KEY CONCEPTS TO PASS YOUR
REAL ESTATE EXAM
PREPAGENT.COM
, Table of Contents
INTRODUCTION ..........................................................................................................................................5
DISCLAIMER ...............................................................................................................................................5
WHAT IS A LICENSE?.................................................................................................................................5
THE -OR AND -EE RULE ............................................................................................................................6
PROPERTY OWNERSHIP ...........................................................................................................................7
BASICS ......................................................................................................................................................7
Bundle of Rights................................................................................................................................... 7
Real vs. Personal Property ..................................................................................................................9
Fixtures .............................................................................................................................................. 10
Trade Fixture ...................................................................................................................................... 11
Appurtenance .....................................................................................................................................11
Encroachment ....................................................................................................................................12
Emblements .......................................................................................................................................12
Water Rights ......................................................................................................................................12
ESTATES ..................................................................................................................................................13
Freehold Estates ................................................................................................................................13
Fee Simple Absolute ....................................................................................................................................... 14
Fee Simple Defeasible ....................................................................................................................................14
Life Estate ....................................................................................................................................................... 14
LESS THAN FREEHOLD ESTATES ............................................................................................................... 15
Estate for Years ..................................................................................................................................15
Periodic Tenancy................................................................................................................................15
Estate at Sufferance ..........................................................................................................................15
Estate at Will ......................................................................................................................................16
Leases ...............................................................................................................................................16
Property Management ....................................................................................................................................17
Types of Leases................................................................................................................................. 19
Gross Lease ................................................................................................................................................... 19
Percentage Lease........................................................................................................................................... 19
Net Lease ....................................................................................................................................................... 19
Lease Option ..................................................................................................................................................19
EASEMENTS .............................................................................................................................................20
EXPRESS EASEMENTS ..............................................................................................................................20
Creating an Express Easement .........................................................................................................20
Express Reservation....................................................................................................................................... 21
EASEMENT BY NECESSITY ........................................................................................................................ 21
EASEMENT IN GROSS ...............................................................................................................................22
IMPLIED EASEMENT ..................................................................................................................................22
PRESCRIPTIVE EASEMENT ........................................................................................................................ 23
GOVERNMENT POWER ...........................................................................................................................24
4 POWERS OF THE GOVERNMENT .............................................................................................................24
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, Police Power ......................................................................................................................................25
Eminent Domain ................................................................................................................................25
Taxation.............................................................................................................................................. 25
Escheat .............................................................................................................................................. 25
Zoning ................................................................................................................................................25
EMINENT DOMAIN ..................................................................................................................................... 27
AGENCY ....................................................................................................................................................28
BASICS OF THE RELATIONSHIP ..................................................................................................................29
AGENCY RELATIONSHIPS ..........................................................................................................................30
Dual Agency .......................................................................................................................................30
Universal vs Special...........................................................................................................................32
Principal & Client................................................................................................................................32
Attorney in Fact ..................................................................................................................................33
COMMUNICATION ....................................................................................................................................34
TYPES OF FRAUD ..................................................................................................................................... 34
Actual Fraud .......................................................................................................................................34
Negative Fraud ..................................................................................................................................34
Constructive Fraud .............................................................................................................................34
Negligence .........................................................................................................................................35
Puffing ................................................................................................................................................35
Stigmatized property ..........................................................................................................................35
CONTRACTS .............................................................................................................................................36
BASICS ....................................................................................................................................................36
VALID CONTRACT ESSENTIALS ..................................................................................................................37
Capable Parties ................................................................................................................................. 38
Lawful Object ..................................................................................................................................... 38
Consideration..................................................................................................................................... 38
Offer and Acceptance ........................................................................................................................ 38
VALID, VOID AND VOIDABLE ......................................................................................................................39
VALID .................................................................................................................................................39
VOIDABLE .........................................................................................................................................39
VOID ..................................................................................................................................................40
EXECUTED & EXECUTORY ........................................................................................................................ 40
BILATERAL VS UNILATERAL........................................................................................................................ 41
TYPES OF CONTRACTS .............................................................................................................................41
Land Contract ....................................................................................................................................41
Option Contract ..................................................................................................................................41
Implied Contract................................................................................................................................. 42
LISTINGS ................................................................................................................................................... 42
TYPES OF LISTINGS ..................................................................................................................................45
Exclusive Listing ................................................................................................................................45
Exclusive Authorization and Right to Sell Listing ............................................................................... 45
Exclusive Agency Listing ....................................................................................................................45
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, Open Listing .......................................................................................................................................46
