Real Estate Principles and Practice Flashcards

Vocabulary flashcards covering core real estate concepts including agency, appraisal, contract law, disclosures, financing, land use controls, fair housing practice, and property ownership.

Principal (Client)

A party who employs an agent to act on their behalf in a real estate transaction.

Agent (Fiduciary)

An individual or brokerage firm employed to represent a principal in real estate transactions.

Third Party (Customer)

A party to a transaction who is not bound by an agency agreement and is not represented by a broker.

Express Agreement

An agency relationship created through a direct oral or written statement between the parties.

Implied Agency

An agency relationship created through the actions and behavior of the agent rather than a formal written or oral statement.

Special Agency

An agency created when an agent is authorized to perform a specific act without the authority to bind the principal, operating in an advisory capacity only.

General Agency

An agency created when an agent is authorized to perform a series of acts associated with the continued operation of a business, giving the agent limited ability to bind the principal.

Universal Agency

An agency created when a principal grants an agent complete authority over all affairs and unlimited ability to bind the principal.

Exclusive Right-to-Sell Listing

A bilateral employment contract where the brokerage firm receives a commission if the property sells, regardless of who finds the buyer.

Exclusive Agency Listing

A bilateral contract where the brokerage firm is paid if the property sells, unless the seller finds the buyer independently.

Open Listing

A unilateral listing contract given to multiple brokers where only the broker who procures the buyer is paid, and no commission is owed if the seller sells the property independently.

Net Listing

A listing contract in which the owner sets a specific net amount to receive from a sale, and the broker retains any amount above that price as commission.

Power of Attorney

A legal instrument that creates an agency relationship designating an agent as an Attorney-in-Fact, authorizing them to sign legal documents on behalf of the principal.

Fiduciary Duties

The legal obligations owed by an agent to a principal, summarized by COLD AC: Confidentiality, Obedience, Loyalty, Disclosure, Accounting, and Reasonable skill and care.

Dual Agency

A real estate relationship in which a single broker represents both the buyer and the seller in the same transaction.

Appraisal

A systematic analysis and defendable, unbiased opinion of the market value of a property interest provided by a licensed or certified appraiser.

USPAP

The Uniform Standards of Professional Appraisal Practice, adopted by Congress in $1989$ to establish mandatory standards for federally related real estate appraisals.

Principle of Anticipation

An economic valuation principle stating that real estate value is created by the expectation of future benefits or events.

Principle of Conformity

An economic principle stating that maximum property value is achieved when a property is in harmony with the design, size, and age of its surrounding neighborhood.

Plottage

The increase in total land value resulting from combining adjacent smaller lots into a single larger parcel through the process of assemblage.

Principle of Regression

An economic valuation principle stating that the value of a higher-quality property is adversely affected by the presence of lower-quality properties in the same area.

Principle of Progression

An economic valuation principle stating that the value of a lower-quality property is enhanced when located among higher-quality properties.

Principle of Substitution

An appraisal principle stating that the maximum value of a property is established by the cost of acquiring an equally desirable substitute property.

Effective Age

An appraiser's estimate of a building's age based on its physical condition and utility rather than its actual chronological age.

Market Value

The most probable cash price a property should bring in an open, competitive market under fair sale conditions without abnormal pressure.

Market Price

The actual sales price paid for a property in a closed transaction, representing a historical fact.

DUST

An acronym representing the four essential economic elements of real estate value: Demand, Utility, Scarcity, and Transferability.

Highest and Best Use

The legally permissible, physically possible, economically feasible, and most productive use of a property that yields the highest financial return over time.

Sales Comparison Approach

An appraisal valuation method primarily used for single-family residential properties and land that estimates value by adjusting the sales prices of recent comparable properties.

Cost Approach

An appraisal method best suited for new construction and special-purpose properties (such as schools and churches) calculated as Reproduction or Replacement Cost minus Accrued Depreciation plus Land Value.

Physical Deterioration

A loss of real estate value caused by physical wear and tear, decay, or deferred maintenance.

Functional Obsolescence

A loss of property value resulting from outdated design, poor floor plan layout, or inadequate structural features.

