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FreedomTrailRealtySchool,Inc.MassachusettsRealEstate

Pre-LicensingCourseStudyGuide

UpdatedJune8th,2018


FTRS 2

TableofContents

TheBasics............................................................................................................................................................................6TheTest....................................................................................................................................................................................6Howdorealestatetransactionswork?...........................................................................................................................7FederalvsStateLaw.............................................................................................................................................................7Wait,Salesperson?What'sthat?IthoughtIwasgoingtobeaRealtor..................................................................7Salespeoplevs.Brokers...........................................................................................................................................................................7SalespersonLicense..................................................................................................................................................................................7Broker'sLicense.........................................................................................................................................................................................7RealtorsandtheNAR...............................................................................................................................................................................7Whoneedsalicense?................................................................................................................................................................................8Wheredolicensescomefrom?Whydoweevenhavethem?...................................................................................................8WhatelsedoIneedtoknow?.............................................................................................................................................81099vsW2...................................................................................................................................................................................................8Insurance......................................................................................................................................................................................................8Principal,SpecialAgent,andSubagent..............................................................................................................................................9

PropertyRights...............................................................................................................................................................10RealProperty........................................................................................................................................................................10LandandSurfaceRights.......................................................................................................................................................................10ImprovementsontheLand.................................................................................................................................................................10AirRightsandMineralRights.............................................................................................................................................................10RiparianRights........................................................................................................................................................................................11LittoralRights...........................................................................................................................................................................................11Appurtenances.........................................................................................................................................................................................11PersonalProperty...............................................................................................................................................................11DifferentiatingBetweenPersonalandRealProperty...............................................................................................11ChangingPropertyTypes..................................................................................................................................................12

InterestsinRealEstate.................................................................................................................................................13Freeholds...............................................................................................................................................................................13FeeSimpleAbsolute...............................................................................................................................................................................13FeeSimpleDefeasible............................................................................................................................................................................13LifeEstates................................................................................................................................................................................................13Severalty................................................................................................................................................................................14Co-Ownership.......................................................................................................................................................................14TenancyinCommon..............................................................................................................................................................................14JointTenancy............................................................................................................................................................................................14TenancybytheEntirety.......................................................................................................................................................................14Condominiums.........................................................................................................................................................................................14Cooperatives.............................................................................................................................................................................................15Trusts..........................................................................................................................................................................................................15Timeshares................................................................................................................................................................................................15Securities...............................................................................................................................................................................15Non-Freeholds......................................................................................................................................................................16

LimitationsonPropertyRights..................................................................................................................................17GovernmentLimitations...................................................................................................................................................17ZoningOrdinances..................................................................................................................................................................................17BuildingCodes.........................................................................................................................................................................................18PropertyTaxes.........................................................................................................................................................................................18

Math:PropertyTaxes.............................................................................................................................................................18PrivateLimitations.............................................................................................................................................................18ConflictsBetweenPublicandPrivateLimitations.....................................................................................................19EnvironmentalLimitations..............................................................................................................................................19EnvironmentalVocabulary..................................................................................................................................................................20OtherPropertyRightConcerns.......................................................................................................................................20Easements..................................................................................................................................................................................................20Licenses......................................................................................................................................................................................................21


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Encroachments........................................................................................................................................................................................21FinancialLimitations(Liens)...........................................................................................................................................21VoluntaryLiens........................................................................................................................................................................................21InvoluntaryLiens....................................................................................................................................................................................21

PropertyValuation........................................................................................................................................................23HowanAppraiserEstimatesRealEstateValue..........................................................................................................23WhatisValue?......................................................................................................................................................................23ThePrinciplesofValue.........................................................................................................................................................................24InfluencesonPropertyValue.............................................................................................................................................................24TheThreeWaystoValueRealEstate............................................................................................................................24SalesComparisonApproach...............................................................................................................................................................24InvestmentValue(TheIncomeApproach)....................................................................................................................................25TheGrossRentMultiplier....................................................................................................................................................................25TheCapitalizationRate.........................................................................................................................................................................26CashonCashReturn..............................................................................................................................................................................26TheCostApproach.................................................................................................................................................................................27EstimatingReplacementandReproductionCosts......................................................................................................................27EstimatingDepreciationCosts...........................................................................................................................................................27

Contracts...........................................................................................................................................................................29ContractViolations.............................................................................................................................................................29CommonClauses..................................................................................................................................................................30TypesofRealEstateContracts.........................................................................................................................................30Listing/Buyer'sContracts....................................................................................................................................................................30Offers...........................................................................................................................................................................................................30PurchaseandSalesContracts.............................................................................................................................................................31Options........................................................................................................................................................................................................31RightsofFirstRefusal...........................................................................................................................................................................31PowerofAttorney...................................................................................................................................................................................31SampleExclusiveRighttoSellListingAgreement......................................................................................................................33SampleOffertoPurchase.....................................................................................................................................................................36SamplePurchaseandSaleAgreement............................................................................................................................................38

Leases ..............................................................................................................................................................................40MassachusettsLandlordRegulations............................................................................................................................41PropertyManagement.......................................................................................................................................................41LeaseTypes...........................................................................................................................................................................41SampleRentalFeeDisclosure............................................................................................................................................................43SampleApartmentApplication..........................................................................................................................................................44

TransferofProperty.....................................................................................................................................................45HowPropertyTransfersWork........................................................................................................................................45Deeds......................................................................................................................................................................................45MassachusettsRecordingStamps...................................................................................................................................46

Math:RecordingStamps.......................................................................................................................................................46LandDescriptionandSurveys.........................................................................................................................................46MetesandBoundsSurveys..................................................................................................................................................................46LotandBlockSurveys...........................................................................................................................................................................47GovernmentRectangularSurveySystem.......................................................................................................................................47TypesofDeeds.....................................................................................................................................................................49TitleInsurance.....................................................................................................................................................................50TheTorrensSystem(LandCourt)..................................................................................................................................50OtherMethodsofTitleTransfer.....................................................................................................................................51Wills.............................................................................................................................................................................................................51Adversepossession................................................................................................................................................................................51Dedication..................................................................................................................................................................................................51

RealEstateAgency.........................................................................................................................................................52ConfidentialityandRequiredDisclosure.....................................................................................................................52Tristram’sLandingv.Wait................................................................................................................................................53RealEstateCommissionMath..........................................................................................................................................54OtherRealEstateConcernstobeFamiliarWith........................................................................................................55


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FTCDoNotCall........................................................................................................................................................................................55TelephoneConsumerProtectionAct(TCPA)andtheJunkFaxPreventionAct..............................................................55CAN-SPAM.................................................................................................................................................................................................55TheChildren'sOnlinePrivacyProtectionAct(COPPA)............................................................................................................55InterstateLandSalesDisclosureAct................................................................................................................................................56ShermanAnti-TrustAct........................................................................................................................................................................56

FairHousingLaw............................................................................................................................................................57FederalFairHousingLaw.................................................................................................................................................57MassachusettsFairHousingLaw....................................................................................................................................57PublicAssistancePrograms................................................................................................................................................................57ProhibitedActivities...........................................................................................................................................................58FairHousingPenalties.......................................................................................................................................................58ExemptionsfromFairHousingLaws.............................................................................................................................58

IntroductiontoRealEstateFinancing......................................................................................................................60Foreclosures.........................................................................................................................................................................60TheNoteandtheMortgage...............................................................................................................................................61TheNote.....................................................................................................................................................................................................61TheMortgage............................................................................................................................................................................................61Points......................................................................................................................................................................................61DiscountPoints........................................................................................................................................................................................62MortgageBrokers................................................................................................................................................................62

RealEstateFinancing....................................................................................................................................................63TheSecondaryMortgageMarket....................................................................................................................................63TypesofRealEstateFinancing........................................................................................................................................63FullyAmortizedLoans..........................................................................................................................................................................63AmortizationTables...............................................................................................................................................................................64

Math:AmortizedLoans.........................................................................................................................................................64BalloonMortgages..................................................................................................................................................................................64SecondMortgages...................................................................................................................................................................................65StraightandSimpleInterestLoans..................................................................................................................................................65PurchaseMoneyMortgages................................................................................................................................................................65WraparoundMortgages........................................................................................................................................................................65ConstructionFinancing.........................................................................................................................................................................65PackageMortgages.................................................................................................................................................................................65HomeEquityLineofCredit.................................................................................................................................................................65Reverse-AnnuityMortgage(RAM)...................................................................................................................................................66FixedRateMortgage..............................................................................................................................................................................66AdjustableRateMortgage(ARM)......................................................................................................................................................66GraduatedPaymentMortgage(GPM)..............................................................................................................................................66GrowingEquityMortgage(GEM)......................................................................................................................................................66ParticipationMortgage.........................................................................................................................................................................66SharedAppreciationMortgage(SAM).............................................................................................................................................66BlanketMortgage....................................................................................................................................................................................66BridgeLoansandSwingLoans..........................................................................................................................................................66Non-RecourseLoan................................................................................................................................................................................66BuyDownorPledgedAccountMortgages(PAMs).....................................................................................................................67TakeOverMortgages.............................................................................................................................................................................67

GovernmentFinancingProgramsandRegulations..............................................................................................68FederalHousingAdministrationFinancing..................................................................................................................................68VeteransAffairsFinancing..................................................................................................................................................................68PrivateMortgageInsurance(PMI).................................................................................................................................68MonetaryPolicy...................................................................................................................................................................68TheFederalReserve..............................................................................................................................................................................69LendingRegulations...........................................................................................................................................................69TheRealEstateSettlementProceduresAct,TILA-RESPA,andDodd-Frank.....................................................................69Proration....................................................................................................................................................................................................69TheTruthinLendingAct.....................................................................................................................................................................70TheEqualCreditOpportunityAct(ECOA).....................................................................................................................................70


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PredatoryLending..................................................................................................................................................................................70Usury...........................................................................................................................................................................................................70TaxConcerns........................................................................................................................................................................71InvestmentTaxes....................................................................................................................................................................................711031LikeKindExchanges...................................................................................................................................................................71ResidentialTaxes....................................................................................................................................................................................72

ConsumerProtectionLaws.........................................................................................................................................73MassachusettsGeneralLawChapter93A.....................................................................................................................73HomeInspectionRegulations..........................................................................................................................................73HazardousMaterials..........................................................................................................................................................73LeadPaint..................................................................................................................................................................................................74OtherHazards..........................................................................................................................................................................................74MassachusettsSmokeDetectorRegulations...............................................................................................................75MassachusettsCarbonMonoxideDetectorRegulations..........................................................................................76

MassachusettsRealEstateLicensingLaw...............................................................................................................77LicensingLawExceptions....................................................................................................................................................................77BrokervsSalesperson.......................................................................................................................................................77BrokerBonds........................................................................................................................................................................77EscrowAccounts..................................................................................................................................................................77LicenseLawStudyPoints..................................................................................................................................................78AgencyandFeeDisclosures.............................................................................................................................................79MandatoryAgencyDisclosure............................................................................................................................................................79TheTypesofAgency(AslistedontheMAMandatoryDisclosure)......................................................................................79RentalFeeDisclosure............................................................................................................................................................................80Advertising............................................................................................................................................................................80ConflictsofInterest.............................................................................................................................................................80LicenseSuspensionsandRevocations...........................................................................................................................80LicenseHearings..................................................................................................................................................................80

PracticeQuiz1................................................................................................................................................................83PracticeQuiz1Answers...............................................................................................................................................89PracticeQuiz2................................................................................................................................................................90PracticeQuiz2Answers...............................................................................................................................................93MathProblems................................................................................................................................................................94MathAnswers..................................................................................................................................................................96AdditionalResources....................................................................................................................................................98QuestionstoAskWhenInterviewing.......................................................................................................................99Definitions......................................................................................................................................................................100MathEquations.............................................................................................................................................................112StudyGuideChangelog...............................................................................................................................................114


FTRS 6

TheBasics

Excitedtostartyournewcareerinrealestate?Great!Let'sgetsomebasichousekeepingoutoftheway:StateMandatedPre-ClassReadingBeginningAugust1,1994,Massachusettsinstituted“One-stop-licensing”.Thismeansthatuponsuccessfulcompletionofthelicensingexamination,thecandidatewillimmediatelybelicensedtopracticerealestate.Thefollowingexaminationproceduresmustbeadheredto:Youmustbepreparedtopayforthelicenseuponpassingtheexamination.Personalcheckswillbeacceptedforthelicensefee.YoumusthaveyourEducationCertificatewithyou.Itmustbeproperlycompleted.Ifanypartappearstobealtered,donotattempttouseitasyouwillnotbeadmittedtotheexamination.Atthecompletionofthepre-licensecourse,allstudentswillbegivenaCandidateHandbook.Youmustreadthishandbookcompletely.Alloftherequirementsforexaminationareexplainedinthishandbook.Failuretobepreparedwillresultintheforfeitureoftheexaminationfee.Ifyouhavequestionsyoushouldaskyourinstructor,theschool’sAuthorizedAgentortheexaminationservice.Remember,examinationfeesarenotrefundable.Allcandidatesmusthaveasocialsecuritynumberinordertobeexaminedandlicensed.Youmaynotsubstituteadriver’slicensenumber.IfyouhaveacriminalordisciplinaryhistoryinanyState,Country,orJurisdiction,theissuanceofyourlicensewillbewithhelduntiltheBoardhasreviewedyourrecord.Thereviewwillbedoneafteryoupasstheexamination.Uponapprovalyourlicensewillbeissued.Therecordwillnotbereviewedinadvanceoftheexamination.IfyouhavepreviouslyheldaMassachusettsrealestatebrokerorsalespersonlicense,youmustreinstatethatlicense.Youmaynotbeissuedanewlicense.SendawrittenrequestforreinstatementtotheBoard.Besuretoincludeyourname,address,dateofbirth,onlythelastfour(4)digitsofyoursocialsecuritynumberandsignature.

TheTestAfteryoufinishthe40-hourpre-licensingclass,you'llneedtopasstheRealEstateSalespersontest.Youwon'ttakethetestinclass.ThetestisadministeredbyPSI,andofferedseveraltimesaweekinBoston(aswellasAuburn,Worcester,Springfield,andotherlocationsinthestate).Youcanregisterforthetestbyvisitinghttp://candidate.psiexams.com.Thetestingfeeis$85foryourfirsttest,and$54foranyretakes.Thetesthastwosections:GeneralRealEstateKnowledge,andMassachusettsLaw.TheGeneralsectionis80questions.MassachusettsLawis40.Thetestisentirelymultiplechoice.Youhave4hourstocompleteit,andyoumustscoreatleasta70%onbothsectionstopass.Ifyoufailonesection,youwillonlyneedtoretakethesectionyoufailed.Youwon’thavetoretakethewholetest.Awordofwarning:thetestcanbetricky.Itdoesnotalwaysaskquestionsdirectly,andinsteadexpectsyoutorecognizetheprincipalsandrulesyoulearnedinthecourse,andtoapplythem.Becauseofthis,makesurethatyoustudyforthetest!Ifyoudon'tfullyunderstandandmemorizetheconceptsandterminologywegooverinthisclass,you'renotgoingtobeabletofigureouttherightanswersontestday,orevenwhatthetestisaskingfor!Werecommendthatyoustudyforatleast20hoursafteryoucompleteyour40classroomhours,whichworksouttoaround1-2weeksformostpeople. Onceyoupassthetest,you'llreceiveyourlicenseonthespot.Congratulations:you'renowalicensedrealestatesalesperson.Timetogomakemoney!


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Howdorealestatetransactionswork?Verybriefly,theusualprocessforpullingtogetherarealestatetransactionlookslikethis(fromthelistingagent'sperspective):Asarealestatesalesperson,you'llbehiredasalistingagentbysellertolisttheirpropertymarketit.MarketingistypicallydoneonMultipleListingServices(MLS),online(onTrulia,Zillow,etc.),andinnewspapersorspecialtypublications.Buyerscontactyoutoseetheproperty,andshouldbequalified(canthebuyerbuy?Isthisthesortofpropertytheywant?Etc.)toavoiddisruptingthesellerunnecessarily.You'llthenshowtheproperty,andassumingthepotentialbuyerlikesit,anofferwillbesubmitted.Ifitisaccepted,theofferwillleadtothecreationandsigningofaP&S(PurchaseandSaleContract).Next,financingwillbesecured,inspectionscompleted,andotherconditionsoftheP&Swillbemet.Oncethetermsandconditionsaremet,thesalewilltakeplace(settlementorclosing),andyouandanybuyer'sagentwillbepaidthecommission.Notethatthisprocesstakesabout3-6monthsonaverage.FederalvsStateLawYourrealestateactivitieswillbesubjecttotwodifferentlegalregimes:federallaw(thelawsoftheUS),andstatelaw(thelawsofMassachusetts).Generallyspeaking,statelawbuildsonfederallaw,andismorespecificthanfederallaw.Inaconflictbetweenthetwo,federallawusuallywins.Wait,Salesperson?What'sthat?IthoughtIwasgoingtobeaRealtor.It'sOKifyoudon'tknowexactlywhat'sgoingonyet.Let'sgooverthebasicsyou'llneedtounderstandthematerial.Salespeoplevs.BrokersTherearetwotypesofrealestatelicensesinMassachusetts:brokerslicenses,andsalespersonlicenses.Whatarethemaindifferences?SalespersonLicense

• Mustbe18yearsold,takea40-hourclass,passthestateexam,andpayafee(currently$103-$150).• Mustaffiliatewithabrokertopracticerealestate.• Maynotacceptdirectclientpayments.

Broker'sLicense

• Musthave3yearsofexperienceasasalesperson,takea40-hourclass,passthestateexam,bebondedfor$5000,andpayafee.

• Candoeverythingthatarealestatesalespersoncando,plustheymayoperateindependently,acceptdirectclientpayments,andhandleescrowfunds(clientdeposits).

NotethatarealestatecandidatewithacriminalconvictionmustpasstheexamandrequestpermissionfromtheBoardforlicensing.Theboardwillmakeajudgmentcallonwhathappenedandwhetherornotthecandidateshouldbelicensed.Youcanfindtheboard’scriteriaattheirwebsite(http://www.mass.gov/ocabr/licensee/dpl-boards/re/).YoushouldalsobeawarethatpursuanttoMGL62C,candidatesmustpayallstatetaxesowedandfileallstatereturnsasrequiredbylawbeforetheymaybelicensed.RealtorsandtheNARRealtorsaren'tlistedabovebecausebeingarealtorisn'tastatelicensingissue.Establishedin1908,theNationalAssociationofRealtors(NAR),whosemembersareknownasRealtors,isthelargesttradeassociationandoneofthemostpowerfullobbyinggroupsinNorthAmerica.YoubecomearealtorbypayingafeetojoinyourlocalchapteroftheMassachusettsAssociationofRealtors(MAR)afteryou'relicensedasaMassachusettsrealestatesalespersonorbroker.It'stotallyoptional,andyoucansellrealestatewhetherornotyouchoosetobecomearealtor.


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TheNAR'smembershipiscomposedofresidentialandcommercialrealestatebrokers,realestatesalespeople,propertymanagers,appraisers,counselors,andothersengagedinallaspectsoftherealestateindustry,whereastatelicensetopracticeisrequired.Membersbelongtooneormoreofsome1,600localRealtorboardsorassociations.Theyarepledgedtoacodeofethicsthatwasadoptedin1913andstandardsofpractice,includingdutiestoclients,customers,thepublic,andotherRealtors.Whenopeninganoffice,beawarethatallagentsassociatedwiththatofficemustbeRealtorsiftheofficeisassociatedwithalocalRealtorchapter.FailurebyanagentinaRealtorofficetobecomeaRealtorwillresultinafinetotheofficeof$471peragentduetotheoffices’DesignatedRealtor(theownerofthebrokerage).

Whoneedsalicense?Massachusettslawrequiresthatanyonewhodoesanyofthefollowingforafee(orintheexpectationofreceivingafee)mustbelicensedasarealestateagent:advertisesand/orholdshimselforherselfoutasengagedinthebusinessofselling,renting,leasing,negotiation,exchanging,purchasinganddealinginrealestateoroptionsforrealestate.Theamountofmannerofthefeeisn’trelevant.Allthatmattersisthatyoureceived,orexpected,remuneration.Wheredolicensescomefrom?Whydoweevenhavethem?Wehavelicensestoprotectconsumers.Asarule,ifthere’saquestionontheexamaboutwhythegovernmentdoessomething,theansweris,“toprotectthepublic,”or,“forthepublicgood.”Thisisbecausemuchofthegovernment’sabilitytoregulateprivatetransactionsstemsfrompolicepower.PolicePoweristherightofthegovernmenttoenactlawstoprotectthepublic.TheStateLegislaturecreatesthelawsaboutlicense(whicharepermanentunlessotherwisestated).TheBoardofRegistrationofRealEstateBrokers&Salespersonsdealswithissuinglicenses,andruleadministrationandenforcement.TheBoardisapartoftheDivisionofProfessionalLicensure.Youcanfindtheirofficesat1000WashingtonStreetinBoston,MA.What’sgoingonwiththeboard?It’safive-memberboardthatwasestablishedin1960,andwhosemembersareappointedbythegovernor.Oneofthemisalsoappointedthechairperson.Threeofthemarebrokerswithatleast7yearsofexperience,andtwoofthemdon’thavelicensesatall(theyrepresentthepublic).Theyallserveonfive-yearterms,withoutpay,andmeetatleast4timesayear.Atleastthreeofthemmustbepresentforthosemeetings,andwrittenrecordsofthosemeetingsaremadeavailabletothepublicontheDivisionofProfessionalLicensure’swebsite.

WhatelsedoIneedtoknow?1099vsW2Hiringatabrokeragegenerallytakestwoforms:youareeitherhiredasa1099independentcontractor,orasaW2employee.Whichyouareprimarilyhastodowiththedegreeofcontroloveryourworkassertedbyyouremployer(andwhattaxformtheyuse).Ifyouarepaidbythejoboroncommission,setyourownschedule,canturndownwork,useyourownmethods,etc.youarelikelya1099independentcontractor.Mostresidentialrealestateagentsare1099contractors.Ontheotherhand,ifyouaresalariedorpaidhourly,andyouremployercontrolswhatyoudoandhowyoudoit,youarelikelyaW2employee.Thisissometimesthecaseincommercialrealestate.Fortheagent,mostcriticaltounderstandarethetaximplications.Mostnotably,unlikeaW2employee,therewillbenowithholdingfroma1099independentcontractor’spay,andsincetheyaretreatedasself-employed,a1099independentcontractorissolelyresponsibleforthetaxes.Ontheotherhand,1099independentcontractorsmaytakeadvantageofmanywrite-offsthataW2employeemaynot.Thus,the1099taxsituationisafairbitmorecomplex,anditisthereforewisetoseekassistancewhenpreparingyourtaxesifyouarea1099independentcontractor.Insurance


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Therearetwotypesofinsurancethatbrokersoftencarry:professionalliabilityinsurance(aka"errorsandomissionsinsurance"),andgeneralliabilityinsurance.Professionalliabilityinsuranceprovidesprotectionagainstmistakesmadebyabrokerorsalespersonwhileprovidingrealestateservicestotheirclients.Thiscoverageisvaluablebecausebrokersandsalespersonsarehuman,andinnocentmistakescanhappenduringrealestatetransactions.Generalliabilityinsurance,ontheotherhand,providescoverageforpersonalorpropertydamagethatmightoccuratthebrokerageorduringshowings(e.g.aclientslippedandfellontheofficestoop).Salespersonsusuallydonotneedtoworryaboutgeneralliabilityinsurance,butshouldstronglyconsiderpurchasingprofessionalliabilityinsurance.Principal,SpecialAgent,andSubagentTheotherbigthingyouneedtoknowrightnowisthatyourclientwilloftenbereferredtoasyourprincipal.They'rethepersonwhodoesthehiringinthetransaction.Legally,onlyyourbroker(thespecialagentinthetransaction)canbehiredandpaiddirectlybytheprincipal.Thebrokerwillpayyouasasubagent(anagent’sagent)workingontheirbehalf.Soyou’llbetheclient’ssubagent,andthebroker’sagent.That'sallforthebasics–let'sdigintosectionone!


FTRS 10

PropertyRights

Beforeyoucanunderstandrealestatetransactions,youhavetounderstandwhatisbeingsold.Inthisclass,weareworriedaboutsellingtwodifferentkindsofproperty:realproperty(thelandandeverythingattachedtoit),andpersonalproperty(anythingnotattachedtoland).RealPropertyRealpropertyistheland,anythingattachedtotheland,andallofthevariousrightsassociatedwithownershipoftheland.You’llalsoseerealpropertyreferredtoasrealestate,realty,orimmovableproperty.Notethatthesetermsarenotstrictlyinterchangeable:realpropertyreferstoboththelandandtherightsassociatedwithit,andrealestatereferstojustthelandandallofthepropertyattachedtoit.Thatsaid,thedistinctionbetweenthesetermsisnothugelyimportantinpracticeasanagent,andtheexamwilloftenusetheminterchangeably. Ownershipofrealpropertyistransferred(orconveyed)usingadeed.Deedsgetcomplicated–forthetimebeing,thinkofthemasthereceiptforrealestate.Transferringownership(legaltitle)torealestateisknownasgrantingtitle.

Ownershipofrealestateisa“bundleofrights”;itisnotasinglerightofownership.Thebundleofrightsisagroupingofpropertyrightsthatcanbeseparatelytransferred.Therightsincludedinthebundleofrightsarepossession,exclusion,control,disposition,andenjoyment.Theserightsletyoudothingswithyourrealestate.Forexample,youcouldownrealestate(possession),controltheuseofit(control),useitinanywaythatmightbelegal(enjoyment),limitaccesstoit(exclusion),orgiveittosomeoneelsebysale,rental,orinyourwill(disposition).Realestateincludessomethingsthatareimmediatelyintuitive,andothersthatarelessso:LandandSurfaceRightsThelandisthesurfaceoftheearth.Rightstotheland'ssurfaceareknownassurfacerights,andoftenextendtoapproximately30feetbelowtheland'ssurface.ImprovementsontheLandImprovementsareanythingthatispermanentlyattached(eitherdirectlyorindirectly)totheland.Forexample,ahouseisanimprovement.Individualimprovementsattachedtotheproperty(e.g.windowblinds)aresometimesreferredtoasfixtures.AirRightsandMineralRightsAirandmineralrightaretherightstothespaceaboveandbelowtheland,alongwithanynaturalresourcessuchasoil,preciousmetals,etc.Theyareverticalinterests,andmaybesoldorleasedseparatelyfromthesurfacerights.Solidmineralrightsaresolidminerals,andliquidmineralrightsareoil,gas,etc.Inmanystates,liquidmineralrightsarenotownedbytheowneroftheland;instead,theownerofthelandhastherighttocapturethemunderthedoctrineofcapture.Otherstatesusutilizationpoolingwherethelandownerdoesownafractionofwhateverliquidmineralrightsexistundertheirproperty.Historically,airrights(orairlots)andmineralrights(orsubsurfacerights)weregovernedbytheprincipalofCuiusestsolum,eiusestusqueadcoelumetadinferos(Latinfor"whoever'sisthesoil,itistheirsallthewaytoHeavenandallthewaytohell").Thischangedwiththeadventofairplanes;now,thespaceaboverealestatestartingsomewhere

When talking about giving and receiving something, the person with the suffix “or” is the one giving the thing, and the person with the suffix “ee” is receiving it. So the grantor gives the deed to the grantee.


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between80-500ftisthejurisdictionoftheFederalAviationAuthority(socalled"navigable"airspace)perthecourtcaseUnitedStatesv.Causby.Mineralrightsextendtotheearth'score.Ifmineralrightsarepurchasedseparatelyfromthesurfaceoftheland,theownerofthemineralrightsautomaticallygainstherighttoharvestthemineralsasanimpliedeasementknownasaprofita´prendre.

RiparianRightsRiparianrightsaretheownershiprightsforlandownerswhosepropertybordersariverorotherwaterway.Propertyborderinganavigableriverhasrightsuptoaccretionline(theedge)ofthewater,andthosepropertiesadjoiningnon-navigablerivershaverightstothemidpointofthewater.Notallstatesuseriparianrightstodefinetheownershiprightsofpropertiesadjoiningriversandwaterways.WaterrightsinWesternstatesareusuallydeterminedbythedoctrineofpriorappropriation,whichbasesownershiponwhoeverusedthewaterfirst;Easternstates(likeMassachusettsandtheother13colonies)usuallyuseriparianism(riparianrights).LittoralRightsLittorralrightaretheownershiprightsofpropertyborderinglakesandoceans.Thesepropertiesownallofthelanduptotheaccretionline(theedgeofthewater,mostoftenthemeanhightideline)inmoststates.InMassachusetts,littoralrightsworkabitdifferently.AsdefinedintheColonialOrdinancesof1641-1647,littoralrightsinMassachusettsextendfromthemeanhigh-waterlinetothemeanlow-waterline,or100rods(1650feet)fromthemeanhigh-waterline,whicheverisless.Thepublichasaneasement(arightofaccess)overthelandbetweenthehighandlowwaterlines(knownastidalflats)forthepurposesofnavigation,fishing,fowling,andpassingfreelyoverandthroughthewater.AppurtenancesAppurtenancesareanypropertyrightsthatexistoutsidetheboundariesofthepropertyitself.Anexampleofanappurtenanceisasaneasement(rightofway)acrossanadjoiningpropertyforbeachaccess,oradeededparkingspotinacondominiumbuilding.PersonalPropertyPersonalpropertyisanypropertythatisnotattachedtoapieceofland,andnotattachedtoanyimprovementonthatland(e.g.acaroratable).Itisalsocalledpersonalty,chattel,ormoveableproperty,andistransferredviaabillofsale(thefancytermforareceipt).

DifferentiatingBetweenPersonalandRealPropertyUsuallyit’sobviouswhattypeofpropertysomethingis,butsomesituationscangetabitmorecomplicated.Forthosecomplicatedsituations,therearefourtestsyoucanusetofindoutifpropertyispersonalorreal.Thesetestsareimportanttoknow,becauseallpiecesofrealestateareincludedbydefaultwhenyousellyourrealestate(thissoundsobvious,butitcancatchpeopleoffguard).Thetestsare:Attachment–Whetherornotthepropertyispermanentlyattached(e.g.bynailsorroots)totheland.Adaptability–Whetherthepropertyiscustombuilttofit,orgenericallyfitsanywhere.Intention–Theintentofthepersonwhoinstalledtheproperty,i.e.didtheywanttomakethepropertypermanent.Agreement–Thebuyerandsellerofapieceofpropertycanagreetotreatapieceofpropertyaseitherpersonalorreal.Thisoverridestheothertests.WatchoutfortheStatuteofFrauds(thelawrequiringthatrealestatecontractstobeinwritingtobelegallyenforceable)–allitemsofrealestateareincludedinahomesaleunlessspecifically


FTRS 12

excludedinwriting.Realestateagentsshouldtalktobuyersandsellersofrealestatetodiscoverwhat,ifany,propertyshouldbespecificallyincludedorexcludedinthesale.Intentionisthemostimportantofthesetests,becauseitcreatesthetwoexceptionstotheserules:Tradefixtures–Itemsofbusinesspropertythataresomehowpermanentlyattachedtotheland,butaretreatedaspersonalpropertybecausetheywereonlyinstalledfortheuseofoneparticularbusiness.Thisisaparticularconcernincommercialtenants,andisoftenoutlinedintheirleasetoavoiddisputes.Emblements–Cropsthatareplanted,andharvested,annuallyorbiannually(likecornorwheat).Plantsareusuallyrealestate(sincethey’reliterallygrowingintheland),butemblementsaretreatedaspersonalpropertybecausetheyarenotintendedtobepermanent,andareonlyplantedtobeharvested.Notethatpermanentplantslikeappletreesorvineyardsdonotqualifyasemblements,andaretreatedasrealestate.

ChangingPropertyTypesThecategoriesofpropertyarefundamentallymutable;youmayfreelymoveitemsofpropertybetweenthemsolongasthereisnoagreementpreventingyoufromdoingso(forexample,apurchaseandsaleagreement).Thetermsformovingbetweenthecategoriesareannexation(whenpropertywaspersonalandisnowreal,e.g.plantingasapling)andseverance(whenpropertywasrealandisnowpersonal,e.g.diggingupatree).

Activity: In groups, come up with an example of a piece of personal or real property that might cause confusion in a real estatesale,andshouldthereforebeaddressedwiththesellerbeforelistingtheirhome.


FTRS 13

InterestsinRealEstateTherearemanytypesofinterestsinrealestate(alsoknownasestatesortenancies).Thesetermsareinterchangeable(becarefulofthis!),andrefertotheextentofsomeone'srightsrealestate.Aninterestinrealestatewillbepartofoneoftwomajorcategories:freeholdinterests,whichrefertoownership,andnon-freeholdinterests,whichrefertopossessoryrightsthatdon’tincludeownership(usuallyarental).Notethehavinganinterestinrealestatedoesn'tmeanyouownit;itsimplymeansthatyouhavesomerighttotheproperty.FreeholdsFreeholdinterestsconferownership.Thereareanumberofdifferenttypes:

FeeSimpleAbsoluteFeesimpleabsoluteisthedefaulttypeofownership.Itisalsoreferredtoasfeeorfeesimpleownership.Itisaninterestinrealestatethatisnotinanywaylimited,anditisinheritable.Theownerisentitledtotheirentirebundleofrightstotheproperty.Theseinterestsareintendedtobeindefinite,andonlylimitedbypublicandprivaterestrictions(e.g.zoningandbuildingcodes).FeeSimpleDefeasibleUnlikefeesimpleabsolute,feesimpledefeasibleownershipisaninterestinrealestatethatislimitedinsomeway,andcanbelostifsomelimitationisviolatedoraconditionistriggered.Therearetwoformsofdefeasibleinterests:feesimpledeterminable,whichisautomaticallylostwhenthelimitationisviolated,andfeesimplesubjecttoaconditionsubsequent,whichislostwhenlegalactionisbroughtpursuanttotheviolationofthelimitation.

LifeEstates

Lifeestatesarefreeholdintereststhatonlyexistaslongastheowneroftheproperty(the"lifetenant")isalive.Thelifetenant’sdeedwillstatewhoreceivesthelifeestate(usuallya“remainderman”)upontheirdeathinahabendumclause.Thereareseveraldifferenttypesoflifeestates:Lifeestateinreversion–Alifeestatewhere,whenthelifetenantdies,legaltitle(ownership)willtransferbacktotheoriginalgrantor.Lifeestateinremainder–Alifeestatewhere,whenthelifetenantdies,legaltitlewilltransfertosomethirdpartyoriginallynamedbythegrantor(thethirdpartyistheremainderman).PurAutreVie–OldFrenchmeaning,"foranother'slife."Alifeestatethatisbasednotonthelifetenant’stermoflife,butonsomearbitrarythirdparty'slifeasnamedbytheoriginalgrantor.LegalLifeEstate–Alifeestatecreatedbylaw,oftenincasesofdowerrights(whereasurvivinghusbandorwifeisgrantedalifeestateforrealpropertythatwasnotwilledtothem,butthatwasownedbytheirspouseattheirspouse'stimeofdeath).InMassachusettsdowerrightshavebeenabolished,butinmanystatesasurvivingspouseisentitledtouptoa1/3rdinterestintheirdeceasedspouse'srealestate,inlieuofwhatwasleftinthewill.Therightisinchoate,orinactive,beforethespouse'sdeath.Homestead–Alegallifeestategrantedtotheownersofafamilyhome.Itoftenprovidesprotectionsfromtheforcedsaleofthehometosatisfydebtsuptoacertainamount.Usuallyyoucanonlyhaveonehomesteadatatime.Alifetenanthaswhat’sknowasapresentinteresttotherealestatesubjecttothelifeestate,whiletheremainderman(orthegrantorinalifeestateinreversion)holdsafutureinterest.Thismeansthatlifetenantsmaynotcommitwaste(causethepropertytobedamaged,legallycompromised,oratriskofforeclosure),whichwouldcompromisetheremainderman’sfutureinterest.Otherwise,though,thelifetenantmayenjoytheirfullbundleofrights,lesstherighttodevise(transferinawill)theproperty.Thisiswhyit’simportanttounderstandlifeestates:lifetenantscansell,


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rent,orotherwisedisposeofthepropertyastheyseefit,byanythingtheysetuprevertsontheirdeath,sincethelifetenantcannotcompromisetheremainderman’sfuturerighttotheproperty.SeveraltyAfreeholdinterest(ownership)heldbyonlyoneperson.Itsrootis"severed";ownershipinseveraltyistheownershipofrealestateseveredfromanyco-owners.Co-OwnershipCo-ownershipisanyfreeholdinterest(ownership)sharedbytwoormorepersons,includingcorporations.Thereareseveraltypes:TenancyinCommonTenancyinCommonisthedefaultformofco-ownership.Co-ownerswhopurchasepropertywithoutspecifyingatypeofownershipownincommon.Ownershipinterestsmaybeequalorunequal,butallco-ownershaveaninterestintheentirepropertythatcannotbecompromised.Itisinheritable.JointTenancyJointTenancyisatypeofco-ownershipthatmustbechosenbyallco-owners,andspecifiedinthedeed.Allownersmustholdfourunities:theunityofpossession(allhaveequalrightofpossession),unityoftime(allpurchasethepropertyatthesametime),unityofinterest(allhaveequalinterestsintheproperty)andunityoftitle(allacquireinthesamedeed),tocreateajointtenancy.Oncecreated,itcreatesarightofsurvivorship.Survivorshipmeansthat,ifoneoftheco-ownersdies,theirinterestisdividedamongstthesurvivingco-owners.Itisthereforenotinheritable.Itcanbeterminatedbythesaleofoneofthejointtenants,agreement(voluntarypartition),orcourtaction(partitionaction).

TenancybytheEntiretyTenancybytheEntiretyisjointtenancyformarriedcouples.Itworksthesameasjointtenancy,butincludescreditorprotections:alimitationonforcedsaleofthepropertytosatisfythedebtsofonespouseonly(debtsmustbeinthecouple'snameforthehometobesold),andanautomatichomesteadprotectionfor$500,000inMassachusetts.Ondivorce,itdefaultsbacktoatenancyincommonunlessthecouplechoosesotherwise.Inseparatepropertystates(includingMassachusetts),tenantsbytheentiretymaysellordeviseseparately,similartojointtenants.Incommunitypropertystates,ontheotherhand,thepropertyacquiredduringmarriagecannotbesoldordevisedwithouttheconsentofbothspouses,sinceitistreatedasthepropertyofbothspouses(evenifonlyoneactuallyboughtit).

