Real Estate Principles: Leases, Appraisal, Licensing, and Brokerage Employment

Comprehensive vocabulary flashcards covering real estate leases, property valuation and appraisal, professional licensing laws, and broker-principal employment contracts.

Real Estate Listing

An employment contract between a property owner and a real estate broker, sometimes referred to as a real estate sales agreement or sales contract.

Brokerage Commission

An agreed amount of compensation the owner agrees to pay the broker for performance of a Sales Agreement; it is not set by law, is fully negotiable, and varies based on services, brokerage model, and market conditions.

Exclusive Right to Sell

A listing agreement in which the listing broker is entitled to a commission regardless of who sells the property during the listing period.

Exclusive Agency Listing

A listing agreement similar to the exclusive right to sell, except that the owner may sell the property personally during the listing period without owing a fee to the broker.

Open Listing

A listing agreement that carries no exclusive rights, under which whichever person or broker sells the property earns the commission.

Net Listing

A listing created when an owner states a specific net dollar amount they want to receive for the property and agrees to pay the broker anything above that amount as commission.

Advance Fee Listing

A listing agreement in which a broker gets paid in advance and generally charges an hourly rate for services.

Advance Cost Listing

A listing arrangement covering only out-of-pocket costs incurred by the broker (such as advertising and open houses), while still allowing the broker to charge a sales commission.

Exclusive Authority to Purchase

An agreement where the broker represents the buyer as principal rather than the seller, establishing a buyer's agency relationship.

Multiple Listing Service (MLS)

A service among REALTOR® members to list properties for sale, designed to increase market exposure and facilitate cooperation among brokers.

Ready, Willing, and Able Buyer

A prospective purchaser who is prepared to buy at the seller's stated price and terms and possesses the financial capability to complete the transaction.

Procuring Cause

The action or sequence of actions by an individual whose efforts directly originated the procurement of a real estate sale.

Flat-Fee Broker

A bargain broker who lists property, suggests a market price, writes advertising, assists with negotiations, draws up sales contracts, and turns papers over to escrow for a fixed fee typically ranging from $\$400$ to $\$1,500$.

Discount Broker

A full-service real estate broker who charges fees lower than the prevailing commission rates in their community.

Variable Rate Commission

A commission structure that retains a lower rate for the bargain broker while allowing an increased rate to cooperating brokers to incentivize property marketing.

Licensee

An individual or entity who holds a valid, active real estate license.

Real Estate Broker

A person or legal entity licensed to act independently in conducting real estate brokerage business.

Real Estate Sales Associate

A licensed salesperson or agent who works under a sponsoring broker to list, negotiate, sell, or lease real property for others.

Real Estate Executive Director

The executive state official responsible for implementing and overseeing real estate regulation based on statutes passed by the legislature.

Real Estate Commission

A state-level regulatory body that advises the Executive Director on real estate enforcement and administrative policy.

License Suspension

A disciplinary sanction that temporarily makes a real estate license ineffective.

License Revocation

A severe disciplinary action taken by a licensing board to recall and make void a real estate license.

Recovery Fund

A state-operated reserve fund tapped to pay uncollectible civil judgments awarded against real estate licensees.

Errors and Omissions (E&O) Insurance

Professional liability insurance designed to protect real estate practitioners and provide financial compensation to wronged consumers beyond bonds and recovery funds.

$100\%$ Commission Plan

A compensation model in which an agent pays a desk or office fee to a broker and retains $100\%$ of all earned transaction commissions.

Independent Contractor

A worker who contracts to perform duties according to their own methods, is accountable only for the end results, is paid strictly via commission, and handles their own income taxes and social security.

REALTOR®

A registered trade name designating a licensed real estate professional who is an active member of the National Association of REALTORS® (NAR) and bound by its Code of Ethics adopted in $1913$.

Realtist

A member of the National Association of Real Estate Brokers (NAREB), committed to high standards of service and protecting consumers against unethical broker practices.

Appraisal

An estimate or opinion of the value of an adequately described property as of a specific date.

Market Approach

An appraisal valuation technique (also called the sales comparison approach) that estimates value by analyzing comparable sales data from similar recently sold properties.

Cost Approach

An appraisal method that calculates property value by estimating current construction costs new, subtracting estimated depreciation, and adding the estimated value of the vacant land.

