Phase 1 Exam Review
Chapters 1-3, 5*
Real Estate
FIN 331
Fall 2015
Phase 1 Exam Review
Chapter 1: Key Terms
1. Real Estate: land and its permanent
improvements
2. Capital Markets: providers of funds from
mortgages, also to allocate financial resources
among households and terms requiring funds
3. User Markets: represents the competition
among users for physical locations and space
4. Property Markets: determine the required
property specific investment returns, property
values, capitalization rates and construction
feasibility
Phase 1 Exam Review
Chapter 1: Key Terms
6. Capitalization Rates: the expected rate of return
on an income producing property
7. Tangible vs. Intangible Assets: tangible assets
are physical things, intangible assets are
nonphysical and include contractual rights
8. Real Property: real property and real estate are
interchangeable
9. Appurtenances: Rights that go along with
ownership; e.g. air or mineral rights. May be sold
separately
Phase 1 Exam Review
Chapter 1: Concepts
Real Estate can be used in three fundamental ways:
Land and improvements, a bundle of rights, and
business activities related to land and development
Real Estate is Unique: real estate is heterogeneous
and immobile. Real estate assets are unique and
have distinctive characteristics. Real estate is also
illiquid and markets are highly localized
Three economic sectors that affect real estate value:
user markets, capital markets, and government
Phase 1 Exam Review
General Information
 RE largest component of global wealth


28% of US GDP
Property Taxes = 70% of govt. revenue
 Supply and demand are major value factors
 Users include buyers and renters
 Capital Markets can be;
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Public; prices and rates for all to see
Private; limited access to information,
transparency
Chapter 1 Recap
A. Types of Property
1. Tangible: Physical assets that can be owned. It can be real
or personal property.
2. Intangible: Non-physical assets such as stocks, bonds,
mortgages, leases
B. Real Estate as a;
1. Tangible asset: raw land, Improvements to raw land,
structures
2. Bundle of Rights: exclusive possession, use, disposition, can
be unbundled
3. As a profession
Chapter 1 Recap
C. Real Estate Values Determined by
1. User (Space) markets: prices/rents determined by
supply vs. demand. Market for physical real estate.
2. Capital markets: RE competes for funds along with
financial claims (stocks & Bonds)
– Public Capital Markets: many buyers and seller, high degree of
liquidity, Informationally efficient
– Private Capital Markets: no central market, infrequent transactions,
less liquidity – higher transaction costs
3. Impact of governmental sector on rates: raising funds
by selling debt securities.
Phase 1 Exam Review
Chapter 2: Key Terms
1. License: Revocable, non-assignable permission to use
another person’s land for a particular purpose.
2. Law of Capture: if you can remove it (oil, gas,
minerals) from your beneath your property, it’s
yours, even if it is migrating from adjacent property
3. Forms of Titled Estate:
a.
b.
c.
d.
Fee simple (absolute): highest and most complete form of
ownership
Fee simple Defeasible: fee simple estate that is subject to
termination if a certain condition is not met or if a specified
event occurs (also called a conditional or qualified fee)
Ordinary Life Estate (unbundled rights)
Legal Life Estate: created by law (statute)
Phase 1 Exam Review
Chapter 2: Key Terms
4. Types of Tenancy: (Lawful possession of
property)
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
In Common: 2 or more have undivided ownership but
no right of survivorship
Joint: Equal undivided ownership WITH right of
survivorship
Entirety: A form of joint ownership of property by
husband and wife in states without community
property laws
5. Property rights: Rights to things both tangible
and intangible. Rights and property include
exclusive possession, use, and disposition
Phase 1 Exam Review
Chapter 2: Key Terms
6. Restrictive Covenants: Restrictive covenants
impose limits on the uses of land
7. Forms of [Leasehold] Tenancy:
a. Tenancy for years: last for a definite period.
b. Periodic tenancy: continues for successive periods
until terminated by proper notice by either party
c. Tenancy at will: tenant remains in possession
with landlord’s permission; i.e. until new tenant
d. Tenancy at sufferance: when tenant stays after the
lease expires without landlord’s permission
Phase 1 Exam Review
Chapter 2: Key Terms
8. Liens: (a non-possessory interest in real
property) in order of priority, by date filled
a. Property tax
b. Mortgages
c. Mechanics liens
9. Easements: (right to use for particular purpose)
a. Easements Appurtenant: burdens one parcel for
benefit of another; i.e. driveway access
b. Easements in Gross: benefits to a person rather than
the land; i.e. A has right to enter b’s land to fish in B’s
pond.
Phase 1 Exam Review
Chapter 2: Key Terms
10. Common Interest Developments
a.
Condominiums: owns unit in severalty (one individual),
shares ownership of common elements
Townhouses: owner in individual unit plus the land under
his/her unit and an undivided interest in the common areas
Cooperatives: ownership vested in a single entity – usually a
non-profit corporation formed by the unit owners who own
shares in the corp.
Timeshares: multiple owners purchase interests in a
property - a time slot
b.
c.
d.