CondominiumsCondominiumsareawaytosubdivideabuildingintoseparateunits,creatingfeesimpleownershipofanindividualunits,andsharedownershipofthecommonareas(hallways,elevators,aroofdeck,etc.)astenantsincommon.Moststateshavecondominiumlawsreferredtoasahorizontalpropertyact.Thecondominiumiscreatedviaamasterdeed,whichdescribeshowthebuildinganditscondominiumorhomeowner'sassociation(thebuilding'sgoverningbody)willbesetup.AdeclarationoftrustsetsupaBoardofTrusteestomanagethecondominiumassociation.Bylawsoftheassociationaretherulesofthebuilding.Abuildingthatismadeintocondominiumsisknownasacondoconversion.Eachindividualcondoownerownstheirunitviaaunitdeed,alongwithashareofthecommonareasinproportiontotheirunit'sfairmarketvalue.Ownersareresponsiblefortheirproportionateshareofcommonareaexpenses,andpaythemasmonthlycondofees.


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Ownersthatfailtopaytheircondofeesareatriskofforeclosure.Failuretopaythefeescanresultinthecondominiumassociationplacingasuper-prioritylienforupto6monthsofunpaidfeesagainsttheunit.Thesefeesrunwiththeland(meaningtheyaretheresponsibilityofunit,nottheunitowner),andarebindingonsubsequentpropertyowners.Massachusettsthereforerequiresa6DClosingCertificateforthesaleofeverycondominiumunit.Thiscertificateestablishesthestatusofthecondofeesasofthedatetheunitissold.Watchoutforcommonproblemswithcondobuildings:specialassessments(extracondofeeschargedtorepairorupgradethebuilding),alackofcapitalreserves(moneyheldinareservefundaccountbycondoassociationsandinvestorstopayforimprovementstoaproperty),andlowowneroccupancyrates.

CooperativesCooperativesareanotherwayofstructuringco-ownershipinapartmentbuildings.Inacooperative,acompany(usuallyanLLC)isformedforthelimitedpurposeofprovidinghousingtoitsshareholders.Thepeoplelivinginthebuildingownstockorsharesinthecompany(orstockcertificates),whichgivesthemarighttoaproprietaryleasetotheirunit.Theydonotowntheirunit;instead,theyownthecompanythatrentsthemtheirunit.Thisgivesownersasignificantamountofcontroloverwhatgoesoninthebuilding,atthecostofcedingthesamecontroltotheirneighbors.

Thecooperativewillhaveaco-opboardlikeacondominiumboardoftrustees,andownerswillpaymonthlyco-opfeesforbuildingexpenses,similartocondofees.Bankswilltypicallyacceptstockinacooperativeascollateralforaloan.Becausecooperativesareindirectownership,thesaleandpurchaseofcooperativeunitsaresubjecttooversightandapprovalbytheco-opboard.Itcanbedifficulttobuyandsellco-opunitsbecauseofthislimitation.Thepropertymightalsohavedebtinthenameofthecorporationitself,whichmustbepaidontime,lestthecorporationitselfgointoforeclosure.

Cooperativesaretypicallycreatedtopermittheirresidentstolimitunitownershipinsomelegallypermissibleway,sincethesaleofco-opsharesmustbeapprovedbytheco-opboard.Thisallowsthecreationofhousingforaspecificgroupofpeople,e.g.“artistsonly”housing.Anylimitationoncooperativehousingmustbelegal(watchoutforfairhousinglaw).TrustsTrustsaregenerallycreatedduringaperson'slife(alivingtrust)orontheirdeath(atestamentarytrust).Thepersoncreatingthetrust(trustor)conveyspropertytoatrustee,whocaresforthetrust'sassets(e.g.realestate)onthebehalfofanybeneficiaries(thepeoplewhoreceivethemoneyfromthetrust).Landtrustsarethosetruststhatonlyownrealestate,anddonotincludeotherassets.Oftenthebeneficiaryofthetrustisalsothetrustor,sincethepublicrecorddoesnotnamethebeneficiaryastheowneroftheproperty(andinsteadonlynamesthetrust),creatinganonymity.Theyarealsooftenusedforlandconservation.Landtruststypicallylastforsomelimitedperiodoftime(e.g.25years).

TimesharesAwayofdividingtime,ratherthanspace,intheproperty.Timeshares,ortimesharing,isaformofownershipwheretheowneronlyownsaspecificpartoftheyearinfeesimple,alongwithasharedinterestinthecommonareas.Theownerpaysmaintenancefeesfortheupkeepandmaintenanceoftheunityear-round.Alsoknownasintervalownership,aprepaidvacation,orafloatinguseperiod.

SecuritiesSecuritiesareinvestments(e.g.stocksandbonds).Thereareanumberofdifferenttypesofsecurities:


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Syndicationsarelegalentitiesthatinvestinasinglepiece,orpieces,ofrealestate.Theymaytakemanyforms(partnership,limitedpartnership,corporation,limitedliabilitycompanyorLLC,etc.),andprovideareturnonhowaspecificpieceofrealestateperforms.Corporationsare"corporatepersons"underthelaw,andcanownrealestateinseveralty,orincommonwith"naturalpersons"(actualhumans).Inapartnership,generalpartnersarethosewithamanagementrole,andlimitedpartnersarepassiveinvestors.Onlygeneralpartnershavefullliabilityforthefinancialobligationsofthepartnership;limitedpartnersareonlyliablefortheirinvestedcapital.REITs(realestateinvestmenttrusts)andREMICs(realestatemortgageinvestmentconduits)orREMTs(realestatemortgagetrusts)aremethodsofinvestinginportfoliosofrealestate(REITs)orrealestateloans(REMICs),andprovideareturnthatismeanttotracktheperformanceofthenationalrealestatemarket(oraspecificsubmarket).Whyareweworriedabouttheseinvestments?Becauseapersonmusthaveasecuritieslicensetomarketandsellinterestsinaninvestmentvehiclelikeasyndication;yourrealestatelicensedoesnotenableyoutosellinvestmentinthem.SecuritiesandtheirsaleareregulatedbyFederalandStatelaw,mostnotablyBlue-SkyLawswhichprotectthepublicfromfraudonastate-by-statebasis,thoughhavelargelybeenpreemptedbytheSecuritiesandExchangeCommission(SEC).Non-FreeholdsNon-freeholdinterestsconferthepossessionanduseofsomeone'srealproperty,withouttransferringownership(e.g.renting).Inarental,thelessoristhelandlord,andthelesseeisthetenant.Leaseholds(TenancyforYears,EstateforYears,InterestforYears)–Awrittenconveyanceofthepossessionrealestateforaperiodoftime.Itmustbeinwriting,andhaveanexpirationdate.TenancyatWill–Averbal,or(rarely)written,righttopossesspropertywithoutanyspecifiedtermorstatedinterval.Eitherthelesseeorthelessormayterminatetheagreementatanytime.PeriodicTenancy(TenancyfromPeriodtoPeriod)–Likeatenancyatwill,butwithfixedintervals(e.g.month-to-month).Partiesmayterminateattheendoftheperiod.TenancyatSufferance–Aholdovertenancy(whenthetenantstaysinthepropertypasttheleaseexpiration)withoutthelessor’spermission.Sincethelesseeisatenantatsufferance,andnotatrespasser,thelessormustevictthetenanttoregainpossessionoftheproperty.Remember,thetermsestate,tenancy,andinterestcanbeusedinterchangeably.Theexam(andpeopleinreallife)willuseallthree,andyoushouldbeabletorecognizetermsregardlessofwhichwordisused.Forexample,youshouldknowthat"tenancyincommon"and"estateincommon"meanthesamething.


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LimitationsonPropertyRights

Propertyrightsarenotalwaysunlimited;indeed,inmanycasestheycanbequitelimited.Theterm"encumbrance"isusedtorefertorestrictionsthatlimitrealpropertyrights.GovernmentLimitationsPropertyownersarenotpermittedtodowhatevertheywantwiththeirproperty.Local,state,andfederalgovernmentsstrictlyregulatewhatpropertyownerscandowiththeirproperty.Therearefourbasicgovernmentlimitations(orpubliclimitations)onwhatpropertyownerscandowiththeirrealestate(P.E.T.E.):Policepower–Therightofgovernmenttoregulateprivateactivityifit'sinthepublicinteresttodoso.Inrealestate,policepowerusuallyreferstothelocalzoningordinancesandbuildingcodes.Eminentdomain–Therightofgovernmenttoforcethesaleofprivatelyownedpropertyifitisinthepublicinterest.Thegovernmentmustpaythepropertyownerfairmarketvalueforthepropertyunderthe5thamendmentoftheconstitution.Thelegalprocessfortakingthelandbyeminentdomainiscondemnation.Ifthegovernmenttakesonlyaportionofthelandbyeminentdomain,butnotthewholeparcel,theownermayreceiveseverancedamage.Ifgovernmentactioninanadjacentlotoflandcausesadiminishmentofpropertyvalue,apropertyownercanclaimcompensationunderinversecondemnation.Taxes–Municipalpropertytaxes.Theyaretheprimarysourceofrevenueformunicipalgovernments(thelocaltownorcity).Escheat–Thereversionaryinterestthestatemaintainsinallprivately-ownedproperty.Ifapropertyownerdieswithoutawillorheirs,theirpropertytransferstothegovernment.ZoningOrdinancesZoningisameansofregulatingandcontrollinglanduse.InMassachusetts,thezoninglawsarefoundinChapter40A(theZoningEnablingAct).Comprehensiveormasterplans,draftedbyaplanningcommission,areoftenusedbytownstoplantheirfuturedevelopment.Zoningmightincluderulesabout:Use–Thepurposesthatpropertymaybeusedfor.Forexample,residentialpropertymaybelivedin,whilecommercialpropertymaybeusedforbusiness.Heights–Buildingheights.Setbacks–Thedistancefromlotlinesbeforebuildingispermitted.Lotsize–Theminimumpermissiblelotsize.Bufferzones–Usedtoeasetransitionsbetweenzoningareas(e.g.industrialtoresidentialzoning).Propertiescanalsotakemanyformsunderzoning:Singlefamilyhomes(detachedhomes)–Apropertycontainingoneunitonly.Multifamilyhomes(apartmentbuildings)–Apropertycontainingseveraldifferentunits,butthatisnotsubdivided.Condominiums–Subdividedunitscontainedwithinsharedcommonareas.Cooperatives–Sharedpropertyownedbyacompanyorcorporation.Mixedusedevelopments–Propertiescontainingmultipleuses(e.g.bothretailandresidentialcondominiums).PlannedUnitDevelopments–Mixeduselanddevelopmentsthatareoftenexemptedfromcertainzoningregulations.Therearethreebasicwaystogetaroundzoning:NonconformingUse–Alegalusethatexistedpriortotheenactmentofcurrentzoningordinances.Propertiesaregrandfatheredunderzoningifastructurewaslegalwhenitwasbuilt,evenifzoninghassubsequentlychanged.Variance–Specialpermissiontodosomethingotherwiseforbiddenbythezoningrules.ConditionalUsePermits(SpecialUsePermits)–Thinkofthisasalimitedvariance.Conditionalusepermitsallowause(e.g.commercialorresidential)thatwouldnototherwisebepermittedinanarea,withthecaveatthatyouare


FTRS 18

restrictedtoaspecificusecasethatisdeemedinthepublicinterest(e.g.onlyforasupermarket).Theseareusuallyusedbytownsinsteadofausevariance,andleadtoconverteduseproperties.BuildingCodesDefinebasicrequirementsforconstructionwithoutnecessarilyproscribingimplementation(e.g.youmusthavesmokedetectorsthatmeettheMAstandards,butnotanyspecificbrand).Acertificateofoccupancyshowsthatabuildinghasbeeninspectedandfoundtosatisfythebuildingcodes.Bothstickbuilthomes(homesbuiltonapropertyusingtraditionalconstructionmethods)andmodularhomesorfactorybuilthomes(homesmanufacturedinpiecesinafactory,andlaterassembledonaproperty)arerequiredtomeetthelocalbuildingcodes.Manufacturedormobilehomesaresometimesheldtodifferentbuildingcodestandards,thoughtheymustalsosatisfytheregulations.PropertyTaxesRealestatepropertytaxesaretaxespaidtothetownorcity(themunicipality)whereapropertyislocated.Propertytaxesarecalculatedagainsttheassessedvalue,ortaxvalue,ofproperty.Thisisknownasanadvaloremtax(think"atvalue").Everypropertysubjecttotaxislistedonamunicipaltaxroll,andthetotaltaxescollectablebythemunicipalitywillsometimesbereferredtoasthetaxbaseofthemunicipality.Propertytaxespayforlocalserviceslikeschoolsandtrashpickup.Propertytaxesarepaidinmills(dollarsper$1000ofvalue),expressedasamillagerate.TaxesarepaidonafiscalyearrunningJuly1toJune30,aredue11/1and5/1(or8/1,11/1,2/1,and5/1ifcollectedquarterly).Watchoutforspecialassessments.Theseareaspecialtaxforanybettermentstoyourproperty(improvementspaidforbypublicfunds,suchastownsewerhookups,orsidewalks).Propertyownersarechargedforanassessmentinaccordancetotheirfrontagetothebetterment,overaperiodofyears,withinterest.SpecialDistrictsmightalsobeusedtolevyspecialpropertytaxestospecificlandownersforadditionalservices,e.g.aschoolorpark.

PrivateLimitationsPrivatelimitationsorrestrictions(alsoknownasCC&Rs)arecontractuallimitationsonownershipcreatedbydeedorseparateagreement.Therearetwobasickinds:Covenants–Restrictionscreatedbythedeveloperofasubdivision(apropertydevelopment)orplannedunitdevelopment(amixedusedpropertydevelopment)andrecordedinthecountyregistryofdeeds.Covenantsarebindingonanypropertyownersinthesubdivision.Thedeveloperoranotherownermayenforcethecovenantsbycourtaction,buttheymustusuallybeenforcedconsistentlyanduniformlyagainstallpropertyownersinasubdivisiontoremainlegalandenforceable.Theymustalsobedeemedreasonableandwithinthepublicinteresttobebinding.

Math:PropertyTaxes What is the annual property tax on a $100,000 home that is assessed at 40% of its value in a town with a millage rate of $20 per $1000?

Equation: Annual Tax / ((Assessed Value/1000) x Millage Rate) = 1

Math: $100,000 x .4 = $40,000 $40,000 / 1000 = 40 40 x $20 = $800 in Taxes


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Deedrestrictions–Deedrestrictionsarelimitationswrittenintothedeed.Theycreateafeesimpledefeasibleestate.Iftherestrictionisviolated,thegrantorwhowrotetherestriction(ortheirheirs)hastherighttodemandforfeitureoftitle(meaningownershipwouldrevertbacktothegrantorthatwrotetherestriction).Conditionsrunwiththeland,andarebindingonallsubsequentownersoftheproperty.ConflictsBetweenPublicandPrivateLimitationsIfthereiseveraconflictbetweenprivaterestrictionsandpubliczoning,themorerestrictiverulecontrols.So,ifaprivaterestrictionlimitshomeownersto2.5storybuildings,butpubliczoningallowsupto3stories,thehomeownerwouldbelimitedto2.5stories.EnvironmentalLimitations

Environmentallawsandrestrictionsareofconcerntopropertyowners,especiallyrealestatedevelopers(sincetheyoftenlimitwhatthedevelopermaydowiththeproperty).Anenvironmentalimpactstatementisrequiredtodeterminewhat,ifany,environmentalimpactsadevelopmentmighthaveonanareaunderNEPA(theNationalEnvironmentalPolicyAct),andhowadevelopermighthandlethoseissues.Thereareseveralpiecesofenvironmentallegislationthatimpactrealestatethatyoushouldbefamiliarwith:

ComprehensiveEnvironmentalResponse,Compensation,andLiabilityActof1980(CERCLA)–Commonlyreferredtoasthe“SuperfundAct".Itwasdesignedtocleanupsitescontaminatedwithhazardoussubstances,andtocreateliabilityforthosethatcontaminateproperties.CERCLAcreatedtheAgencyforToxicSubstancesandDiseaseRegistry(ATSDR).ThelawallowstheEnvironmentalProtectionAgency(EPA)toidentifywhoresponsibleforcontaminationofsitesandforcethemtocleanupthesites.Ifnooneresponsiblecanbefound,theEPAcancleanupthesiteusingaspecialtrustfund.LiabilityunderCERCLAgenerallyrunswithownershiporpossessionoftheland,sopropertyownersortenantsnotresponsibleforcontamination,butinpossessionwhenthecontaminationisdiscovered,maystillbeheldliableunderCERCLA.TheSuperfundAmendmentsandReauthorizationAct(SARA)providesfor"innocentlandowner"status,whichallowslandownerswhodidnotcontaminatetheproperty,toavoidliabilityincertaincircumstances.MAOilandHazardousMaterialReleasePreventionandResponseAct(Chapter21E)–MAsuperfundlaw;regulatesthetransportation,storage,anddisposalofoilandotherhazardouswasteinaccordancewiththefederalComprehensiveEnvironmentalResponse,Compensation,andLiabilityAct(CERCLA),OilPollutionAct,andCleanWaterAct.TheActauthorizestheDepartmentofEnvironmentalProtectiontotakeorarrangeforresponseactionswheneverithasreasontobelievethatoilorhazardousmaterialhasbeenreleasedorthatthereisathreatofreleaseofoilorhazardousmaterial.TheActestablishesstrictliability,withlimitedexceptions,forreleasesorthreatsofrelease.TheActalsocreatesanOfficeofBrownfieldRevitalizationwithintheGovernor’soffice.Requires21Ecertificationofoiltanks.TheCleanWaterActof1972(CWA)–Regulatespollutionofnavigable(andconnected)waters.Establishedthegoalsofeliminatingreleasesofhighamountsoftoxicsubstancesintowater,eliminatingwaterpollution,andensuringthatsurfacewatersmeetstandardsnecessaryforhumansportsandrecreation.Limits(andcanprohibit)thefillingofwetlandsandotherpropertydevelopmentnearnavigablewaters(especiallyifthefilling/developmentwouldsubstantiallydegradewaterquality).NationalFloodInsuranceProgram(NFIP)–Establishedbycongressin1968intheNationalFloodInsuranceAct.Requirespropertyownersin"highriskfloodzones"(think:waterfrontproperty)topurchasefloodinsuranceiftheircommunityparticipatesintheNFIPandiftheyhaveafederallybackedmortgage.ItisadministeredbytheFederalEmergencyManagementAgency(FEMA).WetlandsProtectionAct–AMassachusettsstatelawenforcedbytheDepartmentofEnvironmentalProtection(DEP).Requiresabufferzoneof100feetfromwetlands,withminorchangespermittedafter50


FTRS 20

feet(subjecttoDEPapproval).Usually,nochangesmaybemadetothewetlanditself.Wetlandsareareasthatareeitherpermanentlyorseasonallywet,andthesoilandtheplantcommunityhasadaptedtothatwater(e.g.riverbanks,marshes,etc.).CoastalZoneManagementAct(CZMA)–Afederallawdesignedtoprotectcoastalzones(liketheGulfofMexicoorLongIslandSound)fromtheharmfuleffectsofrealestatedevelopment.Itlimits,orcompletelyeliminates,developmentinthosezones.EndangeredSpeciesActof1973–Designedtoprotectcriticallyimperiledspeciesfromextinctionasa"consequenceofeconomicgrowthanddevelopmentun-temperedbyadequateconcernandconservation."Maylimitpropertyuseanddevelopmentifthepresenceofanendangeredspeciesisdiscoveredonapieceofproperty.LEEDCertification–LeadershipinEnergyandEnvironmentalDesign(LEED)isasuiteofratingsystemsforthedesign,construction,operation,andmaintenanceofgreenbuildings,homesandneighborhoodsestablishedin1998.DevelopedbytheU.S.GreenBuildingCouncil(USGBC),LEEDisintendedtohelpbuildingownersandoperatorsfindandimplementwaystobeenvironmentallyresponsibleandresource-efficient.LEEDcertificationalsoprovidesfinancialandpermittingincentivesforenvironmentallyfriendlyconstruction.UnderLEEDbuildingsareratedon100possiblebasepointsdistributedacrossfivemajorcreditcategories:SustainableSites,WaterEfficiency,EnergyandAtmosphere,MaterialsandResources,IndoorEnvironmentalQuality,plusanadditionalsixpointsforInnovationinDesignandanadditional4pointsforRegionalPriority.Buildingscanqualifyforfourlevelsofcertification:Certified:40–49pointsSilver:50–59pointsGold:60–79pointsPlatinum:80pointsandaboveEnvironmentalVocabularyThereareafewtermstobeawareofwhenspeakingaboutrealestateandtheenvironmentthatsometimesappearontheexam:Accretion–IncreaseofpropertybygradualnaturalactionbywindorwaterAlluvion–IncreasingoflandareaalongashorebydepositedalluviumorbytherecessionofwaterAlluvium–Clay,silt,sand,gravel,orsimilardetritalmaterialdepositedbyrunningwaterAeolianSoil–Soildepositedbywind,suchassanddunesorsilt.Avulsion–Thesuddenseparationoflandfromonepropertyanditsattachmenttoanother,especiallybyfloodingorachangeinthecourseofariver.Erosion–Theprocessbywhichthesurfaceoftheearthiswornawaybynaturalaction(e.g.water,wind,etc.)Reliction–AnincreaseofthelandbythesuddenretreatoftheseaorariverOtherPropertyRightConcernsEasementsEasementsarerightsofwayacrossaneighboringproperty.Thepropertywiththerightisthedominanttenement;theoneencumberedbytherightistheservienttenement.Easementsareusuallytherightoftheproperty,notthepropertyowner,andthereforerunwiththeland(transferwhenownershipofthelandtransfers).Rightsofingressarerightsofentrance;rightsofegressarerightsofexit.Thereareseveraltypesofeasements:

Easementsappurtenant–Easementsthatinvolvetwoadjoininglotsofland.Oneownerhasarightofwayacrosstheother’spropertyforsomelimitedpurpose.Easementsappurtenantmaybecreatedinfourways:

1. ByDeed:Theeasementiscreatedinthedeedwhenthepropertyissold.Thiscaneithercomeasaneasementgrantwheretheowneroftheservienttenementgrantstheeasement,oran


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expressreservationwheretheowneroftheservienttenementreservestherighttouseaportionoftheproperty(usuallywhentheythedominanttenementaswell).

2. ByImplication:Thesellerimpliesaneasementbythesaleoftheproperty.Thisoftenoccurswhenthesellerintendedtocreateaneasement,butfailedto.Forexample,ifapropertyissoldwithnolegalaccessroad,butcouldbeaccessedbycrossingthelandsoftheseller,itmightcreateanimpliedeasement.

3. ByNecessity:Ifapropertyownercannotlegallyaccesstheirproperty(“landlockedland”)acourtmightgrantaneasementsothattheownercanaccesstheirproperty.

4. ByPrescription:AneasementacquiredbytheOpen,Notorious,Continuous,Hostile,andAdverse(O.N.C.H.A.)useoftherightofwayformorethan20years.

Easementsappurtenantaredifficulttoremoveonceputinplace.Generally,thereareonlytwowaystoremovethem:bycombiningthetwolotsintoonelargelot(sinceaneasementappurtenantrequirestwolotsbydefinition),orifthepurposeforwhichtheeasementwasgrantedbecomesimpossible(e.g.aneasementwasgivenforroadaccess,andthereisnolongeraroadtoaccess).EasementsinGross–Personaleasementsgrantedinwritingtosomeonewhodoesnotownanadjoininglot(e.g.thesellerofapieceofpropertywritesintothedeedthattheyhavedockrightsontheproperty).Easementsingrossautomaticallyextinguishwhenthepersonholdingtherightpassesaway.LicensesPersonal,revocableandnon-assignablepermissiontoentersomeoneelse'spropertyforaparticularpurpose(e.g.ticketholdersinsportingevents).EncroachmentsTheintrusionofanimprovementonaneighboringproperty(e.g.amisalignedfence).Failuretotakeactionagainstanencroachmentmayresultinalossoftheland(againviaO.N.C.H.A.witha20-yeartimeframe).FinancialLimitations(Liens)Financiallimitations,orliens,arelimitationsonyourownershipassociatedwithdebtsorpaymentobligations.Theycaneitherbevoluntary(takenonwillingly),orinvoluntary(imposedbyathirdparty).Liensareusuallypaidaccordingto,"firstintime,firstinright,"meaningthatthefirstlienputinplaceispaidfirst,andsoon.Ageneralliencoversallpropertyofthedebtor(bothrealandpersonal);aspecificlienonlycoversthepropertyidentifiedbythelien(e.g.ahome).VoluntaryLiensVoluntaryliensmakeapieceofpropertycollateralforsomedebt.Theytypicallytaketwoforms:Mortgage–Usedwhenborrowingmoneyfromabank,usuallyforthepurchaseofrealestate.Theborrower(mortgagor)givesthebank(mortgagee)therighttoselltheirhomeiftheydonotpaytheloan(evidencedinanote,orIOU).Themortgageisalienagainstthepropertyinmoststates(thoughnotall;pleaseseetheFinancingsection).InstallmentSalesContract(ConditionalSalesContract,ContractforDeed,LandContract)–Similartorenttoown.Theseller(orvendor)entersintoacontractwiththebuyer(orvendee),whichstatesthatthebuyerwillmakepaymentsuntilthesellerhasbeenfullypaidfortheproperty.Whenthecontractisfullypaid,thebuyerreceivesadeedtransferringownershipoftheproperty.Underthecontractthebuyerholdswhatiscalledequitabletitle,orafuturerighttoacquirelegaltitle(ownership)totheproperty.Ifthebuyerdefaultsonthecontract(usuallybynon-payment),thesellerkeepsanymoneythebuyerhaspaid,andthebuyerdoesnotreceivetitletotheproperty.

InvoluntaryLiens


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Involuntaryliensareclaimsagainstthepropertythatareimposedbysomethirdparty(usuallythegovernment,oracourt).

PropertyTaxLiens–Claimsagainstpropertyformunicipalpropertytaxes.Propertytaxesrepresentaspecificprioritylienagainstrealestate.Thismeansthatthetaxesarepaidfirstintheeventofforeclosure,aheadofallotherlienholders.Ifapropertyownerdoesn'tpaytheirtaxes,thetownorcitythepropertyislocatedinwillforecloseontheproperty,andprovidethepurchaserwithabargainandsaledeedoracertificateofsale.InMassachusetts,propertyownershaveanstatutoryrightofredemption(alsocalledanequityorequitablerightofredemption),ortherighttopaytheirdebtandregainownershipoftheirhome,thatextendsoneyearfromthedateofsaleatforeclosure.Thismeansthat,afterahomeissoldattaxforeclosure,thehomeownerhasafullyeartopaytheirunpaidtaxes(plusinterest)togettheirpropertyback.FederalTaxLiens–Liensplacedagainstapersonforunpaidincometaxes.Theyaregeneralliens,andareusedbytheInternalRevenueService(IRS)torecouptaxrevenue.EstatetaxliensareatypeofFederalTaxLienusedbytheIRStosecureanestate'staxpayments.Mechanic’sLiens–Aprotectionforcontractors.Theyareallowedtoplacealienagainstapropertyforworktheydid,andweren'tpaidfor.Thisonlyappliestoworkdoneonrealestate;personalpropertyisnoteligibleforamechanic'slien.Amechanic'slienisanexampleofacloudontitle,oranissuewithownershipthatmightcreateproblemsduringarealestatesale.Judgments–Thefinalrulingbyacourtoflawaboutwhowins,andwholoses,acourtcase.Oftencomeswithanawardofdamages,ormonetarycompensationfortheharmsufferedbytheplaintiff(personbriningthesuit).Ifthedefendant(personbeingsued)can'tpaythejudgment,thecourtwilloftentaketheirproperty,sellitinasheriff'ssale,andsatisfytheplaintiffwiththeproceedsfromthesale.Attachments–Acourtorderseizingpropertyforusesatisfyapossiblefuturejudgment.Thedefendantstillownstheirproperty,butthepropertyisattachedtothelawsuit;ifthepropertylaterchangesownership,itisstillcoveredbythelawsuit,andmaybesoldtosatisfyajudgment.Alispendensisrecordedtoinformthepublicthatthepropertyissubjecttolitigation.


FTRS 23

PropertyValuation

Howmuchispropertyworth?Ultimately,it'sonlyworthwhatabuyerwillpayforit,sorealestatevaluesaredeterminedbythebuyer(andthemarketingeneral).Howmuchwillbuyerspay?Nowthat'satoughquestion!Infact,it'ssotrickythatthereisanentireprofessiondedicatedtoansweringit.Thepeoplewhoestimatewhatbuyerswillpayforrealestateareknownasappraisers.Theirestimatesofvalueareknownasappraisals.Appraisersmusthaveanappraisallicensetomakeanappraisalforanyfederallyrelatedtransactions(most,ifnotall,realestatetransactions)perTitleXIoftheFinancialInstitutionsReform,Recovery,andEnforcementActof1989.Realestateagentscanonlymakecomparativeorcompetitivemarketanalyses(usuallyaspartofalistingpresentation)orbrokerpriceopinionstodeterminelistingprices(usuallybasedonrecentsalepricesbythesquarefoot).Appraisalsareimportanttounderstandduetotheirrelationshiptofinancingandtaxes,andaregovernedbytheUniformStandardsofProfessionalAppraisalPractice(USPAP).HowanAppraiserEstimatesRealEstateValueTherearethreebasicapproachestoevaluatingthevalueofapieceofrealestate.Theyarethesalescomparisonapproach,theincomeapproach,andthecostapproach.Allappraisalsfollowasimilarprocess.First,theappraiserdefinestheproblem(whatrights,realestate,anddefinitionofvalue/limitingconditionsarebeingconsidered).Second,apreliminarysurveyisordered,andanappraisalplanismade.Thismightincludethedataneeded,anypersonnelandtimerequired,andafeeproposal.Theappraiserthencollectsinformationaboutthegeneralmacroeconomicclimate,areaeconomicdata,specificinformationaboutthepropertyinquestion(e.g.titleandrecord,physicalcharacteristics,improvements),andcomparativeproperties(comps,whicharelocalsales,rentals,etc.fromthepastsixmonths).Ahighestandbestuseanalysisisdone(isthepropertybeingusedefficiently,orcoulditbebetterputtouse?),andthelandisvalued.Theimprovementsonthelandarevaluedbasedonthethreeapproachestovalue,thefindingsofanymethodsusedarereconciled(theappraiserweighseachfindinganddeterminesthemostappropriatevalue)inthereconciliationstep.Theappraiserthenreportstheirestimateofvalueisgivenineithernarrativeform(awrittenreport)orviaaUniformResidentialAppraisalReport(URAR,orFannieMae/FreddieMacForm1004).

WhatisValue?Valueishowmuchaready,willing,andablebuyerwillpayforsomething.Therearemanyfactorsthatimpactanappraiser’sestimateofvalue.TheelementsofvalueareD.U.S.T.:Demand–Thenumberofpeoplethatwanttobuytheproperty(andareactuallyableto).Utility–Something’susefulness.Themoreusefulitis,themoredemandthereis.Supply–Themoreplentifulsomethingis,thelessitisworth(andviceversa).Transferability–Sellablerealestatemustbefreefromcloudsontitle(issueswithownership).Thisisknownashavinggoodandcleartitleormarketabletitle.Realestatewithtitledefectsisdifficulttosell,andthushasmarginalvalue.Thereareseveraltypesofvalueforrealestate:MarketValue–Thetheoreticalpriceawilling,informedsellerwouldacceptandawilling,informedbuyerwouldpayinanarms-lengthtransaction(asalewithnocollusionbetweenthebuyerandseller).Alsoknownasfairmarketvalue.MarketPrice-Theamountactuallypaidinthemarket.Value-in-Use-Thevaluetoaparticularuserofaproperty(e.g.farmvaluevsrawrealestatevalue).Cost-Thetotalcosttobuildaproperty.InvestmentValue–Thevalueofapropertyforinvestors.InsurableValue-Thevalueofapropertyforinsurance.TheComprehensiveLossUnderwritingExchangeorCLUErecordspastconsumerclaimsthatareusedinhomeowner'sinsuranceunderwriting.AssessedValue–Thetaxvalueofaproperty.LiquidationValue–Theforeclosurevalueofaproperty.


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ThePrinciplesofValueBelowaresomeofthevocabularytermsthatappraisersusewhenvaluingrealestate.Youwillsometimesseethesereferredtoastheprinciplesofvalue.Change-Realestatevaluesarecyclical,andchangeovertimeinresponsetothegeneraleconomicclimate,interestrates,inflation,employment,etc.Anticipation–Thebenefitapropertyownerexpectstoreceiveovertheirlifetimeofownership.Anexampleisifsomeonebuysapropertyfor$60,000,andexpectstosellitfor$300,000.Substitution–Buyerswillnotpaymoreforsomethingthantheyhavetopayforacomparablegood.Theeffectofthisisthatpropertyownerscan'tchargemuchmorefortheirpropertythanthesurroundingpropertiesaresellingfor.Progression/Regression–Theincrease(appreciation)ordecrease(depreciation)inyourpropertyvaluecausedbysubstitution.FourStageLifecycle–Propertieswillgothrough4stages:growth,stability,decline,andrevitalization.Balance–Thenotionthatvalueiscreatedandmaintainedwhenthereisequilibriumintheamountandlocationoftypesofrealestate.Forinstance,alossinvaluemightoccuriftherearefewerservicesandagenciesthanacommunityneeds,ormoreservicesoragenciesthanacommunitycansupport.Conformity–Theideathatmaximumvalueisachievedwhenapropertyismoreorlessinlinewithotherthesurroundingproperties.Contribution–Additionalinvestmentinapieceofproperty(asmeasuredbytheincreaseinvalue).IncreasingandDecreasingReturns–Moneyspenttoimproveapropertymaynotaddvalue(thisisafunctionofsubstitution).Ifyouhavespenttoomuchitisover-improvement;notspendingenoughisunder-improvement.Competition–Profitsattractcompetition.Competitionincreasessupply,whichdrivesdownprice(andthecorrespondingprofits).Itisassumedthat,infreemarkets,profitwilleventuallybedriventozerobycompetition.ConsistentUse–Thisprinciplestatesthat,whenimprovedlandisinastateoftransitiontoanotherhighestandbestuse,itcannotbeappraisedwithoneuseforthelandandanotherusefortheimprovements.HighestandBestUse–Theideathatpropertieswillbeoptimizedtotheirmostoptimaluseovertime.Thehighestandbestuseisthatmostoptimaluse.PlottageValue–Anincreaseinvalueassociatedwithassemblage(thecombinationofmultiplesmallpiecesoflandintoonelargeparcel).

InfluencesonPropertyValueThereareanumberofbasicforcesthatinfluencethevalueofrealestate.Theyarefairlyintuitive:SocialTrends–People'swantsanddesires.Impactedbydemographictrends,familysizes,environmentpreferences,crimerates,etc.Economic–Theabilityofpeopletobuyhomes.Impactedbyemployment,inflation,interestrates,etc.Realestatetendstofollowmarketcycles(characterizedbyacycleofrecovery,expansion,oversupply,andrecession).GovernmentandLegal–Whatyoucanlegallydowiththeland.Themoreusefulitistomorepeople,themoreitisworth,andvice-versa.Impactedbyzoning,buildingcodes,environmentallaws,etc.EnvironmentalandPhysical–Location,location,location!Think:proximitytotransportationandhighways,naturalresources,climate,views,etc.

TheThreeWaystoValueRealEstateSalesComparisonApproachThisisthemostcommonappraisalanalysis,whereanappraiserlooksatrecentcomparablesales("comps")anddeterminesthevalueofapropertybasedonthosesales.Itismostusefulformidliferesidentialpropertiesandlandsales.YouwillalsoseeitreferredtoastheMarketDataApproach.Comparablesalesshouldbelimitedtopropertieslocatedinthesameareaasthesubjectproperty(thepropertybevalued)thatweresoldinthelast6months.


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Takeasituationwheretheappraiserisevaluatingthevalueofa3-bedroomhome.Inoursimplifiedexamplebelow,theyfind2similarsalesthataresimilartothesubjectproperty,exceptthattheyeachhaveadifferentnumberofbathrooms.Theappraiserwoulduseavailablepricingdatatodeterminetheestimatedvalueofabathroominthisarea(forourexample,let'ssay$10,000),andwouldadjustthecomparablepropertiestodeterminetheirvalueiftheyhadthesamenumberofbathroomsasthesubjectproperty.Itwouldlooksomethinglikethis: SubjectProperty Comp#1 Comp#2Bathrooms 2 1 3SalesPrice N/A $150,000 $170,000Adjustments N/A +$10,000 -$10,000AdjustedPrice $160,000 $160,000 $160,000

Obviously,ourexampleisextremelysimple.Inreallifetherewouldbemanymoreadjustments,andtheappraiserwouldhavetodoaweightedaverageoftheadjustedpricestodeterminethefinalestimatedvalueofthesubjectproperty.InvestmentValue(TheIncomeApproach)Thereareseveralbasicwaystoestimatethevalueofapropertytoinvestors.Beforediscussingthem,itisimportanttohaveabasicunderstandinghowpropertyfinancialsarehandled. AnnualPropertyOperatingData(APOD)sheetsshowtheannualincomeofarentalproperty.Thinkofthemasprofitandlossstatementsforinvestmentproperties.ForthepurposesofAPODsheets,municipalpropertytaxesandpropertymanagementfeesareoperatingexpenses(deductiblecostsassociatedwithrunningtheproperty).Debtservice(mortgagepayments)andcapitalexpenditures(alsoknownascapitalimprovements,theseareimprovementsonthepropertye.g.renovations,systemreplacements,etc.),arenotoperatingexpenses.SampleAPODSheet

PotentialGrossIncome(PGI)

-Vacancies=

EffectiveGrossIncome(EGI)-OperatingExpenses

=NetOperatingIncome(NOI)

-DebtService-CapitalExpenditures

=CashFlowBeforeTaxes(CFBT)

-Taxes=

CashFlowAfterTaxes(CFAT)

Withthatoutoftheway,wecandigintothedifferentwaystovalueinvestmentproperties:TheGrossRentMultiplierGRM(the“grossrentmultiplier”)ishowmanymonthsofgrossrentittakesforapropertytopayforitself.Itcanbeeitheramonthlyorannualnumber.Tofindoutifapropertyisagoodvalue,aninvestorwouldlookatrecentrentalpropertysalesinanarea,andcalculatehowmanymonth'srentitwouldtaketopayfortheirsalesprices.Theinvestor


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canthenusethatinformationtodetermineifaninvestmentpropertyisagooddeal(istheGRMlower,orhigher,thansimilarpropertiesaregettinginthearea?),andhowmuchtheyshouldoffer(basedonthemultipleoftherent).NotethatGRMisaverysimplenumber.Itdoesn'ttakeintoaccountoperatingexpenses,whichcansignificantlyimpactaninvestor'sreturn.Itisthereforeonlyusefulwhencomparingsinglefamilyhomestoothersingle-familyhomes(andeventhen,itisoflimiteduse).

