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Questions for Texas Real Estate Exam copy
Category: Default - (503 questions)
Test Information                              80 Questions - National30 Questions -
                                             State1 hour and 45 minutes to complete
                                            National45 minutes for StateTo pass, you
                                            must get 56 right on the National and 21
                                                                    right on the state
NATIONALChapter 1: Property Ownership
Classes of Property                           1. Real Property2. Personal Property3.
                                                             Fixture4. Trade Fixtures
Real Property                           land, improvements attached to the land, and
                                          the rights to use them- Anything fastened or
                                             attached to property permanentlyEX from
                                            back of book test: Real Property owned by
                                                the husband or wife prior to marriage is
                                                                     separate property
Personal Property                        A right or interest in things of a temporary or
                                           movable nature- Anything not classified as
                                        "real property"- EX: Chattel (EX: a tractor) or
                                        Personalty- Ownership is transferred by a Bill
                                         of Sale- If something is removed and stated
                                        so in the contract (EX: mom's chandelier), so
                                              in that instance "real property" becomes
                                                                     "personal property"
Fixture                                 Part of the property- "Personal property" that
                                         has been attached in a way that it becomes
                                                  "real property"- "Installed" indicates
                                            permanent attachment- Improvements to
                                        rental property by tenants generally become
                                          "fixtures"and remain at the end of a lease-
                                              Annexation is the process of attaching-
                                           Severance is the process of real property
                                        becoming personal*Land is never a fixture, it
                                                            is always "Real Property"*
Trade Fixtures                            Required to carry out a business, they may
                                        be removed from leased property prior to the
                                              termination of the lease- If they are not
                                        removed prior to the termination of the lease,
                                          they become real property and pass to the
                                            landlord- Accession is acquiring property
                                                            due to it being left behind
Annexation                                    The process of attachingAKA Installing
Severance                                  Process of real property becoming personal-
                                           Detaching something that was once seen as
                                               a permanent attachment (EX: removing
                                                           mounted TVs)AKA "severed"
Accession                                      Acquiring property because the previous
                                             tenant left it behind after the termination of
                                                                                 the lease
Descriptions and Characteristics of Land         1. Physical Characteristics2. Economic
                                                  Characteristics3. Legal Descriptions4.
                                                                  Physical Descriptions
3 Physical Characteristics of Land                    1. Nonhomogeneity2. Immobility3.
Nonhomogeneity                                           No two pieces are exactly alike
Immobility                                 Land cannot be moved- A person must go to
                                                                           the land
Indestructibility                                       Durability- it will always be there
4 Economic Characteristics of Land              1. Scarcity2. Modification3. Fixity4. Situs
Scarcity                                        In short supply where demand is great-
                                           Based on geographic considerationsEX: a lot
                                            on Manhattan is more valuable than a lot in
                                                                     upstate New York
Modification                               Land use and value are greatly influenced by
                                             improvements made by man to land and to
                                           surrounding parcels of landEX: if the houses
                                              around you are all run-down or if a mall or
                                              apartment complex is built right next door
Fixity                                      Land and buildings and other improvements
                                              to land are considered fixed or permanent
                                                investments- They are not liquid assets-
                                                      Land is not liquid, so Land is fixed
Situs                                          Location preference, or location from an
                                           economic rather than geographic standpoint-
                                                 This can change over time as people
4 Methods Legal Descriptions             Legal descriptions are created and
                               determined by a surveyor- Necessary part of
                                    a contract or conveyance (deed, listing,
                                         sales contract, etc) in order for that
                                    document to be enforceable- It must be
                                 certain and accurate so that one can go to
                                        the ground and identify the land- To
                                      ascertain the exact boundary lines or
                                  property, one should obtain a survey, with
                                   corners staked, by a licensed surveyor1.
                                       Metes and Bounds2. Lot, Block, and
                                   Subdivision3. Monuments4. Rectangular
                                                              Survey System
Conveyance                     Deed, Listing, sales contract, etc…A form of
Metes and Bounds                 Terminal points and angles- Always has a
                               point of beginning, which is also the end, so
                                 that land described is completely defined-
                                   Uses compass directions, degrees, and
                                   minutes- Might include the use of street
                               names (for reference only)- Oldest and most
                                        common method of land description
Lot, Block, and Subdivision      Recorded map or plat- Developers use this
Monuments                        Permanent surveyors markers- Property is
                                  described as being a certain distance and
                                 direction from the marker- Monuments are
                                     rarely used alone to describe property-
                               Monuments are often the starting points for a
                                metes and bounds description- Monuments
                                can be man-made (EX: Iron Pipe) or natural
                                                     (EX: a stand of timber)
Rectangular Survey System         AKA Government Survey System- It takes
                                   into consideration base lines, meridians,
                                   townships, and sections- Townships and
                               Sections are located in Ranges- This system
                               is not used in the 13 original coloniesEX: S7
                                 T3 R2 means Section 7 Township 3 Range
Township                                           1 Township = 36 Sections
Section                          1 Section = 640 acres1 Section = 1 square
640 Acres                          640 Acres = 1 square mile640 acres = 1
1 Acre                                           1 Acre = 43,560 square feet
Street Address                                  Not a legal description of land
Plat                               Is a map of a town, section or subdivision
Plot                               Is a map or layout of improvements on a
                                property site- "property site" is also called a
                                                               "lot" or "parcel"
Physical Descriptions            Specify land and building size, and types of
                                  constructionA) Land and building area are
                                    measured by square feet, acres, square
                                   miles, townships, sections, ranges, rods,
                                      chains and linksB) Construction types
                                      include onsite construction and offsite
                                   construction consisting of manufactured,
                                       modular, and prefabricated buildings-
                                        Materials include brick, stone, wood,
                                                manmade siding and stucco
Encumbrance                      A limitation on your rights- It may also be a
                                cloud on the title (it must be cleared in order
                                to transfer ownership of property)- The legal
                                  method of removing an encumbrance is to
                                    release it, or get a release- Comes in the
                                    forms of Liens and EasementsEX: Liens,
                                 claims, judgments, encroachments, leases,
                                          easements, deed restrictions, etc...
Lien                           A charge against property as a security for a
                                  debt1. Voluntary2. Involuntary3. Specific4.
Voluntary Lien                    Created by the borrower's actions, such as
                                taking out a mortgage or home improvement
                                       loan- Filing or recording the mortgage
                                creates a lien- A mortgage is not effective or
                                     enforceable until it is recorded, once it is
                               recorded, if it is the first recorded claim, it will
                                                          be the first priority lien
Involuntary Lien                    Is created by law and can be statutory or
                                       equitableStatutory law ALWAYS takes
                                               precedence over common law
Statutory Lien (Involuntary)     EX: Federal tax liens, ad valorem tax liens,
                                      judgments liens, and mechanics and
                                                   materialmen's (M&M) lien
M&M Lien                       Can be placed on a property when materials
                                   have been delivered or work has begun
Equitable Lien (Involuntary)     Come from common law and include seller
                                         (Vendor) or buyer (Vendee) liens
Specific Lien                Attaches to one or more specific
                                   propertiesEX: a mortgage
General Lien    Attaches to all the property of the debtor, not
                       exempt from forced sale- Recording a
                   judgment creates a lienEX: a judgment or
                                                      IRS lien
Judgments         In Real Estate, a judgment is a court order
                 placing a financial indebtedness on another
                  to pay for a claim. For example: John does
                 not meet his rental obligations to Brian. The
                       court issues a judgment against John
                 brought by Brian.If a party wins a judgment
                and is unable to collect, he can secure a writ
                      of execution from the courts to enforce
Reservation     Stipulation in a deed giving the grantor some
                     retained privilege or right in the property.
                Withholds title to a part of the land described
                 in the deed- It is imposed by the GrantorEX:
                                an easement or mineral rights
Encroachment      When a structure or improvement overlaps
                 onto another's property- Must be disclosed-
                    Surveys determine encroachments- The
                property owner who suffers the intrusion has
                             the right to demand its removal
Easement         Allows limited use or enjoyment of another's
                landIt is a right in land and should be created
                    in writing and recordedCan be created by
                      express (written or verbal) or implied (by
                        actions or evidence) grant, agreement,
                         reservation, limitation or prescription,
                            necessity, or condemnationCan be
                terminated by merger (acquiring the adjacent
                     property), release, or abandonmentEx 1.
                    The right of a property owner who has no
                  street front to use a particular segment of a
                   neighbor's land to gain access to the road.
                  Ex 2. The right of a municipal corporation to
                 run a sewer line across a strip of an owner's
Dominant and Servient Estates                 If you have 2 parcels of land with a road
                                         across 1 parcel, the owner who crosses over
                                                the other's land is dominant- Dominant
                                                     estates are landlocked without the
                                              easement- The property with the road is
                                            servient to the dominant estate- Dominant
                                         estates benefit from the easement, while the
                                               servient is encumbered- Most common
                                         reason for this type of easement is entry and
                                                      exit from the property (Easement
                                              Appurtenant)- It goes with the land, and
                                           whoever owns the land owns the easement
Easement in Gross                           The easement doesn't go with the landEX:
                                            electrical lines on a property are owned by
                                          the electrical company- Belongs to a person
                                               or corporation- No matter who owns the
                                          land, the easement still belongs to the utility
                                              company, it does not go with the landEX:
                                                                        Utility easement
License                                     Has permission to do a particular act upon
                                           the land or property of another- Grants use
                                         of the seat or land for a set amount of time- It
                                           is similar to an easement but of much more
                                                limited duration- It is not a right to land-
                                         Often given verbally and easily revokedEX: a
                                                                theater or sports tickets
Adverse Possession (Squatter's Rights)     Occurs when property is acquired from the
                                                   rightful owner through the Statute Of
                                               Limitations- Occupancy must be hostile,
                                             visible, actual, continuous, and distinct for
                                              the statutory period- Differs from state to
                                          state- Minimum of 3 years to a maximum for
                                                         25 years- It is 10 years in Texas
2 Types of Estates                             An interest in "real property"1. Freehold
                                                                     Estate2. Life Estate
Freehold Estate                        is ownership (answers the question: do you
                                       own this property?)- All the legal rights that
                                            attach to the ownership of real property
                                         including but not limited to the right to sell,
                                      lease, encumber, use, enjoy, exclude, will to
                                        heirs, etc. are called Bundle of Rights- Fee
                                       Simple (Absolute) is the ownership with the
                                       greatest bundle of rights. The owner has all
                                        the available rights to the property and can
                                      always pass it to his heirs- Of indeterminate
                                    length (not like a lease that has a termination
                                               date)-It can be terminated under the
                                          Defeasible or Conditional Fee: ownership
                                           with conditions or terms which if violated
                                           could cause the ownership interest to be
                                     defeated or terminated (Also called qualified
                                                fee or even qualified defeasible fee)
Bundle of Rights                        Right to sell, lease, encumber, use, enjoy,
                                                               exclude, will to heirs
Fee Simple (Absolute)                Greatest bundle of rights- The owner has all
                                      the available rights to the property and can
                                                        always pass it to his heirs
Defeasible Fee or Conditional Fee     Ownership with conditions or terms which if
                                      violated could cause the ownership interest
                                     to be defeated or terminated- AKA: qualified
                                               fee or even qualified defeasible fee
Life Estate                         Ownership for the duration of someone's life-
                                      The person who gets the property after the
                                       life estate is ended is the "remainderman"-
                                      The "remainderman" gets fee simple- If the
                                         life estate is based on the life of someone
                                      other than the life tenant, this is called a life
                                    estate "pur autre vie"- If the life tenant leases
                                                the property and then dies, the lease
                                      expires- If the life tenant sells his interest in
                                               the property, this has no effect on the
                                      "remainderman"- If a life estate is set up so
                                     that at the end of the life estate the property
                                    goes back to the original owner, this is called
                                                                  life estate reversion
Reversion                            If a life estate is set up so that at the end of
                                     the life estate the property goes back to the
                                                                      original owner
6 Types of Ownership                   1. Estate in Severalty or Sole Ownership2.
                                           Tenancy in Common3. Joint Tenancy4.
                                      Trust5. Syndicate6. Tenancy by the Entirety
Estate in severalty or Sole Ownership         Ownership by 1 person- Corporation or
                                         partnerships often hold title this way- Only 1
                                               signature is required to sell a piece of
General Partnership                      All partners share responsibility and liability
Limited Partnership                         Limited partners have limited liability and
                                            usually are not involved in the day-to-day
                                                         operation of the partnership
Tenancy in Common                           Ownership by 2 or more without rights of
                                            survivorship- Most common type of joint
                                        ownership- An estate of inheritance- A condo
                                                  is multi-unit housing with individual
                                            ownership of apartments and tenancy in
                                          common ownership of the common areas-
                                           Upon your death, your share goes to your
                                              heirs, at probate- Unequal shares are
                                          permitted- You may sell your share without
                                          the permission of the other owners- In the
                                          absence of any other instructions, the title
                                            company will always assume tenancy in
                                                           common with equal shares
Joint Tenancy                                  Ownership by 2 or more with rights of
                                            survivorshipUpon your death, your share
                                                          goes to surviving co-owners
                                               immediatelyCalled a "poor man's will"
                                        because it eliminates the need for a willJoint
                                        Tenancy overrides a will, this is not an estate
                                               of inheritance4 unities are required to
                                                 prevent any accidental cases of joint
                                                      tenancy: time, title, interest, and
                                         possessionPartition is a procedure to divide
                                         the co-tenants' interests in "real property", it
                                                    can be a court or voluntary action
Partition                               A procedure to divide the cotenant's interests
                                               in "real property"- It can be a court or
                                                                       voluntary action
Trust                                   If a property is held by 1 party for the benefit
                                                                              of another
Syndicate                                    When 2 or more parties join together to
                                         create and operate a real estate investment
Tenancy by the Entirety                      Specific type of joint tenancy where the
                                                  co-owners are husband and wife-
                                            Advantage: this type of ownership avoids
4 Types of Leasehold Estates          Created by leasing agreements, which gives
                                        possession without ownership1. Estate for
                                       Years2. Periodic Tenancy3. Estate at Will4.
