Real Estate Process Midterm 1

True or False: People can use the terms land, real estate, and real property interchangeably

True

Earth’s surface, subsurface, airspace - including natural things that are attached to it such as trees and water (3-dimensional)

Land

Geographic location can never change

Immovable

No two parcels are the same

Unique

Natural and human forces are no match

Indestructible

What is defined as land and improvements that are permanently attached to it by a human?

“Yes, and “ REAL ESTATE

Artificial things that are attached on or below the surface

Improvements

Real estate plus bundle of legal rights, which can be separated and individually transferred

Real Property

When you have a real property, what do you have the right of?

\-Possession (space for a certain period of time)

\-Control

\-Quiet Enjoyment

\-Exclusion (no trespassing signs)

\-Disposition

True or False: You don’t need to own real estate to benefit from it

True

True or False: The term real estate may actually refer to real property

True

Property that can be owned and that does not fit the definition of real estate

Personal Property

Personal property is ___________, remember, one of the physical characteristics of real estate is that it is immovable

Moveable

What is personal property transferred by?

Bill of Sale

True or False: Fixtures are personal property that has been attached in such a way that it is considered, by law, to be part of the real estate

True

Fixtures belong to the ________

Owner

Fixtures transfer with the _________

Property

True or False: Fixtures are considered to be real estate

True

Fixtures used in the course of business

Trade Fixtures

Trade fixtures belong to the ________

Tenant

True or False: Trade fixtures are considered personal property

True

Trade fixtures do ______ transfer with the property

Not

Broad term used to denote a property right

Interest

Interest:

Created by the owner

Grantor

Interest:

Who is the non-owner?

Grantee

True or False: In interest, the grantor grants the non-owner (grantee) one or more property rights in exchange for consideration

True

True or False: Interest does not rise to the level of ownership or control

True

A classic example of a legal document that grants an interest

Lease

What is the owner called in a lease?

Lessor

Who is the tenant called in a lease?

Lessee

Right, privilege, or improvement associated with real estate that is normally conveyed to the new owner when the property is sold; it “runs with the land, not the owner”

Appurtenance

What is an example of an appurtenance?

Easement

Grants the right to use land owned by someone else for some purpose

Easement

What are the 2 types of Lease vs Own?

1. Fee Simple Estate
2. Leasehold Estate

What does a fee simple estate do?

\-Most complete form of ownership

\-Continues for an indefinite period of time

\-A fee simple owner is free to sell, lease, or borrow against his or her property rights

What does a leasehold estate do?

\-You don’t own the real estate; rather, have an interest in real property

\-Length of time of right to use property can be determined

\-You have an interest in real estate because of the lease you hold

What are the 4 types of limitations on property rights?

1. Zoning ordinances and building codes
2. Private land use controls
3. Elite domain
4. Environmental restrictions

What type of limitations on property rights is this?:

\-Allowable uses

\-Height restrictions

\-Parking requirements

\-Maximum occupancy

\-Permitting

Zoning ordinances and building codes

What type of limitations on property rights is this?:

\-Deed restrictions

\-Covenants, conditions, and restrictions (CC&Rs)

Private land use controls

What type of limitations on property rights is this?:

\-Condemnation

Elite domain

Right or ownership or evidence of ownership

Title

What is a title transferred by?

Deed

Written instrument that transfers ownership in real property

Deed

Who is a deed signed by?

Grantor

What may a deed list?

\-Encumbrances

\-Limitations

Written instrument that evidences a debt and creates an obligation to repay a loan

Promissory Note

Written instrument that creates a lien on real estate as security for the repayment of a specific debt

Mortgage

True or False: A mortgage pledges property as collateral for a loan

True

Mortgages:

What is the lender called?

Mortgagee

Mortgages:

What is the borrower called?

Mortgagor

_____ __receives a security interest in pledged property from the__ ______

Mortgagee, Mortgagor

True or False: A pledged property is commonly a fee simple estate, but not always

True

True or False: In theory, an estate in property that can be valued as an estate in property that could potentially be pledged as collateral

True

A claim against property that provides security (collateral) for the payment of a debt or obligation… it “runs with the land”

Lien

What are some types of liens?

\-Tax lien

\-Mortgage lien

\-Mechanics’ lien

True or False: All liens are encumbrances, but not all encumbrances are liens

True

True or False: Liens are financial in nature and attach to a property because of a debt

True

True or False: Liens - an interest does not constitute actual ownership

True

Documents affecting titles are recorded - placed in the public record - at the courthouse in the county or city where the real estate is located

Recordation

_______ refers to the order in which documents or liens were recorded or perfected

Priority

A ________ establishes a creditors place in the payment line

Lien

What are the 2 types of defaults?