TheCapitalizationRateThecapitalizationrate(orcaprate)isthepercentageofaproperty'svalueaninvestorcanexpecttoreceiveasnetoperatingincome(incomeafterexpenses)everyyear.Itisacommonlyusedmetricamongrealestateinvestors,sinceitprovidesaquickwaytodetermineifaninvestmentpropertyisworthinvestigating,orifitispricedfaroutoflinewiththemarket.ItisoftenmoreusefulthanGRMbecauseittakesintoaccountthecostsofrunningtheproperty.

Ifapropertyisworthlookingataninvestormightthenperformamorein-depthanalysisoftheproperty'sfinancials(e.g.adiscountedcashflowanalysis),butthecaprateisoftenusedtogetaquickreadonaninvestment'spotential.

CashonCashReturn

Thecashoncashmethodissimilartothecaprate,exceptthatitisthereturnonaninvestor'scashinvestmentintheproperty,ratherthantheproperty'stotalvalue.Thisgivestheinvestorametrictodeterminehowthe

GRM Math

Equation: Sales Price / Gross Rent = GRM How much is a house renting for $1000 a month worth if the average monthly GRM in an area is 200? Answer: $1000 x 200 = $200,000

Cash on Cash Return Math

Equation: Cash Flow / Dollars Invested = Cash on Cash Return How much is a property with cash flows of $20,000 retuning on an investment of $150,000? Answer: $20,000 / $150,000 = 0.13 or 13%

Cap Rate Math

Equation: NOI / Sales Price = Cap Rate How much is a property with an NOI of $10,000 worth if properties in the area have an average cap rate of 5%? Answer: $10,000 / .05 = $200,000

What is the cap rate for a property with an NOI of $5,000 and a value of $100,000? Answer: $5,000 / $100,000 = .05 or 5%


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propertyisperforming,comparedtotheirinvestmentgoals,orcomparedtootherinvestmentsonthemarket.Cashoncashreturnisthepercentageofyourtotalinvestmentreceivedasannualcashflow(usuallybeforetaxes).TheCostApproachThecostapproachusesconstructioncoststodeterminepropertyvalue.Itisusedforbuildingsandimprovementsthatlackadequatesalescomparisondata;theyareunique(churches,historicalbuildings,etc.),orbrandnew,andthereisthereforealackofcomparableproperties.Sincethesepropertiesoftenalsolackincome,thecosttobuildthepropertyisused.Thismethodcanalsobeusedtodetermineifarealestatemarketmightbegintoattractcompetitionintheformofnewconstruction;ifexistingpropertiesaresellingforthesameas,ormorethan,thecostofnewconstruction,expectcompetition!Notethat,fornewproperties,constructionwarrantiesareoftengiventobuyersforshortperiodsoftimetocoverconstructiondefectsinnewlyconstructedproperties(thereisnolegallyrequiredtimeframe,andthewarrantyisbasedonthecontract).Tovalueapropertyusingthecostapproach,anappraiserestimatesthenewcostofareproductionorreplacementoftheproperty'simprovementsattoday'sprices.Theappraiserthensubtractsfromthatnumberthedepreciation(lossinvalue,assumingthepropertyisnotnew)tocometoanestimateofthevalueoftheimprovements.Thevalueofthelandisthencalculatedusingthesalescomparisonapproachandaddedtothecosttoreachafinalvalue.Themathtodeterminethefinalvalueviathecostapproachisrelativelystraightforward.Anappraisermightcalculatethefollowing:$520,000 Estimatedreplacementorreproductioncost-$60,000 Lessdepreciationcosts$460,000 Estimatedimprovedvalueoftheproperty+$92,000 Plusestimatedlandvalue(calculatedviathesalescomparisonapproach)$552,000 FinalestimatedpropertyvalueEstimatingReplacementandReproductionCostsComparative-UnitMethod–Thecostofrecentlyconstructedsimilarpropertiesdividedbytheirsquarefootagetoproduceapricepersquarefootcostofconstruction(Price/SquareFeet=PricePerSquareFoot).Thisisthereplacementcost.Usingthismethod,wecanestimatethecostofbuildingasimilar,butnotexactlythesame,property.

Unit-in-PlaceMethod–Evaluatesthevalueofsystemsandcomponents(e.g.theroof,HVACsystem,etc.)intheproperty.Usedforboththereplacementandreproductioncost.QuantitySurveyMethod–Determinesthecostofrebuildingthepropertyexactlyasitappearstodayusinglocalconstructioncosts,supplycosts,permittingcosts,etc.Itisusedforthereproductioncost,andtriestoestimatethecostofcreatinganexactreplicaofthesubjectproperty.EstimatingDepreciationCostsRemember,allofthemethodsaboveestimatethenewpropertyvalue.Ifthepropertyisnotnew,theappraisermustdealwithanylossinvalueassociatedwiththeagingoftheproperty,knownasdepreciation.Accrueddepreciationisthedepreciationthathasalreadyoccurredwhenthepropertyispurchased,whileremainderdepreciationwilloccurafterpurchase.Thestraight-linemethodofcalculatingdeprecationcalculatestheannuallossin

Square footage is based on Gross Living Area (GLA), not the total space in the property. Gross Living Area is all of the finished, heated, and above grade parts of the property. Garages, sunrooms, etc. might not count towards GLA.


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valuebasedonsomeeconomiclifefortheproperty(usuallytheIRSeconomiclivesof27.5yearsforresidentialproperty,or39yearsforcommercialproperty),whilethecosttocuremethodcalculatesthedepreciationcostsbasedonhowmuchitwillcosttorepairanycurabledepreciation(depreciationtheownercanfix)ontheproperty,plusanyincurabledepreciation(depreciationtheownercannotfix).PhysicalDeterioration–Costsassociatedwithaging,physicalwearandtear,anddeferredmaintenance(e.g.aleakyroof).Physicaldeteriorationisatypeofcurabledepreciationbecausethepropertyownercouldfixtheseissuestoimprovetheproperty'svalue.FunctionalObsolescence–Alossofvalueduetoapoororiginaldesign,outdateddesign,orchangesinbuildingstandardsandmarketpreferences.Functionalobsolescenceisalsoatypeofcurabledepreciation.Examplesmightinclude:Aseven-storybuildingwithnoelevator,asix-bedroomhomewithonlyonebathroom,aretailspacewithoutparking,etc.EconomicObsolescence–Alossinvalueduetoexternal(“economic”)factorsthathaveanegativeeffectonthevalueoftheproperty.Thisisanincurabledepreciation(unfixable)becausethepropertyownercannotfixit.Examplesmightinclude:changesinzoning,highforeclosureratesinthearea,thelossofpublictransportation,etc.


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Contracts

Contractsarelegallybindingagreementsbetweentwoormorepartiesagreeingtodo,ornotdo,someact.Tobeelevatedtothestatusofacontractanagreementmustmeettheessentialsofacontract:

• OfferandAcceptance,asevidencedbyeithersignaturesoraction.ElectronicsignaturesarebindingpertheFederalElectronicSignaturesinGlobalandNationalCommerceAct(UETA),andthecorrespondingMassachusettsUniformElectronicTransactionsAct(E-Sign).

• Consideration,orsomethingofvalue,exchangedbetweentheparties.Considerationmustbesufficient,thoughitsvaluedoesn'tmatter.Valuableconsiderationismoney;goodconsiderationmightbeservicesoranyotherthingdeemedvaluablethatisnotmoney.

• Legalobjectmeansthatthepurposeofthecontractmustbelegal.Acontracttodosomethingillegalisnotacontract.

• RealityofConsentandCompetence,orfreedomfrommisrepresentation(misstatementofthefactswithoutintenttodeceive),fraud(deliberatemisrepresentation),undueinfluence(unfairadvantageorinfluenceoveranotherduetotherelationshipbetweentheparties),orduress(thethreatofphysicalinjuryoranyotherthreat).Partiesmustalsobecompetent(sober,ofsoundmind,andoflegalageoranemancipatedminor).

Avalidcontractisacontactthathasalloftheessentialelementsofacontract.Validcontractsarelegallybinding.Voidorvoidablecontracts,ontheotherhand,sufferfromsomeproblem.Voidcontractsareinvalid,e.g.contractstocommitanillegalact,orthatlackconsideration.Theyarenotlegallybinding.Voidablecontractsmaybevoidedbyacourtoflaw,buttheymayalsobeenforcedbythepartythatwasharmedbytheircreation;e.g.acontractwithsomeonewhowasintoxicated,oraminor(notethatlackofconsentorcompetencerendersacontractvoidableratherthanvoid). Contractsmayberenderedunenforceableifacourtdeemsthemunfair,impossible,orotherwiseunenforceable.TheDoctrineofLachesistheideathatyouloseyourrightsifyoufailtoassertthemwithinareasonabletimeframe,andcanalsobeusedtorenderacontractunenforceable.

Anypromisesmadeinacontractcanbeunilateralorbilateral.Unilateralcontactsarethoseinwhichonepartymakesapromisetodosomething,whiletheotherdoesnotnecessarilymakeanypromise(e.g.thelistingcontract).Bilateralcontracts,ontheotherhand,involveasimultaneousexchangeofpromises(e.g.a12-monthlease).Executorycontractsarecontractsthathavebeenagreedto,butnotyetcompleted.Executedcontractsarecompletedandfinished.Don’tconfusethetermexecutedwithsigned(accepted).Contractscanbeassigned,whichisthetransferofaparty'srightsandobligationstoanotherparty.Theassignor(personassigningthecontract)isnotrelievedoftheirobligationsshouldtheassigneefailtoperformunderthecontract.

ContractViolationsThepurposeofcontractsistoprovidearemedyintheeventoneofthepartiestothecontractdoesn'tdowhattheyagreedto(knownasabreachofcontract).Therighttosueunderacontractarisesfromthedoctrineofprivity(privityofcontract).Intheeventofabreachofcontract,theinnocentpartymaydemandanynumberofthingsinacourt:Recission–Acancellationofthecontract.SpecificPerformance–Acourtorderforcingthepartyinviolationofthecontracttocomplywithitsterms(commonlyusedifasellerattemptstobackoutofasale).Itisatypeofinjunctiverelief(acourtorderedact,oracourtorderedcessationofanact).Damages–Monetarycompensationfortheharmsufferedasaresultofthebreachofcontract.LiquidatedDamages–Apre-agreedamountofmoneypaidintheeventofabreachofcontract.Forfeiture–Atypeofliquidateddamages;thelossofadepositmadeduringthecreationofthecontract(usuallythebuyer'searnestmoneyorescrowdepositinarealestatetransaction).


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CommonClausesThereareahandfulofcommoncontractclausestobeawareof:IroncladMergerClause(IntegrationClause,MergerClause,EntireAgreementClause)–Statesthatanyotheragreementsoutsideofthewrittencontract(e.g.verbalstatementsatclosing)shallnothaveanyforceoreffect,andthatthereisnoprioragreementinplace.SeverabilityClause–Statesthatifaportionofthecontractisvoided,therestofthecontractshallremainineffect.ContingencyClause–Makestheagreementcontingent(reliant)onsomethingoccurring.TypesofRealEstateContractsListing/Buyer'sContracts

Realestatelistingcontracts(orbrokeremploymentcontracts)arethecontractusedtohireanagenttosellahome.Listingagreementsarenegotiable,butusuallycoverwhatpropertythebrokerisselling,whattheywillbepaid(asaflatfeeorpercentageofthesalesprice),thebroker'sauthority(regardingforsalesigns,co-broking,etc.),andthedeadlineforthesale(thelisting'sexpiration).Amultiplelistingclausepermits(orrequires)cooperationwithotherbrokersviatheMLS(multiplelistingservice).Listingagreementstypicallytakethreeforms:FlatFeeListing(EntryOnlyListing)–Alistingwheretheagentispaidafixedfee,ratherthanapercentageofthesalesprice.UsuallythisisinreturnforlistingthepropertyonMLS,andtheagentdoesnotshowthepropertyornegotiateasale.OpenListing–Inanopenlistingthesellerhiresmultiplebrokerswhoallworkcompetitivelytoearnthecommissionbasedonthetermsspecifiedinthelisting(eitherverbalorwritten).Nocommissionisearnedifthesellerfindsabuyerwithoutabroker'shelp.ExclusiveAgency–Anexclusiveagencyiswherethesellerorbuyerhiresonebrokerwhoearnsthecommission,andwhomayco-brokewithotherbrokerswithpermissionoftheowner.Exclusivelistingsmustbeinwritingandhaveanexpirationdate.Likeanopenlisting,nocommissionisearnedifthesellerfindsabuyerwithoutthebroker'shelp.Inmoststates,exclusiveagencymustbeinwriting,andhaveaspecificexpirationdate. ExclusiveRighttoSell–Anexclusiverighttoselliswhereonebrokerishiredtosellaproperty,andtheywillearnacommissionevenifownersellsthepropertyduringthecontracttermwithoutthebroker'sassistance.Anexclusiverighttoselloftencontainsasafetyclause(sometimescalledaprotectionorextenderclause)thatstatesthatthebrokerisowedsomeportionoftheircommissionifthepropertysellsshortlyafterthecontractexpires,topreventthesellerfromwaitingoutthecontracttoavoidpayingacommission.Inmoststates,exclusiverightstosellmustbeinwriting,andhaveaspecificexpirationdate.

Notethatbuyer’sagencyagreementsoftencoverexclusivity(canthebuyeronlyworkwithonebroker,ormany?),butnotpayment.Theconventionisthatthebuyer’sagentisn’tpaidbythebuyerdirectly,andisinsteadcompensatedwithasplitofthelistingagent’scommission.Thesplitofthecommissionisnegotiablebetweenthetwobrokers.Nothinglegallypreventsthebuyerfrompayingbrokerdirectly,butonthelicensetesttherealestatecommissionisalwaysacosttotheseller.OffersThelistingisasolicitationforoffers.Notethatthelistingisnon-binding;thesellerneednotacceptanyoffertheyreceive.Undertheoffer,thebuyeristheofferor,andtheselleristheofferee.Thesellersignsanoffertoacceptit(remember,verbaloffersandacceptancesarenon-bindingpertheStatuteofFrauds),whichcreatesacontracttoenterintoapurchaseandsalecontractwithinacertaintimeframe(usually10-14days).Thereisnopriorityamongoffers;thesellermayacceptwhateveroffertheychoose.However,oncetheyacceptanoffer,theymustperformunderthetermsoftheoffer,andcannotunilaterallycancelitwithoutcause.Typicallyspeaking,timeisoftheessence,meaningthattimelyperformanceunderthecontractisrequired.


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Asidefromacceptance,offersmaybeterminatedbyanyofthefollowing:

• Atendoftimelimitstatedintheoffer.• Thedeathofeitherpartytotheoffer.• Thedestructionoftheobjectofoffer(e.g.thehouseburningdown).• Thewithdrawaloftheofferbeforeithasbeenacceptedinwriting.• Counter-offer(counteroffersautomaticallyvoidtheoriginaloffer).

Agencyrelationships(theagentgetsfired,losestheirlicense,etc.)havenoeffectontheoffer.Insometransactions,youwillbepresentedwithashorteddocumentknownasabinderoraletterofintent,thatservesasimilarpurposetotheoffer.

PurchaseandSalesContractsThepurchaseandsalecontract(P&S)istheagreementabouthowthesalewilltakeplace.Purchaseandsalescontractsoutlinetheobligationsofthebuyerandtheseller,anycontingencies(e.g.financingcontingencies,escapeclausespermittingthesellertocontinuemarketingthepropertywhileitisundercontract,inspectioncontingencies,etc.),andthedateofclosing(saleoftheproperty).Thebasicessentialsofvalidpurchaseandsalesincludethefollowing:

• Thenamesofthebuyersandsellers• Legaldescriptionofrealty(i.e.itsaddress)• Offerandacceptance(inwritingpertheStatuteofFrauds)• Consideration(oftena5%depositforthebuyer)• Thetermsandconditionsagreedonbytheparties• Anycontingenciesnegotiatedbythebuyerorseller• Thedateofperformance(closing)

AftertheP&Sissigned,thebuyerandsellermayamenditbyattachingaseparateagreement(arider),orbywritinginnewtermsandinitialingthechangestotheagreement.

OptionsOptionsaretypeofcontractthatyoumightencounter,thoughrarely.Theyarewrittencontractswheretheownerofapieceofproperty(optionor),inexchangeforconsideration,grantsanotherparty(optionee)therighttopurchaseorleasepropertywithinacertaintimeframeatpre-agreedterms.Theoptioneemaythenchoosetoexercisetheoption(purchaseorleasetheproperty),ornot,duringthattimeframe.Thereisnoobligationtoexercisetheoption.Optionsmaybeassignedwithouttheconsentoftheoptionor.Theymightbeusedtobuytimeforadeveloperwhoneedstogainfinancing,orforatenantwhoisinterestedinrentingbeforeowningto“tryout”thehome.Anagentwhobringsanoptionee,ratherthanabuyer,willonlyearnacommissioniftheoptionisexercised(thesalegoesthrough).RightsofFirstRefusalArightoffirstrefusalgivesaprospectivebuyertherighttomatchanyoffersmadeonaproperty,andtopurchasethepropertyattheofferedpriceinlieuoftheoriginalofferor.Thatsaid,therightdoesn'tgivethebuyercontroloverwhatpriceortermsthepropertysellsfor;theyarelimitedtomatchingthebestoffermadeontheproperty.Unlikeoptions,rightsoffirstrefusalallowtheownertotrackthemarketandensurefairmarketvalue,andtochoosenottosell. PowerofAttorney


FTRS 32

Apowerofattorneyisawrittendocumentthatallowssomeonetoactinalegallybindingwayonbehalfsomeoneelse.Itcreateswhatisknownasanattorney-in-fact,andisoftenusedtoallowarealestateagenttoattendaclosingandsigndocumentsonbehalfoftheirclient.


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SampleExclusiveRighttoSellListingAgreementThisEXCLUSIVERIGHTTOSELLAGREEMENTisherebyestablishedbetweentheSELLER,__________________________________________________________________________,OwnerofthepropertywithadescriptionbelowandtheBROKERAGE,_________________________________________________.Theagentwhosignswillbeprimarilyresponsibleforfulfillingtheobligationsofthebrokerageonbehalfofthebrokerage.Forthepurposesoffindingabuyerfortheproperty,theBrokerageis,underthetermsofthisagreement,giventheexclusiverighttoselltheproperty.TheSELLERfurtheraffirms,thatasoftheSigningDateofthisagreement,thepropertyisnotcurrentlyunderagreementwithanyotherrealestatebrokerage.

TIMEPERIODOFAGREEMENT(a) Period.TheperiodshallcommenceatnoonoftheSigningDate,andconcludeatnoonoftheExpiringDate.(b)SigningDate.Thisagreementwillbeeffective,andallthetermsshallbeineffect.TheagreementwillproceedonthedatethatitissignedbyboththeSELLERandthebrokerage.2.REALPROPERTY.Thepropertypertainingtothisagreementincludesalltherealestateinthedescriptionbelow,andanypersonalpropertyspecifiedthereafter.Address:__________________________________________________________________________________________________________________City________________________________________________________State________________________Zip_____________________________Plat:Lot__________________________________Block__________________________________PID#________________________________ThePropertymaybeidentifiedinDeedBook__________________________________onPage#___________________________3.FIXTURES.Anyitemsattacheddirectlyorindirectlytotheproperty,areincludedinthepurchaseprice.AnythingtheSELLERdoesn’twantincluded,butthatarepresentlyattached,pleaselistbelow:______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________4.PERSONALPROPERTY.TheselisteditemsofpersonalpropertyareconveyedtotheBUYERatnovalueandfornoconsideration:______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________5.WARRANTY.TheSELLERagrees______,doesNOTagree______,toprovideahomewarrantyforaperiodmutuallyagreeduponbytheSELLERandtheBUYER.6.LISTINGPRICE.TheSELLERdecidestolistthepropertyatapriceof$______________________________________7.BROKERAGEFEE.(a)CommissionAmount.TheSELLERshallpayafeeintheamountof________________%ofthegrosssalespriceoftheproperty.(b)CommissionEarned.Thefeeshallbeconsideredearnedifanyofthefollowingweretooccur:(i)IftheBROKERAGEprocuresaready,willing,andablebuyer,inaccordancewiththepriceandtermsestablishedbytheSELLER.(ii)IfthepropertyissoldorotherwisetransferredduringtheTIMEPERIODlistedabove.(c)CommissionisDueandPayable.Onceaconditionaboveissatisfied,thecommissionshallbecomedueandpayableatthesoonerof:


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(i)ClosingTime(ii)SELLER’Sdefaultofthisagreement.8.FEESTOOTHERBROKERAGES.BROKERAGEhasapprisedtheSELLERoftheirpolicyaboutcooperatingfirms,andhowmuchcompensationisofferedtootherbrokers.TheSELLERherebyauthorizestheBROKERAGEto(checkanyapplicableblank):______WorkwithsubagentsthatrepresenttheSELLERandprovidethefollowingcompensation:______%ofthegrosssalespriceor$____________________________;and/or,______WorkwithBUYERagentsthatrepresenttheBUYERandprovidethefollowingcompensation:______%ofthegrosssalespriceor$___________________________;and/or,

______Workwithotherbrokeragesinaccordancewiththeirattachedpolicies.9.MARKETING.TheSELLERempowerstheBROKERAGE(checkanyapplicableblank):______ForSaleSigns:TheBROKERAGEtoplaceanysigntothemarketingoftheproperty.______LockandKeyBox:ToinstallaLockandKeyBoxontheproperty______OpenHouses:Toholdopenhousesatamutuallyagreedupontime.______ListingServices:Tosubmitrelevantinformationtoanylistingserviceforthepurposeofmarketingtheproperty.10.MONEYONDEPOSIT.AnydepositsonaccountwillbeheldbytheBROKERAGE’Sauthorizedescrowagent,untilthecompletionofthistransaction.11.SELLERREPRESENTATIONS.(a) LiensCurrentlyontheProperty.AsfarastheSELLERisaware:ThePropertyis______isNOT______,boundbyadeedoftrustormortgage.(fillinallapplicable):(i)Thereexistsafirstmortgageordeedoftrustforthesecuringofaloanforthepropertyheldby:MortgageeName:____________________________________________________________________________________________________CurrentBalance:____________________________________________________________________________________________________LenderAddress______________________________________________________________________________________________________PhoneNumber:________________________________________AccountNumber________________________________________(ii)Thereexistsasecondmortgageordeedoftrustforthesecuringofaloanforthepropertyheldby:MortgageeName:____________________________________________________________________________________________________CurrentBalance:____________________________________________________________________________________________________LenderAddress______________________________________________________________________________________________________PhoneNumber:________________________________________AccountNumber________________________________________(iii)Thereisafirstmortgageordeedoftrustforsecuringofanequitylineofcreditforthepropertyheldby:MortgageeName:____________________________________________________________________________________________________CurrentBalance:____________________________________________________________________________________________________LenderAddress______________________________________________________________________________________________________PhoneNumber:________________________________________AccountNumber_________________________________________(b)TheSELLERisnotbehindonpaymentstoitemsnumbered(i),(ii),and(iii)(c)TheSELLERaffirmstherearenolienssecuredagainstthePropertyforState,Federalorlocalincometaxes,orunpaidmunicipalpropertytaxes.12.SELLER’SOBLIGATIONS.TheSELLERagreestoworkwiththeBROKERAGEintheirefforttomarketandselltheProperty.


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SELLER:___________________________________________________________________________________________________________________CONTACTADDRESS:_____________________________________________________________________________________________________PHONE:__________________________________________________EMAIL_________________________________________________________SELLER:___________________________________________________________________________________________________________________CONTACTADDRESS:_____________________________________________________________________________________________________PHONE:__________________________________________________EMAIL_________________________________________________________BROKERAGE:______________________________________________________PHONE______________________________________________AGENT:____________________________________________________________LICENSENO.________________________________________OFFICEPHONE:___________________________________________________EMAIL_______________________________________________


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SampleOffertoPurchaseBuyer(s)______________________________________________Seller(s)___________________________________________________________________________________________________________________________________________________Address_______________________________________________Address___________________________________________________________________________________________________________________________________________________TheBuyerofferstopurchasethepropertyknownas_________________________________________________________________________________________________________________________orthepropertylistedabove,andwillbepaidasfollows:1.PropertyPrice:Thebuyeragreestopay$____________inthefollowinginstallments:(a)Duewiththisoffer:$______________deposittobindtheagreement.(b)DueuponsigningofaPurchaseandSaleAgreement:$_______________(c)Balancedueatorbeforeclosing$______________2.TimeFrameforOffer:Offerisgoodfromthisdate____________to_____________3.PurchaseandSaleContract:Thebuyerandselleragreetosignapurchaseandsaleagreementatthetimeindicatedhere:______________________________________________________________________________________________________4.Closing:Thesellerpromisestodeliveragoodandcleartitleatthetimeindicatedhere:_________________,atthe____________________County,RegistryofDeeds,orwhateverothermutuallyagreedupontimeandplace.

5.Escrow:Theescrowagent,____________________________,willholdthedepositfordisbursementuntilthemutuallyagreedupontime.6.Contingencies:Itisunderstoodthatthebuyer’sresponsibilitiesundertheOfferandPurchaseandSaleagreements,areconditionaltothefollowing(checkcontingenciesthatapply):____Mortgage:Thebuyer’sresponsibilitytopurchaseisreliantonthebuyerreceivingawrittencommitmentfromalenderforthepurchaseoftheproperty.____Inspection:Thebuyerhastherighttoacquireaninspectiontodeterminethepresenceoreffectofanyhazardoussubstanceontheproperty.Thepurchaseiscontingentontheinspectionresultinginadesignationofcompliance.7.Representations/Acknowledgements:TheBuyeracknowledgesthattheyhavereceivedallrequireddisclosures.8.Buyer’sNon-performance:Thebuyerwillforfeitalldepositsiftheyfailtogoforwardwiththetransaction.-------------------------------------------------------------------------------------------------------------------------------------------------SELLER’SANSWERThesellerrespondstotheofferasindicatedintheboxcheckedbelow:____(1)Theselleragreestotheofferatthistimeanddate:____________________________________________________________(2)Thesellerdeclinestheoffer____(3)Thesellerdeclineswiththiscounter-offer:_________________________________________________________________Thecounter-offerisavailableuntilthistimeanddate:_____________________________________________________________Seller_______________________________________________________Buyer_____________________________________________________--------------------------------------------------------------------------------------------------------------------------------------------------


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(IFSELLERPROVIDESCOUNTEROFFER)BUYER’SRESPONSE____(1)Thebuyeragreestothecounter-offeratthistimeanddate:______________________________________________________________________(2)Thebuyerdeclinesthecounter-offerBuyer____________________________________________________________________________Date_____________________________

--------------------------------------------------------------------------------------------------------------------------------------------------DEPOSITRECEIPT:Iherebyaffirmandconfirmthedepositreceivedfromthebuyerintheamountof$_____________________________

______________________________________________Date______________________________________________EscrowAgent


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SamplePurchaseandSaleAgreementThepartiestothisagreement,makethisagreementonthe____of______________________________________________________1.PartiesTheSELLER,________________________________________agreestoselltotheBUYER,_________________________________.TheBUYERagreestopurchasethebelowdescribedpremises.2.DescriptionofProperty.ThePropertyconsistsofallthelandwithanyandallbuildingsandimprovementsknownas__________________________________________________________________________________________________________________________________TheAgreementincludesallappliancesandfixtures,butdoesnotinclude:_____________________________________________________________________________________________________________________________________[Insertreferencestorefrigerators,dishwashers,microwaveovens,washingmachines,dryersorotheritemswhereappropriate]3.PurchasePrice.ThepurchasepriceforthePropertyis$__________________ofwhich

4.Escrow.AllfundsdepositedorpaidbytheBUYERshallbeheldinanescrowaccountby___________________,theescrowagent.5.TimeforClosing.TheSELLERshalltransferthedeedandtheBUYERshallpaythebalanceofthepurchasepriceat___o’clock__.M.onthe___dayof_______________________________________,________,atthe___________County,RegistryofDeeds.6.Title.TheSELLERshallconveythePropertybyaquitclaimdeed.TheSELLERshallconveytitletothePremises,freefromliens.7.TitleInsurance.TheBUYER’Sobligationsaresubjecttotheavailabilityoftitleinsurance.8.ClosingCertificationsandDocuments.TheSELLERshallexecutethedeed.9.PossessionandConditionofPremises.AtthetimeofclosingtheBUYERshalltakepossessionofthepremises.Theconditionofthepremisesshallbethesameastoday.andshallremaininsuredastoday,untilthattime.10.ExtensionofTimeforPerformance.IftheSELLERcannotperformonthedayagreedupon,therewillbeanautomaticextensionofthirty(30)days.Bothsidespromisetomakeareasonableefforttoperformatthetimeagreed.11.NonconformanceofPremises.IfthePropertyisalteredbecauseoffiredamage,etc.,theBUYERcanaskoftheSELLERthattheypayforanyrepair.12.AcceptanceofTheDeed.TheacceptanceofthedeedbytheBUYERshallconstituteperformance.13.MortgageContingency.ThesaleisreliantontheBUYERobtainingamortgagewithreasonableterms.14.LeadPaint.Bothpartiestotheagreementacknowledgeawarenessoftheleadpaintlawpertainingtochildrenunder6yearsold.15.SmokeDetectors.Atthetimeofclosing,theSELLERshallprovidethesmokecertificatefromthefiredepartment,affirmingitscompliance.16.AcknowledgementofaBrokerFeeDue:Abrokerfeeforprofessionalservicesrenderedisdue___________________


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Forpropertybuiltbefore1978,theBUYERmusthavealsosignedtheLeadPaintPropertyTransferNotification.

SELLER(s)_______________________________________________________BUYER(s)_______________________________________________________Broker(s)_______________________________________________________


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LeasesAlease(alsoknownasatenancyforyears,estateforyears,interestforyears,ordemise)isawrittenconveyanceofpossession,butnotownership,ofrealestateforsomespecificperiodoftime.Leasesestablishprivityofestate(alegalrelationshipbetweentwopeoplewithinterestsinthesameproperty).Thelongestaleasecanlegallylastis99years,andleasesthatlastlongerthan7yearsmustberecorded(madepublicrecord)inMassachusetts.Leasesarenon-freeholdinterests.Leasesarecontracts,sotheyaresubjecttotheessentialsofcontracts.1Leasesmustalsocontainsomestatementofintentiontorent("MarySmithleasestoJoeSmith")adescriptionoftheproperty(usuallyjustitsaddress),thetotalrentalamount,thetimeandmannerofpaymentfortherent,andtheterm(length)ofthelease. Underaleasethelessor(landlord)transferspossessionanduse,butnotownership,tothelessee(tenant).Thelessorretainsareversionaryinterestunderthelease(therighttoregainpossessionaftertheleaseisover);tenantswhostaypasttheirleaseexpirationbecometenantsatsufferance,andmustbeevicted.Thelessorisliableforandinsuresanycommonareas(thelobby,elevator,etc.),andthelesseeisliableforandinsurestheleasedpremises(therentedunit).Leasesrunwiththeland,whichmeansthatifthelessorsellstheleasepremisesbeforetheleasehasendedthenewownermusthonorthelease.Thenewownercannotchangetheleaseterms.Thesameappliesifthelessordiesbeforetheendofthelease.Acertificateofnodefenseorestoppelcertificateisoftenusedtoconfirmtheleasewhenthepropertyissold.Thedoctrineofestoppelstatesthatonceyoucauseanothertorelyonyourwords,youcannotgobackonyourpromises.Thispreventsthetenantfromattemptingtorenegotiateordefraudthenewpropertyowner.Thedoctrineofestoppelalsoshowsupwhenloansaresold,verbalagencyagreementsarecreated,andinmanyothersituationswherepromisesaremade.

Lesseesarepermittedtosublet,assign,ornovatetheleaseunlessitexplicitlyprohibitsthemfromdoingso.Sublettingistheactoftransferringaportionofone’sinteresttoathirdparty(e.g.onemonthofa12-monthlease).Assigningisthetransferofalloftheremaininginteresttoathirdparty.Novationisacancellationoftheleasecontract(oranycontractforthatmatter),andatransferoftheremainingportionoftheleasetoathirdpartyinanewcontract.Onlynovationrelievesthelesseeoftheirobligationsunderthelease.Asidefromnovation,leasescanbeterminatedinanumberofways.

• Performance–Leasesautomaticallyterminateattheendoftheirterm.• Surrender–Cancellationoftheleasepriortoexpiration.• ActionofLaw–Eminentdomaintaking,taxsale,bankruptcy,etc.• Destruction–Thepropertyisdestroyed.• Foreclosure–Banksoftenhavetherighttocanceltheleaseintheeventofforeclosure.• ActualEviction(Eviction)–Occurswhentheleasehasbeenbreachedbythetenantbynon-

paymentofrent,violationofthelease,holdingover,orsomeunlawfuluseofproperty,thelessormayevictinMassachusettsbygivingthetenant14days'noticetovacate.Ifthetenantdoesnotvacate,thelandlordmustfileanunlawfuldetainercomplaint.Thecomplaintwillgotohousingcourt,wheretherewillbeahearing.Ifthelandlordispermittedbythecourttoevictthetenant,theymustsendaconstabletoremovethetenantfromtheproperty.Thelandlordmaynotsimplylockthetenantout.

• ConstructiveEviction–Occurswhenthelandlordhasviolatedthecovenantofquietenjoymentthatrenderstheleasedpropertyunfitforoccupancybythetenant.Thispermitsthetenanttovacatethepremises,andendstheirobligationtopaytherent.

Thecovenantofquietenjoymentisatenant'srighttoundisturbedenjoymentoftheleasedproperty.Verybasicallyitmeansthatlandlordsmustnotinterferewiththetenant'suseandenjoymentoftheleasedspace.Itdoesnotgovernthenoiselevelsintherental.Examplesofviolationsofthecovenantofquiteenjoymentinclude:

1Seepage27


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• Trespassing(thoughthelandlordmayenterforgoodcauseuponreasonablenotice,orintheeventof

anemergency).• Failuretomaintainthepremisesfitandsuitableforoccupancyasdefinedbythesanitaryand

buildingcodes.• Failuretoprovideanyservicespromisedintheleaseforanunreasonableperiodoftime(e.g.thereis

norunningwaterfortheunitforseveralweeks).

MassachusettsLandlordRegulationsLandlordsarestrictlyregulatedinMassachusetts.Theyarelimitedtocollectingfirstmonth'srent,lastmonth'srent,securitydeposit(limitedtoamaximumofonemonth'srent),andreasonablelockandkeyfeeallowed.Ifasecuritydepositistaken,alandlord'sstatementofconditionisrequired,whichmaybeamendedbythetenantswithin15daysoftheleasecommencementdatesothattenantsmayinoculatetheirsecuritydepositagainstclaimsfordamagedonebyprevioustenants.Landlordsmustpaythelesserof5%interestorcurrentbankratesonthesecuritydepositandlastmonth'srent.Theinterestmustbepaideveryyearwithin30daysofannualtenancyanniversary.Itmaybedeductedfromthelastmonth'srent.Securitydepositsmustbeheldinatrustorescrowaccount.Lastmonth’srentdoesnothavetobedeposited,butifitisnot,then5%interestismandatory.Landlordsmustprovidehousingthatisfitandsuitableforoccupancy,anduptostatesanitarycodes,perthecovenantofquietenjoyment.Underthesanitarycodelandlordsmust:

• Shouldinspecttheunitpriortooccupancytoensureitisfreefromviolations.Insomeinstances(e.g.whentheStatehasfoundviolationspreviously)thestateBoardofHealthmustinspecttheunitandsignoffpriortore-letting.

• De-leadallunitswithchildrenunder6(seeHazardousMaterialsandDisclosures).• Payforheatandhotwaterunlesstheleaserequiredthetenantpayforthese(heatisrequiredfrom9/16

through6/14,andtemperaturesmustbebetween68Fand78Ffrom7AMto11PM,andatleast64Fallotherhours).

• Provideakitchenwithasinkandelectricityforarefrigerator(thoughnorefrigeratorisrequired).• Payforwaterunlessseparatemeteringisprovidedforeachunit,andpayforheatingofwaterbetween110F

and130Funlesstheleasestatesthetenantmustpayforit.• Maintaintheunitsfreefrompestinfestation.• Maintainthebuildinguptobuildingandstructuralrequirements.• Provideexitsfreefromobstruction.

o Thisincludessnowremovalfromsidewalksandexits.

PropertyManagementPropertymanagersaretypicallyspecialagentsofthepropertyowner(thoughtheymightalsobegeneralagentsdependingontheirauthority).Theyactinthebestinterestofthepropertyowner,andtheircompensationistypicallypaidasapercentageofgrosseffectiverentalincometoincentivizethemtoreducetenantturnoverandtheresultingapartmentvacancies.LeaseTypesTherearemanydifferenttypesofleases.Thatsaid,mostoftheseleasetypesonlyapplytocommercialproperties;almostallresidentialpropertiesuseagrosslease.Thecommontypesofleasesare:GrossLease–Aleasewherethetenantpaysafixedamountofrent,andthelandlordpaysanyoperatingexpensesofthebuilding.Thelandlordthusreceivesgrossincome.Sublease(SandwichLease)–Anyleasebetweenasub-letterandtheoriginaltenant.


