Texas Principles of Real Estate II Flashcards

Texas Principles of Real Estate II Flashcards Compound Interest FormulaCompound amount = Initial deposit (1 + Interest rate)n Comparative Market Analysisis an estimate of the value of a seller's property in comparison to nearby properties with similar features that are for sale or have recently sold When getting ready to do a Comparative Market Analysis

(CMA), a licensee will do the following:

• Collect and analyze information about the seller's

property.2. Choose comparable properties in the area.3.Compare the seller's property to the comparables and do some adjusting to the value of the comparables.4. Estimate a reasonable and realistic selling price for the seller's property.Who may perform appraisals in Texas?Only persons who are licensed or certified appraisers or who are approved as appraiser trainees ProfitProfit (or Loss) = Selling price - Original cost What are the two distinct features of fixed-rate fully amortized loans?The interest rate remains fixed for the life of the loan.The payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term Perimetera lot or other shape is the sum of the length of all its sides.Area of a rectangleArea = length x width Communicating the Appraisal1. Short- or Long-Form Narrative Reports2. Reports3.Letter or Oral Reports Where can a licensee find most of the information he or she needs to do a good analysis?From a multiple listing service Valuationis the process of estimating the value of an identified interest in specific property as of a given date AcreA measure of land equal to 43,560 square feet.Conventional Loansrequire the borrower to make a down payment of 20% or more, making the loan 80% or less of the property's sale price.Add-on interest APRAPR = 2 x number of payment periods in one year x total financing charges ÷ (principal, or amount borrowed x (number of scheduled payments +1) Simple interestInterest = principal x rate x time Credit unions arenonprofit financial institutions into which members place their money, usually through direct deposit What kind of problem can result from a straight loan?A straight loan is an interest-only loan. If the property doesn't appreciate in value over time, the borrower could end up with less in proceeds on the sale than what he needs to pay off the loan.Loan-to-Value formulaLTV ratio = (Loan amount ÷ Value) Straight LoanMortgage with payments of interest only

Solving for the Commission RateCommission Rate = Commission ÷ Price Mixed NumbersA number containing both a whole number and a fraction

(examples: 1; 9)

Profit PercentagePercentage of profit = Profit ÷ Original cost Loan-to-Value Ratio (LTV)expresses the relationship between a property's purchase price and its loan amount.Area of a squareArea = side x side What appraisal method is generally most appropriate to use in appraising residential properties?Sales comparison approach A Pledged Account Mortgage (PAM) isa type of graduated payment mortgage under which the owner/borrower contributes a sum of money into an account that is pledged to the lender What is a mortgage?A mortgage is a financing instrument that creates a lien against a property.What's the difference between reproduction cost and replacement cost?Reproduction cost is the cost at today's prices of producing an exact duplicate of the current building, including its improvements and its flaws. Replacement cost is the construction cost at today's prices of producing a similar or equivalent structure.When choosing sold properties as comparables, within what time frame should they have sold?They should have sold within the last three to six months.Any sale older than one year should not be used The formula for determining the gross income multiplier (GIM) is Sales Price ÷ Gross Annual Income = Gross Income Multiplier Insured valueis the face amount a casualty or hazard insurance policy will pay in case a property is deemed unusable Explain the principle of substitutionsays a buyer will not pay more for a home than what he or she would pay for another home that is equally desirable and available A listing agent helps the sellers set a realistic selling price

by considering the:

Sellers wishesMarket Conditions via a CMATiming of the sale Improper Fractionsa fraction with its numerator equal to or greater than its denominator Ground rent capitalizationground rent of subject is capitalized at market rates Appraisalis an unbiased estimate of the nature, quality, value or utility of an interest in or aspect of identified real estate and related personalty as of a certain date.Add-on interestloan amount x contracted interest rate x number of payments

• types of interest calculationsSimple interest, add-on interest, and compound interest

Use value(also known as value-in-use) of a property is the value the property holds for the owner. Several factors contribute to this value Interestthe price paid for the use of borrowed money Allocationa typical ratio of land value to total value is derived from comparable properties and applied to the subject

What does the term anticipation mean as it relates to property value?The benefits a buyer expects to receive over the period of time he or she holds the property To convert acres to hectaresdivide the total acres by 2.47 What is the major component of the total property value that does not depreciate?The land value Specific dataThis is information and details about the subject property, as well as data (used for comparison) about comparable properties' costs, income and expenses, sales and other relevant information Government-backed loans include those loans offered by:The Federal Housing Administration (FHA)The Department of Veterans Affairs (DVA) - sometimes simply referred to as VARural Housing Service (RHS)Texas Department of Housing and Community Affairs (TDHCA)Texas Veterans Land Board (VLB) Subdivision development analysiscosts and profit are deducted from estimated gross sale prices of subdivided and finished lots, and net sales proceeds are discounted to present value An open-end loan isan expandable loan which gives a borrower a limit up to which he or she may borrow Graduated Payment Mortgage (GPM)the monthly payment for principal and interest gradually increases by a certain percentage each year for a certain number of years and then it levels off for the remaining term of the mortgage.Types of ValueInvestment ValueInsured ValueUse Value Market valueThe amount you could realistically sell an asset for today A Buydownthe lump sum payment that is made to the lender at closing usually comes from a builder as an incentive to the buyer or from a family member trying to help out Direct sales comparisonsales of comparable vacant parcels are analyzed and adjusted to indicate a value for the subject land Sales Comparison Approachis based on the principle of substitution - which says that a buyer will not pay more for the subject property than he or she would pay for a property that is similar in characteristics and amenities Who makes up the primary mortgage market? Savings AssociationsCommercial BanksCredit UnionsInsurance CompaniesInvestment GroupsMortgage BankersMortgage Brokers Steps in Appraisal Process1. Define problem and scope of work2. Collect, record, and verify the required data3. Determine the property's highest and best use4. Estimate the land value5. Use ALL THREE approaches to estimate value6. Reconcile the estimated values to determine the final value estimate7.Communicate the final value estimate What risks do lenders face when making a mortgage loan?The borrower will not be able to repay the loan.If the borrower defaults on the loan, the property will be worth

less than what is still owed on the loan.