                                                           Tenancy at Sufferance
Estate for Years                        A lease with a specific starting and ending
                                       date- Survives death and/or the sale of the
                                       property- No notice is required to terminate
Periodic Tenancy                                A lease with a fixed period that is
                                      automatically renewed unless the tenant or
                                                   landlord acts to terminate it- A
                                      month-to-month lease is this type- Notice to
                                       terminate is usually required- Typically 30
                                               day notice is required to terminate
Estate at Will                         AKA "tenancy at will" is a lease that can be
                                         terminated by either party at will without
Tenancy at Sufferance                 Occurs when a lease expires and the tenant
                                           refuses to move out- The landlord is not
                                        receiving rent- This holdover tenant has no
                                      right to be there- If the holdover tenant pays
                                          rent and the landlord accepts that rent, a
                                                                 holdover is created
Statutory Estate                      Created by law- Differ from state-to-state- 2
                                          Types of statutory estates in Texas are:
                                           Community Property and Homestead
NATIONAL SECTIONChapter 2: Land Use                       5 questions on the exam
and Regulation
4 Governments Restrictions for Land           1. Police Power2. Eminent Domain3.
                                                               Taxation4. Escheat
Police Power         Power given to a municipality to regulate and
                      control the character and use of property for
                      the health, safety, and general welfare of the
                           public- Provides the gov't with the right to
                       est. building codes and specific construction
                                 requirements- Environmental Impact
                       Statements (EIS) are done on gov't projects
                           to determine it's effect on the community,
                            which is shown in a detailed description-
                         Give gov't the right to regulate special land
                          types for the public good including coastal
                             properties, floodplains and wetland and
                       allows regulation of environmental hazards-
                            Most common EX: Zoning-- local laws to
                                control and use land, includes master
                            planning (a LT guidelines of the physical
                       development of a particular area)-- changes
                        in zoning may result in non-conforming use
                      (it is allowed to continue despite the fact that
                          is goes against the new rules)-- variances
                          may be requested if your property violates
                              zoning-- In order for zoning rules to be
                     changed, public hearing must be held but the
                               ultimate decision rests with the zoning
                     committee-- buffer zones separates one land
                                use from another like residential from
Master Plan                 A comprehensive guideline for the LT
                         physical development of a particular area
Non-Conforming Use   Allowed under past rules, but new rules don't
                       allow it- Is allowed to continue, even though
                      it goes against the new rules- It's automatic,
                                no hearing or application process is
                      required- If the property is destroyed, it may
                         not be rebuilt without permissionEX: 6-unit
                     apartment building in a neighborhood zoned
                                           R-1 (Residential-1 family)
Variance               Requested if your property violates zoning-
                       May be requested prior to construction (EX:
                      adding to the front of a building)- Must apply
                     to the zoning committee to obtain a variance-
                                They will schedule a hearing and all
                     neighborhood property owners will be invited
                         to the hearing to voice any objections they
                                          might have to the variance
Buffer Zone             An area of land separating 1 land use from
                                 another, such as residential from
                       commerical- Located bw incompatible uses-
                               A transitional useEX: Single family,
                       apartments, then retail = apartments are the
                                                        buffer zone
Eminent Domain          Right of the gov't to take private property for
                                     public use through the action of
                       condemnation- This is the only time the gov't
                            must compensate property owners- No
                            compensation is given for down-zoning
Inverse Condemnation   When an individual forces the gov't to buy his
Taxation               Property taxes are the highest priority lien on
                                   "real property"- "Ad valorem taxes":
                         According to tax value- Unpaid taxes create
                       an automatic lien on property- At foreclosure,
                                  property taxes are always paid first-
                        Assessed Value is the value of your property
                               for tax purposes (used for comparison
                               purposes)- Tax rates are expressed as
                          dollars per hundred dollar valuation- Some
                          state have a property sales tax paid by the
                         seller of real property at closing (Transfer or
                             Deed Tax)- Special Assessment Tax are
                        placed on property owners who benefit from
                           improvements like curbs or sidewalks- If a
                                      property is located in a municipal
                        improvement district, the property owner will
                          receive a tax bill- Local gov'ts use property
                                taxes to cover their expenses bc "real
                          property" is an asset that cannot be hidden
Assessed Value         The value of your property for tax purposes-
                        Tax rate X the assessed value = your yearly
                          taxes- Lists of assessed values for all the
                       properties in a taxing district are found in the
                              assessment rolls- They can be use for
                                               comparison purposes
Tax Rates                  Expressed as dollars per hundred dollar
                           valuation- A tax rate of $2.50 means the
                        property owner will be $2.50 for every $100
                          of taxable value- Sometimes a mill rate is
                       used (Tax per thousand instead of hundred)-
                           So a rate of 25 mills means the property
                          owner will pay $25 dollars of tax for every
                                             $1,000 of taxable value
Transfer Tax or Deed     A property sales tax paid by the seller of real
                         property at closing- Expressed as mills or as
                                                   a rate per hundred
Special Assessment Tax        Local gov't provides a benefit to a limited
                                 number of property owners - Curbs or
                            sidewalks in a neighborhood, then this tax
                          will be levied against those property owners
                          who benefit from the improvement- In a real
                             estate sales with an unpaid balance on a
                         special assessment, it will be usually paid by
                           the seller, but could be probated at closing
Tax Bill                   The property owner will receive this if he is
                          located in a municipal improvement district-
                           Will receive this until the improvements are
                                   paid for, or the improvement district
                         designation is removed- It can be temporary
                                                           or permanent
Escheat                  Property reverts to the state when someone
                               dies leaving no will and no heirs or no
                             kindred- Can also be used if property is
                         abandoned- It's purpose is to ensure that no
                                               land remains unowned
Water Rights                 Riparian Rights: right to use water from a
                          river or stream that borders propertyLittoral
                                 Rights: right to use water from a large
                           navigable lakes or ocean- May be used for
                                        domestic purposes- May not be
                              contaminated- Flow of water may not be
                           interrupted- May be transferred by deed or
                         conveyance- The state might refuse to grant
                             riparian rights to a landowner if there is a
                           scarcity of water- For non-navigable water:
                             landowners may own to the middle of the
                                    body of water- For navigable water:
                                landowners own to the vegetation line-
                           Building piers will not extend your property
                              line- The state owns all navigable water-
                                 Generally, all water in rivers, creeks or
                                     streams belongs to the state- Prior
Prior Appropriation       Theory of water law based on the idea that
                                  "first in time is first in right"- The first
                            landowner to claim riparian rights has the
                                exclusive right to take all the water for
                         specific beneficial uses- Subsequent owners
                              of nearby properties cannot claim water
Private Control of Land                       Most common are deed convenants,
                                            conditions and restrictions, and HOA's
                                        (home over association) regulations- Courts
                                              will issue an injunction to enforce the
                                                       restrictions set forth by above
HOA                                        Regulations are like deed restrictions but
                                                 usually apply to condo complexes
Deed Restrictions                         Imposed to control land use, development
                                         and methods and materials for construction
Covenants                                    Set style and appearance requirements-
                                        Found in a document called a Declaration of
                                               Restriction- Imposed by the Grantor- A
                                             violation can result in a civil court action
                                          brought by other property owners who are
                                           bound by the same deed restrictions- The
                                          court will issue an injunction to enforce the
                                            restrictions- Deed restrictions and zoning
                                                  can both exist, so whichever is most
                                         restrictive or limiting must be obeyed- Deed
                                       restrictions are permanent and in most cases
                                               do not expire, they control present and
                                       future owners and tenantsEX: garages facing
                                                                the rear of the property
NATIONAL SECTIONChapter 3: Valuation                           8 questions will be on it
and Market Analysis
Market Value                            The price a willing seller will sell for, and the
                                        price a willing buyer will pay, when neither is
                                       acting under exceptional pressure- "the most
                                                                        probable price"
Value                                         An estimate of the future benefits to be
                                                           derived from the property
Price                                    Generally what one must pay for a property
Cost                                                An estimate of past expenditures
4 Characteristics of Value                            1. Demand2. Utility3. Scarcity4.
Demand                                     There must be a demand for the item and
                                                     purchasing power to acquire it
Utility                                          The item must be needed or wanted
Scarcity                                              There must be a limited supply
Transferability                        The item must be able to be sold- Ownership
                                                       rights must be transferrable
Comparative Market Analysis (CMA)                  Tool used by licensees to help sellers
                                            determine a realistic price for their property-
                                                  Compares a subject property to current
                                            listings, recent sales, and expired listings of
                                               unsold properties- Expired listings are the
                                            least important in the CMA- The results of a
                                                  CMA is a range of value, rather than an
                                                         exact price- It's not an appraisal
Broker's Opinion of Value (BOV)               Similar to a CMA but used by a relocation
                                                 firm, or commissioned by a bank or an
                                                    attorney handling a divorce or estate
                                                     problem- Broker is paid for the BOV
Appraisal                                    Is an opinion- Estimate of value- Accuracy
                                            depends on the integrity and competency of
                                                 the appraiser and the availability of the
                                                                            needed info
3 Basic Approached to Appraisal                 1. Market Data or Sales Comparison2.
                                                    Income or Capitalization Method3.
                                            Replacement Cost or Summation Approach
Market Data or Sales Comparison Approach   Primarily in residential appraisals- Compares
                                                       with known sales in the same area-
                                                Appraiser should have 3-5 sales, no more
                                            than 6 months old- The appraiser will add to
                                              the value of comparables when the subject
                                                property has more amenities, and deduct
                                                  from the comparables when the subject
                                             property has less in choosing comparables,
                                            the best choice will be the one with the least
                                                     number of adjustments, regardless of
                                                 costEX: What's the value of a residential
                                                 property that is 2 years old with a $1,500
                                           porch and the only available comparable is a
                                              brand new house w/o a porch? It has been
                                               determined that being new adds $2,000 to
                                               the value, and the comparable is valued at
                                           $169,500, SO the appraiser will increase the
                                                 comparable by $1,500 for the porch, and
                                                        decrease it by $2,000 for age (the
                                                   demonstrates the value of a 2-year old
                                                                       house with a porch)
2. Income Approach or Capitalization      Used for income producing properties AKA
Method                                    rental properties- Conversion of an income
                                          stream into an indication of value is known
                                          as capitalization- Capitalization rate/rate of
                                             return and market value have an inverse
                                        relationship, SO an increase in 1 results in a
                                            decrease in the other-- SO, when rates of
                                          return are high, a small investment gives a
                                        good return, but when rates are low, a larger
                                        investment is needed to get a good return- 2
                                         backup procedures to the income approach
                                       that give the appraiser a starting point, rather
                                           than a result are the Gross Rent Multiplier
                                              (GRM) and the Gross Income Multiplier
Gross Rent Multiplier (GRM)              Used for residential properties- It's a factor
                                            based on location and rent = a price per
                                       unitMATH: GRM multiplied by monthly rent =
                                       an estimate of value for the property (GRM X
                                              Monthly Rent = Price)EX: GRM is 150,
                                            monthly rent on a single-family house is
                                               $1,000, then it will be 150 X $1,000 =
                                       $150,000MATH: GRM is calculated by taking
                                           property value and dividing it by monthly
                                         rent (Price/Rent = GRM)EX: Neighborhood
                                        property is valued at $175,000 and charges
                                           $1,000 in monthly rent, then the GRM on
                                        that property is $175,000 divided by $1,000
                                                                                 = 175
Gross Income Multiplier (GIM)            Used for commercial properties- Based on
                                            the annual rent for the property- Works
                                                                 exactly like a GRM
Gross Income Multiplier (GIM)            Used for commercial properties- Based on
                                            the annual rent for the property- Works
                                                                 exactly like a GRM
3. Cost Approach (Replacement Cost or              Used for unique properties, such as
Summation Approach)                     churches or gov't buildings- Used when there
                                                   are no comparables for a particular
                                                 propertyMATH: Land Value + Building
                                                 Reproduction(or Replacement) Cost -
                                                Depreciation = Value- When using this
                                             approach, the appraiser uses the market
                                          data approach to place a value on the land,
                                         bc the value of the land is heavily dependent
                                          on location- This approach is more accurate
                                          for new construction- Appraisers consider 3
                                         types of depreciation and use 9 principles of
                                                 value to help them arrive at their final
                                           opinion- Additionally they must take market
                                             cycles, political actions, economic forces,
                                                  physical or environmental forces and
                                                  sociological forces into consideration
3 Types of Depreciation in the Cost      Appraisers consider these with evaluating a
Approach                                         property1. Physical Deterioration2.
                                           Functional Obsolescence3. Economic or
                                                            External Obsolescence
1. Physical Deterioration                 Ordinary wear and rear- Is curable- Has the
                                         least impact on the appraisal bc all buildings
                                                have itEX: chipped paint, worn flooring
2. Functional Obsolescence                  Brought about by factors in the property-
                                        Often or mostly curableEX: inferior materials
                                               to cut costs, curb appeal, not enough
3. Economic Obsolescence                   Loss of value due to outside factors- AKA
                                          "external obsolescence" or "environmental
                                         obsolescence"- It's incurableEX: Zoning, air
                                                   pollution, noise, traffic, jobs, etc...
9 Principles of Value                             Help appraisers arrive at their final
                                        decisions1. Highest and Best Use2. Principle
                                           of Substitution3. Principle of Conformity4.
                                              Principle of Increasing and Decreasing
                                            Returns5. Principle of Contribution6. The
                                           Principle of Regression7. The Principle of
                                            Competition8. The Principle of Change9.
                                                         The Principle of Anticipation
1. Highest and Best Use                    Legal use that gives the greatest return in
                                            money and/or amenitiesEX: commercial
                                            parking is more valuable than residential
2. Principle of Substitution                    Sets an upper limit on price- No person is
                                            justified in paying more for a property when a
                                               similar property can be purchased for less
                                                         money, with similar risks and yield
3. Principle of Conformity                      State that maximum value is found when
                                             there is a reasonable degree of similarity or
                                                    homogeneity- Properties in the same
                                                  neighborhood tend to conform in price
4. Principle of Increasing and Decreasing         Invest in property whenever each dollar
Returns                                             invested will return a dollar or more of
                                              increased value and stop when each dollar
                                              invested returns less than a dollar in value-
                                                           Do not over-improve a property
5. Principle of Contribution                          Value of a part is determined by its
                                            contribution to the total value of the property
                                                                    rather then by it's cost
6. The Principle of Regression                The presence of lower valued properties in
                                               the neighborhood leads to a decline in the
                                                   value of your property- Conversely, the
                                                 presence of higher valued properties will
                                             increase the value of your property and this
                                                                     is called progression
7. The Principle of Competition                  An increase in competition will result in
                                             decreased profits for current providers- The
                                                  more competition, the lower the price
8. The Principle of Change                  Change is constant and is reflected in value-
                                                 Appraisers must make adjustments for
                                             changes in market conditions, and for time-
                                             An appraisal is only considered to be good
                                                                            for 6 months
9. The Principle of Anticipation            Purchase price is affected by the expectation
                                                            of future appeal and benefits
Assemblage or Plottage                          Combining several parcels of land into 1-
                                                 Result is usually increased usability and
                                                value of land- Assemblage is more often
                                            used to describe the action- Plottage is used
                                            to describe the increased usability and price
5 Steps in the Appraisal Process           1. State the purpose of the appraisal2.
                                      Collect and verify info about the property3.
                                        Estimate value using all 3 approaches4.
                                         Reconcile the estimates by determining
                                      weighted averages (completes the process
                                   of determining an exact # rather than a range
                                    of value)5. Prepare a report (oral, in a letter,
                                           on a form, or a narrative report)NOTE:
                                   lenders will require the Fannie Mae appraisal
                                         form if the purpose of the appraisal is to
                                                       secure residential financing
Chronological Age                                The age of the property in years
Effective Age                                  Tells the condition of the property
Deferred Maintenance                   A type of physical depreciation (ordinary
                                     wear and tear) that results from postponing
                                                   maintenance on the property
Life Cycle of a Neighborhood                 Defined as the stage of growth and
                                      development of a neighborhood1. Grow2.
