Mixed Deck — All RES Topics Flashcards

What is a loan-to-value (LTV) ratio?

Answer: The percentage of a property's value that is financed by the mortgage

LTV is calculated by dividing the mortgage amount by the property's appraised value. An 80% LTV means the buyer is financing 80% of the value. Higher LTVs typically require private mortgage insurance (PMI).

What is the principle of 'caveat emptor' and how has it changed in real estate?

Answer: 'Buyer beware' — historically buyers bore all risk, but modern disclosure laws now require sellers and agents to reveal known defects

Caveat emptor traditionally placed the burden on buyers to discover defects. Modern real estate law has shifted significantly, requiring sellers and agents to disclose known material defects and conditions.

The Income Approach to value is most appropriate for:

Answer: Investment or income-producing properties such as apartment buildings

The Income Approach is most applicable to income-producing properties like apartment complexes, office buildings, and shopping centers, where value is driven by the income stream.

What is steering in real estate?

Answer: The illegal practice of directing buyers toward or away from neighborhoods based on protected class characteristics

Steering violates the Fair Housing Act by directing prospective buyers or renters toward or away from certain neighborhoods based on race, religion, national origin, or other protected characteristics.

What is the difference between a general warranty deed and a quitclaim deed?

Answer: A general warranty deed guarantees clear title; a quitclaim deed transfers only whatever interest the grantor may have without guarantees

A general warranty deed provides the highest level of buyer protection with covenants guaranteeing clear title. A quitclaim deed transfers whatever interest the grantor has (if any) without any warranties.

The principle of conformity states that:

Answer: Property values are best maintained when a property conforms to the character and uses of surrounding properties

The principle of conformity holds that property values are maximized and maintained when properties conform in style, design, and use to the characteristics of the surrounding neighborhood.

What is the Statute of Frauds and how does it apply to real estate?

Answer: A law requiring certain contracts, including those for real property, to be in writing to be enforceable

The Statute of Frauds requires contracts for the sale of real property to be in writing and signed by the party against whom enforcement is sought, preventing fraudulent claims about verbal property agreements.

What is the difference between a buyer's agent and a seller's agent?

Answer: A buyer's agent represents the buyer's interests; a seller's agent (listing agent) represents the seller's interests

A buyer's agent has a fiduciary duty to the buyer, helping them find and negotiate the best deal. A seller's agent (listing agent) represents the seller, working to get the highest price and best terms.

What is the agency disclosure requirement?

Answer: The legal obligation to inform all parties about whom the agent represents before substantive discussions begin

Agency disclosure laws require agents to clearly explain their role (buyer's agent, seller's agent, or dual agent) early in the relationship so all parties understand who the agent is legally representing.

What is a deed restriction?

Answer: A limitation placed in a deed that controls how the property may be used

Deed restrictions (restrictive covenants) are private agreements written into deeds that limit property use, such as prohibiting commercial activities or specifying architectural standards in a subdivision.

In a real estate transaction, what is an "escrow account" used for?

Answer: To hold and manage funds for property taxes and insurance

An escrow account in a real estate transaction is a special account managed by a third party, often the mortgage lender, to hold funds for specific purposes. Its primary use is to collect and disburse money for property taxes and homeowner's insurance premiums on behalf of the borrower. This ensures these important payments are made on time, protecting both the homeowner's investment and the lender's collateral.

What is RESPA (Real Estate Settlement Procedures Act)?

Answer: A federal law that requires disclosure of closing costs and prohibits kickbacks in real estate transactions

RESPA protects consumers by requiring lenders and settlement agents to provide clear disclosure of closing costs, prohibiting referral fees/kickbacks, and limiting escrow account deposits.

What is a debt-to-income (DTI) ratio and why do lenders use it?

Answer: The percentage of monthly gross income that goes toward debt payments, used to assess a borrower's ability to manage mortgage payments

DTI compares monthly debt obligations to gross monthly income. Lenders typically require a DTI below 43-50% to ensure borrowers can comfortably manage mortgage payments alongside other debts.

What is 'fee simple absolute' ownership?

Answer: The highest form of property ownership with complete rights to use, sell, or transfer the property

Fee simple absolute is the most complete form of real property ownership, granting the owner full rights to use, possess, transfer, and encumber the property without limitations except governmental powers.

Which type of ownership allows for the property to automatically pass to the surviving co-owner(s) upon the death of an owner?

Answer: Joint tenancy with right of survivorship

Joint tenancy with right of survivorship is a form of co-ownership where, upon the death of one owner, their interest in the property automatically passes to the surviving joint tenant(s). This right of survivorship bypasses the probate process, making it a common choice for married couples or individuals who wish for their property to transfer directly to the co-owner.

What is a home inspection contingency?

Answer: A contract provision allowing the buyer to have the property professionally inspected and negotiate repairs or withdraw based on findings

A home inspection contingency gives the buyer the right to have the property inspected by a professional. Based on findings, the buyer can request repairs, renegotiate the price, or withdraw from the contract.

What is redlining?

Answer: The discriminatory practice of denying or limiting financial services to certain neighborhoods based on racial or ethnic composition

Redlining is the illegal practice of refusing to lend, insure, or provide other financial services to residents of certain areas based on the racial or ethnic composition of those neighborhoods.

What is an easement in real estate?

Answer: A legal right to use another person's property for a specific purpose

An easement grants a non-owner the right to use another's property for a specific purpose (e.g., utility access, driveway), without conferring ownership. Easements run with the land and survive property transfers.

What is refinancing a mortgage?

Answer: Replacing an existing mortgage with a new one, typically to obtain a lower interest rate or different terms

Refinancing pays off the existing mortgage with a new loan, often to secure a lower rate, change the loan term, switch from ARM to fixed-rate, or access equity through a cash-out refinance.

What is a pre-approval letter?

Answer: A lender's written commitment stating the maximum loan amount a buyer qualifies for based on verified financial information

A pre-approval letter shows sellers that a buyer has been evaluated by a lender and qualifies for financing up to a specified amount, strengthening the buyer's offer in competitive markets.