North Carolina Real Estate: Principles and Practice

Preface     xviPreparing for the Real Estate Licensing Exam     xviiiBasic Real Estate Concepts     2Key TermsLearning ObjectivesGeneral Characteristics of Real Estate     3Classes of PropertyPhysical Characteristics of LandEconomic Characteristics of LandGeneral Concepts of Land Use and Investment     6The Highest and Best Use ConceptPublic and Private Land Use RestrictionsReal Estate Investment ObjectivesScope of the Real Estate Business     7The Real Estate MarketThe Real Estate PractitionerAgency ContractsOffer to Purchase and ContractFinancingFinal SettlementOther AspectsSummary of Important Points     12Items to Consider for the State Exam     13Review Questions     14Property Ownership and Interests     18Key TermsLearning ObjectivesThe Concept of Property     19Real PropertyAppurtenancesPersonal PropertyEstates in Real Property     25Systems of Property OwnershipDefinition of EstateTypes of Estates in LandOwnership of Real Property     30Ownership in SeveraltyConcurrent (Joint) OwnershipCombination (Hybrid) Forms of OwnershipEncumbrances to Real Property     34LiensRestrictive (Protective) CovenantsLis PendensEasementsEncroachmentsProperty Taxation in NorthCarolina     40Tax Rate and CalculationsProperty Subject to TaxationListing Property for TaxationAppraisal and AssessmentTimetable for Listing and Tax CollectionProperty Tax LienSpecial AssessmentsSummary of Important Points     42Items to Consider for the State Exam     44Review Questions     45Transfer of Title to Real Property     48Key TermsLearning ObjectivesProperty Description     49Adequacy of DescriptionMethods of Describing Real PropertyMethods of Transferring Title     53By Descent (Intestate Succession)By WillBy Deed (Voluntary Alienation)By Involuntary AlienationDeedsNonessential Elements of a DeedTypes of DeedTitle Assurance     60Covenants of Title in DeedsTitle Examination ProceduresAttorney's Opinion of TitleTitle InsuranceTitle RecordationMarketable Title ActThe Torrens SystemSummary of Important Points     63Items to Consider for the State Exam     65Review Questions     66Land Use Controls     70Key TermsLearning ObjectivesHistorical Development of Land Use Controls     71Importance to Real Estate Practitioners and Buyers     71Public Land Use Controls     72Planning and ZoningUrban and Regional PlanningSubdivision RegulationsHighway Access ControlsInterstate Land Sales Full Disclosure ActEnvironmental Protection LegislationThe North Carolina Planned Community ActPrivate Land Use Controls     84Individual Deed RestrictionsRestrictive/Protective CovenantsResponsibility of Real Estate AgentsSummary of Important Points     87Items to Consider for the State Exam     89Review Questions     90Laws and Regulations Governing Brokerage Relationships     94Key TermsLearning ObjectivesGeneral Agency Concepts and Definitions     95Classification of Agency Relationships     95Universal AgencyGeneral AgencySpecial AgencyCreation of Agency     96Express AgencyImplied AgencyEstoppelEmployment and Authority of Real Estate Agents     97Brokerage Contracts (Agency Agreements)Extent (Scope) of Agent's AuthoritySource of Agent's AuthorityAgency and Agent CompensationAgency and Subagency Relationships     98Exclusive Seller AgencyCooperating with Other BrokersCooperating Firm Acting as Seller's AgentExclusive Buyer AgencyBuyer as PrincipalDual AgencyDual Agency with Designated AgentsBoth Buyer and Seller as PrincipalDual Agency AddendumAgency Relationships in Real Estate RentalsAgency's Effect on Communication Requirements for ContractsAgency's Effect on Disclosure of Material FactsTermination of AgencyDisclosure of Agency RelationshipsFirst Substantial ContactDuties and Liabilities of Agents     112Agent's Duties to PrincipalLoyaltyObedienceSkill, Care, and DilligenceDisclosure of InformationAccountingAgent's Duties to Third