National Real Estate Exam (PSI) flashcards

Curable physical deterioration is a form of depreciation in the cost approach that refers to items of wear and tear on a property that are economically feasible to repair or replace. The cost to cure these items is less than the value they add to the property.

• Examples include worn-out roofs, painting, minor repairs.
• Accounted for by estimating the cost to cure (repair or replace) and deducting it from the reproduction/replacement cost new.
• Distinguished from incurable physical deterioration, which is not economically feasible to fix.

Memory trick: Curable's fixable, its cost is subtracted, restoring its worth, fully enacted.

The systematic sequence in which adjustments are applied to comparable properties in a Comparative Market Analysis to derive an estimated value for the subject property.

• Adjustments account for differences between subject and comparables.
• Typically adjusted in a specific order: Transactional, Property, Market.
• Date of sale (market conditions) is usually the last adjustment.

Memory trick: Think 'TOP' for Transactional, Property, Market adjustments.

The principle of externalities states that property values are affected by external factors, both positive (e.g., a new park) and negative (e.g., a nearby landfill, crime rates) that are outside the property itself.

• Value is influenced by factors beyond the property's boundaries.
• Can result in an increase (positive externality) or decrease (negative externality) in value.
• Appraisers must consider these external influences during valuation.

Memory trick: External factors, good or bad, shape the property's worth, beyond its own bounds.

A highly detailed and accurate method used in the cost approach to estimate construction costs. It involves a comprehensive breakdown of all materials, labor, equipment, and overhead required to build or reproduce a structure.

• Most accurate but also most time-consuming and expensive method.
• Suitable for unique, complex, or historic properties where other methods are insufficient.
• Appraisers often consult with cost estimators or contractors when using this method.

Memory trick: Square feet, units in place, quantity survey: each level more precise for building's face.

An appraisal method that estimates the value of a property by summing the estimated land value and the depreciated cost of any improvements.

• Best for new construction or unique properties.
• Calculates replacement/reproduction cost new.
• Subtracts all forms of depreciation (physical, functional, external).
• Adds estimated land value to depreciated improvement value.

Memory trick: Remember 'CLAD': Cost, Land, Add, Depreciate.

Reconciliation is the final step in the appraisal process where the appraiser evaluates and weighs the results obtained from the different appraisal approaches (sales comparison, cost, income) to arrive at a single, final opinion of value for the subject property.

• It is a process of judgment, not an arithmetic average.
• The appraiser considers the quantity and quality of data available for each approach.
• The most appropriate approach for the property type generally receives the most weight.
• The goal is a credible, well-supported value estimate.

Memory trick: Weigh the data, judge the methods, then a single value, the appraisal's true.

A lease agreement where the tenant pays a base rent plus all three major property operating expenses: real estate taxes, building insurance, and common area maintenance (CAM).

• Most comprehensive form of net lease for tenant expenses.
• Landlord typically only responsible for structural repairs (roof, foundation) and mortgage.
• Common in commercial and industrial properties.

Memory trick: NNN means 'No Nuisance for the Owner' on these three big expenses.

A lease agreement where the rent payments increase or decrease at specified intervals or at certain points during the lease term.

• Rent changes are predetermined and scheduled.
• Often used to help new businesses get started with lower initial costs.
• Distinct from index leases which link rent to an economic indicator.

Memory trick: GRADUATED means the rent goes up like steps on a ladder.

Fees paid by tenants in a multi-tenant property to cover the costs of maintaining and operating the shared spaces, such as hallways, lobbies, landscaping, and parking lots.

• Common in commercial leases (retail, office).
• Often prorated among tenants based on square footage.
• Can include utilities, security, cleaning, and repairs for common areas.

Memory trick: CAM covers the 'Commonly Accessible Maintained' areas.

A lease agreement where the tenant pays a base rent plus some or all of the property's operating expenses.

• Tenant pays base rent + expenses (taxes, insurance, maintenance).
• Common in commercial real estate.
• Can be single, double, or triple net depending on which expenses are covered.

Memory trick: NET results in the tenant paying for more.

A formal legal notice from a landlord to a tenant, demanding unpaid rent be paid within a specified period (e.g., 3-5 days) or the tenant must vacate the premises.

• Mandatory first step in most non-payment evictions.
• Gives tenant a chance to cure the breach or leave.
• If not complied with, landlord can file an unlawful detainer action.

Memory trick: NOTICE is the first Knock on the eviction door.

A leasehold estate for a definite, fixed period of time, with a specific start and end date.

• Also known as a 'term tenancy'.
• Does not require notice to terminate; it ends automatically.
• Can be for any fixed duration, from days to many years.

Memory trick: YEARS have a definite start and end.

Operating expenses that fluctuate depending on the occupancy, usage, or unforeseen events at a property.

• Harder to predict than fixed expenses.
• Examples include utilities (depending on lease), repairs, advertising.
• Property managers must budget for contingencies.

Memory trick: VARIABLE expenses 'Vary' with activity.

A lease where rent is calculated as a base amount plus a percentage of the tenant's gross sales above a certain breakpoint.

• Common in retail properties.
• Landlord benefits from tenant's success.
• Requires clear definition of 'gross sales' and breakpoints.

Memory trick: PERCENTAGE is 'Base + Over-Base Percent'.

When a tenant remains in possession after the lease expires, and the landlord accepts rent, a new periodic tenancy (e.g., month-to-month) is often created by implication.

• Differs from tenancy at sufferance (no landlord consent).
• Can be terminated by either party with proper notice.
• Implied agreement based on actions, not a new formal lease.

Memory trick: PERIODICALLY, the landlord accepts rent and the lease continues.

An item of personal property that has been permanently attached to real estate and is thus considered part of the real estate.

• Becomes real property once attached.
• Typically transfers with the real estate upon sale.
• Determined by the 'MARIA' tests.

Memory trick: Real property is rooted, personal property is portable.

The process of identifying, assessing, and controlling asbestos-containing materials (ACMs) to prevent the release of harmful fibers.

• Friable asbestos is the most dangerous.
• Often managed in place if intact (Operations & Maintenance plans).
• Removal (abatement) is costly and highly regulated.

Memory trick: If it's 'stable and sealed', you can 'manage the deal'; if it's 'cracked and loose', then 'abatement's the use'.

A private agreement that restricts the use or occupancy of real estate, often found in deeds or recorded declarations for subdivisions.

• Also known as 'CC&Rs' (Covenants, Conditions, and Restrictions).
• Aimed at maintaining property values and community standards.
• Can be enforced by homeowners associations or other property owners.

Memory trick: Encumbrances are property burdens, not benefits.

The smallest allowable area of land on which a single dwelling or structure can be built, as specified by zoning ordinances.

• Determined by local zoning laws.
• Impacts density and development costs.
• Often expressed in square feet or acres per dwelling unit.

Memory trick: Units times size, then divide by the 'acre-number' for the final land clue.