Real Estate Salesperson Exam (National Portion) Concept Review

Overview

This chapter explains what counts as real estate and how land is described on paper. Questions often ask whether an item stays with the house, which characteristic of land explains a market effect, or how many acres a legal description covers.

Real property is land and everything permanently attached to it. Personal property can be moved. A fixture was once personal property but is now attached, so it goes with the house unless the contract says otherwise. Courts look at the method of attachment, adaptation, the relationship of the parties, intention, and agreement (MARIA). A tenant's business equipment is a trade fixture and may be removed before the lease ends. Crops planted each year are emblements.

Land is immobile, indestructible, and unique (non-homogeneous). Its economic traits are scarcity, improvements, permanence of investment, and area preference, also called situs. A legal description must locate the parcel exactly: metes and bounds uses directions and distances from a point of beginning, lot and block uses a recorded plat, and the rectangular survey uses townships of 36 sections, each of 640 acres.

Overview

This chapter covers who can control how land is used. Government controls come from four powers, and private controls come from deeds, subdivision rules, and agreements between neighbors.

Police power lets the government regulate land for public health and safety through zoning, building codes, and subdivision rules, without paying the owner. Eminent domain lets it take land for public use with just compensation, through condemnation. Taxation lets it tax land, and escheat passes property to the state when an owner dies with no will and no heirs. A use that was legal before zoning changed may continue as a nonconforming use, and a variance relieves an owner from a rule that causes unusual hardship.

Private controls include covenants, conditions, and restrictions (CC&Rs), often enforced by a homeowners' association. An easement is a right to use another's land: an easement appurtenant benefits a neighboring parcel, while an easement in gross benefits a person or company such as a utility. A license is personal, revocable permission. An encroachment is an improvement that crosses the property line without permission.

Overview

This chapter explains the different ways a person can hold an interest in real estate, how co-owners share title, and how liens rank against each other.

Fee simple absolute is the most complete ownership and carries the full bundle of rights, always subject to government powers. A life estate lasts for a person's life; when the measuring life is someone other than the owner, it is pur autre vie. After a life estate ends, the property returns to the grantor (reversion) or goes to a named third person (remainder). Leasehold estates include the estate for years, the periodic tenancy, the tenancy at will, and the tenancy at sufferance, where a tenant stays on without consent.

Joint tenants hold equal shares with the right of survivorship and need the four unities of time, title, interest, and possession. If one joint tenant sells, the buyer becomes a tenant in common. Condominium owners own their unit and an undivided interest in the common elements, while cooperative residents own shares and hold a proprietary lease. Liens generally rank by recording date, but property tax liens usually come first. A judgment is a general lien; a mortgage is a specific lien.

Overview

This chapter follows title from one owner to the next: what makes a deed valid, which deed protects the buyer most, and how public records and title insurance protect owners.

A valid deed is in writing, names a competent grantor and an identifiable grantee, contains a legal description, words of conveyance, and consideration, and is signed by the grantor. Title passes when the deed is delivered and accepted. A general warranty deed gives the most protection, a special warranty deed covers only the seller's time of ownership, and a quitclaim deed gives no warranties and is often used to clear a cloud on title.

Recording gives constructive notice to everyone, while actual notice is what a person really knows. The chain of title is the history of ownership, and an abstract summarizes the records. Title insurance pays for covered losses such as forgery; the owner's policy protects the buyer and the lender's policy protects the lender. Title can also pass involuntarily, for example by adverse possession, and real property given by will is a devise.

Overview

This chapter covers what value means and how appraisers and licensees estimate it. Expect questions on the three approaches, depreciation, principles of value, and simple income calculations.

Market value is the most probable price in an open, competitive market; market price is what was actually paid. Value needs demand, utility, scarcity, and transferability. The principle of substitution says buyers will not pay more than the cost of an equal substitute, which supports the sales comparison approach. Regression lowers the value of the best house among poorer ones, and progression raises a modest home among better ones.

The sales comparison approach is best for homes. Adjustments are made to the comparables: if a comparable is better, subtract. The cost approach suits new and special-purpose buildings: cost new minus depreciation plus land value. Depreciation is physical deterioration, functional obsolescence (poor design), or external obsolescence (outside the property). The income approach divides net operating income by the cap rate; mortgage payments are not operating expenses. A licensee's CMA or BPO is not an appraisal.

Overview

This chapter covers how real estate contracts are formed, when they can be enforced, and what happens when someone fails to perform. It is the largest part of the largest content area.

A valid contract needs competent parties, offer and acceptance, consideration, and a legal purpose, and under the Statute of Frauds a contract to sell real estate must be in writing. A bilateral contract exchanges promises; a unilateral contract has a promise from one side only. A contract signed by a minor is voidable by the minor, while a contract for an illegal purpose is void. An executory contract still has duties to perform; an executed contract is complete.

Any change to an offer is a counteroffer that rejects the original offer. Earnest money shows good faith and is held in escrow. Contingencies, such as financing or inspection, must be met or waived before closing. After signing, the buyer holds equitable title until closing. An option gives the optionee the right, but not the duty, to buy. Remedies for breach include liquidated damages, compensatory damages, rescission, and specific performance.

