Welcome to
{Organization}
Basic Appraisal
Principles
2nd Edition
Course Objectives
• Recall the fundamentals of the appraisal profession and process.
• Identify real property rights, improvements, characteristics, and legal
descriptions.
• Describe the various types of estates associated with real property.
• Explain types of ownership of real property and businesses.
• Describe governmental and private controls over real property.
• Describe the legal instruments used when transferring, conveying,
and leasing real property.
• Recall types of real estate value and forces that influence value.
• Explain economic principles and market fundamentals.
• Recognize the basics of a real estate market analysis.
• Identify ethical principles and acceptable standards of appraisal
practice.
Instruction Method
Lecture / Text / Group Participation
Case Study
Attendance:
Mandatory to receive credit!
Text: Basic
Appraisal Principles
Publisher:
Hondros Learning™, © 2011
Chapter 1
Overview of Appraisal
Chapter 1: Objectives
• After completing this chapter, students will
be able to:
– Explain the appraisal process, who is an
appraiser, and what is an appraisal.
– Recognize ETHICS and COMPETENCY
standards set by USPAP.
Key Terms
• Uniform Standards of
Professional Appraisal
Practice (USPAP)
• Financial Institutions
Reform, Recovery and
Enforcement Act
(FIRREA)
• Appraisal Review
• Appraisal
• Appraisal Practice
• Appraiser
• Client
• Confidential
Information
• Credible
• Intended Use
• Intended User
• Scope of Work
• Valuation Services
Uniform Standards of Professional
Appraisal Practice (USPAP)
• Sets forth the minimum standards of
appraisal practice for appraisers
– Some states may have greater requirements
• Although it is not law:
– All jurisdictions that issue licensing and/or
certification credentials require compliance
with USPAP
– Many individuals require USPAP compliance
• Contains DEFINITIONS and RULES
The Appraisal Profession
• USPAP was created in the 1980s
– Before this, practice among appraisers was
often inconsistent and public trust of
appraisers could be diminished
– USPAP’s purpose: To promote and preserve
public trust in professional appraisal practice
• The Financial Institutions Reform,
Recovery, and Enforcement Act
(FIRREA) was passed in 1989
Appraisal Opportunities
· Civil lawsuits
· Eminent domain valuations
· Divorces
· Feasibility studies
· Bankruptcies
· Insurance claims
· Estates
· Dispute resolution
· Trusts
· Impact studies
· Zoning changes · Consulting
· Tax matters (donations or property exchanges)
· Determining construction or remodeling costs
Defining Appraiser
and Appraisal
• USPAP DEFINITIONS:
– Appraiser: “one who is expected to perform
valuation services competently and in a
manner that is independent, impartial, and
objective.”
– Appraisal: “(noun) the act or process of
developing an opinion of value; an opinion of
value. (adjective) of or pertaining to
appraising and related functions such as
appraisal practice or appraisal services.”
The Appraisal Process
The Appraisal Processcont.
Elements of
Problem Identification
• Client and any other intended users
• Intended use of the appraiser’s opinions
and conclusions
• Type and definition of value
• Effective date of the appraiser’s opinions
and conclusions
• Subject of the assignment and its relevant
characteristics
• Assignment conditions
Determining Scope of Work
• Appraiser decides:
– Extent to which a property is identified
– Extent of property inspection
– Type of data to be researched and to what
extent
– Type and extent of analysis applied in order to
reach opinions or conclusions
Obligations of
Ethics and Competency
• Valuation services are performed by a
variety of individuals and professionals in
addition to appraisers
• Appraisal practice is a valuation service
provided by an appraiser
• When an appraiser is acting in the role of
an appraiser, there are certain USPAP
obligations
The ETHICS RULE
• Sets forth foundational obligations when
acting in the role of an appraiser
• Amplifies that an appraiser is required to
observe the highest standards of
professional ethics
• An appraiser “must not misrepresent his or
her role when providing valuation services
that are outside of appraisal practice”
The ETHICS RULE
cont.
• Appraisers must not communicate in a
misleading or fraudulent manner
• Appraisers must promote and preserve the
public trust inherent in appraisal practice
• Appraiser must comply with USPAP when
obligated by law/regulation or agreement,
or when performing service as an
appraiser
The ETHICS RULE
cont.
• Appraisers must not engage in criminal
conduct
• Appraisers must always be impartial,
objective, and independent
• Appraisers must not advertise for or solicit
assignments in a manner that is false,
misleading, or exaggerated
The ETHICS RULE
cont.
