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Alabama Real Estate Exam State Test Outline 2011 Steve McTyeire 205-807-5200.

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Presentation on theme: "Alabama Real Estate Exam State Test Outline 2011 Steve McTyeire 205-807-5200."— Presentation transcript:

1 Alabama Real Estate Exam State Test Outline 2011 Steve McTyeire

2 Test Questions Questions Agency Relationships & Contracts 28 Real Property Ownership 14 Finance 15 Real Property 14 Market Regulations 8 Property Management 8 Real Estate Calculations 13 Total General Knowledge 100 Alabama Law 40 Total Questions on Test 140

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4 1. Agency Relationships & Contracts A. Agency Relationships 1. Creating Agency 2. Types of Agency (including implied agency) 3. Rights, Duties and Obligations of the Parties 4. Termination and Remedies for Non-Performance 5. Disclosure (related to representation)

5 1. Agency Relationships & Contracts B. General Legal Principles, Theory, and Concept about Contracts 1. Unilateral / Bilateral 2. Validity 3. Void and Voidable 4. Notice of Delivery / Acceptance 5. Executory / Executed 6. Enforceability 7. Addenda to Contracts

6 1. Agency Relationships & Contracts C. Purchase Contracts (contracts between seller and buyer) 1. General Principles and Legal Concepts 2. Purchase Contract (contract of sale, purchase and sale agreement) 3. Options (contractual right to buy) 4. Basic Provisions / Purpose / Elements

7 1. Agency Relationships & Contracts C. Purchase Contracts (contracts between seller and buyer) 5. Conditions for Termination / Breach of Contract 6. Offer and Acceptance (counter offers, multiple offers, negotiations, earnest money) 7. Contingencies 8. Duties and Obligations of the Parties

8 1. Agency Relationships & Contracts D. Services/Listing Buyer Contracts (contracts between licensee and seller or buyer) 1. General Principles and Legal Concepts 2. Basic Provisions / purpose / Elements 3. Duties and Obligations of the Parties 4. Conditions for Termination/Breach/of Contract 5. Remuneration / Consideration / Fees 6. Types of service / Listing Contracts

9 1. Agency Relationships & Contracts E. Employment agreements between Broker and other Licensees (including supervision) Employer Independent Contractor

10 2. Real Property Ownership/Interest A. Freehold Estates (rights of ownership) B. Types of ownership (estates in land) 1. Joint Tenancy 2. Tenancy in Common 3. Condominiums

11 2. Real Property Ownership/Interest C. Leasehold Interest 1. Basic Concepts and Terminology 2. Types of Leases 3. Basic Elements and Provisions of Leases 4. Rights and Duties of the Parties 5. Remedies for Default / Non-Performance

12 2. Real Property Ownership/Interest D. Forms of Business Ownership 1. Sole Proprietorship 2. General or Limited Partnership 3. LLC

13 2. Real Property Ownership/Interest E. Private Restrictions on Real Property, Land Use and Matters Affecting Ownership 1. Liens a. Voluntary b. Involuntary c. Priority

14 2. Real Property Ownership/Interest E. Private Restrictions on Real Property, Land Use and matters Affecting Ownership 2. Easements / Rights of Way / Licenses 3. Preexisting Leases or Other Agreements 4. Encroachments 5. Deed Conditions, Covenants and Restrictions 6. Property Owner Association Agreements

15 2. Real Property Ownership/Interest F. Governments Powers and Control of Land Use 1. Americans With Disabilities Act (ADA) 2. Land Use Restrictions and Regulations (zoning) 4. Police Powers 5. Property Taxation 6. Subdivision Regulations (e.g. Condominium, Cooperatives, Planned Unit Development)

16 3. Finance A Basic Concept and Terminology 1. Equity 2. Loan-to-Value Ratio 3. Term 4. Principal and Interest 5. Direct and Indirect Costs (points, discounts) 6. Return on Investment / Rate of Return

17 3. Finance B. Types of Financing 1. Amortized 2. Interest Only 3. ARM 4. Construction Loan 5. Home Equity

18 3. Finance C. Methods of Financing 1. Government Programs (e.g., FHA, VA) 2. Conventional 3. Owner-financed 4. Land Contract

19 3. Finance D. Financing Instruments Mortgages, Trust Deeds, Promissory Notes 1. Basic Elements and Provisions of Financing Instruments 2. Legal Principles 3. Non-Performance