Overview

This chapter explains who the agent works for and what the agent owes to clients and to everyone else in the transaction.

The principal, or client, hires the agent; a customer is a party the agent works with but does not represent. A listing agreement makes the broker the agent and the seller the principal. Agency can be created expressly or implied by conduct, and it ends by completion, expiration, mutual agreement, death or incapacity of either party, destruction of the property, or revocation or renunciation.

An agent owes the client fiduciary duties: obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care. The agent must keep the client's motivation and lowest price private and disclose any conflict of interest. Customers are owed honesty and fair dealing, which includes disclosure of known material defects. Dual agency, where one broker represents both sides, is allowed only where state law permits and with informed written consent of both parties.

Overview

This chapter covers how brokerages work day to day: the types of listing agreements, handling other people's money, staying within the license, and federal rules that create risk for licensees.

Under an exclusive right-to-sell listing, the broker is paid if the property sells during the term, no matter who finds the buyer. Under an exclusive agency listing, the owner may sell alone without paying. An open listing pays only the broker who brings the buyer, and a net listing creates a conflict of interest and is banned or limited in many states. Earnest money goes into the broker's escrow or trust account; mixing it with personal funds is commingling.

Licensees must not give legal advice or draft legal documents. Federal antitrust law bars competing brokers from fixing commission rates, allocating markets, or boycotting a competitor. Before cold calling, check the Do Not Call lists. A broker may be liable for a salesperson's acts within the scope of the work, so supervision and E&O insurance matter. For federal tax purposes, a licensed salesperson is a statutory nonemployee when substantially all pay is based on sales, not hours, and a written contract says they will not be treated as an employee for federal taxes.

Overview

This chapter covers federal fair housing law, which applies in every state. Questions usually describe a situation and ask which illegal practice it shows or which class is protected.

The federal Fair Housing Act protects seven classes: race, color, religion, sex, national origin, disability, and familial status, meaning households with children under 18 and pregnant women. Sexual orientation and gender identity are not listed in the federal Act, but many states and cities protect them under their own laws. The Civil Rights Act of 1866 bars all racial discrimination in property, with no exceptions.

Steering guides buyers toward or away from areas because of a protected class. Blockbusting urges owners to sell by saying people of a protected class are moving in. Redlining refuses loans or insurance in an area because of who lives there. Ads must describe the property, not the kind of buyer wanted. Landlords must allow reasonable modifications, usually at the tenant's cost, and reasonable accommodations in rules for people with disabilities. A complaint may be filed with HUD within one year.

Overview

This chapter covers what must be disclosed about a property and the environmental hazards that can affect value, health, and liability.

A material fact is one that would affect a reasonable buyer's decision or price. Known physical defects, such as a leaking roof or a cracked foundation, must be disclosed, while the seller's personal reasons for moving are confidential. Puffing is exaggerated opinion; misrepresentation and fraud are false statements of fact. For housing built before 1978, sellers and landlords must disclose known lead-based paint hazards and give the EPA pamphlet, and buyers get a 10-day chance to test unless it is waived or changed by agreement.

Radon is an odorless radioactive gas from the soil found only by testing. Asbestos is most dangerous when disturbed. Underground storage tanks can leak into soil and groundwater. Under CERCLA, or Superfund, present and past owners can be liable for cleanup, so buyers of commercial land often order a Phase I environmental site assessment to support the innocent landowner defense. Flood insurance is generally required for federally backed loans in special flood hazard areas.

Overview

This chapter covers how home loans work, the federal rules that protect borrowers, and how a sale is settled.

The promissory note is the promise to repay, and the mortgage or deed of trust pledges the property as security. The borrower is the mortgagor and the lender the mortgagee. A due-on-sale clause lets the lender call the loan when the property is sold, and an acceleration clause makes the debt due on default. In lien theory states the borrower keeps title; in title theory states the lender or a trustee holds it. Fannie Mae and Freddie Mac buy loans in the secondary market.

Conventional loans above 80% loan-to-value usually need private mortgage insurance. FHA loans are insured and VA loans are guaranteed. Under TRID, the Loan Estimate is due within 3 business days after application and the Closing Disclosure at least 3 business days before closing. RESPA bans kickbacks for referrals of settlement services. Under Regulation Z, a trigger term such as a down payment amount in an ad requires full disclosure including the APR. ECOA bars credit discrimination, including by marital status and age.

Overview

This chapter collects the formulas used on the exam. All math questions ask you to apply or analyze, so practice until each step is automatic.

For area, multiply length by width; one acre is 43,560 square feet and a square yard is 9 square feet. Commission equals price times rate, and a split takes a percentage of that. The loan amount equals value times the loan-to-value ratio, and one discount point is 1% of the loan amount. Property tax equals assessed value times the tax rate; one mill is one tenth of a cent, or 0.001.

To find the price a seller needs to net a set amount, divide the net by one minus the commission rate. For prorations, find the daily amount and count the days each party owns, following the question's day count and who owns the closing day; taxes paid in arrears are a debit to the seller. PITI adds monthly principal and interest, taxes, and insurance. Value by income equals NOI divided by the cap rate.