PartiesMisrepresentationOmissionConsumer Legislation"As Is" SalePurchaser's ResponsibilitiesLiabilities for Breach of DutyDuties and Liabilities of Principals     119Principal's Duties to AgentPrincipal's Duties to Third PartiesNorth Carolina Residential Property Disclosure ActLead-Based Paint DisclosureSynthetic Stucco DisclosureLiabilities of PrincipalsSummary of Important Points     123Review Questions     125Real Estate Contracts     128Key TermsLearning ObjectivesStandard Contract Forms     130Basic Contract Law     130Basic Contract Terms and ClassificationsEssential Elements of a Valid ContractRequirements for Reality of ConsentContract Law and Auction SalesStatute of FraudsDischarge of ContractsAssignment of ContractsRules for Interpretation of ContractsContract RemediesBroker's Entitlement to a Commission     139Commission SharingCobrokerage with an Out-of-State BrokerEarning Commission as a Buyer's BrokerListing Contracts and Practices     141Definition and Purpose of Listing ContractsTypes of Listing ContractListing Contract ProvisionsBrokerage FeeDuration of the ListingProperty Data SheetTermination of Listing ContractsMultiple Listing Service Arrangements     151Negotiability of Commission     151Listing Procedures     151Preliminary Listing ProceduresFinal Listing ProceduresBuyer Agency Contracts     155Agency Disclosure and Nonexclusive Buyer Agency AgreementExclusive Buyer Agency AgreementTypical Provisions of a Buyer Agency ContractProcedures for Buyers' Agents     160Dual Agency Agreements     162Sales Contracts and Practices     163Offer to Purchase and ContractProperty Inspections, Repairs, and Buyer's Right to Terminate Offer to Purchase and ContractAlternative 1Alternative 2Vacant Lot Offer to Purchase and ContractGuidelines for Preparation of Purchase ContractsForms Accompanying an Offer to Purchase and ContractSubmitting Offers to SellersBack-up OffersAcceptance of OffersAcceptance of CounteroffersElectronically Submitted Offer and AcceptanceInstallment Land Contracts (Contract for Deed)Option to PurchaseSummary of Important Points     195Items to Consider for the State Exam     197Review Questions     199Real Estate Finance     202Key TermsLearning ObjectivesOperations of Real Estate Finance     204Principal, Interest, Taxes, and Insurance     204Amortization and Debt Service     204Equity     206Usury     207Discount Points and Yield     207Loan Fees, Loan Values, and Loan-to-Value Ratio     208Notes     209The Mortgage Note     209Negotiability of NoteMortgage and Deed of Trust     211Lien TheoryTitle TheoryMortgage or Deed of Trust RequirementsClauses and Covenants     217Rights of Borrower     217Equity of RedemptionRights of Lender     218Foreclosure     218Judicial ForeclosureNonjudicial ForeclosureStrict ForeclosureDeed in Lieu of ForeclosureDistribution of Sale ProceedsDeficiency JudgmentNonrecourse NoteTypes of Sales Transaction     220Cash SalesLoan AssumptionTaking Title "Subject to" a LoanNew FinancingTypes of Loan     221Conventional LoansFHA-Insured Loans     222FHA 203(b) Regular Loan ProgramFHA 245 Graduated Payment LoanFHA Maximum Loan AmountFHA Mortgage Insurance PremiumFHA Loan QualificationFHA Loan Assumption PoliciesFHA ChangesContract RequirementsDepartment of Veterans Affairs Guaranteed Loan Program     228EligibilityContract RequirementsVA Funding FeeQualifying for VA LoansRestoration of EntitlementHistory of Loan GuaranteesNegotiability of VA Interest RateOther Aspects of FHA and VA Loans     232Escrow AccountDown PaymentMiscellaneousRural Development and Farm Service Agency Mortgage Loans     232Closing or Settlement Costs     233Typical Loan Repayment Plans     234By Repayment TermsOther Types of Loans     236By Purpose or Special FeatureBy Mortgage PriorityMortgage Priorities     238Effect of RecordationSubordination of MortgagesReleasesThe Role of the Federal Reserve Bank     239Sources of Real Estate