National Portion
Covers general real estate principles common across states.
Getting Started: Your Exam Journey
Free knowledge base
National Real Estate Exam (PSI) — key terms, tricks & tips
Everything from the course in one searchable place: 530 entries. Use it to review before a practice test or look up a word you forgot.
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State-Specific Portion
Covers unique real estate laws and regulations of a particular state.
Getting Started: Your Exam Journey
Multiple-Choice Questions
Standard question format with four options, only one correct.
Getting Started: Your Exam Journey
Scored Questions
Questions that count towards your final exam score.
Getting Started: Your Exam Journey
Pretest Questions
Unscored questions used for future exam development.
Getting Started: Your Exam Journey
Candidate Handbook
Official PSI guide with detailed exam information for your state.
Getting Started: Your Exam Journey
Time Management
Strategically allocating time to complete all exam questions.
Getting Started: Your Exam Journey
Understanding the PSI Exam Structure
Remember 'N.S.T.' for National, State, Time. It's the core structure you need to know!
Getting Started: Your Exam Journey
Understanding the PSI Exam Structure
For California, be aware that the state-specific portion is particularly comprehensive and often includes a significant number of questions on agency, disclosures, and ethics specific to California law. Don't underestimate its difficulty.
Getting Started: Your Exam Journey
Understanding the PSI Exam Structure
Failing to read the official PSI Candidate Handbook for your state, leading to surprises about exam content or rules.
Getting Started: Your Exam Journey
Understanding the PSI Exam Structure
Spending too much time on a single difficult question, jeopardizing your ability to complete the entire exam section.
Getting Started: Your Exam Journey
Understanding the PSI Exam Structure
Not answering all questions because of fear of guessing, missing out on potential points since there's no penalty for incorrect answers.
Getting Started: Your Exam Journey
Active Learning
Engaging with material through summarizing, teaching, or practice.
Getting Started: Your Exam Journey
Passive Learning
Absorbing information without active engagement, like rereading.
Getting Started: Your Exam Journey
Spaced Repetition
Reviewing material at increasing intervals to improve retention.
Getting Started: Your Exam Journey
Forgetting Curve
The rate at which memory of information declines over time.
Getting Started: Your Exam Journey
Study Schedule
A structured plan allocating time for learning specific topics.
Getting Started: Your Exam Journey
Practice Questions
Sample questions used to test knowledge and familiarize with exam format.
Getting Started: Your Exam Journey
Self-Quizzing
Testing oneself on learned material without external prompts.
Getting Started: Your Exam Journey
Effective Study Strategies for Success
To remember the benefits of Active Learning: 'ACT' - 'A'sk questions, 'C'reate summaries, 'T'each others!
Getting Started: Your Exam Journey
Effective Study Strategies for Success
On the exam, expect questions that test your ability to apply concepts, not just recall definitions. For example, you might be given a scenario and asked to identify the best course of action based on agency law or ethical principles. Focus on understanding the 'why' behind the rules.
Getting Started: Your Exam Journey
Effective Study Strategies for Success
Only rereading notes or highlighting without testing recall.
Getting Started: Your Exam Journey
Effective Study Strategies for Success
Cramming all studying into the last few days before the exam.
Getting Started: Your Exam Journey
Effective Study Strategies for Success
Not taking full-length practice exams under timed conditions.
Getting Started: Your Exam Journey
Effective Study Strategies for Success
Ignoring incorrect answers on practice tests instead of analyzing them.
Getting Started: Your Exam Journey
Real Property
Land, improvements, and all rights associated with ownership.
Foundations of Property Ownership
Personal Property
Movable items not permanently attached to land.
Foundations of Property Ownership
Fixture
Personal property attached to real property, becoming part of it.
Foundations of Property Ownership
Chattel
Another term for personal property.
Foundations of Property Ownership
Trade Fixture
Tenant's business property, removable by tenant.
Foundations of Property Ownership
Emblements
Annual cultivated crops, considered personal property.
Foundations of Property Ownership
Annexation
Process of converting personal property into real property.
Foundations of Property Ownership
Real vs. Personal Property & Fixtures
MARIA helps you remember the five tests for a fixture: Method, Adaptability, Relationship, Intention, Agreement.