Economic Obsolescence

A loss of property value caused by negative environmental or economic factors originating outside the property's boundaries.

Income Approach

An appraisal method for income-producing properties that converts estimated future Net Operating Income (NOI) into present property value using a capitalization rate.

Capitalization Rate

The annual rate of return expected by an investor on an income property, calculated as Net Operating Income divided by Property Value (R = \nI / V).

Gross Rent Multiplier (GRM)

A simple valuation formula calculated by dividing a property's sales price by its gross rental income.

Statute of Frauds

A state law requiring contracts conveying an interest in real estate to be written and signed by the party to be charged to be legally enforceable in court.

Statute of Limitations

A law setting strict statutory time limits within which a party must initiate a lawsuit regarding a contract breach or legal claim.

Void Contract

A contract that lacks one or more essential legal elements, rendering it invalid and without legal standing from inception.

Voidable Contract

A contract that appears valid on its face but allows an injured or vulnerable party to rescind or enforce it due to factors such as fraud, duress, misrepresentation, or minority age.

Bilateral Contract

A contract formed by a mutual exchange of promises in which both parties legally bind themselves to perform specific obligations.

Unilateral Contract

A contract where one party makes a binding promise in exchange for the actual performance of an act by another party.

Option Agreement

A unilateral contract in which a seller agrees to keep an offer open to sell a property at a fixed price within a specified time frame in exchange for an option fee.

Specific Performance

A court order compelling a breaching party to perform the exact terms of a real estate contract rather than paying monetary damages.

Liquidated Damages

An agreed-upon sum specified in a purchase contract (such as earnest money) retained by the seller as compensation if the buyer breaches the agreement without legal excuse.

Contingency

A provision in a contract requiring the completion of a specific condition (such as obtaining loan approval) before the agreement becomes legally binding.

First Right of Refusal

A contractual right giving a person the opportunity to match a future offer to buy or lease property before the owner can sell or lease it to a third party.

Material Defect

A property defect or condition that, if known, would significantly affect a reasonable buyer's decision or the property's valuation.

Latent Defect

A hidden structural or physical defect in a property that is not easily discovered through a standard inspection.

Lead-Based Paint Disclosure

A federal law requiring owners of housing built before January 1, $1978$, to disclose known lead hazards and provide an EPA informational pamphlet to buyers and tenants.

Radon

A naturally occurring, odorless, radioactive gas rising from the earth that can cause lung cancer when trapped in closed structures.

General Warranty Deed

A deed offering maximum grantee protection by providing five full covenants and warranties of title extending back through all prior ownerships.

Special Warranty Deed

A deed in which the grantor warrants title only against defects or encumbrances created during their period of ownership.

Quitclaim Deed

A deed transferring whatever interest the grantor has in a property without making any covenants or warranties of title, often used to clear title clouds.

Abstract of Title

A condensed, chronological history of all recorded documents, conveyances, and liens affecting the title of a specific parcel of land.

Marketable Title

Ownership of real property that is clear and free from reasonable doubt or defect, allowing safe transfer to a buyer.

Constructive Notice

Legal notice given to the public through the proper recordation of legal documents in public land records.

Loan-to-Value (LTV) Ratio

The percentage ratio of a mortgage loan amount relative to the lower of the property's appraised value or purchase price.

Leverage

The strategic use of borrowed money to finance a real estate investment, maximizing potential financial gains or losses.

Promissory Note

A written legal document serving as evidence of debt and containing the borrower's personal promise to repay a loan under agreed terms.

Acceleration Clause

A loan provision giving the lender the right to demand immediate repayment of the entire outstanding loan balance upon borrower default.

Due-on-Sale Clause

A mortgage provision (also known as an alienation clause) permitting the lender to demand immediate payoff of the balance if the property is transferred.

Mortgage

A two-party security instrument in which a borrower (mortgagor) pledges real property as collateral to a lender (mortgagee) to secure debt repayment.

Deed of Trust

A three-party security instrument conveying bare legal title from the borrower (trustor) to a third party (trustee) to secure debt owed to a lender (beneficiary).

Private Mortgage Insurance (PMI)

Insurance required on conventional loans with a loan-to-value ratio exceeding $80\%$ to protect the lender against losses from default.

