Phase 1 Exam ReviewChapters 1-3, 5*

Real EstateFIN 331

Fall 2013

Phase 1 Exam Review

Chapter 1: Key Terms1. Real Estate: land and its permanent

improvements2. Capital Markets: providers of funds from

mortgages, also to allocate financial resources among households and terms requiring funds

3. User Markets: represents the competition among users for physical locations and space

4. Property Markets: determine the required property specific investment returns, property values, capitalization rates and construction feasibility

Phase 1 Exam Review

Chapter 1: Key Terms6. Capitalization Rates: the expected rate of

return on an income producing property7. Tangible vs. Intangible Assets: tangible assets

are physical things, intangible assets are nonphysical and include contractual rights

8. Real Property: real property and real estate are interchangeable terms of the and in Tuesday’s and him and

9. Appurtenances: Rights that go along with ownership; e.g. air or mineral rights. May be sold separately

Phase 1 Exam Review

Chapter 1: ConceptsReal Estate can be used in three fundamental ways: Land and improvements, a bundle of rights, and business activities related to land and developmentReal Estate is Unique: real estate is heterogeneous and immobile. Real estate assets are unique and have distinctive characteristics. Real estate is also illiquid and markets are highly localizedThree economic sectors that affect real estate value: user markets, capital markets, and government

Phase 1 Exam Review

General Information RE largest component of global wealth

28% of US GDP Property Taxes = 70% of govt. revenue

Supply and demand are major value factors Users include buyers and renters Capital Markets can be;

Public; prices and rates for all to see Private; limited access to information,

transparency

Phase 1 Exam Review

Chapter 2: Key Terms1. License: Revocable, non-assignable permission to use

another person’s land for a particular purpose.2. Law of Capture: if you can remove it (oil, gas,

minerals) from your beneath your property, it’s yours, even if it is migrating from adjacent property

3. Forms of Titled Estate: a. Fee simple (absolute): highest and most complete form of

ownershipb. Fee simple Defeasible: fee simple estate that is subject to

termination if a certain condition is not met or if a specified event occurs (also called a conditional or qualified fee)

c. Ordinary Life Estate (unbundled rights)d. Legal Life Estate: created by law (statute)

Phase 1 Exam Review

Chapter 2: Key Terms4. Types of Tenancy: (Lawful possession of

property) In Common: 2 or more have undivided ownership

but no right of survivorship Joint: Equal undivided ownership WITH right of

survivorship Entirety: A form of joint ownership of property by

husband and wife in states without community property laws

5. Property rights: Rights to things both tangible and intangible. Rights and property include exclusive possession, use, and disposition

Phase 1 Exam Review

Chapter 2: Key Terms6. Restrictive Covenants: Restrictive covenants

impose limits on the uses of land7. Forms of [Leasehold] Tenancy:

a. Tenancy for years: last for a definite period. b. Periodic tenancy: continues for successive

periods until terminated by proper notice by either party

c. Tenancy at will: tenant remains in possession with landlord’s permission; i.e. until new tenant

d. Tenancy at sufferance: when tenant stays after the lease expires without landlord’s permission

Phase 1 Exam Review

Chapter 2: Key Terms8. Liens: (a non-possessory interest in real

property) in order of priority, by date filleda. Property tax b. Mortgagesc. Mechanics liens

9. Easements: (right to use for particular purpose)a. Easements Appurtenant: burdens one parcel for

benefit of another; i.e. driveway accessb. Easements in Gross: benefits to a person rather

than the land; i.e. A has right to enter b’s land to fish in B’s pond.

Phase 1 Exam Review

Chapter 2: Key Terms10.Common Interest Developments

a. Condominiums: owns unit in severalty (one individual), shares ownership of common elements

b. Townhouses: owner in individual unit plus the land under his/her unit and an undivided interest in the common areas

c. Cooperatives: ownership vested in a single entity – usually a non-profit corporation formed by the unit owners who own shares in the corp.

d. Timeshares: multiple owners purchase interests in a property - a time slot

Timeshare Estate: fee simple interest in property Timeshare Use: purchases the right to use the property – a form of

non-possessory right.

