IReal Property Characteristics, Legal Descriptions, and Property Use13.8%
11 questions. Be able to decide whether an item is real or personal property and what happens to it in a sale, to name the physical and economic characteristics of land, to recognize each method of legal description, and to sort a restriction on use into public (police power, eminent domain, taxation, escheat, zoning) or private (covenants, owners' associations, easements).
- I.ADistinguish real property from personal property, including fixtures, trade fixtures, emblements, attachment and severance, and transfer by bill of sale.
- I.BExplain the economic traits of real property (scarcity, improvements, permanence of investment, location preference) and its physical traits (immobility, indestructibility, uniqueness).
- I.CIdentify the methods used to describe land legally and the role of a survey.
- I.DExplain public land-use controls (police power, eminent domain, taxation, escheat, zoning) and private ones (CC&Rs, HOAs, easements, licenses, encroachments).
Where people lose points: Fixtures and trade fixtures: something a business tenant installs to run the business stays the tenant's personal property, while an ordinary fixture goes with the real estate. An easement is a right to use someone else's land; a license is permission that can be withdrawn; an encroachment is an intrusion nobody permitted. And eminent domain takes property and pays for it, whereas police power regulates it and does not.
IIForms of Ownership, Transfer, and Recording of Title11.3%
9 questions. Know the ways two or more people can own property and what each means when one of them dies or sells, the difference between freehold and leasehold estates, the common lease types, and how liens rank. Then deeds: what makes one valid, what each type promises, how title passes voluntarily and involuntarily, and what recording and title insurance are for.
- II.ACompare forms of ownership, freehold and leasehold estates, lease types, liens and their priority, and air, surface and subsurface rights.
- II.BExplain what makes a deed valid, the types of deed, voluntary and involuntary transfer of title, recording and notice, and how title is evidenced and insured.
Where people lose points: Joint tenancy carries a right of survivorship and tenancy in common does not. A quitclaim deed transfers whatever interest the grantor has and promises nothing about it. Title passes when a valid deed is delivered and accepted; recording does not transfer title, it gives the public notice of it.
IIIProperty Value and Appraisal13.8%
11 questions. Be able to tell market value from price and from cost, apply the principles of value to a described property, and say what an appraisal is and who oversees appraisal practice. Know which of the three approaches (sales comparison, cost, income) suits which kind of property, and work a simple example of each, including a capitalization rate and a rent multiplier.
- III.ADistinguish market value from market price and apply the characteristics and principles of value.
- III.BDescribe the purpose and steps of an appraisal and the federal oversight of appraisal practice.
- III.CApply the sales comparison, cost and income approaches and rent or income multipliers, and distinguish a CMA, a broker price opinion and assessed value.
Where people lose points: The direction of adjustments in the sales comparison approach: the comparable is adjusted, not the subject, so a feature the comparable has and the subject lacks is subtracted. Also the difference between an appraisal, a comparative market analysis, a broker price opinion and an assessed value. They answer different questions and are prepared by different people.
IVReal Estate Contracts and Agency20%
16 questions, a fifth of the national portion. On contracts: classify one as express or implied and as unilateral or bilateral, list what makes it valid, and follow a sales contract from offer through contingencies to closing. On agency: know the kinds of agency relationship, how each is created and ended, and which duties a licensee owes to a client and which to everyone else in the transaction.
- IV.AClassify contracts as express or implied and as unilateral or bilateral.
- IV.BIdentify what a valid contract requires: voluntary agreement, legally competent parties, lawful consideration and a legal purpose.
- IV.CAssess contract status and performance: executed vs. executory, valid, void, voidable or unenforceable, breach and damages, the Statute of Frauds, electronic signatures and time-is-of-the-essence terms.
- IV.DExplain how a sales contract works: offers and counteroffers, earnest money, equitable title, contingencies, disputes, and option and installment contracts.
- IV.EDifferentiate the types of agency and the relationships a licensee can have with clients.
- IV.FExplain how agency relationships are created and how they end.
- IV.GDescribe the duties a licensee owes to each party in a transaction.
Where people lose points: Void, voidable and unenforceable are three different things: no legal effect at all, valid until the party entitled to cancel does so, and valid but not enforceable in court. A counteroffer ends the original offer; it cannot be accepted afterwards. In agency questions, first work out who the client is. The client is owed the full set of fiduciary duties; a customer is owed honesty and fair dealing.
