PA Real Estate Study Guide (Chapters 14-18)

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4 Factors affecting the supply of real estate: 1. Labor force
2. Construction materials
3. Government controls
4. Government fiscal policies
Three Factors affecting demand for Real Estate: 1. Population
2. Demographics
3. Employment and wage levels
Immobility: Property cannot be relocated.
Brokerage: The bringing together of parties interested in making a real estate transaction
Types of Housing - Apartment Complex: Groups of apartment buildings (All sizes)
VA Loan: A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Dept. of Veterans Affairs in order to limit the lender's possible loss.
Study of recently sold properties using methods similar to an appraisal.: Comparative Market Analysis (CMA)
"Rule of thumb" (%) for determining if buyer can afford a mortgage.: 28% of GROSS (pretax) monthly income (PITI) This plus ALL recurring debt should not exceed 36% of monthly income.
Uniqueness: No two parcels of real estate are ever exactly alike
Equity: The interest or value that an owner has in property over and above any indebtedness.
Capital gains tax exclusions for sale of principal residence.: $500,000 for married filing jointly
$250,000 filing single
May be used repeatedly. Homeowners must have occupied property as primary residence 2 out of the past 5 years.
Allowable IRA deductions for downpayment: $10,000 only for first time buyers.
Homeowner-related tax deductions: -Mortgage interest (must meet the definition of "qualified residence interest" -- no more than $1M)
-real estate taxes
-certain loan origination fees
-discount points
prepayment penalties
Types of housing - Condominium: The absolute ownership of a unit in a multi-unit building based on a legal description of the airspace the unit actually occupies, plus an undivided interest in the ownership of the common elements, which are owned jointly with the other condo unit owners.
Most common homeowner's insurance policy is known as:: Basic form
This type of coverage is in addition to "basic form" homeowner's insurance: Broad form policy
Insurance that indemnifies a property owner who is found liable for damage in the event of an individual's being injured on the insured's property: Liability coverage
A clause in insuarance policies covering real property that requires the policy holder to maintain fire insurance coverage generally equal to at least 80 percent of the property's actual replacement cost.: Coinsurance clause
Real Estate Licensing and Registration Act ( RELRA ): The Pennsylvania law that protects the public interest by governing real estate practices and the activities of licensees
Construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original: Replacement cost
FEMA: Flood Emergency Management Agency
Two characteristics of real estate that govern the way the market reacts to the pressures of supply and demand.: Uniqueness and immobility.
In designated flood-prone areas - what must be purchased in order to finance the property with federally regulated mortgage loans?: Flood Insurance from the National Flood Insurance Program (can be purchased from any licensed broker)
MLS: Multiple Listing Service
Relationship between salesperson and their UNLICENSED personal assistant: Employer - employee. Must adhere to all applicable employment and tax laws and may be compensated by salesperson directly. Not permitted to hold open houses for the public or telemarket.
Types of housing - Cooperative: A residential multiunit building whose title is held by a trust or corporation that is owned by and operated for the benefit of persons living within the building, who are the beneficial owners of the trust or stockholders of the corp. each possessing a proprietary lease.
Identify two kinds of relationships between Broker and salesperson: Employee or Independent Contractor
Employee: Works under the supervision and control of another
Independent contractor: Retained to perform a certain act but who is not subject to control and direction of another.
Regardless of income tax purposes, how does Pennsylvania license law view the relationship of Broker/salespersons?: Salesperson is EMPLOYEE of broker according to PA license law.
Three federal tax law requirements which establish Independent Contractor status. "SAFE HARBOR TEST": 1. Must be properly licensed
2. Gross income must be based on production, not hours worked
3. Work must be done pursuant to written agreeement clearly stating Independent Contractor status.
Appraisal: An estimate of the quantity, quality or value of something. The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.
Commission: Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price.
Four types of commissions: 1. Percentage of the amount of consideration in a transaction
2.a Flat fee
3. a fee for service
4. an hourly rate

Compensation must be determined as a result of negotiation.
