John A. Yoegel, PhD, is a certified real estate instructor and former board member of the Real Estate Educators Association. He teaches pre-licensing and continuing education courses for salespeople, brokers, and appraisers.

Introduction 1

About This Book 1

Foolish Assumptions 3

Icons Used in This Book 3

Beyond This Book 4

Where to Go from Here 5

Part 1: Putting Real Estate License Exams into Perspective 7

Chapter 1: Sold! Taking a Glance at Real Estate License Exams 9

Checking Out Licensing and Exam Basics 9

Figuring out licensing procedures 10

Knowing the difference between salesperson and broker licensing and exams 10

Looking at the format and other exam details 12

Sign Me Up: Registering for the Exam 12

Knowing What to Take to the Exam and What to Leave at Home 13

Scoring High: Figuring Out How Scores Are Determined 14

Take Two: Retaking the Exam 15

Chapter 2: Using Successful Study and Test-Taking Techniques 17

One Word to Get You Through: PREPARE 17

Provide 18

Review 18

Evaluate 19

Practice 20

Arrive 20

Relax 21

Enjoy 21

Trying Terrific Test-Taking Strategies 21

It’s all in the timing 21

Reading everything carefully 22

Avoiding too much analyzing 23

Guessing 23

Second-guessing 24

Number crunching: Tackling math questions 24

Part 2: So You Want to Sell Real Estate: The Job and Basic Laws 25

Chapter 3: The Job: It Isn’t Just Driving People Around 27

Recognizing Those in the Real Estate Business and How They Got There 28

The buck stops here: Brokers 28

Movin’ on up: Salespeople 29

In between: Associate brokers 29

Making it legal: Looking at license law 29

Knowing What a Real Estate Broker/Salesperson Does 30

Perusing a list of common activities 30

Checking out a typical real estate transaction 30

Understanding How a Real Estate Broker/Salesperson Gets Paid 32

Working Hard: Career Opportunities 33

Considering independent brokerages and national franchises 33

Checking out corporations (in and out of the real estate world) 34

Building business with builders 34

Going into government 34

Appreciating appraising 35

Homing in on home inspections 35

Property Management: A Special Kind of Career Opportunity 35

Taking care of business: The duties of a property manager 35

Saying yes: The property management agreement 38

Managing a Real Estate Office: You’re the Boss, Ms or Mr Broker 39

Keeping an eye out: Supervision 39

Teach me! Training 40

Setting office policy: Rules are rules 40

Working As an Independent Contractor 40

Focusing on Job-Related Laws That You Need to Understand 41

The price isn’t right: Price fixing 41

Bad break: Market allocation 41

Feeling shunned: Group boycotts 42

What’s your condition? Tie-in arrangements 42

Review Questions and Answers 42

Chapter 4: Understanding Agency Law 45

Becoming Someone’s Real Estate Agent: You’re Hired 46

Picking sides: Representation in agency relationships 46

Establishing the agency relationship (and doing it in writing) 49

Keeping the Faith: The Relationship between an Agent and a Principal 52

Who has the money? Accounting 53

Better be careful: Care 53

Shhhhh! It’s a secret: Confidentiality 53

You’d better tell: Disclosure 53

A friend to the end: Loyalty 54

Yes ma’am: Obedience 54

Meeting Obligations: The Relationship Between an Agent and a Customer 55

Discovering defects 55

Looking at stigmatized properties 56

Respecting Megan’s Law 56

Finding out about fraud and negligent misrepresentation 56

Making Money (No, Not at the Copy Machine) 57

Pay up! Deciding who needs to pay an agent 57

Ready to go: Knowing when an agent should be paid 58

Parting Is Such Sweet Sorrow: Ending an Agency Relationship 59

Review Questions and Answers 60

Chapter 5: Knowing the Fair Housing Laws for Selling Real Estate 63

Practicing Fair Housing: The Basics 63

Understanding federal fair housing laws 64

Researching state and local laws 65

Displaying the fair housing poster 65

Don’t Do It: Avoiding Discriminatory Actions 65

No way: Refusing to sell or rent 66

On one condition… or a few: Changing terms for rental, sale, or services 66

