate Commission creates several hearing panels consisting of how many members each?

3

IRS rules say that commercial income-producing properties are depreciated over

39 years

Members of the Maryland Real Estate Commission serve terms of how many years?

4

One Acre = ____ Square Feet

43,560

One Acre =

43,560 square feet (memorize this for your exam)

One mile =

5,280 linear feet

One square mile =

640 acres

The Maryland Real Estate Commission is made up of

9 members; 5 agents and 4 non agents

Tenancy in Common

A form of ownership that includes an undivided interest in the property; owners may sell, convey, mortgage or transfer their interest without the consent of co-owners Ex. Bailey and her brother Bill inherited their uncle's house. The will did not specify how they were to take title, so they were automatically made tenants in common.

Rectangular (Government) survey system

A governmental survey system that describes land in reference to principal meridians and baselines. Divides land into townships and further into sections and fractions called sections. Ex. Mort scratched his head at the legal description for his uncle's property, which used the rectangular survey system and read ""SW1/4 NW14 S13, T1SR20E,"" and referred to the southwest quarter of the northwest quarter of Section 13 of Township 1 South Range 20 East.

Lot-and-block

A legal description that refers to lot and block number within a subdivision as indicated on a recorded subdivision plat. Ex. When April looked up her tax record it included the lot-and-block legal description of her property, which read in part: Lawndale, Block 4, Lot 6.""

Involuntary lien

A lien imposed on a property or person by someone else, such as for nonpayment of taxes Ex. Becky forgot to pay her taxes, and a lien was placed on her property.

Mechanic's lien

A lien placed by a laborer on a property for nonpayment of work done Ex. Harry's carpenter put a mechanic's lien on his property for nonpayment of his work.

Voluntary lien

A lien that is agreed to, such as a mortgage Ex. Scott's mortgage was a voluntary lien against his property.

Encumbrance

A limitation on a property title, such as a lien or easement Can be monetary or physical. It limits the owner's use of the property and can affect marketability and value.

Legal Description

A method of identifying a property in written words that allows for an unambiguous interpretation of a property's boundaries and location. Ex. Although a street address may hold up in court, it's best to include an accurate legal description as best practice when conveying real property.

Monument

A natural or man-made permanent landmark that serves as a point of reference in a metes and bounds description. It may be a tree, creek, rock or a stake placed in the ground. Ex. Jill read the metes-and-bounds description of her property, which included the location of an oak tree as a point of reference. This monument had been there for 150 years.

Trade fixture

A piece of equipment or other item that is on or attached to the real estate which is used in a trade or business. The term "trade fixture" is actually a misnomer, because the item, while attached, may be removed by the business owner as a personal item. Ex. When she moved her business location, Candy took the neon business sign flashing "Candy's Chocolates." Even though it was permanently attached to the building, it was a personal item (as a trade fixture) and could be removed legally.

Metes and Bounds

A survey system using points of reference and directional indicators to identify and locate a property for legal purposes. Characterized by a point of beginning, which is where the description both begins and ends. It also uses monuments to mark boundaries. The monuments are thought to have more credibility than the measurements. Ex. Darla laughed when she saw the metes and bound description. Although it was a legal description, it contained terms like "west of the widow Fiona Smith's stone wall."

Square feet/43,560 =

Acres

Severance

Altering the characteristic of an item from real property to personal property by removing it from the land Ex. When Mrs. Goldman dug up her rose bushes, this was an act of severance. They were no longer part of the land, and were now personal property.

Special Agent

An agent whose scope of authority is limited to a specific area Ex. Real estate agents usually act as special agents to their clients; they assist with the sale but cannot sign contracts for the client or make decisions regarding the property independent of the client.

Base Line

An imaginary line that runs east and west and crosses the principal meridian at a specified point; it is used by surveyors as a reference point to locate and describe land under the rectangular survey system.