Finance     239Primary Sources of Mortgage Funds     239Savings and Loan AssociationsSavings BanksCommercial BanksMortgage Bankers and Mortgage BrokersLife Insurance CompaniesCredit UnionsReal Estate Investment TrustsIndividual InvestorsGovernment AgenciesEmployersResidential Lending Practices and Procedures     242Loan UnderwritingProperty AnalysisIncome, Credit, and Assets of the Loan ApplicantPrequalification of Buyer by Real Estate AgentSecondary Mortgage Market     243Activities among Lending InstitutionsSale to OrganizationsFinancing Legislation     246Truth-in-Lending Simplification and Reform ActFair Credit Reporting ActThe Equal Credit Opportunity ActSummary of Important Points     248Items to Consider for the State Exam      250Review Questions     251Closing Real Estate Transactions     254Key TermsLearning ObjectivesPreliminaries to Closing     255The Closing Meeting     256Parties Present or RepresentedLocation of ClosingProcedures at ClosingProcedures after the ClosingItems Required at Closing     257Prorations at Closing     258Methods of Calculating ProrationsProrated Entries on the Closing StatementOther Double-Entry Items, Not ProratedSingle-Entry ItemsPersonal Property TaxesPreparation of Closing Statements     264Cash Sale StatementsPurchase Money Mortgage Closing StatementMortgage Assumption StatementNew First Mortgage StatementThe Real Estate Settlement Procedures Act     274Purpose of the ActRespa RequirementsThe HUD-1 Settlement StatementSummary of Important Points     280Items to Consider for the State Exam     281Cash Sale     282Purchase Money Mortgage     283Mortgage Assumption     284New First Mortgage     285Cash Sale     286Purchase Money Mortgage     287Mortgage Assumption     288New First Mortgage     289Review Questions     290Property Valuation      292Key TermsLearning ObjectivesAppraiser Regulation     293Licensure and CertificationComparative Market Analysis ExemptionBasic Appraisal Concepts     294Definition of AppraisalConcepts of ValueValuation versus EvaluationTypes of ValueAdditional Concepts of ValueForces and Factors Influencing ValueBasic Economic Principles of ValueThe Valuation Process     300Approaches to Value     301Direct Sales Comparison (Market Data) ApproachComparative Market AnalysisThe Cost ApproachDepreciation Concepts and DefinitionsThe Income ApproachGross Rent MultiplierReconciliation and Appraisal Report     314Summary of Important Points     315Items to Consider for the State Exam     316Review Questions     317Relationship of Landlord and Tenant     320Key TermsLearning ObjectivesDefinitions     321Estates and Contracts     322The Residential Rental Agreements Act     322Obligations of Landlord and TenantLandlord's Statutory DutiesTenant's Statutory DutiesTenant Remedies for Breach by LandlordApplication of the Law of NegligenceRetaliatory Eviction     323North Carolina Tenant Security Deposit Act     323Residential Eviction Remedies     324Discrimination and Sexual Harassment      324Rights of Tenants in Public Housing     324Vacation Rental Act     324Nonfreehold Estates     326Estate for YearsEstate from Period to PeriodEstate at WillEstate at SufferanceTypes of Lease     327Common Lease Provisions     328Essential ProvisionsOther ProvisionsLandlord's Implied Covenant of Quiet EnjoymentTermination of LeasesApplication of the Statute of FraudsRecordation of LeasesSummary of Important Points     338Items to Consider for the State Exam     340Review Questions     341Real Estate Management     344Key TermsLearning ObjectivesThe Owner-Property Manager Relationship     345Purposes of Property ManagementTypes of Property Requiring ManagementProperty Management FeeTravel Agent Referral Fees in Vacation RentalsAgency Relationship in Rentals     346Property Management ContractsDuties of the Property ManagerPrincipal Functions of Property Managers     355Preparing the Management PlanMarketing