20 3. Finance E Government Oversight 1. RESPA 2. Regulation Z 3. Truth in Lending Act 4. Antitrust 5. Mortgage Fraud 6. Equal Credit Opportunity Act

21 3. Finance F Lending Process 1. Pre-approval and Pre-qualification (debt ratios, credit scoring, and history) 2. Parties to the Lending Process (loan originator, underwriter, mortgage broker)

22 4. Real Property A. Methods of Legal Description of Land 1. Metes and Bounds 2. Rectangular Survey 3. Lot and Block

23 4. Real Property B. Methods of Measurements 1. Structures (space and volume) 2. Livable Area 3. Land Measurement

24 4. Real Property C. Property Valuation 1. Basic Concepts and Terminology 2. Influences and Characteristics Affecting Value 3. Comparative Market Analysis (CMA) performed by a real estate licensee 4. Broker Price Opinion (BPO) 5. Real Property Fixtures / Personal Property Chattel

25 4. Real Property D Methods of Valuation by Appraiser 1. Sales Comparison Approach (Market Data) 2. Cost Approach 3. Income Analysis Approach 4. Appraisal Process / Procedure

26 4. Real Property E. Conveyance of Real Property 1. Definition of Clear Title (Marketable) 2. Matters Affecting Title 3. Recordation 4. Title Insurance

27 4. Real Property E. Conveyance of Real Property 5. Deeds 6. Will 7. Court Ordered Sale (foreclosure) 8. Adverse Possession 9. Settlement Procedures (closing the transaction)

28 5. Marketing Regulations Purchase and Rental A. Property Advertising Disclosures Including Fair Housing 1. Environmental Concern Lead Based Paint, Radon 2. Property Condition

29 5. Marketing Regulations Purchase and Rental B. Licensee Advertising 1. Antitrust 2. Do-Not-Call List 3. CAN-SPAM Act 4. Fair Housing – Blockbusting, Steering

30 6. Property Management A. General Principles of Property Mgt. Agreements B. Basic Provisions / Purpose / Elements of Property Management Agreements C.Types of Contracts D.Duties and Obligations of the Parties E.Market Analysis and Tenants Acquisition F.Accounts and Disbursements G.Property Maintenance and Improvements H.Evictions

31 7. Real Estate Calculations A.Compensation, Commission, and Fees B.Valuation / Market Sale Price and Yields C.Net to Seller, Cost to Buyer (credits & debits) D.Tax and Other Prorations E.Amortization

32 7. Real Estate Calculations F. Points G. Prepayment Penalties H. Loan-to-Value Ratios I. Measurements (square footage, acreage, volume) J. Property Management / Investment (rate of return)

33 Let’s get started

34 Agency Relationships &Contracts 28% of General Knowledge Test A. Agency Relationships 1.Creating Agency Must be in Writing Purpose Parties

35 A. Agency Relationships 2. Types of Agency (including implied agency) Transaction Broker – Assist the Transaction Relationship starts here working with Customer Single Agent – Represents one party Advises Works For Client Dual Agent – Limited Consensual Agent for both sides Sub Agent – Pre RECAD – work under listing broker

36 Responsibilities of Licensee and Listing Firm Listing May be Agency or Transaction Broker Agency – Listing – Client –Principle – Fiduciary Works For Client COLD AC – Duties Confidentiality – Any information gained in confidence Obedience – Perform all lawful acts Loyalty – Put Clients interest above agent’s Disclosure of Material Facts Accountability of all funds Care – Reasonable

37 Alabama – Representation Notice – RECAD – Real Estate Consumer Agency Disclosure Single Agent – Agency – must have signed agreement – Works FOR one party Dual Agent (limited consensual) - Agency – Works FOR both parties – must have signed agreement Transaction Broker (or their agent) – no written agreement – Works WITH one or both parties – Non Agency Sub-Agent – works on behalf of listing broker – Not used any longer – Agency agreement must be in writing – Express No Implied Agency in Alabama – Transaction Broker is default (always starts as) relationship

38 Types of agents – Universal Power of Attorney - May sign deed – Can do anything permitted in name of principle – General Property Manager – Can do specific allowed things like have building painted – Specific Real Estate Agent – Limited authority to do things like show home to buyer » Can not sign or initial contract for principle

39 – Types of licensee Company – Must have qualifying broker Broker QB – One per company Associate Broker -- Any broker other than QB – Passed broker test, but remains under another broker Salesperson