Net Listing .......................................................................................................................................... 46
EARNEST MONEY DEPOSIT .......................................................................................................................47
VALUATION & MARKET ANALYSIS ........................................................................................................48
DEPRECIATION .........................................................................................................................................48
Types of Depreciation ........................................................................................................................ 48
Economic Obsolescence ................................................................................................................................48
Functional Obsolescence ............................................................................................................................... 49
Physical Deterioration ..................................................................................................................................... 50
EFFECTIVE AGE VS ECONOMIC LIFE .......................................................................................................... 52
DETERMINING VALUE................................................................................................................................52
Steps in the appraisal ........................................................................................................................ 52
Essential Elements of Value ..............................................................................................................53
Assemblage and Plottage ..................................................................................................................53
APPRAISAL METHODOLOGY ......................................................................................................................54
Gross Rent Multiplier .........................................................................................................................54
Cost (Replacement) Approach ...........................................................................................................55
Unit-in-Place Method ......................................................................................................................................55
Square Footage Method ................................................................................................................................. 55
Quantity Survey Method ................................................................................................................................. 55
CAPITALIZATION (INCOME) APPROACH .......................................................................................................56
MARKET DATA APPROACH ........................................................................................................................ 57
APPRAISAL THEORY ...............................................................................................................................58
PROGRESSION AND REGRESSION..............................................................................................................58
PRINCIPLE OF CONTRIBUTION ................................................................................................................... 59
PRINCIPLE OF CONFORMITY ......................................................................................................................60
PRINCIPLE OF SUBSTITUTION ....................................................................................................................60
PRINCIPLE OF HIGHEST AND BEST USE .....................................................................................................61
Legally Allowable ...............................................................................................................................61
Physically Possible ............................................................................................................................ 61
Financially Feasible ...........................................................................................................................62
Maximum Utility / Profitability .............................................................................................................62
FINANCING ................................................................................................................................................63
FINANCING BASICS ...................................................................................................................................63
“Assume” vs “Subject to” ....................................................................................................................63
Servicing the Loan .............................................................................................................................64
INVESTING ................................................................................................................................................64
ADVANTAGES OF INVESTING IN REAL ESTATE............................................................................................. 64
Appreciation .......................................................................................................................................64
Cash Flow .......................................................................................................................................... 64
Leverage ............................................................................................................................................64
Equity .................................................................................................................................................65
DISADVANTAGES OF INVESTING IN REAL ESTATE ........................................................................................ 65
Knowledge .........................................................................................................................................65
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REAL ESTATE EXAM
PREPAGENT.COM
, Table of Contents
INTRODUCTION ..........................................................................................................................................5
DISCLAIMER ...............................................................................................................................................5
WHAT IS A LICENSE?.................................................................................................................................5
THE -OR AND -EE RULE ............................................................................................................................6
PROPERTY OWNERSHIP ...........................................................................................................................7
BASICS ......................................................................................................................................................7
Bundle of Rights................................................................................................................................... 7
Real vs. Personal Property ..................................................................................................................9
Fixtures .............................................................................................................................................. 10
Trade Fixture ...................................................................................................................................... 11
Appurtenance .....................................................................................................................................11
Encroachment ....................................................................................................................................12
Emblements .......................................................................................................................................12
Water Rights ......................................................................................................................................12
ESTATES ..................................................................................................................................................13
Freehold Estates ................................................................................................................................13
Fee Simple Absolute ....................................................................................................................................... 14
Fee Simple Defeasible ....................................................................................................................................14
Life Estate ....................................................................................................................................................... 14
LESS THAN FREEHOLD ESTATES ............................................................................................................... 15
Estate for Years ..................................................................................................................................15
Periodic Tenancy................................................................................................................................15
Estate at Sufferance ..........................................................................................................................15
Estate at Will ......................................................................................................................................16
Leases ...............................................................................................................................................16
Property Management ....................................................................................................................................17
Types of Leases................................................................................................................................. 19
Gross Lease ................................................................................................................................................... 19
Percentage Lease........................................................................................................................................... 19
Net Lease ....................................................................................................................................................... 19
Lease Option ..................................................................................................................................................19
EASEMENTS .............................................................................................................................................20
EXPRESS EASEMENTS ..............................................................................................................................20
Creating an Express Easement .........................................................................................................20
Express Reservation....................................................................................................................................... 21
EASEMENT BY NECESSITY ........................................................................................................................ 21
EASEMENT IN GROSS ...............................................................................................................................22
IMPLIED EASEMENT ..................................................................................................................................22
PRESCRIPTIVE EASEMENT ........................................................................................................................ 23
GOVERNMENT POWER ...........................................................................................................................24
4 POWERS OF THE GOVERNMENT .............................................................................................................24
- 1-
Pass your exam with interactive practice exams, videos, webinars and more at PrepAgent.com
, Police Power ......................................................................................................................................25