Foundations of Property Ownership
Real vs. Personal Property & Fixtures
The California exam frequently tests the 'Intention of the Annexor' as the most significant test for determining a fixture, especially when the other MARIA factors are ambiguous. Also, know that a seller's disclosure statement must list items to be excluded.
Foundations of Property Ownership
Real vs. Personal Property & Fixtures
Assuming all appliances are fixtures; freestanding appliances are generally personal property.
Foundations of Property Ownership
Real vs. Personal Property & Fixtures
Forgetting that trade fixtures are personal property of the tenant, not the landlord.
Foundations of Property Ownership
Real vs. Personal Property & Fixtures
Not explicitly stating in the purchase agreement what items are included or excluded.
Foundations of Property Ownership
Estate in Land
Degree, quantity, nature, and extent of interest in property.
Foundations of Property Ownership
Freehold Estate
Indefinite ownership interest in real property.
Foundations of Property Ownership
Fee Simple Absolute
Highest, most complete form of ownership.
Foundations of Property Ownership
Life Estate
Ownership limited to the duration of a person's life.
Foundations of Property Ownership
Leasehold Estate
Possession of property for a limited period, not ownership.
Foundations of Property Ownership
Estate for Years
Leasehold with a definite beginning and end date.
Foundations of Property Ownership
Periodic Tenancy
Leasehold that automatically renews for indefinite periods.
Foundations of Property Ownership
Estate at Sufferance
Tenant remains after lease expires without consent.
Foundations of Property Ownership
Estates in Land: Freehold & Leasehold
Remember 'LIFE' for the types of freehold estates: Life Estate, Indefeasible (as in Fee Simple Absolute), Fee Simple Defeasible, and Estate (as in Fee Simple Estate).
Foundations of Property Ownership
Estates in Land: Freehold & Leasehold
The exam often tests the specific characteristics and termination requirements for each leasehold estate. Memorize that an Estate for Years has a definite end date and requires no notice to terminate, while a Periodic Tenancy requires proper notice (e.g., 30 days for month-to-month).
Foundations of Property Ownership
Estates in Land: Freehold & Leasehold
Confusing 'ownership' (freehold) with 'possession' (leasehold).
Foundations of Property Ownership
Estates in Land: Freehold & Leasehold
Believing a leasehold estate grants any form of property ownership.
Foundations of Property Ownership
Estates in Land: Freehold & Leasehold
Incorrectly identifying the termination requirements for different leasehold estates (e.g., notice for an Estate for Years).
Foundations of Property Ownership
Severalty
Ownership by one individual or entity.
Foundations of Property Ownership
Co-ownership
Property owned by two or more parties.
Foundations of Property Ownership
Tenancy in Common (TIC)
Co-ownership with no right of survivorship.
Foundations of Property Ownership
Joint Tenancy
Co-ownership with right of survivorship.
Foundations of Property Ownership
Right of Survivorship
Deceased co-owner's interest passes to survivors.
Foundations of Property Ownership
PITT Unities
Possession, Interest, Time, Title for joint tenancy.
Foundations of Property Ownership
Tenancy by the Entirety
Co-ownership for married couples with survivorship.
Foundations of Property Ownership
Community Property
Property acquired during marriage, owned equally.
Foundations of Property Ownership
Forms of Ownership: Severalty, Co-ownership
Remember 'PITT' for Joint Tenancy: Possession, Interest, Time, Title. If any 'PITT' is missing, it's not a joint tenancy!
Foundations of Property Ownership
Forms of Ownership: Severalty, Co-ownership
The California exam heavily emphasizes community property. Memorize that in California, property acquired during marriage is community property, and each spouse has the right to will their half. Also, know that joint tenancy in California requires the four unities (PITT) and includes the right of survivorship.
Foundations of Property Ownership
Forms of Ownership: Severalty, Co-ownership
Confusing tenancy in common with joint tenancy, especially regarding the right of survivorship.
Foundations of Property Ownership
Forms of Ownership: Severalty, Co-ownership
Assuming all marital property is automatically community property without considering the state or how it was acquired.
Foundations of Property Ownership
Forms of Ownership: Severalty, Co-ownership
Forgetting that tenancy by the entirety is only for married couples and not available in all states.
Foundations of Property Ownership
Encumbrance
A claim or liability against real estate.