• Regarding obligations for performance in
an appraisal assignment:
– Appraisers must not perform an assignment
with bias or advocate the cause or interest of
any party/issue
– Appraisers must not accept assignments
conditioned on the reporting of predetermined
opinions or conclusions
– Appraisers must not perform assignments in a
grossly negligent manner
The ETHICS RULE
cont.
“Appraisers must not use or rely on
unsupported conclusions relating to
characteristics such as race, color,
religion, national origin, gender, marital
status, familial status, age, receipt of
public assistance income, handicap, or an
unsupported conclusion that homogeneity
of such characteristics is necessary to
maximize value.”
The ETHICS RULE
cont.
• Appraisers must disclose:
– Any current or prospective interest regarding
the subject property or the parties involved
– Prior services performed for the subject
property as an individual or in any other
capacity
– Payment of fees, commissions, or things of
value paid in connection with the procurement
of an assignment
The ETHICS RULE
cont.
• An appraiser must not accept an assignment, or have a
compensation arrangement for an assignment, that is
contingent on any of the following:
– the reporting of a predetermined result (e.g., opinion of
value);
– a direction in assignment results that favors the cause of
the client;
– the amount of a value opinion;
– the attainment of a stipulated result (e.g., that the loan
closes, or taxes are reduced); or
– the occurrence of a subsequent event directly related to
the appraiser’s opinions and specific to the assignment’s
purpose. (USPAP 2010-2011 Edition, p. U-8)
The ETHICS RULE
cont.
• An appraiser must not disclose (1) confidential information
or (2) assignment results to anyone other than:
– the client;
– persons specifically authorized by the client;
– state appraiser regulatory agencies;
– third parties as may be authorized by due process of
law; or
– a duly authorized professional peer review committee
except when such disclosure to a committee would
violate applicable law or regulation.
– A member of a duly authorized professional peer review
committee must not disclose confidential information
presented to the committee.
The COMPETENCY RULE
cont.
• Competency could apply to the appraiser’s
knowledge and experience regarding:
– A specific type of property or asset
– A market
– A geographic area
– An intended use
– Specific laws and regulations
– An analytical method
The COMPETENCY RULE
cont.
• The COMPETENCY RULE establishes
these requirements:
– the ability to properly identify the problem to
be addressed; and
– the knowledge and experience to complete
the assignment competently; and
– recognition of, and compliance with, laws and
regulations that apply to the appraiser or to
the assignment.
The COMPETENCY RULE
cont.
• For an appraiser who lacks competency at the
onset but would like to accept an assignment,
the appraiser must:
– disclose the lack of knowledge and/or experience
to the client before accepting the assignment;
– take all steps necessary or appropriate to
complete the assignment competently; and
– describe, in the report, the lack of knowledge
and/or experience and the steps taken to
complete the assignment competently.
The COMPETENCY RULE
cont.
• If during the course of an assignment, facts or
conditions are discovered that cause the
appraiser to realize that he lacks the required
knowledge and experience to competently
complete the assignment, the appraiser must:
– notify the client, and
– take all steps necessary or appropriate to
complete the assignment competently, and
– describe, in the report, the lack of knowledge
and/or experience and the steps taken to
complete the assignment competently.
Chapter 1 Quiz
1. Paramount within USPAP is an
appraiser’s obligation to promote and
preserve
a.
b.
c.
d.
adequate compensation for appraisers.
appraisal as an honorable profession.
his right to advocate for his client.
public trust in appraisal practice.
Chapter 1 Quiz
2. The Financial Institutions Reform,
Recovery, and Enforcement Act
(FIRREA) recognizes which as the
current industry standards for
appraisals?
a.
b.
c.
d.
appraisal organizations
Fannie Mae
state regulatory agencies
USPAP
Chapter 1 Quiz
3. The act or process limited to the
development and reporting of an
opinion regarding the quality of
another appraiser’s work is an
a. appraisal review assignment.
b. appraisal within an appraisal review.
c. example of advocacy within appraisal
practice.
d. unacceptable appraisal practice.
Chapter 1 Quiz
4. Within the definition of an appraiser,
which is NOT one of the expectations
of an appraiser’s performance?
a.
b.
c.
d.
advocacy
impartiality
independence
objectivity
Chapter 1 Quiz
5. The appraisal process begins with
problem identification and
concludes with
a. compensating the appraiser.
b. determining the appropriate scope of
work.
c. reconciliation of the appraiser’s
conclusions.
d. reporting of the appraiser’s
conclusions.
