Colibri Unit 1 Exam Questions and Complete Solutions

Colibri Unit 1 Exam Questions and Complete Solutions List four industries that are indirectly linked to real estate activities. - Answer: Builders, building suppliers, carpet manufacturers, appliance sales List five industries that are dependent on real estate activity. - Answer: Loan originatorsAppraisersPlumbersAuctioneersLandscape suppliers List three ways the state government plays a role in real estate. - Answer: Licensing for real estate professionalsRecording of deeds, transfers of propertyEstate taxes Define real estate brokerage and list three organizations that cannot be registered as a real estate brokerage. - Answer: A business which brings interested parties together to sell, lease, and rent or exchange real property. A joint venture temporary relationship A business trust investment group for its own purposes A homeowners association List five activities for which a real estate broker would receive or expect to receive compensation. - Answer: Selling real estate Negotiating the sale of real estate Dealing in options on real estate Supervising the collection of rent for the use of real estate Procuring of leads intended to result in the sale of real estate What is real estate farming? - Answer: Specializing in one particular geographic area or property type. How is a property manager defined? - Answer: A property manager is defined as one who preserves the value of an investment (by an owner) while generating income as an agent for the owner. List five organizations for real estate professionals. - Answer: National Association of REALTORS® Indiana Association of REALTORS® Indiana Commercial Board of REALTORS® Women's Council of REALTORS® Real Estate Buyers Council What is the purpose for licensing real estate professionals? - Answer: To protect the public List two examples of ways a broker could commit fraud in a real estate transaction. - Answer: Exaggerating the benefits of a property's value Not providing information on material facts What is the main requirement within the Statute of Frauds - Answer: All contracts must be in writing to be enforceable. What rule should brokers follow to ensure they are acting ethically? - Answer: Do unto others as you would have them do unto you. List four reasons an appraisal is done. - Answer: To obtain a property loan To obtain the insurance value To obtain a divorce settlement To determine capital gain List five sources of financing for real estate buyers. - Answer: Banks, savings and loans, credit unions, insurance companies, sellers of property, mortgage bankers, and mortgage brokers How is a mortgage obtained? - Answer: by pledging property as collateral and promising to repay the loan with payments and times agreed upon with the mortgagee What are land appurtenances? - Answer: rights, privileges, and improvements that belong to and pass with the transfer of the property What is used to identify a property? - Answer: Legal description What is a tract home? - Answer: A home that is built to a certain set of guidelines used for a particular subdivision What five economic characteristics affect the value of land in the marketplace? - Answer: Demand Utility or usefulness Scarcity Transferability Situs What are the three physical characteristics of land? - Answer: Immobile or permanentIndestructible Non-homogeneous or unique Explain the differences between the legal concepts of land and real estate. - Answer: Land encompasses the surface of the earth, whatever is below the surface, whatever is above extending into space, and every natural thing that is permanently attached to the earth. Real estate includes all this plus all man-made things permanently attached to the earth. Define special purpose real estate and give an example. - Answer: Property that has a unique use to the persons who own and use it, such as churches, hospitals, schools and government buildings. Name the five major rights included in the bundle of rights to real estate. - Answer: possess use transfer encumber exclude Define the "right to use" and describe its limitations. - Answer: The right to use a property refers to the right to use it in certain ways, such as mining, cultivating, landscaping and building on the property. The right is subject to the limitations of local zoning and the legality of the use. One's right to use may not infringe on the rights of others to use and enjoy their property. What is the difference between littoral rights and riparian rights? - Answer: Littoral rights concern properties that border bodies of water that are not moving.Riparian rights concern properties that border moving water such as streams and rivers. What is the distinction between real and personal property? - Answer: Real property is permanently attached to the land or to structures attached to the land whereas personal property is not. What are the legal tests that determine if an item is a fixture? - Answer: Method of annexation (attachment)AdaptabilityIntentionExistence of an agreement What is an emblement and is it real or personal property? - Answer: Plants or crops that require human intervention and labor are emblements and are personal property. What is the difference between tangible and intangible property, and how do each apply to real and personal property. - Answer: Tangible is physical, visible, and material while intangible is abstract with no physical existence. All real property is tangible, but personal property may be either tangible (computers, furniture, cars) or intangible (trademarks, copyrights, listing agreements). List at least 6 types of real estate real property and the uses for each. - Answer: Residential - human living Commercial - generating income Investment - held by owners for investment purposes, usually not owner occupied Industrial - warehouses, factories, etc. Agricultural - growing crops and raising livestock Special purpose - doesn't fall into other categories: churches, hospitals, schools, etc.; could be parks, shorelines, etc. Unimproved or undeveloped land - no buildings or residents If residential properties are defined as providing dwelling places for individuals or families, are hotels and motels considered residential properties? Why or why not? - Answer: No, hotels and motels are not residential properties because they are considered to be only temporary housing. What is the difference between a warehouse property and a manufacturing property? - Answer: A warehouse property focuses on storage and distribution of goods.Manufacturing buildings are large facilities designed to accommodate the equipment for various manufacturing processes. List and describe the five types of office buildings by size and architecture. - Answer: Research and Development - 1-2 stories with 50% office or lab space and the rest workshops, storage, or light manufacturing Low-rise - 1-3 stories with no elevator Garden office - 1-5 stories with extensive landscaping Mid-rise - 4-15 stories with one elevator High-rise - more than 15 stories with multiple elevators, not considered skyscrapers In zoning terms, what is mixed-use development, and where would a mixed-use building most commonly be found? - Answer: Mixed-use development allows for the combination of residential, commercial, industrial, office, or other land uses. It