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Real Estate Principles Final Exam

Terms in this set (160)

Agent
the party authorized to conduct business on the principal's behalf
Agency
a legal relationship between a principal and an agent
Blockbusting
the illegal practice of encouraging property owners to sell their homes when minorities begin moving into an area
Broker
an intermediary who brings together buyers and sellers, assists in negotiating agreements between them, executes their orders, and receives compensation for services rendered
Buyer Representation Agreement
the legal agreement between a buyer and a broker hired to represent the buyer's interest
Buyer's Agent
a broker who is legally obligated to represent a buyer's interest
Commission Agreement
an agreement between a seller and broker for the payment of a commission if the broker is successful in locating a buyer for the seller's property
Dual Agent
an agent who attempts to work in the best interest of two parties on opposing sides of a transaction
Exclusive-Brokerage Listing
an agreement between a property owner and a single broker authorizing that broker to seek a buyer for the property in exchange for compensation
Fair Housing Laws
laws that protect the rights of certain citizens in housing transactions
Fiduciary
a person who is obligated to act in the best interest of another
Fraud
a false statement made with the intention to mislead, that is material to a transaction, that is justifiably relied on by a client, and that results in injury to the client
Limited-service listing
an agreement between a property owner/seller that authorizes a broker to perform certain tasks to seek a buyer for the property
Listing Agreement
the legal agreement between a broker and a property owner that authorizes the broker to attempt to sell the property
LISTING BROKER
the broker who negotiates the listing agreement with the seller
MISREPRESENTATION
a false statement that is material to a transaction, that is justifiably relied upon by a client, and that results in injury to the client
MULTIPLE LISTING SERVICE (MLS)
an arrangement in which brokers share their listings with other brokers in exchange for a share of the commission generated by a transaction
NET LISTING
a listing agreement in which the broker is entitled to receive as commission any amount above a base price
OPEN LISTING
a listing agreement in which a broker is entitled to receive a commission only in the event the broker procures a buyer for the property
PRINCIPAL
the person who authorizes an agent to conduct business on his or her behalf
REAL ESTATE BROKER
an individual licensed by a state to represent others in real estate transactions in exchange for compensation
SELLER'S AGENT
a real estate broker who is obligated to represent the best interest of the seller
SELLING BROKER
the broker who actually locates a buyer for a property
STEERING
the illegal practice of steering potential homebuyers into certain areas to influence the racial or ethnic composition of the areas
SUBAGENT
an agent of an agent of a principal
TRANSACTION BROKER
a broker who provides limited representation to a seller or buyer in a real estate transaction
ABSORPTION RATE
the number of units capable of being absorbed by the market over a given time period
MANUFACTURED HOME
a dwelling unit that is manufactured in a factory and then moved to a particular site
PATIO HOUSE
a detached house with at least one wall that touches the property line
PLEX
a form of attached housing containing two or more units, each with its own outside entrance
TIME-SHARING
a form of concurrent estate that splits ownership of a property across owners and across time
TOWN HOUSE
a form of attached housing in which each unit has its own front door but shares one or two walls with adjacent units
CENTRAL BUSINESS DISTRICTS
an unplanned series of buildings constructed along major streets in the center of town
COMMERCIAL HOTELS
a hotel that caters primarily to businesspeople and conventioneers
DISCOUNT SHOPPING CENTER
a community shopping center that contains a discount store as the main tenant
FACTORY OUTLET CENTER
a shopping center consisting of retail outlet facilities where goods are sold directly to the public in stores owned and operated by the manufacturers
GROSS LEASABLE AREA
the total floor area of a building designed for the tenant's use
HIGHWAY HOTEL
a motel that caters primarily to business people and vacationeers who are in transit
INDUSTRIAL PARKS