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NetLease–Aleasewherethetenantpayssomeoralloftheleasedproperty'soperatingexpenses(taxes,maintenancecosts,managementfees,etc.)ontopoftheirnormalrent.Thelandlordthusreceivesnetincome.ModifiedGrossLease–Aleasewherethetenantpaysafixedrentalamountonyearone,andanyincreasesinoperatingexpensesthatthelandlordincursoverthe1styear'sexpenses(calledthebaseyear)arepaidforbythetenant.PercentageLease–Aleasewheremostoftherentispaidasapercentageofthetenant'sreceipts(sales)orprofits.Itissomethingthatisoftengiventoanchortenants(e.g.largedepartmentstores),soastoalignthelandlord'sinterestswiththetenant's.GroundLease–Aleasewherethetenantrentstheland,andcanbuildwhatevertheywantonit.Whentheleaseexpires,anyimprovementsbuiltbythetenantareownedbythelandlord.Frequentlyseenwithfastfoodfranchises,celltowers,andinareaswithsaleslimitations.Oftenthegroundleaseisa99-yearlease. GraduatedLease–Aleasewhoserentincreasesonsomepre-agreedonschedule(e.g.$1/sq.ft.peryear).Anescalatorclauseincreasesordecreasestherent.IndexLease–Aleasewhoserentistiedtosomeindex(usuallytheconsumerpriceindexorCPI,whichismeanttoreflectinflationintheeconomy).Whentheindexincreasestherentincreases,andviceversa.ReappraisalLease–Aleasewhoserentisbasedonanappraiser'sopinionoftherent,ratherthannegotiationbetweenthetenantandlandlord.Sale-Leaseback–Asale-leasebackoccurswhenapropertyownersellstheirpropertytoaninvestor,andsimultaneouslyrentsitback(usuallyforalongterm).Thismostlyhappenswithbusinesses,becauseitallowsthebusinesstopulltheirequityoutofthepropertywithoutgivingupuseandenjoymentoftheproperty,andbecauserentistaxdeductibleforbusinesses


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SampleRentalFeeDisclosureInreturnforassistanceinfindinganapartmentrequestedbyyou,youareexpectedtopayafeeasdescribedhere:______________________________________________________________________________________________________________________Fortherentalofthepremisesknownas__________________________________________________________________________________________________________________________________________________________________________________________________________Thefeewillbecomeduewhenyoufilloutanapplicationtorentaspecificapartment.Ifyouareturneddownbythelandlord,youwillreceiveafullrefund,aslongasyoucompliedwiththetermsoftheapplication,andyouprovidednofalseinformation,unlesstheleasehasbeensigned,andatenancyhasbeencreated.Atenancycanbecreatedwhenallpartieshavesignedaleaseortenancy-at-will,orthetenanthastakenpossessionoftheapartment.Date:_____________________________________________________________________________________SignatureofBrokerorSalesperson_________________________________________________________________LicenseNumber_________________________________________________________________SignatureofProspectiveTenant

Pleaseprintfullname:_______________________________________SalespersonorBrokercancheckhere___,iftheabovenamedprospectivetenantrefusedtosignthisform.


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SampleApartmentApplication____________________DateNAME PHONENUMBER()-______________________________________________________________________________________________________________________________STREETADDRESS______________________________________________________________________________________________________________________________CITYSTATE.______________________________________________________________________________________________________________________________LANDLORDNAMEANDADDRESSPHONENUMBER()-______________________________________________________________________________________________________________________________FORMERLANDLORDNAMEANDADDRESS______________________________________________________________________________________________________________________________CURRENTEMPLOYER FORMEREMPLOYER______________________________________________________________________________________________________________________________TYPEOFJOBPOSITION SALARY_____________________________________________________________________________________________________________________________PERSONALREFERENCE(NAME)______________________________________________________________________________________NAMESOFANYCO-TENANTS_____________________________________________________________PETS_____________________Monthlyrent$____________________________PropertyAddressKeyandlockdeposit___________________________________________________________________________________Lastmonth’srent____________________________________________________________________________________SecurityDeposit____________________________________________________________________________________RentingAgent____________________________________________ApplicantSignature________________________________.


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TransferofProperty

Howisrealestatetransferred?Withadeed.Deedsarethelegaldocumentthattransferstitle(ownership)torealestate.Youcanthinkofthemasreceiptsforrealestate.Titletopropertycanbeaconfusingterm.Titletoapropertysimplyreferstoownership;itisnotaphysicaldocumentoritem,unliketitletoacarorboat.Itisimportanttodistinguishbetweenthetitletoapropertyandthedeed.Thedeedsimplytransferstitlebetweenonepartyandanother;thinkofitasthereceiptfortheproperty.Titleistheactualownership.Analienationoftitleisanylossofownership.Aninvoluntaryalienationisaforcedlossofownership(forexample,ataxforeclosure).Contrastwithavoluntaryalienation(e.g.arealestatesale).HowPropertyTransfersWorkTransfers(orconveyance)ofrealestateusuallyfollowaprettystandardsequenceofevents.Notethateverytransferwillnotfollowthissequence,norwilltransfersexhibiteverypartofthesequence.Thisissimplyacommon,examplesequence: First,thepropertyislistedandputunderagreement(refertothe"TheBasics"sectionforhowthisworks).AfterthesigningoftheP&S,thelenderwillhireanattorneyoratitlecompany(usedinsteadofattorneysinmanystates)toperformatitlesearchtoexamthechainoftitle(ownershiphistory)todetermineifthereareanyproblemswiththeownershipoftheproperty(cloudsontitle).Ifthereare,thesellermustrectifytheseissuesbeforeclosing.Thestatusoftitlewillbeoutlinedinanabstractoftitle,andacorrespondingopinionoftitle.Atclosing,theseller'sbrokerbringsthebuyer'sdeposit(usually5%ofthepurchasepricemadeatthesigningoftheP&S)totheclosing.Thisdeposit,alongwiththeloanandthebuyer'sremainingdownpayment,payfortheproperty.Inexchangeforthismoney,theseller(grantor)providesadeedtothebuyer(grantee)transferringownershipoftheproperty.Thebuyergivesthelenderanotetoevidencetheirdebt,andamortgagetosecurethedebt.Allofthisisconductedbythebank'sattorney,whoalsoperformsalast-minutetitlesearchtodoublecheckthatnothinghaschangedwiththeproperty.Ifnothinghas,theywillrecordallofthedocumentsassociatedwiththesalealongwithamunicipalliencertificate,whichcreatesapublicrecordthatthebankisthefirstlienholderonthepropertyintheeventofforeclosure.

Afterrecording,theattorneypaystheseller'sbrokerandtheseller.Theseller'sbrokerpaysthebuyer'sbrokertheirsplitofthecommission.Anyrecordeddocumentsareduplicatedanddigitizedbytheregistryofdeedstoprovideapublicrecordofthetransfer(publicrecordsareavailableonlineinMassachusettsatwww.masslandrecords.com).DeedsDeedsareusedtoconvey(transfer)property.Deedsmustalwaysmeetthefollowingminimumcriteria:

• Theymustbewritten(pertheStatuteofFrauds)• Thegrantormustbelegallycompetent• Theymustnamethegrantee• Involvetheexchangeofconsideration(evidencedbyarecitalofconsideration)• Includeacompleteandaccuratedescriptionoftheland("fulllegaldescription")• Includeagrantingclause(usuallyjustthewords“grantto”)• Havedeliveryandacceptance

Iftheinterestbeinggrantedneedstobedefinedorlimited(e.g.alifeestate),thedeedwillincludeahabendumclause(Latinfor“tohaveandtohold”).Thisisnotnecessaryifthegrantorisconveyingafeesimpleinterest.Thevalidityofadeeddoesnotrequireanynumberofthingsyoumightexpect.Theseinclude:thesignatureofthegrantee,adate,witnesses,acknowledgment(alsoknownasnotarization),orrecordation.


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Recordation(alsoknownasrecording)istheactofmakingthetitletransferpublicrecordatthecountyregistryofdeeds.Althoughrecordationisn'tnecessaryforthevalidityofthedeed,itisstronglyrecommended.Itprovidesconstructivenotice(publicnotice,asopposedtoactualnoticewhereyouarespecificallytoldtheinformation)ofthetitletransfer,andcanhelpthesellerandbuyeravoidanynumberofheadachesassociatedwithanoffthebookstitletransfer.MassachusettsRecordingStampsRecordingstampsareanexpensepaidbytheseller(grantor)whentheirdeedisrecordedatthecountyregistryofdeeds.Thestampsareafeeforrecording;theydonothaveanyimpactonthequalityoftitle.Theyarealsoknownasdocumentary,excise,revenue,transferorconveyancestamps.Recordingstampscost$2.28per$500ofrecordedvalueineverycountyinMassachusettsexceptBarnstableCounty;BarnstableCountycharges$3.06per$500.Stampsareonlychargedonthecashvalueofthesale,soifaloanisassumedasapartofthesaleitissubtractedfromthepurchasepricebeforecalculation.Youcannotpurchaseapartialstamp,sothesalespriceisalwaysroundeduptoaneven$500incrementbeforecalculatingtherecordingfee.

LandDescriptionandSurveysFullLegalDescriptionofthelandistheproperty'saddress,alanddescription,andatitlereference(referencetoanypublicrecordsfortheproperty).Landdescriptionsaredraftedbyalicensedsurveyorwhoperformsasurveyoftheland.Asurveysketchshowsthelocationanddimensionofthelanditself,andaspotsurveyshowsthelocationanddimensionoftheland,andthelocation,size,andshapeoftheimprovementsonthelot.Notethatnotallsurveysincludeawarrantyorsurveyorliability.Animprovementlocationcertificate(ILC)isnotafullsurvey,forexample.

Youmightseeanumberofunitsofmeasurementusedinthesurvey.Theyare:1link:7.92inches(callit8inchesformemorization)1foot:12inches1yard:3feet1rod:16feet6inches1chain:66feet1furlong:660feet1mile:5,280feet1acre:43,560squarefeet(1chainx1furlong)1squaremile:640acresThereareseveralmethodsoflanddescriptionthatyoumightencounter,anditisimportanttobefamiliarwiththesemethodssinceyouwilllikelycomeacrossthem.MetesandBoundsSurveys

Math:RecordingStamps

A property sold for $505,100 in Suffolk County. How much does the grantor pay for recording stamps? $505,100 rounds up to $505,500 $505,500 / $500 = 1011 stamps 1011 stamps x $2.28 per stamp = $2305.08 fee


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A"metesandboundssurvey"isthemostcommonlanddescriptionyouwillencounter:itoutlinesthelotlines(boundariesoftheproperty)bydescribingdirections(bounds)anddistances(metes)betweenmonuments(markers,likeconcreteposts)orbenchmarks(permanentmarkersestablishedthroughouttheUnitedStates),startingandendingatapointofbeginning.Adatumisapointusedtomeasureelevations,usuallydefinedatthemeansealevelofNewYorkHarbor,orsomelocalofficialdatum.Anexamplemetesandboundssurveymightread:"AplotoflandlocatedinBoston,SuffolkCounty,Massachusetts,beginningattheintersectionofCanalandCausewayStreet,runningsouthalongCanalStreet304feet,WesttoFriendStreet150feetmoreorless,NorthtotheintersectionofCausewayStreetandFriendStreet,thenEastalongCausewayStreettotheintersectionofCanalandCausewayStreet."LotandBlockSurveysPlatmapsareanothermethodofsurveyingland.Theyaretherecordedplanforasubdivisionormunicipality,andusethelotandblockmethod.Thelotandblockmethoddividesthepropertybystreetsintoblocks,andthensubdividesthoseblocksintolotsusingthemetesandboundsmethodforeachindividuallot.Thetotalareaoftheparceloflandisalsodescribedusingametesandboundssurvey.AnexampleLotandBlocksurveymightread:"Lot43,Block17,GreenAcreHomesintheCityofPortland,accordingtotheplatthereof,recordinginVolume6ofplats,page84,inMultnomahCounty,Oregon."GovernmentRectangularSurveySystemAlsoknownasthePublicLandSurveySystemorrectangularsurveysystem.ItwasestablishedbycongressintheLandOrdinanceActof1785tostandardizelanddescriptions,andisusedinmostofthecountry(thoughnotintheoriginal13colonies).Itdivideslandintorectanglesusingintersectionprincipalmeridians(runningnorthtosouth)andbaselines(runningeasttowest).Thereare37principalmeridiansintheUnitedStateseachreferencedbynameornumber,andnoparceloflandisdescribedusingmorethanoneprincipalmeridian.Wedon'tuserectangularsurveysinMassachusetts,butyouhavetoknowthemforthetest(sorry!).Agovernmentrectangularsurveyoutlineslandusingseveraldifferenttypesoflines:


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Tiersarealsoreferredtoastownshiplines.Thesquarescreatedbytheintersectionsofthesetownshiplinesandrangelinesareknownastownships.Atownshipis6milesby6miles,andcontains36squaremiles(23,040acres):

Atownshipinarectangularsurvey

Eachtownshipisdesignatedbasedonthetierit'slocatedin,itsrange,andthenameornumberofitsprincipalmeridian.Townshipsarethendividedinto36sectionssized1mileby1mile,andnumberedfrom1to36runningeasttowestthenwesttoeastonalternatinglines,fromnorthtosouth.Thenortheasterncornerisalwaysthe1stsection.The16thsectioniscalledtheschoolsectionsinceitwastraditionallyusedforschoolpurposes.

Atownshipwithlabeledsections


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Eachofthesesectionsisthendividedintohalvesof320acres,andquartersof160acres.Thosearethenfurthersubdividedintoquartersandhalves,andsoonandsoforth.Thesesubdivisionswouldthenbedescribedusingthedirectionsandportionsofeachsection.Forexample,"SE¼,N½"wouldbethesoutheastquarterofthenortheasternhalfofthesection(whichwouldcoveranareaof80acresintotal:320acresx0.25=80acres).Asacheatsheet,thesizesforeachareainagovernmentrectangularsurveyare:Quadrangle/Check:24milesby24miles,576squaremiles,or368,640acresTownship:6milesby6miles,36squaremiles,or23,040acresSection:1mileby1mile,1squaremile,or640acresHalf-Section:1mileby½mile,½squaremile,or320acresQuarterSection:½mileby½mile,¼squaremile,or160acres½ofaQuarterSection:½mileby¼mile,1/8squaremile,or80acres¼ofaQuarterSection:¼by¼miles,1/16squaremile,or40acresPuttingthisalltogether,alanddescriptionusingthegovernmentrectangularsurveymightread:"TheS½oftheNW¼oftheSE¼ofSection16,Township7North,Range9West,ofthe6thPrincipalMeridian(P.M.)."Toworkthisout,you'dworkbackwardsfromtheendofthedescription,readingrighttoleft.So,we'dfindthesixthprincipalmeridian,andfinditsbaseline.Onaregionalmap,you'dthenfindthetownshipbycountingninerangesectionswestofthesixthprincipalmeridian,andthenseventownshipsnorthofthebaseline.Thiswouldbeourtownship.You'dthendividethetownshipintoquarters,dividetheSE¼inquarters(theSE¼wouldbethelowerrightquarter),dividetheNW¼(topleft)intohalves,andtheSouthernhalfofthatNW¼wouldcontaintheproperty(thesouthernhalfwouldbethebottomhalf).Rectangularlanddescriptionswillusuallyincludethecountyandstatewherethepropertyislocated,sincemeridiansoftencrossmultiplestatesorseveralbaselines.Also,notethatarectangularsurveymightalsoincludeametesandboundssurveyifthetractoflandisirregular,toosmalltodescribeusingquarters,orifitdoesnotfollowtheproscribedlotandblocklines,quarter-sectionlines,orotherfractionallines.TypesofDeedsTherearefourbasictypesofdeedsthattransfertitletorealestate.Thetypeofdeedusedwillimpacttheextentofthegrantor’sliabilityforanyfutureissueswiththetitletotheproperty.Thesedeedsare:GeneralWarrantyDeeds(orWarrantyDeeds)requirethegrantortoacceptliabilityforanyclaimsmadeagainsttitletotheproperty,eveniftheclaimoriginatedpriortothegrantor’stermofownership.ThewarrantiesprovidedbyaGeneralWarrantyDeedarethecovenantofseisinorseizin(thegrantorwarrantstheyown,andmayconvey,theproperty),covenantagainstencumbrances(thegrantorwarrantsthepropertyisunencumbered),covenantoffurtherassurances(thegrantorpromisestoobtainanddeliveranyinstrumentsnecessarytoprovidegoodtitle),covenantofquietenjoyment(thegrantorguaranteesthatthegrantee'stitlewillbegoodagainstanycourtactions),andthecovenantofwarrantyforever(thegrantorpromisestocompensatethegranteeforanylossesassociatedwithclaimsagainsttitleanytimeinthefuture).SpecialWarrantyDeedsstateonlythatthegrantorreceivedtitletotheproperty,andthattheydidnotcauseanyissueswithtitle.Thismeansthatthegrantorisonlyliableforclaimsagainsttitleifthoseclaimsoriginatedfromtheirtermofownership.Thegrantorisnotliableforissuesthattheydidnotcause.

BargainandSaleDeedsaredeedswherethegrantorstatesthattheyhavetherighttoconveyownershipoftheproperty,eveniftheymaynotownit,andprovidesnowarrantiesaboutownership.Theyareoftenusedintaxforeclosures.QuitclaimDeedsstatethatthegrantorconveysonlywhateverinterestthegrantorhasatthetimeofconveyance.Nowarrantiesaremade,whichmeansthatthegrantorisnotliableforanyclaimsagainsttitle.Quitclaimdeedsareoften


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usedinbankforeclosures,andcanalsobeusedtocorrectmistakesinthepublicrecord(e.g.amisspellednameonapreviousdeed).Therearealsootherspecialusedeeds.Thoseare:DeedsofTrust(orTrustDeeds),whichareusedtotransferinterestsinrealestateintotrusts.Theyareusedinsomestatesinlieuofamortgage.ReconveyanceDeeds,whichtrusteesusetoreturnpropertytotrustors(e.g.removepropertyformatrust).Trustee'sDeeds,whicharedeedsexecutedbyatrusteetoconveyrealestatetoanyonebesidesthetrustor.Deedsexecutedpursuanttoacourtorder,whichareanydeedsissuedasaresultoftheorderofawilloracourt.

TitleInsuranceTitleinsuranceisaninsurancepolicyforprotectionagainstundiscoverabletitledefects.Theseareproblemswiththeownershipofthepropertythatexistatthetimeofclosingbutwillnot,orcannot,bediscoveredinatitlesearch(e.g.forgeddeeds,undisclosedheirs,grantingpartylackedthecapacitytogranttitle,etc.).Titleinsurancecompaniesoftenperformtheirowntitlesearchesusinginternalrecordscalledtitleplants,andinformtheinsuredofthestatusoftitleviaapreliminaryreport.Titleinsurancedoesnotcoverownershipissuesthatcouldbediscoveredbylookingatthepublicallyrecordsforaproperty,suchaszoningissues,orpublicallyrecordedrestrictions.Titleinsuranceispaidforasaone-timepaymentatclosing(usually$2-$4per$1,000covered).Thetitleinsurancecompanywillpayforlegaldefenseandfinancialprotectionagainsttitleclaimsfortheownerand/orlender.Thetitleinsurancecompanygainstherighttodefendtheclaimbysubrogation.Thecoverageprovidedbytitleinsurancecanvary,butgenerallyitiseitherstandardcoverageorextendedcoverage(sometimescalledanALTApolicy,orAmericanLandTitleAssociationpolicy).Standardcoveragewillcoverbasictitleissuessuchasforgeddeeds,incompetentparties,deliveryissues,orimpropermaritalsettlements.Extendedcoverageusuallyaddstenantsandsquatters,surveyissues,unrecordedeasementsandliens,andmineral/waterrightclaims.Titleinsuranceisoftenofferedastwoseparatepolicies:MortgagororOwnerProtection:Protectionforthepurchaseruptothefullpurchasepriceofproperty.

MortgageeorLenderProtection:Protectionforlenderuptotheoutstandingloanbalance.

TheTorrensSystem(LandCourt)TheTorrensSystemisawayofdealingwithconflictsaboutpropertyownership.Ifpetitioned(inanactiontoquiettitle),LandCourtwillperformatitlesearchandholdhearingstodeterminewhoownsapieceofproperty.OncetheLandCourtmakesitsdecisionaboutwhoownstheproperty,itissuesitsdecisionasaCertificateofTitle,whichregisterstheland.Iflandisregistered,itisownedbythepersonnamedontheCertificateofTitle,regardlessofanyotherdocumentsconcerningtheproperty.Transfersofregisteredlandmustberecorded;anytransferofregisteredlandisnotvaliduntilanewCertificateisissuedinthenameofthenewowner.

Activity: Break out into groups. Come up with an example of a situation or title defect that title insurance would help with. Remember,titleinsuranceisforundiscoveredorundiscoverabletitleissues.


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Asaruleofthumb,intheeventofadisputethepropertytransferthatisrecordedfirstusuallywins,thoughpossessionorothercircumstancescansupersederecordation,soit'sbesttoconsultanattorneyaboutthis!OtherMethodsofTitleTransfer Besidesbeingsold,realestatecanbetransferredinanumberofways.Someofthecommonwaysrealestatemightbetransferredare:

WillsWillsarehowthepropertyofthedeceasedistransferred.Thosewhodiewithawillaresaidtobetestate;thosewhodiewithoutonearesaidtobeintestate.Probate(thelegalprocessbywhichthedeceased'sbelongingsaredistributed)proceedingswillgenerallytakeplaceinthecountywherethedeceasedlastresided,and/orinthecountywhereanyrealestateownedbythedeceasedatthetimeofdeathislocated.Anexecutorisnamedinthewillbythetestatortorepresenttheirestate.Thisisthepersonthatcarriesoutthedeceased'slastwishes.Theexecutordevises(transfers)realpropertytothedevisees(heirsreceivingrealproperty),andbequeaths(transfers)thepersonalproperty(thebequestorlegacy)tothelegatees(heirsreceivingpersonalproperty).Ontheotherhand,ifthedeceasedpassedintestatethenanadministratorwillbeappointedbythecourtstoadministertheestate.Thelawsofdescentanddistribution(orstatuteofdescent)willgovernwhoreceivesthepropertyofthedeceased.Rememberthatifthedeceaseddiedintestateanddidnothaveheirs,theirpropertyescheatstothestate.Thereareanumberofothervocabularytermstobefamiliarwith.Amendmentstowillsareknownascodicils.Handwrittenwillsarereferredtoasaholographic.Thisisincontrasttoformal(orwitnessed)wills.Averbalwillisanuncupativewill,andisnotenforceableinmoststates.Propertyownedwithawifeissaidtobeownedetux.;withahusband,etcon.;propertyownedwithothersisetal.

AdversepossessionAdversepossessionisthelegaltermforsquatter'srights.Ifapieceofpropertyisusedopenlyandwithoutpermissionformorethan20years,thesquattermaytakelegaltitletotheproperty.YoucanremembertherulesaboutadversepossessionwiththeacronymO.N.C.H.A.:Open,Notorious,Continuous,Hostile,andAdverse.Squatter'srightsdonotapplytopublicland,orregisteredland.DedicationDedicationisthedonationofpropertyrights(ownership,rightsofway,etc.)permanentlyortemporarilyforthepublicuse.E.g.thedonationofapieceofpropertyforuseasapark.


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RealEstateAgency

Itiscriticaltounderstandtherulessurroundingclientrelationshipsifyou'regoingtobearealestateagent.TheLawofAgencygovernstherelationshipbetweenclientsandagentsinarealestatetransaction.Thelegaltermsforthepartiestoanagencyrelationshipare:Principal–Theclient(seller,buyer,landlord,etc.).Hasvicariousliabilityfortheiragents'actions.UniversalAgent–Mayrepresenttheprincipalonanymatter. GeneralAgent–Mayrepresenttheprincipalonmattersrelatedtooneparticularbusinessoractivity.SpecialAgent–Mayonlyrepresenttheprincipalonaparticularmatterortransaction.Inrealestate,thisistherealestatebroker,propertymanager,etc.Subagent–Theagent'sagent.Inrealestate,thisisthesalesperson,co-broker,etc.Worksindirectlyfortheprincipalviathespecialagent'sauthority,andworksdirectlyforthespecialagent.Therearethreetypesofagencythatmightexistbetweentheseparties:ExpressAgency–Explicitlystatedverballyorinwriting(e.g.viaalistingcontract).ImpliedAgency–Authoritythatexistsbecauseoftheprincipalandagent'sactions,eventhoughitisneverdirectlystated.Theequaldignitiesrulestatesthatanauthorizationofagencymusthavethesameformalityastheservicesrendered(soifawrittenfinalagreementisrequired,writtenagencyagreementsareprobablyrequiredaswell).Apparent/OstensibleAgency–Authoritythatdoesnotexist,eventhoughitappearsto.Realestateagents(bothbrokersandtheirsalespeople)owefiduciaryobligations(obligationsoftrust)totheirprincipals.YoucanremembertheseobligationswiththeacronymO.L.D.C.A.R.:Obedience–Youmustdoeverythingtheprincipaltellsyoutodo,andyoumaynotexceedtheauthoritytheygiveyou.Thathavingbeensaid,obeyingaclient'sinstructionsisnotanacceptabledefenseforunlawfulorunethicalbehavior.Ifunlawfulinstructionisgiventheagencyrelationshipmustberefusedorterminated.Loyalty–Youmustputclient'sinterestsaheadofallothers,includingyourown.Disclosure–Youmustaffirmativelydiscloseallinformationaboutthetransactionthatmightaffecttheprincipal'sbestinterests.Confidentiality–Youmustnotdiscloseanyconfidentialinformationabouttheprincipaltoothers(e.g.thehighestpricetheymightpay,oraweaknessintheirbargainingposition)thatyouarenotlegallyrequiredtodisclose.Account–Youmustaccountfor,andreturn,anymoneybelongingtotheprincipal.ReasonableCare–Youmustprotecttheprincipalfromforeseeablerisksofharm,exercisecareandcompetence,andrecommendexpertadvicewhentheprincipal'sneedsarebeyondyourexpertiseorareaofcompetence(notethatnolegaladviceisallowedunderthelicensinglaw).

Massachusettslawalsorequiresbrokerstoengageinfairandhonestdealingwiththeprincipal(knownasan"implieddutyofgoodfaith")underMGL93A.ConfidentialityandRequiredDisclosureWhenitcomestoconfidentiality,informationaboutyourclientwillusuallyfallintooneofthreecategories:

1. Informationthatmustbeaffirmativelydisclosed.2. Informationthatmustnotbedisclosed.3. Informationthatmighthavetobedisclosed.

Bothseller'sandbuyer'sagentsarerequiredtoinformthebuyerofanymaterialdefectsimpactingthesubjectproperty.Disclosureisrequiredevenifthesellerwantstokeepthedefectsconfidential.Whatisamaterialdefect?Amaterialdefectisanythingthatwouldobjectivelyimpactabuyer'sdecisiontopurchaseapieceofrealestate.Thebuyermustbetoldaboutanymaterialdefectsimpactingnotjustthepropertyforsale,but


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alsoanythatimpacttheareaaroundthepropertythatarerootedintheland(permanent).Thisincludesspecialtaxdistricts,environmentalhazards,andinmanystatesitalsoincludesnuisanceslikeairports,highways,celltowers,etc.Whenabuyerpurchasesahouseonan"asis"basis,allknowndefectsmustbedisclosedtothebuyer.Selling"asis"or"whereis"doesnotrelievesellersoragentsfromtheirobligationtodisclosedefects-thenotionofcaveatemptor("letthebuyerbeware")isnotadefenseforanyfailuretodisclosematerialinformationinarealestatesale.Itisrecommendedthatagentsuseaseller'sdisclosureformtoensurethattheyareawareofallofthedefectsofthepropertyofferedforsale.Buyersmustbeinformedaboutmaterialdefects,regardlessofwhentheyarediscovered.Forexample,ifadefectisfoundafterthepurchasecontractissignedthebuyermuststillbetoldaboutit.Buyer'sagentshaveanobligationtoaffirmativelydiscloseanyinformationaboutthebuyerthatwouldmateriallyimpactthebuyer'sabilitytopurchasetheproperty(forexampleifthebuyerdoesnotyethavethefundstopurchasetheproperty).Thatsaid,informationaboutthepartiestothetransactionthatdoesnotmateriallyimpactthepropertyortheirabilitytoconductthetransactionmustneverbedisclosed(e.g.,thelowestpriceasellerwilltake,thehighestpriceabuyerwillpay,orwhythesellerisselling).Ifanagentmanagestolearnconfidentialinformationabouttheotherpartyinthetransaction,though,theymustdisclosetheinformationtotheirclientassoonaspossible.Forexample,ifthebuyer'sagenthearsthatthesellersaremovingandarethereforedesperatetosell,thebuyer'sagentmusttellthebuyer.Whataboutinformationyoumighthavetodisclose?Thatinformationhastodowithstigmatizedproperty–propertiesthatwerethesiteofdeaths,murders,suicides,criminalactivity,andparanormalactivity.Buyersmayfindthesituationdisturbing,butthereisnoobjectiveimpactontheiruseoftheproperty.Theseller'sagentisthusnotobligatedtoaffirmativelydisclosetheinformation,butiftheseller'sagentisaskeddirectlybythebuyerorbuyer'sagentaboutapropertystigma,theymusttruthfullyrespondwithanyinformationtheyareawareof.Thebuyer'sagent,ontheotherhand,hasanaffirmativedutytodisclosepropertystigmainformationtothebuyer.Finally,watchoutforMegan'sLawissuessurroundingsexoffenderregistries;Massachusettsstrictlypunishesthemisuseormisrepresentationofthoseregistries.Itisoftenbesttoprovidebuyerswiththeinformationneededtoaccesstheregistryandchecktheinformationthemselves,ratherthanrepresentitscontents.

Tristram’sLandingv.Wait

Tristram’sLandingv.WaitisaMassachusettscourtcasethatgovernswhenrealestatebrokershaveearnedacommission.Itisthereforecriticaltounderstandsothatyouknowwhenaclienthasunfairlywithheldpayment,andwhentheyarewithintheirrightsindoingso.

BriefFactSummary:Arealestatebrokersoughttorecoveracommissionforasaleofrealestate,whichthesalewasnotconsummated.SynopsisofRuleofLaw:Thegeneralruleregardingwhetherabrokerisentitledtoacommissionfromoneattemptingtosellrealestateisthat,absentspecialcircumstances,thebrokerisentitledtoacommissionifheproducesacustomerwhoisready,willingandabletoconsummatethedealunderthetermsandpricegiventhebrokerbytheowner.FactsoftheCase:PlaintiffsarerealestatebrokersdoingbusinessinNantucket,Massachusetts.TheDefendantownedrealestate,whichshedesiredtosell.ThePlaintiffsdiscoveredDefendant’sdesiretosellandtelephonedDefendantaskingforauthoritytoshowtheproperty.

Activity: In groups, come up with three examples of material defects that would need to be disclosed in a real estate transaction.


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TheDefendantorallygavepermissiontoPlaintiffstoshowtheproperty,butnotexclusively.Thepriceforthepropertywas$110,000.00.TheDefendantknewthatthecustomarycommissionontheislandofNantucketwas5%ofthepurchaseprice.Plaintiffsfoundaprospectivebuyer,whoexecutedawrittenoffertopurchasefor$100,000,whichwasconveyedtoDefendant.TheDefendant’shusbandwrotetoPlaintiffsthatacounter-offerof$105,000.00shouldbemadewithaproposedclosingdateofOctober1,1973.Theprospectivebuyerorallyagreed,anda"purchaseandsale"agreementwasdrawnupbyPlaintiffs.Theagreementwasexecutedbytheprospectivebuyerandwasreturnedwithacheckfor$10,500.00,whichwasatenpercentdownpayment.TheagreementwaspresentedbyPlaintiffstoDefendantwhosignedtheagreementafterdiscussingitwithcounselandacceptedthedownpayment.TheDefendantappearedattheclosing,buttheprospectivebuyerdidnot.Thebuyerthenrefusedtogothroughwiththepurchase.Defendanthasnottakenanyactiontoenforcetheagreementorrecoverdamages,althoughDefendanthasretainedthedownpayment.PlaintiffsthenpresentedDefendantwithabillfor$5,250.00,whichwas5%ofthepurchaseprice.Defendantrefusedtopay,statingthatthefailureofthedealmeantthatnocommissionhadbeenearned.ThelowercourtfoundforthePlaintiffandDefendantappealed.Judgment:JudgmentforDefendant.Thegeneralruleregardingwhetherabrokerisentitledtoacommissionfromoneattemptingtosellrealestateisthat,absentspecialcircumstances,thebrokerisentitledtoacommissionifheproducesacustomerwhoisready,willingandabletoconsummatethedealunderthetermsandpricegiventhebrokerbytheowner.Thecourtfoundthatunderthefactspresentedhere,thePlaintiffsarenotentitledtoacommissionbecausetherewasnounconditionalacceptanceofthebuyerbytheseller.Thiscourtadoptedthefollowingrule.Whenabrokerisengagedbyanownertofindapurchaser,thebrokerearnsacommissionwhen:(1)heproducesapurchaserready,willingandabletobuyonthetermsprovidedbytheowner;(2)thepurchaserentersintoabindingcontractwiththeownertodoso;and(3)thepurchasercompletesthetransactionbyclosingtitleinaccordancewiththeprovisionsofthecontract.Ifthedealisnotconsummatedbecauseoflackoffinancialabilityonthepartofthebuyer,orotherdefaultofthebuyer,thenthereisnocommissionasagainsttheseller.However,ifthefailureofcompletionofthecontractresultsfromthewrongfulactorinterferenceoftheseller,thencommissionmustbepaid(unlesscontractssayotherwise).RealEstateCommissionMathFormulas:SalesPricexCommission%=Commission$SalesPrice–Costs(IncludingCommission)=Seller'sNetProfitProblemType#1Asellerwantstonet$100,000afterpayingyour5%commission.Whatshouldtheysellfor?$100,000/.95=$105,263.16ProblemType#2Asellerwantstonet$210,500onsaleoftheirhome.Theywillpaya6%commissionplusestimatedexpensesof$1212.Whatshouldthepropertysellfor?

Step1:Addexpensestothenettogetthesalepricebeforecommission210,500+1212=$211,712


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Step2:Calculatethecommission$211,712/.94=$225,225.53(Answer)ProblemType#3Abrokeragepaysanagenta1%commissiononthefirst$500,000ofanysaleplus2%ofanysellingpriceoverthat.Whatwasthesalepriceifthetotalcommissionwas$6,000?Step1:Takeoutthe$500,000commissiontodeterminetheamountofthesalethat’sover$500,000$500,000x.01=$5,000$6,000-$5,000=$1,000Step2:Divide$1,000by.02togetthetotalamount$1,000is2%of$1,000/.02=$50,000Step3:Add$50,000tothe$500,000togetthetotalsaleprice$50,000+$500,000=$550,000(Answer)OtherRealEstateConcernstobeFamiliarWith

FTCDoNotCallBeawareofFTC’sDoNotCallregistry.Agentsaretreatedasbusinessesunderthelaw,andsinceagentsoftencallresidentialforsalebyownerlistingsasawaytogeneratebusiness,FTCDoNotCallisinplay.Someimportantitemsofnote:TheFTCDoNotCallList(createdintheDoNotCallImplementationActof2003)prohibitsunsolicitedbusinesscallstoresidentialphonenumbersontheDoNotCallList,aswellasmobilephonenumbers.FinesforviolationsofDoNotCallareupto$40,654percall.Itappliesonlytoresidentialcalls.Existingrelationships(under18months)areexcludedfromthelegislation.Asof2013,pre-recordedcalls(robocalls)arebannedwithoutthepriorwrittenconsentoftheconsumerbeingcalled.Notethatanagentmaycallaforsalebyownerlistingtoshowthepropertytoabuyer,sincetheownerissolicitingthatsortofcall(unlesstheadsays"NoAgents"or"PrincipalsOnly").TelephoneConsumerProtectionAct(TCPA)andtheJunkFaxPreventionActBothprohibitmostunsolicitedfaxadvertisements.Inordertolegallysendanadvertisementviafax,youmusttypicallyhaveanexistingbusinessrelationshipwiththerecipient.CAN-SPAMTheControllingtheAssaultofNon-SolicitedPornographyandMarketingActof2003prohibitscommercialelectronicmessagesthatdonotprovideboththeaddressofthesender,andsomemeansofunsubscribingor"optingout"offuturemessages.

TheChildren'sOnlinePrivacyProtectionAct(COPPA)COPPArequiresthatbusinessesprovideconsumerswithadetailedprivacypolicyiftheycollectinformationviawebsites,mobileapps,andothernetworks.Italsostrictlylimitsthecollectionofpersonalinformationfromchildrenundertheageof13,evenifthewebsiteorappisnotspecificallytargetedtowardschildren.


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InterstateLandSalesDisclosureAct RequiressellersofsubdivisionstofiletheirintenttosellthoselotsonaninterstatebasiswiththeConsumerFinancialProtectionBureauiftheymeetoneofthefollowingcriteria:1)thesubdivisioncontainsmorethan100lotsorcondominiums,2)theyareofferingmorethan25lotsorcondominiumsforsalesimultaneously,or3)thesubdivisioncontainssized20ormoreacres.Itisdesignedtoavoidfraudwhenpropertiesaresoldwithouthavingbeenseenbypurchasersbyrequiringdeveloperstoprovidepurchaserswithawrittenpropertyreportdetailingtitleissues,developmentdetails,utilitycosts,soilconditions,etc.,andtoprovidebuyerswithaminimumof7daystorescindtheirpurchaseagreement.ShermanAnti-TrustActTheShermanAnti-TrustActprohibitsanticompetitivebusinessactivities,andrequirestheUSgovernmenttoinvestigateorganizationssuspectedofengaginginthosebusinessactivities(e.g.monopolies).Itwaspassedin1890.Theactforbidspricefixing(establishinguniformpricing),groupboycottingofaconsumerornon-competitorbyagroupofcompetitors,anyagreementsregardingadivisionofthemarketbygeographyorservicesoffered(alsoknownasmarketallocation),andcontingentsales(alsoknownastyingortie-inarrangements,whicharemakingasalecontingentonthepurchaseofanotheritem).Thepenaltiesforanti-trustviolationsare:finesofupto$1Millionperoffenseforcorporations,andfinesforupto$100,000and3years'imprisonmentforindividuals.Inordertobeafined,andantitrustconspiracymustoccur,definedas1)twoormorepeopleagreeingtoact(eitherexplicitlyorimplicitly),and2)theagreeduponacthavingtheeffectofrestrictiontrade(e.g.limitingcompetition).Thekeytoavoidinganti-trustviolationsistorememberthatcommissions,contracts,andotherhiringtermsarealwaysnegotiable(determinedby“agreementofparties”).Therearenostandardcommissions,anditmaybeunlawfulforagentstoevendiscusscommissionswiththeircolleagues.