is most commonly found in a downtown area close to public transportation. What is an anchor tenant and why is one critical to a retail center? - Answer: This is the main tenant at the shopping center and one that most lenders require before agreeing to financing for the center. List and describe six types of retail centers. - Answer: Strip centers - usually have a convenience store, dry cleaner, beauty salon, or small restaurant; up to about 30,000 sq feet. Neighborhood centers - usually have supermarket, drugstore, shipping store; up to about 60,000 to 100,000 sq feet. Malls - complex of shops with walkways and parking areas; could be enclosed or covered Regional centers - anchored by 1 or 2 department stores of at least 50,000 sq feet; include clothing, furniture stores Mega malls - super regional centers with about 1 million sq feet and 3 or more department stores Outlet centers - specialty center for specific manufacturers at a discount List the 4 value determinants and how each influences or quantifies an item's value? - Answer: Desire - how much the purchaser wants or needs the item makes the item more or less valuable. Utility - how well the item can do the job determines its value to the purchaser. Scarcity - the item is quite valuable if it the supply is limited but its value is less if the supply is great. Purchasing power - if the purchaser cannot afford to pay a high price for the item, then the item's value is diminished because it is financially out of reach. In a market economy, what are the primary interaction between supply, demand, and price? - Answer: If supply increases relative to demand, price decreases If supply decreases relative to demand, price increases If demand increases relative to supply, price increases If demand decreases relative to supply, price decreases What are the principles of physical characteristics of real estate? - Answer: Indestructible and immovableLong term investmentLand does not depreciate, only improvements depreciateProperty insurance insures improvements, not the landProperty is nonhomogeneous, unique What are the unique traits or distinguishing features of real estate? - Answer: inherent product value, unique appeal, demand must come to the supply, cannot always be sold for cash, slow to respond to market changes, local market Even though two parcels of land are identical in size, shape, topography, soil, mineral deposits, zoning, and just about every other way one can think of, they are unique. How so? - Answer: They do not have the same location, even if one is an air lot over the other one, a surface lot, since the elevations are different. Different locations generally mean, at a minimum, different views, different access, and different utility. Name seven factors that influence supply of real estate. - Answer: Availability of skilled labor, availability of construction loans and financing, availability of land, availability of materials, investment returns, the community's master plan, government regulation and police power List five influences on demand for real estate. - Answer: Local real estate prices, household composition (number and age of family members), consumer income, availability of mortgage credit, consumer tastes Explain how employment impacts the real estate market. - Answer: Employment creates a demand for a labor force, which then creates a demand for industrial and office space. As employment grows, so does population, leading to the demand for housing. Additionally, employment creates the purchasing power necessary for families to buy housing. Without employment, the real estate market disappears What are the three major indicators in the real estate market and how are they read? - Answer: Vacancy rates - too high means too little movement; too low means demand is high and prices are low.Price/sales information - how much property has sold and at what price indicates how the market is functioningBuilding permits - indicates new construction; the more new construction, the better the market How does the government at every level influence the real estate market? - Answer: Zoning, controlling and permitting new development, taxing, interest rates, environmental legislation and regulations Define "undivided interest" in real estate. - Answer: When two or more owners share ownership, the interest of an individual owner is undivided and indivisible in the sense that it pertains to a fractional part of the entire estate, not to a physical portion of the real property. Discuss how the right of possession determines what kind of estate or interest a party has in real estate. - Answer: If the interest-holder enjoys the right of possession, the estate is an estate in land. If the interest-holder does not have the right of possession, the interest is an encumbrance in the case of a private interest-holder, or some form of public interest in the case of a non-private (i.e., governmental) interest-holder. What primarily distinguishes freehold estates from leasehold estates? - Answer: Whether an estate in land is a freehold or leasehold estate depends on the length of time the holder may enjoy the right to possess the estate, the relationship of parties owning the estate, and specific interests held in the estate. The duration of the owner's rights in a freehold cannot be determined: they may last for a lifetime, for less than a lifetime, or for generations beyond the owner's lifetime. In a leasehold, they have a specific duration, as represented by the lease term. What is the highest form of ownership interest one can acquire in real estate and why? - Answer: Fee simple estate. It includes the complete bundle of rights and the tenancy is unlimited. What are the essential characteristics of fee simple defeasible estates? - Answer: The property must be used for a certain purpose or under certain conditions.If the use changes or if prohibited conditions are present, the estate reverts to the previous grantor of the estate. How does a fee simple absolute estate differ from a fee simple defeasible estate? - Answer: While defeasible estates restrict the property to a certain purpose or to be used under certain conditions, in an absolute estate, the property is not conditioned by stipulated or restricted uses. How is a life estate different from a fee simple estate? - Answer: A life estate is limited in duration to the life of the owner or other named person. When the life tenant dies, the estate passes to the original owner, or another named party. The life tenant does not have the right to pass ownership to his or her heirs. The fee simple freehold estate is called the highest form of ownership interest, even though a fee simple defeasible carries some restriction on usage. Why are other estates less desirable? - Answer: With all other estates in land-- life, leasehold-- the holder of the estate cannot control what happens to the estate in the future. The life estate reverts or is remaindered; the leasehold terminates when the lease expires. Name the two types of life estates and briefly explain the difference. - Answer: Conventional life estate - created by a grant wherein the property owner grants the property to a life tenantLegal life estate - created by state law wherein the rights of surviving family members are protected when the husband or wife dies