Principal Meridian

An imaginary line that runs north and south and crosses a base line at a specific point, and used by surveyors of reference to locate and describe land using the rectangular survey system. Ex. A Principal Meridian is one of the prime meridians used in the government rectangular survey method of land description to locate range lines. It serves as the reference meridian in a land survey.

Fixture

An item that is permanently attached to real property. Fixtures are part of real property and are included (conveyed) with a sale of real property unless the parties negotiate differently. Ex. The bookshelves in the dining room were built-in; they were a fixture and could not be removed by the seller.

Improvements

Anything added to the land which benefits the land, such as a building, driveway, etc. Ex. Vacant land increases in value when improvements are added.

Which of the following is a true statement about how adjustments are made in the sales comparison approach? Adjustments are made to the subject property, not the comparables. Appraisers adjust downward when a comparable is missing a feature found in the subject property. Appraisers adjust upward when a comparable is missing a feature found in the subject property. Only three adjustments per comparable property are allowed; otherwise it's not considered sufficiently similar.

Appraisers adjust upward when a comparable is missing a feature found in the subject property. Explanation: All adjustments are made to the comparable properties' sales prices to make them as similar as possible to the subject property.

Agent Types in Maryland

As a real estate agent, you may serve as either a general agent—responsible for all dealings with a specific piece of your client's property—or you may serve as a special agent—with limited authority to act on behalf of your client. In most transactions, you will act as a special, or limited, agent. This means you don't make any decisions or enter into any contracts on your client's behalf, you act as an intermediary, liaison, and negotiator, conveying and representing your client's wishes. A special agent doesn't offer continuity of service. Your role is to find the house, sell the house, etc. You do not continue to represent that client once the transaction is closed. If you were a property manager, however, you would be a general agent, because you would collect rent, evict tenants, and enter into leases with tenants on behalf of your client, the property owner. This is similar to the duties the holder of a power of attorney would have, but a power of attorney may not be required. The property management agreement will spell out the scope of your authority to act on the principal's behalf. A general agent in this capacity does offer continuity of service, because the agent is authorized to conduct a series of transactions. A universal agent is someone who is empowered to do anything the principal could do personally. This type of agent has the most authority; a universal agent's authority is virtually unlimited. One example of a universal agent would be a court appointed guardian, whose authority would likely be over a person and the person's property. As a real estate agent, it is highly unlikely you'd be appointed as a client's universal agent. An intra-company agent (ICA) (referred to in other states as a designated agent, appointed agent, or assigned agent) is a licensee who is appointed by the brokerage's broker to represent one party in a dual agency (in-house) transaction. This form of agency, where two clients of the same agency are involved in a single transaction, is allowed in Maryland subject to very specific requirements. The broker appoints one licensee to act as the ICA for one party (the buyer, for example) and a different licensee to act as the ICA for the other party (the seller). In these situations, only the licensee appointed to the client owes fiduciary duties to that client.

Area of irregular shapes

Break into basic shapes (square, rectangle, triangle), calculate the area of each, then add for total area.

The Maryland Real Estate Commission (MREC) can summarily suspend a license if the licensee is

Convicted of a felony, or if the licensee fails to: promptly account for trust funds, provide trust fund records, or disclose to the commission that the licensee has been convicted of a felony.

Emblements

Cultivated crops or Growing crops, such as Christmas trees or corn, which are produced annually. These are usually not considered fixtures, but are the personal property of the person who planted them. Ex. The Swansons grew wine grapes on their property, and when it was time to sell their vineyard, their latest plantings were considered emblements and were not part of the property price; these were sold separately to the buyer.

Township

Every township is six miles by six miles (6 miles square), or 36 square miles and makes up the principal unit of the rectangular government survey system. Ex. A complete legal description using the rectangular survey system consists of four segments: the tract description, the section number, the township number and direction, and a range number and direction.

