PENNSYLVANIA REAL ESTATE CORRECT STUDYS
ANSWERS AND QUESTIONS SET A+
✔✔square-foot method - ✔✔The appraisal method of estimating building costs by
multiplying the number of square feet in the improvements being appraised by the cost
per square foot for recently constructed similar improvements
✔✔replacement cost - ✔✔The 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.
✔✔reproduction cost - ✔✔The construction cost at current prices of an exact duplicate
of the subject property.
✔✔cost approach - ✔✔The process of estimating the value of a property by adding to
the estimated land value the appraiser's estimate of the reproduction or replacement
cost of the building, less depreciation.
✔✔sales comparison approach - ✔✔The process of estimating the value of a property
by examining and comparing actual sales of comparable properties
✔✔supply and demand - ✔✔The appraisal principle that follows the interrelationship of
the supply of and demand for real estate. As appraising is based on economic
concepts, this principle recognizes that real property is subject to the influences of the
marketplace just as is any other commodity
✔✔substitution - ✔✔An appraisal principle that states that the maximum value of a
property tends to be set by the cost of purchasing an equally desirable and valuable
substitute property, assuming that no costly delay is encountered in making the
substitution.
✔✔progression - ✔✔An appraisal principle that states that, between dissimilar
properties, the value of the lesser-¬quality property is favorably affected by the
presence of the better-quality property.
,✔✔regression - ✔✔An appraisal principle that states that, between dissimilar properties,
the value of the better-¬quality property is affected adversely by the presence of the
lesser-quality property.
✔✔assemblage - ✔✔The combining of two or more adjoining lots into one larger tract to
increase their total value.
✔✔plottage - ✔✔The increase in value or utility resulting from the consolidation
(assemblage) of two or more adjacent lots into one larger lot
✔✔highest and best use - ✔✔The possible use of a property that would produce the
greatest net income and thereby develop the highest value
✔✔contribution - ✔✔The appraisal principle that states that the value of any component
of a property is what it gives to the value of the whole or what its absence detracts from
that value.
✔✔conformity - ✔✔The appraisal principle that holds that the greater the similarity
among properties in an area, the better they will hold their value.
✔✔competition - ✔✔The appraisal principle that states that excess profits generate
competition.
✔✔anticipation - ✔✔The appraisal principle that holds that value can increase or
decrease based on the expectation of some future benefit or detriment produced by the
property.
✔✔market value - ✔✔The most probable price property would bring in an arm's-length
transaction under normal conditions on the open market.
✔✔broker/appraiser - ✔✔A real estate broker who is licensed by the Certified
Appraisers Act in Pennsylvania to perform appraisals on properties for nonfederally
related transactions under $250,000
✔✔certified residential real estate appraiser - ✔✔An individual who is certified under the
state Certified Appraisers Act to perform residential (one- to four-unit dwellings)
appraisals for federally related real estate transactions
✔✔certified general real estate appraiser - ✔✔An individual who is certified under the
state Certified Appraisers Act to perform appraisals of any type or value of property for
federally related real estate transactions.
,✔✔appraiser - ✔✔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.
✔✔home equity loan - ✔✔A loan (sometimes called a line of credit) under which a
property owner uses his or her residence as collateral and can then draw funds up to a
pre¬arranged amount against the property.
✔✔buydown - ✔✔A financing technique used to reduce the monthly payments for the
first few years of a loan. Funds in the form of discount points are given to the lender by
the builder or seller to buy down or lower the effective interest rate paid by the buyer,
thus reducing the monthly payments for a set time.
✔✔sale and leaseback - ✔✔A transaction in which an owner sells his or her improved
property and, as part of the same transaction, signs a long-term lease to remain in
possession of the premises.
✔✔construction loan - ✔✔A short-term loan usually made during the construction phase
of a building project.
✔✔open-end loan - ✔✔A mortgage loan that is expandable by increments up to a
maximum dollar amount, the full loan being secured by the same original mortgage.
✔✔wraparound loan - ✔✔A method of refinancing in which the new mortgage is placed
in a secondary, or subordinate, position; the new mortgage includes both the unpaid
principal balance of the first mortgage and whatever additional sums are advanced by
the lender. In essence it is an additional mortgage in which another lender refinances a
borrower by lending an amount over the existing first mortgage amount without
disturbing the existence of the first mortgage.
✔✔blanket loan - ✔✔A mortgage covering more than one parcel of real estate,
providing for each parcel's partial release from the mortgage lien upon repayment of a
definite portion of the debt
✔✔package loan - ✔✔A real estate loan used to finance the purchase of both real
property and personal property, such as in the purchase of a new home that includes
carpeting, window coverings, and major appliances
✔✔purchase-money mortgage (PMM) - ✔✔A note secured by a mortgage or deed of
trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price
of the real estate.