You need not apply: Discriminatory advertising 66

All lies: Telling someone that property isn’t available (when it really is) 68

Scaring people into selling: Blockbusting 68

Telling people where to live: Steering 68

No money for you: Changing loan conditions 68

Put away that crayon: Redlining 69

You can’t join: Denying membership in real estate organizations 69

Feeling Safe: Identifying Who’s Protected 69

Knowing the federal protected classes 69

Recognizing state and local protected classes 70

Bending the Rules: Understanding Exceptions to the Law 70

Extra Coverage: Protecting the Disabled from Discrimination 72

Staying Strong: Enforcing the Law 72

Review Questions and Answers 73

Part 3: It’s All Mine: Owning and Transferring Real Estate 77

Chapter 6: Owning It: Estates and Interests 79

What Do You Own? Understanding Ownership Terms 79

Looking at land 80

Recognizing real estate 80

Defining real property 80

Checking out personal property 80

Estates (Even Without the Castles) 81

Pick and choose: The bundle of rights 82

Figuring out freehold estates 82

Understanding leasehold estates 84

Eyeing Different Ownership Rights 84

Going for a swim: Water rights 84

Don’t forget to look up and down: Other rights 85

Review Questions and Answers 86

Chapter 7: Understanding Forms of Real Estate Ownership 89

Real Estate Ownership: A Solo or Group Activity 89

One is the loneliest number: Owning real estate by yourself 90

Join the crowd: Owning real estate with other people 90

Getting hitched: Owning real estate when you’re married 91

Who do you trust? Ownership in trust 92

All business: Ownership by a business 92

Special Types of Ownership: Cooperatives, Condominiums, and More 94

Share and share alike: Cooperative ownership 94

More individuality: Condominium ownership 95

Mix it up: Planned unit developments 96

Check your watch: Time shares 96

Review Questions and Answers 96

Chapter 8: Knowing the Limitations on Real Estate Ownership 99

Carrying a Not-So-Heavy Encumbrance: Private Limitations on Property Use 99

Looking at liens 100

Easing into easements 102

It won’t let you drive, but it’s still a license 105

No, you can’t paint your house purple: Deed restrictions 105

I thought I owned it: Encroachments and adverse possession 107

Land-Use Regulation: A Major Public Limitation 107

To the drawing board: Making master plans 108

You’re in the zone: Understanding zoning ordinances 108

Many from one: Subdivisions 110

Building a house out of paper: Regulations for construction 112

Getting that house built 112

The Government Has Its Say: Other Public Limitations on Property Use 113

The city wants to build a library: Eminent domain 114

You didn’t know the government was part of your family: Escheat 115

Pay or lose: Taxation 115

Review Questions and Answers 115

Chapter 9: Transferring Ownership: Deeds and Title Closing 119

Doing the Deed: Delving into Deed Basics 120

Making it right: Requirements for a valid deed 120

The deeds of the many: Examining various kinds of deeds 122

Painting the right picture: Property descriptions in deeds 124

Getting Closure: Title Closing 131

Nearing the finish line: Before the closing 131

The big day: At the closing 133

A little paperwork: After the closing 137

Review Questions and Answers 139

Chapter 10: Giving Up or Losing Property 143

Fine by Me: Giving Up Property Voluntarily 143

All for the government: Dedication 143

From me to you: Gifts 144

A treat from Uncle Sam: Public grants 144

The usual way: Sales 144

By Force: Losing Property Involuntarily 144

It’s really mine: Adverse possession 145

You can’t fight nature: Avulsion and erosion 146

We need that, please: Eminent domain 146

Deep in debt: Foreclosures 146

Ignoring the rules: Forfeiture 146

Making the split: Partitioning 146

Losing Property Very Involuntarily: Passing Title After Passing Away 147

Where there’s a will, there are heirs and relatives 147

Where there’s no will, there still may be heirs and relatives: Laws of descent 147