What is Personal Property

Everything owned that is not real property, also known as chattel. Generally speaking, if the item is permanently attached, it becomes real property. Otherwise, it's personal property, also called chattel (one of the vocabulary words you'll need to know). Personal property typically includes things like furniture, fixtures, machinery, or tools.

Fair Housing Amendments Act (1988)

Expansion of the Fair Housing Act to include families with children and those with physical or mental disabilities.

A land parcel is 7,500 s.f. It's 75 feet deep. What is the frontage?

Frontage is 100 feet Square feet = length x width Know parcel is 75 deep which is the width Need to find parcel length which is frontage 7,500 = Length x 75 (width) 7,500 ÷ 75 (width) = 100 (length). The property is 75 feet deep by 100 feet long (frontage).

Economic Principles of Value

Highest/best use: Most profitable use, legal and economically feasible. Conformity: How well it matches its surrounding area Anticipation: Current value of total anticipated benefits Competition: What else is available Contribution: Value of any given change Plottage: Combined parcels, separate parcels Substitution: Price of comparable property Supply and demand: Availability of the property

Physical Characteristics of Land

Immobility, Indestructibility, Uniqueness/nonhomogeneity Immobility: The geographic location of land is fixed and can't be changed. Indestructibility: Improvements may deteriorate over time, but not land itself. Uniqueness/nonhomogeneity: One piece of land is never exactly like another.

Executive Order No. 11063

In 1962, President John F. Kennedy signed Executive Order No. 11063, which essentially ended segregation in federally funded housing.

Real Estate

Land, plus all things permanently attached to it, naturally or artificially Ex. When you are a practicing licensee, we hope you sell a lot of real estate!

Maryland Real Estate Commission (MREC) license law violation penalties

License law violators may incur penalties of $5,000 for the first violation, $15,000 for the second violation and up to $25,000 per violation after three or more violations.

Common types of encumbrances

Liens, easements and licenses, or encroachments

Beginning at a stake and stones about 30 feet from the center of the brook that runs across the road southwesterly from the dwelling house of the late Jebediah Smith now occupied by the widow Callie Thornton and in the west line of the highway leading by the dwelling house now occupied by the widow Callie Thornton... This is an example of a ____________ legal description.

Metes and Bounds

Five basic tests to determine if an item is real or personal property: "MARIA"

Method, Adaptability, Relationship, Intention, Agreement Method of annexation: This refers to whether the item is attached to the property and how permanent the attachment is. Adaptability for use: This refers to how an item is adapted to the real property. If removing an item would change or eliminate the use of the property, it's likely real property. Relationship of the parties: In general, the courts tend to favor a tenant's take on an item over the landlord's and a buyer over a seller. Intention in placing: If an item was intended to be temporary, then it's less likely to be considered real property. Agreement of the parties: If the parties have agreed whether an item will stay or go, this is the simplest and first test.

One square yard =

Nine square feet

Dante lives in Maryland and purchased property in Pennsylvania. His real estate agent lied to him about a material defect, and it ended up costing Dante $52,000. Can Dante file a claim against the Guaranty Fund?

No, the property purchased was in Pennsylvania. Dante cannot file a claim against the Guaranty Fund because his property is located in Pennsylvania. All claims against the Guaranty Fund must be related to real estate located in Maryland.

A parcel of land is three-quarters of a mile by 2,800 feet. The price is $2,500 per acre. How much is the land worth?

One Mile = 5,280 feet 5,280 × .75 (3/4 of a mile) = 3,960 feet 3,960 x 2,800 feet, or 11,088,000 square feet 11,088,000 ÷ 43,560 (square feet in an acre) = 254.55 acres $2,500 × 254.55 = $636,375

Trinity owns a land parcel that is a half-mile square. How many acres is it?