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FairHousingLawFairhousinglawprohibitsdiscriminationinrealestatebasedonanumberofprotectedclasses(groupsofpeople).Itcoversrealestateagents,sellers,buyers,landlords,appraisers,andanyoneelseinvolvedinarealestatetransaction.FederalFairHousingLawThereareseveralimportantpiecesofFederallegislationregardingfairhousing.TheCivilRightsActof1866(notatypo!)prohibitsdiscriminationonrace.TheFairHousingActof1968(thecommonnameforTitleVIIIoftheCivilRightsActof1968)extendstheCivilRightsActof1964‘sprotectionstoprivatehousing.Itprohibitshousingdiscriminationonthebasisofrace,color,religion,andnationalorigin.TheHousingandCommunityDevelopmentActof1974addedsextothelistofprotectedclassesunderthe1968act.TheFairHousingAmendmentsActof1988addsprotectionsforthedisabled(bothmentalandphysicaldisability,includingHIV/AIDsanddrugoralcoholaddiction)andfamilialstatus(havingkids).TheAmericanswithDisabilitiesActof1990alsoaddressestherightsofthedisabled.

Disabledtenantsandpropertyownersmustbeallowedtohaveassistanceanimals.Petpolicies,condobreedrestrictions,etc.donotapplytotheseanimals.Therearetwodifferenttypesofassistanceanimal:serviceanimals,whicharetrainedandperformatask,andsupportanimals,whichareanyanimaladoctordeemstobeasupportanimal.Ifanapplicantusesaserviceanimal,alandlordorcondoassociationisentitledtoasktwothings:1)ifitisaserviceanimal,and2)whattaskitperforms.Youarenotentitledtodocumentation,andmustnotaskthosequestionsiftheperson'sdisabilityisobvious(e.g.ablindperson).Ifapersonhasasupportanimal,adoctor'snotecanberequested(butnotthereasonthepersonneedstheanimal),anddisabilitymustneverbementioned.Landlordsmaynotrefusetoallowreasonablemodificationsofarentalpropertyatahandicappedperson'sexpense.Thatsaid,thelandlordcanrequirethehandicappedpersontoreturntherentedpropertytoitsoriginalconditionwhentheymoveout,againattheirexpense.AfterMarch31,1991allnewandrenovatedresidential4+floorhomesmusthavehandicapped-accessibledesignfeaturesforthefirstfloor,andanyupperfloorsservicedbyanelevator.MassachusettsFairHousingLaw

MassachusettsFairHousingLawbuildsonFederalFairHousingLaw.Itprohibitsthesamesortofbehaviors,butformoreprotectedclasses,andsometimesinmorerestrictiveways.DiscriminatoryadvertisingisprohibitedunderMAFairHousing.UnderMGL151BtheMassachusettsprotectedclassesare:age,sex,maritalstatus,sexualorientation,genderidentityandexpression,veteranstatus,race/color,religiouscreed,publicassistancestatus,ancestry,disability(mentalorphysical),geneticinformation,nationalorigin,andfamilialstatus.Discriminationagainstthosewithchildrenunder6duetoleadpaintisalwaysprohibited,noexceptions.NotethattheowneroccupancyexceptiontofairhousingislimitedinMassachusetts.UnlikeFederalLaw,theowneroccupancyexceptionislimitedtoowneroccupied2familyhomesonlyinMassachusetts.Alsonotethat,likeraceFederally,publicassistancestatusisalwayscoveredbyMassachusettsFairHousingLaw.FairhousingexceptionsneverapplytopublicassistancestatusinMassachusetts.FindingsbytheMassachusettsCommissionAgainstDiscrimination(MCAD)againstanagentwillresultinanautomaticlicensesuspensionfor60days.Asecondviolationwithintwoyearsresultsina90-daysuspension.PublicAssistanceProgramsPublicassistance(orwelfare)isprotectedbyMAFairHousingLawwithoutexception.Itcoverspeoplereceivinghousingassistance,aswellasothergovernmentassistance(e.g.foodstamps).Realestateagentscannotrefusetoworkwithsomeonebecausetheyarereceivingpublicassistance,andlandlordsandsellerscanneverdiscriminate


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againstpersonsbasedontheiruseofpublicassistance.Youshouldbefamiliarwithtwomajorhousingassistanceprograms:Mass.Housing–Anindependent,quasi-publicagencycreatedin1966thatischargedwithprovidingfinancingforaffordablehousinginMassachusetts.Itprovidesfinancingforaffordablehousingconstruction,overseesaffordablehousingdevelopments,andprovideslowdownpaymentandaffordableloansforfirst-timehomebuyers.Section8–Afederalprogramdesignedtoproviderenterswithaffordablehousingviaavouchersystemthatsubsidizesrentalsprovidedbyprivatelandlords.Notethatthesearenottheonlyhousingassistanceprogramsinexistence,buttheyaretwoofthemostcommonyoumightencounter.ProhibitedActivitiesAgents,sellers,buyers,andothersinvolvedinarealestatetransactionmustneverdiscriminateonthebasisoftheseprotectedclasses.Examplesofprohibitedbehaviorinclude:

• Refusingtodealwithsomeone.• Differentiatingontermsorconditions.• Advertisinginadiscriminatoryway.• Falsifyingavailability(usuallypretextualtoavoidworkingwithsomeone).• Engaginginblockbusting,whichisanysolicitationofpropertyforsaleorleaseonthegroundsofan

allegedchangeinpropertyvaluesduetothepresenceorprospectiveentryintoaneighborhoodofpeoplecoveredbyaprotectedclass.Itcreatespanic-selling(alsoknownaspanicpeddling).

• Steeringprospectivepurchasersorrentersawayfrom,ortowards,certainareasbasedontheprotectedclass.

• Usingcovenantsorrestrictionstolimitoccupancybasedonrace(bannedinthesupremecourtcaseShelleyv.Kraemer).

• Prohibitingsomeonefromjoiningprofessionalrealestateorganizations.FairHousingPenaltiesAnypersonmayfileafairhousingcomplaintwiththeDepartmentofHousingandUrbanDevelopment(HUD)withinoneyearoftheallegeddateofthediscrimination.Testingisallowed,andnotconsideredentrapment.Penaltiesforfairhousinglawviolationsaresevere:aHUDadministrativelawjudge(ALJ)canfineupto$16,000forafirstviolationoffederalfairhousinglaw,$37,500forthesecond,andupto$65,000forrepeatoffenders,inadditiontocivilpenaltiesbetween$50,000and$100,000.AHUDEqualHousingOpportunitypostermustbepostedineveryrealestateoffice(anyplacewhereadwellingisofferedforsaleorrent).Failuretoposttheposterrepresentsprimafacieevidenceofdiscrimination.ExemptionsfromFairHousingLawsFinally,therearesomeexemptionsfromfairhousingthatyouneedtobeawareof.Itiscrucialtonotethattheseexemptionsareneverallowedfordiscriminationonthebasisofrace(underthe1866CivilRightsAct,perthesupremecourtcaseJonesv.AlfredHMayerCo.),noronpublicassistancestatusinMassachusetts.Realestateagentsarealwayscoveredbyfairhousinglaws,andareneverexempt,eveniftheownerisexempt.Also,advertisingisalwayscoveredbyfairhousinglaw.Ifapropertyownerwhoisexemptfromfairhousingwishestouseyouasanagent,theymustnotmakeuseoftheexemption.Iftheywishtomakeuseoftheexemption,youcannotrepresentthem. Thefollowingsituationsareexemptfromfairhousingprotections(raceandpublicassistancenotwithstanding):


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• Aprivateindividualwhoowns3orfewersingle-familyhouses,providedthattheyhavenotsoldmorethanonepropertyinthepast24months.

• Rentalsinowner-occupiedtwotofourfamilyhomes(limitedtotwofamilyhomesonlyinMassachusetts).

• StateandFederallyapprovedhousingdevelopmentsforelderlyhomeowners(forthose62andoveronly,or>80%occupancyby55yearsorolder)areexemptfromhousinglawsregardingfamilialandagestatusundertheHousingforOlderPersonsActof1995.

• Housingprovidedfornon-commercialpurposestothemembersofareligiousorganization,assumingthatmembershipinthatreligionisnotdiscriminatory.

• Housingprovidedfornon-commercialpurposestothemembersofaprivateclub,solongasthehousingisneveropentothepublic.


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IntroductiontoRealEstateFinancing

Financing,forourpurposes,isreceiving,orproviding,moneyforthepurchaseofrealestate.Gettingaloanforthepurchaseofrealestateusuallyfollowsthesamesteps:

1. Thebuyer(mortgagor)appliestoalender(mortgagee)foraloan.Usuallythishappensbeforethebuyerbeginslookingforapropertytopurchase,inwhichcasethebuyerwillreceiveapprovalfortheloanasapre-approvalorpre-qualificationfromthelender.

2. Thelenderwillassessthebuyer'sabilitytopayfortheloanbylookingattheirgrosssalary(usedtodeterminetheirdebttoincomeratio,orDTI)andtheircredithistory(FICOscore).

3. Assumingthebuyerbegantheloanprocessbeforelookingforpropertiestopurchase,thebuyerreceivesapre-approvalletterfromthelender.Thiscommitmentisnotnecessarilybindingonthelender,andiscontingentonthebuyerfindingapropertyworthenoughtocovertheloanamount.Somelenderswillcallthepre-approvalletteracommitmentletterorletterofcommitment,butformostlenderstheletterofcommitmentcomesaftertheloanunderwritingprocessiscomplete.

4. Thebuyerfindsapropertytheywanttopurchase,andthelenderhiresanappraisertodetermineifthecollateral(theproperty)fortheloanissufficienttocovertheloanintheeventofadefault(failuretomakepayments).Ifthecollateralisinsufficienttocovertheloan,thebuyertypicallywillneedtomakealargerdownpayment,orbackoutofthesale.

5. Thelender'sattorneychecksthepublicrecordsatthecountyregistryofdeedswherepropertyislocatedtodetermineifthepropertysuffersfromanytitledefects.Ifitdoes,thesellermustfixthembeforeclose.

6. Assumingthelenderissatisfiedwiththecollateral,theygivealetterofcommitmenttothebuyer.Thisrequiresthemtomaketheloansolongasthebuyersatisfiesthelender'sconditionsstatedintheletter.

7. Atclosing,thelendermakestheloanfortheborrower.Inreturn,theborrowergivesanote(alsoknownaspromissorynoteormortgagenote)asevidenceofthedebt,alongwithamortgagesecuringthedebt,tothelender.

8. Ideally,thebuyerpaysbacktheloanoversomenumberofyears.Onrepaymentthelenderreturnsthenoteandmortgagetothebuyer,andtheyownthepropertyfreeandclear.Alternatively,thebuyerfailstopayofftheloan(theydefaultontheloan),andthelenderforeclosesonthepropertytosecurepayment.

ForeclosuresAforeclosureisalegalprocesswherealenderattemptstorecoverthebalanceofaloanfromaborrowerindefaultbyforcingthesaleoftheassetusedasthecollateralfortheloan(usuallyahouse).Foreclosuresareusuallyjudicial(underthesupervisionofacourt,andinitiatedbylawsuit),butsomestatespermitnon-judicialforeclosuresifadeedoftrustwasusedforthefinancingarrangement,ratherthanamortgage.Foreclosuresalesareusuallydonebypublicauction.Attheauction,thelendergrantstitletothehighestbidder(whichmaybe,andoftenis,thelenderitself)bysigninganddeliveringanewdeed(oftenaquitclaimdeed).If,priortotheauction,theborrowerhastheabilitytopaythelenderwhattheyoweplusthecostsoftheforeclosure,theycanpreventtheforeclosurebyexercisingtheirequityrightofredemption.Alendermightalsoagreetoaloanmodification,wheretheloanischangedsothattheborrowercanaffordtomaketheirpaymentsandavoidforeclosure.Anotherwaythatahomeownermightavoidforeclosureisashortsale,wherethehomeownersellsthehome"short"ofwhattheyowethebank.Thistypicallyhappensifahomeownerisunderwater(theyowemorethantheycanselltheirhomefor).Inashortsale,thebanksettleswiththehomeownerforwhateversalespricethehomeownercanobtainontheopenmarket,andwritesofftheremainingloanbalanceasaloss.Realestateagentsoftenhelphomeownersselltheirhomeinashortsale,thoughtheprocesscantakequiteabitoftimeduetotheneedforthebank'sapprovalofanyoffers.Iftheproceedsfromaforeclosureauctionareinexcessoftheborrower'sdebtplusthelender'sexpenses,theborrowerwillreceivetheirleft-overequity(moniesinexcessofdebt).If,ontheotherhand,theauctionfailstocoverthedebtandthelender'sexpenses,theborrowerispersonallyliableforthedeficiency,andcanbesuedfortheoutstandingdebtbythelender,resultinginadeficiencyjudgment.Thatsaid,lendersrarelypursuehomeownersin


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residentialforeclosures,andthelendermostoftenwritesofftheloss.IfthelenderownsthepropertyafterforeclosuretheywillsellitonthemarketasanREOor"RealEstateOwned"property.Notethatsomestatesalsoprovideforstrictforeclosure.Inthosestates,anauctionmaynotberequired;thelendercansuetheborrower,andiftheborrowerdoesnotpaywhattheyowewithinthetimeframeorderedbythecourt,thelenderreceivestitletothepropertyautomatically.Usuallythisisusedforunderwaterproperties,whicharepropertiesthatareworthlessthanwhatisowedontheloan.

TheNoteandtheMortgageRealestatefinancinginvolvestwolegalinstruments:thenoteandthemortgage.TheNoteThenoteistheevidenceofthedebt.ThinkofitasanIOU.Beawareoftwoclausesthatmightappearinthenote:Accelerationclause–Permitsthelendertoacceleratethematuritydate(duedate)oftheloanintheeventofadefaultonthetermsofthemortgage.Thisiscalledcallinginthenote,andisthelender'sfirststepintheforeclosureprocess.Prepaymentpenaltyclause–Requirestheborrowertopayapenaltyforprepaymentoftheloan.Itisusedtoguaranteethatthelendergetspaidtheinterestontheloan.Prepaymentpenaltyclausesareuncommoninresidentialloans,butarecommonincommercialloans.TheMortgageThemortgageisthesecurityforthenote.Itprovidesapieceofpropertyascollateralfortheloan.Underthemortgagetheborrowerhypothecatestheirproperty(givesitupassecuritywhileretainingpossession).Dependingonifastateisalientheorystateoratitletheorystate,eitherthebank(titletheory)orborrower(lientheory)willholdlegaltitleduringthelifeoftheloan.Massachusettsisatitletheorystate,whichmeansthatthebanklegallyownsthepropertyuntiltheborrowerpaysofftheloan.Undertheloantheborrowerhasequitabletitle(afuturerighttogainlegaltitle).Somecommonfeaturesofmortgagesare:

Mortgagecovenants–Everythingtheborrowerpromisestodo:makemonthlypayments,paytheirpropertytaxesasimpoundstothebank,keepthepropertyinsured,etc.Powerofsaleclause–Permitsthelendertotakethepropertyandsellitintheeventofadefaultonthetermsoftheloan(mostoftennon-paymentoftheloan).Defeasanceclause–Automaticallyrelievesthecollateralofthebank'sclaimwhentheloanispaidback.Dueonsale(oralienation/assumption)clause–Permitsthebanktoacceleratethematuritydateoftheloanintheeventofmost(butnotall)titletransfers.Itpreventstransferringthemortgagetoathirdparty.UndertheGarn-St.GermainActthedueonsaleclausecannotbetriggeredondeath,devisingoftheproperty,leasing,marriage,divorce,ortransfertoafamilytrust.Subordinationclause–Makesthemortgagejuniortoanyfuturemortgage.Partialreleaseclause–Usedinblanketmortgages(mortgagesthatcoverseveralparcelsofland).Thisclausereleasesaportionofthecollateralinexchangeforpartialpaymentoftheloan.Mightbeseeninsubdivisiondevelopmentorcross-collateralizedloans.

PointsApointisonepercentoftheloan.Pointsareoftenusedtoincreasethevalueofaloan.Basically,iftheinterestrateonaloanissolowthatitisn'tworthmaking,alendercanchargetheborrowerpointsasanoriginationfee(afeeforgettingtheloan)toincreasetheirprofitontheloanandmakeitworthwhile.


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Apropertywassoldfor$100,000withaloanfor$80,000.Thelenderchargedtheborrowertwopoints.Howmuchdidthepointscosttheborrower?$80,000x.02=$1,600DiscountPointsAborrowercanusediscountpointspaidupfronttobuydowntheloaninterestrate.Thismeanstheborroweroweslessinteresteverymonthbecausetheyhavepaidsomeoftheinterestupfront,whichreducestheirmonthlypayment.MortgageBrokersMortgagebrokersarethirdpartiesthatdonotoriginatetheloan,butinsteadbrokertheloanbetweentheborrowerandlender.Contrastwithmortgagebankers,whoworkdirectlyforthelenderanddooriginatetheloan.Mortgagebrokersmayoffermoreflexibleloanoptionsforyourclientsbycomparingdifferentbanks'offerings,thoughoftenatahighercost(becausethebrokerchargesafee).


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RealEstateFinancingTheSecondaryMortgageMarketBanksdon'thavetokeeptheloanstheymakeontheirbooks;theyhavetheoptionselltheloansofftoinvestorsonthesecondarymortgagemarket.Aftertheloanissold(eitheratdiscountforlessthanitisworth,orapremiumformorethanitisworth),theoriginatinglendermayreceivefeesforadministeringtheloan,orthemortgagormaysimplyforwardtheirpaymentstotheloan'snewowner.Themortgagordoesn'tneedtoconsenttothesaleoftheloan,buttheymustbeinformedofthesalepertheHelpingFamiliesSaveTheirHomesAct(partoftheTruthinLendingAct).Therearethreemajorentitiesonthesecondarymortgagemarket.AllthreewereestablishedbytheUSGovernmenttoencouragelenderstomakeborrowerfriendlyloansandtoinjectliquidityintothemarket(whichmakesloansmorereadilyavailable):FederalNationalMortgageAssociation(FannieMae)–Foundedin1938,focusesonconventionalandFHA/VAloans.FederalHomeLoanMortgageCorporation(FreddieMac)–Foundedin1970.SpecializesinconventionalandFHA/VAloans.Innovatesbyimplementingthesecuritizationofmortgages,whichFannieMaelaterbeginsaswell.GovernmentNationalMortgageAssociation(GinnieMae)–Foundedin1968.SpecializesinFHAlow-incomehousing.FannieandFreddiearepresentlyingovernmentconservatorshipafterthe2007-2008housingcrashundertheFederalHousingFinancingAgency(FHFA).TypesofRealEstateFinancingRealestatefinancingcanbestructuredinanumberofways.Structuresmightinclude,butareinnowaylimitedto:FullyAmortizedLoansAmortizationisthepaymentofdebtinequalinstallments.Fullyamortizedloans(alsoknownasdirectreductionloans)areloansthatarecompletelypaidoffwhenthelastpaymentismade.Allpayments(knownasdebtservice)payboththeprincipal(debt)andtheinterestoftheloan,aswellasanyinsurancepaymentsandtaxesdue.ThisisknownasPITI,orthePrincipal,Interest,Taxes,andInsurance(usuallyhomeownersinsurance,whichcoversphysicaldamagetothehouse,andmightincludeadditionalbroad-forminsuranceforextradamages).Theamountsgoingtowardprincipalandinterestchangeoverthelifetimeoftheloan,andareusuallyrecalculatedmonthly.Homeloansandsecondmortgagestypicallytakethisform.ExceptforSimpleInterestMortgages(wheredebtiscalculateddaily),theaccountingforamortizedhomeloansassumesthatthereareonly12daysinayear(thefirstdayofeachmonth).Youraccountbeginsonthefirstdayofthemonthfollowingthedayyourloancloses.Youpay"interiminterest"fortheperiodbetweentheclosingdayandthedayyourrecordbegins.Yourfirstmonthlypaymentisdueonthefirstdayofthemonthafterthat.Forexample,ifyour6%30-year$100,000loanclosesonMarch15,youpayinterestatclosingfortheperiodMarch15-April1,andyourfirstpaymentof$599.56isdueMay1.ThatpaymentincludestheinterestdueforApril.Theinterestpaymentiscalculatedbymultiplying1/12oftheinterestratetimestheloanbalanceinthepreviousmonth.1/12of.06is.005.TheinterestforAprildueMay1,therefore,is.005times$100,000or$500.Theremaining$99.56isprincipal,andreducesthebalanceto$99,900.44.Theprincipalpaymentisalwaysaresidual,thedifferencebetweenthetotalpaymentandtheinterestdue.Theprocessrepeatsmonthly,buttheportionofthepaymentallocatedtointerestgraduallydeclineswhiletheportionallocatedtoprincipalgraduallyrises.OnJune1,theinterestdueis.005times$99,900.44,or$499.51.Theamountavailablefortheprincipalrisesto$100.06.


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Thefinalpaymentpaysoffanyremainingprincipalandinterest,dischargingtheloanandfreeingtheborrowerfromtheirobligationsunderit.AmortizationTablesAmortizationtablesprovideaneasy(ifnotoutdated)waytocalculatemortgagepayments.Anexampleamortizationtablemightlooklikethis:

AnnualInterestRate 20YearPI 25YearPI 30YearPI5.0% $5.68 $5.14 $4.885.5% $5.98 $5.43 $5.056.0% $6.09 $5.84 $5.30

Tocalculatethepaymentsonanamortizedloan,theformulais:(Loan/1000)*PI=MonthlyPayment.PIisthefirsthalfofPITI,orthepaymentsofPrincipal,Interest,Taxes,andInsurance.So,usingtheabovetable,thepaymentsona$150,000loanat5.5%interestamortizedover25yearswouldbecalculatedas:($150,000/1000)*5.43=$814.50

BalloonMortgagesAballoonmortgageisaloanwithanamortizationperiodthatislongerthanitspaymentperiod(e.g.a10-yearloanwhosepaymentsarecalculatedona30-yearamortizationschedule).Thismeansthatthemonthlypaymentsontheloanarelowerthanwouldbenecessarytopayofftheloanbytheendofthepaymentperiod,whichmakesthe

Math:AmortizedLoans

Formula: Remaining Balance = ( Starting Balance x (1+(Interest Rate / 12 )number of payments ) – (Monthly Payment x ( (1 + (Interest Rate / 12)number of payments ) – 1) / Payment) )

Tom has a loan for $100,000 for 30 years with 6% interest. The monthly payment of principal and interest is $530. What is the outstanding principal after the first monthly payment? $100,000 x .06 = $6000 / 12 = $500 1st month interest

Payment: $530 Lender’s Interest: $500 Amount Applied to Principal: $30 Outstanding Principal: $99,970 What is the outstanding principal after the second payment? $99,970 x .06 = $5,998.20 / 12 = $499.85 2nd month interest Payment: $530 Lender’s Interest: $499.85 Amount Applied to Principal: $30.15 Outstanding Principal: $99,939.85 Practice Question: What is Tom's outstanding principal after his third payment?


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paymentsaffordable.However,italsomeansthattherewillbeunpaidprincipalthatneedstodischargedwiththefinalloanpayment(aballoonpayment).Theloanisusuallyrefinancedtopayfortheballoonpayment.SecondMortgagesSecondMortgages(orjuniorliens)workthesameasregularmortgages,exceptthattheycomesecond(orthird,orfourth,orwhatever).Theyareoftenusedtopayforaportionofthefirstmortgage'sdownpayment,orforrenovations.Intheeventofaforeclosure,thefirstmortgageehasthefirstclaimontheproperty;juniormortgageeshaveclaimsintheorderthattheyplacedtheirlienagainsttheproperty.Juniormortgageesthushavegreaterriskofexposure,andoftenchargemorefortheirloans.

StraightandSimpleInterestLoansStraightMortgagesareinterestonlyloans;theprincipalispaidinonelumpsumonthelastpayment.Simpleinterestloansarenon-compounding.PurchaseMoneyMortgagesAlsoknownassellerfinancingorsellercarrybackloans.Thesellerfinancespart,orall,ofthesaleoftheirownpropertybyreceivinganoteandamortgage(alongwiththerighttoforeclosure)fromthebuyer.WraparoundMortgagesAwayofstructuringsellerfinancingthat"wraps"thesellerfinancingaroundtheseller'sexistingdebt.Thesellerreceivestheirpaymentsonthesellerfinancing,alongwithapremiumontheirexistingdebt.Theythenpayofftheirexistingdebtwiththeproceedsfromthesellerfinancingarrangementonbehalfofthebuyer.Notethatadueonsaleclauseprecludesthissortoffinancing,andthattheoriginalmortgageestillhasarighttoforecloseonthenewowneriftheyarenotpaid.Example: 1st 2nd Loan $180,000 $50,000Note $180,000 $230,000 Interest 4% 6% Premium 2%on$180,000 N/AConstructionFinancingFinancingusedtopayforpropertyconstruction.Ratherthangettingallofthemoneyatonce,theborrowerreceivesthefundsfromtheloanindrawsorstages.Thisprotectsthelenderintheeventofforeclosure.Usuallytheloanmustbereplacedbyapermanenttakeoutlenderwhentheprojectreachescompletion.Newconstructionoftencomeswithaconstructionwarrantythatcoversfaultyconstructionforsomenumberofyearsafterpurchase(statedinthewarrantycontract).PackageMortgagesApackagemortgagecoversbothrealpropertyandpersonalpropertysuchasdishwashers,stoves,washer/dryer,airconditioners,andrefrigerators.Theycanbeusedtobuyfurnishings,etc.atalowerinterestratethantraditionalfinancing(butwithalongerpaymentperiod).Achattelmortgageissecuredbypersonalpropertyonly.

HomeEquityLineofCredit


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AlsoknownasanEquityLoan,EquityLineofCredit,orOpen-EndMortgage.Itgivestheborroweralineofcreditagainsttheequity(valueintheirhome)thattheycanborroweragainstastheyseefit.UsuallytheHELOCisajuniorlien.Reverse-AnnuityMortgage(RAM)Awayforhomeownersaged62yearsoroldertoaccesstheequitytheyhaveintheirhome.Thebankmakespaymentstotheborroweragainsttheequityintheirhome,andtheloanplusinterestisrepaidwhenthehomeownerpassesaway,orsellstheirhome.FixedRateMortgageAloanwhoseinterestrateislockedinwhentheloanisoriginated,anddoesnotchangeoverthelifetimeoftheloan.AdjustableRateMortgage(ARM)Aloanwhoseinterestrateadjusts,sometimesoveraninitiallylowteaserrateordiscountedrate.Usuallyitadjustsbasedontheprimeinterestrate,orthelowestinterestrateavailableatabank(e.g.theprimerate+2points).ARMsoftenhaveinterestratecaps,butanyinterestabovethecapthatisnotappliedcanbecarriedovertothenextrateincreaseasacarryover.IfanARMhasapaymentcapthenanyinterestnotpaidbythelimitedpaymentisaddedtotheloanprincipal. GraduatedPaymentMortgage(GPM)Aloanaimedathomebuyerswithpredictablyrisingincomes(e.g.doctors).Initiallythepaymentsontheloanareadjusteddownsoastobeaffordable,andincreaseovertimeastheborrower'sincomeincreases.Thepaymentsmadeattheoutsetoftheloanoftenfailtocovertheinterestchargedontheloan,resultinginnegativeamortizationoftheinterest.

GrowingEquityMortgage(GEM)Aloanwhereanyextrapaymentsarecrediteddirectlytoloanprincipal.Thisallowshomeownerstopayofftheloanquicker,andsaveoninterest.ParticipationMortgageAloanwherethelenderparticipatesasanequitypartnerinadevelopmentproject.SharedAppreciationMortgage(SAM)Aloanwhereaninvestormakesthedownpaymentforthebuyerinexchangeforashareofthepropertyequityorappreciationvalue.BlanketMortgageAloanthatcoversseveralparcelsofland.Usuallyincludesapartialreleaseclausetoprovideforthereleaseofparcelsinexchangeforpartialpaymentoftheloan.BridgeLoansandSwingLoansBridgeloansareshort-termloandesignedtobridgetheborroweroversomegapincashflow,e.g.ashortfallinconstructionbetweendraws.SwingLoansareloansthatallowahomebuyertoborroweragainstanewhomethey'repurchasingtocarrytwomortgageswhiletheyselltheiroldhome.Non-RecourseLoan


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Aloanwheretheborrowerisnotpersonallyliableonloandeficiencyinaforeclosure.Thereisnopersonalguarantee;thepropertyisthereforetheonlysecurityfortheloan,andadeficiencyjudgment2isimpossibletoobtain.Importantforrealestatedevelopers.

BuyDownorPledgedAccountMortgages(PAMs)Buydownorpledgedaccountmortgagesareusedtomitigateveryhighinterestratesthatmakeloanpaymentsunaffordable.Youmightseetheminamarketthathashistoricallyhighinterestrates(e.g.theUnitedStatesinthe1970s).Forexample,themonthlypaymentona$500,00030-yearloanwith10%interestis$4,388.00.Ifthismonthlypaymentplacesthebuyeroutsideofthelender'sguidelinesforlending(e.g.28%ofincome),theseller(buydown)orbuyer(pledgedaccount)candepositasubsidywiththebanktosubsidizetheinterestrateontheloanforsomenumberofyears.Forexample,iftheborrowersubsidizedtheloanforthreeyears,theywouldbeslowlyeasedintothehighrateofinterest(e.g.the1styearis7.5%,then8.5%,then9.5%,thenfinally10%).Theassumptionisthatthebuyercantheneitheraffordthepaymentsat10%interest,orrefinancetoalowerrate.

TakeOverMortgagesThinkoftakeovermortgagesassublettingthemortgage.Ifthesellerdoesn'thaveadueonsaleclause,thebuyercantakeovertheseller'sdebt.Thebuyerwouldpaythesellertheirequity(thedifferencebetweenthesellingpriceandtheassumeddebt),andreceiveadeedandtherighttoredeemtitlebypayingofftheloan.Theoriginalloanwouldstayinplace.

Therearethreemethodsoftakingoverseller'slien:Subjectto–Onlytheoriginalmortgagorislegallyresponsibleforloan,andisliableifthereisadeficiencyafteraforeclosureauction.Bestforthebuyer. Assumptionof–Boththeoriginalmortgagorandnewownerareresponsiblefortheloan,andanypotentialdeficiency.Thebuyerandsellerarejointlyresponsible.Novation–Theseller'snoteiscancelled,andanewnoteiswrittenbetweenthelenderandthenewbuyer.Onlythebuyerisresponsibleforthedebt;thesellerisreleasedfromtheirobligations.Bestfortheseller.

2Seepage54.


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GovernmentFinancingProgramsandRegulations

TheFederalgovernmenthasseveralprogramsthatencouragehomeownershipbymakinghomeloansmoreaffordable.Theseprogramsdonotmakeloans;instead,theyencouragelenderstomakeaffordableloansbyinsuringaffordableloansmadetoqualifiedhomebuyers.Conventionalloansareloansthatarenotpartoftheseprograms.Howdotheseprogramsmakeloansaffordable?Themainwaythattheseprogramsmakeloansmoreaffordableisbyallowingborrowerstousemoreleverage(borrowedmoney)thanabankwouldnormallyallow.Bankstypicallywantaloantovalueratio(LTV)ofnomorethan80%.Thismeansthattheborrowermusthaveatleast20%ofthepurchasepriceincash,andcanborrowupto80%fromthebank.Since20%cashisdifficultforhomeownerstocomeupwithinmanymarkets,thegovernmentinsureslendersthatmakeloansundercertainlendingprogramssothatborrowerscanmakeasmallerdownpayment.Lendersarewillingtodothisbecause,withtheinsurance,thelendereffectivelyhas20%downwithouttheborroweractuallyneeding20%incash(e.g.3.5%fromtheborrower+16.5%insuredbytheUSGovernment).Therearetwomainprogramsyoushouldbeawareof:FederalHousingAdministrationFinancingTheFederalHousingAdministration(FHA)wascreatedin1934aspartoftheNewDeal.TheFHAinsureslendersthatmakeloanswithmorethan80%LTV(usuallyupto96.5%LTV–theFHAalwaysrequiressomesortofdownpayment,evenifitissmall)forhomebuyers,andputsinplacelimitationstomakeloansmorefriendlyforborrowers(lowerFICOrequirements,higherdebttoincomeratios,andnopre-paymentpenalties).Underthe203(b)-program,anyonequalifiesforFHAfinancingsolongastheyarepurchasingaprimaryresidence(thehometheywillliveinforatleast2years)thatmeetstheFHA'srequirements.Generally,theseloansarefor1-4familyowneroccupiedhomes(thoughtheywillalsoapprovesomecondosandco-ops)thatareundertheFHA'spurchasepricelimit.Thislimitisdeterminedbythecountythehomeisbasedin.Also,notethatanyFHAloansoriginatedbefore1989areassumable.Remember,theFHAonlyinsurestheloan(andchargestheborrowerfortheinsurance);theydonotmaketheloan.Qualifiedlendersmaketheloan,andmarketconditionsdictatetheinterestrateontheloan.TheinsuranceforFHAloansiscalledMortgageInsuranceorMI.VeteransAffairsFinancingVeteransAffairs(VA)financingislikeFHAfinancingforhonorablydischargedveterans.Itwasestablishedin1944aspartoftheGIBill,andisprovidedbytheDepartmentofVeteransAffairs.TherulesworkmoreorlessthesameasFHA,exceptthatnodownpaymentisrequired.Therecanbeafinancingfee,butveteransareallowedtorollthefeeintotheirloan.Forthepurposesoftheexam,VAfinancingistheonlynodownpaymentloanavailabletoborrowers.LikeFHA,theVAonlyinsurestheloan;qualifiedlendersmaketheloan.Veteransmayreusetheirentitlementseveraltimes,butmayonlyhaveoneloanintheirnameatanytime.VAloansoriginatedbefore1988areassumable.

PrivateMortgageInsurance(PMI)PMIistheprivatemarketversionofFHAorVAfinancing.Itisinsuranceforthelenderprovidedbyaprivateinsurer,ratherthanthegovernment.WithPMI,buyerscanmakeadownpaymentoflessthan20%,buttheymustpayamonthlyinsurancepremiumonbehalfofthelenderuntiltheirLTVdipsbelow78%.At78%thePMIwillautomaticallydischargepertheHomeownersProtectionActof1998.PMIissometimesreferredtoasMGICfinancing,sinceMGICisoneofthelargestPMIproviders.MonetaryPolicyMonetarypolicyhasarealimpactonthepricingandavailabilityofcredit,andconsumerpurchasingpower.Sincecreditandpurchasingpowerdirectlyaffectconsumerdemand,andthushomeprices,abasicunderstandingofmonetarypolicyiscriticallyimportanttounderstandingwhyrealestatevalueschange.


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TheFederalReserveAlsoknownasTheFed.Createdin1913inresponsetothepanicof1907,theFederalReservewasestablishedwiththegoalofmaximizingemployment,stabilizingprices,andmoderatinginterestrates.Ithasovertimefurtherexpandedtoregulatebanks,andconductmuchofthenation’smonetarypolicy.Itis,verybasically,thebanks'bank;whenabankneedsaloan,itcanturntotheFed.Itisprivate,buthasCongressionaloversight.

WhiletheFederalReservehasmanypowersandauthorities,weareprimarilyconcernedwiththree:TheFederalFundsRate(andtheDiscountRate)–TheFedFundsRateandistherateforinterbanklending(shorttermloansmadebetweenbanks).TheDiscountRateistheratethattheFedloanstothebanksat.Sincetheseratesareeffectivelythecostofmoneyforbanks,ithastheeffectofsettingtheflooroninterestrates.Thetheoreticallowestratechargedbythebankstotheirbestcustomersiscalledtheprimerate.ItfloatshigherthantheFedFundsRate.Consumersreceiveahigherratestill.ThismeansthatsmallchangesintheFedFundsRatecanhavesignificantimpactsoninterestratesthroughouttheeconomy.TheReserveRequirement–Howmuchbanksmustmaintainonhandas"cash"(reserves)againsttheirdepositsandotherliabilities.Thehigherthereserverequirement,thelesslenderscanlend;thelowerthereserve,themoretheycanlend.Thisimpactstheavailabilityofcredit.AlsonotethatborrowingattheFederalFundsRatecanbeusedtomaintainreserverequirements,whichispartofwhyit'ssoimportant.TheFederalOpenMarketCommittee(FOMC)–ThebuyingandsellingofUSdebttoandfrommemberbanksoftheFed.Themoreitbuys,themoremoneyisavailableforbankstolendout,andvice-verse.ThisalsostabilizesthecostofborrowingfortheUSgovernment.

LendingRegulationsTheRealEstateSettlementProceduresAct,TILA-RESPA,andDodd-FrankTheRealEstateSettlementProceduresAct(RESPA)isafederallawthatrequireslenderstoprovideborrowerswithinformationonclosingcostsforfinancingfor1-4familyresidentialhomes(anyfees,points,orothercostschargedatclosing,alongwithproration,commissionpayments,etc.).Italsoprohibitscertainkickbacks,referralfees,andunearnedfees.UnderRESPAthelenderisresponsibleforreportingthetransactiontotheIRS.AffiliatedBusinessArrangements(ABAs),wherebrokeragesandmortgagecompanies,titlecompanies,homeinspectors,orotherserviceproviderspackageservicestogether,arepermittedunderRESPAifthefirmsshareatleast1%commonownership,andtheconsumerisfullyinformed,theconsumerisnotrequiredtoparticipateintheABA,otherprovidersaremadeavailabletotheconsumer,andtheonlythingofvaluereturnedispaymentforservicesandareturnonthe1%orgreaterownershipinterest.UnderRESPA,banksneedtoprovideabonafide("goodfaith")estimateoftheamountandrangeofchargesforrealestatesettlement.AUniformSettlementStatement(orFormHUD-1)fromtheDepartmentofHousingandUrbanDevelopmentwasusedbeforeOctober2015tolistallofthedetailsofthetransaction.AsofOctober2015,theDodd-FrankActandConsumerFinancialProtectionBureau(CFPB)havechangedsomeoftheRESPArequirementsandprocesses.RESPAisnowusestheTILA-RESPAIntegratedDisclosure(TRID)forms,whichcombinemanyoftheTruthinLendingandRealEstateSettlementProceduresActrules.ALoanEstimateForm(previouslytheGoodFaithEstimate)detailingestimatedsettlementcostsmustbegiventoconsumersnolaterthan3workingdaysaftertheloanapplication.ConsumersmustalsoreceiveaClosingStatement(whichreplacestheHUD-1)detailingtheactualcostsofclosingnolaterthan3daysbeforethedateofclosing.IftheClosingStatementisnotavailable3daysbeforeclosing,theclosingusuallymustbedelayed.Changestotheloanorchangestotheinterestrateofmorethan1/8%triggeranew3-daywaitingperiod.Proration


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Ifthereisanexpenseprepaidorunpaidatclosing,orincomethatmustbedividedamongthebuyerandseller,itwillbeproratedandreflectedontheClosingStatement.Themathforprorationisfairlystraightforward.However,youshouldnotethattheexamwillspecifyifthedateofclosingbelongstothebuyerortheseller(ifnooneisspecifieditbelongstotheseller),andtheexamassumesa360-dayyearunlessotherwisespecified.AlsonotethatpropertytaxesrunonafiscalyearfromJuly1st–June30th.ExampleAlandlordissellingtheirpropertyonJune20th.Theirtenantpaidtherentof$3000onthefirstofthemonth.Howmuchdoesthesellerowethebuyer?Answer$3,000/30days=$100perdaySellerkeeps:20daysx$100=$2000Buyerreceives:10daysx$100=$1,000(Answer)TheTruthinLendingActTheTruthinLendingAct(alsoknownasRegulationZorTILA)isalawenforcedbytheConsumerFinancialProtectionBureau(CFPB).Itspurposeistoprovideconsumerswithafulldisclosureofthecostsofcredit.Thisgivesthepublicawayofcomparingvariouslenders.Toachievethis,TILArequireslenderstocalculatetheircostsofcreditandexpressthemasanannualpercentagerate(APR)iftheyadvertisespecificloanterms.Italsoallowsrescissionbyaconsumerwithin3businessdaysforcertainloans(butnotonfirstmortgagesforhomes).APRincludestheinterestrate,points,loanfees,finder'sfees,andadisclosureofanymortgagepenalties.TheAPRdoesnotincludemunicipaltaxesandattorneyfees,creditreports,appraisalfees,surveyfees,andotherclosingexpenses.Asaruleofthumb,ifsomethirdparty(andnotthebank)ischargingafee,itisnotincludedinAPR.NotethattheAPRdisclosurerequirementisonlytriggeredisspecificloantermsaredisclosed(e.g."3%downpayment").Itisnottriggeredifthelenderusesvaguetermsthatdonotincludeaspecificloanterm(e.g."liberalfinancing"or"lowdownpayment").