                                     Stabilize3. Decline4. Revitalize- An up and
                                   coming neighborhood is in it's "revitalization"
Square Footage                       Appraisers measure the exterior walls, and
                                                never include unfinished space
Price Per Square Foot                  Determined by appraisers by dividing the
                                        sale price of the property by the square
Gross Area                            The total area of a building measured from
                                    the exterior walls excluding uncovered areas
                                      such as patios and courtyards- Area under
                                   the roof, including unfinished spaces such as
                                                             the attic and garages
Setback                                Amount of space required between the lot
                                   line and the building line- Can be determined
                                                   by zoning or deed restrictions
Straight Line Method                     Method of depreciation of equal annual
                                               installment amountsEX: $100,000
                                     depreciated for 10 years would be $10,000
                                           per year- Using this method, you can
                                    calculate the depreciation of a property (the
                                       depreciation is gone), or the depreciated
                                      value of a property (the depreciated value
                                         remains after depreciation is deducted)
Module or Modular Housing                                  Prefabricated Housing
Collateral                              Demonstrated by the appraisal that lenders
Ethical Conflict                                  If an appraiser based his fee on the
                                        appraised value of the property instead of a
                                        flat fee or hourly fee- Appraiser's should not
                                       have any personal interest, present or future,
                                           in the property to be appraised- Appraiser
                                              should never reveal any confidential info
                                          included in the appraisal report- Appraiser
                                                can only reveal info to his client- If the
                                                  purpose of an appraisal is to secure
                                             financing, the lender is the client, not the
MAI                                                       Member, Appraisal Institute
Transactions Requiring Appraisal                Include those involving financing or
                                          courtsEX: cases being heard to settle the
                                            estate of the deceased when there is a
                                         challenge to the will, or cases to challenge
                                         Eminent Domain offers to property owners
NATIONAL SECTIONChapter 4: Financing                  7 questions will be on the exam
Mortgage                                Is a pledge of real property as security for a
                                       promissory note- The action of pledging real
                                             property as security for a debt is called
                                              hypothecation- Mortgagor borrows the
                                       money and give the mortgage as a pledge to
                                              the lender- The mortgage is recorded,
                                                                       creating a lien
Mortgagee                                 The lender (the banker)REMEMBER: "the
                                                             mortgagee is not me"
(Promissory) Note                          Instrument for the debt- It's your personal
                                                   promise to pay- It's not recorded
Deed of Trust                                      Used in Texas instead of the term
                                                 "mortgage" and use of a "traditional
                                       mortgage" AKA it's a Deed, not a mortgage-
                                       Contains a "power of sale" clause that allows
                                              for non-judicial foreclosure- Involves 3
                                       Parties1. Trustor (Mortgagor)2. Beneficiary3.
Power of Sale                                In the Deed of Trust where it allows the
                                       lender to foreclose quickly if the mortgage is
                                           not being paid off- Allows for non-judicial
                                       foreclosure- Preferred by lenders- Involves 3
                                       Parties1. Trustor (Mortgagor)2. Beneficiary3.
1. Trustor (Mortgagor)                    "Borrower" or "Buyer"- Must sign the Deed of
                                                 Trust- He is the only party to sign this
1. Trustor (Mortgagor)                    "Borrower" or "Buyer"- Must sign the Deed of
                                                 Trust- He is the only party to sign this
2. Beneficiary                                                  "Mortgagee" or "Lender"
3. Trustee                                 3rd party- Selected by the beneficiary- Acts
                                                     in a fiduciary relationship with the
                                            beneficiary- Has 2 functions in accordance
                                             with the Deed of Trust:1. Release the lien
                                              when the note is paid2. Foreclose in the
                                                                          event of default
7 Possible Clauses that may be Found in   1. Acceleration Clause2. Alienation Clause3.
Mortgages                                    Defeasance Clause4. Escalation Clause5.
                                                  Prepayment Clause6. Subordination
                                                          Clause7. Assumption Clause
1. Acceleration Clause                       A provision in a written mortgage, or note,
                                           stating that in the event of default the whole
                                             amount of the principal becomes due and
2. Alienation Clause                      "Due on Sale" clause states that the balance
                                               of the secured debt becomes due if the
                                          property is sold by the mortgagor without the
                                                                  mortgagee's approval
3. Defeasance Clause                      States that the lien is defeated when the debt
                                                                               is repaid
4. Escalation Clause                              Allows the lender to raise the existing
                                           interest rate- Usually used in an "Adjustable
                                            Rate Mortgage"- Can be used to overcome
                                          an alienation clause- The lender will permit a
                                               loan assumption at an increased interest
5. Prepayment Clause                       The mortgagor can pay the entire amount or
                                          the stated amount prior to the due date in the
                                                note- When it's pre-paid, the borrower is
                                             responsible for interest up to and including
                                              the date of pay off- A prepayment penalty
                                           protects the lender from loss interest (AKA: if
                                            you pay it off before the indicated date, they
                                           penalize you)- Calculated as a percent of the
                                                                             loan balance
6. Subordination Clause                     Allows a lender to move to or take a lower
                                             lien position- Found in a 2nd mortgage, a
                                            home improvement loan, or a home equity
7. Assumption Clause                             In the event a loan is assumed by new
                                                    owners, those buyers are obligating
                                           themselves to pay off that loan- The original
                                            owners are still liable unless they receive a
                                           "release of liability" from the lender- Can be
                                               a Straight Assumption or an Assumption
                                                                              "Subject To"
Straight Assumption                        The new buyer is approved, and takes over
                                           payments and liability from previous owner-
                                          Called "loan novation"- This will not impact of
                                                                the seller's credit rating
Assumption "Subject To"                       The buyer takes over payments but is not
                                             liable for the loan- Can have an impact on
                                                                  the seller's credit rating
2 Types of Financing                          1. Government Loan Programs2. Private
                                                                      Sector Loans
Government Loan Programs                     All require owner occupancy and both are
                                                                assumable1. FHA2. VA
1. Federal Housing Administration (FHA)    Primary purpose is to aid in home financing
                                            by insuring the loan- Insurance protects the
                                          lender- It insures the whole loan amount- It's
                                           paid for by the borrower- Requires approved
                                          appraisal, is assumable, and may be prepaid
                                                   without penalty- Insurance for FHA is
                                                referred to as MIP "Mortgage Insurance
                                            Premium"- Points can be paid by either the
                                             buyer or seller- 2 Advantages:1. Qualifying
                                                 rations are slightly more lenient2. LTV's
                                                    (Loan to Value Ratios) are very high,
                                            allowing buyers with little money for a down
                                                         payment to purchase a property
2. Veterans Administration (VA)        Guarantees repayment of the loan for at
                                  least the top 25% of the loan- Lenders call it
                                  a "75/25 Ratio"- The guarantee is free to the
                                     veteran and protects the lender- Needs $0
                                    downpayment, loan is assumable, and may
                                        be prepaid without penalty- The original
                                     veteran borrower may remain liable for the
                                   loan unless he receives a release of liability
                                             from the VA, which doesn't result in
                                  restoration of entitlement- The new borrower
                                   doesn't have to be a veteran, but does need
                                     VA or lender approval- Parents of veterans
                                        are not eligible- Veterans must obtain a
                                            "Certificate of Eligibility", his DD 214
                                    (discharge papers) or prove he has served
                                          181 days of active duty and has been
                                         honorably discharged in order to get a
                                            certificate based on his ability to pay
                                             (Certificate amount X 4 = approved
                                      maximum loan amount) from the VA- This
                                   Certificate of Reasonable Value (CRV or VA
                                      Appraisal) must meet or exceed the sales
                                  price, if not, the veteran can cancel the sale,
                                  pay the difference bw price and appraisal, or
                                    ask the seller to renegotiate, but he cannot
                                         force the seller to renegotiate- VA loan
                                    interest rates are set by market conditions-
                                       Required funding fee may be paid by the
                                     buyer or seller at closing or included in the
Private Sector Loans               Amortized = Repaid1. Conventional Loan2.
                                    Fixed Rate Amortized Loan3. Term Loan4.
                                       Blanket Loan5. Package Loan6. Budget
                                   Loan7. Balloon Loan8. Participation Loan9.
                                      Open-end Mortgage10. Adjustable Rate
                                    Mortgage (ARM)11. Construction Loan12.
                                       Wraparound Loan13. GPM14. Reverse
                                       Annuity Mortgage15. Sub-Prime Loans
1. Conventional Loan                  Neither federally insured nor gauranteed
2. Fixed Rate Amortized Loan            Equal regular payments of principal and
                                     interest until the loan is repaid- Interest is
                                      paid in arrears- A variation of the 30 year
                                      fixed rate amortized loan is the bi-weekly
                                        loan- 1/2 of a monthly payment is made
                                    every 2 weeks- With a bi-weekly loan, a 30
                                  year loan will be repaid in as few as 25 years
                                       resulting in significant savings of interest
                                               and much faster growth of equity
3. Term Loan             Interest only until the end of the term, when
                         the entire principal is repaid- This is a "zero
                            amortization loan"- AKA a "straight loan"
4. Blanket Loan                 Covers more than 1 piece of property
                               (several lots on 1 note)- May contain a
                              release clause allowing the borrower to
                             obtain partial releases of specific lots by
                                making required lump sum payments
5. Package Loan                  Includes real property plus personal
                                      propertyEX: a furnished condo
6. Budget Loan                   Includes principal, interest, taxes, and
                        insurance in the monthly payments known as
                          PITI- Includes FHA, VA and most amortized
                            fixed rate loans- Taxes and insurance are
                                         placed in the escrow account
Escrow Account           Can be called an impound, trust, or reserve
7. Balloon Loan         Partially amortized loan with a final payment
                            substantially larger than the others- The
                        benefit of this type of loan is a lower interest
8. Participation Loan           2 or more lenders own a share, allowing
                            lenders to share the risk- An alternative to
                        this is one that allows the lenders to share in
                        the profit-ability of the property, in addition to
                          collecting principal and interest on the loan-
                         If a lender collects principal and interest and
                        shares in the profits when a property is sold,
                             it's called "shared appreciation mortgage"
9. Open-End Mortgage       Permits additional borrowing on the same
                            note- Called "credit card mortgage" or a
                              "home equity line of credit"- Minimum
                                                withdrawal is $4,000
10. Adjustable Rate Mortgage (ARM)           Has an interest rate subject to change as
                                                market conditions change- 2 cap rates:
                                            Annual and lifetime-limiting (the amount of
                                             change in the interest rate each year and
                                                  over the life of a loan)- Rate is tied to
                                           treasury bills- Stated as the index + a fixed
                                           %EX: Treasury bills + 2% --> the margin on
                                           an ARM is the % added to the index, when
                                       it's time for the rate to be adjusted, the lender
                                           must do 2 calculations: Index + margin and
                                        Current rate + cap --> the lower result will be
                                               the new rate- This loan would be a poor
                                                    choice for those on a fixed income
11. Construction Loan                     ST loan with funds advanced periodically
                                        during the stages of construction- term loan
                                       AKA interest only- Interest rate is higher than
                                                       the rate on a permanent loan
12. Wraparound Loan                    A new mortgage on a property is placed in a
                                            secondary lien position- New mortgage
                                        includes both the unpaid balance of the 1st
                                        mortgage PLUS additional amount- The 1st
                                                           mortgage is not paid off
13. Graduated Payment Mortgage (GPM)       Payments rise over a period of years, and
                                         then usually level off for the remaining term
                                          of the loan- Attractive to those just starting
                                        their careers and anticipating an increase in
                                               their earnings over the next few years-
                                           Sometimes the 1st year or 2 will results in
                                                                negative amoritization
Negative Amortization                      An increase in debt due to payments less
                                                              than the interest owed
14. Reverse Annuity Mortgage           Allows elderly homeowners (62 years old for
                                       all borrowers involved to borrow against their
                                        equity)- Lender makes periodic payments to
                                         the home-owner based on the equity in the
                                       property- Loan comes due at a specific date,
                                       upon the sale of the property, or the death of
                                        the owner- This is the most expensive home
                                                                          equity loan
15. Sub-Prime Loan                      Loans with risk based pricing- The rates are
                                        not published- Borrowers are rate "A-F" with
                                              a prime borrower having an "A" rating-
                                             "A-minus to F" borrowers will pay 1-5%
                                                   higher than those with good credit
Primary Market             Where consumers go to borrow money-
                      Includes (from most commonly used to least
                         commonly used):1. Mortgage Companies
                              (most common source of residential
                                  financing)2. Savings and Loans3.
                             Commercial Banks4. Mutual Savings
                        Banks5. Life Insurance Companies6. state
                          Bonds7. Credit Unions8. Owner Assisted
                              Financing (Least common source of
                                               residential financing)
Secondary Market        Where lenders go for money- Agencies are
                        Fannie Mae, Freddie Mac and Ginnie Maw-
                      Lenders use Freddie Mac form to ensure that
                        loans can be sold in the secondary market-
                             3 main secondary market warehousing
                          agencies purchase loans, assemble them
                          into packages, and sell them to investors-
                        Conforming Loans- Non-Conformign Loans
Conforming Loans            Loans qualified to be purchased in the
                               secondary market- A standardized
                              conventional loan written on uniform
                              documents that meets the purchase
                         requirements of Fannie Mae and Freddie
                      Mac- Both the loan amount and the borrower
                         characteristics are factors in determining
                                  whether a loan is conforming or
Non-Conforming Loan           Does not meet the secondary market
                      guidelines- This category include "Sub-Prime
Truth-In-Lending or Consumer Credit            Implemented by "Regulation Z" by the
Protection ACT - TIL                              Federal Trade Commission- Covers
                                              consumer credit for all real estate loans
                                         regardless of value, and for non-real estate
                                          loans up to $25,000- Allows consumers to
                                                understand the true cost of borrowing
                                           money- APR - annual %age rate (tells the
                                            borrowers the total cost of borrowing)- In
                                      advertising, it must state that only cash price
                                          or APR is permitted, but if any other credit
                                            terms AKA "trigger terms" are stated, full
                                         disclosure of those terms must be made bc
                                           they tell a buyer that financing is available
                                       w/o giving enough infoEX: monthly payment,
                                      interest rate, term- A borrower must be given
                                        a disclosure statement showing the full cost
                                          of borrowing within 3 business days of the
                                       loan application- APR is the effective rate of
                                          interest (what the borrower actually pays -
                                             usually higher than the interest rate bc it
                                        includes all charges, not just interest)- If the
                                                    loan results in a lien on a personal
                                      residence, the consumer has a 3-day right of
                                         rescission (cancel up to midnight of the 3rd
                                          business day following the transaction) -->
                                             this right of rescission does not apply to
                                            purchase mortgages- This law does NOT
                                        apply to commercial property or agricultural
                                                           loans for more than $25,000
Equal Credit Opportunity Act (ECOA)       Law prohibits discrimination by lenders on
                                      the basis of sex, marital status, race, religion,
                                           age, or participation in public assistance
                                          programs- Lenders can deny credit if your
                                              sole source of income is alimony, child
                                        support (most likely reason for denial), or a
                                         pension plan- Lenders can deny traditional
                                           financing if income is commission based
Fair Credit Reporting Act (FCRA)        Allows individuals to inspect their files at a
                                                credit bureau, correct any errors and
                                            make/attach explanatory statements to
                                      supplement the file- If they have been denied
                                      credit, they are entitled to a free credit report
                                                   to determine the reason for denial
Community Reinvestment Act               States that banks must meet the needs of
                                      the community in which they are chartered to
                                                           do business- Redlining
Redlining                   The refusal to lend in a particular geographic
                                  area is prohibited- Only lenders can be
                                guilty of "redlining"If it's a bad investment,
                            regardless of the property location, a bank is
                             allowed to refuse the loan despite it being in
                                                           it's designated area
Mortgage Brokers               Bring borrowers and lenders together for a
                            fee- Acts as an intermediary bw the borrower
                                   and the lender- His fee is expressed in
                                points and is usually paid by the borrower
Mortgage Banker              Person or firm not otherwise in banking that
                                  normally provides his/its own funds for
                            mortgage financing as opposed to banks that
                               rely on deposits to originate loans- Fee is
                             paid in points at origination and additionally
                                on the outstanding balance each year for
                                                         servicing the loan
Equity                      Difference bw the market value of a property
                                 and the outstanding debt- At closing, the
                                 buyer's equity is the amount of the down
                            payment- The seller's equity is the sale price
                                          minus the debt on the property
Usury                           Charging an interest rate higher than the
                                 legal limit- Protect consumers- When an
                               unscrupulous lender takes advantage of a
                                 consumer's lack of knowledge regarding
                                   lending practices, it's called "predatory
                                lending" (Steering borrowers to high rate
                                 loans, falsifying loan documents, forging
                               signatures, changing terms at closing and
                            requiring credit insurance)- Clients should be
                                  made aware that they are entitled to full
                                disclosure of all charges and loan details
                                                            from the lender
Loan Processor                 Coordinates the loan application process-
                                  Lenders will require an appraisal of the
                                property, a complete credit report and job
                            history and evidence of down payment funds
Qualifying or Debt Ratios       State the % of monthly gross income that
                               can be used to pay the PITI payment on a
                              mortgage loan, and the % of monthly gross
                              that can be used to cover all debt including
                                the PITI- 28%-36% would be typical debt
Private Mortgage Insurance (PMI)           Protects/Insures the lender's exposure to risk
                                               (if a borrower has less than 20% equity in
                                             the property)/(Top 20-25% of loan)- Allows
                                                  for the purchase of a home with a small
                                                     down payment- Found on a high LTV
                                                (private) conventional loan: conventional,
                                              fixed rate, term, blanket, package, budget,
                                                   balloon, participation, open-end, ARM,
                                                construction, wraparound, GPM, reverse
                                                                        annuity, sub-prime
Discount Rate                                  Rate banks pay when borrowing from the
                                             Federal Reserve- Raising the discount rate
                                             by the Federal Reserve tightens the money
                                           supply- Raising the reserve requirement also
                                                 tightens the money supply- The Federal
                                                      Reserve controls the money supply
Point                                        1% of the loan amount- Discount points are
                                               prepaid interest and tax deductible- They
                                                   raise the return or yield to the lender-
                                                "Origination Points" are loan processing
                                            fees- They are not tax deductible- Points are
                                                                            paid at closing
Buy Down                                     An upfront payment of points to reduce the
                                                borrower's monthly payment- By paying
                                              points at closing a borrower may secure a
                                                                     lower rate on a loan
Prime Rate                                         The rate banks charge their preferred
Lien Theory State                            The lender has a lien and the borrower has
Title Theory State                         The lender has title until the full loan amount
                                                                                 is satisfied
Down Payment Assistance Programs (DPA's)    Are often linked to a gov't agency, including
                                                State and Federal Veteran's assistance
                                                    programs, local bond programs, and
                                                 incentives from the Federal Gov't- The
                                                largest DAP is the "nehemiah program"
                                                   founded by a Baptist Minister- These
                                            programs are responsible for helping many
                                                        buyers to become home owners
Home Equity Loans                             Are popular bc they have lower rates then
                                                          unsecured debt (credit cards)
NATIONAL SECTIONChapter 5: Laws of                      10 questions will be on the exam
Principal-Agent Relationship                         Fiduciary relationship- Based on trust
Principal                                                                                Client
Disclosure of Agency                         At the time of the 1st meaningful contact with