One mile = 5,280 linear feet Each side is 1/2 mile so Each side of the parcel is 2,640 linear feet Square feet = length x width 2,640 × 2,640 = 6,969,600 square feet One Acre = 43,560 square feet 6,969,600 ÷ 43,560 (square feet in an acre) = 160 acres

Section

One thirty-sixth of a township. In a government survey system, a township is divided into 36 sections. Every section is one square mile, which is also one mile squared. Ex. A section is a square with mile-long sides and an area of one square mile (640 acres).

Property Ownership and the "Bundle of Rights"

Possession, Control, Exclusion, Enjoyment, Disposition The right of possession (the property is owned and may be possessed by the title holder) The right of control (the owner controls the use of the property) The right of exclusion (the right to decide who may or may not access the property) The right of enjoyment (the ability of the owner to use the property in any legal manner) The right of disposition (the right to sell or convey the property).

Land

Property which includes the surface of the earth, down to the center of the earth and upward infinitely into space; it also includes any items permanently attached to the land, such as trees and water Ex. Land may be improved (with buildings or other permanent structures) or unimproved (vacant).

Real Property

Real estate, plus the interest, benefits and rights included with ownership Ex. Real property can be segmented into a bundle of rights, with each right sold separately, to different owners.

S ½ SE ¼ NW ¼ Section 14, Township Clarkson. Read right to left. This is an example of a _________________________ legal description

Rectangular (Government) survey system

Acres x 43,560 =

Square feet

Square yards x 9 =

Square feet

Square feet/9 =

Square yards

Housing for Older Persons Act of 1995

States that communities and facilities that meet certain criteria for providing housing to older persons are legally exempt from the familial status discrimination

Price Fixing

Suggesting that there is a "standard" fee for broker compensation; antitrust violation

Civil Rights Act of 1964

The Civil Rights Act of 1964 prohibited discrimination based on race, color, national origin, and religion in programs receiving federal financial assistance. This act set the stage for the Fair Housing Act.

An administrative law judge presided over Sabine's misconduct hearing. Sabine presented several documents indicating she was an excellent licensee, including notarized statements from three of her clients. However, the ALJ found evidence of misconduct and recommended that Sabine be required to take an additional three hours of CE in ethics. What happens next?

The MREC hearing panel decides whether or not to accept the ALJ's recommendation. Once an ALJ makes a recommendation, the hearing panel decides whether or not to accept it. If the hearing panel upholds the decision, Sabine may appeal.

Easement

The authorized use of another's property for a specific purpose; runs with the land. These are often acquired through a written agreement. Because an easement affects the use of a property, they have the potential to diminish the property's value. Ex. Easement is a non-possessory right to use another's property. It does not involve ownership.

Servient estate

The estate that gives the easement or the property on which the easement lies Ex. Because Daniel had the right to cross his property, Ben's property had the servient estate.

Jonathan's 3,200 square foot home sold for $425,000. What is the price per square foot?

The price per square foot is $425,000 ÷ 3,200, or $132.81 per square foot.

Annexation

The process of converting personal property to real property. Ex. When Mrs. Goldman planted the rosebushes in her yard, the resultant annexation meant that the rosebushes were now made part of the property.

Dominant estate

The property or individual who uses the easement The dominant estate enjoys the easement

Sales or Market Comparison Approach to Valuation

The sales comparison approach uses a process of comparison with similar properties that have a known sale price to determine a subject property's market value. This is the most reliable of the three approaches when appraising single-family homes for market value.

Income Approach to Valuation

This approach bases the current property value on potential income that the property can generate for residential investment rental properties, such as single-family homes or residential buildings that comprise two- to four-family units.

Joint Tenancy

This is defined as equal ownership with undivided rights of possession and requires unity of four separate conditions: All owners must have the same type of interest in the property, all must receive their title at the same time from the same source, all must have the same percentage of ownership, and all must have the right to undivided possession in the property. Joint tenancy includes the right of survivorship, meaning when one joint tenant dies, that person's share automatically goes to the other surviving joint tenant(s).