Foundations of Property Ownership
Lien
A financial claim against property for a debt.
Foundations of Property Ownership
Easement
Right to use another's land for a specific purpose.
Foundations of Property Ownership
Encroachment
Illegal intrusion of a structure onto another's land.
Foundations of Property Ownership
Appurtenant Easement
Benefits an adjacent parcel of land (dominant tenement).
Foundations of Property Ownership
Easement in Gross
Benefits a specific person or entity, not a parcel.
Foundations of Property Ownership
Lis Pendens
A recorded notice of a pending lawsuit affecting title.
Foundations of Property Ownership
Deed Restriction
Private land use limitation in a deed.
Foundations of Property Ownership
Encumbrances: Liens, Easements, Encroachments
LEEL: Liens, Easements, Encroachments, Lis Pendens. Remember these four main types of encumbrances that can 'LEEL' (like 'feel') like a burden on property.
Foundations of Property Ownership
Encumbrances: Liens, Easements, Encroachments
The California exam often emphasizes the difference between specific and general liens, and the priority of liens (especially property tax liens). Also, be prepared for scenarios involving prescriptive easements and adverse possession, and how they relate to long-term, open, and notorious use.
Foundations of Property Ownership
Encumbrances: Liens, Easements, Encroachments
Confusing an easement (a right to use) with adverse possession (a claim to ownership).
Foundations of Property Ownership
Encumbrances: Liens, Easements, Encroachments
Underestimating the importance of a title search in uncovering all types of encumbrances.
Foundations of Property Ownership
Encumbrances: Liens, Easements, Encroachments
Assuming all liens have the same priority; property tax liens are almost always superior.
Foundations of Property Ownership
Zoning Ordinance
Local laws regulating land use and development.
Controlling Land Use
Police Power
Government's right to regulate for public welfare.
Controlling Land Use
Permitted Use
Specific activities allowed in a zoning district.
Controlling Land Use
Setback
Minimum distance from property lines for structures.
Controlling Land Use
Density
Number of dwelling units allowed per land area.
Controlling Land Use
Variance
Permission to deviate from zoning due to hardship.
Controlling Land Use
Nonconforming Use
Legal use existing before zoning, now prohibited.
Controlling Land Use
Rezoning
Changing a property's zoning classification.
Controlling Land Use
Zoning Ordinances and Their Impact
Zoning is like a 'ZONE' for your 'HOME': 'Z'ones, 'O'rdinances, 'N'onconforming uses, 'E'xceptions (variances).
Controlling Land Use
Zoning Ordinances and Their Impact
California's General Plan is the blueprint for local development, and all zoning ordinances must be consistent with it. Keywords to spot: 'General Plan consistency' and 'Housing Element' (a mandatory component addressing housing needs).
Controlling Land Use
Zoning Ordinances and Their Impact
Assuming a property can be used for any purpose just because it's for sale.
Controlling Land Use
Zoning Ordinances and Their Impact
Confusing a variance (hardship-based exception) with a rezoning (change in classification).
Controlling Land Use
Zoning Ordinances and Their Impact
Underestimating the time and cost involved in obtaining a zoning change or variance.
Controlling Land Use
Building Codes
Minimum construction standards for health and safety.
Controlling Land Use
Building Permit
Official authorization to perform construction work.
Controlling Land Use
Certificate of Occupancy (CO)
Document certifying a building is safe and habitable.
Controlling Land Use
Inspection
Official review of construction work for code compliance.
Controlling Land Use
Retroactive Permit
Permit obtained after work has already been completed.
Controlling Land Use
Zoning Ordinances
Regulations governing land use and building placement.
Controlling Land Use
Building Codes and Permits
CODES = C-onstruction O-utlines D-esign E-nsures S-afety. Think of a 'code' as a rulebook for building safely.
Controlling Land Use
Building Codes and Permits
The California Building Standards Code (Title 24, California Code of Regulations) is based on national model codes but includes specific California amendments. Remember that local jurisdictions can also adopt more restrictive codes.
Controlling Land Use
Building Codes and Permits
Confusing building codes (how a building is built) with zoning ordinances (where and what kind of building can be built).
Controlling Land Use
Building Codes and Permits
Assuming all renovations, even minor ones, don't require permits; always check local requirements.