Chapter 1 Quiz
6. Which is required in order to
establish a person or entity as the
appraiser’s client in an
assignment?
a. employment contract signed by all
parties
b. engagement of the appraiser’s
services
c. exchange of confidential information
d. payment for the appraiser’s services
Chapter 1 Quiz
7. At what point in the assignment must
other intended users be identified by
the client?
a. anytime during or after conclusion of the
appraisal process
b. at the time of the assignment
c. during the scope of work decision
d. within a reasonable time after completion
Chapter 1 Quiz
8. The scope of work in an assignment
must include the research and
analysis necessary to produce
____________ results.
a.
b.
c.
d.
conclusive
credible
indisputable
reasonable
Chapter 1 Quiz
9. When an individual offers both appraisal and
real estate brokerage services, which
statement is TRUE in circumstances when he
is acting as a real estate broker?
a. The appraiser is acting contrary to the ETHICS
RULE of USPAP.
b. He can perform in that capacity provided he does
not misrepresent his role.
c. He must always choose to act in the role of an
appraiser when providing any valuation service.
d. Regardless, the service would be considered
appraisal practice.
Chapter 1 Quiz
10. Which is an obligation of the
COMPETENCY RULE of USPAP?
a. decline all assignments for which the
appraiser does not initially possess
competency
b. disclose the lack of competency to the client
prior to accepting the assignment
c. keep the lack of knowledge and experience
confidential in the appraisal report
d. refer the assignment to an appraiser who
possesses competency
Chapter 2
Real Property Concepts
and Characteristics
Chapter 2: Objectives
• After completing this chapter, students will
be able to:
– Interpret basic property concepts.
– Determine characteristics of real estate.
Key Terms
•
•
•
•
•
•
•
Annexation
Appropriative Rights
Appurtenance
Attachments
Bundle of Rights
Demand
Doctrine of
Emblements
•
•
•
•
Fixture
Fructus Industriales
Fructus Naturales
Government Survey
System
• Immobility
• Indestructibility
Key Terms
•
•
•
•
•
•
Littoral Rights
Lot and Block
Metes and Bounds
Personal Property
Property
Real Estate
•
•
•
•
•
•
•
Real Property
Riparian Rights
Rule of Capture
Scarcity
Trade Fixtures
Transferability
Utility
cont.
Basic Real Property Concepts
• Real Property: Things attached to the
land, rights that go with ownership of the
land, and limitations on the use of the land
• Tangible property: Items that can be held
or touched (either real property or
personal property)
• Intangible Property: Personal property
that has value, yet cannot be physically
touched or seen
Real Estate vs. Real Property
• Real estate: The actual physical land and
everything, both natural and manmade,
attached (or appurtenant) to it
• Real property: Refers to not only the
physical land and everything attached to it,
but also the rights of ownership in the real
estate
Real Property vs.
Personal Property
• Real property
– Not only the physical land and everything
attached to it, but also the rights of ownership
(bundle of rights) in real estate
• Personal property
– Tangible items that (usually) are not
permanently attached to, or part of, the real
estate
– Also called personalty or chattel
Annexation
• Conversion of personal property to real
property—most often by attaching or
affixing personal property to real property
• If an item is securely attached to real
property, it is considered a fixture
– Physical attachment is not always decisive
• Items closely associated with the house
(e.g., keys, garage door remote control)
become real property items
When Does Personal Property
Become a Fixture? cont.
• Did the person intend for the item to become
part of the real estate?
• Does the item complement the property or is it
necessary for the acceptable function of the
property?
• Could the item be removed without causing
irreparable damage to the real estate?
• Would there be economic loss to the property if
the item were removed?