Thelawcoversanypersonadvertisingconsumercreditintheirordinarycourseofbusiness(e.g.banks,mortgagebrokers,etc.).Itcoversallformsofadvertising.Itdoesnotcoversellerfinancing,commercialloans,anyothernon-consumercredit.RealestateagentswhoadvertiseloanarrangementsforareferralfeefallunderTILA.

TheEqualCreditOpportunityAct(ECOA)Passedin1974,theECOAprohibitsdiscriminationinlendingsimilartotheFairHousingAct'sprotectionsforrealestate,andrequiresthatcreditapplicationsonlybeconsideredonthebasisofincome,thestabilityandsourceofthatincome,networth,andcreditrating.Protectsagainstdiscriminationbasedonrace,color,religion,nationalorigin,gender,age,maritalstatus,andpublicassistancestatus.Thetermredliningisusedtorefertoanytypeofcreditdiscrimination.PredatoryLendingPredatorylendingisunfair,deceptive,orabusivelending.Itoccurswhenlendersfailtodiscloseloancostsandrisks,steerborrowerstowardsunfairlyhighinterestrates,frequentlyrefinanceloanstogeneratefees(loanflipping),orbaitandswitchborrowers.LawslikeTILAaremeanttopreventpredatorylending.Usury


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Usuryoccurswhensomeonechargesanillegallyhighrateofinterest.Usurylawsoutlawusuryinmanystates,buttheDepositoryInstitutionsDeregulationandMonetaryControlAct(DIDMC)exemptsmanymortgageloansfromstateusurylaws.

TaxConcernsTheUnitedStatesDepartmentoftheTreasurywasestablishedin1789tomanagegovernmentrevenue,andpaythecostsofrunningthefederalgovernment.IthasthreemainwaystopayforUSGovernmentoperations,eachofwhichhasadrawbackfortheeconomy:Raisingrevenue(taxes)–TheTreasuryDepartmentcanraisemoneybychargingtaxes.However,thisdirectlyremovesmoneyfromtheeconomy,reducingthepurchasingpowerofUSCitizens.

Borrowing–TheTreasurycanborrowtopayforthecostofgovernmentbyissuingUSGovernmentsecurities(bills,notes,andbonds).However,byborrowingtheUSGovernmentcompetesdirectlywithconsumersforloans,andincreasesdemandforthem(potentiallyraisinginterestrates).Mostcritically,thiscanhavetheeffectofcrowdingoutprivateborrowers,makingcreditlessfreelyoreasilyavailabletothem.PrintingMoney–TheTreasuryDepartmentcanprintmoneytopayforUSGovernmentdebts.However,sincemoneyisaffectedbysupplyanddemand,thisreducesthevalueofmoney(inflation).RealestatesalesmustbereportedtotheIRS(alongwiththesalesprice,namesoftheparties,taxIDnumbersorsocialsecuritynumbers,andotheranyotherpertinentinformation)onaform1099-Sbythelenderorescrowagent.10%oftheproceedsfromthesaleofpropertybynon-citizensmustbewithheldbythebuyerandforwardedtheIRSundertheForeignInvestmentinRealPropertyTaxAct(FIRPTA).Residentialandinvestmentpropertiesarehandleddifferentlyforincometaxpurposes:

InvestmentTaxesInvestmentpropertiesusuallygenerateincome.Thismeansthattheirownershaveanincometaxliability.Toreducetheirtaxliability,incomepropertyownersmaywriteoffdepreciation(alsoknownasbookdepreciationorcostrecovery).DepreciationisthelossgiventoyoubytheIRS,calculatedbasedontheeconomiclifeoftheproperty(27.5yearsforresidentialproperty,39yearsforcommercial).Depreciationcanonlybedeductedfromrentalincomeorotherpassiveincome(theincomemadefrompassiveactivities).Depreciationandotherinvestmentpropertylossescannotbedeductedfromactiveincome(likeasalary)unlessthepropertyownerqualifiesasarealestateprofessional(usuallybyspendingatleast750hoursannuallyactivelyengagedinrealestateactivities).Notethatonlyimprovementsmaybedepreciated.Landmaynotbedepreciated.Asaruleofthumb,about20%ofthepropertyvalueisusuallylandvalue.Whenaninvestmentpropertyissold,itsownersmustpaycapitalgainstaxesontheprofitsfromthesale.Capitalgainscaneitherbeshort-term(ifthepropertywasheldforlessthan12months)orlong-term(ifthepropertywasheldformorethan12months).Thelongtermcapitalgainstaxrangesfrom0%to20%,dependingontheseller'sincomesfortheyear.Anydepreciatedvaluethatismadebackatthesalewillbesubjecttoadepreciationrecapturetaxof25%.1031LikeKindExchangesA1031exchangeisawaytodeferthepaymentofcapitalgainstaxes.Ithelpstoalleviatethedisincentiveforbusinessgrowthcreatedbythetaxcode.1031exchangesarecalled"likekind"exchangesbecausethepropertyownermustreinvesttheproceedsfromthesaleinapropertyofthesametype(e.g.anotherpieceofrealestate)withinapproximatelysixmonthstodefertheirtaxes.Theexchangedoesnotneedtobesimultaneous,butdoesneedtobedonewithinthetimelimit.Thismaybedonemultipletimes,butitshouldberememberedthatthe1031exchangedefersthetaxes,butitdoesnoteliminatethem;theyarestilldueifthepropertyownereverrealizesaprofit.


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Notethatun-replacedpropertyvalueorreducedmortgagedebt(knownasa"boot")istaxable,andanylossesaredeferredalongwiththegains.

ResidentialTaxesResidentialtaxesaregreatlysimplified.Residentialhomeownersmaywriteoffthemortgageinterestdeduction(upto$750,000ofmortgagedebt)andtheirmunicipalpropertytaxes(cappedat$10,000,includinganyStatetaxeswrittenoff).Notethatthemortgageinterestdeductionisonlyavailableifthepropertyqualifiesasaprimaryresidence(itisthemainhomethatyouhavelivedinforatleasttwoofthelastfiveyears,orwillliveinforthenexttwoyears).Thedeductionallowshomeownerstowriteoffaportionoftheirmortgageinterest,calculatedbasedontheirtaxbracket.Whenitcomestoprofitsonasale,aportionoftheprofitofyourprimaryresidenceisshelteredfromcapitalgainstaxpertheTaxpayerReliefActof1997.Theextentoftheshelterdependsonyourmaritalstatus: Singletaxpayers:$250,000profitonsaleshelteredfromcapitalgainstaxMarriedtaxpayers:$500,000profitonsaleshelteredfromcapitalgainstax


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ConsumerProtectionLaws

MassachusettsGeneralLawChapter93AAlsoknownastheConsumerProtectionAct.Originallyenactedin1967,andamendedin1969toallowforprivaterightofaction,MGLChapter93Aisdesignedtoprotectconsumersfromunfairanddeceptivepracticesemployedbysomebusinesses.Itgivesconsumers(whofeeltheyhavebeenunfairlydeceivedbyabusiness)theabilitytoeasilybringaclaimagainstabusiness,andreceivecompensationforanymonetarylosstheysuffered.Under93A,allaconsumerhastodotobringaclaimissendthebusinessaletter,andprovidethebusinesswith30daystorespond.Notethatrealestatelicenseesaretreatedasbusinessesunder93A.93Aisthesourceofthedisclosurerequirementsagentsmustfollowwhensellingaproperty.Italsocreatesliabilitywhenmisleadingorotherwiseharmingbuyersandsellers.Doubleortreble(triple)damages,plusattorney’sfees,canbeawardedforcasesfallingunderChapter93Aifabusinessknowinglyviolatedthelaworif,havingbeeninformedofsuchaviolation,thebusinessdidnotcorrecttheproblem.Notethatthereisnointentstandard;thematerialfactofunfairordeceptivepracticesisenoughtotriggerMGL93Aprotections.Thereisacrucialexceptiontothesedamagesunder93A:ifthebusinessmakesareasonablesettlementofferthatisrejectedbytheprospectiveplaintiff,thenthecourtmaylimittheplaintiff’srecoverytotheamountofthesettlementoffer.Itisimportant,therefore,thatthethirty-daydemandletterbeasspecificaspossiblesoastoinformthebusinessofitsviolationofthelaw.Theminimumamountacustomercangetbackisdoubledamages,andtripledamagesplusattorneys’feesandcourtcosts,isthemaximum,whenaviolationofthistypeisproved.ThefollowingguidelinesmustbemetinorderforacasetofallunderChapter93AofMGL:

•Themattermustinvolveabusiness(includinglicensees).Privatepartysalesarenotcoveredby93A•Onemusthavesufferedactualmonetarydamages(e.g.wastedmoney)unlessoneprovesthatthisunfairbusinesspracticemaycausealossofmoneyorproperty(warning,canbedifficulttoprove)•Thecomplainingpartymustwritea30-daydemandletter.Chapter93Arequiresthataconsumerwhobelieveshim/herselfwrongedwritealetter,sendittotheoffendingbusiness,andgivethebusiness30daystorespond.Thetimewindowhereisfirm;withoutthe30days,itisnota93Aclaim.

SomeexamplesofpracticesthatmightfallunderChapter93A:

•Aconsumerisnotfullyinformedofthenatureofaproductormisled(e.g.puffing,whichisoversellingapropertyinamisleadingway,orafailuretodiscloseamaterialdefect).•Arefund/returnpolicyisnotupheld•Abusinessdoesnotmeetitswarrantyagreement•Abusinessengagedinfalseadvertising(watchout,futurerealestateagents!)

HomeInspectionRegulationsBuyersinMassachusettsmustbegiventheMassachusettshomeinspectionbrochurewhentheysignapurchaseagreement,buttheyarenotrequiredtogetahomeinspection.Agentsrepresentingthesellermaynotrecommendspecifichomeinspectors,andmustinsteadprovidethestateprovidedlistofallinspectorssinceitisapotentialconflictofinterest.GivingtheURLforthelistissufficienttosatisfytheseller'sagent'sresponsibility.Exclusivebuyer’sagentsareallowedtorecommendspecificinspectors.

HazardousMaterialsEnvironmentalhazardsareaseriousconcern,especiallyforcommercialproperty.Anyknownhazards(i.e.undergroundfueltanks,asbestos,chlordane,moldorradon)needtobedisclosedasdefects,buttheydonotprohibitthesaleofrealestate.A21ECertificate(seethePropertyRightLimitationssectiononEnvironmentalLimitations)is


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usedinMassachusettstocertifythatcommercialpropertyisfreeofcontamination.Hazardsmaybetestedforiftheselleragreestothetesting.

Brownfieldsarelandsthathavebeenpreviouslyusedforcommercialpurposes,andarecontaminatedbyhazardouswasteorpollution(contrasttogreenfields,whichareuncontaminatedlands).TheMassachusettsDepartmentofEnvironmentalProtection(DEP)providesforliabilityreliefandfinancialincentivesundertheBrownfieldsActof1998toencouragethecleanupandredevelopmentofbrownfields.

Thereareanumberofenvironmentalhazardstobeawareof:LeadPaintLeadbasedpaintisacommonhazard,sinceitwasusedinmanyhomesbeforeitsbanin1978intheResidentialLead-BasedPaintHazardReductionAct.Ifsomeoneingestslead(eitherbyeatingit,orinhalingleaddust),itcancausedamagetothebrainandothervitalorgans,likethekidneys,nervesandblood.Leadexposureiscloselylinkedtobehavioralissues,learningdisabilitieslikeADHD,andloweredIQscores.Becauseleadpaintisprevalentinhomesbuiltbefore1978,itisimportanttobeawareoftherulessurroundingleadpaint.Theyworkdifferentlyforsalesandrentals:SalesLeadPaintLaw:Prospectivepurchasersofresidentialpropertybuiltpriorto1978mustbenotifiedoftheirleadpaintrightsbytheMassachusettsPropertyTransferLeadPaintNotificationpriortosigningtheP&S,aswellastheFederalProtectYourFamilyfromLeadinYourHomePamphletcreatedbytheEPA,HUD,andConsumerProductSafetyCommission.Itisyourresponsibilityasarealestateagenttoensurethatthebuyerreceivestheseforms.Thebuyerisgranteda10-dayleadpaintinspectionprovisionbyfederallaw,buttheymaywaivetheinspection–however,ifachildunder6livesinthehome,orsomeonebecomespregnant,thepropertyownermustde-leadwithin90days.Therearenoexceptionsorparentalwaiversallowedunderanycircumstances.

RentalLeadPaintLaw:Allpropertyconstructedpriorto1978andoccupiedbyachildlessthan6years-oldmustbetestedforleadpaintandde-leadedifleadpaintispresent.Landlordscannotdenytenantsonthebasisofleadpaint,evenifthelandlordhasanexemptionunderfairhousinglaw,andparentscannotwaivede-leadingunderanycircumstances.Theonlytimeachildunder6canoccupyapropertywithleadpaintisforshortterm(<100day)vacationrentals.Tenantscannotwaivethede-leadinginMassachusetts.NewtenantsmustbegiventhemandatoryMassachusettsTenantLeadLawNotificationbeforesigningaleasingapropertybuiltbefore1978.Landlordsmustbearallofthecostsofde-leading,includinganymovingcoststhetenantincurs(tenantsmaynotliveinthepropertywhileitisbeingde-leaded),andanycostsofalternatehousinginexcessofthetenant’smonthlyrent.

OtherHazards

Asbestos:Asbestoswasprimarily(andsometimesstillis)usedasaninsulationmaterialandfireretardant.ProlongedexposurecausesAsbestosis,Mesothelioma,andlungcancer.TheEPAbannedalluseofAsbestosin1989,butthecourtsoverturnedthebanin1991.ItisthereforelegaltomanufactureasbestosinmanyindustriesintheUS,thoughitsusehasdeclineddramatically.Itsuseinhomesandflockedceilings("popcornceilings")wasbannedin1978,thoughinstallerswerepermittedtousetheirexistingstocksuntil1986.InMassachusetts,thereisnolawspecificallybanningtheuseofasbestos(thoughproductscontainingmorethan1%asbestosarestrictlyregulated),orrequiringitsremovalfromrealestate.Thathavingbeensaid,ifasbestosisinpoorrepairorpresentinafriablestate(canbecrumbledormadeparticulate,andthusinhalable)theStatemandatesthatitmustberemoved.RealestateagentsshoulddisclosethepresenceofasbestosperMGL93A.Asbestosremovalandpropertydemolitionissubjectto310CMR7.00,whichstrictlycontrolsremovalsoastoavoidairpollutionandthereleaseofasbestosfibers.Therequirementsforremovalincludeusingspeciallylicensedcontractors,notifyingtheDEP(DepartmentofEnvironmentalProtection)andDLS(DepartmentofLaborStandards)


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10dayspriortoremovalordemolition,aswellastheuseofspecialcontainers,doublebaggingremovedasbestostopreventitsrelease,andotherprecautions.Sinceremovalisexpensive,encapsulation(whereahazardousmaterialiscoveredandsealedoff)isoftenusedasanalternativetoremoval.

Radon:Acolorless,odorlessgas.Isradioactive,andcausescancer.Itisaresultofthenaturalbreakdownofradioactiveelementsinsoil,andcanbefoundincertainareasbasedonthecontentofthesoil.Homescanbedesignedinwaystominimizeradoncontamination,andhomesshouldbetestediftheyarelocatedinahigherriskarea,thoughitisalwaysgoodpracticetotestsince1in15homesisimpactedbyradon.TheEPAsuggeststakingactionwhenalevelof4pCI/L(picocuriesperliter)ispresentinahome.Mold:Moldmustbedisclosed,butdoesnotprohibitthesaleofrealestate.Insales,watchoutforvinylwallpaperandexteriorinsulationfinishsystems(EIFS),whicharepronetomold.Homeownersinsurancepoliciesoftenexcludemold,whichcanbeanissueinrealestatesales.Stachybotrysisagenusofmoldsthatcontainsaround50differentspecies.OfparticularconcernareS.chartarumandS.chlorohalonata,commonlyknownas"blackmold"or"toxicblackmold."Blackmoldislinkedtohealthissuesandpoorindoorairquality.Inrentals,amolddisclosureformmustbeprovidedwitheverylease,whichdetailsthehealthharmscausedbymold(primarilyrespiratory),andtheconditionsthatcontributetomoldgrowth(moisture,poorventilation,etc.).Landlordfailuretomitigatemoldinareasonableperiodoftimemayconstituteaviolationofthestatesanitarycode,andbegroundsforconstructiveeviction.Urea-formaldehyde:Urea-formaldehyde,orUFFI,isaninsulationmaterial.Undersomecircumstances,itcanbreakdown,resultinginformaldehydevaporbeingreleasedintothehome.Itwasbannedin1979.Underlawpassedin2002itneednotbeaffirmativelydisclosed,butlendersremainliable.Thisrequirementwasaddressedina2003Governor’sStatementremovingliabilityforUFFIdisclosureonlenders.Theserequirementswereremovedbecausethematerialwasbannedsolongago,andtestinghasshownthattheagedmaterialisnottoxic.Chlordane:Usedtotreatpestinfestationinthe1940stothe1980s.Actsasachemicalbarriertoinsectsenteringthehome,andpersistsfor30+years.Itistoxic,canimpactwellwaterandairquality,andmustbedisclosed.PolychlorinatedBiphenyls(PCBs):Morethan200differentchemicalcompoundsthatarenotfoundnaturally.Bannedin1979,PCBswereusedforflameresistanceinelectricalequipment,andarecarcinogenic.Mostlyaconcernforcommercialandindustrialproperties.Chlorofluorocarbons(CFCs):Nontoxic,nonflammablechemicalsusedasrefrigerantsinairconditioners,refrigerators,andfreezers,aswellasaerosolsprays,paints,andotherproducts.Theyaresafeintheloweratmosphere,butcauseozonelayerdepletion,andhavemostlyfallenoutoffavorsince1996exceptinlimitedapplications(e.g.asthmainhalers).UndergroundStorageTanks(USTs):Typically,USTsarestoragetanksforchemicalsorgas(e.g.fueltanks)thataremorethan10%buriedintheground.InMassachusetts,theyarebannedunder21E,andrepresentahazard.DisposalrequiresthepresenceofthefiredepartmentandDEP(DepartmentofEnvironmentalProtection);personalremovalanddisposal(e.g.atthedump)isprohibited.

TitleV:Requiressepticsystemstopassinspectionwithin2yearspriortosale(3ifpumpedeveryyear),or6monthsaftersale.Sellerandbuyerdecidewhobringsitintocomplianceifthesystemfails.DrinkingWater:TheSafeDrinkingWaterAct(SDWA)of1974permitstheEPAtosetstandardsfordrinkingwater.Drinkingwaterissuesmustbedisclosed,andbuyersshouldusuallytestwellsandothernon-municipalwatersystemsforcontamination.

MassachusettsSmokeDetectorRegulations


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Thesaleofrealestatebuiltpriorto1975requiresasmokedetectorcertificatesignedbylocalfirechief.Mostrealestatesaleswillreceiveaninspectionevenifit'snotlegallyrequiredbecauseoflenderorbuyerrequirements.Propertiesbuiltorrehabbedafter2011musthavehardwireddetectors.Propertiesbuiltpriorto2011buildingshavedifferentrequirementsdependingonthenumberofunits:1-2units:Battery-operated.Atleastonedetectoroneverylevel,outsidebedrooms,andatthetopofanystairs.Photoelectricdetectors(amoresensitivetypeofdetector)arerequiredwithin20feetofkitchen/bathrooms.3-5units:Battery-operateddetectorsallowedintheunits,hard-wireddetectorsrequiredinthecommonareas.6+units:Alldetectorsmustbehard-wired.Notethat,asofDecember2016,10+yearoldbattery-operateddetectorsmustbereplacedwithsealed10-yeardetectors(nomorereplaceable9vbatteries)inMassachusetts.MassachusettsCarbonMonoxideDetectorRegulationsEffectiveMarch31,2006allhomesinMassachusettsthatareequippedwithfuelburningequipmentthatproducescarbonmonoxideorwhichhaveindoorparking(agarage)adjacenttolivingareaswillberequiredtohaveCarbonMonoxidedetectorsinstalledoneverylevel.Thelaw,andtheregulationsthatimplementit,applytoALLhomesandnotjustthosethatarebeingsold.Newhomeconstructionorrenovationsmusthavehardwireddetectors;olderhomesmaybebroughtintocompliancewithbattery-operateddetectors.


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MassachusettsRealEstateLicensingLaw

MassachusettsRealEstateLicensinglawgovernsrealestatelicenseesintheStateofMassachusetts.Unsurprisingly,youneedtobefamiliarwithit.Wonderingwherethelicensinglawcomesfrom?TheStateLegislaturemakesthelaws(andthey'repermanentunlessotherwisestated).Licensinglawisdesignedtoprotectconsumers.Whoenforcesthelicenselaw?TheBoardofRegistrationofRealEstateBrokersandSalespersons.TheBoardofRegistrationispartoftheDivisionofProfessionalLicensure,andislocatedat1000WashingtonStreetBoston,MA02118.YouwilloftenhearrealestateagentsrefertotheBoardofRegistrationasthe"RealEstateBoard."TheBoardwascreatedin1960,andismadeupfor5members.Eachmemberhasa5-yearterm,withonetermexpiringeachyear.ThreeoftheBoardmembersmustbebrokerswithatleast7yearsofexperience,andtwomembersmustbeunlicensedandrepresentthepublic.OneoftheBoardmembersisalsoappointedtheChairperson.Boardmembersareunpaid,andmustmeetatleastfourtimesayear(withaquorumofatleastthreememberspresent)atalocationoftheirchoosing.Writtenrecordsofthemeetingsaremadeavailableontheirwebsite.TheirbudgetcomesfromtheStateBudget,andanyfeestheycollectgototheStateTreasury.

ThebigtakeawayonMassachusettslicensinglawisthis:Massachusettslawrequiresarealestatelicenseforanyonethatdoesanyofthefollowingthingsonbehalfofsomeoneelseandgetspaid(orexpectstogetpaid):assistsin,advertises,and/orholdsthemselvesoutasengagedin,thebusinessofselling,renting,leasing,negotiation,exchanging,purchasing,ordealinginrealestate(includingoptionsforrealestate),orassistswiththeprocuringofprospectsforthesale,exchange,purchase,leasingorrentingofrealestate.LicensingLawExceptionsThissaid,noteveryoneneedstobelicensed.Thefollowingpeopledon’tneedalicensetodothethingslistedabove:

• Peoplebuying,selling,orrentingpropertyforthemselves.• Lawyersandpeopleholdingwrittenpowersofattorney.

• Lawyersareentitledtotheirbroker'slicense.• Regularsalariedemployees,especiallyapartmentmanagers.• Publicofficers/employeesperformingofficialduties.• Auctioneers,appraisers,andtheemployeesoflenders/insurancecompanies• Personsactingunderacourtorder,e.g.executors,administrators,orguardians.• Trustees

BrokervsSalespersonAbrokerisallowedtoworkforthemselvesandcanhandleclientmoney(e.g.escrowfunds).Asalespersonmustworkunderabrokeraseitheranemployee,oranindependentcontractor,andmaynothandleclientmoney.Brokersmustbebonded;salespersonsdonotneedtobebonded.BrokerBondsBrokerbondsareeffectivelyinsurancepoliciesforescrowaccounts.Everylicensedbroker,includingcorporationsandinactivelicensees,mustprovidetheBoardwithasuretybondfor$5,000.Thisbondisforthebenefitofanypersonharmedbythelossofescrowfundscausedbythebroker;itisnotinsuranceforthebroker.EscrowAccountsEscrowortrustaccountsarespecialbankaccountsforholdingclientmoney.Theyaretypicallyusedbybrokerstoholddepositsonoffersandpurchaseandsalecontracts.Brokersthatactasescrowagentsmusthaveabindingagreementbetweenthepartiestothetransaction,andspecificinstructionsonwhenfundsshouldbedelivered.Someimportantnotesaboutescrowaccountstokeepinmindare:


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• Brokersmustkeepescrowfundsinaseparateaccountfromtheirbusinessfunds.Comminglingclientmoneywithbusinessmoneyisstrictlyforbidden.Brokersdonotneedseparateaccountsforeachclient,andcanuseoneaccountforalloftheirdeposits.Theaccountdoesnothavetobearinterest,butifitdoestheclientmustagreetowhowillbepaidtheinterestinwriting.

• Salespersonsmustnothaveaccesstotheescrowaccount;thiswouldresultinboththesalespersonandtheirbrokerlosingtheirlicenses.Salespersonsshouldturndepositchecksovertotheirbroker.Thebrokermustdepositthechecksintotheescrowaccountassoonaspossible.

• Brokersmustmaintainescrowrecordsforatleast3years.Thoserecordsmustincludealloftheinformationaboutthemoneygoinginto,andoutof,theaccount(e.g.copiesofchecks,dates,transactioninformation).TheRealEstateBoardisentitledtoinspectescrowrecordsatanytime.

• Clientswhoareentitledtotheirdepositmoneyback(e.g.aclientwhowithdrewtheiroffer,orwhoseofferwasrejected)mustbegiventheirdepositmoneybackassoonaspossible.

• Escrowdepositsareclientmoney.Escrowdepositsarenotthebrokeroragent'scommission.Theconversionofadepositintoacommissionrequireswrittenpermissionfrombothpartiestothetransaction.Unauthorizedconversionisasurewaytoloseyourlicense,andcausesatrustfundshortage.

• Ifthereisadisputeaboutescrowmoney,abrokerneedsacourtordertoremovethemoneyfromescrow.

LicenseLawStudyPoints

• Licensesarerenewedeverytwoyearsonyourbirthday(biennially).o Agentsmustcomplete12hoursofcontinuingeducationclasses(canbedoneonline)before

renewingtheirlicense.• Inactivelicenseesmaymakereferralstoactivelicenseesforafee.• Salespersonsmayreceivetheirbroker'slicenseafter3yearsofworkexperience(atleast25hours

perweek).o Youmaynotholdbothasalespersonandbrokerlicense.

• BrokersmustinformtheBoardwhentheyhirerealestateagents.o YoumaynotworkformorethanoneMAbrokeratatime.o Brokershavevicariousliabilityfortheiragents'activities.o Agentsandbrokersmustdisplaytheirlicensesintheirusualplaceofbusiness.o Brokerscannothireunlicensedsalespersons.

• SomestateshavereciprocitywithMassachusetts,meaningthatyourMassachusettslicensepermitsyoutoreceivealicenseinthosestateswithouttakinganotherrealestateclassortest.

o TheStatesthatcurrentlyhavesomesortofreciprocityagreementwithMassachusettsare:Alabama,California,Connecticut,Georgia,Iowa,Louisiana,Maine,Missouri,NewHampshire,NewMexico,NewYork,Ohio,Oregon,RhodeIsland,andWashington.

o Notethatsomeofthesestatesplacelimitationsonreciprocity(e.g.NewYorkonlyallowsfullreciprocityforbrokerswithatleasttwoyearsofexperience).

• Massachusettsisaphysicallocationstate.ThismeansthatoutofstatelicenseesarenotpermittedtoperformrealestateservicesinMassachusetts,buttheymayreceiveacommissionforatransactioninMassachusettssolongasanyservicestheyperformedonbehalfofclientsoccurredoutsideofMassachusetts.

o Thisiscontrasttocooperativestates,whichpermitoutofstatelicenseestoperformrealestateservicesinthestateiftheyenterintoawrittenco-brokeragreementwithanin-statelicenseeforthetransaction,andturfstates,whichonlypermitoutofstatelicenseestoreceiveareferralfee.

• Entitiesinvolvedinrealestate(e.g.LLCs)musthaveabroker'slicense,andmustdesignateoneoftheirofficersthebrokerofrecord.Thebrokerofrecordmusthaveabroker'slicense.

o Ifthebrokerofrecordpassesaway,theentitymayoperateindependentlyforuptoayear.o Ifasoleproprietorpassesaway,theboardmayissueatemporarylicensegoodforoneyear

toanyonedesignatedbytheestateofthedeceased.Thetemporarylicenseedoesnotneedtohaveanyrealestateexperience.

• AgentsandbrokersneedwrittenpermissiontolistpropertyonMLS,andtoplaceaforsalesignontheseller'sproperty.


FTRS 79

• Allmoneypaidtotheagentmustcomefromtheiremployingbroker.• Realestatecommissionsareestablishedbynegotiation.Thereisnostandardcommissionrate.

o Agentswhoarenotlicensedatthetimerealestateservicesarerenderedarenotentitledtoacommission.

o Thefineforpracticingwithoutalicenseis$500• Alloffers(bothwrittenandverbal)mustbepresentedtotheclient.• Brokersmustmaintainrecordsthatlistingswereavailableattheirtimeofadvertisementforthree

years.o Baitandswitchtacticsarenotpermitted.

• Brokersmustkeeprecordsofrentalfeespaidtothebrokerforthreeyears.

AgencyandFeeDisclosuresMandatoryAgencyDisclosureRealestateagentsmustprovidebuyersandsellersofrealestatethemandatoryagencydisclosurenoticedevelopedbytheRealEstateBoard.Thisnoticedisclosestherelationshipoftheagentwiththeprospectivepurchaserorseller.Thenoticemustbeprovidedatthetimeofthefirstpersonalmeetingforthepurposeofdiscussingaspecificproperty.AllagencydisclosurerecordsandnoticesaresubjecttoinspectionbytheBoard.Prospectivepurchasersorsellerssignanddatethenotice,andtheagentgivesthemtheoriginalcopy.Theemployingbrokerkeepsacopyofthenoticeforthreeyears.Ifaprospectivepurchaserorsellerdeclinestosignthenotice,theagentmustnotethedatethenoticewasgiventothem,thatthepersondeclinedtosignit,andanythereasontheygavefornotsigning.Openhousesdonotrequireawrittennoticeforeachprospectivepurchaserorsellerwhoattendstheopenhouse,butagentsmust,bysign,poster,distributedlistingliterature,orpropertydescriptionform,conspicuouslydisclosetheiragencyrelationshipwiththeseller. TheTypesofAgency(AslistedontheMAMandatoryDisclosure)Seller’sAgent:Whenasellerengagestheservicesofalistingbroker,thatsellerbecomesbroker'sclient.Brokeranditssubagentsrepresenttheseller.Theyowethesellerundividedloyalty,utmostcare,disclosure,obediencetolawfulinstruction,confidentiality,andaccountability.Theymustputtheseller'sinterestsfirstandnegotiateforthebestpriceandtermsfortheseller.Thesellermayalsoauthorizesubagentstorepresenthim/her.Buyer’sAgent:Whenabuyerengagestheservicesofabroker,thatbuyerbecomesbroker'sclient.Brokerowesbuyerundividedloyalty,utmostcare,disclosure,obediencetolawfulinstruction,confidentialityandaccountability.Brokermustputbuyer'sinterestfirstandnegotiateforthebestpriceandtermsforbuyer.Buyermayalsoauthorizesubagentstorepresenthim/her.DisclosedDualAgent:Abrokercanworkforbothbuyerandselleronthesameproperty,ifbrokerobtainstheinformedconsentofbothparties.Brokeristhenconsideredadiscloseddualagent.Thisbrokerowessellerandbuyeradutytodealwiththemfairlyandhonestly,buttheycannotexpectbroker'sundividedloyalty.DesignatedAgent:Whenabroker(theappointingordesignatingagent)designatesanotheragenttorepresentthesellerorbuyer,suchagentistheagentforthatpartywithalltheresponsibilitiesofasellerorbuyeragent.Ifthatdesignatingbrokeralsodesignatesanotheragentinthesameofficetorepresenttheotherparty,thisbrokerbecomesadualagentwithallofthelimitationsstatedabove.Sellerandbuyermustconsenttothisarrangement.Facilitators(Non-Agents,TransactionBrokers,TransactionCoordinators,orContractBrokers):Anagentactingasafacilitatorassistssellerandbuyerinreachinganagreement,butdoesnotactasanagent.Suchagentmustacthonestlyandaccuratelybydisclosingknowndefectsontheproperty,buthasnodutyofconfidentialityunlessagreedtobytheparties.


FTRS 80

RentalFeeDisclosureAgentsrentingrealestatemustprovideeveryprospectivetenantwithawrittennoticeattheirfirstmeetingthatstateswhethertheprospectivetenantwillpayafee,alongwiththefee'samount,timing,andmannerofpayment,andwhetherornotafeeisdueifatenancyisnotcreated.Thenoticemustbesignedbytheagent,containhis/herlicensenumber,besignedbythetenant,andcontainthedatethenoticewasgiven.Tenantsmustagreetopayafeetobecharged.Ifatenantdeclinestosign,theagentmustnoteonthenoticethetenant'snameandrefusaltosign.Notethatthereisnorequirementthatyouworkwithtenantsthatrefusetopaythefee.Brokersmustmaintaincopiesofthefeedisclosureforthreeyearsfromthedatethatthenoticewasprovided.Feedisclosuresaresubjecttoboardinspection.AdvertisingThefollowingregulationsapplytorealestateagentadvertising:NoBlindAdvertising–Salespersonsmaynotadvertiseundertheirownnameonly;thisisknownasblindadvertising.Theymustincludethenameoftheirbrokerageinanyadvertisements.Brokeradsmustdisclosethenameofbroker,andthattheyarearealestatebroker.NoDiscriminatoryAdvertising–Brokersandsalespersonsmustneverengageindiscriminatoryadvertising.RegistrationofthePromotionalSaleofOutofStateProperties–OutofstatepropertydevelopmentsmustberegisteredwiththeBoardbytheirdeveloper,atthedeveloper'sexpense.Thedevelopermustnotethisregistrationontheiradvertisements.BrokerswhoacceptoutofstatepropertydevelopmentlistingsmustinformtheBoardwithin7daysofacceptingthelisting.ConflictsofInterestAgentsmustdisclosewhentheyrepresentthemselves(evenindirectly),theirfamily(bybloodormarriage),ortheirbusinessassociates.Thedisclosuremustbemadeinwriting.Furthermore,anagentmaynotleaseorbuy(evenindirectly)propertyiftheagentrepresentstheownerwithoutwrittendisclosuretotheclient.LicenseSuspensionsandRevocationsTheboardcansuspendorrevokearealestatelicenseforanynumberofreasons:

• Thelicensewasobtainedorrenewedusingfalseorfraudulentrepresentation.• Alicenseeactedasanundiscloseddualagent.• Alicenseedidnotdisclosethattheyweretheprincipalinarealestatetransaction.• Alicenseeactedasarealestateagentwhileintoxicated.• Anyfailuretoreturnclientmoneywithinareasonableperiodoftime.• Thepaymentofreferralfeesorrealestatecommissionstounlicensedpersons.• Theacceptanceofanundisclosedrebateorcommissiononanexpenditurebytheprincipal(a.k.a.akickback).• Comminglingclientmoneywithbusinessorpersonalfunds.• Inducingapartytoarealestatecontracttobreakthecontractforthepersonalgainofthelicensee.• Failuretoprovideacopyofarealestatecontracttooneofthepartiestothecontract.• Failuretodiscloseaconflictofinterestinwriting.• Acceptinganetlisting(alistingwherethecommissionisnotspecified).

o Onlyacceptlistingswherethecommissionisanexplicitlyagreeduponfeeorapercentageofthesalesprice.Youmayalsochargea"feeforservices"foradditionalservicesrenderedtotheclient.

• AnyviolationofMassachusettsFairHousingLaw(theonlyautomaticsuspension).

LicenseHearings


FTRS 81

Theboardanditsagentshavethepowertoconductpublichearingsuponwrittencomplaint,orofitsowninitiative.Theywillprovidetheaccusedwithatleast10days'writtennoticeofthehearing,andwillholdahearingataplaceoftheirchoosing(usuallytheirofficesat1000WashingtonStreet).Theaccusedpartymayhavelegalrepresentation,buttheyarenotentitledtoit(nopublicdefender).TheBoardhassubpoenapowerandmaycallwitnesses.Licensesuspensionsandrevocationscanbeappealedwithin20daystoasuperiorcourt,butthelicenseemustreturntheirlicensetotheBoardwithin7daysofthesuspensionorrevocation.

Group Discussion: Have you ever been part of a real estate transaction where one of these regulations was broken? What happened?Whichrulewasbroken?Andhowcouldtherealestateagenthaveavoidedbreakingtherule?