                                                    a party or prospectEX: For sellers, this
                                              happens at the "listing presentation"EX: For
                                             buyers, this happens on their 1st visit to your
3 Methods of Creating Agency                   Written! These are employment contracts1.
                                              Buyer's Representation Agreement2. Listing
                                                    Agreement3. Management Agreement
1. Buyer's Representation Agreement            Obligates the broker to act as a fiduciary to
                                                                                  the buyer
2. Listing Agreement                           Obligates the broker to act as a fiduciary to
                                                                                   the seller
3. Management Agreement                      Obligates the broker/property manager to act
                                                               as a fiduciary to the owner
2 Levels of Responsibility as Licensees in              1. Public Responsibility2. Fiduciary
Agency Relationships                                                         Responsibility
1. Public Responsibility                        Honesty, fairness, disclose material facts,
                                              use fair business practices, handle all funds
                                               with care, and be responsible for written or
                                              verbal statements- These are your duties to
                                                 customers or 3rd parties in a transaction
2. Fiduciary Responsibility                    Put the interests of your client first- Give full
                                             disclosure to your client (advice and opinions
                                                 in addition to disclosing all pertinent facts
                                                      (material and other)- Exhibit trust and
                                               honesty- Exercise good business judgment
                                             when working on behalf of your principal- Be
                                              loyal to your principal- Be competent- These
                                                               are your duties to your client
5 Ways Agency may also be Created                       1. Oral Agency2. Implied Agency3.
                                                           Ostensible Agency4. Agency by
                                                         Ratification5. Agency by Estoppel
1. Oral Agency                                    A spoken or oral agreement- Will not be
                                                upheld by the courts against the principal,
                                                        but it will be binding on the agent
2. Implied Agency                            By custom in the industry, usual or
                                   customary- Typically accompanies a written
                                   agreement but is not included in writing bc it
                                    is considered to be understood- This is the
                                      usual in residential salesEX: If a licensee
                                   secures a residential listing it is implied that
                                    the property may be shown 7 days a week
3. Ostensible Agency                   By actions which lead others to assume
                                   authority- Created when a licensee acts like
                                         an agent and others respond to those
4. Agency by Ratification          An agent acts without permission- When the
                                         principal learns of those actions, if the
                                     principal accepts those actions, or ratifies
                                               them, this relationship is created
5. Agency by Estoppel                     When a principal fails to maintain due
                                    diligence over his agent and as a result the
                                  court prevents the principal from denying that
3 Categories of Agencies               1. Universal Agency2. General Agency3.
                                                     Special or Limited Agency
1. Universal Agency                Very broad in scope- The principal gives his
                                     agent the power to transact matters of all
                                      types for him- This is rarely found in real
2. General Agency                        Gives the agent the power to bind his
                                  principal in a particular trade or businessEX:
                                        Owner - Property ManagerEX: Broker -
3. Special or Limited Agency         Gives the agent the power to perform only
                                   specific acts and no others- This agent does
                                                   not have the power to bind his
                                                client/principalEX: seller - broker
Principal's Duties to an Agent    CRIPCompensationReimbursementIndemnifi
Agent's Duties to his Principal                                      OLD
                                            lityAccountingReasonable Care
What is NOT a Duty?                                                        Trust!!!
The Standard of Conduct that Licensees      - Enter all broker-client relationships and/or
Observe                                          show property to all equally- Receive all
                                                  formal offers and communicate them to
                                            owners- Exert your best efforts to conclude
                                           all transactions- Provide equal opportunities
                                           for employment- No right or responsibility to
                                             reveal info on protected categories (by the
                                         fair housing laws)- Never induce panic selling
                                                      (blockbusting)- Never discriminate in
                                                            advertising- Brokers many share
                                           commissions with their salespeople or other
                                            brokers- Blind ads are prohibited, ads must
                                          always indicate licensed status- Dual agency
                                                   is still practiced in some state (Brokers
                                                represents both parties with their written
                                                        permission, but they may appoint a
                                             designated agent to represent the buyer or
                                                  seller)---IN TEXAS, this is similar to the
                                            appointed associate under an intermediary
                                               ("Intermediary" instead of "Dual Agency")
Dual Agency or Intermediary                Permitted if both buyer and seller agree in
                                          writing- Info about your role should be given
                                          before a party reveals any confidential info-
                                           Easiest duty of a dual agent is accounting-
                                          For all other duties the buyer and seller can
                                                               have opposing interests
4 Types of Listings                           Must be in writing to satisfy the Statute of
                                           Frauds- All listings are taken in the name of
                                               the broker and become his property- The
                                           seller can extent listings in writing- They will
                                              automatically terminate on the agreement
                                         termination date, with some exceptions- Only
                                           a broker may earn a commission and only a
                                                broker may sue to collect a commission-
                                           Brokers may sue a seller who has defaulted
                                             on a listing agreement or a buyer who has
                                                   defaulted on a buyer's representation
                                             agreement- There are certain measures to
                                            be taken to ensure commission will be paid
                                         in a suit1. Open Listing2. Exclusive Agency3.
                                                     Exclusive Right to Sell4. Net Listing
1. Open Listing                          Owner reserves the right to list with as many
                                         brokers as he chooses- Reserves the right to
                                           sell the property himself and avoid paying a
                                          commission- Major Concern: is agent loyalty
2. Exclusive Agency                           Broker is the exclusive agent and receives
                                              the commission unless the seller sells the
                                              property himself- Seller competes with his
3. Exclusive Right To Sell                   Broker is the exclusive agent, and receives
                                              the commission even if the seller sells the
                                            property himself- Eliminates most procuring
                                                  cause controversies- This is the type of
                                              listing a broker wants!!- MOST COMMON
4. Net Listing                              All money over the amount the owner wants
                                           for the sales of the property is treated as the
                                            broker's commission- Seller can be at risk if
                                              he is dealing with an unscrupulous broker
Factors that will Terminate a Listing or       - Fulfillment of purpose- Abandonment or
Buyer's Representation Agreement           cancellation by the broker- Revocation by the
                                             principal/client- Mutual consent- Acts of law
                                                 (Bankruptcy of seller or broker, Death of
                                            either party, Destruction of the property, and
                                             A change in property use by outside forces
                                                                               like zoning)
In order to be Successful in a suit for     The Broker must…- Be the procuring cause
Commission...                                   of the sale or produce a purchaser who is
                                                    ready, willing, and able to buy- Have a
                                                 compensation/employment agreement in
                                                writing to enforce it (In verbal agreements
                                            your seen as a volunteer, so no commission
                                            will be paid)- Licensed by TREC- Advise the
                                                  purchaser in writing to have the abstract
                                                 examined by an attorney or to obtain title
                                                 insurance EVERY TIME before making a
                                                 transactions (Failure to do this precludes
                                           payment of any commission to the agent and
                                             can also cause suspension of revocation of
                                           a license) (AKAL if you don't they can get out
                                                              of paying you a commission)
Most significant Impact on Real Estate                                       Commission
Commissions                           Are always negotiable, there's no standard of
                                           fixed rate- Any attempt at price-fixing is a
                                      violation- An agreement by brokers to confer
                                      with one another regarding their commission
                                      rates would be a violation- Any agreement to
                                        limit competition by assigning market areas
                                              would also be a violation- Boycotting of
                                           discount brokers is also prohibited- Since
                                          commission are negotiable, different client
                                           might pay different commissions- Once a
                                          commission is negotiated it belongs to the
                                      broker, therefore the division of commissions
                                                     is at the discretion of that broker
Agency Coupled with Interest              When an agent is the seller or buyer in a
                                            transaction- Dual role must always be
Subagent                               An agent for a person who is already acting
                                           as an agent for a principalEX: The listing
                                       salesperson sponsored by the listing broker
                                          is the subagent of the listing broker**The
                                         definition is different from the one used in
Case Where a Broker May Refuse a         He can do this "at will" as long as he's not
Prospect                                 doing so for reasons prohibited by the Fair
                                                                        Housing Acts
NATIONAL SECTIONChapter 6: Mandated                  7 questions will be on the exam
Things that must be Disclosed         Disclosing everything about a property is the
                                       best way to avoid lawsuits- All material facts
                                             of the property must be disclosed- This
                                      includes ANYTHING that might influence the
                                            decision of a purchaser- Avoids fraud or
                                        misrepresentations1. Death on the property
                                             due to a material defect2. Death due to
                                         violent crime (murder) or alleged haunting
                                       (stigmatized)3. Residences of known sexual
                                           offenders is not required to be disclosed,
                                        BUT if a buyer asks about it your supposed
                                      to refer them to local info sources4. Latent or
                                              hidden defects (EX: encroachments or
                                              zoning or deed restrictions)5. Material
                                       Facts6. Public Controls, Statutes, and Public
Things that must be Disclosed                Disclosing everything about a property is the
                                              best way to avoid lawsuits- All material facts
                                                    of the property must be disclosed- This
                                             includes ANYTHING that might influence the
                                                   decision of a purchaser- Avoids fraud or
                                               misrepresentations1. Death on the property
                                                    due to a material defect2. Death due to
                                                violent crime (murder) or alleged haunting
                                              (stigmatized)3. Residences of known sexual
                                                  offenders is not required to be disclosed,
                                               BUT if a buyer asks about it your supposed
                                             to refer them to local info sources4. Latent or
                                                     hidden defects (EX: encroachments or
                                                     zoning or deed restrictions)5. Material
                                              Facts6. Public Controls, Statutes, and Public
Things Agents are NOT Required to Disclose     Death by natural causes or suicide- Death
                                                                        due to HIV/Aids
Stigmatized                                    A property where there has been a murder
                                                       or alleged haunting- It's considered
                                                     stigmatized if it is in the vicinity of the
                                                     residence of a known sexual offender
                                                    (Megan's Law)- BUT a licensee is not
                                                 required to disclose this info BUT should
                                              refer buyers to local info sources if they ask
                                                                                        about it
Megan's Law                                     Federal law requiring all states to release
                                             info to the public about known convicted sex
                                                 offenders when necessary to protect the
                                                                             public's safety
Fraud and Misrepresentation                        Must be avoided- A seller who asks a
                                                   licensee to misrepresent the property
                                               condition should be denied representation
Puffing                                       Not misrepresentation, it's marketing- Uses
                                             adjectives and opinions rather than details or
                                                  facts (EX: "most beautiful landscaping")-
                                                          Exaggerated puffing can lead to
                                                 misrepresentation (EX: "Best water in the
Seller's Disclosure                                      Seller is responsible for preparing it and
                                                         making sure it's accurate- Agent's must
                                                       encourage honestly and full disclosure to
                                                   their sellers when filling out this form- Courts
                                                                have decreed that it's the broker's
                                                     responsibility to discover and disclose that
                                                  there may be problems on a property as long
                                                    as they are accessible for visual inspection-
                                                    Errors & Omissions Insurance can protect a
                                                      broker if the seller misrepresents property
                                                          condition, the broker is unaware of the
                                                          misrepresentation, and could not have
                                                                    detected it by visual inspection
Material Facts to Disclose                         - Land/soil conditions- Pest infestation, toxic
                                                       mold, and other environmental hazards-
                                                      Structural issues (roof, doors, foundation,
                                                          windows)- Condition of electrical and
                                                       plumbing systems and fixtures- Location
                                                  within Natural Hazard or Specially Regulated
                                                      areas (nuclear power plant, land fill, flood
                                                       plains, Wetlands, Endangered species)-
                                                       Potentially uninsurable property- Known
                                                                       alterations and additions
Public Controls, Statutes, and Public Utilities      - Zoning and planning guidelines- School
to be Disclosed                                     districts, Utility districts, Tax districts, Flight
                                                              paths- Homeowner's Associations
Agent's Responsibility in Checking-up on                   Agents are responsible for verifying
their Seller's Disclosure                            statements in these disclosure documents
                                                               about marketing info like age of
                                                    improvements, size of lot and building, and
                                                          property tax amounts- Use of builder
                                                           numbers and tax records is advised
Federal Interstate Land Sales Full Disclosure                 Applies to all unimproved land sold
Act                                                    interstate- Purpose of this law is to avoid
                                                  fraud in marketing land- Developers must file
                                                          with HUD before offering land for sale-
                                                           Property Reports are made and must
                                                  disclose info about the property being sold- If
                                                    a buyer or tenant doesn't receive this report
                                                     before signing, he may void his contract or
Home Buyer's Insurance                             Available in many states for the purchaser's
Home Owners Warranty Corporation (HOW     For new construction, builders use this- 10
Program)                                      year warranty plan covering defects in
                                          material, faulty workmanship and structural
Home Warranty Insurance                   Available on existing homes- Purchased by
                                                the buyer or seller to cover items like
                                                heating, AC, electrical, plumbing and
                                          appliances- There's a deductible and some
                                                 items may be excluded- It's a 1-year
                                                                     renewable policy
8 Hazardous Substances                   Licensees should be aware of these and be
                                             familiar with the nature of environmental
                                         problems and the laws and regulations that
                                          apply1. Radon2. Asbestos3. UFFI4. Lead5.
                                                   Landfills or Waste Disposal Sites6.