Natural Attachments
• Natural attachments
– Fructus naturales (“fruits of nature”)—Naturally
occurring plants
– Fructus industriales (“fruits of industry”)—Plants
planted and cultivated by people
• Emblements: A tenant farmer’s crops
• Doctrine of emblements: A tenant farmer is
allowed to re-enter the land to harvest crops that
were planted by the tenant farmer even after the
tenancy has ended
Trade Fixtures
• Any equipment or items a tenant installs
for business purposes
• Always considered to be personal property
and not fixtures
• Generally, tenants are allowed to remove
trade fixtures before a lease ends, unless
the lease terms or other agreement
prohibit removal
Class Work Problem
Place the following items in the correct column:
•
•
•
•
Door Key
•
Portable dishwasher
conditioner
Garage door remote
Tacked-down hallway
runner over oak floor
In-ground pool
•
Built-in range
•
Above-ground pool •
Window air
•
•
•• Door
Hot tub
keyon patio
• Garage door remote
FixtureChattel
• In-ground pool
• Mirror over bathroom sink
• Built-in range
• Storage shed (if on permanent
foundation)
• Furnace
Furnace •
Light bulbs
Storage shed on a •
Mirror over
foundation
bathroom sink
•
•
•
•
•
•
Portable dishwasher
Hot tub unit on patio
Window air-conditioner
Above ground pool
Light bulb
Tacked down hallway runner over
oak floor
Bundle of Rights
• Real property rights that come with one’s
interest or ownership in real property
– Right of use
– Right of enjoyment
– Right of disposal
Land Rights
• Air rights
– Also called suprasurface rights
• Surface rights
– Riparian rights
– Littoral rights
– Appropriative rights
• Subsurface rights
– Mineral rights
Land Rights
cont.
Improvements to the Land
• Land: The surface of the earth—actual dirt
on the ground, part of a waterway that is
owned, or even a swampy marsh
• Site: Refers to the land with
enhancements that make it ready for a
building or structure
• Site improvements: Manmade items
added to the land to make it useable for a
particular purpose
Improvements on the Land
• Attachments and improvements that have
legally become part of the real property by
virtue of their attachment to or close
association with it
• Market value is a reflection of the “typical
buyer’s” actions, not just any one person
Real Property
Value Characteristics
• DUST:
– Demand
– Utility
– Scarcity
– Transferability
Real Property
Physical Characteristics
• The three unique physical characteristics
of real estate are:
– Uniqueness
– Immobility
– Indestructibility
Legal Descriptions
• The three basic legal descriptions that can
distinguish between properties so there
can be no mistake in identifying one
property from another are:
– Government survey system
– Lot and block system
– Metes and bounds system
Government Survey System
• A legal description for land, referencing
principal meridians and base lines
designated throughout the country
• Uses north-south lines (ranges or range
lines) and east-west lines (township
lines)
• A township has 36 square miles divided
into 36 sections of one-square-mile (640
acres) each
Government Survey System
cont.
Township Divided into
Sections
Legal Description
For Example
•
•
•
The NW 1/4 is shaded like this:
The NE 1/4 of NW 1/4 is shaded like this:
The N 1/2 of the NE 1/4 of the NW 1/4 is shaded like this:
Dimensions in Legal
Description
1. The section is 5,280 (linear) feet × 5,280
(linear) feet
2: The NW 1/4 of the section is 2,640 feet ×
2,640 feet
3. The NE 1/4 of NW 1/4 is 1,320 feet × 1,320
feet
4. The N 1/4 of the NE 1/4 of the NW 1/4 is
1,320 feet × 660 feet
The subject parcel (N 1/2 of the NE 1/4 of the
NW 1/4) is 1,320 feet × 660 feet. To find
the square footage of the land area, the
dimension is multiplied:
1,320 × 660 = 871,200 square feet
There are 43,560 square feet in 1 acre. To
convert square feet to acres, the square
footage in our example (871,200) is divided
by 43,560:
871,200 ÷ 43,560 = 20 acres
Work Problem
1.A parcel is described as the SW 1/4 of the SW
1/4 of the NE 1/4 of a section. Draw the
illustration.
Work Problem
2.How many acres are in a parcel described as
the S 1/2 of the NE 1/4 of a section?
80 acres
Work Problem
3.What is the description for the
illustration at right?
SE 1/4 of the NE 1/4 of the SW 1/4
Work Problem
4. What are the dimensions of a property described as the SW 1/4 of the
NW 1/4 of the NW 1/4 of a section?
660 feet × 660 feet
Lot and Block System
• A legal description for platted property
– Any property that has been subdivided from a
large tract into smaller lots as referenced on a
plat map
Metes and Bounds Systems
• A legal description that:
– Starts at an easily identifiable point of
beginning (POB)
– Then describes the property’s boundaries in
terms of courses or metes (compass
directions) and intermediate points (changes
in direction)
– Ultimately returns to the POB
• May also refer to monuments (markers)
or pins
Metes and Bounds System
cont.
Chapter 2 Quiz
1. The term describing the conversion
of personal property to real property
is
a.
b.
c.
d.
annexation.
appropriation.
capture.
platting.