✔✔growing equity mortgage (GEM) - ✔✔A loan in which the monthly payments
increase annually, with the increased amount being used to reduce directly the principal
balance outstanding and thus shorten the overall term of the loan.
, ✔✔balloon payment - ✔✔A final payment of a mortgage loan that is considerably larger
than the required periodic payments because the loan amount was not fully amortized.
✔✔adjustable-rate mortgage (ARM) - ✔✔A loan characterized by a fluctuating interest
rate, usually one tied to a bank or savings and loan association cost-of-funds index.
✔✔Farm Service Agency (FSA) - ✔✔An agency of the federal government that provides
credit assistance to farmers and other individuals who live in rural areas. Formerly
known as the Farmers Home Administration.
✔✔VA loan - ✔✔A mortgage loan on approved property made to a qualified veteran by
an authorized lender and guaranteed by the Department of Veterans Affairs in order to
limit the lender's possible loss.
✔✔FHA loan - ✔✔A loan insured by the Federal Housing Administration and made by
an approved lender in accordance with the FHA's regulations.
✔✔private mortgage insurance (PMI) - ✔✔Insurance provided by a private carrier
protecting a lender against a loss in the event of a foreclosure and deficiency.
✔✔conventional loan - ✔✔A loan that is not insured or guaranteed by a government or
private source
✔✔loan-to-value relationship - ✔✔The relationship between the amount of the
mortgage loan and the value of the real estate being pledged as collateral.
✔✔Real Estate Settlement Procedures Act (RESPA) - ✔✔The federal law that requires
certain disclosures to consumers about mortgage loan settlements. The law also
prohibits the payment or receipt of kickbacks and certain kinds of referral fees.
✔✔Community Reinvestment Act (CRA) - ✔✔A federal law established in 1977 that
prescribes certain activities for financial institutions to help meet the needs in their
communities for low- and moderate-income housing.
✔✔Equal Credit Opportunity Act (ECOA) - ✔✔The federal law that prohibits
discrimination in the extension of credit because of race, color, religion, national origin,
sex, age, or marital status
✔✔Regulation Z - ✔✔Implements the Truth-in-Lending Act requiring credit institutions to
inform borrowers of the true cost of obtaining credit.
✔✔discount point - ✔✔A unit of measurement used for various loan charges; one point
equals 1 percent of the amount of the loan.
ANSWERS AND QUESTIONS SET A+
✔✔square-foot method - ✔✔The appraisal method of estimating building costs by
multiplying the number of square feet in the improvements being appraised by the cost
per square foot for recently constructed similar improvements
✔✔replacement cost - ✔✔The 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.
✔✔reproduction cost - ✔✔The construction cost at current prices of an exact duplicate
of the subject property.
✔✔cost approach - ✔✔The process of estimating the value of a property by adding to
the estimated land value the appraiser's estimate of the reproduction or replacement
cost of the building, less depreciation.
✔✔sales comparison approach - ✔✔The process of estimating the value of a property
by examining and comparing actual sales of comparable properties
✔✔supply and demand - ✔✔The appraisal principle that follows the interrelationship of
the supply of and demand for real estate. As appraising is based on economic
concepts, this principle recognizes that real property is subject to the influences of the
marketplace just as is any other commodity
✔✔substitution - ✔✔An appraisal principle that states that the maximum value of a
property tends to be set by the cost of purchasing an equally desirable and valuable
substitute property, assuming that no costly delay is encountered in making the
substitution.
✔✔progression - ✔✔An appraisal principle that states that, between dissimilar
properties, the value of the lesser-¬quality property is favorably affected by the
presence of the better-quality property.
,✔✔regression - ✔✔An appraisal principle that states that, between dissimilar properties,
the value of the better-¬quality property is affected adversely by the presence of the
lesser-quality property.
✔✔assemblage - ✔✔The combining of two or more adjoining lots into one larger tract to
increase their total value.
✔✔plottage - ✔✔The increase in value or utility resulting from the consolidation
(assemblage) of two or more adjacent lots into one larger lot
✔✔highest and best use - ✔✔The possible use of a property that would produce the
greatest net income and thereby develop the highest value
✔✔contribution - ✔✔The appraisal principle that states that the value of any component
of a property is what it gives to the value of the whole or what its absence detracts from
that value.
✔✔conformity - ✔✔The appraisal principle that holds that the greater the similarity
among properties in an area, the better they will hold their value.
✔✔competition - ✔✔The appraisal principle that states that excess profits generate
competition.
✔✔anticipation - ✔✔The appraisal principle that holds that value can increase or
decrease based on the expectation of some future benefit or detriment produced by the
property.