                                         Underground Storage Fuel Tanks7. Farming
                                                    Herbicides and Pesticides8 EMF's
1. Radon                                  Naturally occurring colorless and odorless
                                           gas produced by the decay of radioactive
                                         materials in rocks under the ground- Enters
                                              homes through the foundations- HUD
                                         doesn't require radon testing for FHA loans-
                                            "Mitigation" is the term used to describe
                                            methods used to lower levels of radon in
                                                            home and other buildings
2. Asbestos                                    Used to insulate pipes, chimneys, roofs,
                                         flooring materials and siding- Problems arise
                                                  when it's removed bc the dust can be
                                             extremely hazardous- There is no duty for
                                                the seller to remediate the presence of
                                             asbestos, simply to disclose it- To remove
                                        this, the area must be sealed off (the building
                                             doesn't have to be tented) bc it's better to
                                            contain or encapsulate it- Abatement plans
                                          outline the method of handling the control of
                                                           asbestos found in a property
3. Urea Formaldehyde Foam Insulation    Pumped into walls as a foam, it hardens and
(UFFI)                                    insulates- Moisture softens the hardened
                                                 material and causes the release of
                                                                    hazardous gas
4. Lead                                       In paint and pipes and soil- Use the "lead
                                          paint disclosure" for all properties built before
                                            1978- Seller is responsible for providing the
                                           lead paint disclosure, which allows buyers to
                                             waive their right to a lead inspection- Older
                                               homes may have lead plumbing- Lead is
                                               hazardous when eaten or inhaled in dust
                                            particles- There's no duty to remediate lead
5. Landfills or Waste Disposal Sites                 Improperly constructed can lead to
                                           groundwater contamination- Know locations
                                             of this and disclose it- Recommend water
                                                       testing to the sellers and buyers
6. Underground Storage Fuel Tanks           Old rusty or leafing containers can cause
                                              groundwater contamination- Sometimes
                                            found on both commercial and residential
                                                properties, these are commonly called
                                           UST's- Recommend water testing to sellers
                                                                           and buyers
7. Farming Herbicides and Pesticides                   Another source of groundwater
                                           contamination- Recommend water testing to
                                                                both seller and buyer
8. Electromagnetic Fields (EMF's)         High-tension power lines- Know their location
                                                                       and disclose it
Comprehensive Environmental Response      Passed in 1980 to establish a "Superfund" to
Compensation and Liability Act (CERCLA)      clean up hazardous waste and respond to
                                          spills- Sets guidelines for liability - strict, joint
                                               and several, and retroactive (meaning an
                                          owner is personally responsible for the whole
                                              cleanup cost, and liability extends to past
                                                  owners)- In a cash transaction without
                                           inspections the buyer, seller, broker, and all
                                          who contributed to the problem could be held
                                                                         liable for cleanup
NATIONAL SECTIONChapter 7: Contracts                    10 questions will be on the exam
Contracts: To be valid and Enforceable    A contract is a written promise to pay (by the
                                               buyer) and a written promise to deliver a
                                              deed (by the seller)- A properly prepared
                                          contract commits both parties to its terms- To
                                              be valid and enforceable a contract must
                                              have the following1. Competent parties2.
                                           Offer and acceptance (mutual agreement or
                                                meeting of minds)3. Legal purpose4. In
                                             writing (Statute of Frauds)5. Consideration
                                           (Not earnest money)Without #4 the contract
                                                     would be valid, but not enforceable
Statute of Frauds                            All contracts that relate to the transfer of any
                                            interest in real estate must be in writing to be
                                                      enforceable- Verbal agreements are
                                                  voluntary and not enforced by courts, so
                                             avoid doing these bc written agreements will
                                              always take precedence- A lease for 1 year
                                                       or less doesn't have to be in writing
3 Possible Negative Outcomes of Contracts      1. Void/Invalid2. Voidable3. Unenforceable
1. Void/Invalid                              No binding effect on the parties who made it
                                                   (with a person who is documented as
2. Voidable                                   1 party has the right to withdraw (a minor,
                                            someone who signed under duress, or under
                                                       the influence of alcohol or drugs)
3. Unenforceable                                  Will not be enforced by the courts (oral,
                                                            violates the Statute of Frauds)
Express Contract                                                          Written or stated
Express Contract                                                          Written or stated
                                                                    By actions or evidence
"Time is of the Essence"                     A clause in a contract that allows each party
                                                 to hold to strict performance on the date
4 Types of Contracts                          1. Unilateral2. Option3. Bilateral4. Contract
                                                                                   for Deed
1. Unilateral Contract                       Binds only 1 party- An "If…then…" contract-
                                                         An option is a unilateral contract
2. Option Contract                                 The right to purchase property within a
                                                definite time period at a definite price- No
                                              obligation to the purchaser, but the seller is
                                                   obligated to sell- Only 1 party makes a
                                              promise- Only 1 party can be sued- Option
                                              fee goes directly to the seller- To extend an
                                                   option, the buyer would need to pay an
                                                    added fee- When an option has been
                                              completed, the unilateral contract becomes
                                                         bilateral (EX: the 60 days are up!)
3. Bilateral Contract                            Exchange of promises, which binds both
                                                parties- A sales contract is bilateral- Both
                                            parties make promises and both can be sued
Amendment                                           Modification to an existing agreement
4. Contract for Deed    AKA: Installment Contract or Land Contract
                       or Real Estate Contract- Seller financing that
                           doesn't transfer legal title immediately, so
                       this title retention protects the seller bc if the
                                  buyer defaults, the seller can regain
                                 possession (Eviction is cheaper than
                           foreclosure)- All money up to that point is
                            considered rent- This benefits the seller-
                            Parties are "Vendor & Vendee" and both
                                                              must sign
Novation               Substitution of a new contract for an existing
                           one- More common in commercial than
                                                      residential RE
Assignment             Your looking at a property for someone else-
                        When there is substitution of a new party in
                          an existing contract (AKA: the person that
                       you think is buying your property will say "oh
                          Jerry Jones is actually buying your land")-
                       This may be used to shield the identity of the
Offer                   A properly completed form with a price less
                             than, equal to, or more than the seller's
                               asking price and signed by the buyer-
                       Purpose is to open negotiations bc the buyer
                        and seller- Offer may be called a "purchase
                       agreement"- It can be withdrawn at any time
                         prior to acceptance- All written offers must
                         be presented to the seller- An offer can be
                          accepted, rejected, or countered- Can be
                        communicated by phone, fax, e-mail, letter,
                           or hand delivery, but the only offer that is
                         binding is one in writing and signed by the
                         offeror, which will become a contract once
                                acceptance has been communicated
                            ("notification") to the offering party, then
                            commission is considered to be earned
Counteroffer            A rejection of the offer and the presentation
                              of a new offer- Purpose is to continue
                        negotiations and work towards agreement-
                          Usually accepts some of the terms of the
                                    original offer and changes other
Earnest Money            It's how much you are legitimately good for-
                            Not necessary in a sales contract; it is not
                       the consideration- The amount is determined
                                         by agreement of the parties
Effective Date                              On a contract- The date on which the last
                                                                         party signs
Fully Executed Contract                      When all the terms and conditions of the
                                          contract have been met and carried out- It's
                                              considered "performed' or "discharged"
Executory Contract                         A contract that's signed but not yet carried
                                                             outEX: Contract for Deed
Reasons for Contract Termination          Bankruptcy, foreclosure, new laws making it
                                             illegal, destruction of the property, brokers
                                          license is revoked- BUT if 1 of the parties to
                                            a contract dies, the contract will be binding
                                                                             on the heirs
Contingency                               A condition in a contract which has not yet
                                         been met- Common ones are: financing, the
                                            sale of another property, and inspections
Mutual Rescission                               If a contingency (financing, the sale of
                                           another property, or inspections) cannot be
                                           met, if 1 party cancels the agreements and
                                           the other accepts the cancellation, or if the
                                          parties agree to cancellation, the contract is
                                          terminated- If the parties agree to cancel or
                                                      a contingency cannot be met, the
                                          cancellation or mutual rescission should be
                                                             done by written agreement
Default                                  Non-performance of a duty under a contract-
                                             When 1 of the parties to the contract is in
                                                default, then the agreement has been
                                            breached- The "injured party" has several
                                         options (seller or buyer)- If the contract is not
                                           a contract of sale, partial performance may
                                              be acceptable option (EX: in a LT lease,
                                          either the lessee or lessor may be willing to
                                           accept partial performance upon default by
                                                                         the other party)
Seller's Options if the Buyer Defaults   * Hold the other party to his duties through a
                                               "suit for specific performance"* Sue for
                                                  money damages* Accept liquidated
                                             damages (the seller chooses to keep the
                                           earnest money deposit)* Decide on mutual
Buyer's Options if the Seller Defaults   * Hold the other party to his duties through a
                                               "suit for specific performance"* Sue for
                                                  money damages* Decide on mutual
                                            rescission and recover the earnest money
7 Agreements that must follow Real Estate          1. Listing Agreements2. Management
Contract Guidelines                                 Agreements3. Buyer Representation
                                               Agreements4. Lease and Lease Purchase
                                                   Agreements5. Options6. Right of First
                                                  Refusal7. Cancellation and Rescission
4 Requirements of a Valid Lease                      1. Competent parties2. Let and take
                                            agreement3. Adequate consideration4. Legal
                                               purpose** lease agreements for 1 year or
                                                  less are the exception to the statute of
                                                Frauds, so they are not required to be in
                                                         writing, but it is recommended **
4 Recommended Requirements of a Valid                1. Description of the property (a legal
Lease                                         description is not required, a street address
                                             is sufficient)2. Execution - lessor and lessee
                                                               must sign3. Term4. Delivery
Right of First Refusal                          Some leases contain this- The tenant has
                                              the right to match or better any offer before
                                                the property will be sold to someone else
Lease-Purchase Agreement                       A lease with an option to purchase can be
                                                negotiated- It gives the tenant occupancy
                                                now and the right to purchase at a future
                                                 date- Price is set when the agreement is
                                                         negotiated- Advantageous to the
NATIONAL SECTIONChapter 8: Transfer of                    4 questions will be on the exam
Chain of Title                                      List of all owners of the property of a
                                                 succession of conveyances whereby the
                                                               present owner obtained title
Abstract of Title                                 Complete history of all recorded events
                                                            affecting title to the property
Title Report                                A preliminary report- The current condition of
                                                     the title- The basis for the title policy
2 Processes during Closing when Financing     1) Closing of the loan bw the buyer and the
is Involved                                       lender, which provides the funds for the
                                                     2nd2) Closing on the property is the
                                                           execution of the sales contract
Real Estate Settlement Procedure Act              Regulates closing on 1-4 family residential
(RESPA)                                        property with federally related financing- Apt
                                                    complexes not covered- Administered by
                                               HUD- They allow any party to the transaction
                                                to choose the title co. and any party can pay
                                                   for the policy- Prohibits kickbacks- Places
                                                      restrictions on requirements for tax and
                                                insurance escrow accounts (no more than 2
                                                    months in advance)- Requires lenders to
                                                         supply the borrower with a good faith
                                                  estimate of closing costs within 3 business
                                               days of loan application- Requires use of the
                                                    HUD Uniform Settlement Statement form
HUD Uniform Settlement Statement (HUD-1)          Presented to divide charges and expenses
                                                    bw the buyer and seller- Often called the
                                                         "closing statement" and includes the
                                                       "prorations"- Usually prorate "through"
                                                closing day, which means the seller pays for
                                                   closing day- If we prorate "to" closing day,
                                                 then closing day is negotiable- The buyer is
                                               credited for the loan amount and the earnest
                                                money deposit- The seller gets credit for the
                                               sales price- A loan assumption will be shown
                                                    as a debit to the seller and a credit to the
Debit the Seller and Credit the Buyer          For…* Unpaid taxes* Unearned rent* Tenant
                                                                       security deposits
Debit the Seller with No Entry for the Buyer          For…* Accrued interest* Existing loan
                                                         payoff* Fees necessary to furnish
                                                                           marketable title
Debit the Buyer and Credit the Seller          For…*Homeowner association fees* Prepaid
                                                                 taxes* Fuel in the tank
Debit the Buyer and No Entry to the Seller     For…* Prepaid interest* Charges associated
                                                                 with the loan (EX: points)
Escrow Agent                                       Responsible for closing the transaction as
                                                  set forth in the sales contract or preventing
                                               closing unless both buyer and seller agree to
                                                  any changes in the contract terms- Seller's
                                                 deed and buyer's money are deposited with
                                               the escrow account, THEN the agent records
                                                 the deed once title conditions and any other
                                                      requirement of the agreement are met,
                                               THEN the title passes to the buyer, the seller
                                                             receives his funds and the sale is
                                                           completedNOTE: similar to Paypal
Alienation                       Anytime there is a change of ownership of
                                real propertyVoluntary: Owner transfers the
                               deedInvoluntary: Court transfers the deed or
                                     nature can just take your land from you
Voluntary Alienation                Owner transfers title to another- Usually
                                involves a written document (EX: deed, will,
                                                        or power-of-attorney)
Involuntary Alienation               Usually happens in court (foreclosure,
                               bankruptcy, condemnation, escheat, adverse
                                  possession, or inheritance without a will)-
                                 Can occur from natural causes (accretion,
                                            avulsion, erosion, and reliction)
Conveyance                     Any instrument or document that transfers an
                                interest in real property- Ownership is most
                                     often transferred by deed, patent or will
Requirements of a Valid Deed      1. Competent parties (Grantor/Grantee)2.
                                    Consideration3. Words of Conveyance4.
                                 Execution5. Delivery6. Legal description of
                               the propertyIT HAS TO BE SIGNED BY THE
                                    GRANTOR AND DOESN'T REQUIRE A
2. Consideration                  Binds both people to a contract- It doesn't
                                     have to be money, but if it is, it's usually
                                    $100,000-$150,000EX: "I'll give you this
                               house for your yacht"Legal consideration can
                                        be "good" or "valuable"EX: "love and
                                affection" is "good" considerationEX: Money
                                                   is "valuable" consideration
3. Words of Conveyance         The granting clause- A written statement that
                               indicates the transfer of some interest in real
                                          property from 1 person to another-
                                 Habendum Clause or "to have and to hold"
                                                   clause usually follows this
4. Execution                                  The grantor must sign the deed
5. Delivery                     Title doesn't pass until the deed is delivered
                                   and accepted- Delivery can be in escrow-
                                 Must be made during the life of the grantor
4 Types of Deeds                       1. General Warranty Deed2. Special
                                 Warranty Deed3. Bargain and Sale Deed4.