Chapter 2 Quiz
2. Which would most likely be
considered real property?
a.
b.
c.
d.
area rug
built-in window seat
lawn furniture
sleeper sofa
Chapter 2 Quiz
3. Which would be a natural
attachment that would be classified
as fructus industriales?
a.
b.
c.
d.
grass
ornamental tree
perennial flowers
wheat
Chapter 2 Quiz
4. Which concept elaborates on
tenant crops?
a.
b.
c.
d.
appropriative rights
bundle of rights
doctrine of emblements
rule of capture
Chapter 2 Quiz
5. Air rights of land ownership are limited
by the federal government relating to
the
a. horizontal distance to which a building may
be constructed.
b. ownership of gasses contained in the air.
c. prevention of interference with air traffic.
d. prohibition of transfer of air rights to others.
Chapter 2 Quiz
6. Water rights dealing primarily with
the shoreline of a non-flowing
body of water are known as
a.
b.
c.
d.
annexation rights.
appropriative rights.
capture rights.
littoral rights.
Chapter 2 Quiz
7. For a landowner possessing riparian
rights, which is typically an
accompanying right?
a. Building a dam to stop or divert the water
flow.
b. Releasing sewage in reasonable amounts
into the water flow.
c. Taking water from the property to irrigate
non-riparian property the riparian owner also
owns.
d. Using water in reasonable amounts to
irrigate crops on the riparian property.
Chapter 2 Quiz
8. According to the rule of capture, a
property owner
a. is permitted to drain oil or gas from under his
own property or from under a neighboring
property.
b. may not extract oil or gas that came from under
a neighbor’s land.
c. must surrender all of the minerals found under
the ground to the federal government.
d. owns none of the oil or gas that was produced
on his property.
Chapter 2 Quiz
9. Which is NOT a physical
characteristic of real property?
a.
b.
c.
d.
immobility
indestructibility
transferability
uniqueness
Chapter 2 Quiz
10. If a site is 152′ x 169′, it contains
how many acres?
a.
b.
c.
d.
0.51
0.57
0.59
0.90
Chapter 2 Quiz
11. If a property is legally described
using the terms “rod” or “pole,”
what is the distance being
referenced?
a.
b.
c.
d.
3 yards
12 feet
16.5 feet
66 feet
Chapter 2 Quiz
12. How many linear feet are along one
side of the NE ¼ of a township
section?
a.
b.
c.
d.
330
660
1,320
2,640
Chapter 3
Estates in Real Property
Chapter 3: Objectives
• After completing this chapter, students
will be able to:
– Identify the various interests or ownership
rights associated with real property.
Key Terms
•
•
•
•
•
•
•
•
Estate
Estate for Years
Fee Simple Absolute
Fee Simple Conditional
(Defeasible)
Fee Simple Determinable
Fee Simple Estate
Fee Simple Subject to a
Condition Subsequent
Freehold
•
•
•
•
•
•
•
•
•
Leasehold Estate
Lessee
Lessor
Life Estate
Life Tenant
Periodic Tenancy
Remainderman
Tenancy at Sufferance
Tenancy at Will
Estates
• An estate is an interest or a right in
property
– Present interest: A right to immediate
possession
– Future interest: A right to possession in the
future
• An estate may be classified as a:
– Freehold estate (indefinite period of time)
– Leasehold estate (specific duration)
Estates
Freehold Estates
• Possession either immediately or in the
future
• Indefinite duration of possession
• Property ownership
• Two main categories:
– Fee simple estates
– Life estates
Fee Simple Estates
• Implies that the property owner possesses
the full bundle of rights
• Three types:
– Fee simple absolute
– Fee simple defeasible
– Leased fee interest
Fee Simple Absolute
• The fullest freehold estate that can exist in
real property
• Implies there are no conditions on the
property title—it is inheritable,
transferable, and perpetual
• The right to possess the property for an
unlimited/indefinite period of time will pass
to the owner’s heirs after death
Fee Simple Defeasible
• Could indicate a possible future interest or
possession
– Real property ownership may be defeated or
undone if certain events occur or certain
conditions are not met
Fee Simple Defeasible
cont.
• Could be categorized as:
– Fee simple determinable: Estate terminated
automatically if certain conditions occur;
former owner has a contingent future interest
in the land, called a possibility of reverter
– Fee simple subject to a condition
subsequent: There is no automatic reversion
of title upon breaking the condition; the former
owner has power of termination
Fee Simple – Leased
Fee Interest
• Leased fee interest
– The lessor’s (landlord’s) interest in leased
property
– Lessor generally has the enjoyment of rent
generated under the lease terms and the right
to sell, mortgage, or leave the property to
another party while the lease is still in effect
Life Estate
• Freehold estate that lasts only as long as
a specified person lives
• The holder of a life estate is the life tenant
– Owns an interest in the land that can be sold,
mortgaged, or leased
• May be based on the lifetime of someone
other than the life tenant
– This is called a life estate pur autre vie
Life Estate
cont.