40 Disclosure – – Alabama is “Caveat Emptor” - Buyer Beware No required seller disclosure statement in Alabama – Must disclose Known latent defects Latent – hidden, not easily discovered Patent - easily discovered – Includes health or safety defects – If Agency- must disclose everything known by agent – No duty to discover

41 Caveat Emptor does not apply to: HAND – Health & Safety – Assumption of Duty – New Construction – Direct Question

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44 Misrepresentation – Material Fact not disclosed Fraud if: – You made statement, or not – Buyer, Seller relied on information – Someone was harmed Implied Agency is Fraud – Leading customer to believe they are represented – Buyer or Seller relied on this – They were harmed

45 Real Property – Land from center of earth to reasonable height above – Includes mineral and water rights These may be sold separately – Includes appurtenances – runs with the land All rights, privileges and improvements that transfer with land May be tangible (can touch) easement Or non-tangible - right to use

46 Personal Property – Things that are tangible and moveable, Not real property Chattels ( also called personalty) – Title to personal property is transferred by “bill of sale”

47 Fructus Industriales – Annual crops are considered personal property – emblements – Must allow harvesting even after lease ends Fructus Naturales – Uncultivated crops and trees are considered real property Trade Fixtures – Necessary for business operation – personal property Must be removed prior to lease termination Any damage must be repaired

48 Listing Agreement – May be Agency or Non Agency – Must have expiration Date No Automatic renewals – Must leave copy with principle – Must retain copy for 3 years – Net Sheet – not required, but recommended – Must be in writing to enforce commission Only broker may sue for commission – Deed has names of all owners Deed does not prove ownership

49 Listing Agreement – Owner will sell at price and terms – Broker gets paid for bringing buyer Must be signed by all owners Must be in writing to be enforceable Must have expiration – No automatic renewal Must leave copy with owner. Is unilateral personal service (employment) agreement Commission is negotiable

50 Forms of Ownership in Real Estate Easy as 1, 2, One Owner (severalty) severed from others – Married person may hold property in severalty 2 - persons may hold title together as: – Joint Tenants with right of survivorship Most likely husband and wife PITT – Title passes to other holder upon death of other owner – Tenants in common – interest may not be equal Upon death title passes to heirs 3 – Trust 3 parties Trustor (creates trust) Trustee (holder of title) Beneficiary (benefits from trust)

51 Issues related to conveyance of real property – Seller responsible for delivering marketable title Deliver property as contracted Title Insurance Deed must be delivered during Grantor’s lifetime Acknowledgement – Notarize to record- constructive notice – Buyer must pay purchase price

52 Fair Housing Poster Must be displayed In Office

53 Fair Housing Protected Classes FRESH CORN Familial Status – family with children Race – Civil Rights 1866 Equal Opportunity for everyone Sex Handicap – includes AIDS Color O E&O insurance won’t cover violation Religion Nationality

54 Comparative market analysis Sales comparison of recent sales of similar homes Not as detailed as appraisal

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57 Income Approach – Investor requires a return on investment (ROI)

58 “T” Formula ________Results________ $10,000 Commission Paid Base Rate $100,000 Sales Price.10 Rate Rate is expressed as a decimal Multiply bottom #s or divide top # by one bottom # Base X Rate or Results / Base or Results / Rate Results / Base = Rate 10,000 / 100,000 =.10 Results / Rate = Base 10,000 /.10 = 100,000 Results = Base X Rate 10,000 = 100,000 X.10

59 Capitalization Rate = Return on investment “T” Formula Results BaseRate Investor demands a 10% Return; could be 15% or any number This as the Rate in the “T” Formula - Must change to decimal.10 – Rate always goes on bottom right You may not get the net income, but be given the numbers to calculate it The way to calculate net income is GIVEN GI$100,000Gross Income: 100 apartments renting for $1000 per month V - $5,000Vacancy is 5% (of Gross Income) E - $30,000Expenses are 30% (of Gross Income) N = $65,000Net Income (Before Taxes) Net income for one month, so multiply by 12 to get annual income = $780,000 $780,000 is the Result,(top #) you know the Rate (bottom right #) is.10 you want the Base (bottom left) Divide the Net Income (Results) of $780,000 by the Rate of.10