Income Approach

A method of valuing income-producing real estate based on the monetary returns it can reasonably be expected to generate.

Market Value

The most probable price a property should bring in a competitive, open market under all conditions requisite to a fair sale, assuming prudent, knowledgeable buyers and sellers acting without undue stimuli.

Depreciation

Loss in value resulting from physical deterioration, functional obsolescence, or economic obsolescence.

Direct Capitalization

An income appraisal procedure that converts a single year's anticipated net operating income into property value using the formula $\frac{\text{Income}}{\text{Overall rate}} = \text{Value}$.

Scheduled Gross Income

The estimated total rental revenue a property would produce on an annual basis assuming $100\%$ occupancy; also referred to as projected gross income.

Effective Gross Income

The expected property income calculated by subtracting an allowance for vacancy and collection losses from scheduled gross annual income.

Net Operating Income (NOI)

The balance of income remaining when total operating expenses and reserves for replacement are subtracted from effective gross income.

Operating Expense Ratio

A financial metric calculated by dividing total operating expenses by effective gross income.

Gross Rent Multiplier (GRM)

A quick valuation relationship calculated by dividing a property's sales price by its gross annual rental income.

Reconciliation

The appraisal step in which an appraiser analyzes, cross-checks, and correlates indications from the market, cost, and income approaches to reach a single final value conclusion.

FIRREA

The Financial Institutions Reform, Recovery, and Enforcement Act of $1989$, which established mandatory federal appraisal standards and recognized USPAP.

Uniform Standards of Professional Appraisal Practice (USPAP)

The set of professional guidelines governing real estate appraisal methods, procedures, ethics, and reporting options.

Highest and Best Use

The legally permissible, physically possible, and economically feasible use of a property that yields the highest present net value.

Buyer's Market

A real estate market characterized by an excess supply of available housing for sale or lease relative to buyer demand.

Seller's Market

A market characterized by excess buyer demand for real property relative to a scarce supply of available inventory.

Broad Market

A condition in real estate where many buyers and many sellers are actively operating simultaneously.

Thin Market

A market environment with only a small number of active buyers and sellers at any given time.

Leasehold Estate

A tenant's legal right under a lease to occupy, use, and possess real property without holding fee ownership.

Lessee

The tenant who acquires possession and usage rights to real estate under the covenants of a lease contract.

Lessor

The landlord or underlying property owner who conveys possession of the premises to a tenant under a lease.

Reversion

The legal right of a property owner to retake physical possession of leased real estate at the conclusion of the lease term.

Periodic Estate

A leasehold estate that automatically rolls over and renews for successive periods (such as month-to-month or year-to-year) until proper notice of termination is given.

Estate for Years

A leasehold tenancy established with definite, specific calendar start and end dates.

Estate at Will

A flexible leasehold tenancy that can be terminated at any time by either landlord or tenant.

Tenancy at Sufferance

A tenancy that occurs when a holdover tenant retains possession of the property beyond the legal lease term without landlord consent.

Covenant of Quiet Enjoyment

A lease provision giving the tenant the right of uninterrupted possession and use of the property without disturbance by others.

Gross Lease

A standard lease structure where the tenant pays a fixed rent amount and the landlord covers all or most operating expenses.

Net Lease

A lease structure wherein the tenant pays a base rent plus specific operating costs, such as property taxes, insurance, and maintenance.

Percentage Lease

A commercial retail lease arrangement where rent is calculated as a base amount plus a stated percentage of the tenant's gross revenue or sales.

Index Lease

A lease containing rent escalation clauses tied directly to movements in an external economic indicator, such as an inflation index.

Graduated Rent Lease

A lease arrangement specifying predetermined rent increases that take effect at stated intervals over time.

On-Site Management

Property management operations conducted with a resident manager or superintendent physically stationed on the premises, handling up to $50$ or $60$ units alone.

Off-Site Management

Property management responsibilities that are handled remotely without maintaining an on-site manager on the premises.

Certified Property Manager (CPM)

A professional designation granted by the Institute of Real Estate Management (IREM) to members completing required educational programs.

Real Property Administrator (RPA)

A professional property management designation earned upon completing all $7$ courses administered by the Building Owners and Managers Institute (BOMI).