controlled, parklike developments designed to accommodate specific types of industry
OFFICE PARK
a community of lowrise office structures under central management and administration, usually located in the suburbs and adjacent to a major freeway
POWER CENTER
a large strip-style shopping center that is anchored by one or more "big box" retailers, along with smaller shops
PRIMARY TRADE AREA
the geographic area immediately surrounding a shopping center that typically accounts for 60-70% of the center's sales
RESORT HOTELS
a hotel that caters to individuals or families on vacation
SECONDARY TRADE AREA
the trade area outside the primary trade area that typically accounts for 15-20% of sales at a shopping center
SPECIALTY SHOPPING CENTER
a shopping center that focuses on unusual market segments and usually offers high-quality, high-priced merchandise in boutique-type stores
SUPERSTORE
a very large discount store with between 60,000-150,000 square feet under one roof
TRADE AREA
the geographic area from which the major portion of the patronage necessary to support the shopping center is to be drawn
AXIAL MODEL
a model of urban growth patterns based on transportation routes
BID-RENT CURVE
theoretical relationship between distance and land rent
COMPARATIVE ADVANTAGE
the advantage one locale has over another because of transportation facilities, created environment, natural resources, or its labor force
CONCENTRIC-CIRCLE MODEL
a model of urban growth patterns based on concentric zones surrounding a central business district
ECONOMIC BASE
employment in industries that bring income into a region from beyond its borders
EXPORT ACTIVITIES
activities that produce goods and services for sale or consumption outside an area's borders
FILTERING
the passage of housing to less affluent families as the housing ages
GENTRIFICATION
the process of neighborhood rehabilitation causing value to rise dramatically as it becomes a desirable location
HIGHEST AND BEST USE
that use, found to be legally permissible, physically possible, and financially feasible, that results in the highest land value; that use of land most likely to result in the greatest long-term economic return to the owner
IN-FILLING
a method of city growth where open spaces between structures are filled in with new structures
INFRASTRUCTURE
investment in public facilities such as roads, schools, etc.
LAND RENT
the return that a parcel of land will bring in the open market
MULTIPLE-NUCLEI MODEL
a model of urban growth patterns that emphasizes more than one center of commercial activity
NEIGHBORHOOD
a geographic area containing complementary land uses in which property values tend to move together
POPULATION-SERVING ACTIVITIES
activities that produce goods and services for sale or consumption within an area's borders
SECTOR MODEL
a model of urban growth in which types of development tend to extend outward in wedge-shaped sections from the center of a city
URBAN AND REGIONAL ECONOMICS
the study of the economics of urban and regional growth
ACCELERATION CLAUSE
clause in a promissory note that permits the lender to demand payment in full of any unpaid principal and any interest due in the event of default
COMMERCIAL BANK
private financial institutions organized to accept deposits from individuals and businesses and to loan these funds to all types of borrowers
COMMERCIAL MORTGAGE-BACKED SECURITIES
traded securities that have commercial mortgages as their collateral and source of cash flow
CONSUMER CREDIT PROTECTION ACT
the truth-in-lending law
CONVENTIONAL LOANS
mortgage loans not insured or guaranteed by a government agency but that may carry private mortgage insurance
CREDIT UNIONS
credit institution designed to serve a specific industry or community
DEBT COVERAGE RATIO
calculated by dividing net operating income by debt service (NOI/DS)
DEED IN LIEU OF FORECLOSURE
a process by which a borrower transfers ownership of a mortgaged property to the lender rather than face foreclosure
DEED OF TRUST
a security instrument that conveys title to the property pledged as collateral to a trustee until the loan is repaid
DEFICIENCY JUDGMENT
a judgment against a borrower following a foreclosure that permits the lender to recover any shortfall between the sale price and the balance of the loan
DUE-ON-SALE CLAUSE
a clause in a promissory note that requires the borrower to repay all amounts due immediately upon transferring the property to a new owner
EQUAL CREDIT OPPORTUNITY ACT
act that prohibits discrimination in mortgage lending