What prices do when demand increases and supply remains stable?: They go up.
At what point is a Broker's compensation payable?: When sale is consummated by DELIVERY of a deed.
Procuring Cause: The effort that brings about the desired result. The action which started the a chain of events that resulted in the sale.
Under an open listing, the broker who is the procuring cause of the sale receives the commission.
PRD & PUD: Planned residential development - Planned Unit development
(Zoned to permit high-density use of the land and maximize the use of open space by reducting lot sizes and street areas)
Is listing broker due a commission if a sale is not consummated because of the PRINCIPALS default?: Yes - generally.
Five (5) Antitrust Violations: Price-fixing
Group boycotting
Allocation of customers
Allocation of markets
Tie-in Agreements
Price Fixing: Brokers conspiring to set fixed compensation rates rather than negotiating in good faith.
Group Boycotting: Two or more businesses conspire against other businesses or agree to withhold their patronage to reduce competition.
Allocation of customers or markets: An Agreement between brokers to divide their markets and refrain from competing with each other.
Property Manager: Someone who manages real estate for another person for compensation. Duties include collecting rents, maintaining the property and keeping up all accounting
Tie-in Agreements: Arrangements where a party agrees to sell one product only on the condition that the buyer buys a different or "tied" product.
Agency: Special relationship between licensee and the person he or she represents.
What prices do when supply increases and demand remains stable?: They go down
Two kinds of law which govern "Agency": 1. Common law (rules of society established by tradition and court decisions) & 2. Statutory Law (enacted by LEGISLATION and governing bodies)
Common-law law of Agency: Basic framework of law governing the licensee's legal responsibilities to the people he/she represents.
Where has the "principal - agent" relationship evolved from: English common law "Master -servant" relationship
Types of Housing - Converted-use properties: Factories, office bldgs, hotels, schools & churches converted to residential use.
What defines the Rights and duties of the principal and the agent.: Law of Agency
The person authorized to act on behalf of the principal: Agent
He/she authorizes the agent to act on his/her behalf.: Principal
Agent of the agent: Subagent (also agent of the principal)
The FIDUCIARY relationship between the principal and agent: Agency
Management agreement: A contract between the owner of income property and a management firm or individual property manager that outlines the scope of the manager's authority.
Fiduciary: The position of trust and confidence to the principal
Client: Principal whom the agent represents
Market: Place where goods can be bought and sold.
Customer: 3rd party for whom some level of service is provided, though without representation
What agency relationship does NOT involve representation.: Transaction licensee
A recipient of ANY real estate service: Consumer
Types of Housing - Retirement communities: often PUDs, may provide shopping, recreation & healthcare
The 3 principles that govern an agency relationship: 1. Must be consensual
2. Mutually agree to form the relationship.
3. A FIDUCIARY relationship is formed.
The 2 types of Agent: General Agent and Special Agent.
Type of Agent who represents the principal in one specific act with detailed instructions.: Special Agent
General Agent: Represents principal in broad range of matters. May have power of attorney. NOT typical in real estate transactions.
Five common-law fiduciary duties: Care
Obediance
Accounting
Loyalty
Disclosure
(COALD)
Financing: The business of providing the funds necessary to complete real estate transactions.
Fiduciary Relationship which obligates the agent to act in good faith and obey the principals instructions in accordance with the contract.: Obedience
Fiduciary Responsibility - Loyalty: Agent may not act out of self-interest. Must act WITHOUT regard to compensation.
NAREB: National Assoc. of Real Estate Brokers - also adheres to code of ethics - arose out of civil rights movement
Does a seller's agent need to disclose defects in property to prospective buyers?: Yes. It falls under the broader duty of a real estate professional.
Two types of Agency: Express Agency - Parties FORMALLY express intentions to establish.

Implied Agency - When ACTIONS indicate the consent to an agency.