Life Estate
cont.
• A life tenant may not use the property in
any way that would permanently damage it
or reduce its market value
– Such abuse is called waste
• A life tenant has a severely restricted right
of use
Leasehold Estates
• Interests that give the holder a temporary
right to possession of the estate, without
title
– Also called tenancy and less-than-freehold
estate
• Involves two parties:
– The holder of a leasehold estate (lessee)
– An owner who leases property to a tenant
(lessor)
Leasehold Estates
cont.
• The four main types of leasehold estates
are:
– Estate for years
– Periodic tenancy
(estate from period to period)
– Tenancy at will
(estate at will)
– Tenancy at sufferance
(estate at sufferance)
Estate for Years
• Any leasehold estate for a fixed time
period
– Term does not have to be a period of years
• Sometimes called term tenancies
• Terminates automatically at the end of the
specified rental period
– Both parties may mutually consent to ending it
sooner (surrender)
Periodic Tenancy
• A leasehold estate for a duration of time,
not a specific date
– Month-to-month tenancies are most common
• Sometimes called estate from period to
period
• Continues from period to period until
landlord or tenant gives the other party
notice of termination
Tenancy at Will
• A leasehold estate with no specified
termination date or specified period of time
• Either party can end it at any time
• Cannot be assigned to someone else
• Automatically ends on the death of either
the landlord or tenant
Tenancy at Sufferance
• Possession of property by a holdover
tenant
– Someone who came into possession of
property under a valid lease, but stays on
after the lease expires, without the landlord’s
permission
– Not very different from a trespasser, except
that a tenant at sufferance originally had a
right to be on the property
Chapter 3 Quiz
1. If Joe leases property that he owns
to Susan, what type of ownership
interest is held by Joe due to the
lease?
a.
b.
c.
d.
fee simple absolute
fee simple defeasible
leased fee
leasehold
Chapter 3 Quiz
2. Which is a characteristic of a fee
simple defeasible estate?
a. The estate is subject to the termination
of a lease.
b. The owner possesses the full bundle
of rights with no conditions on ownership.
c. Ownership could be forfeited if certain
events occur.
d. Possession terminates upon death of
the life tenant.
Chapter 3 Quiz
3. If Stephanie conveyed the fee simple estate
subject to a condition subsequent to Larry,
Stephanie has
a. created a life estate that is conditioned on the
duration of the life tenant.
b. forfeited any rights to a potential future interest in
the estate which was conveyed.
c. power of termination to re-enter and possibly
begin proceedings to recover the real estate.
d. retained the entire bundle of rights until certain
conditions have been satisfied.
Chapter 3 Quiz
4. If Jerry conveys property subject to a
life estate to Samuel, who will gain title
in fee simple when the party holding
the life estate passes away, Samuel is
known as the
a.
b.
c.
d.
life tenant.
measuring life.
remainderman.
reverter.
Chapter 3 Quiz
5. Which characteristic is common to all
freehold estates?
a. Freehold estates do not include future
rights of possession.
b. No party possesses the full bundle of
rights.
c. Ownership could revert to the previous
owner if certain conditions are not met.
d. Possessory interest is of an uncertain
duration.
Chapter 3 Quiz
6. Surrender is the action of
a. forfeiting title in a fee simple estate
subject to a condition subsequent.
b. nullifying a life estate.
c. passing title to a remainderman in a
life estate.
d. terminating a lease by mutual
consent.
Chapter 3 Quiz
7. Which is a characteristic of a tenancy
at will that is NOT common to other
types of leasehold estates?
a. It automatically terminates at the death of
either the landlord or tenant.
b. The landlord must use force to regain
possession of the property.
c. Leases are fully assignable.
d. The tenant is a holdover without the
landlord’s permission.
Chapter 3 Quiz
8. Felicia has entered into an agreement
with her mother allowing her mother
to occupy a property owned by
Felicia for a specified duration of six
months. What type of estate was
created?
a.
b.
c.
d.
estate for years
life estate
periodic tenancy
tenancy at will
Chapter 3 Quiz
9. Christine has a one-year lease with the
property owner, William. When the lease
expires, Christine continues to pay rent to
William at the beginning of each month.
