Real Estate Principles Midterm

True or False: Real estate is the single largest component of wealth int he global economy.

True

How many jobs does the sector of real estate create for Americans

9 million

What is real property?

can be a business or a building that is not a house

What is personal property?

house or some type of building on their own property

List 3 ways that real estate can be defined:

Tangible, intangible, industry

The market in which required rates of return on available investment opportunities are primarily determined is referred to as the

capital market

Real estate is property, which can be either a tangible or an intangible asset, Which of the following would be considered an intangible asset?

mortgage

If we desire to classify land by its use, land that does not include any improvements to the land would be categorized as

raw land

A market where tenants negotiate rent and other terms with property owners or their managers is referred to as a

user or space market

A principal definition of real estate is as "a bundle of rights associated with the possession, use, and disposition of property." Each of the following is a fundamental characteristic of property rights EXCEPT

they apply only to tangible assets

Property rights cna be divided into two classes, real and personal. Which of the following is an example of real property?

commercial building

Storm water drainage systems are best described as

improvements to the land

Which of the following is not a form of property right?

license

What are the 3 common ways we define or think of real estate?

intangible, bundle of rights, and property

Real estate is property, which can be either a tangible or an intangible asset. Which of the following would be considered an intangible asset?

mortgage

Which of the following would be considered a tangible asset?

land

Real estate values derive from the interaction of three different sectors in the economy. Which of the following sectors serves to allocate financial resources among households and firms requiring funds?

capital market

Property rights can be divided into two classes, real and personal. Which of the following is an example of real property?

commercial building

Which of the following is an example of a negative easement appurenant?

a scenic easement used to restrict construction on adjacent parcels so as to preserve a value view

Tom recently purchased a home in a residential subdivision. While mowing his lawn and planting new shrubs for the first time since moving in, Tom's neighbor came outside to inform him that he was violating one of the subdivision's rules which required the use of a specific professional lawn service for all property landscaping needs. Assuming this requirement can be enforced by the subdivision authority, this would be an example of a

restrictive convenant

The description of land in a deed must be explicitly defined. All of the following would be considered acceptable legal descriptions of land EXCEPT

street address

Externalities can play an important role in determining a property's price, either by adding value through positive externalities or by diminishing value through negative externalities. Which of the following is most likely to be considered a negative externality?

public assistance facilities such as homeless shelters

Land use is one of the most regulated activities in our society. Which of the following is not true of local and state governments when it comes to land use?

these governments have the right to enable land monopolies

After structure is built, it is impractical for even a building expert to fully assess the quality of the construction and the safety hazards it may harbor. This is an example of which of the following problems that plagues private real estate markets?

incomplete information

Which of the following tools of public land use control represents the earliest method of police power to regulate land use?

building codes

Easement

letting someone be on your property for some reason

Restrictive convenant

something that impact your city/town

The 3 markets that play a role in real estate

user, property, and capital

5 characteristics of real estate markets

heterogeneous products, immobile products, segments markets, and privately negotiated transactions

What is a deed

special form of written contact used to convey a permanent interest in real property

The 3 main types of land descriptions that exist

metes and bounds, subdivision plat lot and block number, and government rectangular survey

3 traditional methods of land control

planning, zoning, and building codes

What is the purpose of property tax?

to finance the public services

What impacts a city's growth or growth potential?

workforce, quality of life and leadership, the size and efficiency of its industries, and the benefits that come from businesses clustering together.

Transaction Prices

actual amount paid in a single exchange

Market Value

theoretical, objective estimate of what an asset is worth in an open, competitive market

Investment Value

subjective measure of an asset's worth to a specific investor, based on their unique needs and future benfits

Sales comparison approach

works for most 1 to 4 family homes and some income properties if there are enough similar sales to compare

Cost approach

estimates how much it would cost to rebuild the property new and then subtracts any loss in value from wear and tear

Functional obsolescence

the drop in a building's value caused by changes in style, preferences, new construction technology, or current market standards

Income appraoch

commercial property owners often expect to make money from their properties through rental income and an increase in the properties value over time

Net operating income

earnings a property generate after covering operating expenses but before accounting for mortgage payments and income taxes.

Prepayment penalties

typically the highest during the early years of a loan and gradually decrease over time.

A demand clause

allows the lender to require the borrower to repay the loan in full whenever the lender chooses

mortgage

special contract conveying to the lender a security interest in the mortgaged property

Consumer financial protection bureau

enforcing antidiscrimination laws, preventing unfair, deceptive, or abusive practices, handling consumer complaints, promoting financial education, and monitoring potential financial risks that could affect consumerss

What is an amortization schedule?

A detailed plan outlining how a loan will be repaid over time, including principal and interest payment.

A characteristic of a partially amortized loan is

A balloon payment is required at the end of the loan term

If a mortgage is to mature at a certain future time without any reduction in the original principal balance, this is called

An interest only mortgage

The dominant home loan type originated by most financial institutions is the

Fixed payment, fully amortized mortgage

What is one way we can classify an “opportunity cost” in real estate?

The profit you miss out on when choosing one investment over another

The element of an adjustable interest that is the “moving part” is the

Index

A lender may reserve the right to require repayment of a loan at any time they see fit through a

Demand clause

With what type of loan security arrangement is the deed held by a neutral third party and returned upon payment of the mortgage in full?

Deed of trust

The Truth-in-Lending Act gives you some mortgage borrowers how long to rescind a mortgage loan?

Three business days

The components of the debt to income ratio in home loan underwriting includes

Monthly principal, interest, property taxes, hazard insurance, plus other monthly debt obligations and monthly gross income

A down payment deposit from a potential buyer must be held in

the broker’s escrow trust account

Real estate brokers are paid commissions primarily for

Providing a service

Real estate transactions do not close at the same time the contract for sale is singed by both parties because

All of these choices are correct

An earnest money deposit is

A payment of money by a buyer to evidence good faith

What is primary mortgage market?

Loan origination market where borrowers and lenders come together

What is the secondary mortgage market?

Lenders can either hold the loans in their portfolios or sell them

Explain what mortgage banking is

Funds the borrowers, and then sells the loans as quickly as possible

What is PITI?

Monthly payment of principal and interest on the loan plus monthly payments into an escrow account toward property taxes and hazard insurance.

DITI ratio and what it means for your as a borrower

Second underwriting ratio and then sells the loans as quickly as possible

3 Cs

Collateral, creditworthiness, and capacity

Purpose of a real estate broker?

Help make markets work by bringing buyers and seller together physically and emotionally to create sales and purchases

Real estate broker

More education, experience, and can work independently

Real estate agent

Help clients to buy or sell property but must work under a supervising broker

6 duties of an agent in fiduciary relationship

Confidentiality, obedience, accounting, loyalty, disclosure, and skill and care

Document is considered to be the msot important in real estate

Contract for sale

5 essential elements

Competent parties, legal objective, offer and acceptance, consideration, and no defects to mutual assent

2 additional elements for real estate

Written form and proper description of the property

5 basic components

N, I, PV, PMT, and FV

How does ARM work

Offering an interest rate that is fixed for an initial period

How does an ARM work?

Fixed rate period, adjustable rate period, rate calculations, rate caps, and payment changes

Commercial mortgage loan documents

Longer, focus on the property’s income potential and business financials

Residential loan documents

Standardized, extensive consumer disclosures