1. Alabama Real Estate Exam State Test Outline 2011
Steve McTyeire

2. Test Questions Questions Agency Relationships & Contracts 28
Real Property Ownership
Finance
Real Property
Market Regulations
Property Management
Real Estate Calculations
Total General Knowledge
Alabama Law
Total Questions on Test

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 Types of Contracts
General Principles of Property Mgt. Agreements
Basic Provisions / Purpose / Elements of
Property Management Agreements
Types of Contracts
Duties and Obligations of the Parties
Market Analysis and Tenants Acquisition
Accounts and Disbursements
Property Maintenance and Improvements
Evictions

31. 7. Real Estate Calculations
Compensation, Commission, and Fees
Valuation / Market Sale Price and Yields
Net to Seller, Cost to Buyer (credits & debits)
Tax and Other Prorations
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
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. Real Estate Consumer Agency Disclosure
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 Broker QB
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 – Must disclose Known latent defects
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

44. Implied Agency is Fraud
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 Fructus Naturales Trade Fixtures
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. Only broker may sue for commission
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, 3
1 - 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

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

58. “T” Formula
________Results________ $10,000 Commission Paid
Base Rate $100,000 Sales Price 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 ,000 / 100,000 = .10
Results / Rate = Base ,000 / .10 = 100,000
Results = Base X Rate ,000 = 100,000 X .10

59. Capitalization Rate = Return on investment “T” Formula Results
Base Rate
Investor demands a 10% Return; could be 15% or any number
This as the Rate in the “T” Formula - Must change to decimal
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 $100,000 Gross Income: 100 apartments renting for $1000 per month
V $5,000Vacancy is 5% (of Gross Income)
E $30,000 Expenses are 30% (of Gross Income)
N = $65,000 Net 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%

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) UPEED Use Possession Enjoyment Exclusion
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 Rural
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. Mortgagor – gives mortgage (securitized promise to pay)
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 Lead Based Paint if build before 1978
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. Title Insurance 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. Owner’s decision to accept tenant
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

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

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

83. Clauses in
Management
Agreement
Clause in Lease