What type of arrangement was created
when William accepted rent in this manner?
a.
b.
c.
d.
estate for years
periodic tenancy
tenancy at sufferance
tenancy at will
Chapter 3 Quiz
10. Craig holds a life estate in a property
owned by his stepfather, Charles. Craig
may occupy the property for as long as his
mother, Charles’ wife, is alive. When
Craig’s mother dies, possession of the
property goes back to Charles. What type
of arrangement is illustrated?
a.
b.
c.
d.
life estate pur autre vie
life estate with the possibility of reverter
life estate with power of termination
ordinary life estate
Chapter 4
Real Property Ownership
Chapter 4: Objectives
• After completing this chapter, students will
be able to:
– Recognize the different ways that ownership
in real property can be held.
Key Terms
• Beneficiary
• Community Property
Rights
• Condominium
• Cooperative
• Co-Ownership
• Corporation
• Curtesy
• Dower
• General Partnership
• Joint Tenancy
• Limited Liability
Corporation (LLC)
• Limited Partnership
• Ownership in
Severalty
• Planned Unit
Development (PUD)
Key Terms
• Real Estate Investment
Trust (REIT)
• Survivorship
• Syndicate
• Tenancy by the
Entireties
• Tenancy in Common
• Timeshare
• Title
•
•
•
•
•
•
•
•
cont.
Trust
Trustee
Trustor
Undivided Interest
Unity of Interest
Unity of Possession
Unity of Time
Unity of Title
Ownership in Severalty
• Ownership by one person or entity:
– Corporations
– Real Estate Investment Trust (REIT)
Co-Ownership
• Form of ownership where 2 or more people
share title to real property with each person
having an undivided interest in ownership
– Also known as a fractional interest
• Four types:
–
–
–
–
Tenancy in common
Joint tenancy
Tenancy by the entireties
Marital property rights
Survivorship and
the Four Unities
• Survivorship
– Allows the fractional interest of one co-owner, when
they die, to automatically pass their interest on to the
other co-owner or co-owner(s) without going through
the probate process for that interest
• The four unities (PITT)
–
–
–
–
Possession
Interest
Time
Title
Tenancy in Common
• The most basic form of co-ownership
• If the type of co-ownership is unspecified,
this is the form of co-ownership that is
presumed
– Unless the co-owners are husband and wife
• Does not include the right of survivorship
• Each co-owner has the ability to do as
they wish with their fractional interest
Joint Tenancy
• A form of co-ownership that can be formed only
when all four unities are present:
– Possession
– Interest (all parties have the same estate and an
equal fractional share in the property)
– Time (interest must be acquired at the same time)
– Title (conveyed to joint tenants by a single
instrument)
• Includes survivorship
Tenancy by the Entireties
• An option only for a couple who is married
– Each spouse owns an undivided one-half
interest in the property with right of
survivorship
– Neither spouse may convey his or her interest
without the other’s consent
• Recognized be about half the states in the
U.S.
Marital Property Rights
• Some state laws provide certain legal
rights to surviving spouses
– Community property rights
– Curtesy
– Dower
Community Property Rights
• Separate property: Real or personal property
that was owned by either husband or wife before
marriage
– Can be transferred without the consent and signature
of the spouse)
• Community property: Property acquired by one
of the spouses during the marriage
– Consent and signature of spouse is required to
transfer
– Surviving spouse is automatically entitled to one half,
the remaining half is distributed according to the
deceased’s will)
Curtesy and Dower
• The law entitles a surviving spouse a onethird or more right of use of real property
owned by the other spouse when the other
spouse dies
– The surviving spouse can use the entire
property for as long as he or she lives
Trusts
• Used for holding and controlling property
on behalf of someone else
Trusts
cont.