                                                           Quitclaim Deed
1. General Warranty Deed                   Guarantees and protects against defects-
                                           Offers buyer the best protection- Warrants
                                              title to the sovereignty of the soil- Most
                                        common deed and the one mentioned in the
                                               sales contract- A buyer who wishes to
                                        ensure that the seller is conveying good title
                                              should request this- Promises from the
                                                  grantor to the grantee regarding the
                                          condition of title are called "convanants" or
3 Convenants                              1. The Covenant of Seizen2. The Covenant
                                           against Encumbrances3. The Covenant of
                                                                   Quiet Enjoyment
1. The Covenant of Seizen               The owner owns and has the right to sell the
2. The Covenant Against Encumberances       Any limits to the title are state in the deed
3. The Covenant of Quiet Enjoyment       The Grantee is entitled to uninterrupted use
                                                                       of the property
2. Special Warranty Deed                 Guarantees title only against defects arising
                                            under the grantor's period of ownership-
                                            Defects existing before that time are not
3. Bargain and Sale Deed                   Only has 1 covenant- Trustees, executors,
                                           sheriffs, and officers of the court use this-
                                           Doesn't provide any warrantees about the
                                            condition of the title- It only promises the
                                                   grantor has the right to convey title
4. Quitclaim Deed                         Gives NO warrantees or guarantees- Offers
                                        the least protection- Used to clear a cloud on
                                          the title or to cure a defect in title- If there is
                                            a cloud on the title and no one available to
                                         sign a "Quitclaim Deed" to cure that cloud, a
                                           court action called a "Quiet Title Suit" or an
                                        "Action to Quiet Title" will correct the problem
Patent                                   When the gov't transfers title to an individual
Dedication                              When a developer turns over the streets in a
                                                  subdivision to the local gov't- It's
                                           accomplished by recording the plat plan
Testator                                                           One who makes a will
Testate                                                         One who has a valid will
Executor                                    The person named in the will to settle the
Title by Devise                                   Inheritance by will
Intestate                                         One without a will
Administrator        Appointed by the court to settle the estate of
                    an intestate (dies without a will)- Property will
                          be distributed according to the "Laws of
                              Descent" and heir will have "Title by
Attorney-In-Fact      Someone who has power of attorney to act
                       for another- Many not act for another after
                                             that person's death
Probate                 The judicial process to prove or confirm a
                             will- Title to real property transfers at
                      probate- Must begin within 4 years of death
Recording a Title        Recording is not a requirement of a valid
                      deed- Gives "constructive notice" (written or
                             just taking possession of property) of
                      ownership and to protect against fraudulent
                     sale- Is always done in the county where the
                         property is located- A document must be
                        acknowledged before is can be recorded-
                    Document must be in english- Time and date
                         of recording establishes priority, which is
                    done at the county clerk's office on M-F 8 am
                                                        to 4:30 pm
Acknowledgement       A declaration to a notary authorized to take
                            oaths that the signature is a free and
                         voluntary act- This verifies the signature
Title Insurance                 Policy that agrees to compensate the insured
                                   against any losses sustained resulting from
                                   defects of title (forged deeds, illegal acts of
                                        trustees, guardians, or attorneys, false
                                       claims of ownership and human error in
                                   copying or recording, loss or destruction of
                                  records), other than the exemptions listed in
                                  the policy- The company will defend the title
                                        at its own expense and pay any claims
                                   against the property if the title proves to be
                                   defective- Insurance will not pay for defects
                                   known to the buyer prior to the policy being
                                 issued- Insurance must compensate owners
                                for defects missed by the title company in it's
                                      search processes- Premiums are paid 1
                                time- New policies must be issued each time
                                         the property changes ownership, or is
                                          refinanced- May contain "subrogation
                                    clauses" which allows the title company to
                                  assume the rights of a buyer with respect to
                                 any claim against a seller, if they have made
                                        payments to that buyer to satisfy them-
                                 Unlike other types of insurance, protection is
                                                      for the PAST not the future
Essentials of Title Insurance    Examination of public records to compile an
                                   abstract of title, that's viewed and given an
                                opinion by the title company attorney- A "title
                                         report" is prepared, obligating the title
                                     insurance company to issue a title policy
                                 when any requirements have been met--- A
                                      policy will be issued when the premium,
                                which is set by the State Board of Insurance,
                                    is paid off/at closing--- The owner's policy
                                      will protect the buyer up to the purchase
                                price--- The lender's (mortgagee's) policy will
                                protect the lender up to the outstanding loan
                                   balance (The lender's coverage decline as
                                                             the debt is satisfied)
IRS Tax Code                                            A major advantage to the owners of
                                                         investment property is the ability to
                                             depreciate their investment on their income
                                                tax return- On income producing property
                                                        land can never be depreciated, only
                                             improvements can be depreciated (Straight
                                                   Line Method) (Economic Life)- Permits
                                                    "tax-deferred exchanges"- Can have a
                                                   tax-free capital gain on the sale of real
                                               property up to $250,000 if it's the principal
                                               residence for at least 2 of the last 5 years-
                                             Can have a tax-free capital gain on the sale
                                           of real property up to $500,000 to individuals
                                             who apply as "married, filing separately" on
                                              their income taxes and they can do this an
                                            unlimited number of time- A homeowner can
                                           deduct his property taxes and the interest on
                                                         his mortgage and deduct point and
                                             prepayment penalties on loans- Owner of a
                                            1-family home can depreciate the property if
                                                    it is used as "rental property"- 1st time
                                                 homebuyers may withdraw up to $10,000
                                              from individual retirement accounts (IRA's)
                                           without penalty, (but not without tax) for down
                                                                        payment on a home
Economic Life                                     The period during with improvements
                                           contribute to value or are being depreciated-
                                             When improvements are fully depreciated,
                                                     that is the end of the economic life
Tax-Deferred Exchanges                           IRS permits this- RE investors can defer
                                                    taxation of capital gains by making a
                                                 property exchange- Additional capital or
                                           property included in a transaction to even out
                                              the exchange is called "boot" (taxed at the
                                               time of exchange)- Investor must hold the
                                                                      property for 2 years
Foreign Investment and Real Property Tax        Law passed to ensure that nonresident
Act                                              aliens and foreign corporations pay US
                                           income tax on gains from the sale of US real
                                            property- Title company will withhold 10% of
                                                    the seller's sale price over $300,000
Legal vs. Equitable Title                   Upon creation of a binding offer to purchase,
                                             the seller holds legal title for the buyer who
                                              has equitable title- "Legal title" transfers at
                                                 closing, SO a buyer with a signed sales
                                           contract who has not yet gone to closing, has
                                                                             "equitable title"
Foreclosure                                    Legal process instituted by a Trustee, lien
                                            holder or creditor, after a debtor's default on
                                                his payment- AKA: the lender begins the
                                          foreclosure- Any excess money left over from
                                                  the forced sale is given to the debtor- If
                                             there's a shortage, the lender may sue the
                                           borrower for a "Deficiency Judgment"- Under
                                                the Deed of Trust ends when the trustee
                                          delivers Trustee's Deed to the buyer, but if he
                                           fails to, the buyer may use a "Vendee's Lien"
                                                  to protect his interest- At foreclosure all
                                              junior liens against the property are wiped
                                            out- An alternative to foreclosure is "deed in
                                                                        lieu of foreclosure"
Deed In Lieu Of Foreclosure                    Alternative to Foreclosure- AKA: "friendly
                                                foreclosure" or "voluntary deed"- Lender
                                                  accepts a deed from the borrower and
                                           accept any junior liens on the property- This
                                           is the fastest way for the lender to get title to
                                                                             the property
Redemption                                 At any time up to the moment of foreclosure
                                          the borrower has the right to step in and pay
                                           what he owes and reclaim property forfeited
                                          due to mortgage default- Lender's prefer this
                                            method- Notices must be provided 21 days
                                           before the foreclosure sale by certified mail-
                                                 The only requirement is that the lender
                                              sends it, not that the borrower receives it-
                                            Notice of foreclosure must be posted at the
                                             door of the country courthouse and filed in
                                           the county clerks office- Will be recorded as
                                                "Lis Pendens," which gives constructive
                                              notice that a lawsuit affecting a particular
                                                 property has been filed and is pending
Short Sale                                  Sale of secured real property that produces
                                               less money than is owed the lender- The
                                             lender releases its lien so property can be
                                                sold to the new purchaser- Lender often
                                                        requires that brokers adjust their
                                           commissions on these transactions- Lender
                                           saves the delay and expense of foreclosure-
                                              WIll result in a negative note on the credit
                                          report of the defaulting borrower and a hit up
                                               to 200 points in credit score, but is better
                                                                       than a foreclosure
NATIONAL SECTIONChapter 9: Practices of                12 questions will be on the exam
Real Estate
Trust Accounts                                  Holds client's funds- Brokers act as escrow
                                                 agents by accepting or depositing earnest
                                               money into a special trust account, so that all
                                                 the client's funds can be kept in the same
                                                     account as long as written records are
                                                       maintained- No commingling and no
                                                conversion is allowed with this money- Title
                                                   companies and attorneys will also have
                                                   these accounts for holding clients funds
Commingling                                      When a broker mixes client money with his
                                                             funds (business or personal)
Conversion                                           When a broker uses a client's money or
                                                     commingled funds for his own purpose
Civil Rights Act of 1866                         Prohibits discrimination based on color- No
                                                       exceptions or exemptions for this law
Federal Fair Housing Act (AKA: Title VIII of      Forbids discrimination on the basis of race,
the Civil Rights Act of 1968)                      color, national origin, and religion- A 1974
                                                        amendment added sex as a protected
                                                 category- A 1988 amendment added family
                                                   composition/familial status (minor living w/
                                                    parent or guardian) and the handicapped
                                                     (mental or physical impairment including
                                                 recovering alcoholics or drug users or AIDs
                                                victims == tenants may modify an apartment
                                                            to meet his needs AT THEIR OWN
                                                EXPENSE, but must be willing to restore the
                                               apt before moving out if the landlord requires
                                                      it) as a protected category- Age is NOT
                                                    covered, except for senior housing where
                                                     80% of the people must be over age 55-
                                                       NOTE: a landlord can refuse to lease a
                                                        mentally handicapped tenant who is a
                                                     danger to himself and others- Violations:
                                                  higher security deposits, segregating any 1
                                               category from any other, or refusing to permit
                                                      a tenant to modify retail space- The law
                                                           prohibits blockbusting and steering,
                                                       discrimination in advertising (EX: a tiny
                                               house could be advertised as "cozy for 2" but
                                                       NOT as "perfect for a couple") or using
                                                        terms for describe or imply the type of
                                                    person who might live on or in a property
                                                 (EX: no irish, no wheelchairs)- Every broker
                                                must display the Equal Housing Opportunity
Violations of the Federal Fair Housing Act            Result in economic (max. for a single
                                                  violation is $110,000) and non-economic
                                                        damages, issue injunctions, assess
                                                 attorney's fees and assess civil penalties-
                                                  There are NO criminal penalties- Victims
                                                    have up to 1 year to file a complaint- A
                                              licensee's best defense is written records of
                                                 his interaction with clients and prospects-
                                              This law is administered by HUD, so when a
                                                    complaint is made to them, they will try
                                                  mediation and conciliation to resolve the
                                               problem before pursuing the matter in court
Exceptions to the Federal Fair Housing Act   1. FSBO of a 1-family home when the owner
                                               owns no more then 3 homes at a time and
                                                   no discriminatory advertising is used2.
                                                   Rental of an owner occupied 1-4 family
                                              home when the services of a broker are not
                                                 used and no discriminatory advertising is
                                             used3. Churches owning rental property may
                                                    restrict occupancy to members of the
                                              congregation, as long as membership in the
                                                congregation is open to all4. Private clubs
                                               owning lodgings may restrict occupancy to
                                                 members as long as the lodgings are not
                                                                   operated commercially
Blockbusting                                  Causing panic selling by homeowners- AKA
                                                                         "Panic Peddling"
Steering                                        Directing buyers into or away from certain
                                                    areas bc of their race, color, etc- AKA
Americans with Disabilities Act (ADA)             Passed in 1990 to prohibit discrimination
                                                      against ppl w/ disabilities- Removal of
                                                barriers, installation of ramps, levered door
                                                  handles, wheel chair access, lowering of
                                                     telephones, use of markers of elevator
                                                   buttons, and flashing lights in addition to
                                              sirens are some requirements- Supports the
                                                     employment of qualified job applicants
                                                        regardless of their disability- All new
                                                 construction must adhere to these laws of
                                                 accessibility- EXEMPTIONS: single-family
                                                 homes, churches, and historical buildings-
                                             For commercial properties, both landlord and
                                                  tenants will be found liable- PENALTIES:
                                                    $50,000 for the first violation and up to
                                                         $100,000 for subsequent violations
Brokerage                     Aspect of real estate business that pertains
                               to overseeing the needs of the parties and
                                 completing the transaction- Not "agency"
General Agent                  A licensee sponsored by a broker, which is
                               established by written agreement called an
                                  employment contract- They are "general
                                                    agents" for that broker
Employment Contract             Covers the matters of…- Compensation-
                                Training- Hours- Company identification-
                              Fees and dues- Expenses- Fringe benefits-
                                    Territory- Withholding- Termination of
                                employment- General office policies and
Independent Contractor               Most common for of licensee- Must be
                                     established in writing between parties-
                                Associate: must have a real estate license
                              and 90% or more of his income must come
                               from production, rather than hours worked-
                              Broker: cannot require his sales associates
                                       to work strictly scheduled hours w/o
                                   jeopardizing this independent contractor
                                  status with the IRS (as seen on the 1099
                              MISC), he CAN'T required set hours, but he
                             CAN require a full-time commitment, also the
                               broker is liable for the acts of the licensees
                                he sponsors (kept in check by training and
                              supervision)- Independent Contractor: must
                                   agree to pay all of his own payroll taxes,
                               none will be withheld from any payment he
General Ethics: Competence    Licensees should practice within his area of
                                 "competence"EX: a new licensee with no
                              specific background or education in finance
                                     or investing would not be considered
                                       "competent" to represent a client in
                                           purchasing investment property
General Ethics: Unlawful Practice of Law   Licensees are prohibited from practicing law
                                                          w/o a law licenseEX: giving legal
                                               interpretations of documents involved in a
                                                  transaction, preparing legal docs (wills,
                                                      contracts, deeds, or deeds of trust),
                                            advertising a client on how to take title, and
                                           discouraging clients from seeking the advice
                                            of an attorney in negotiations which involve
                                                 special terms and conditions- Advising a
                                                 client to see an attorney should be done
                                                 before they sign anything he/she doesn't
                                                      understand- A licensee can be held
                                              financially responsible for any loss a client
                                           suffers if it is determined that the loss was a
                                             result of the licensee's unlawful practice of
NATIONAL SECTIONChapter 10: Specialty                   4 questions will be on the exam
Percentage Rent                            Lease in which all or part of the rent amount
                                               is based on the receipts of the tenant's
                                                business- Typical for shopping centers
Contract Rent                              Rental income as stipulated by the parties in
                                                                             a contract
Economic Rent                               Rent the property could currently command
                                                                    on the open market
Subletting                                 Transfer of rights under a lease, with liability
                                                                remaining with the lease
Sale and Leaseback                         One party sells the property and then leases
                                              it back, usually for a LT lease- It frees up
                                                                     capital to the lessee
Expiration                                  When a lease agreement comes to the end
                                                                         of its term
Termination                                When the time period on a lease is cut short
Mutual Rescission                          When a lease is terminated by agreement of
                                                                           the parties
Constructive Eviction                              Occurs when the landlord allows the