Eminent Domain ................................................................................................................................25
Taxation.............................................................................................................................................. 25
Escheat .............................................................................................................................................. 25
Zoning ................................................................................................................................................25
EMINENT DOMAIN ..................................................................................................................................... 27
AGENCY ....................................................................................................................................................28
BASICS OF THE RELATIONSHIP ..................................................................................................................29
AGENCY RELATIONSHIPS ..........................................................................................................................30
Dual Agency .......................................................................................................................................30
Universal vs Special...........................................................................................................................32
Principal & Client................................................................................................................................32
Attorney in Fact ..................................................................................................................................33
COMMUNICATION ....................................................................................................................................34
TYPES OF FRAUD ..................................................................................................................................... 34
Actual Fraud .......................................................................................................................................34
Negative Fraud ..................................................................................................................................34
Constructive Fraud .............................................................................................................................34
Negligence .........................................................................................................................................35
Puffing ................................................................................................................................................35
Stigmatized property ..........................................................................................................................35
CONTRACTS .............................................................................................................................................36
BASICS ....................................................................................................................................................36
VALID CONTRACT ESSENTIALS ..................................................................................................................37
Capable Parties ................................................................................................................................. 38
Lawful Object ..................................................................................................................................... 38
Consideration..................................................................................................................................... 38
Offer and Acceptance ........................................................................................................................ 38
VALID, VOID AND VOIDABLE ......................................................................................................................39
VALID .................................................................................................................................................39
VOIDABLE .........................................................................................................................................39
VOID ..................................................................................................................................................40
EXECUTED & EXECUTORY ........................................................................................................................ 40
BILATERAL VS UNILATERAL........................................................................................................................ 41
TYPES OF CONTRACTS .............................................................................................................................41
Land Contract ....................................................................................................................................41
Option Contract ..................................................................................................................................41
Implied Contract................................................................................................................................. 42
LISTINGS ................................................................................................................................................... 42
TYPES OF LISTINGS ..................................................................................................................................45
Exclusive Listing ................................................................................................................................45
Exclusive Authorization and Right to Sell Listing ............................................................................... 45
Exclusive Agency Listing ....................................................................................................................45
- 2-
Pass your exam with interactive practice exams, videos, webinars and more at PrepAgent.com
, Open Listing .......................................................................................................................................46
Net Listing .......................................................................................................................................... 46
EARNEST MONEY DEPOSIT .......................................................................................................................47
VALUATION & MARKET ANALYSIS ........................................................................................................48
DEPRECIATION .........................................................................................................................................48
Types of Depreciation ........................................................................................................................ 48
Economic Obsolescence ................................................................................................................................48
Functional Obsolescence ............................................................................................................................... 49
Physical Deterioration ..................................................................................................................................... 50
EFFECTIVE AGE VS ECONOMIC LIFE .......................................................................................................... 52
DETERMINING VALUE................................................................................................................................52
Steps in the appraisal ........................................................................................................................ 52
Essential Elements of Value ..............................................................................................................53
Assemblage and Plottage ..................................................................................................................53
APPRAISAL METHODOLOGY ......................................................................................................................54
Gross Rent Multiplier .........................................................................................................................54
Cost (Replacement) Approach ...........................................................................................................55
Unit-in-Place Method ......................................................................................................................................55
Square Footage Method ................................................................................................................................. 55
Quantity Survey Method ................................................................................................................................. 55
CAPITALIZATION (INCOME) APPROACH .......................................................................................................56
MARKET DATA APPROACH ........................................................................................................................ 57
APPRAISAL THEORY ...............................................................................................................................58
PROGRESSION AND REGRESSION..............................................................................................................58
PRINCIPLE OF CONTRIBUTION ................................................................................................................... 59
PRINCIPLE OF CONFORMITY ......................................................................................................................60
PRINCIPLE OF SUBSTITUTION ....................................................................................................................60
PRINCIPLE OF HIGHEST AND BEST USE .....................................................................................................61
Legally Allowable ...............................................................................................................................61
Physically Possible ............................................................................................................................ 61
Financially Feasible ...........................................................................................................................62
Maximum Utility / Profitability .............................................................................................................62
FINANCING ................................................................................................................................................63
FINANCING BASICS ...................................................................................................................................63
“Assume” vs “Subject to” ....................................................................................................................63
Servicing the Loan .............................................................................................................................64
INVESTING ................................................................................................................................................64
ADVANTAGES OF INVESTING IN REAL ESTATE............................................................................................. 64
Appreciation .......................................................................................................................................64
Cash Flow .......................................................................................................................................... 64
Leverage ............................................................................................................................................64
Equity .................................................................................................................................................65
DISADVANTAGES OF INVESTING IN REAL ESTATE ........................................................................................ 65
Knowledge .........................................................................................................................................65
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