✔✔market value - ✔✔The most probable price property would bring in an arm's-length
transaction under normal conditions on the open market.
✔✔broker/appraiser - ✔✔A real estate broker who is licensed by the Certified
Appraisers Act in Pennsylvania to perform appraisals on properties for nonfederally
related transactions under $250,000
✔✔certified residential real estate appraiser - ✔✔An individual who is certified under the
state Certified Appraisers Act to perform residential (one- to four-unit dwellings)
appraisals for federally related real estate transactions
✔✔certified general real estate appraiser - ✔✔An individual who is certified under the
state Certified Appraisers Act to perform appraisals of any type or value of property for
federally related real estate transactions.
,✔✔appraiser - ✔✔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.
✔✔home equity loan - ✔✔A loan (sometimes called a line of credit) under which a
property owner uses his or her residence as collateral and can then draw funds up to a
pre¬arranged amount against the property.
✔✔buydown - ✔✔A financing technique used to reduce the monthly payments for the
first few years of a loan. Funds in the form of discount points are given to the lender by
the builder or seller to buy down or lower the effective interest rate paid by the buyer,
thus reducing the monthly payments for a set time.
✔✔sale and leaseback - ✔✔A transaction in which an owner sells his or her improved
property and, as part of the same transaction, signs a long-term lease to remain in
possession of the premises.
✔✔construction loan - ✔✔A short-term loan usually made during the construction phase
of a building project.
✔✔open-end loan - ✔✔A mortgage loan that is expandable by increments up to a
maximum dollar amount, the full loan being secured by the same original mortgage.
✔✔wraparound loan - ✔✔A method of refinancing in which the new mortgage is placed
in a secondary, or subordinate, position; the new mortgage includes both the unpaid
principal balance of the first mortgage and whatever additional sums are advanced by
the lender. In essence it is an additional mortgage in which another lender refinances a
borrower by lending an amount over the existing first mortgage amount without
disturbing the existence of the first mortgage.
✔✔blanket loan - ✔✔A mortgage covering more than one parcel of real estate,
providing for each parcel's partial release from the mortgage lien upon repayment of a
definite portion of the debt
✔✔package loan - ✔✔A real estate loan used to finance the purchase of both real
property and personal property, such as in the purchase of a new home that includes
carpeting, window coverings, and major appliances
✔✔purchase-money mortgage (PMM) - ✔✔A note secured by a mortgage or deed of
trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price
of the real estate.
✔✔growing equity mortgage (GEM) - ✔✔A loan in which the monthly payments
increase annually, with the increased amount being used to reduce directly the principal
balance outstanding and thus shorten the overall term of the loan.
, ✔✔balloon payment - ✔✔A final payment of a mortgage loan that is considerably larger
than the required periodic payments because the loan amount was not fully amortized.
✔✔adjustable-rate mortgage (ARM) - ✔✔A loan characterized by a fluctuating interest
rate, usually one tied to a bank or savings and loan association cost-of-funds index.
✔✔Farm Service Agency (FSA) - ✔✔An agency of the federal government that provides
credit assistance to farmers and other individuals who live in rural areas. Formerly
known as the Farmers Home Administration.
✔✔VA loan - ✔✔A mortgage loan on approved property made to a qualified veteran by
an authorized lender and guaranteed by the Department of Veterans Affairs in order to
limit the lender's possible loss.
✔✔FHA loan - ✔✔A loan insured by the Federal Housing Administration and made by
an approved lender in accordance with the FHA's regulations.
✔✔private mortgage insurance (PMI) - ✔✔Insurance provided by a private carrier
protecting a lender against a loss in the event of a foreclosure and deficiency.
✔✔conventional loan - ✔✔A loan that is not insured or guaranteed by a government or
private source
✔✔loan-to-value relationship - ✔✔The relationship between the amount of the
mortgage loan and the value of the real estate being pledged as collateral.
✔✔Real Estate Settlement Procedures Act (RESPA) - ✔✔The federal law that requires
certain disclosures to consumers about mortgage loan settlements. The law also
prohibits the payment or receipt of kickbacks and certain kinds of referral fees.
✔✔Community Reinvestment Act (CRA) - ✔✔A federal law established in 1977 that
prescribes certain activities for financial institutions to help meet the needs in their
communities for low- and moderate-income housing.
✔✔Equal Credit Opportunity Act (ECOA) - ✔✔The federal law that prohibits
discrimination in the extension of credit because of race, color, religion, national origin,
sex, age, or marital status
✔✔Regulation Z - ✔✔Implements the Truth-in-Lending Act requiring credit institutions to
inform borrowers of the true cost of obtaining credit.
✔✔discount point - ✔✔A unit of measurement used for various loan charges; one point
equals 1 percent of the amount of the loan.