                                           property condition to deteriorate to the point
                                              that the building is uninhabitable and the
                                                             tenants are forced to leave
Gross Lease                                   The landlord pays all the expenses of the
                                                    property- The tenant pays only rent
Net Lease              Tenant pays rent + some of the expenses of
                                                      the property
Time Share                Part ownership of a property coupled with
                        the right to exclusive use of it for a specified
                                     number of days per year w/o the
                       responsibility of full ownership- AKA "interval
                                 ownership"- It's tenancy in common
                       ownership- This is most often used for resort
                                                or vacation properties
Cooperative (Co-op)             Land and buildings are owned by a
                            corporation- Tenants own shares in the
                        corporation, and have a propriety lease on
                             their unit- The corporation pays for the
                            mortgage, property taxes, and building
                          maintenance- Residents have a personal
                        property interest in their units and common
Condominiums            Laws referred to as horizontal property acts
                       are generally the base for condos- Each unit
                             is a separate legal ownership and each
                                 resident arranges his own financing-
                          Property taxes are assessed on each unit
                                  separately- Taxes are based on the
                          assessed value of the unit (market value)-
                            Not necessary for the taxing authority to
                                   assess and tax the common areas
                        separately- Monthly condo fees have noting
                         to do with taxes for common areas- Condo
                       managers work for resident owners and their
                          main responsibility is to preserve property
                            values- Condo residents are required to
                                                     observe by-laws
Property Manager              A general agent with a broad scope of
                               responsibilities and liabilities- Signs a
                        management agreement- Needs Errors and
                                 Omissions Insurance- Their job is to
                       preserve the value of an investment property
                        while generating income as an agent for the
                           owners- Key responsibility is to generate
                              income for the owner- Makes periodic
                            reports to the owner- Gets Property and
                                                  Casualty Insurance
Management Agreement        Used to create a property management
                               relationship and define the role and
                                       responsibilities of the agent
Property and Casualty Insurance                  Necessary to compensate any individuals
                                                      who may be injured on the property
Surety Bond                                    Contractors or employees who handle cash
                                               or the private property of tenants should be
Developer                                     Purchases undeveloped property and divides
                                                               it into lots for development
Builder                                       Constructs buildings on land and sells them-
                                                 Must comply with local zoning, municipal
                                                          development guidelines and any
                                                   environmental regulations- Required to
                                                  followed deed restrictions placed by the
                                              developer- All development must provide for
                                               water, sewer, and utility easements- If they
                                                build w/o a permit, he may be required to
                                                                    take down the building
Certificate of Occupancy                           Most often required on new construction
Party Wall                                          Owners owe each other a duty of joint
                                               support- No action by 1 owner can harm the
                                                                       position of the other
Flipping                                       1 Party buys a property with the intention to
                                                quickly transfer (flip) it to the ultimate buyer
What is the main incentive to investment in       Tax advantages!!! (capital gains, deferred
real estate?                                     taxation on exchanges - only boot is taxed
                                                on an exchange - depreciation, deductions,
                                                    and tax credits for renovation of historic
What are the disadvantages of real estate       Lack of liquidity!!! (risk, expense, and need
investment?                                     for management)- It's considered the main
Emblements                                    Crops cultivated annually- Personal property
NATIONAL SECTIONChapter 11: Math                            7 questions will be on the exam
Days in a year                                                                             360
Area of a Square or Rectangle                               L x W- Result will be "square #"
Area of a Triangle                                                            Base x Height2
Feet to Yards                                                                      Divide by 3
Square Feet to Square Yards                                                        Divide by 9
Volume of a Cube                                                                     LxWxH
1 Acre                                                                   43,560 square feet
Tax                                                  To find out how much tax, you take the
                                              "taxable value of land (the loan amount that's
                                                    been appraised)" and divide it by 1,000
Monthly Principal and Interest Amount            Take the "Loan Amount" divide it by 1,000
                                               and multiple it by the "Loan Factor" (convert
                                                       % to $ w/o moving the decimal if it's
                                                connected to the given "Loan Amount" OR
                                               convert % into a decimal if it's connect to an
                                              "LTV")Loan Amount x Loan Factor = Monthly
                                                       Principal and Interest Amount1,000
Original Purchase Price                         EX: Seller received $225,000 for selling his
                                               home, there's a 20% profitSO, you do 100%
                                                + 20% = 120% = $225,000SO, $225,000/6
                                               (AKA: 20% of the total 120%) = $37,500So,
                                                   $225,000 - $37,500 = $187,500Page 48
Selling a Home with a Transfer Tax in Mills             EX: 3 years after buying a home for
                                                 $250,000 they sell it for $280,000 (taxable
                                              amount bc it's the final price), with a transfer
                                               tax of 5 millsSO, you do $280,000 / 1,000 =
                                                 280 x 5 = 1,400, which will debit the seller
                                                                  and no entry to the buyer
Down Payment to Purchase a Property              EX: Contract to buy a house for $100,000
                                                and lenders approved them for a 90% LTV,
                                                    and the house has been appraised for
                                                       $90,000SO, you do $90,000 x .90 =
                                                     $81,000THEN, $100,000 - $81,000 =
                                                  $19,000 down payment to purchase the
How much Equity                                 EX: Purchased home for $150,000 with an
                                                 80% LTV and has paid for $42,000 of the
                                                purchase mortgage. Now he's selling it for
                                                    $179,000SO, you do $150,000 x .80 =
                                                     $120,000 - $42,000 = $78,000THEN,
                                                 $179,000 - $78,000 = $101,000 in equity
Total Sales Price                              EX: 30 acres, 15% for streets, 5% for a park
                                               and divide the rest into half-acre lots selling
                                               for $20,000 eachSO, 4.5 acres is street and
                                                    1.5 acres is park so you do 30 acres - 6
                                                 acres (4.5+1.5 acres for street and park) =
                                              24 acres left x 2 (bc they are half-acre lots) =
                                                   48 half acres x $20,000 = $960,000 total
                                                                         sales pricePage 49
Building Value                                EX: Owner of office building gets $10,000 in
                                                  monthly rent, expenses are $57,500 per
                                                      year, and he's earning a 10% rate of
                                               returnSo, you do $10,000 x 12 (months per
                                                 year) = $120,000 - $57,500 (expenses) =
                                              $62,500 x 10 (bc it's 10% of the total and we
                                                 need to find the whole) = $625,000 is the
                                                                     building valuePage 49
Depreciated Value of the Property                  EX: office building has a useful life of 30
                                                years and it's currently 14 years old and it's
                                                      original cost was $720,000SO, you do
                                                      $720,000 / 30 (# of useful life years) =
                                               $24,000AND, you do 30 - 14 = 16 yearsPUT
                                              TOGETHER, 16 years x $24,000 = $384,000
                                                    is the depreciated value of the property
Value of Property using the GRM                        Price/Rent = GRMEX: property cost
                                              $179,900 and currently leased for $1,250 per
                                                month, then rent is increased to $1,500 per
                                                   monthSO, $179,900/$1,250 (old rent) =
                                                $143.92 x $1,500 (new rent) = $215,880 is
                                                     the new value of the propertyPage 49
Monthly Payments of Loans                            Loan Amount / 1,000 x "The Factor" =
                                                           Principal and Interest Payment
Monthly Income Buyer need to Qualify for to   Loan / 1,000 x the factor =( P + I) / MonthEX:
get a certain Loan                              $200,000 loan at 6% for 30 years if lenders
                                                  are qualifying at 28%, Monthly taxes and
                                                         insurance will be $900SO, you do
                                                  $200,000/1,000 = $200 x $6 (as given by
                                                     chart) = $1,200 PI + $900 TI = $2,100
                                                PITITHEN, PITI / (28% is Monthly Income)
                                               AKA $2,100/28% = $7,500 monthly income
                                                                           to qualityPage 50
State SectionChapter 1: Commission Duties                     3 questions will be on the test
and Powers
Texas Real Estate Commission (TREC)      Created in 1949 to administer provisions of
                                       the License Act- Has authority to make rules
                                       and regulations and can advise w/ reference
                                          to its rules and laws the govern licensees-
                                      TREC Consists of 9 commission members (3
                                           represent general public, 6 are real estate
                                                 brokers) that are all appointed by the
                                          governor and approved by the Senate and
                                          they serve 6-year terms- Has the power to
                                            subpoena books, records, and witnesses
                                           and if a licensee fails to respond to it then
                                         they can file suit w/ the Attorney General to
                                          enforce the subpoena- Only they have the
                                                 power to issue or revoke a license----
                                      Hearings for revocation or suspension is held
                                           at TREC in Austin unless they ask for it to
                                            be in their county---- If a licensee doesn't
                                      respond to the summons by TREC, then they
                                            will automatically schedule the hearing in
                                         Austin----If your license is revoked, you can
                                             appeal it in district court- Broker Lawyer
Broker Lawyer Committee                 Writes the promulgated contract forms- 13
                                      members (6 are brokers appointed by TREC,
                                       6 are lawyers appointed by the President of
                                       the State Bar Association, and 1 is a public
                                               member appointed by the governor)
TREC: Class A Misdemeanor                 Happens who people engage in the real
                                            estate brokerage business w/o having
                                        secured a license from TREC- Subject to a
                                            max. fine of $4,000 or imprisonment in
                                        county jail for a max. of 1 year (or do both)-
                                                           Trials held in county court
TREC: Violations of the License Act      Persons guilty of a violation of the License
                                        Act and whoever profited from said act are
                                       liable for additional civil penalties of up to 3
                                         times the amount of money received- May
                                           assess an administrative penalty of up to
                                      $5,000 per day for violation of this act by any
                                         person (licensed or unlicensed) and these
                                            penalties must be paid within 30 days of
Real Estate Recovery Trust Account            Created by TREC to pay aggrieved persons
                                                       who suffered a monetary loss due to
                                            unscrupulous acts of the licensees and these
                                                      persons can receive up to 3 times the
                                              amount of money lost- If the balance in this
                                                   account is not below $1,000,000 TREC
                                                      simply continues to invest funds- If an
                                              amount is paid out of this account on behalf
                                                  of a licensee, that person can have their
                                                    license revoked or suspended until the
                                               amount paid out is repaid with interest into
                                              the account (the max. payment is $100,000
                                             per licensee and $50,000 per transaction)- If
                                                   the account falls below $1,000,000, the
                                                  commission will assess each broker and
                                            salesman during their license renewals in the
                                                following year with a fee of $10 or more in
                                             order to bring the balance up to $1,700,000-
                                                        If the account is above the statutory
                                               minimum, TREC invests the fees that have
                                                       been deposited into the account into
                                                      Treasury Bills or Notes or in the same
                                                     manner as the Employees Retirement
                                            System of Texas to offset future claims- If the
                                                 account is above $3,500,000, the excess
                                                   goes to the state's General FundNOTE:
                                               TREC has no part in resolving conflicts bw
STATE SECTIONChapter 2: Licensing                         3 questions will be on the exam
Persons Exempt from Real Estate Licensing           - Attorneys (who do not participate in
                                              broker-to-broker commission splits)- Court
                                            appointed receivers, trustees, guardians, and
                                              sheriffs- Administrators and executors of a
                                                 will- On-Site apartment managers- New
                                                 home salesmen working for 1 builder or
                                               owner- Cemetery lot salesmen- A person
                                                  selling his own property- An employee
                                               leasing or renting property for the owner-
                                                  Corporate employees selling corporate
                                                         property- Hotel/Motel personnel-
                                                Attorney-in-fact- Auctioneer calling a RE
                                                  auction- Anyone selling mobile homes-
                                                       Anyone engaging in or carrying out
                                                                         foreclosure sales
Persons Who Must Have a Real Estate               - Attorneys (in order to participate in a
License                                         commission split)- Auctioneers (that are
                                                     involved in any part of a real estate
                                                 transaction)- Apartment locators- Real
                                                 Estate salespeople- Designated officer
                                                 (AKA: 1 broker) of a licensed RE corp-
                                              Designated manager (AKA: 1 broker) of a
                                           licensed RE Limited Liability Company**ALL
                                               MUST BE SPONSORED BY A BROKER
                                           AND RECEIVE COMMISSION ONLY FROM
                                                                        THAT BROKER**
Steps in Obtaining a Real Estate License    1. Meet educational requirements2. Submit
                                                an application with or w/o a sponsoring
                                              broker (applications can be denied if they
                                           don't satisfy TREC in their honesty, integrity,
                                           and trustworthiness or if they have defaulted
                                                on Texas State student loans)3. Submit
                                           required fees4. Pass the exam (competency
                                              is determined solely by passing the state
                                                          exam)5. Demonstrate integrity
Licensing Requirements                           - Must be 18 years or older- Resident of
                                                Texas at time of application- Comply with
                                           legal residency requirement (No illegal aliens
                                              allowed)- Retake the exam as many times
                                             as necessary for 6 months from the date on
                                            your authorization letter- Submit fingerprints
                                                        to TREC before and after testing
Educational Requirements                    Salesmen: 210 classroom hours w/ a min of
                                               150 in core RE (60 hours - Principles, 30
                                                  hours- Contracts, 30 hours - Agency)
Broker's License                             900 classroom hours (30 Brokerage, active
                                            salesmen's license for any 24 months out of
                                              the past 96 months OR 2 years out of the
                                                                          past 8 years)
Renewal: Salesman's Annual Education          Mini. of 60 core hours in the first year must
(SAE)                                         be submitted to TREC before a salesman's
                                           license will be renewed- Licensees subject to
                                             SAE who do not submit education prior to or
                                               in conjunction with their renewal will have
                                                their renewal rejected and cannot renew
Mandatory Continuing Education (MCE)    Taken after the agent has completed his 1st
                                        renewal and 270 core hours- Taken every 2
                                           years to renew salesman or broker license
                                           (15 hours of courses, 6 hours of which are
                                          legal update as mandated by TREC)- Must
                                                  be taken within the renewal period- If
                                                  renewal is over due, a "Late Renewal
                                         Application" is submitted along w/ fees and
                                            proof of continuing education, BUT if they
                                             miss their expiration date, their license is
                                          EXPIREDRenewals:On-Time Renewal w/o
                                           Required Education: pay $200 deferral fee
                                          and 60 days to complete education (during
                                               this time their license is active, but after
                                                      these 60 days, their license will be
                                           inactive)Reactivate License: Pay $200 fee,
                                           take required education, pay $250 penalty,
                                       Testify on renewal form "they did not engage
                                         in RE while they were inactive", and submit
                                         required form to return to active status w/ a
                                       $20 feeOn-Time Renewal w/ Late Education:
                                       education completed w/in 60 days w/ a $200
                                            penalty OR education completed after the
                                                60 days w/ a $450 penalty plus $20 for
                                            filingNOTE: you can't have a broker's and
                                        salesman's license at the same time BUT a
                                            broker can act as a salesman at any time
Inactive Status                        The salesman must still meet yearly fees and
                                        core education requirement, once past core
                                               requirements, MCE is not required for
                                              inactive status- Time spent as inactive
                                       doesn't apply toward the 2-yr requirement for
                                         a broker's certification- Can't engage in RE
                                                business- Doesn't need a sponsoring
                                        brokerNOTE: to activate an inactive license,
                                                 apply through a broker pay $20 and
                                                           complete 15 hours of MCE
Random Notes Concerning Brokers         - If a broker dies, declared legally insane, or
                                       license is suspended, his sales person must
                                          change to another broker immediately and
                                                    during this change, that licensee is
                                         authorized to engage in business when his
                                               fees and sponsorship forms have been
                                       mailed (holds true for people re-activating as
                                           well)- If a broker has more than 1 place of
                                                 business he must get a "branch office
                                           license" for each additional office and pay
                                           $20 each----Each location doesn't have to
                                        have a licensed broker there- Brokers using
                                          a DBA or assumed name must file with his
                                          county clerk in every county where he/she
                                        has an fofice- Once you pass the test, there
                                                  is no time limit for choosing a broker
Random Notes on TREC                      There is no time limit for TREC to deny an
                                             application, but if it is denied, they must
                                           notify the applicant w/in 30 days- If TREC
                                             denies an "application of licensure" the
                                             applicant can appeal w/in 10 days after
                                         receiving the notice, if they wait past these
                                       10 days then the applicant gives up the right
                                          to do so and the ruling of the Commission
                                       stands- If a licensee defaults on Texas State
                                             Student loans, then TREC will refuse to
                                                   renew the license of that applicant
TREC Consumer Information Form 1-1           Notifies the public of the recovery trust
                                         account- Applies to both RE licensees and
                                       inspectors- Must be displayed in the broker's
STATE SECTIONChapter 3: Standards of                   7 questions will be on the test
Texas Real Estate Act (TRELA)              Passed by legislation to protect the public