60 _____________$780,000___________ $7,800, – Capitalization Rate in this example is 10% This apartment has a market value of $7,800,000 – at a capitalization Rate of 10% What if it sold for $5,000,000? This means that the market (investors) require a higher rate of return of 15.6% Calculator said With the “T” Formula, if you get an answer that look wrong, swap the Base # with the Result # and recalculate 7,800,000 / 780,000 would give a rate of return of 1000% and you would know that is wrong Remember to move the decimal point two places to the right to get the percent.10 = 10%

61 Appraisal is an estimate of market value Appraisers are licensed hour training Appraisal necessary when: – Federally related transaction – Residential property above $250,000 Appraisers use verifiable information Allows lender to get independent opinion of value – Appraisal fee not based on value of property

62 Non- ownership interest – Lease Interest of tenant Possession – Quiet enjoyment – Estate for life Reversion interest goes back to grantor of estate Remainder man interest goes to another person – Liens – Easements Utility (looks gross) Personal

63 Relationship and responsibilities of the licensee Agency – COLD AC Non-Agency – HARD? Consumer Customer Client

64 Rights of Ownership (Bundle) – Fee Simple has entire bundle UPEED Use Possession Enjoyment Exclusion Disposition

65 Types of ownership Easy as 1,2, 3 people 1 Severalty – One owner 2 Joint Tenancy (Right of survivorship) Husband and wife smoking a joint; one dies of cancer; other get property Tenants in Common Common people in Condominium pool 3 Trust – Trustor – set up trust – Trustee - manages trust – Beneficiary - gets benefit of trust

66 Finance options – VA 100% Ratios total 41% for Mtg. and other LTD Guaranteed by government Funding Fee (mortgage insurance) 2-3% – FHA down payment of about 3 ½ % - Ratios 28%, 36% Up front mortgage premium 1% (just changed) Insured (mortgage insurance premium of ½%) added to rate – Conventional 80% LTV Ratios 28% mtg. 36% total Not insured

67 Special Financing – Builder Buy downs interest rate short or long term Closing Cost (are really added to price) – Rural Bond – Owner, Land Contract, Contract for Deed Balloon after about 5 years, amortized over 30

68 Pre Approved – Talked with mortgage banker or broker Meet unverified ratios Pre Qualified – Information given to mortgagee verified Mortgagor – gives mortgage (securitized promise to pay) Mortgagee – gets this specific lien on property

69 Required Disclosure Forms: RECAD – Real Estate Consumer Agency Disclosure Lead Based Paint if build before 1978 Net sheet for your consumer at offer Good Faith Estimate (GFE From Lender) HUD statement at closing

70 Repeat after me: I am not an attorney or accountant, And will not give legal or tax advise.

71 Home Insurance (Hazard) – Covers loss from fire and other perils Owners Tenants Home Warranty – Covers breakdown of home systems such as A/C Used Homes – New Construction has warranty Home Inspection – Surface look at home Title Insurance – Covers a defect on the title FHA Addendum – Buyer needs to know the difference

72 RECAD not required for property management Disclosure of material facts to lessee Pre 1978 requires lead based paint form & pamphlet Health & Safety

73 Obtaining tenants Showing property Negotiating lease – Price & Terms – Responsibilities of owner & tenant – Pet policy Application process – Credit – Background Owner’s decision to accept tenant

74 Lease is two contracts Transfer of possession – One stick in the bundle of property rights – Owner has reversionary right Tenant stays beyond lease expiration creates: – Tenancy at Sufferance If tenant and landlord agree to continue tenancy: – Creates Holdover Tenancy as Period to Period Extending credit – Must follow Fair Credit Act Similar to Fair Housing – Includes age & receipt of public assistance

75 Trust Accounts – Separate from Operating Account – No Comingle - mix trust money with company money – No Conversion - pay company bills with trust money – FDIC insured bank in Alabama – AREC audited, must be reconciled each month – Broker must be on account

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78 Owner’s return on investment ROI – Determines price investor will pay for cash flow Gross income $900 X 12 months = $10,800 Expenses 30% = $3,240 Net income = $7,560 If investor requires a 10% ROI $7,560 /.10 = $75,600 investor will pay for a 10% return What if investor requires a 15% return? $7,560 /.15 = $50,400

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80 Actual Eviction – When Tenant breaches lease Non payment Breach – Landlord must file suit for possession Serve notice Court Landlord may not change locks or turn off utilities Constructive Eviction – When landlord breaches lease – Time to comply Alabama Landlord and Tenant Act

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83 Clauses in Management Agreement Clause in Lease

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