The court has its say: Probate 148

Review Questions and Answers 148

Part 4: A House Is Made of Lots of Paper: Legal and Physical Issues 151

Chapter 11: Contracts 101 153

Agreeing to Do Something: The Basics of Making a Contract 153

Exploring how a contract is created 154

What makes a contract valid? 155

So Many Choices: Examining Types of Real Estate Contracts 156

Finding out about agency agreements 157

Examining sales contracts 158

Discovering options 160

Looking at land contracts 160

Checking out leases 161

The End of the Line: Discharging a Contract 161

Breaching a Real Estate Contract 162

When the buyer refuses to go ahead with the contract 162

When the seller refuses to go ahead with the contract 163

Review Questions and Answers 163

Chapter 12: Leasing Property 167

Identifying Who’s Who and What’s What 167

Owning property: Leased fee estates 167

Renting property: Leasehold estates 168

The Usual Suspects: Preparing a Typical Lease 169

Looking at laws governing leases 169

Examining typical provisions of a lease 169

Distinguishing among Various Types of Leases 171

Gross lease 171

Ground or land lease 171

Lease for oil or gas rights 171

Net lease 172

Percentage lease 172

Proprietary lease 172

Variable lease 172

Breaking a Lease: Types of Eviction 172

Getting What You Paid For 173

Nonresidential building layouts 173

Adding on and taking away 173

Review Questions and Answers 174

Chapter 13: Dealing with Environmental Government Regulations and Issues 177

Deciphering the Federal Government Alphabet Soup 178

CERCLA 178

EPA 178

HMTA 179

HUD 179

LUST (It’s not what you think) 179

OSHA 179

SARA 179

SDWA 180

Assessing the Environmental Effects of Building Developments 180

Making a statement: Environmental impact statements 180

Having suspicions: Environmental assessments 181

This Stuff Can Make You Sick: Examining Environmental Pollutants and Situations 181