and Renting the PropertyCollecting Rents and Security DepositsInstituting Legal ActionsMaintaining the PropertyPerforming the Landlord's DutiesMaintaining Records and Reporting to the OwnerSummary of Important Points     358Review Questions     360Fair Housing      362Key TermsLearning ObjectivesFederal Fair Housing Act     363DefinitionsTypes of DiscriminationExemptionsEnforcementNorth Carolina Fair Housing Act     367Unlawful DiscriminationExemptionsEnforcement and PenaltiesCivil Rights Act     368Fair Housing in North Carolina     369Equal Housing Opportunity Today     369Americans with Disabilities Act     369Sexual Harassment     370Items to Consider for the State Exam     370Summary of Important Points     371Review Questions     372Federal Taxation of Home Ownership     374Key TermsLearning ObjectivesTax Deductions for Homeowners     375Real Property TaxesMortgage InterestSale of a Personal Residence Basis     376Effect of Purchase and SaleInheritance BasisTaxpayers Relief Act of 1997 Section 121 Exclusion     378{dollar}250,000/{dollar}500,000 Home Sale ExclusionReporting FeaturesSummary of Important Points     381Review Questions     382Property Insurance     384Key TermsLearning ObjectivesBasic Concepts and Terminology     385Standardized Homeowner's Insurance     385Standard Form (HO-3) PolicySelected Legal Issues     387Insurable InterestCo-InsuranceUnoccupied Building ExclusionInterpretation of PoliciesCo-OwnersMortgage's Insurable InterestAssignmentFlood InsuranceItems to Consider for the State Exam     390Summary of Important Points     390Review Questions     392Basic House Construction     394Key TermsLearning ObjectivesArchitectural Types and Styles     395Location on Site     397Foundations     397FootingsFoundation WallsFraming     398FlooringWallsCeiling Framing and RoofExterior Walls     401Windows     401Sliding WindowsSwinging WindowsFixed WindowsDoors     403Roofing     403Insulation     403Moisture ControlInterior Finishes     404Heating/Air Conditioning Systems     405Solar HeatElectrical Systems     406Plumbing Systems     406Government Regulation     407North Carolina Uniform Residential Building CodeHUDA/VA Minimum StandardsContractor LicensingConstruction for Practitioners     407Terminology     408Summary of Important Points     410Review Questions      413Real Estate Math     414Learning ObjectivesBasic Real Estate Math     415Finance Calculations     415Principal and Simple InterestDebt Service and the Reduction in the Balance of a LoanLoan Origination and Discount PointsDiscount Points, YieldsQualifying a BuyerClosing Statement Prorations and Calculations     421Proration of Real Estate TaxesInterest on an Assumed MortgageClosing Statement CalculationsAppraisal Calculations     423Capitalization ProblemsMiscellaneous Calculations     427Brokerage CommissionsInterest ProblemsNet Sales PriceEquity Problems/Percent Change ProblemsArea ProblemsReal Estate Taxation ProblemsFederal Taxation ProblemsCo-Insurance CalculationPractice Working in Real Estate Math     440Brokerage Commissions     440Net to Seller (Net Listing)     440Profit/Loss/Equity (Including Percent Change)     441Area CalculationsAd Valorem Taxes (Given the Rate and the Assessed Value)     445Excise Tax     445Financial Calculations     445Prorations at Closing     447Preparation of Closing Statements     448Sample "Net Owed by Buyer" Closing StatementSample "Net to Seller" Closing StatementSimple Appraisal Math     450Federal Taxation     451Summary     451Safety Issues for Real Estate Brokers     453North Carolina Real Estate License Law, North Carolina Real Estate Commission Rules, Trust Account Guidelines, and License Law and Rule Comments     458Residential Square Footage Guidelines     542A Guide to Common Real Estate Environmental Hazards     564Diagnostic Practice Test     572Practice Exam     582Answer Key     592Glossary     600Index     620