• Living trusts (assets and real property)
– Property owner establishes the trust while the owner
is still alive
• Testamentary trusts (assets and real property)
– Property owner establishes the trust via a will that
takes effect after the property owner’s death
• Land trusts (may address only real estate)
– The trustor is also the beneficiary
Limited Liability
Corporation (LLC)
• A special type of corporation that may be
formed in some states
• Enjoy limited liability of a corporation and
(usually) the pass-through benefits of a
sub-chapter “S” corporation (thus, avoiding
double taxation)
• Have fewer restrictions
General Partnership
• An association of two or more individuals as coowners of a business run for profit
• Does not have to be formally organized like a
corporation
• All partners share in the financial liability for
actions of the other partners
• Usually, partnerships are held as tenants in
common
– Partners may also own partnership property as
tenants in partnership
Limited Partnership
• An association of two or more persons as
co-owners of a business
• Has one or more general partners, plus
one or more limited partners
– Limited partners have no say in partnership
matters
• Partners’ liability is limited to their original
investment
Syndicates
• An informal organization usually formed to
accomplish limited or even a single task
• Not a recognized legal entity
• Can refer to almost any form of business
Condominiums
• Properties developed for co-ownership,
with each co-owner having a separate
interest in an individual unit and an
undivided interest in the common areas
of the property
• Residents must follow declarations
• Most are designed for residential use
• Owners typically have exclusive ownership
of their units
Planned Unit
Development (PUD)
• A development concept
– Groups houses in high density clusters that
are surrounded by larger open spaces, which
are shared by other residents of the PUD
– Land conservation and land use efficiency
• Created through covenants in a deed
• Owners own the entire structure and the
land underlying their house
Cooperatives
• Buildings owned by a corporation, with the
residents as shareholders who each receive a
proprietary lease on an individual unit and the
right to use common areas
• Title is held by a corporation formed for that
purpose
• Residents are given a proprietary lease
• Cooperative shareholders pay a prorated share
of the building’s expenses
Timeshares
• A form of ownership or the right to use
property for a specified period of time
• May be either:
– Fee timeshares: A specific condominium or
similar property in a resort setting where
numerous co-owners had an undivided
interest in a particular unit
– Non-fee timeshares: There is no real
property co-ownership but only the right to
use and enjoy property
Chapter 4 Quiz
1. John and Suzanne, a married
couple, form a corporation in which
to hold title of their real estate
assets with no provision for
survivorship. How is title to the
property being held?
a.
b.
c.
d.
joint tenants
severalty
tenancy in common
tenants by the entireties
Chapter 4 Quiz
2. In co-ownership, reference to an
undivided interest emphasizes that the
a. co-ownership provides for survivorship
when one of the co-owners dies.
b. exact fractional component of ownership
cannot be determined.
c. party holding ownership is an entity rather
than an individual.
d. property is not physically divided
according to co-owners.
Chapter 4 Quiz
3. Which is NOT one of the four unities
of property ownership?
a.
b.
c.
d.
investment
possession
time
title
Chapter 4 Quiz
4. Which is a true statement regarding
tenancy in common?
a. Only one of the four unities is always
present.
b. The ownership includes right of
survivorship.
c. Ownership interests cannot be unequal.
d. There may be one or more co-owners.
Chapter 4 Quiz
5. Joseph owns property with his wife,
Cassandra, in joint tenancy. Joseph’s will
specifies that his undivided interest in the
property will go to his children, who are
Cassandra’s stepchildren. Which is a true
statement?
a. Cassandra will continue to be a joint tenant after
Joseph’s death.
b. Joseph’s children will become joint tenants with
Cassandra.
c. The property will be physically divided upon
Joseph’s death automatically.
d. Survivorship will override Joseph’s will.
Chapter 4 Quiz
6. The primary intent of marital
property rights is to protect the
rights of a surviving spouse when
a. both spouses are named as joint
tenants.
b. property ownership is held as tenants
by the entireties.
c. the surviving spouse is not specified in
the property title.
d. survivorship is specified in the particular
ownership.
Chapter 4 Quiz
7. Fred has conveyed his property to a
trust. His attorney will hold the asset
on behalf of Fred’s children, who
will receive net proceeds from the
property. What participant in the
trust is Fred’s attorney?
a.
b.
c.
d.
beneficiary
guardian
trustee
trustor
Chapter 4 Quiz
8. How many investors, at a minimum,
are required to form a REIT?
a.
b.
c.
d.
30
50
100
300
Chapter 4 Quiz
9. Craig, Jason, and Hugh own real
estate as joint tenants. If Craig and
Jason die simultaneously, Hugh will
a. become a joint tenant with Craig and
Jason’s heirs.
b. hold the entire property interest in
severalty.
c. own an undivided one-third interest.
d. take title individually as a tenant in
common.
Chapter 4 Quiz
10. If Paula has the right to use and enjoy a
timeshare, which is owned in fee by a
hotel corporation, Paula has
a. co-ownership with other timeshare
owners.
b. a non-fee ownership of the timeshare.
c. ownership in severalty in the timeshare.
d. a proprietary lease for the specified unit.