1. Monetary
2. Non-monetary (technical)

What are the 2 types of lender remedies?

1. Foreclosure
2. Workout

Which type of lender remedy is this?

\-Forbearance agreement

\-Loan modification agreement

\-Sale and assumption

\-Deed-in-lieu of foreclosure

\-Short sale

\-”Friendly” foreclosure

Workout

Market Price or Market Value?

\-Asking (listing) price

\-Price at which a property was put under contract (accepted offer)

\-Sale price

\-Asking price at the time the listing expired

Market Price

Market Price or Market Value?

\-Estimate based on sales “comps” preferably multiple deals that recently traded hands, discounted cash flow analysis, and the cost per unit to construct a similar property

Market Value

True or False: Location influences market price or market value: two homes that are the same but for location can have different market prices or market values

True

What is this?:

\-MSA

\-Currently 384 in USA

\-Cities and surrounding areas that share the same economy

Metropolitan Statistical Area

Used to identify base or driver industries and compares the % of regional employment within a certain industry to that of the nation

Economic Base Analysis

What are some types of submarkets?

\-Schools

\-Open space and recreation

\-Zoning

\-Transportation

\-Utilities

\-Police and fire resources

True or False: A neighborhood is an area within a submarket

True

What is this?:

\-Housing starts

\-Sales of existing homes

Market Pulse

What are some types of demand drivers?

\-Employment growth

\-Income growth

\-Population growth

\-Cost of owning

\-Interest rates

\-Tax treatment

What is the supply side influenced by?

\-Cost of land

\-Cost of materials

\-Cost of labor

\-Interest rates - cost of mortgage loan capital

\-Zoning and other land use restrictions

Opinion of market value that is based on supportable evidence approved methods

Appraisal Process

What are the 3 approaches to the appraisal process?

1. Sales Comparison Approach
2. Cost Approach
3. Income Approach

What is the most common appraisal approach for residential real estate?

Sales Comparison Approach

Market Price and Market Value are influenced by what?

\-Location (amenities)

\-Physical condition of the real estate

\-Market conditions

The price an investor is willing to pay depends on what?

\-Estimate of market value

\-Required return or yield, especially for commercial real estate which is purchased not to provide direct shelter but income

Rationale is that an investor would not want to pay more for a subject property than what another person recently paid for a similar property

Sales Comparison Approach

Rationale that an investor would not want to pay more for a subject property that what it would cost to build a similar property

Cost Approach

What are the 3 forms of depreciation?

1. Physical depreciation
2. Functional obsolescence


1. External obsolescence

The highest and best (land) use is…

\-The most profitable single use of a property

\-Must be legally permitted and economically feasible

\-Would be a big mistake to avoid the highest and best (land) use

What “value to range” is this?:

Appraisal →

Comparative Market Analysis

What “value to range” is this?:

Formal→

Informal

What “value to range” is this?:

Appraiser →

Broker

What “value to range” is this?:

Single Number →

Range of Values

Common way non-appraiser real estate professional estimate value

Comparative Market Analysis

What does ATLAS stand for?

\-Age

\-Time since sale

\-Location

\-Amenities

\-Size

What are the 2 types of mortgage (loan) markets?

1. Primary Mortgage (Loan) Market
2. Secondary Mortgage (Loan) Market

Which type of mortgage (loan) market is this?:

\-Where mortgage loans are made

\-Financial institutions to set (mortgage loan) pricing and programs

\-Very easy to see

\-Financial institutions are making the loans

Primary Mortgage (Loan) Markets

Which type of mortgage (loan) market is this?:

\-Where mortgage loans are bought, sold, and traded

Secondary Mortgage (Loan) Market

True or False: A loan is said to be upside down when the borrower owes more than the property is worth

True

True or False: Underwriting involves analyzing default risk

True

In mortgage lending, the _______ the cushion the greater the default risk

Less

Potential loss (of yield or invested capital) that could occur if the borrower fails to make required loan payments: monthly debt service payments or balloon payment at maturity

Default Risk

Term or Maturity Risk?:

Risk over maturity of loan

Term Risk

Term or Maturity Risk?:

Borrower does not pay the “balloon” payment back

Maturity Risk

What are some variables that affect default risk?

\-Insufficient income (or cash flow)

\-Property values falls below the outstanding principal balance of the loan

\-Default risk realized can affect the expected return on investment and the return of investment

The process of evaluating a loan request in terms of default risk and loan officers and analysts rely on information in the mortgage loan application, lending or underwriting guidelines, and the appraisal report when it comes to making a credit decision

Underwriting