Tenancy by the Entirety

This type of tenancy also has the right of survivorship. Only available to married couples, this form of ownership also includes unity of time, title, interest, possession, and marriage. Key to this form of ownership is that creditors of one spouse can't attach liens to or sell the interest of the debtor spouse. Only creditors with claims against the couple may attach and sell the interest of the property owned in this manner. Also, one spouse can't transfer interest in the property without the consent of the other spouse. Tenancy by the entirety can't be reduced to tenancy in common or joint tenancy. Such a change of ownership would require divorce, an annulment, or for the couple to amend the title.

Owners don't need to dig up the crops and take them when the land is conveyed, but those owners are entitled to the fruits of their labor and can harvest the crop when it's ready (even if the land has transferred to a new owner). (True/False)

True

In order to qualify as one of the four appointed consumer members of the Maryland Real Estate Commission, how many years of experience must you have as a real estate licensee?

Zero - Consumer members of the MREC board are not licensees.

Lien

a financial claim or encumbrance against a property. Some of the common sources of liens are mortgages, unpaid taxes, unpaid services, and judgments.

Housing and Community Development Act of 1974

added sex to the list of protected classes amended the Fair Housing Act of 1968 to add sex to the list of protected classes. In the years leading up to this time, women endured sexual harassment and discrimination by landlords and sellers that made it difficult for them when obtaining housing.

One hectare =

approximately 2.47 acres

Metes

are the direction and distance of a line forming the property's boundary

Perimeter =

length and width of all sides added together

Front foot (footage) =

length of the property along a street, highway, or waterway

Area of a Rectangle

length x width

Miles x 5,280 =

linear feet (memorize this for your exam)

Linear feet/5,280 =

miles

The Maryland Real Estate Commission meets

once a month (12 times per year).

Estate in severalty

owned by one person; sole ownership Although the name sounds like "several," don't let that fool you. The root word, "sever," means one person owns the property, and all other interests are severed.

Bounds

physical features that define the boundaries of the property

In the Rectangular (Government) survey system each parcel is described by referencing ________________________ and __________________ that is appropriate to the township in which the parcel is located.

principal meridian and base line

Fair Housing Act of 1968

prohibited discrimination in the sale, rental, and financing of housing and housing-related transactions based on race, color, national origin, and religion. It also created the Office of Fair Housing and Equal Opportunity (FHEO) under the Department of Housing and Urban Development (HUD). This agency is charged with enforcing fair housing laws and holding all parties accountable for compliance with these laws and regulations. Individuals who have experienced housing discrimination can file a complaint with this agency at no cost to themselves.

Americans with Disabilities Act of 1990

prohibits discrimination based on disability in programs, services, and activities provided or made available by public entities. It strengthened the 1988 amendments regarding disabilities. Title II of the act applies to public housing, housing assistance, and housing referrals. HUD is responsible for enforcing Title II.

North-south lines are called

range lines

Civil Rights Act of 1866

recognized all persons born in the U.S. as citizens, regardless of race or color, and protected the rights of every U.S. citizen to buy, sell, convey, inherit, and possess property, as well as to enter into contracts. In short, it made it illegal to discriminate on the basis of race or color, without exception

Economic Characteristics of Land

scarcity, improvements, permanence of investment, situs/location/area preference Scarcity: You can't make more land; what we have now is what we'll always have. Improvements: A land's value can be positively or negatively affected by the improvements made on it. Permanence of investment: Some improvements are long-term, stable investments with stable returns over time. Situs/location/area preference: A property's value depends in large part on its location.

Area of a square

side x side

Land measurements are stated in terms of

square feet, square miles, perimeter, frontage foot, linear miles, acres, and hectares

Structure area is stated in

square units i.e. square feet, square yards, etc.

What are the three different methods for estimating value within the income approach

the gross rent multiplier, the gross income multiplier, and the capitalization method

East-west lines of a survey are called

townships