Adjustable-Rate Mortgage (ARM)

A mortgage loan featuring an interest rate that periodically adjusts according to a specific economic index plus a lender margin.

Reverse Mortgage

A loan product for seniors aged $62$ and older that allows homeowners to convert equity into income or cash without monthly mortgage payments.

Blanket Mortgage

A mortgage secured by more than one parcel of land, commonly containing a partial release clause allowing individual lots to be released as paid off.

Truth in Lending Act (TILA)

A federal law enforced via Regulation Z requiring full written disclosure of credit costs, finance charges, and the Annual Percentage Rate (APR) to consumers.

Real Estate Settlement Procedures Act (RESPA)

A federal law enforced via Regulation X that prohibits unearned kickbacks and standardizes closing cost disclosures for residential mortgage transactions.

PETE

An acronym representing the four basic government powers over private real property: Police Power, Eminent Domain, Taxation, and Escheat.

Police Power

The authority delegated to government entities to enact and enforce laws (such as zoning and building codes) to protect public health, safety, and welfare.

Eminent Domain

The constitutional right of government entities to take private property for public use through condemnation upon paying just compensation.

Ad Valorem Tax

A local real property tax levied according to the assessed value of the real estate.

Escheat

The automatic reversion of real property to the state when an owner dies intestate without legal heirs, or abandons the property.

Nonconforming Use

A grandfathered land use that was legally established prior to a zoning change but no longer conforms to current zoning regulations.

Variance

An approved exception to local zoning rules granted to an individual property owner to relieve unique economic hardship.

Fee Simple Absolute

The highest form of property ownership recognized by law, providing unlimited duration and maximum control over real estate.

Life Estate

A freehold estate limited in duration to the lifetime of the owner or another specified individual.

FRESH CORN

An acronym summarizing the protected classes under the Federal Fair Housing Act: Familial status, Race, Equal, Sex, Handicap/disability, Color, Opportunity, Religion, and National origin.

Steering

The illegal practice of channeling prospective buyers toward or away from specific neighborhoods based on their protected class status.

Blockbusting

The illegal practice of inducing property owners to sell by suggesting that members of a protected class are entering the neighborhood.

Redlining

The illegal practice of refusing mortgage loans or insurance coverage in specific geographic areas based on demographics.

Commingling

The illegal act of mixing client trust funds with a broker's personal or business funds.

Conversion

The illegal use of client trust funds for personal or business operating expenses.

Emblements

Annual cultivated crops produced by tenant farmers, legally classified as personal property.

Trade Fixtures

Personal property items installed by a commercial tenant to conduct business, which can be removed prior to lease expiration.

Metes and Bounds

A land description system that outlines property perimeters starting at a Point of Beginning (POB) using distances (metes) and angles/monuments (bounds).

Government Survey System

A rectangular grid land survey system using principal meridians and base lines to divide land into townships ($6 \times 6\text{ miles}$) and sections ($1 \times 1\text{ mile}$).

Easement Appurtenant

A permanent land right involving two adjacent parcels where the dominant tenement holds usage rights over the burdened servient tenement.

Encroachment

The unauthorized physical intrusion of a structure, fence, or improvement onto an adjoining property.

Adverse Possession

The legal acquisition of title to land through open, continuous, exclusive, actual, and hostile occupancy for a statutory timeframe.

Riparian Rights

Water rights granted to property owners whose land abuts a flowing watercourse such as a river or stream.

Littoral Rights

Water rights granted to property owners whose land borders a non-flowing body of water such as a lake or ocean.

Tenancy in Severalty

Real property title held solely by a single individual or sole legal entity.

Tenancy in Common

Concurrent ownership of property by two or more owners holding undivided fractional interests without the right of survivorship.

Joint Tenancy

Concurrent real estate ownership requiring four unities (Time, Title, Interest, Possession) and featuring the right of survivorship among co-owners.

Condominium

Fee simple individual ownership of an enclosed living unit combined with an undivided interest in common elements.

Cooperative

Property ownership where a corporation holds real estate title and residents buy shares of stock in exchange for a proprietary lease.