FAIR CREDIT REPORTING ACT
a law regulating credit reporting agencies
FANNIE MAE
federal national mortgage association. an agency that was created by the federal government in 1938 to buy mortgages from lenders and to serve as a clearing-house for the secondary mortgage markets
FEDERAL HOUSING ADMINISTRATION (FHA)
an agency that was created by the federal government in 1934 to act as an insurance company for private mortgage lenders
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FANNIE MAE)
an agency that was created by the federal government in 1938 to buy mortgages from lenders and to serve as a clearing house for the secondary mortgage markets. AKA FANNIE MAE
FHA-INSURED LOAN
a loan insured against default by the FHA
FLOOD DISASTER PROTECTION ACT
a law establishing the federal flood insurance program
FORECLOSURE
the process of seizing control of the collateral for a loan and using the proceeds from its sale to satisfy a defaulted debt
FREDDIE MAC
Federal Home Loan Mortgage Corporation
GINNIE MAE (GOVERNMENT NATIONAL MORTGAGE ASSOCIATION)
a government organization that provides subsidized loans for certain mortgage borrowers.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
a government organization that provides subsidized loans for certain mortgage borrowers. AKA GINNIE MAE
GOVERNMENT-SPONSORED ENTERPRISES
organizations such as FANNIE MAE and FREDDIE MAC, which are authorized and supported by the US government to operate a secondary mortgage market for residential loans
HYPOTHECATION
the practice of leaving borrowers in possession of their property while repaying a loan with interest
JUDICIAL FORECLOSURE
a court-ordered sale of the property following default by the mortgagor (the borrower in a mortgage loan)
LAND CONTRACT
a contract that establishes an obligation to transfer title from a seller to a buyer at some future date based on an agreed-upon payment schedule
WEALTH MAXIMIZATION OBJECTIVE
an investment objective of investors
LIEN THEORY
a concept adopted by some states that recognizes that the mortgagee must foreclose on the property through a court action to acquire possession in the event of default
LIEN
a claim on a property as security for a debt or fulfillment of some monetary charge or obligation
LOAN ORIGINATION
the process of creating a new loan agreement between a borrower and a lender
LOAN-TO-VALUE RATIO (LTV RATIO)
the ratio obtained by dividing loan by an estimate of property value
MORTGAGE
a contract by which real property is pledged as security for a loan
MORTGAGE-BACKED SECURITIES
securities issued by mortgage holders to investors who wish to invest indirectly in the mortgage market
MORTGAGE BANKERS
firms that borrow money from commercial banks to originate new loans to mortgage borrowers
MORTGAGE BROKERS
firms that act as brokers between loan applications and lenders
MORTGAGE DEBT RATIO
the percentage of a borrower's gross monthly income that is required to meet housing expenses
NONJUDICIAL FORECLOSURE
a situation in which the security instrument grants the lender power of sale should the borrower default
OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT
a federal agency that oversees the operations of government-sponsored enterprises in the mortgage market
PREPAYMENT CLAUSE
a clause in a promissory note that determines the borrower's right to prepay any or all of the principal before it is due
PRIMARY MORTGAGE MARKET
transactions that occur between a borrower and a lender
PRIVATE MORTGAGE INSURANCE (PMI)
nongovernment insurance that provides protection for the lender against the borrower's default
PROMISSORY NOTE
a written promise to pay money owed
REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA)
law regulating the closing procedures in a real estate loan
SAVINGS INSTITUTIONS
firms that receive deposits from savers and loaning those funds to residential borrowers
SECONDARY MORTGAGE MARKET
transactions involving mortgages that occur between investors
SECURED LOAN
a loan for which a specific item has been pledged as collateral
STRICT FORECLOSURE
a situation in which the lender is entitled to immediate ownership of the property should the borrower default
SUBPRIME MORTGAGE LOANS
a type of loan made to borrowers with less than stellar credit histories or other issues that prevent the borrower from obtaining the most favorable loan terms
TITLE THEORY
a concept adopted by some states that recognizes that the mortgagee has the right to immediate possession of mortgaged property in the event of default