Asbestos 182

Brownfields 182

Building-related illness 182

Electromagnetic fields 182

Lead 182

Radon 183

Sick building syndrome 183

Solid waste (radioactive and otherwise) 184

Underground tanks 184

A few more quick definitions to keep in mind 184

Go with the Flow: Water and Waste Issues 185

Water pollution 185

Sanitary waste disposal 186

Storm water disposal 186

Review Questions and Answers 186

Part 5: You Want How Much? Valuation and Financing of Real Estate 189

Chapter 14: Appraising Property 191

Figuring Out Appraisal Basics 191

Knowing what an appraisal is 191

Seeking an appraisal: Why you need one 192

Understanding the Importance of Location! 194

You can’t move it 194

You’re not on Gilligan’s Island 194

You can’t make any more of it 195

Arriving at Different Types of Value 195

Going to market  value, that is 195

Value in use 196

Investment value 196

Assessed value 196

Creating, Changing, and Affecting Values: Some Economic Factors 196

Anticipation 197

Balance 197

Change 197

Competition 197

Conformity 197

Contribution 197

Externalities 198

Highest and best use 198

Increasing and decreasing returns 198

Opportunity cost 198

Plottage 199

Regression and progression 199

Substitution 199

Supply and demand 199

Surplus productivity 199

Finding Value by Analyzing Comparable Sales 199

Understanding the basics 200

Adjusting the sales price 200

It isn’t old, it’s mature: Making age adjustments 201

Having time to adjust for time 201

Figuring adjustment values 202

Finding Value by Analyzing Replacement Cost and Depreciation 202

A journey begins with the first step  or a formula 203

Estimating replacement and reproduction costs 203

Estimating depreciation 204

Dirt costs money, too: Estimating land value 206

Finding Value by Analyzing a Property’s Income 207

Grossing out the rent 207

Capitalizing the income   208

Reconciling a Property’s Value 211

Review Questions and Answers 212

Chapter 15: Finding the Money: Mortgages 215

The Way Things Work: Mortgage Basics 215

The nuts and bolts of the mortgage process 216

Liens, notes, and a mistake most people make 216

I have a theory…on mortgage loans 217

Common conditions of a mortgage loan 218

Examining Sources of (and Insurance for) Funding 220

Number one: The primary mortgage market 221

Number two: The secondary mortgage market 221

See your uncle…Sam, that is: Federal loan insurance programs 223

A private matter: Private mortgage insurance 224

Considerations for Lenders Accepting Mortgages 225

Checking out the property value 225

Examining the borrower’s ability to pay 226

Grasping the Different Types of Mortgages 227

Blanket mortgage 227

Construction loan 227

Home equity loan 227

Open mortgage 227

Open-end mortgage 228

Package mortgage 228

Purchase money mortgage 228

Reverse mortgage 228

Sale leaseback 228

Shared equity mortgage 229

Temporary loan 229

Wraparound mortgage 229

Comprehending Mortgage Repayment Plans 229

It’s in your interest: Fixed and adjustable rates 230

Doing the math: Amortized loan 231

On the straight and narrow: Straight loan 233

A good mix: Partially amortized loan 234

Fast times: Growing equity mortgage 234

Endings You Didn’t Anticipate: Foreclosures, Assumptions, and Assignments 234

Shut down: Foreclosures 234

Who owes whom? Assumption and assignment 235

Being Fair: Consumer Protection Laws 236

The Community Reinvestment Act 237

The Equal Credit Opportunity Act 237

The National Affordable Housing Act 237

The Truth in Lending Act 237

Review Questions and Answers 238

Chapter 16: It’s So Taxing: Real Estate Assessment and Taxes 241

Who Wants Your Money, and What Do They Want with It? Collecting Taxes 241

Recognizing What’s So Special about Assessments 242

Go Figure! Calculating Taxes Step by Step 242

Oh so valuable: Assessing property for taxes 243

The numbers game: Understanding tax rates 244

Doing the decimal diddle: Calculating the taxes due 245

A nice balance: Using equalization rates 246

Home Free (Sort of): Eyeing Property Tax Exemptions 248

A free ride: Fully tax-exempt properties 248

Just a small piece: Partial tax exemptions 249

That’s Not Right: Protesting Assessments 249

Pay or Lose: Tax Liens and Sales 250

Review Questions and Answers 251

Chapter 17: Investing in Real Estate 255

Focusing on Property Investment 255

So many choices: Examining different investment properties 256

In charge: Looking at management issues 257

Ask the experts: Knowing when to get help 258

Oh no: Some not-so-good news about investing in real estate 258

Partnering Up: Real Estate Investment Organization Structures 259

Real estate investment syndicates 259

Real estate investment trusts 260

Real estate mortgage investment conduits 260

Spending Spree: Acquiring and Building Investments 260

Getting more for less: The joys of leverage 260

Pyramiding: Not just for the pharaohs 261

Empty promise: Considering vacant land 262

Making Money by Investing in Real Estate 262

Up and down: Buying low and selling high — capital appreciation 263

Plenty of room: Rentals on property 263

Letting someone else pay off the mortgage: Equity buildup 264

Getting Uncle Sam’s Help: The Government’s Role in Investing 264

More than your money’s worth: Capital gains 265

Feeling worn-out: Depreciation 265

On the way down: Tax deductions and tax credits 267

Real estate exchanges 268

By the Numbers: Analyzing Investment Properties 268

Review Questions and Answers 270

Chapter 18: All in the Numbers: Real Estate Mathematics 275

Don’t Lose the Faith, but You May Have to Convert 276

Land and Buildings: Measuring Area and Volume 276

Calculating the area of a square or a rectangle 277

Figuring out the area of a triangle 278

Calculating the area of a circle 279

Figuring out the area of an irregular shape 279

Determining the volume of almost anything 280

Percentages: Pinpointing What You Really Need to Know 280

Commissions: Tracking Your Moolah 282

Figuring out how much you and everyone else earns 282

Determining how much a house should sell for based on a commission rate 284

Making Mortgage Calculations without a Fancy Calculator 285

Calculating interest 285

Figuring out monthly payments 287

Oh, the Pain: Calculating Taxes 287

Calculating the assessed value of a property 288

Calculating taxes due 288

Putting Proration into Perspective 289

Appreciating Appreciation and Depreciation 291

Getting more or less: Appreciation and depreciation of a property’s value 291

Depreciation: The government kind 293

Estimating Appraised Value 293

The capitalization method 293

The gross rent multiplier method 294

Review Questions and Answers 295

Part 6: You’re Ready: Taking Practice Exams 299

Chapter 19: Practice Exam One 301

Chapter 20: Answers and Explanations to Practice Exam One 313

Chapter 21: Practice Exam Two 325

Chapter 22: Answers and Explanations to Practice Exam Two 337

Chapter 23: Practice Exam Three 349

Chapter 24: Answers and Explanations to Practice Exam Three 361

Chapter 25: Practice Exam Four 375

Chapter 26: Answers and Explanations to Practice Exam Four 387

Part 7: The Part of Tens 401

Chapter 27: Ten Things to Find Out from Your State’s Real Estate Law 403

Agency Law 404

Fair Housing 404

License Law 404

Limitations on Land Use 405

Money Stuff 405

Ownership Rights, Forms, and Theories 405

Property Disclosure 406

Tenants’ Rights and Rent Control 406

Transferring Ownership Involuntarily 406

Transferring Ownership Voluntarily 407

Chapter 28: Ten Tips to Help You Succeed on the Exam 409

Taking the Exam as Soon as You Can 409

Knowing the Rules (and Following Them) 410

Studying Your State License Law 411

Remembering Important Vocabulary 411

Focusing on Key Concepts 411

Eating Something 412

Staying Cool, Calm, and Collected 412

Paying Attention (without Overthinking) 412

Going with Your Initial Instinct 413

Finishing the Job 413

Appendix A: Glossary 415

Index 435

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