VReal Estate Practice12.5%
10 questions. Know what a broker is responsible for and where a licensee must stop, in particular short of giving legal advice. Compare the kinds of listing and buyer-representation agreement and how each can end. Know federal fair housing law well: who is protected, which practices are illegal, what an advertisement may say. And know the risks a brokerage manages: antitrust, misrepresentation, privacy and do-not-contact rules.
- V.AExplain a broker's responsibilities, including staying within one's expertise and avoiding the unauthorized practice of law.
- V.BCompare listing agreements, buyer representation and property management agreements, how they terminate and how services and compensation are set.
- V.CApply fair housing law: protected classes, illegal practices and penalties, advertising limits, HUD's role and the ADA.
- V.DManage brokerage risk: supervision, privacy and do-not-contact rules, vicarious liability, antitrust law, fraud and misrepresentation, and E&O and general liability insurance.
Where people lose points: The three fair housing practices that get confused: steering directs buyers toward or away from areas, blockbusting pressures owners to sell by playing on who is moving in, and redlining refuses loans or insurance in an area because of who lives there. In listings, an exclusive right to sell pays the broker whoever finds the buyer, while an exclusive agency lets the owner sell without owing a commission. In antitrust questions, competing brokers agreeing on commission rates is the violation, however it is phrased.
VIProperty Disclosures and Environmental Issues11.3%
9 questions. Be able to recognize each hazard in the outline (lead-based paint, asbestos, radon, mold, contamination, flood zones), say which federal rules and site assessments apply, and state who has to disclose a known condition and what follows from keeping quiet.
- VI.ARecognize property condition and environmental hazards (lead paint, asbestos, radon, mold, contamination, flood zones) and the federal environmental laws and site assessments that apply.
- VI.BExplain who must disclose environmental and property conditions and the liability for failing to do so.
Where people lose points: What a rule requires versus what people assume it requires. The federal lead-based paint rule for housing built before 1978 is a disclosure rule; it does not oblige a seller to test for or remove the paint. And a licensee's own disclosure duty: a known material defect cannot be left unmentioned because the seller would prefer it.
VIIFinancing and Settlement8.8%
7 questions. Know how a loan is secured in lien theory and title theory states, what the primary and secondary mortgage markets each do, the common loan types and clauses, and how FHA, VA, USDA and conventional loans differ in who qualifies and what insurance is needed. Know what each federal lending law is for, and the sequence of a closing.
- VII.AExplain financing basics: conventional and nonconventional loans, seller financing, lien vs. title theory, primary and secondary mortgage markets, loan types and mortgage clauses.
- VII.BCompare FHA, VA, USDA and conventional loan requirements, buyer qualification and loan-to-value, and required hazard, flood and mortgage insurance.
- VII.CApply federal lending rules: TILA and Regulation Z, TRID disclosures under the CFPB, RESPA limits on referrals and rebates, ECOA, and rules against mortgage fraud and predatory lending.
- VII.DDescribe the settlement process and what happens at closing.
Where people lose points: Who does what. The FHA insures loans and the VA guarantees them; in both cases an approved lender makes the loan. The primary market makes loans and the secondary market buys them. And keep the laws apart: the Truth in Lending Act is about disclosing the cost of credit, RESPA is about settlement practices and kickbacks, and the Equal Credit Opportunity Act is about discrimination in lending.
VIIIReal Estate Math Calculations8.8%
7 questions in this area, with calculations also appearing in valuation and financing. Be able to work area in square feet and acres, commissions and splits, loan-to-value, interest and points, prorations and the two sides of a closing statement, capitalization, and simple investment and property-management figures.
- VIII.ACalculate property area in square feet and in acres.
- VIII.BCalculate valuation figures: CMA comparisons, net operating income, capitalization rate, equity, listing price, and assessed value and property tax.
- VIII.CCalculate commissions and other compensation.
- VIII.DCalculate loan costs: interest, loan-to-value, fees, amortization, discount points and prepayment penalties.
- VIII.ECalculate closing figures: down payment, monthly PITI, seller net, buyer cost, prorations, debits and credits, and transfer tax and recording fees.
- VIII.FCalculate investment measures: return on investment, appreciation, depreciation and tax effects.
- VIII.GCalculate property management figures such as budgets and rental amounts.
Where people lose points: Percent of what. A commission is a percentage of the sale price; a discount point is a percentage of the loan amount. In prorations, settle who owes whom before calculating, and use the day count the question gives. Read the last line of the question again before answering: the price needed to net the seller a given amount is not the same calculation as the seller's net from a given price.