                                       against unscrupulous brokers and salesmen-
                                                 Rules and regulations are construed
                                       liberally with a view toward their purpose and
                                               have the full force and effect of the law
Reasons for Suspension or Revocation of a          - Guaranteeing future profits- Salesmen
Broker's or Salesman's License                   receiving commissions directly from sell,
                                             lease, negotiations, appraisals, or auction of
                                            RE- Fail to specify a definite termination date
                                                 on Buyer's Rep (BRA) or Listing contract
                                             that is not subject to prior notice- Selling RE
                                                by lottery- Giving legal advice or writing a
                                            contract or draft a lease purchase agreement
                                                        (we can only prepared a RE contract
                                                  addendum)- Not advising a purchaser in
                                             writing to get an attorney's opinion of title on
                                                the abstract or to obtain an "Owner's Title
                                            Policy" (done prior to closing)- Placing a sign
                                                 offering to sell, rent, or lease RE w/o first
                                               obtaining written permission to the owner-
                                                     Acting in dual capacity of a broker and
                                               undisclosed principal (We must disclose if
                                                 we are representing a spouse, parent, or
                                                     child)- Knowingly making a substantial
                                              misrepresentation (Puffing is allowed bc it's
                                              not misrepresentation)- Advertising w/o first
                                                    identifying the person advertising as an
                                                      agent or broker- Commingling money-
                                                 Threatening to sue for a commission you
                                              have not earned- Not furnishing copies of a
                                              doc to one of the signatories upon demand-
                                                Steering of prospective buyers (subject to
                                                       federal and state prosecution)- Being
                                            convicted for a felony that involves fraud, and
                                                  they have 30 days to notify TREC of this
                                             conviction- Disbursing money deposited in a
                                                         trust account before the transaction
                                             concerned has been consummated or finally
                                                                        otherwise terminated
Referral Gift                                 Licensees may give gifts up to $50 in value
                                               (not cash) to an unlicensed individual who
                                                                       provides a referral
Terminating Sponsorhsip                       If a broker wants to terminate sponsorship,
                                               he must notify the salesman in writing and
                                            return the salesperson's license certificate to
                                                            the Commission immediately
Nonresident and Foreign Brokers                   Nonresident brokers must work through
                                                 resident brokersForeign brokers or those
                                            from another state may collect a commission
                                               from a Texas broker, as long as that broker
                                                doesn't negotiate in Texas- Commission is
                                                paid in the form of cash or gift (EX: $1,000
When Brokers can Sue                 Only brokers can sue to recover lost
                               commission- Brokers can sue a seller who
                              has signed a listing agreement that defaults
                              or a buyer who's signed a Buyer's Rep who
Telemarketing                         Is legal in Texas, but a RE license is
                              required- Must observe the Federal "Do Not
                                       Call" list and the State "No Call" list
Advertising                      A broker's website must include their name
                                          or company name on each page- A
                               licensee's website must include the name of
                                      his sponsoring broker or company- If a
                             licensee lists himself as a RE sales person in
                                 the phone book, he must include the name
                                  of his broker or company in the info- When
                                     advertising listed property, the broker or
                                  company name must be included in the ad
Without Appointment                                                   1 Agent
With Appointments              2 Agents that can give advise and opinions
Statuary Law vs Common Law        Statuary Law (passed by legislature) >
                                 Common Law (Passed by courts/judges)
STATE SECTIONChapter 4:                     7 questions will be on the exam
Senate Bill 489                             Allows a broker to act as an intermediary
                                              when he has written permission of both
                                         parties including how the broker will be paid
                                          (only a broker can be an Intermediary)- As
                                          an Intermediary, sometimes the broker will
                                        appoint associates to work w the parties- As
                                       an intermediary, the broker can only disclose
                                              facts- There is a limit on the liability of a
                                        licensee for the act or misrepresentations of
                                         a party or subagent as long as the licensee
                                            was unaware of the misrepresentation or
                                        concealment of material fact- A licensee has
                                           5 days to enter a new listing into the MLS-
                                                 Length of protection periods on listing
                                        agreements is negotiable- Licensee requires
                                         a broker to provide a mini level of service to
                                          a client- Secondary Notice of Intermediary
                                            can be used- Requires a licensee to give
                                                Information About Brokerage Services
                                                  (IABS)- A licensee must disclose his
                                       representation- use of a Subagent- A Seller's
                                            Disclosure of Property Condition must be
                                                     given to a buyer- Use of Exclusive
Secondary Notice of Intermediary        used when a buyer client wants to purchase
                                                                 an in-house listing
Information About Brokerage Services   Licensee's must give this to a prospect at the
(IABS)                                         first substantive dialogue (face-to-face,
                                             mailing with a substantial amount of info
                                        about a certain property) in order to disclose
                                             their agency- Exceptions: Open houses,
                                                 meetings with a party represented by
                                             another licensee, or when the proposed
                                          transaction is for a residential lease for not
                                                more than 1 year and no sale is being
                                        considered)- There is no TREC promulgated
                                       from, but it is given using TREC wording in at
                                                                      least 10-point font
Disclosure of Representation                 Licensee's are required to disclose their
                                           representation at 1st contact with another
                                                    party or licensee- Oral or written
Subagent                                  A licensee who represents the seller, while
                                         being sponsored by a broker other than the
                                         listing broker- Works with a buyer customer
                                                            rather than a buyer client
Seller's Disclosure of Property Condition   Must be given to a buyer before he signs an
                                            offer to make that offer binding on the buyer-
                                                W/o this before signing, he has 7 days to
                                                     terminate his offer after receiving the
                                                        disclosure- Accuracy of this is the
                                                     responsibility of the seller- This is not
                                             required in a foreclosure sale, tax sale, sale
                                               by guardian, executor, or administrator, or
                                                          sale by a builder of a new home
Exclusive Agreement                              Is made when a broker who represents a
                                             party or who lists real property and must….-
                                            Inform the party of material info related to the
                                              transaction, including the receipt of an offer
                                              by the broker- Answer the party's questions
                                                and present any offer to or from the party-
                                                     Refrain from telling another broker to
                                                  negotiate directly with the broker's client
STATE SECTIONChapter 5: Contract                          8 questions will be on the exam
Standard Contract Forms                      Must be used by licensees when applicable-
                                                Exceptions: those prepared by attorneys
                                                  from any state, those specified by gov't
                                              agencies, property owners, or their lawyers
Promulgated Sales Contract Forms                      Made by TREC for most residential
                                            properties including Farm and Ranch- TREC
                                             has no forms for commercial transactions or
                                                   for the sale of Co-ops- Broker Lawyer
                                               Committee writes these forms, but TREC
                                                                       promulgates them
"Time is of the Essence"                    In a Sales Contract in the Termination/Option
                                                paragraph and in "Back-Up Addendum" in
                                              the Short Sale, in Sale of Other Property by
                                                        Buyer, and in 3rd Party Financing
Backup Offers                                 All must be presented to the seller (there is
                                                 no required order of presentation)- For a
                                                     backup offer to become effective the
                                               previous contract must be terminated and
                                              the backup buyer must pay any option fee,
                                                name any option period, and deposit any
                                                  earnest money with an escrow account
Option Fee                                       Must be paid independently of any other
Effective Date                        The last party to sign a contract is the party
                                             accepting the final change- Broke is
                                       responsible for filling in the "effective date"
                                              (of the option period if there is one)
Contingency Clause                   A clause in a contract requiring a condition to
                                       be met- If it isn't met, the buyer is generally
                                          entitled to a refund of his earnest money
Complaints                             An individual has 4 years from the effective
                                      date of a contract or the date of the incident
                                       to file a complaint with TREC regarding the
                                        licensee involved- After 4 years, TREC will
                                                  no longer investigate a complaint-
                                             Complaints must be written and signed
Non-Performance                         Parties to the contract have 4 years to sue
                                             for non-performanceEX: if 1 party has
                                      promised to perform a particular action after
                                       closing such as having repairs made to the
                                       property, and has not fulfilled that promise,
                                                the injured party has 4 years to sue
Brokers who act as an Escrow Agent    Broker accepts earnest money deposit and
                                     acts as an escrow agent, the money must be
                                       deposited in a trust account by the close of
                                        business of the 2nd business day after the
                                     execution of the contract- Brokers must keep
                                                records of this account for 4 years
Division of Commission                             Is at the discretion of the broker
Statute of Frauds                      Requires that all contracts that relate to the
                                           transfer of any interest in RE must be in
                                               writing to be enforceable- Applies to
                                     compensation/employment agreements (EX:
                                      listings and buyers rep agreements)- Verbal
                                           agreements make you a volunteer in the
                                                                  eyes of the courts
Real Estate Inspectors                 Must use promulgated forms for residential
Lender Required Repairs                 Can exceed 5% of the price, and if so the
                                       buyer can terminate the contract- 5% is the
                                           criteria, no other number is the criteria
Mediation                                Encouraged to dispute resolution- "Mediation
                                             Addendum" no longer exists- A mediator
                                         hears both sides and tries to help the parties
                                             come to an agreement- If the mediator is
                                             commissioned, they will have at least 40
                                         hours of formal training in Alternative Dispute
                                                         Resolution (ADR) procedures
Arbitration                              The arbitrator hears both sides and then tells
                                                                the parties what to do
Breach of Contract                                  When 1 party is in default, all TREC
                                           contracts state:- "The injured party can sue
                                             for specific performance, seek such other
                                            relief as may be permitted by law, or both"
Texas Water Code                             Requires that a disclosure to buyers that
                                              there may be a charge for turning on or
                                           connecting water and sewer services if the
                                             property is located in a Certified Service
                                                    Area of a Utility Service Provider
Title Commitment                             Buyers who receive this and are unhappy
                                          with the info about the title OR a buyer who
                                            receives a survey and is unhappy with the
                                               info on it, has the previously negotiated
                                          number of days (in the contract) to address
                                           his concerns with the seller- Title company
                                          has 20 days to provide the title commitment
                                                   after they receive the sales contract
"Reasonable Amount of Time"                                2 days as defined by TRED
TRACY, READ THIS BEFORE YOU TAKE            Read through the TREC 1-4 family resale
THE REAL ESTATE EXAM                          contract shortly before I take the exam
STATE SECTIONChapter 6: Special Topics                 2 questions will be on the exam
Community Property                             Statutory estate in Texas- All property
                                           acquired after marriage (includes property
                                         acquired with labor and income of separate
                                             property *except if it increases in value*
                                         REFER TO EX BELOW), is jointly owned by
                                              husband and wifeEX: if a spouse has a
                                        house worth $50,000 at the time of marriage
                                        and its value rises to $100,000, the increase
                                                is not community property, BUT once
                                         community efforts, credit, or funds are used
                                       to increase the value or improve the property,
                                        community property rights accrue- A spouse
                                             can waive community property rights by
                                       written agreement- Property acquired prior to
                                          marriage or during marriage by inheritance
                                                 or gift may remain separate property
Homestead                                       Statutory estate in Texas- Homestead
                                          protection (from forces sale by all creditors
                                       except: mortgage, property taxes, M and M's
                                          liens, and HOA's) is automatic and cannot
                                               be waived- If it's foreclosed for unpaid
                                          property taxes, owner has 2 yrs to redeem
                                           the property (If you buy a house at a bank
                                        sale the previous owners can come back up
                                       to 2 years later and take back their home, so
                                               don't spend $ on improvements)- If it's
                                                    foreclosed for unpaid homeowner
                                        association fees, the owner has 6 months to
                                        redeem the property- Urban homestead has
                                            a max size of 10 acres- Rural homestead
                                          has a max size of 200 acres- 1 homestead
                                       per person or family- Exemptions: tax benefit
                                                - homeowners must apply for this and
                                         occupy the home on January 1st to qualify -
                                              you can file back for 2 years if you have
                                                         failed to claim this exemption
Deceptive Trade Practices Act (DTPA)    Doesn't apply to commercial properties over
                                          $500,000- Allows for the recovery of triple
                                       damages- An individual has 2 years from the
                                       discovery of the deception to file a complaint
Brokers who are Not Registered                 May still legally perform property-tax
Property-Tax Consultant                         consulting services for single-family
                                          residence- He can provide this service for
                                                                      free or for a fee
Appraisal Review Board Arbitrator        Requires a 30 hour class- Max free for this
                                                                    service is $500
Sellers of Coastal Property          If there is tidally influenced water they must
                                     provide the Notice Regarding Coastal Area
                                    Property to tell buyers that owners may gain
                                   or lose portions of the land due to the actions
                                          of water- if a seller sell property located
                                       seaward of the Gulf Intracoastal Waterway
                                        must disclose that structures must not be
                                    erected seaward of the vegetation line, if it is
                                       or becomes seaward as a result of natural
                                      causes, the structure would be subject to a
                                         lawsuit by the State of Texas for removal
Municipal Utility District (MUD)            Purpose is to provide flood control or
                                   drainage, water and sewers to resident of the
                                    district- If a property is located here, is must
                                                    be disclosed as well as bonded
                                       indebtedness, tax rate, and standby fees-
                                     Allows a buyer to back out of an offer if the
                                     bonded indebtedness is not disclosed prior
                                      to closing- The seller must deliver and the
                                             buyer must sign the MUD disclosure
Intestate Succession               Law that governs how property passes when
                                       a person dies w/o a will or with a will that
                                      makes only a partial distribution of his/her
                                    property- If they die intestate, the courts will
                                   appoint an administrator to settle the estate-
                                    Property will be distributed according to the
                                     Laws of Descent and Distribution- Heirs to
                                      any real property will has Title by Descent
                                           (property goes to kindred - M and F)
                                   (Spouse and children have priority under the
                                    Law of Descent) (Title transfers to heir after
Landlord Tenant Facts          - Security deposits earn interest at a rate
                              contractually agreed upon by the parties-
                              Tenants can sign an agreement waiving a
                                  right to interest on the security deposit
                        (landlord ust account for security deposits 30
                           days after tenant leaves)- If a tenant installs
                         a burglar alam in a rental, he must notify the
                                     landlord and supply instructions and
                                passwords- Landlords must provide new
                           locks on rentals no later then 7 days after a
                                new occupant takes possession- Smoke
                        detectors must be operational by the time the
                                  tenant is granted possession- Keyless
                                   deadbolts are required but not double
                            cylinder locks- If a tenant can't gain access
                          to storage space bc it's full and they have to
                        rent additional storage space, he has 2 years
                             to sue the landlord to recover the expense
                        for the rented storage space- "Forcible entry"
                           and "detainer", or action of is the legal term
                          for 'eviction" (which is used by a landlord)- If
                         a tenant moves out while still owing rent and
                                    leaves personal property behind, it is
                              considered "abandoned" and the landlord
                              can dispose, sell, or pack and store it, but
                         they must give required notices before doing
Rule P-53                Title companies are not permitted to provide
                        food and beverages for a picnic or party for a
                           single firm or provide continuing education
                           classes unless they charge the market rate
                         for it- They can provide tokens like pens and
                          pads- They may have an annual party for all
                         the firms who might use their services- They
                        can't provide anything that a business person
                                would normally consider an expense of
                                     doing business or a tax deduction
Texas Department of Insurance Regulation         Mold should definitely be removed if it is
Regarding Mold:                                  visible- Testing mold is not necessary to
                                                  determine if it should be removed, if it's
                                               visible, it should be removed- Removal is
                                                        called remediation- Assessors and
                                                 remediators must be licensed- Property
                                            owners can assess and remediate their own
                                                    properties w/o a license- If you hire a
                                            remediator, he must give you a Certificate of
                                           Mold Remediation no later than 10 days after
                                                  work is complete, which verifies that it's
                                           removed and with a reasonable certainty that
                                                       the underlying cause of it has been
                                           corrected- This certificate is an advantage bc
                                                    it prevents an insurer from making an
                                            underwriting decision on the property based
                                                 on previous mold damage or claims- On
                                            selling a home, the law requires you provide
                                               the buyer with copies of all Certificates of
                                                  M.R. you have received for the property
                                                                    within the past 5 years