FTRS 82

MassachusettsRealEstatePre-LicensingCourse

PracticeQuestionsandTestPreparation


FTRS 83

PracticeQuiz1

1. Therealestateboardismadeupofthefollowingexcept:

a. Twolaypeopleb. Threerealestatebrokersc. Anannuallyselected

chairpersond. Governorappointees

2. Francisbuysahousefor$100,000.Whensellinghewantsto,ataminimum,recoupwhathepaid.Hewillhavetopay$1100inattorney’sfees,$650inrecordingfees,and5%toabroker.Whatshouldhesellfor?

a. $106,838b. $107,106c. $101,750d. $96,663

3. Ahomeiscontaminatedbyradon.Whichistrue?

a. Thehomecannotbesolduntildecontaminated

b. Thehomecanbesoldc. Thehomecanbesold,but

radonmustbedisclosedd. Abrokercannotsellthe

home,buttheownermaysellitontheirown

4. Thefollowingisnotarequirementforlicensingassalesperson:

a. Ageover18yearsb. Educationatalicensedreal

estateschoolc. Passinganexaminationd. Bonding

5. Tomownsapropertythatreceivesanetoperatingincomeof$14,000.Thecaprateforsimilarpropertiesis6.87%.Howmuchishispropertyworth?

a. $203,875b. $20,378c. $14,961d. $490,000

6. Apropertylineislistedas12rodsand2linksinthedeed.Howlongisthepropertyline?

a. 200feetb. 41feetc. 14feetd. 48feet

7. Anexecutorofanestateislikelytousewhatsortofdeed?

a. Quitclaimdeedb. Specialwarrantydeedc. WarrantyDeedd. Bargain&SaleDeed

8. WhowouldhaveaReverseAnnuityMortgage?

a. Homeownerborrowingagainsttheirequity

b. Homeownerwithgrowingincome

c. 62year-oldhomeownerd. Personrentingtoown

9. Whichpropertyisownedinseveralty?

a. EstateinCommonb. InterestinEntiretyc. EstateforYearsd. Cooperative

10. Unitdeedstransfer:a. Ownershipincondominiumsb. Ownershipincooperativesc. Lifeestatesd. Timeshares

11. Areciprocityagreement:a. Permitsco-brokingb. Rendersalicensevalidin

anotherstatec. Allowsabrokerto

compensateafacilitatord. Bindstheoffer

12. MaximumdamagesunderMGL93Aare:

a. Doubledamagesb. Goodfaithsettlementc. Tripledamagesd. Trebledamagesand

attorney’sfees13. Anamortizationschedulelonger

thanthepaymentscheduleisindicativeofwhatsortoffinancingarrangement?

a. ContractforDeedb. Balloonc. FHAd. Openend

14. Whichpartytypicallypaysthebrokerfee?

a. Buyerb. Sellerc. Attorneyd. Seller’sBroker


FTRS 84

15. Franklinislookingtobuyaninvestmentproperty.HeisseekingaGRMof153.Ifapropertyispricedat$453,000howmuchshouldtherentbetohithistarget?

a. $69,309b. $2,020c. $2,975d. $3,370

16. Howmanyhoursofcontinuingeducationaretakeneverytwoyearstomaintainavalidlicense?

a. 6b. 24c. 40d. 12

17. Whichofthefollowingconstitutesaninvoluntaryalienation?

a. Foreclosureforunpaidcondofees

b. Mechanic’slienc. Unpaidtaxesd. Purchase&SaleContract

18. Anestoppelcertificate:a. Informsabuyerofthestatus

ofafinancialinstrumentorrental

b. Precludesabankfromforeclosing

c. Isissuedasthepreludetoforeclosure

d. IsneverpermittedunderMAlaw

19. Abrokerisunlicensed,andasaresultasalespersonintheofficeisnotpaidbytheirclient,whoclaimstheydonothavetopaytheircommission.Thesalespersonshould:

a. Suethebuyerb. Complaintotheboardc. Suetheirbrokerd. Canpreventthesalefrom

takingplacetosecurepayment

20. SarahmakesanofferonTuesdaywithanexpirationdateofWednesdayat5PM.ShewithdrawstheofferTuesdaynight,citingachangeincircumstances.Theoffer:

a. IsvaliduntilWednesdayat5PM

b. Isvoidc. Maybeenforcedbyacourtof

lawd. Noneoftheabove

21. Abuyerisconcernedthatamurderoccurredonapropertyyouareofferingforsale.Youknowthatamurdertookplace.Whichistrue?

a. Youmusttellthemaboutitifasked

b. Youmustaffirmativelydisclosethisinformation

c. Youmustkeepthisinformationconfidential

d. Itisincumbentuponthebuyertosearchthepublicrecords

22. Whichhasapre-definedtimelimit?a. Feesimpleownershipb. OwnershipinSeveraltyc. OwnershipsubjecttoLife

Estated. TenancyatWill

23. Titleinsuranceinsuresagainst:a. Aleakyroofb. Defaultonmortgagec. Aneasementingrosswritten

intothedeedd. Anundiscovered

encroachment24. Thefollowingmustbedisclosed

affirmatively:a. Thespookyghostthathaunts

thepropertyb. Thenewporchonthe

propertyc. Theseller’sneedtosell

beforemovingtoCaliforniaatthemonth’send

d. Thebuyer’splanstofileforbankruptcy

25. Governmentpowertotakepropertyforpublicgoodis:

a. EminentDomainb. Foreclosurec. Illegald. Subjecttojudicialapproval

26. Thomaspurchasesapropertyfor$200,000withadownpaymentof$40,000.Hisfinancestherestofthepurchaseat10%interestfor15yearswithpaymentsof$1,363.72.Whatishisoutstandingbalanceafterhisfirstpayment?

a. $160,000b. $133,000c. $159,970d. $199,969


FTRS 85

27. Themortgageewouldwanttoseewhichclauseinthenote?

a. Defeasanceb. Dueonsalec. Accelerationd. Pre-paymentpenalty

28. Theselleristhe:a. Grantorb. Granteec. Lessord. Mortgagee

29. Intheeventthebuyerbacksoutofanacceptedoffer,whichismostlikelytooccur?

a. Liquidateddamagesb. Forfeiturec. Specificperformanced. Nothing

30. TheWetlandsProtectionActpermitsminoralterationsofpropertyborderingawetlandafter:

a. 150feetb. 100feetc. 75feetd. 50feet

31. Youreceiveanoffertobuyacondominium,buttheofferorrefusestogiveadepositwiththeoffer.Youshould:

a. Refusetosubmittheofferb. Submittheofferc. Submittheofferiftheofferor

willgiveconsiderationd. Submittheofferonlyifitis

thebestoffer32. Licensesarerenewed:

a. Biannuallyb. Bienniallyc. Trienniallyd. Annually

33. Threelotssized150’x150’aresoldfor$250,000total.Whatwasthepricepersquarefoot?

a. $3.71b. $11.11c. $0.27d. $555.56

34. Alicensedsalespersonhassigningpoweroveranescrowaccount.Thefollowingismostaccurate:

a. Theyarethemanageroftheoffice

b. Theirbrokerwilllosetheirlicense,andtheymayaswell

c. Theirbrokermustacceptfundsfortheoffice

d. Theymayacceptfundsfortheoffice

35. Agencydisclosuredocumentsmustbekeptfor:

a. 1yearb. 2yearsc. 3yearsd. 5years

36. Asepticsystemhasbeenpumpedannually.UnderTitleVhowlongpriortosaledoesithavetopassinspection?

a. 1yearb. 2yearsc. 3yearsd. 6months

37. Tomownssubjecttoalifeestate.Whenhepasses,ownershipwilltransfertoTim,namedintheoriginaldeedbyTina,thegrantor.Timisthe:

a. Granteeb. Remaindermanc. PurAutreVied. EquitableOwner

38. Amarriedcouplelikelyownstheirhomein:

a. Entiretyb. Commonc. Severaltyd. Joint

39. Anagentispaid$125,000thisyear.Theyarepaid1%onallpropertysalesupto$5,000,000,andsomepercentageoverthatamount.Theysold$8,500,000inrealestatethisyear.Theircommissionover$5,000,000was:

a. 2%b. 1.5%c. 3.5%d. 2.15%

40. Ahomeownerpays$5600intaxesontheirhomethisyear.Iftheirmarketvaluewas$475,000assessedat75%whatwasthetowntaxrateper$100ofvalue?

a. $1.60b. $1.17c. $8.48d. $8.34

41. AfterwhatdateareCOdetectorsrequiredinallhomes?

a. 03/13/1991


FTRS 86

b. 03/31/2006c. 01/01/1978d. 01/01/1969

42. Rentalfeedisclosurestatementsmustinclude:

a. Whetherafeewillbepaidb. Agentsignaturec. Mannerofpaymentd. Alloftheabove

43. Thefollowingischattel:a. Adog-leashb. Anabove-groundpoolc. Agaraged. Abuilt-inbookcase

44. Yourownershipinanavigablewaterwayadjoiningyourpropertyextendsto:

a. Themid-pointb. Theaccretion-linec. Thelow-tidelined. Theoppositebank

45. Anoptionmustbesignedbythe:a. Granteeb. Agentc. Grantord. Optionee

46. Grantisconfusedaboutaspeciesofturtle,whichisallegedlyendangered,livingonhisproperty.Heasksyou,hisagent,aboutwhathecandowithhispropertyandifthisturtleimpactshisplanstobuildanadditiononhishome.YoushouldtellGrant:

a. Itmay,butyouareunsureb. Itmay,andheshouldspeak

toanattorneyc. Heshouldmovetheturtlesto

hisneighbor’syardd. Nottoworryaboutit

47. Whoiscoveredbymortgageetitleinsurance?

a. Thebuyerb. Thesellerc. Thebankd. Theagent

48. TruthinLendingwillrequiredisclosureofAPRbasedinthefollowingad:

a. Lowdownpayments!b. Lowinterestrates!c. Lowestratesthisyear!d. Aslowas1%interestrates!

49. Whopaystheexcisefee?a. Grantorb. Grantee

c. Buyerd. Optionee

50. Tammyislookingtoinvestinproperty,anddevelopanumberoflotssized125’x125’,theminimumsizedpermittedbyzoning.Thesitesheisconsideringis3acresinsize.Zoningwillalsorequireshesetaside50,000sq.ft.foraccessways.Ifshesellseachlotfor$100,000whatwillshemake?

a. $517,000b. $500,000c. $836,000d. 800,000

51. Whydoestherealestateboardrequirebondingforbrokers?

a. Forinsuranceintheeventofalegalclaimagainstthebroker

b. Tosecureescrowaccountsintheeventofalossoffunds

c. Asafeeforlicensingd. Noneoftheabove

52. Whomakesrealestatelaw?a. Theboardofregistrationb. Theboardofrealtorsc. Thestatelegislatured. Thegovernor

53. Whichbestdescribestherelationshipbetweenbrokerandclient?

a. Fiduciaryb. Financialc. Customaryd. Legal

54. Rickplantedcornonhisproperty.Heissellingthelandthecornwasplantedon.Whatsortofpropertyarehisplants?

a. Realb. Realestatec. Rootedd. Chattel

55. Compensationpayabletoarealestatebuyer’sagentcomesfrom:

a. Clientb. Co-Brokerc. EmployingBrokerd. Cooperatingoffice

56. Ritawantstosellherpropertyata25%profit.Shepurchaseditfor$150,000,andput$23,000inimprovementsintoit.Howmuchshouldshesellfor?

a. $216,250


FTRS 87

b. $187,500c. $231,000d. $273,000

57. Youareaseller’sbroker.Thebuyerasksforahomeinspectorrecommendation.Whichistrue?

a. Youmayrecommendaninspector

b. Youabsolutelymustnotmakeanyrecommendation

c. Youshouldgivethemthestateapprovedlistofinspectors

d. Youshoulddemur58. Thecitizensofatown,zoned

exclusivelyresidential,wishtobringasupermarkettothearea.Ifapprovedthebusinesswilllikelybeissued:

a. Avarianceb. Aconditional-usepermitc. Anonconformingused. Businesswillnotbe

permittedperzoning59. Ahomeisbuiltpriorto1978.Oneof

theownersbecomespregnant.Howlongdotheyhavetode-lead?

a. 60daysb. 90daysc. 180daysd. Norequirementtode-lead

sincenotarental60. Anownerwantstonet$300,000on

thesaleoftheirhome.Assumingthattheyhave$2000incosts,andarepayingabrokeracommissionof6%,howmuchshouldtheysellforataminimum?

a. $321,277b. $315,000c. $302,000d. $317,800

61. Randy,abroker,isgivenagiftcertificatetohisfavoriterestaurantasthanksforsendinghisclienttohisfriend,arealestateattorney,todealwiththepurchaseandsaleagreementforthehomehisclientwasselling.Hasheriskedhislicense?

a. Nob. No,sinceitwasnotcashc. Yes,sincehisclientwasnot

anattorneyd. Yes,itisapotentialconflict

ofinterest

62. Whichofthefollowingwouldtriggerthedueonsaleclause?

a. Transferringtitletoanewlyformedcorporation

b. Givingpropertyasagiftc. Closingofasaleofpropertyd. Alloftheabove

63. Ronaldoisinterestedinpurchasinga$350,000rentalpropertywithabiannualNOIof$12,000.WhatwouldRonaldo’sROIbe?

a. 29%b. 3.4%c. 14.5%d. 6.8%

64. Asale-leasebackprovideswhatfortheseller?

a. Favorabletaxtreatmentb. Capitalc. Relieffromdebtserviced. Alloftheabove

65. Aspousewantstosuefortheirdowerrights.Thedeceaseddidnotleaveheirs.Whataretheirdowerrights?

a. 1/2b. 1/3rdc. Theentireestated. Nothing

66. Nick’spropertyissurroundedonallsidesbyotherproperties.Hemightbegrantedwhatbyacourtoflaw?

a. Easementingrossb. Easementbyprescriptionc. Easementbynecessityd. Easementincommon

67. Redliningis:a. Refusaltonegotiatewith

personsofaprotectedclassb. Differentiationoncredit

termsbasedonprotectedclass

c. Differentiationonpricetosalesofprotectedclasses

d. Movingbuyersawayfromcertainareasbasedonprotectedclasses

68. Ahomesoldfor$250,000ata10%profit.Whatwastheoriginalpurchaseprice?

a. $227,275b. $225,000c. $275,000d. $277,778


FTRS 88

69. TenancybytheEntiretyisdistinctinthatitprovidesfor:

a. Co-occupancyb. Solepossessionand

ownershipc. Creditorshieldingd. Inheritance

70. Atenantpayingsomeoperatingexpensesislikelyrentingundera:

a. Grossleaseb. Percentageleasec. Netleased. Groundlease

71. Bettywillbecharged2pointsfortheoriginationofherhomeloan.Sheisbuyingherhomefor$150,000with20%down.Howmuchwillhertwopointsbe?

a. $3,000b. $2,400c. $1,500d. $1,200

72. Apropertyisvaluedat$500,000,andassessedat60%.Taxrateis$33.33per$1000.Ifpropertytaxesaredueon1/1andunpaid,andweassumea360-dayyear,howmuchwouldthe

sellerowetothebuyerforthetaxdebtifpropertyissoldon5/15?

a. $3,750b. $4,600c. $37,500d. $12,000

73. Themembersoftheboardofregistrationofbrokersandsalespersonshavetermlimitsof:

a. 1yearb. 2yearsc. 3yearsd. 5years

74. Alot,sized1250’x1500’,soldfor$9persquarefoot.Howmuchdiditsellfor?

a. $16,900,000b. $1,690,000c. $2,470,000d. $1,567,000

75. Therightofredemptionatataxsaleextinguisheswhen?

a. Thedateofsaleb. Uponforeclosurec. Oneyearfromdateofsaled. Sixmonthsfromdateofsale


FTRS 89

PracticeQuiz1Answers

1. C2. B3. C4. D5. A6. A7. D8. C9. D10. A11. B12. D13. B14. B15. C16. D17. A18. A19. C20. B21. A22. C23. D24. D25. A26. C27. C28. A29. B30. D31. B32. B33. A34. B35. C36. C37. B38. A

39. D40. A41. B42. D43. A44. B45. C46. B47. C48. D49. A50. B51. B52. C53. A54. D55. C56. A57. C58. B59. B60. A61. D62. D63. D64. D65. B66. C67. B68. A69. C70. C71. B72. A73. D74. A75. C


FTRS 90

PracticeQuiz2

1. Asalesassociategetsasignedcontractfromabuyerandmailsittotheseller.Thesellerhasagreedtothetermsandtheescrowdepositissafelyinthebroker'sescrowaccount.Thesalesassociatehasadisagreementwithhisbrokerandquits.Thebrokerrefusestopayacommissionbecausethesalesassociatewasnotinhisemploywhenthecontractwasactuallyreceivedandsigned.Thesalesassociate’sbestrecourseis:

a. Notifyingtheboardb. Suingthesellerc. Suingthebrokerd. Agentisnotentitled

2. Alicenseewhohaspassedthebroker'sstateexamination,butdesirestocontinuetooperateunderanowner-employerwill,beawhatunderlaw?

a. Salespersonb. SalesAgentc. Brokerd. Realtor

3. Abuyergivesasalesassociateadepositcheckmadeouttotheseller.Thesalesassociateshould:

a. Immediatelyturnoverthecheck

b. Depositittoescrowc. Holdthecheckuntilclosed. Holdthecheckuntilofferis

accepted4. Janeisabrokerandacceptsadeposit

madeouttoherfirmfor$5,000.Whatisherlegalrequirement?

a. Shemustplaceitintothebusinessaccount

b. Shemustplaceitintotheescrowaccountwithin7days

c. Shemustplaceitintotheescrowaccountimmediately

d. Shemustholdthecheckfor7days

5. Whichpersonisexemptfromlicensingrequirementswhenperformingrealestateservices?

a. Brokersb. Salespersons

c. Auctioneersd. Noneoftheabove

6. Whocanreceivecompensationdirectlyfromtheprincipal?

a. Managingbrokerb. Salespersonc. Associatebrokerd. Employingbroker

7. Whichofthefollowingbestdescribestherelationshipofabrokerandhisprincipal?

a. CaveatEmptorb. BonaFidec. Fiduciaryd. AdValorem

8. Whoisrequiredtodiscloseknownfactsthatmateriallyaffecttheproperty?

a. Listingbrokerb. Buyer’sbrokerc. Salespersond. Alloftheabove

9. Abrokerdesignatedtwoagentsinhisofficetorepresenteachpartyinatransaction.Withrespecttotheparties,thebrokerisa:

a. Facilitatorb. Co-Brokerc. DualAgentd. Noneoftheabove

10. TheBoardofRegistrationwasestablishedin:

a. 1944b. 1960c. 1969d. 1991

11. Whichofthefollowingisnotrequiredonavalidcontract?

a. Offerandacceptanceb. Considerationc. Legalobjectd. Acknowledgement

12. Whichofthefollowingactsasaninsurer?

a. FNMAb. FreddieMacc. FHAd. GNMA

13. ThemostcommonmethodusedbytheFederalReserveBoardtocontrolthesupplyofmoneyis:

a. TheFOMC


FTRS 91

b. TheUDAGc. AffirmativeActiond. TandemMarkets

14. Ifthecapitalizationrateincreases,thevalue:

a. Increaseslinearlyb. Increaseslogarithmicallyc. Decreasesd. Doesnotchange

15. Plottageis:a. Combiningparcelsb. Sellingplotsinasubdivisionc. Increaseinvaluefrom

assemblaged. Lotofplotvalue

16. Whenconsideringaborrowalenderconsiders:

a. Thepropertyb. Theircreditc. Theirincomed. Alloftheabove

17. Tompurchasesaninvestmentproperty,putsworkintoit,andseesareturnof44%overtheirinvestment.Theydid$27,000inrenovationsontheproperty,andsoldfor$303,000.Whatwasthepurchaseprice?

a. $191,667b. $183,417c. $202,000d. $260,000

18. Whichofthefollowingformsofdepreciationisusuallyfoundinexternalobsolescence?

a. Inherentb. Absolutec. Incurabled. Curable

19. WhatisnotavailabletotheFederalReserveSystemincontrollingthemoneysupply?

a. OpenMarketOperationsb. Thediscount-ratec. Changingthereserve

requirementd. Changingdepreciation

20. Whichofthefollowingexpensesisnotdeductedfromeffectivegrossincomeincalculatingnetoperatingincome?

a. Depreciationb. Utilitiesc. Advertisingd. Management

21. Asellertellsarealestatelicenseethathedoesnotwanthishouseshowntoethnicbuyers.Thesalesassociateshould:

a. Complyb. Showthehousetothose

buyersanywaysc. Refusethelistingd. Arguewithhim

22. Cashflowisanexpressionof:a. Incomelessexpensesb. Expenseslessincomec. Utilitypaymentsd. Incomelessdebtservice

23. TheFairHousingActof1968(withamendments)prohibitsdiscrimination:

a. Onreligionb. Onracec. Onnationalityd. Alloftheabove

24. Section8is:a. Ahousingprojectprogramb. Atypeofsubdivisionplanc. Ahousingvoucherprogramd. Amortgagefinancing

program25. WhichiscorrectaboutRegulationZ?

a. ItispublishedbytheFederalNationalMortgageAssociation

b. Itrequiresthedisclosureofpertinentinformationsuchasdownpaymentandannualpercentagerateifa"triggering"itemsuchasinterestrateisadvertised.

c. Itrequiresdisclosureofestimateofsettlementcostsbythelender.

d. Noneoftheabove26. Whichrequiresthelenderprovidea

goodfaithestimateofsettlementcosts?

a. TheBabyFTCb. RegulationZc. TILd. RESPA

27. MaximumfinesunderFTCDo-Not-Callare:

a. $40,000percallb. $5,000percallc. $55,000percalld. $100,000percall


FTRS 92

28. Titletorealpropertypassestothegranteewhenthedeedis

a. Recordedb. Signedandwitnessedc. Writtend. Accepted

29. Ahomeisvaluedat$500,000andassessedat44%valuefortaxpurposes.Itistaxedat$2.23per$100.Howmuchisthetaxbill?

a. $4,907b. $11,150c. $4,403d. $2,231

30. Anownerwishestohaveasurveymadeofacommercially-zonedparcel.Itis150feetonthefront,200feetonthenorthside,100feetonthebackand77feetonthesouthside.Itisnotinasubdivision.Whichsurveymethodwouldbemostappropriatefortheparcel?

a. Platplanb. Linksandrodsc. Lotsandblocksd. Metesandbounds

31. Aneasementcreatedwhenapersonhasbeenusingaroadwaywithoutpermissionforover20yearsiscalledaneasementby:

a. Necessityb. Deedc. Prescriptiond. Gross

32. REMTsarefinancialentitiesthatinvestin:

a. Propertiesb. Portfoliosofpropertiesc. Portfoliosofmortgagesd. Apartmentbuildings

33. Alenderdiffersoncredittermsbetweentwoborrowerswithsimilarcreditprofiles,butdifferentgeographiclocations.Thelendermaybeguiltyof:

a. Blockbustingb. Steeringc. Redliningd. RESPA

34. Anincreaseofyourpropertybyactionofwindwouldbe:

a. Alluvionb. Accretionc. Erosiond. Disposal

35. Apropertysized400’by300’soldfor$210,000.Whatwasthepricepersquarefootoftheproperty?

a. $0.57b. $1.75c. $2.24d. $3.32

36. FannieMaewasfoundedbytheUSGovernmentto:

a. Insurelenderstoincreasehomeownership

b. Providehousingforveteransc. Injectliquidityintothecredit

marketd. Policelendingpractices

37. Amileis:a. 1,000feetb. 2,538feetc. 5,280feetd. 43,560feet

38. Asellerneedstoclear$514,000todischargetheirexistingloan.Theyhavecostsof$5,000,backtaxesof$7,600,andarepayingacommissionof4.5%.Howmuchshouldtheysellfor?

a. $538,220b. $550,820c. $551,414d. $555,325

39. Whoislegallyentitledtoholdanescrowdeposit?

a. Buyerb. Sellerc. Agentd. Salesperson

40. Howmanyacresareinasquaremile?a. 100b. 440c. 500d. 640


FTRS 93

PracticeQuiz2Answers

1. C2. C3. A4. C5. C6. D7. C8. D9. C10. B11. D12. C13. A14. C15. C16. D17. B18. C19. D20. A

21. C22. D23. D24. C25. B26. D27. A28. D29. A30. D31. C32. C33. C34. B35. B36. C37. C38. C39. B40. D


FTRS 94

MathProblems1. Buyerofferstobuypropertyfor$100,000witha20%down-payment.Balanceisduebyathree-

yearballooncontractfordeedwithinterestat10%perannum.Howmuchsimpleinterestwillthebuyerpayduringthetermoftheloan?

2. Anincomepropertygainsabiannualincomeof$5000witharateofreturnof10%.Whatshouldtheclientpay?

3. Ownerborrowed$7,500at7.75%toremodelhishome.Ifherepaidtheloanplusinterestattheendof7monthswhatwasthetotalamountrepaidtothelender?

4. Apropertysoldfor$100,000withfinancingarrangedfor25yearswith20%downpaymentand9%interest.Themonthlydebtservice(principalandinterest)is$671.36.Afterthefirstmonthlypayment,whatistheoutstandingloanbalance?

5. Usingtheabovedata,whatistheoutstandingamountowedtothelenderafterthesecondmonthlypaymenthasbeenmade?

6. Johnpurchasesahomefor$150,000witha20%downpayment,andfinancestherestofhispurchasewitha5%amortizedloanwithpaymentsof$533.Whatishisoutstandingbalanceafterhissecondpayment?

7. Ritapurchasesthreelotsoflandsizedtwoacreseach.Sheplanstosubdividethelotsintothesmallestpossiblelotsperlocalzoning,100’x400’.Assumingshesetsaside55,000sq.ft.foraccessways,howmanylotscanshebuild?

8. Tomboughthishousefor$200,000.Hewantstoclearatleastthatonthesaleofit.Ifhehascostsof$5000andanagentcommissionof4%howmuchshouldhesellforataminimum?

9. Johnmanagesseveralapartmentcomplexes.Oneofthecomplexesgrossed$50,000lastyear,hadcleaningcostsof$12,000,insuranceof$3600,andmiscellaneouscostsof$6,000,andheispaid6%ongross,whatwasJohn’spayformanagingthiscomplex?

10. Traceywaspaid$75,000incommissionslastyear.Shewaspaid1%oneverythingupto$5,000,000,andsomepercentageover$5,000,000.Ifshesold$6,000,000total,whatwashercommissionrateontheamountover$5,000,000?

11. Nickissellinghishomefor$501,343.Ifaloanfor$301,203isassumedaspartofthesale,whatwillhepayinrecordingstampsinSuffolkCounty?

12. Taxesdueonahomeare$3567fortheyear.Ifthehomehasamarketvalueof$503,000,andisassessedat42.3%,whatisthetaxrateper$100and$1000ofvalue?

13. Georgeissellinghisthree-unitowneroccupiedbuildingtoSarahinJune.Thetoptwounitsarecurrentlyrentedoutfor$1800/monthand$1100/month.Ifrentsareprepaidonthefirstofthemonth,andclosing(whichbelongstoSarah)isscheduledfor6/23,howmuchwillGeorgeoweSarahinpro-ratedrent?

14. Joshbuysahousefor$304,000atthestartof2007.Themarketturns,andheloses7%ofhishomevalueperyearforthreeyears.Hefinallysellsattheendofthethreeyears,andpaysa4%commission.Whatarehistotallosses?

15. Alfonsobuysahousefor$57,000.Hedoes$37,000inrenovations,andwantstosellforapricethatputshiscostsatnomorethan75%ofthetotalsaleprice.Howmuchshouldhesellfor,ataminimum?

16. Allybuysthreelotssized400’x200’.Shepaidatotalof$323,000forthem.Whatwasherpricepersquarefoot?

17. Apropertyreceivesasemi-annualnetoperatingincomeof$50,750.Propertiesofthissorttypicallyhaveacaprateof5.67%.Howmuchisthepropertyworth,assumingthecaprateisaccurate?

18. Bettyownsafewrentalproperties,andistryingtopriceapotentialacquisition.Itiscurrentlyonthemarketfor$503,000,andhasthreeunits:onerentingfor$3000/month,andtworentingfor$875/montheach.IfhertargetGRMis125shouldshebuythisproperty?AndwhatisitsGRM?

19. Ahousehasamarketvalueof$403,000andisassessedat72%.Ifthetaxrateis$5.50per$1000whatistheannualtax?

20. Mannyhasthreelotssized300’x1000’.Heplanstosellthemfor$8/sq.ft.Howmuchwillhegross?


FTRS 95

21. Apropertysellsfor$531,010.HowmuchwillthegrantorpayinrecordingstampsinSuffolkCounty?

22. Apropertyissized400’x120’.Theownerintendstosellitfor$33/sq.ft..Howmuchwilltheysellfor?

23. Asellerwantstonet$450,000ontheirsale.Theyhavecostsof$5,000andacommissionof5%.Howmuchshouldtheysellforataminimum?

24. Apropertyissoldon6/17.Ifrentsof$550,$350,and$750wereprepaidonthefirstofthemonthhowmuchisowedtothebuyerinproratedrent,assumingthedateofclosebelongstothebuyer?

25. Apropertywithamarketvalueof$500,000,assessedat44%fortaxpurposes,hasataxbillof$2010.Howmuchisthetaxrateper$100?

26. Asellerwantsselltheirinvestmentproperty.Ifitreceivesagrossincomeof$40,000withcleaningcostsof$3600andmanagementfeesof10%,andcapratesforthissortofpropertyareapproximately4.67%,whatisthepropertyworth?

27. ApropertywithaGRMof123andamonthlyrentof$3600shouldsellforhowmuch?28. Anagentreceives$65,000incommissionsfortheyear.Iftheysold$2.5millioninrealestate,

andreceivedacommissionof1%onthefirstmillionsold,whatwastheircommissionrateontheamountover1million?

29. Apropertyispurchasedfor$550,000,andthepurchaserputsin$55,000worthofwork.Iftheywanttoseea10%profitontheircostswhentheysellwhatshouldtheysellfor?

30. ApropertyissoldinBarnstableCountyfor$301,101.Aspartofthesalealoanisassumedfor$102,030.Howmuchwillthegranteepayinrecordingstamps?


FTRS 96

MathAnswers

1. $100,000x.8=$80,000x.1=8000x3=$24,0002. (5000*2)/.1=$100,0003. (7500*.0775)/12=48.43*7=$339interest+$7,500borrowed=$7,8394. 100000*.8=80000*.09=7200/12=600

a. Paymentof671.36-600=71.36b. 80000-71.36=$79,928.64

5. Samestepsasabovebutwithastartingloanbalanceof79,928.64=$79,856.746. 150000*.8=120000*.05=6000/12=500

a. 533–500=33b.120000–33=$119,967b. Repeatthestepsabovebutusethenewloanbalanceof119967torecalculatetheinterest=

$119,933.867. 3x2x43560=261360–55000=206360/(100*400)=5(rounddownonlots)8. 205000/.96=$213,541.679. 50000*.06=$300010. .01*5000000=50000

a. 75000–50000=25000/(6000000–5000000)=2.5%11. 501343-301203=200140roundup=200500/500=403*2.28=$914.2812. 503,000x.423=212,769/1000=212.76,$3567/212.76=$16.76and212,769/100=2127.69,$3567/

2127.69=$1.6713. 1800+1100=2900/30=96.67*8=$773.3314. 304000*.07=21280*3=63840

a. 304000–63840=240160*.04=9606+63840=$73,446.4015. 57000+37000=94000/.75=$125,33316. 323000/(3*400*200)=$1.3417. (50750*2)/.0567=$1,790,12318. 3000+(875*2)=4750

a. 503000/4750=105.89/Yes19. 403000*.72=290160

a. 290160/1000=290.16*5.50=$1,595.8820. 3*300*1000*8=$7,200,00021. 531010roundup=531500/500=1063*2.28=$2423.6422. 400*120*33=$1,584,00023. (450000+5000)/.95=$478,947.3724. 550+350+750=1650/30=55

a. 55*14=$77025. 500000*.44=220000/100=2200

a. 2010/2200=0.9026. 40000*.1=4000

a. 40000–4000–3600=32400/.0467=$693,790.527. 123*3600=$442,80028. 1000000*.01=10000

a. 65000–10000=55000b. 55000/1500000=3.6%

29. 550000+55000=605500*1.1=$665,50030. $0(grantorpaysstamps,notgrantee)


FTRS 97

MassachusettsRealEstatePre-LicensingCourse

Appendix:Resources,InterviewQuestions,Definitions,

andMathEquations


FTRS 98

AdditionalResourcesStudyMaterialsOnline

• Quizlet–Freequizzesandtests.https://quizlet.com(search"MassachusettsRealEstate")• FTRSSupplementaryQuizzes–Additionalpracticetestsandstudymaterials.

http://bostonrealestateclass.com/classes/practice-exam/• RealEstateMath–Videoseriesonrealestatemaththatmanystudentshavefoundhelpful.

https://www.youtube.com/watch?v=8gNXz5DsZmIBooks

• AlltheMathYou'llEverNeedbySteveSlavin–Amathbookforadults.Designedtohelpyoubrushuponthemathyoulearnedinschool.

• RealEstateLicenseExamsforDummiesbyJohnYoegel–Surprisinglygoodpracticeexamsandreviewcontent.• MassachusettsRealEstatePractice&Law9thEditionbyAnitaHill–OneofthebestMassachusettsspecificreal

estatebooksavailable.SalesResourcesandRecommendedReading

• HowtoMastertheArtofSellingbyTomHopkins–Providesagoodoverviewofthebasicskillsyou'llneedtosucceedasasalesperson.

• TheMillionaireRealEstateAgentbyGaryKeller–Theclassicguidefornewagents.• TheLittleRedBookofSellingbyJeffreyGitomer–Exactlywhatitsoundslike:alittleredbookabouthowtobe

abettersalesperson.• HowtoWinFriendsandInfluencePeoplebyDaleCarnegie–Theclassicpeopleandsalesskillbook.

GeneralRealEstateResources

• TheStateoftheNation'sHousing–TheHarvardJointCenterforHousingStudies'annualreportonthehousingmarket.http://www.jchs.harvard.edu/research/state_nations_housing

• BiggerPockets–Realestateblog,podcast,andforum.Focusesoninvestors,withextrainfoforagentsandpropertymanagers.http://www.biggerpockets.com

• BankerandTradesman–AweeklyperiodicalfocusingonMassachusettsrealestateandfinancenews.http://www.bankerandtradesman.com

• CurbedBoston–LocalBostonblogfocusingonrealestateandlifestyletopics.http://boston.curbed.com• BostonGlobeAddress–TheBostonGlobe'srealestatesection.http://www.bostonglobe.com/lifestyle/real-

estate• MassachusettsRealEstateLawBlog–BlogfocusingonMassachusettsrealestatelaw.Usefulforkeepingupto

dateonregulatorychanges.http://massrealestatelawblog.com

TaxesandBookkeeping

• Quickbooks–Bookkeepingandaccountingsoftware.http://quickbooks.com• Xero–Bookkeepingandaccountingsoftware.http://xero.com• Bench–Onlinebookkeepingservice.https://bench.co• MagicalMiles–AutomaticmileagetrackerforyouriPhone.https://itunes.apple.com/us/app/magical-miles-

automatic-mileage/id817598888?mt=8


FTRS 99

QuestionstoAskWhenInterviewingTraining

• Istrainingprovided?• Isthereastructuredtrainingprogram?Whatistheprogram?

o Watchoutfor"Mydoorisalwaysopen"styleanswers.Whilethebroker'sdoorshouldbeopen,youalsowantastructuredapproachtotraining.

• Doestrainingcostanything?• Isthereanymentoringorcoachingprograminplace?Canyoushadowanexperiencedagent?

BusinessandSupport

• Whatisthecommissionsplitlike?Arethereanyincentivesorscalingcommissionschedules(i.e.canyouearnmoreasyousellmore)?

• Doestheagencyprovideleadsorbusinesssupporttoagents?Dotheydoanyadvertisingofthebrokerageitself?

• Whatofficesupportstaff(ifany)areavailabletoagents?• Arethereanyrequiredofficeor"floor"hours?• Whatdoestheaverageagentmakeintheoffice?Howaboutthetopproducer?Dotheytrackagent

commissions?o Thisisusefulfordetermininghoworganizedthebrokeris,inadditiontoagentandofficeperformance.

Keepinmindthatagentincomeishighlydependentontheindividualagent,andtheinterviewerwillalmostcertainlytrytoavoidansweringthisquestionbynotingthatfact.Seeifyoucangettheinfoanyway.Iftheofficemanagerorbrokerhasnoideawhattheansweris,andcan'tfindoutbecausetheydon'ttrackagentperformance,takenoteofthatfact.

• Arethereanymonthlyoryearlyquotas?• Whatcostsarerequiredtostartattheoffice(businesscards,signage,MLS,etc.)?Arethereanymonthlydesk

orinsurancefees?• WillyouberequiredtojointhelocalassociationofRealtors?• Whathappenstoyourlistingsifyouhavetoleavetheofficeduetoamove,etc.?Dotheyhaveanyofficesin

othercitiesorstates?GeneralQuestions

• (Ifdoingrentals)Whatexclusivelandlordrelationshipsdoesthebrokeragehave?Wherearetheexclusivelistingslocated?

• Whatsoftwareandtechnologydoestheagencyuse(onlinesignatureservices,paperlessdocumentservices,CMSs,etc.)?

• Couldyouhaveacopyoftheiragentcontractsforreview(independentcontractoragreement,companypolicies,etc.)?

o Donotworkanywherethatrequirestheiragentstosignanon-competeagreement.• Howmanylistingsdoestheofficecurrentlyhave?

o Isthattheusualamount?o Howmanydoestheaveragefull-timeagenthave?o Whatistheaveragesalesprice?

• Dotheyhaveweeklymeetingsorpropertytours?• Isthereanofficedresscode?• Whatistheofficeculturelike?Cooperative?Competitive?Etc.• Whataretheoffice'sgoalsforthefuture?Expansion?Focusingonamarketniche?Etc.