TOTAL DEBT RATIO
the percentage of a borrower's gross monthly income required to meet monthly contractual expenses
UNDERWRITING
process of evaluating the risk of a loan applicant and the property being pledged in order to make a decision regarding the loan application
UNSECURED LOAN
a loan for which no specific item has been pledged as collateral
U.S. HOUSING FINANCE SYSTEM
the system of financing mortgages in the US
VA-GUARANTEED LOAN
a loan in which the lender is protected from the borrower's default by a guarantee of repayment from the Department of Veterans Affairs
ADJUSTABLE-RATE MORTGAGES
a loan whose interest rate is periodically adjusted based on the current interest rate environment
AMORTIZATION SCHEDULE
a table showing the break-down of principal and interest paid over the life of a mortgage
AMORTIZING LOANS
a loan whose balance is gradually retired by periodic payments
BALLOON PAYMENT
a lump sum payment due on a specified date in the future
DISCOUNT POINTS
1 percent of the loan amount
EFFECTIVE INTEREST RATE
the actual cost of borrowed funds expressed as an interest rate
FIXED-RATE MORTGAGE
a loan with a fixed interest rate over the loan term
INTEREST-ONLY LOAN
a nonamortizing loan that requires periodic payments of interest and a single balloon payment of the principal at the end of the loan term
ORIGINATION FEES
fees charged by lenders in the origination process
PREPAYMENT
early repayment of principal
REFINANCING
the process of obtaining a new loan and using the proceeds to prepay an existing loan
TWO-STEP MORTGAGES
a loan whose interest rate is adjusted once during the term of the loan
AFTER-TAX CASH FLOW
annual operating cash flow that remains after expenses, debt service, and taxes have been paid
AFTER-TAX EQUITY REVERSION
the amount of money generated by the sale of an investment after taxes have been paid and any debts extinguished
APPRECIATION
increase in property value of a property for tax purposes
BEFORE-TAX CASH FLOW
annual operating cash flow that remains after expenses and debt service have been paid
BEFORE-TAX EQUITY REVERSION
the amount of money generated by the sale of an investment before taxes have been paid
BOOK VALUE
value of a property as stated on the company's books
CAPITAL GAIN
the amount calculated as net sale proceeds less original purchase price plus all depreciation deductions taken in previous years
CAPITAL GAIN TAX
taxes assessed on capital gains
CAPITAL GAIN TAX RATE
a preferential tax rate given to long-term investors
COST RECOVERY ALLOWANCE
a deduction from taxable income provided to investors under the IRS code that allows investors to recover their initial investment in the property and delay taxes on this amount until the sale of the property in the future
DEBT SERVICE
total amount paid to lenders to service outstanding debt
DISCOUNTED CASH FLOW MODEL
a model used by investors to judge the suitability of a real estate investment
EFFECTIVE GROSS INCOME
potential gross income less vacancy and credit losses
FINANCIAL LEVERAGE
the use of borrowed funds with the intention of magnifying investment returns
GROSS SELLING PRICE
the selling price before any deductions
INCOME TAXES
taxable income multiplied by the tax rate
INITIAL EQUITY
purchase price of a project less a debt that is used to complete the purchase
INTERNAL RATE OF RETURN
the discount rate that sets net present value exactly to zero
INVESTMENT
present sacrifice in anticipation of expected future benefit
NET OPERATING INCOME
annual operating cash flow that remains after expenses have been paid
NET PRESENT VALUE
present value of inflows minus present value of outflows
NET SELLING PRICE
difference between the sales price and selling expenses
OPERATING CASH FLOW
rent paid by tenants for the use of space in a property
OPERATING EXPENSES
direct expenses of a property*
POTENTIAL GROSS INCOME
the total income potential of an investment, assuming all space is leased and all rents are collected
PROPERTY FLIPPING
the process of buying properties, renovating them to some degree, and reselling them with the goal of making a profit
REQUIRED RATE OF RETURN
the minimum acceptable rate of return required by investors
RISK
the chance of loss; also, the uncertainty about the actual rate of return an investment will provide over the holding period
TAXABLE INCOME
income subject to taxation
VACANCY AND CREDIT LOSSES
revenues not received due to vacancy in the property or uncollectible rents
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