Timeshare Estate: fee simple interest in property
Timeshare Use: purchases the right to use the property – a form of
non-possessory right.
Chapter 2 Recap
Chapter 2: Concepts
Rights:
(1) demands that our government is
obligated to enforce, non-revocable,
(2) cannot be canceled ignored or otherwise
lessened by other private citizens, and
(3) enduring and do not fade away with time.
Permission: revocable rights
Chapter 2 Recap
Chapter 2: Concepts
Rights
 Personal: guaranteed by law
 Property:



Exclusive Possession
Quiet enjoyment
Freedom to dispose
Real vs. Personal Property Rights
 Fixtures: attached to real asset (property)
 Clothing, paintings and pictures
Chapter 2 Recap
Chapter 2 Recap
Chapter 2: Concepts
Non-Possessory Rights
 Affirmative easements (right of ways, sewer lines)
 Easements Appurtenant
 Dominant Parcel (recipient of benefit)
 Servient Parcel (rights constrained by easement)
 Easements in Gross
 Commercial easements
Liens
 Tax and Assessments, Mechanic’s ,Court Awarded
Damages
Chapter 2 Recap
Forms of C-Ownership*
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



General Partnerships
Limited Partnerships
LLC’s
Coops
Trust
* Interests may not be subdivided
Chapter 2 Recap
A. Leasehold Estates
1.
2.
3.
4.
Tenancy for Years (fixed term)
Periodic Tenancy (auto renew)
Tenancy at Will (verbal agreement to stay)
Tenancy at Sufferance (overstay your lease!)
Phase 1 Exam Review
Chapter 3: Key Terms
1. Accretion vs. Reliction: Accretion is an increase
in the amount of land you own due to deposits
by water action. Reliction is an increase in the
land you own due to water levels dropping.
2. Adverse Possession: When the owner of land
may involuntarily and unknowingly give up
rights to land.
3. Covenant of Seizin: The promise that the
grantor truly has good title and the right to
convey it. Two additional covenants; Covenants
against encumbrances, right to convey, and quiet
enjoyment.
Phase 1 Exam Review
Chapter 3: Key Terms
4. Types of Deeds:
a. General warranty: greatest protection to grantee
b. Special warranty: same as above, except to defects that
arose during the grantor’s tenure
c. Deed of bargain and sale: grantor offers the grantee
no warrantees or covenants
d. Quitclaim deed: no warrantees of any sort, does not
convey an after-acquired title. It does not imply that
the grantor owns the property
e. Judicial deeds: by court order to convey title; i.e.
sheriff’s deed issued during court-ordered foreclosure
sale
Phase 1 Exam Review
Chapter 3: Key Terms
5. Doctrine of Constructive Notice: the common law
tradition that holds a person cannot be bound by
claims or rules that he or she has no means of
knowing.
6. Lis Pendens: a recorded notice stating that there is a
lawsuit pending that may affect title to the
defendant’s real estate.
7. Encroachment: Unauthorized intrusion of a building
or other improvements unto property owned by
another.
8. Habendum Clause: a clause that defines or limits the
type of interest being conveyed.
Phase 1 Exam Review
Chapter 3: Key Terms
9. Metes and Bounds: the course and distances
defining a piece of property.
10. Title Abstract / Insurance: An insurance policy
that covers any expenses incurred in proving
ownership.
11. Easement by Estoppel: an easement granted to
one owner cannot subsequently be removed
from a subsequent owner.
12. Encroachment: Unauthorized intrusion of a
building or other improvements unto property
owned by another
Chapter 3 Recap
A. In real property law, The word estate refers to an
interest in land that is or may become possessory.
B. Estate's fall into two categories:
1. Freehold estates: do not have a fixed duration
2. Leasehold estates: have limited duration
C. Freehold estates
1. Fee simple absolute (infinite duration plus full
bundle of rights)
a.
Exception: Life estate freehold limited to life of person or
persons
2. Fee simple defeasible (grantee’s estate has
conditions)
Chapter 3 Recap
A. Leasehold Estate: a tenant who does not own
the property
1. Estate for years: tenancy for fixed term of time.
2. Periodic Tenancy: period to period with no fixed
termination date
a. Serial renewal of an apartment lease
3. Tenancy at Will: tenant has possession for an
indefinite period of time with the landlords
consent.
4. Tenancy at Sufferance: when tenant stays on
after the lease has expired
Phase 1 Exam Review
Requirements for a Deed
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Grantor and grantee
Recital of consideration
Words of conveyance
Covenants
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
Seizin
No Encumbrances
Quiet Enjoyment
 Habendum Clause
Phase 1 Exam Review
Requirements for a Deed
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Exceptions / Reservations
Description of land
Acknowledgement
Delivery
Phase 1 Exam Review
Chapter 5: Key Terms:
Economic Base: All of the activities that generate jobs, incomes,
and taxes.
Comparison Activities: Buyers comparing many products,
shopping venues ~ clusters
A. The 5 Attributes of Land
1.
2.
3.
4.
5.
Unique location: no two parcels are the same
Unique composition: geological composition varies
Durable: long-lasting
Finite Supply: no more is being created
Useful: may be put to many uses
Phase 1 Exam Review
Chapter 5: Study Questions
1. What are the four elements of value?: Demand, Utility, Supply
(scarcity), Transferability
2. What are the five (5) attributes of Real Estate (land, buildings)?
Uniqueness of location, composition, durable, finite supply, usefulness.
3. Describe briefly the four major forces influencing real estate values?
a. Economic Forces: income levels, availability of jobs, construction costs,
cost of utilities, availability of credit.
b. Social Forces: population growth/migration, amenities, security (personal
safety), environmental awareness.
c. Environmental Forces: location, access to transportation, topography,
weather.
d. Governmental Forces: local taxes (wages/real estate/sales), zoning, school
quality, pubic services (police, fire, health care), monetary policy (the Fed).
Phase 1 Exam Review
A. 4. What effect do changes in Supply have on
prices (~values)? Increase in supply, ceteris
paribus, puts downward pressure on real estate (~
buyer’s market).
B. 5. What effect do changes in Demand have on
prices (~values)? Increase in demand, ceteris
paribus, puts upward pressure on prices (~seller’s
market).
C. 6. List at least 5 major economic base activities in
Wilmington, NC.
Construction, Education, Transportation, Medical,
Education, Retail/Wholesale/Distribution