Real estate exam cheat sheet

Math formulas

Commission

Price × rate, then split: brokerage side, then the agent's share

Price for a net

(Net + costs) ÷ (1 − commission rate)

Net to seller

Price − commission − payoff − other seller costs

Loan amount

Lower of price and appraisal × LTV

Points

Loan × points ÷ 100

Monthly interest

Balance × annual rate ÷ 12

Cap rate value

NOI ÷ cap rate

NOI

Gross rent − vacancy − operating expenses

Gross rent multiplier

Price ÷ gross rent

Property tax

Assessed value × rate (1 mill = 0.001)

Proration

Yearly amount ÷ 365 (or 360) × days owned

Acres

Square feet ÷ 43,560

Cost approach

Cost new − depreciation + land

Straight-line depreciation

Cost ÷ useful life, per year

Numbers to know

Acre

43,560 square feet

Section

1 square mile, 640 acres

Township

6 miles by 6 miles, 36 sections

Mile

5,280 feet

Lead paint

Homes built before 1978, 10 days to test

Federal protected classes

7: race, color, religion, national origin, sex, disability, familial status

Terms that decide questions

Fee simple absolute

The most complete ownership: no conditions, unlimited in time, and it passes to heirs.

Joint tenancy

Co-ownership with right of survivorship. It needs four unities: time, title, interest and possession.

Tenancy in common

Co-ownership with undivided shares, which may be unequal, and no right of survivorship.

Fixture

An item once personal property that is attached to the land or building and now goes with the sale.

Easement appurtenant

A right to use a neighbor's land that benefits a parcel and passes with it when it sells.

Encroachment

A building, fence or other improvement that extends onto a neighbor's land.

Adverse possession

Gaining title by open, hostile and continuous use of another's land for the period state law sets.

Quitclaim deed

A deed that passes whatever interest the grantor has, with no promises about the title.

Highest and best use

The legal, physically possible and financially feasible use that gives the land its highest value.

External obsolescence

Lost value from a cause outside the property, such as a new highway. The owner usually cannot cure it.

Voidable contract

A valid contract one party may cancel, such as one signed by a minor.

Statute of frauds

The rule that a contract to sell real estate must be in writing and signed to be enforced.

Option

A right, bought for a fee, to buy at a set price within a set time. Only the seller is bound.

Fiduciary duties

What an agent owes a client: obedience, loyalty, disclosure, confidentiality, accounting and reasonable care.

Exclusive agency listing

A listing that pays the broker unless the owner finds the buyer herself.

Net listing

The broker keeps whatever the price exceeds a set amount. Illegal or discouraged in most states.

Steering

Channeling buyers toward or away from areas because of a protected class.

Blockbusting

Pushing owners to sell by claiming a protected class is moving into the area.

Loan-to-value ratio

The loan divided by the lower of the price and the appraised value.

Capitalization rate

Net operating income divided by value. Value = NOI ÷ cap rate.