Can compensation be the basis of an agency relationship?: No. Authorization & consent only. The source of compensation also does not determine who is being represented!
Types of Housing - High-rise developments: Combine office, stores, theaters and apartment units in a single vertical community
An agency relationship in which the agent is given an interest in the subject of the agency, such as the property being sold: Agency coupled with an interest.
What terminates an Agency?: Death of either party
Destruction/condemnation of property
Expiration of terms
Mutual agreement
Breach by one party
Operation of law
Completion or fulfillment
Four types of Agents: Buyer agent
Seller agent
Dual agency
Transaction Licensee (provides customer-level service for both)
Single Agency: Agent represents only one party (either buyer or seller)
What is a seller to a buyers agent?: A Customer
Subdivision: A tract of land divided by the owner, known as the subdivider, into blocks, building lots and streets according to a recorded subdivision plat, which must comply with local ordinances and regulations.
Most common transaction to find a tenant broker: Commercial Transactions
In order to extend Subagency Broker must obtain what?: Written consent
Code of Ethics: A written system of standards for ethical conduct
Represents two principals in same transaction: Dual agent
Dual agency must be disclosed to whom ?: All parties in writing
What must the disclosure process begin with?: The Consumer Notice
Types of Housing - Mobile Homes: Used to be mobile - now more permanent
The 5 parts of the Consumer Notice: 1. A written agency Agreement must be signed
2. General duties a licensee owes All Consumers.
3. Descriptions of permitted Business relationships
4. Other Real Estate transaction information
5. Statement about the Real Estate Recovery fund
What must be presented at initial interview?: The Consumer Notice
A Broker providing only document prep service and not acting as an agent is called a -: Transaction Licensee
A set of beliefs that guides a person's actions: Ethics
Development: Involves the construction of improvements on the land.
A written system of standards for conduct: Code of Ethics
Home Inspection: A thorough visual survey of a property's construction, systems and site conditions and delivery of an analytical report of said inspection.
NAR: National Assoc. of Realtors
Helps Realtors comply with fair housing laws.: The Code for Equal Opportunity
5 guides of Conduct from the Code For Equal Opportunity: -Offer equal services to All clients
-No right to volunteer information about ethnic makeup of any neighborhood
-Can't induce panic selling
-Can't discriminate in any way
-Violations are subject to disciplinary action
Act which prohibited discrimination of race only: Civil Rights Act of 1866
Prohibited discrimination in housing: Title 8 of the Civil Rights Act of 1968
Types of housing - Modular homes: Prefabricated houses
This Act added sex to the protected classes in 1974: Housing and Community Development Act
The Fair Housing Act prohibits discrimination on the basis of what?: Race, Color, religion, sex, handicap, familial status, and national origin. (The protected classes)
What year did the Fair Housing Amendments Act include handicap and familial status to fair housing act?: 1988
What gov't agency administers the Fair Housing Act?: HUD
Presence of one or more individuals not yet 18 yrs. old.: Familial status
Counseling: Must be done by LICENSED real estate BROKERS.
Persons with HIV (AIDS) with or without evidence of disease are protected by what?: Fair Housing Laws (considered Handicapped)
What criteria establishes properties that can be restricted to older persons?: Housing intended for age 62+ or housing where 80% of units are occupied by at least one 55 or older.
Recreational property: timeshare, vacation property, campground memberships
Landmark case prohibiting all racial discrimination without exception: Jones v. Mayer of 1968.
ECOA: Equal Credit Opportunity Act.
What Act bars discrimination on the basis of marital status and age (and public assistance)?: Equal Credit Opportunity Act (ECOA)
Income level of people most vulnerable to economic cycles: Low to Moderate income purchasers
This Act requires employers in PA to adopt nondisciminatory employment procedures with four or more employees: Pennsylvania Human Relations Act (The ADA uses 15 or more employees as a guideline)
ADA: Americans with Disabilities Act
This contains detailed specifications for buildings and facilities to accommodate disabled persons: The Americans with Disabilities Act Accessibility Guidelines (ADAAG)
PHRA: Pennsylvania Human Relations Act (prohibits discriminatory practices in housing and employment)
What must be posted in PA businesses to avoid evidence of discrimination?: Fair Housing and Fair Lending posters from the PHRA
Residential Property: All property used for housing - 1-4 families!
