Real Estate Pre-Licensing National Study Guide

Purpose of Licensure: Licenses protect consumers and are enacted for the public good under the government's police power.
Licensure Requirements: Anyone performing real estate activities (selling, renting, negotiating, etc.) for a fee must be licensed.
Key Roles:
- Salesperson: Must affiliate with a broker and cannot accept direct client payments.
- Broker: Can operate independently, accept direct payments, and handle escrow funds.
- REALTOR®: A member of the National Association of REALTORs® (NAR); membership is optional and separate from licensing.
Transaction Basics: A typical sale takes $1$ to $12$ months ( $2$ to $4$ months on average). The process includes property prep, listing (MLS/online), qualifying buyers, offers, Purchase and Sale (P&S) contracts, due diligence, and closing/settlement.
Agency Roles:
- Principal: The client who hires the agent.
- Special Agent: The broker hired by the principal.
- Subagent: The salesperson working on the broker's behalf.
- Vicarious Liability: The principal is liable for the agent's actions; brokers are responsible for their agents, teams, and assistants.

Real Property: The land, everything attached to it, and the "bundle of rights."
- Bundle of Rights: Possession, control, enjoyment, exclusion, and disposition.
- Vertical Interests:
  - Surface Rights: Extend approx. $30$ feet below ground.
  - Air Rights: Extend to navigable air space ( $80$ – $500$ feet high).
  - Mineral Rights: Include solid and liquid (oil/gas) resources.
Water Rights:
- Riparian: Property bordering rivers; rights extend to the accretion line (navigable) or midpoint (non-navigable).
- Littoral: Property bordering lakes/oceans; rights to the high tide line.
- Prior Appropriation: Western states' doctrine based on first use.
Personal Property: Moveable items (chattel). Transferred via Bill of Sale.
- Tests of Fixtures (M.A.R.I.): Method of attachment, Adaptability, Relationship (Intention), and Agreement.
- Trade Fixtures: Business-related equipment; treated as personal property.
- Emblements: Annually harvested crops; personal property.
Severance: Changing real property to personal (e.g., cutting a tree).
Annexation: Changing personal property to real (e.g., planting a tree).

Freeholds (Ownership):
- Fee Simple Absolute: Default, unlimited, inheritable ownership.
- Fee Simple Defeasible: Limited ownership (Determinable, Condition Subsequent, Executory Limitation).
- Life Estates: Ownership based on a life. Can be Reversion, Remainder, or Pur Autre Vie (for another's life).
Forms of Ownership:
- Severalty: Ownership by one person.
- Tenancy in Common: Default co-ownership; interests can be unequal; inheritable.
- Joint Tenancy: Equal interests; includes Right of Survivorship; 4 Unities: Possession, Time, Interest, Title.
- Tenancy by the Entirety: Joint tenancy for married couples with creditor protections.
- Condominiums: Fee simple unit ownership plus joint ownership of common areas as tenants in common.
- Cooperatives: Ownership of shares in a corporation that gives a proprietary lease to a unit.
Non-Freeholds (Rentals):
- Leasehold: Written conveyance for a specific period; must have an expiration.
- Tenancy at Will: Verbal or indefinite right; terminable at any time.
- Tenancy at Sufferance: Holdover tenant staying past lease expiration without permission.

P.E.T.E. (Public Limitations):
- Police Power: Zoning and building codes.
- Eminent Domain: Taking land for public good with just compensation via Condemnation.
- Taxes: Municipal property taxes.
- Escheat: Property reverts to state if owner dies with no heirs/will.
Zoning terms: Nonconforming use (grandfathered), Variance (permission to violate code), Buffer zones.
Private Limitations: Covenants (subdivision-wide) and Deed Restrictions (single-property).
Easements: Rights of way.
- Appurtenant: Involves dominant and servient tenements.
- By Prescription: Obtained through $20$ years of O.N.C.H.A. (Open, Notorious, Continuous, Hostile, Adverse) use.
Liens (Financial Encumbrances):
- Voluntary: Mortgages, Installment Sales Contracts.
- Involuntary: Property Tax Liens (Specific/Priority), Federal Tax Liens (General), Mechanic’s Liens.

Deed Essentials: Must be written, grantor legally competent, name grantee, list consideration, full legal description, granting clause, and delivery/acceptance.
Types of Deeds:
- General Warranty: Most protection for grantee; absolute liability for grantor.
- Special Warranty: Liability only for grantor's term.
- Bargain and Sale: No warranties; contains right to convey.
- Quitclaim: Grantor conveys only what interest they have; no warranties.
Land Descriptions:
- Metes and Bounds: Distances and directions (bounds) between monuments.
- Lot and Block: References plat maps of subdivisions.
- Government Rectangular Survey: Uses Principal Meridians and Base Lines.
  - Township: $6 \text{ miles} \times 6 \text{ miles} = 36 \text{ sq. miles}$ ( $23,040 \text{ acres}$ ).
  - Section: $1 \text{ sq. mile} = 640 \text{ acres}$ . Section $16$ is for schools.
Title Insurance: Protects against undiscoverable defects (forged deeds/undisclosed heirs).

Statute of Frauds: Real estate contracts must be in writing.
Contract Essentials: Offer and acceptance, Consideration, Legal Object, Reality of Consent/Competence.
Listing Types:
- Exclusive Right to Sell: Broker gets commission regardless of who finds buyer.
- Exclusive Agency: Broker gets commission unless owner finds buyer.
- Open Listing: Non-exclusive; commissioned only if agent finds buyer.
Leases: Establish Privity of Estate.
- Gross Lease: Tenant pays fixed rent; landlord pays operating expenses.
- Net Lease: Tenant pays rent plus some/all expenses (taxes, insurance).
- Percentage Lease: Rent is based on % of tenant's sales receipts.

Valuation Approaches:
- Sales Comparison: Market data approach for residential sales.
- Income Approach: For investors (NOI, Cap Rate, GRM).
- Cost Approach: Construction costs minus depreciation; used for unique properties.
Finance Instruments:
- The Note: Evidence of debt; contains acceleration and prepayment clauses.
- The Mortgage: Security for the note; hypothecates the property.
Financing Types: Fully Amortized, Balloon, Rehab (203k), Blanket, and Reverse-Annuity.
Government Programs: FHA (insures), VA (guarantees, no down payment), USDA (rural loans).
Tax Laws: Capital gains tax (Taxpayer Relief Act of 1997 sheltered $250,000$ for singles, $500,000$ for married).

Hazardous Materials: Lead Paint (pre-1978 sales require 10-day inspection period), Asbestos, Radon ( $4 \text{ pCi/L}$ action level), Mold.
Federal Protected Classes: Race, Color, Religion, National Origin, Sex, Disability, Familial Status.
Illegal Acts: Blockbusting (panic selling), Steering (directing to/away from areas), Redlining (credit discrimination).
Exceptions: Owner-occupied 2–4 family homes, private clubs, religious orgs (Race is NEVER an exception).