Phase 1 Exam Review

Chapter 2: ConceptsRights:

(1) demands that our government is obligated to enforce, non-revocable,

(2) cannot be canceled ignored or otherwise lessened by other private citizens, and

(3) enduring and do not fade away with time.Permission: revocable rights

Phase 1 Exam Review

Chapter 2: ConceptsRights

Personal: guaranteed by law Property:

Exclusive Possession Quiet enjoyment Freedom to dispose

Real vs. Personal Property Rights Fixtures: attached to real asset (property) Clothing, paintings and pictures

Phase 1 Exam Review

Chapter 2: ConceptsNon-Possessory Rights

Affirmative easements (right of ways, sewer lines)

Easements Appurtenant Dominant Parcel (recipient of benefit) Servient Parcel (rights constrained by easement)

Easements in Gross Commercial easements

Liens Tax and Assessments, Mechanic’s ,Court

Awarded Damages

Phase 1 Exam Review

Forms of C-Ownership* General Partnerships Limited Partnerships LLC’s Coops Trust

* Interests may not be subdivided

Phase 1 Exam Review

Chapter 3: Key Terms1. Accretion vs. Reliction: Accretion is an increase in

the amount of land you own due to deposits by water action. Reliction is an increase in the land you own due to water levels dropping.

2. Adverse Possession: When the owner of land may involuntarily and unknowingly give up rights to land.

3. Covenant of Seizin: The promise that the grantor truly has good title and the right to convey it. Two additional covenants; Covenants against encumbrances, right to convey, and quiet enjoyment.

Phase 1 Exam Review

Chapter 3: Key Terms4. Types of Deeds:

a. General warranty: greatest protection to granteeb. Special warranty: same as above, except to defects

that arose during the grantor’s tenurec. Deed of bargain and sale: grantor offers the grantee

no warrantees or covenants d. Quitclaim deed: no warrantees of any sort, does not

convey an after-acquired title. It does not imply that the grantor owns the property

e. Judicial deeds: by court order to convey title; i.e. sheriff’s deed issued during court-ordered foreclosure sale

Phase 1 Exam Review

Chapter 3: Key Terms5. Doctrine of Constructive Notice: the common law

tradition that holds a person cannot be bound by claims or rules that he or she has no means of knowing.

6. Lis Pendens: a recorded notice stating that there is a lawsuit pending that may affect title to the defendant’s real estate.

7. Encroachment: Unauthorized intrusion of a building or other improvements unto property owned by another.

8. Habendum Clause: a clause that defines or limits the type of interest being conveyed.

Phase 1 Exam Review

Chapter 3: Key Terms9. Metes and Bounds: the course and distances

defining a piece of property.10.Title Abstract / Insurance: An insurance policy

that covers any expenses incurred in proving ownership.

11.Easement by Estoppel: an easement granted to one owner cannot subsequently be removed from a subsequent owner.

12.Encroachment: Unauthorized intrusion of a building or other improvements unto property owned by another

Phase 1 Exam Review

Requirements for a Deed Grantor and grantee Recital of consideration Words of conveyance Covenants

Seizin No Encumbrances Quiet Enjoyment

Habendum Clause

Phase 1 Exam Review

Requirements for a Deed Exceptions / Reservations Description of land Acknowledgement Delivery

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Chapter 5: Key Terms: Real Estate ValueA. The 5 Attributes of Land

1. Unique location: no two parcels are the same

2. Unique composition: geological composition varies

3. Durable: long-lasting4. Finite Supply: no more is being created5. Useful: may be put to many uses

Phase 1 Exam Review

Chapter 5: Concepts: Real Estate ValueB. Four Forces

1. Social: population trends, family composition, aging, home offices, security, leisure time activities

2. Economic Forces: income levels, employment opportunities, construction cost, availability and cost of credit, utility costs

Phase 1 Exam Review

A.Chapter 5: Concepts : Real Estate Value

B. Four Forces3. Physical/Environmental Forces:

Location, access to transportation, topography, Climate/Weather

4. Governmental Forces: Taxes (city, county, property), Federal Monetary Policy (cost and availability of credit), quality of schools and services, restrictive covenants, zoning