FTRS 100

DefinitionsAbandonment-lesseeleaveswithoutconsentoflessorbeforeleaseexpires;doesnotbreakleaseorrelievelesseeofobligationsAbatement-areductioninpropertytaxes;mustfiletaxesbeforerequestingAbstractofTitle-acondensedhistoryoflegaltitle,summarizingallinstrumentsinchainofownership;providedbylender'sattorneyandpaidbyborrowerAbutting-neighboringlandwithacommonboundaryAccelerationClause–aclauseinnoteprotectinglender;upondefault,balanceofdebtbecomesdueimmediatelyinsteadofmaturitydate;preludetoforeclosureAcceptance-indicationbysignatureofoffereethatheiswillingtobeboundbytermsofofferfromofferorAccretion–increaseofpropertybygradualnaturaladditions,asoflandbyalluvion

Accrueddepreciation-differencebetweencostofreplacingpropertynewasofdateofappraisalandpresentvalueAcknowledgement-anactofexecutingalegalinstrumentsuchasadeed,mortgageordischargebeforealawyerorotherofficerofstatesuchasanotarypublic;thisactdeclaressigningtobefreeandvoluntary;thisisnecessarybeforerecordingatregistryAcre-43,560squarefeetActualEviction-legalactionoriginatedbylessorwherebylesseeindefaultisphysicallyoustedpursuanttoacourtorder(unlawfuldetainer).Adjacent-nearbyorabuttingAdjoining-touchingandcontiguousAdjustments-rents,insurance,fuel,taxesetc.,apportionedorproratedbetweenbuyerandselleratclosingoftitle(passingofpapers)Administrator/Administratrix-personappointedbycourttoprobateorproveandsettleestateofpersonleavingnowillAdValorem-taxassessmentbasedonactualvalueAdversepossession:occupant'srighttoacquirelegaltitletoprivatepropertyheldbytitleholderbydeedifoccupantholdslandopenly,notoriously,adverselyandwithoutpermissionfor20years;alsoknownassquatter'srights.Affidavit-aswornstatement;writtenoathsuchasacknowledgmentAffirmation-asolemndeclaration;anon-religiousoathAgency-acontractbywhichonepartyundertakestorepresentanotherincertainbusinesssituations,suchasrealtybrokerageAgent-aperson(natural),corporation,society,associationorpartnership(legalpersons)actingbyauthorityofaprincipalinarealtytransactionforcompensationAgreementofsale-abilateralcontractwherebybuyerpromisestobuyandsellerpromisestosellbyexecutionanddeliveryofdeed;alsoknownasPurchaseandSaleAgreement(P&S);AgreementmeansthesameasContractAirrights-ownershiporleaseofairspaceoveraspecificparcelofrealty,suchasabuildingoveraturnpikeAlienation-voluntarytransferofrealtyAlienationclause-clauseinmortgagegivinglenderrighttoacceptorrejectnewowneroftake-overmortgage


FTRS 101

Alluvion–increasingoflandareaalongashorebydepositedalluviumorbytherecessionofwater

Alluvium–clay,silt,sand,gravel,orsimilardetritalmaterialdepositedbyrunningwaterAmenities-featuresofpropertymakingitdesirableandthusaddingvalue,suchasscenicviews,convenientshopping,etc.Amortization-payingindebtednessbyequalandperiodicpayments;eachpaymentisequalbutratioofprincipalandinterestchangeswithanincreasinglylargerportioncreditedtoreducingdebtAppraisal-anestimateofvalueAppreciation-increaseinvalueresultingfrommarketforcessuchasdemandstrongerthansupplyApproachestovalue-threemethodsusedbyappraisertoformanestimateofvaluesuchascost,marketandincomeapproachesAppurtenance-arightbelongingtoandpassingwithapropertysuchashavingarightofwaythroughadjoiningpropertyArm’slengthtransaction-salewithoutduressoneitherpartyresultinginfairmarketvalue;anopenandwillingsaleAssemblage-theactorprocessofcombiningtwoormorelotsundersingleownership.Assessedvaluation-valuegiventorealtybyassessor’sofficeforpropertytaxationpurposes;alsocalledassessment;actualcollectionoftaxcomesfromTaxCollectororTreasurerAssets-allrealandpersonalpropertyoneowns;assetsminusliabilitiessuchasmortgages,equalnetworth(equity)transferoftitleorinterestinwriting;assignorgivesandassigneereceivesAssociatebroker-abrokerwhochoosestoworkasasalespersonforanotherbroker(theemployingbroker)Assumptionofmortgage-takingoftitletopropertybygranteewhoassumesexistingloan;howeveroriginalmortgagorisnotreleasedandineventofforeclosureanddeficiency,mortgageecanlooktoeitheroriginalmortgagorornewgranteeorbothAttachment-awritissued,beginningorduringalegalactioncommandingsherifftoattach(“seize”)property,rightsandeffectsofdefendanttosatisfypossiblecreditdemandsofplaintiffifjudgmentcomesoutinplaintiff’sfavorAttest-affirmationthatsomethingistrueorauthenticAttestation-testimonyorevidencegivenunderoathAttorney-at-law-alawyeremployedbyapartytomanageacauseAttorney-in-fact–someoneholdingawrittenpowerofattorneyAuction-publicsaleofpropertytohighestbidderBalloonmortgage-principalloanamountpaidoffinlumpsumatendoftermasopposedtoamortizeddirectreductionmethodBenchmark-markonstoneorcementpermanentlyfixedtoground;usedasmeasuringpointbysurveyorsBequeath-togivepersonalpropertybywill;bequestBetterments-improvementsaddingtovalueofrealty,donebylocalgovernmentandpaidforbygainersofvalue;sidewalks,streets,etc.ResultsinaspecialassessmentBilateralcontract-oneperson’spromiseinexchangeforanotherperson’spromisesuchaspurchaseandsaleagreementBillofsale-awritteninstrumentthatistheevidenceoftransferofoneperson’srightinpersonalpropertytoanotherBinder-depositorearnestmoneygivenasevidenceofgoodfaithbybuyertosecurepropertyuntilsaleisconsummated;itcanalsorefertoatemporarymemorandumoutlinearealestatedeal,similartoaletterofintent.


FTRS 102

Blanketmortgage-asinglemortgageinstrumentsecuringmorethanoneparcelofpropertyassecurityfortheloanBlockbusting-employingfeartacticstoinducepanicsellingorpanicpeddlinginaneighborhood:illegalBoardofRegistrationofRealEstateBrokersandSalespersons–licensingauthorityinMassachusettsundertheDivisionofPublicLicensure.IssuesrealestatelicensesBonafide-ingoodfaithandwithoutfraudBond-guaranteebythirdpartythatitwillmakegoodanyloss,uptoacertainamount,incurredbyapartydealingwithabrokernotactingingoodfaith;bondingcompanyisSuretyandobligorandStateisoblige.BrokerbondismadepayabletoStateBreach-defaultorviolationoftermsofcontractBuildingcode-regulationsestablishedbygovernmentsettingforthminimumstructuralrequirement;apolicepowerBuildingline-linedrawncertaindistancefromlotlines;nobuildingcanbeerectedbetweenbuildinglineandlotlinesBundleofrights-allrightsthatgowithownershipofrealtyCapitalexpenditures-investmentsofcashforimprovementstoremaincompetitiveinabusinessCapitalization-processofcomputingcurrentvaluefromexpectedfutureincomebydividingannualnetincomebyselectedrateofreturndesiredforthattypeofproperty;thecaprateCapitalizationrate-Profitexpressedasapercentagethataninvestorexpectsfromaninvestmentonayearlybasis.Arateofreturn.Carryingcharges-expensesnecessaryforholdingpropertysuchasvacantlandpendingdevelopmentorzoningchangesCashflow-profitafterprincipalandinterestaredeductedfromnetoperatingincome(NOI)Certificateofreasonablevalue(CRV)-instrumentissuedbyV.A.denotingmaximumvalueforV.A.guaranteedloanCertificateoftitle-awrittenopinionbyanattorneyortitlecompanythatcertifiesconditionoftitle.Chainoftitle-historyofconveyancesandencumbrancesaffectingatitleChattel-anarticleofpersonalpropertyCleartitle-titlefreeofencumbrancesClient-principalwhohiresanagent;CUSTOMERistheunrepresentedparty.Closingcosts-costsofsellerandbuyeratconveyanceofrealty.Closingstatement-awrittenaccountingoffundstosellerandbuyeratpassingofpapers.Cloudontitle-outstandingclaimorencumbrancewhichifprovedtobevalid,wouldimpairtitleandmarketabilityofproperty.Collateral-asecurity,suchasamortgage,giventoprotectdebtCollusion-agreementbetweenpartiestodefraudanotherColoroftitle-someonehasinstrumentwhichappearstoprovidegoodtitle,butactuallydoesnotCommingling-themixingoffundsheldforthebenefitofotherswiththebroker’spersonalorbusinessfundsCommission-moneyorothervaluableconsiderationgiventobrokerbyprincipalforservicesrendered;amountisbyagreementCondemnation-thetakingofprivatepropertybylawofeminentdomain


FTRS 103

Conditionalsalescontract-acontractinwhichownerretainstitleuntilbuyerhasmetalltermsandconditions;acommondeviceinlandsales;alsocalledlandcontractorinstallmentcontract,Buyeracquires“equitabletitle”untilfinalpayment;afterdeliveryofdeed,buyerhas“legaltitle”Condominium-multi-unitstructuremadeupofindividually-ownedunitswithseparatedeedsandsharedownershipofcommonareasConsideration-somethingofvalueexchangedbetweenpartiesofacontract;money,services,goodsorpromisesConstructionloan-progressivepaymentstobuilderduringstipulatedstagesinerectionofbuildingContract-alegalinstrumentbetweentwopartiestodoornottodosomething;inrealty,itmustbeinwritingtobeenforceableConvey-totransferandgrant;toconveyasatransferoflegaltitleinlandbyaninstrumentinwritingsuchasdeedCorporation-alegalpersoncreatedbystatelawownedbyoneormorepeople;corporationmustbelicensedandbonded;atleastoneofficerofcorporationmustbelicensedasbrokerbutallmembersofthecorporationinvolvedorengagedinrealtymustbelicensedalsoCostofreproduction-costofexactduplicationofpropertyusingsimilarmaterialsCounteroffer-voidsfirstofferandcreatesnewofferCovenant-apromiseorguaranteeusuallyfoundinadeedCovert-hiddenorconcealeddefectinthetitleCubageorcubiccontent-lengthxwidthxheightofinteriorCuldesac-aroadwithoneoutlet,usuallyendinginacircleCurtesy-rightsofhusbandtoshareinwife’srealtyuponherdeathonly.Dowerisrightsofwifetoshareinhusband’srealtyuponhisdeath;boththeserightsarelifeinterestsonlyDamages-estimatedmonetarydamagesforbreachofcontractDebenture-anunsecurednoteasopposedtomortgageNoteDecedent-deceasedpersonDedication-toconveyprivatepropertyovertopublicuseasthegivingoflandforconservationuseDeed-instrumentinwriting,dulyexecutedanddeliveredforthepurposeofconveyingtitle(ownership)torealpropertyDeedoftrust(trustdeed)-insomestatesusedinsteadofamortgagedeedDeedrestriction-provisionindeedcontrollinguseoflandDefault-non-performanceofadutyunderacontractDefeasanceclause-clauseinmortgagewhichdefeatsmortgageeinterestifloanisrepaidaccordingtoNote;thisclausemakesmortgagedeedonlyaconditionaltransferofpropertyDefendant-partysued;theplaintiffistheonedoingthesuingDeferredpayments-moneypaymentstobemadeatfuturedateDeficiencyjudgment-courtawardtolenderifsaleatauctiondoesnotequaldebtDelinquency-aloanindefaultoroverdue


FTRS 104

Delivery-irrevocabletransfersuchaswithdeedDemandloan-lendermaydemandpaymentoftheloanatanytime.Demise-toleaseDensity-numberofdwellingsandcommercialunitsperacreDepreciation-decreaseinvalueforvariousreasonsDevise-agiftofrealtybywill;deceasedisdevisorDirectreductionmortgage-amortizeddebtrepaidbyinstallmentpayments;eachpaymentcreditedfirsttointerestandthentoprincipal;eachpaymentremainsthesameforentiretermDisintermediation-outflowoffundsfromoneinvestmentinstrumentsuchasthriftinstitutionstoanothersuchasU.S.Treasuryinstrumentsinordertogainahigheryield.Domicile-placewhereonehaspermanentresidence,nomatterwhereoneiscurrentlylivingDuplex-ahomedesignatedfortwofamiliesDuress-unlawfullyforcingsomeonetodosomethingagainsttheirwillEarnestmoney-depositgivenwithAgreementtoBuyEasement-arightwhichonepersonhasinlandsofanotherEasementingross-apersonalrighttouseanother’sland.Economiclife-periodoftimeinwhichpropertymaybeprofitablyused;eachincomepropertysalebeginsanewpropertyeconomiclifeEjectment-legalactiontoregainpossessionofrealtywithdamagespayableforitsunlawfulretentionEmblements-cropsgrowingwhichrequireannualorsemi-annualplantingandcultivation;normallypersonalandbelongingtotenantEminentdomain-rightofgovernmenttotakeprivatepropertyagainstowner’swishesforpublicusewithfaircompensationEncroachment-physicaltrespassofapropertyonthatofanothersuchasoverhang;thediscoveryisbysurveyEncumbrance-anythingthatburdens(limits)thefeetitletoproperty,suchasalien,easementorrestrictionofanykindEquity-valueorinterestanownerofrealtyhasaboveanydebtonproperty;differencebetweenvalueandmortgagedebtEquityparticipation-afurtherreturnoninvestmentforlenderinadditiontointerest;partownershipwithlenderEquitableTitle–afuturerighttoobtainlegaltitleErosion–Theprocessbywhichthesurfaceoftheearthiswornawaybytheactionofwater,wind,etc.Escheat-powerofstatetotakepropertyifnowillandnoheirsEscrow-theholdingofsomethingofvalue(e.g.adepositonahome)byaperson(escroweeorescrowagent)forthebenefitofotherpartiesEtal.-atermmeaning“andothers”Etux-atermmeaning“andwife”(EtCon.Means“andhusband”)


FTRS 105

Eviction-thedeprivingofaperson’spossessionofrealtyExecutor/trix-personnamedinwilltoexecuteorprobatethewillExternalobsolescence-lossinvalueduetooutsideforces,suchasneighborhooddeterioration;notcurable;a/k/aeconomicobsolescenceFederalHomeLoanMortgageCorp.(FHLMC)-knownas“FreddieMac,”itisasecondarymarketoperationthatbuysconventionalmortgagesfromlenderstokeepmarketformortgagesfluidFederalHousingAdministration(FHA)-partofU.S.DeptofHousingandUrbanDevelopment(HUD)whichinsuresmortgageloansoriginatedbyqualifiedandapprovedlenderswiththehomebuyerpayingloaninsurancepremiumFederalNationalMortgageAssociation(FNMA)-knownas“FannieMae,”itisasecondarymarketloanbuyerFederalReserveBoard-U.S.centralbankcomposedofGovernorswithChairperson;establishesandregulatesmonetarypolicyFeesimple-largestpossibleestateorinterestpersoncanhaveinaparcelofrealty;leastlimitedestateFeesimpledefeasible-grantingoftitle(FeeSimpleSubjecttoaConditionSubsequent)ordurationoftitle(FeeSimpleDeterminable)isdependentonaspecificconditionnamedinthetitle

Fiduciary-apositionoftrust(e.g.brokertoprincipal)Finder’sfee-feetobrokerforarrangingloanforclient;canalsomeanfeetobrokerforlocatingapropertyforclientFixture-articlethatwaspersonalty,butisnowrealtybecauseitispermanentlyattachedForcibleentry-legalactiontorecoverpossessionofpremisesunlawfullyheldForeclosure-legalremedywherebycollateralissoldtopaydebtbecauseNoteterms,suchasnon-payment,werenotmetForfeiture-lossofmoneyoranythingofvalueduetofailuretoperformaccordingtotermsofcontractFraud-intentionaldeceptioninwhichaninjuredpartyhaslossFreehold-aninterestinrealtyofnotlessthanalifeestateFrontfoot-numberoffeetoffrontageonstreetsideFunctionalobsolescence-lossinvalueduetoout-of-date,poorlydesignedorold-fashionedfixturesorequipment;maybecurableGenerallien-alienonanyandallpropertyofdebtorsuchas:judgment,decedent’sdebts,inheritancetaxes,statetaxliens,IRSliensGovernmentNationalMortgageAssoc.(GNMA)-knownas“GinnieMae,”thisisasecondarymarketgovernmentsponsoredenterprise,thatbuysfederally-backedmortgagestohelpfluidity,andencouragelow-costhousingGraduatedloan-lowerpaymentsaremadeearlyintheloan,leadingtonegativeamortizationGrantor-onewhotransferstitletorealestatetotheGranteeGrosslease-ownerreceivesrentandpaysoutexpensessuchasinapartmentleasing,asopposedtonetleasewheretheownerreceivesrentandtenantalsopaysoutexpensesnormallypaidbyownersuchastaxes,etc.Habendumclause-“tohaveandtohold”clauseindeedwhichdefinesorlimitsquantityofestategrantedHereditaments-allinheritableproperty,bothrealandpersonal


FTRS 106

Highestandbestuse-useofapropertythatproducesgreatestnetincomeHomesteadlaws-lawsdesignedtoprotecthomeownerfromforcedsaleofhometosatisfycertaindebtsHypothecate-togivesomethingassecuritywithoutgivinguppossessionsuchastomortgageapropertyImpounds-reservessuchastaxpaymentsmadeunderamortgageandheldbymortgageeandtobedistributedtomunicipalityontaxdates.Infrastructure-networkofpublicfacilitiesofanareaIngress/egress-enteringandleavingInjunction-anorderofcourttorestrainoneormorepartiestoasuitfromdoinganinequitableorunjustactinregardtotherightsofsomeotherpartytothesuitInstrument-aformalwrittendocumentInterimfinancing-developmentloansuchasconstructionmoneyusedduringcreationofrealtyinvestmentIntestate-nowilloradefectivewillbythedeceasedInvestment-totalvalueofproperty;downpayment(equity)andmortgageloan(debt)Irrevocable–unchangeableJudgment-thefinaldeterminationofacourtofamatterpresentedtoitJuniormortgage-anymortgageafterapreviousmortgageLaches-unreasonabledelayinassertingone’srightscausingthelossofsuchrightsLandcontract-typicalmethodoffinancinglandsales:Buyermakesdownpayment,thenmonthlypaymentsuntilfinalpriceispaid;buyerdoesnotreceivedeeduntilfinalpaymentLease-contractbetweenlessor(landlord)andlessee(tenant)forexclusivepossessionofrealtyforspecifiedperiodunderspecifictermsafterwhichpropertyrevertstolessorLeaseback-thepurchaseofimprovedpropertyandtheleasingofitbacktoseller;createscapitalandfavoredtaxtreatmentforsellerLeasehold-theinterestthatalesseehasinrealtyLegaldescription-methodofdescribingpropertynomatterwhereitisintheworldandcapableofbeingascertainedbysurveyLeverage-maximumuseofborrowedmoneyandminimumuseofcashinthepurchaseofrealty(loantovalueratio)Lien-adebt;claimagainstpropertyforpaymentofsomedebtLifeestate-estateorinterestheldduringacertainperson’slife;non-inheritable;lowestoffreeholdestatesLiquidity-aperson’scashpositionLispendens-noticefiledinaregistryofdeedswarningallpersonsthattitletocertainpropertyisinlitigationLitigation-acontestincourtoflawbetweentwopartiestodeterminewhoisintherightLittoral-shorelineoflargebodyofwaterLotline-legallineseparatinglotfromanotherlot


FTRS 107

Marketdata-approachtovaluebywhichvaluationofapropertyisbasedoncomparisonwithpreviouslysoldpropertieswithsimilarcharacteristics;alsoknownassalescomparisonapproachMarketvalue-priceforwhichrealtycanbesoldonopenmarketifthereisawillingsellerandbuyerandareasonabletimetomakeasaleMarketabletitle-titlewhichbuyerwouldacceptasbeinggoodperformanceonpartofseller;agooddeedbygrantorMasterdeed-basictitledocumentincreationofcondominium;itdefinesindividualfeeunitsandcommoninterestsMechanic’slien-astatutorylienonaspecificpropertyforlaborandmaterialcontributedtoaworkofimprovementofrealtyMeetingofminds-anofferandacceptance;anagreementorcontractMetesandbounds-boundariesoflanddescribedindirectionsanddistancesMile–5,280feetModularhome–homeswhosecomponentsaremanufacturedinafactory,andarelaterassembledonsiteMonument-avisiblemarker,naturalorartificialusedtoestablishalandboundaryMoratorium-actionbygovernmenttemporarilyhaltingpublicactivitiessuchasa“freeze”onapartmentconstructionMortgage-alegalinstrumentconveyingconditionaltitletolenderinordertosecuretherepaymentofthedebtdescribedinthenoteMortgagecommitment-awrittennoticefromlenderpromisingafutureloanundercertainconditionsandtermsMortgagebroker-apartywho,forafee,bringstogetheraninvestorandborrowerMortgagee-thelenderMortgagee-in-possession-lendertakespossessionofpropertyfromdefaultedpartyandcollectsincomefromlesseespendingforeclosureMortgagor-theborrowerMunicipalliencertificate-adocumentfrommunicipalitytoascertainstatusoftaxes,water,sewerage,bettermentsetc.;arequireddocumentatclosingoftitleNationalAssoc.ofRealtors(NAR)-anationalprivatetradeassociationwithstateandlocalchapters.MembersareabletorefertothemselvesaRealtors.Doesnothaveanyofficialcapacityinlawmakingorlicensing.Necessaries-essentialsofexistence:food,clothing,shelterNegativeAmortization-unpaidinterestisaddedontotheprincipalamountowed.Netincome-alsoknownasthenetoperatingincome(N.O.I.);effectivegrossincomeminusoperatingexpensesandpropertytaxesNetlisting-afixed,specifiedpricebelowwhichownerwillnotsellandatwhichbrokerreceivesnocommission;brokerreceiveseverythingoverfixedprice;illegalNetworth-valueleftafterliabilitiesaredeductedfromassetsNominalconsideration-somethingofvaluebearingnorelationtorealvalueNonconforminguse-alegalusethatwasinexistencepriortocurrentzoning,whichmaycontinuetoexistNote-promissoryinstrumentgivenbyborrowertolenderasevidenceofdebt;I.O.U.


FTRS 108

Novation-substitutionofoldobligationforanewoneObsolescence-lossofvaluefromanysourceotherthanwearandtearOffer-statementofintentbyofferor;AcceptanceisthestatementofintenttoacceptofferbyoffereeOpen-endmortgage-borrowermayreborrowuptooriginalloan;alsoknownasahomeequitylineofcreditOpenlisting-anyhiredbrokercansellpropertyforacommissionbutifownersells,nocommissionpayableOpenmortgage-amortgagethathasmaturedorisoverdueandsubjecttoforeclosureOption-acontractbetweenownerandpotentialbuyerorlesseetobuyorleaseinfutureatspecifiedterms;thepersongivingconsiderationistheoptioneeOrdinance-lawbylocalgovernmentbodyOvert-openlyknownOwnership-title;anestateinrealtytotheexclusionofothersPackagemortgage-aloansecuredbyamortgagebothonrealandpersonalpropertyParol-oral,asdistinguishedfromwrittenPartition-alegalaction(e.g.lawsuit)todivideco-ownedrealtyPartywall-wallorfenceoncommonboundaryforbenefitofbothparties;bothpartiesareresponsibleformaintenancePercentagelease-aleasecontractinwhichrentalisbasedonapercentageofgrosssales;usuallywithafixedminimumPercolationtest-asoiltestdesignedtomeasurerateofwaterabsorptionanddrainagesuchasforsepticsystemsPhysicaldepreciation-lossinvalueresultingfromwearandtearPlannedunitdevelopment-ahousingconceptwithhighdensityofdwellingswithmaximumopenspacesPlat-aplanormapofaparcel,suchasoneshowingthevariouslotsofaproposedsubdivisionPlatbook-publicrecordofrecordedplansormapsPlotplan-adiagramshowingtheexistingorproposeduseofparcelofland.Thiswillshowimprovementsonland.Plottage-value-increaseinthevalueoflandbyassemblageofsmallerlotsintooneownership;knownasplottageincrement.Points-one-timechargebylendertoincreaseyieldoninvestment;paidatpassing;one-pointequals1%ofloanamountPointofbeginning(P.O.B.)-thestartingpointinametesandbounddescriptionofproperty,eitherfromamonumentorareferencepointonthestreet;thedescriptionbeginsandendsattheP.O.B.Policepower-rightofgovernmenttoenactlaws(e.g.buildingcodes,zoningbylaws,licenselaws)inthepublicinterestorforthepublicwelfarePowerofattorney-writteninstrumentauthorizinganothertoactinhis/herplace;persongivenpowerisattorney-in-factPrepaymentpenalty-penaltyforpay-offofloanbeforematuritydatePrescription-amethodofobtaininganeasementbyadverseuseforaperiodofyears(20),hostiletoowner’swishesPrimarymortgagemarket-marketwhereloansaremadedirectlytoborrowers


FTRS 109

Privaterestriction-arestrictionplacedonrealtybygrantor(seller)attimeofsaleimposedonimmediateandsubsequentownersPrimafacie-onfirstview;onfaceofit;anobviousfactPrimerate-lowestinterestratechargedbycommercialbankstomostcredit-worthycustomers;thediscountrateisratechargedtothesebanksbyFederalReserve,andthefedfundsrateistherateatwhichbanksborrowfromeachotherProformastatement-aprojectionoffutureincomeandexpensesProcuringcause-theeffortofbrokerwhoproducedareadywillingandablebuyerPromulgate-topublishormakeknownsuchaslicenselawProrate-termusedtodescribeproportionaladjustmentofmoniesbetweensellerandbuyeratclosingsuchasfuel,rents,etc.Prospectus-anadvertisementtosetforthobjectsandnatureofaparticularofferingtothepublicwithinvitationtobuyPublicrestriction-governmentlaworregulationrestrictingtheuseofrealestate.Puffing–anexaggerationmadebyasalespersonorfoundinanadvertisementthatconcernsthequalityofgoodsofferedforsalePurchasemoneymortgage(PMM)-akasellerfinancing.Aspartpaymentofpurchaseprice,thebuyer(grantee)givesaNoteandmortgageDeedbacktosellerQuietenjoyment-rightofownerortenanttopossessionwithoutinterferenceQuietingtitle-courtactiontoestablishtrueownerandtitleQuitclaimdeed-writteninstrumentreleasinginterestofgrantorRealityofconsent-agreementtoacontractmustberealandfreefromfraud,duress,undueinfluence,misrepresentationanderrorReciprocity-mutualexchangeofprivilegesREO–RealEstateOwned;abankownedpropertyRescissionofcontract-theun-making,annullingorabrogationofcontractbymutualconsentReliction–anincreaseofthelandbythesuddenretreatoftheseaorariverRESPA(RealEstateSettlementProceduresAct)-alawrequiringfulldisclosureofclosingcoststobuyerandseller.Restrictivecovenant-clauseindeedlimitingcertainrealtyuseRevocation-arecallorcancellationRightoffirstrefusal–Effectively“dibs”onaproperty;providesthepersonholdingtherighttomatchafutureofferandbuythepropertyinlieuoftheofferorRightofway-rightofonepersontopassoverestateofanother;aformofeasementRiparian-belongingtoorrelatingtobanksofabodyofwaterSatisfactionpiece-recordedinstrumentwhichsatisfiesdebtofmortgagor;itreleases,dischargesandpaysinfullSecondaryfinancing-juniormortgages,nottobeconfusedwithsecondarymortgagemarket.Secondarymortgagemarket-marketplaceforthesaleandpurchaseofexistingmortgageswhichoriginatedinprimarymarket


FTRS 110

Securitydeposit-moneyoftenantdepositedwithlandlordtooffsetdamagesbeyondreasonablewearandteardonebytenantSeisin–possessionofrealtywithafreeholdclaiminit.Alsocanbespelledseizin.Separateproperty-propertyownedbymarriedpersoninownrightSetback-distanceformcurborotherestablishedlinewithinwhichnobuildingmaybeerectedSeveralty-soleownership;ownedbyonepersononlySharedequityloan-inadditiontomakingaloan,lenderpaysaportionofthedownpaymentandgetsasplitoftheequityonresaleSheriff’sdeed-aninstrumentdrawnundercourtordertoconveytitletopropertysoldtosatisfyajudgmentShortSale–asettlementwiththelenderwherethelenderacceptsapaymentoflessthanwhatisowedonthehomeloanSinkingfund-moneysetasidefrompropertyincomewhich,withaccruedinterest,willeventuallypayforreplacementofimprovementsSpecificlien-alienonaparticularpropertysuchas:mortgage,municipaltaxes,mechanic’slien,attachment,specialassessment,condominiumassociationfeesSpecificperformance-courtdecisionorderingonepartytocomplywithtermsofcontractSpotzoning-permitteduseinconsistentwithzoninginareaSquarefeet–lengthxwidthSquaremile–640acresor27,878,400feetStatute-actoflegislatureStatuteofFrauds-lawrequiringallrealtycontractstobeinwritinginordertobeenforceableincourtoflawStickBuiltHome-Awoodenhouseconstructedentirelyorlargelyon-site;thatis,builtonthesitewhichitisintendedtooccupyuponitscompletionratherthaninafactorySubdivision-actoflandlegallydividedintolotsforresidentialconstruction;recordedinplatbookSubordination-willingnessoflienholdertobejuniortoafuturelienholderSubstitution-whentwoormorelikepropertiesareforsale,theonewiththelowestpriceattractsthegreatestdemandSurety-onewhoguaranteesperformanceofanotherSurvey-actofestablishinglegaldescriptionofpropertySwingloan-short-termloanusedtoenablebuyertopurchasenewpropertyonstrengthoftheirequityinthepropertythey’retryingtosell;alsoknownasbridgeloanSyndication–acorporationformedfortheinvestmentinapieceorpiecesofrealestateTaxrate–municipaltaxratemultipliedbyassessmenttoproduceannualtax.Itisgivenasamillagerate(usuallyper$1000)Taxsale-saleofpropertybypublicauctiontosatisfydelinquenttaxesTaxtitle-titleorownershipacquiredattaxsaleTenancyatsufferance-atenancyarisingwhentenantremainsinpossessionafterleaseexpiresandwithoutowner’spermission


FTRS 111

Tenancyatwill-atenancywhichissubjecttoterminationatwillofeitherlandlordortenant(“monthtomonth”)Tenancybytheentireties-jointtenancyofmarriedcoupleonlyTenancyincommon-holdingoftitlebydifferentpersons,underdifferenttitles,eachpersonhavingequalrighttooccupyallofpropertyinvolvedTestator-onewhomakeswilloflasttestamentTimeisofessence-exactandpunctualperformanceofcontractTitleinsurance-insuranceagainstlossresultingfromdefectintitletoparticularparcelofrealtyTitlereference-bookandpagenumberstampedondeedtoindicatewhererecordationmaybefoundatregistryofdeedsTitlesearch-examinationofregistryrecordstodeterminechainoftittleandpossibledefectsbasedongrantor,granteeorlocationTopography-natureorcontouroflandsurfaceTorrenssystem-procedureofregisteringtitlesinlandTradefixtures-personalarticlesusedinbusinessandaffixedtorealty;necessaryfortradeandareremovable

Unimprovedproperty-landwithoutbuildingsorotherimprovementsUnearnedincrement-increaseinvalue,notanticipatedbyowner,dueprimarilytooutsideforcesratherthanpersonaleffortsofowner.Forexample:populationgrowthandinflationURAR(UniformResidentialAppraisalReport)-mostwidelyusedmethodofcommunicatedaresidentialappraisal;requiredbyFannieMae.USPAP(UniformStandardsofProfessionalAppraisalPractice)-acodeofconductinperformingappraisalsinfederallyrelatedtransactions.Usury-charginghigherrateofinterestthanlawallowsVariableinterest–loaninterestratefluctuatesaccordingtoanagreedindex;knownasadjustableratemortgage(ARM)Variance-permissionfromcitytouselandinexceptiontozoninglawsWraparoundmortgage-amortgagethatincludesafirstandsecondmortgageinsteadofhavingtwodifferentonesWritofexecution-alegalwritingissuedtoenforceajudgmentorcourtdecreeZoning-governmentregulationsrelatingtotheuseofland;forthepublicgood


FTRS 112

MathEquations

Note:%sshouldbeindecimalformwhenperformingcalculations,e.g.79%=0.79,2%=.02,or125%=1.25

Percentages:- TotalAmountx%=PercentageAmount- PercentageAmount/TotalAmount=%- PercentageAmount/%=TotalAmount

Taxrate&AssessedValue:- MarketValue$xAssessment%=AssessedValue$- PropertyTax$/AssessedValue$=AnnualTaxRate%- AssessedValue$xAnnualTaxRate%=AnnualPropertyTax$

TaxPerDollarsValuation(e.g.$10per$100)- DollarsPerTaxUnit/TotalTaxUnit=AnnualTaxRate%- AnnualTaxRate%xTotalTaxUnit=DollarsPerTaxUnit

Loans&Points- SalesPrice$xDownpayment%=Downpayment$- Downpayment$/SalesPrice=Downpayment%- 100%-DownPayment%=Loan%- SalesPricexLoan%=LoanAmount- SalesPrice$–Downpayment$=LoanAmount$- LoanAmount$+DownPayment=SalesPrice$- LoanAmount$/Loan%=SalesPrice$- DownPayment$/DownPayment%=SalesPrice$- LoanAmount$xPoints%=Points$- Points$/LoanAmount$=Points%

InterestRates- LoanTotal$xInterest%=AnnualInterest$- AnnualInterest$/LoanTotal$=Interest%

Commissions- SalesPrice$xCommission%=Commission$- Commission$/SalesPrice$=Commission%- Commission$/Commission%=SalesPrice

SalesPrice&NetProfit- (NetSeller’sProfit$+Expenses$)/(100%-Commission%)=GrossSalesPrice- (SalesPrice$-Expenses$)xCommission%=NetSeller’sProfit$

Proration- TotalAnnual$tobePro-rated/DaysinYear=Daily$- Daily$xDaystoBeProrated=$ToBeProrated

SquareFeet&PricePerSquareFeet- LengthxWidth=SquareFeet- TotalSquareFeetx$PerSquareFoot=Total$- Total$/TotalSquareFeet=PricePerSquareFoot- Total$/PricePerSquareFoot=TotalSquareFeet

Lots- LotLengthxLotWidth=LotSquareFeet- TotalParcelSquareFeet/LotSquareFeet=NumberofLots- NumberofLotsxLotSquareFeet=TotalParcelSquareFeet- TotalParcelSquareFeet/NumberofLots=LotSquareFeet

Acres- 43,560xNumberofAcres=SquareFeet- SquareFeet/43,560=NumberofAcres

AmortizedLoans- AnnualInterest$/12=MonthlyInterest$- MonthlyPayment$–MonthlyInterest$=PrincipalReduction$- TotalOutstandingLoan$–PrincipalReduction$=TotalOutstandingLoan$AfterPayment

Capitalization(Cap)Rate- TotalPrice$xCapitalizationRate%=NetOperatingIncome$- NetOperatingIncome$/CapitalizationRate%=TotalPrice$- NetOperatingIncome$/TotalPrice$=CapitalizationRate%


FTRS 113

GrossRentMultiplier(GRM)- TotalPrice/MonthlyRent=MonthlyGRM- MonthlyRentxMonthlyGRM=TotalPrice

CashonCashReturnonInvestment(CoCROI)- CashFlowBeforeTaxes/EquityInvested=CoCROI%


FTRS 114

StudyGuideChangelogJune8,2018

• PropertyTransfer

o SimplifiedthelotandblocksurveyexampleApril11,2018

• TheBasics

o Added1099vW2,Insurance,andRealtors• RealEstateAgency

o Moved1099vW2,Insurance,andRealtorstotheBasicssectionMarch28,2018

• PropertyTransfer

o AddedthedefinitionofafurlongMarch26,2018

• MathQuestions(Appendix)

o Fixederrorinexplanationforquestion#3March19,2018

• PropertyRights

o Improvedthebundleofrightssection• MathEquations(Appendix)

o AddedGRMandCoCROIFebruary26,2018• PropertyRightLimitations

o AddedthedefinitionfortaxrollandtaxbaseFebruary12,2018• RealEstateFinancing

o Addedtheformulatocalculatetheoutstandingloanprincipalforanyarbitrarytimeperiod• GovernmentFinancingProgramsandRegulations

o Updatedthetaxsectiontoreflectthenewtaxbill

December20,2017• ConsumerProtectionLaws

o MadethissectionaGeneralsection,ratherthanMassachusettsspecificsection,sincemanypartsofthesectionareincludedintheGeneralportionoftheexam

o Addedthescientificnamesforblackmoldtothehazardssection

November27,2017• MassachusettsLicensingLaw

o AddedMassachusetts'statusasaphysicallocationstate• MassachusettsConsumerProtection

o MovedLandlordRegulationstotheLeasessectiono MovedRecordingStampstothePropertyTransfersection

November15,2017


FTRS 115

• PropertyRights

o Expandedtheairandmineralrightssection• InterestsinRealEstate

o Thefourunitiesofjointtenancyweremademoreobviouso Addedthelegal/naturalpersonsdistinctiontothesecuritiessection

• PropertyRightLimitationso Movedtaxforeclosurestothelienssectiono Addedfederaltaxlienstothelienssectiono Addedgeneralandspecificlienstothelienssectiono Addedeasementsbyimplicationtotheeasementssectiono AddedtheCoastalZoneManagementActtothelistofenvironmentallawso Addedadditionaldetailtothezoningsection

• PropertyValuationo Addedtheappraisalprincipalofthefour-stagelifecycleo Addedmoredetailtodepreciationunderthecostapproach

• Contractso Consolidatedthevariouscommoncontractclausesintotheirownsectiono Addedentryonlylistingstothelistingcontractssection

• PropertyTransfero Expandedthetitleinsurancesectiono Expandedthewillssection

• RealEstateAgencyo Addednuisancestothemustdiscloselist(insomestates)o AddedrobocallstotheDoNotCallsectiono ExpandedtheShermanAntitrustActsection

• RealEstateFinancingo AddedtheFHFAtoFannie/Freddie/GinnieMae

• GovernmentFinancingo Movedusuryandpredatorylendingtotheirownsectionso Movedestoppelcertificatestotheleasessectiono AddedtheForeignInvestmentinRealPropertyTaxActundertaxconcernso Addedthedefinitionofarealestateprofessionalfortaxpurposesundertaxconcerns

November10,2017

• InterestsinRealEstateo Trustsarenowincludedinthissection,inadditiontotheTransferofPropertySection(wheretheywerealready

mentioned),andtheSecuritiessectionhasbeenupdated• PropertyTransfer

o TheGovernmentRectangularSurveyisnowonthetest.Itisnowcoveredundersurveys• PropertyValuation

o TheCLUEdatabasenowmakesanappearanceunderinsurablevalue• FairHousingLaw

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