Inducing homeowners to sell property by making representations about the entry or prospective entry of a protected class of people into the neighborhood.: Blockbusting (also known as panic selling)
Channeling home seekers to particular areas either to maintain their homogeneity or to change their character.: Steering
special-purpose property: churches, schools, cemeteries & govt. held lands
The effect of an action that results in people in the protected classes being treated differently than others: Disparate Impact
Redlining: The illegal practice of a lender denying loans or restricting their number for certain areas of a community.
This requires lenders with assets in excess of $10 million in assets to make annual reports.: Home Mortgage Disclosure Act
FHA Loan: A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA's regulations
Administers the Fair Housing Act: Office of Fair Housing and Equal Opportunity (OFHEO) under HUD
HUD fines for offenses of illegal discrimination.: 1st - $10,000
2nd (within 5yrs) - $25,000
further (within 7 yrs) - $50,000
Civil penalties for discrimination filed by Attorney General in Federal District Court: Not to exceed $50,000 for first violation and $100,000 for second and subsequent.
**Complaints brought under the Civil Rights Act of 1866 are taken directly to FEDERAL COURT
In Pennsylvania, protects those threatened or intimidated related to fair housing laws.: Ethnic Intimidation and Vandalism Act
Four guidlines for nondiscriminatory policies (established by PA Human Relations Comm. & PA Realtors): 1. Standardized inventory of properties
2. Consistent practices for qualifying purchasers & tenants
3. Verifiable and measurable criteria to qualify prospects
4. Written documentation
Industrial Property: Warehouses, factories, power plants
Commercial - Business property: 5+ family units - office space, shopping ctrs, storefronts, theaters, hotels and parking
Type of contract used to hire the broker to represent the client: Employment Contract
Contract between Broker and consumer must contain these items: -Broker's fee & Duration (result of negotiations)
-Statement describing services and fees
-description of any possibility of more than one consumer
-description of brokers policies regarding subagents, etc.
-statement about Real Estate Recovery Fund
-Statement regarding possibility of conflict of interest
The Four types of Listing Agreements: 1. Exclusive Right-to-sell Listing
2. Exclusive Agency Listing
3. Open Listing
4. Net Listing
One authorized agent-broker recieves compensation regardless of who sells property: Exlusive Right to Sell Listing
Listing where the Broker is compensated only if the procuring clause and seller retains right to sell w/o obligation: Exclusive Listing Agency
Listing where there are multiple agents, seller retains right to sell without obligation and only the agent who is procuring cause is compensated: Open Listing
Type of listing where seller will receive net amount from sale with any excess going to broker as commission: Net Listing
Maximum duration of a listing Agreement: 12 months
Who determines the listing price for a property?: Ultimately only the seller (broker may assist or advise)
Law that requires seller of residential property to disclose to the buyer all material defects: Real Estate Seller Disclosure Act
Agricultural property: farms, timberland, ranches,orchards
3 types of buyer agency agreements: 1. Exclusive buyer agency
2. Exclusive agency buyer agency
3. Open buyer agency
Buyer must compensate agent whenever the buyer purchases a property regardless of who locates it: Exclusive buyer agency
Exclusive agency buyer agency: Exclusive-Broker is only entitled to compensation if he or she locates the property buyer ultimately purchases. Buyer can locate without obligation
Valid reasons for termination of Listing Agreement: -Fulfillment of purpose
-Expiration
-Breach by either party
-transfer of title to property by operation of law
-Mutual consent
-Death of either party
-Destruction of property

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