Controlling Land Use
Building Codes and Permits
Not verifying that a Certificate of Occupancy has been issued for new construction or major renovations before closing.
Controlling Land Use
CERCLA (Superfund)
Federal law addressing hazardous waste site cleanup liability.
Controlling Land Use
Asbestos
Fibrous mineral, health hazard when disturbed.
Controlling Land Use
Lead-Based Paint
Paint with lead, health hazard in pre-1978 homes.
Controlling Land Use
Radon
Radioactive gas, seeps into homes, causes lung cancer.
Controlling Land Use
USTs
Underground storage tanks, risk of leaks and contamination.
Controlling Land Use
Phase I ESA
Environmental site assessment, non-intrusive investigation.
Controlling Land Use
Disclosure
Legal requirement to reveal known material facts.
Controlling Land Use
Strict Liability
Liability regardless of fault, common in environmental law.
Controlling Land Use
Environmental Regulations & Disclosure
CERCLA: CLean Every Really Contaminated Land Area. Remember Superfund cleans up the 'super' bad stuff.
Controlling Land Use
Environmental Regulations & Disclosure
The California Environmental Quality Act (CEQA) is a key state law requiring environmental impact reports for public and private projects. Be aware of state-specific disclosure forms for hazards like lead, asbestos, and radon, which often exceed federal requirements.
Controlling Land Use
Environmental Regulations & Disclosure
Failing to disclose known environmental hazards, even if the buyer doesn't ask.
Controlling Land Use
Environmental Regulations & Disclosure
Assuming a property is free of hazards just because it looks new or well-maintained.
Controlling Land Use
Environmental Regulations & Disclosure
Not advising clients to seek expert environmental assessments for suspicious properties.
Controlling Land Use
Restrictive Covenant
Another term for a deed restriction, binding on future owners.
Controlling Land Use
CC&Rs
Covenants, Conditions, and Restrictions; rules for a development.
Controlling Land Use
Runs with the Land
A restriction that applies to all future property owners.
Controlling Land Use
Homeowners' Association (HOA)
Organization enforcing CC&Rs in a planned community.
Controlling Land Use
Injunction
A court order to stop a specific action or violation.
Controlling Land Use
Deed Restrictions and Covenants
Remember 'CC&Rs' as 'Community Control & Rules' – they control what you can do and set the rules for your community.
Controlling Land Use
Deed Restrictions and Covenants
The California exam often tests the distinction between public land use controls (like zoning) and private land use controls (like deed restrictions). Remember that deed restrictions are private agreements, typically enforced by HOAs or property owners, not by government entities.
Controlling Land Use
Deed Restrictions and Covenants
Confusing deed restrictions (private) with zoning ordinances (public).
Controlling Land Use
Deed Restrictions and Covenants
Assuming deed restrictions are always beneficial; they can also be burdensome.
Controlling Land Use
Deed Restrictions and Covenants
Forgetting that deed restrictions 'run with the land' and affect future owners.
Controlling Land Use
Demand
Desire and ability to purchase a property.
Understanding Property Value
Utility
Property's usefulness for a specific purpose.
Understanding Property Value
Scarcity
Limited supply of a particular property type.
Understanding Property Value
Transferability
Legal ability to transfer property ownership.
Understanding Property Value
Principle of Contribution
Value of a component based on its addition to overall value.
Understanding Property Value
Market Value
Most probable price a property will bring.
Understanding Property Value
Appraisal
Estimate of property value by an expert.
Understanding Property Value
Principles of Value: DUST & Contribution
DUST: Demand, Utility, Scarcity, Transferability. Remember, if a property has DUST, it has value!
Understanding Property Value
Principles of Value: DUST & Contribution
The PSI exam often tests your understanding of DUST as the fundamental criteria for value. Also, be prepared for questions on the principle of contribution, especially regarding home improvements and their impact on market value vs. cost.
Understanding Property Value
Principles of Value: DUST & Contribution
Confusing cost with value: Just because an improvement costs a lot doesn't mean it adds that much to the property's market value.
Understanding Property Value
Principles of Value: DUST & Contribution
Forgetting one of the DUST elements: All four must be present for a property to have market value.
Understanding Property Value
Principles of Value: DUST & Contribution
Assuming all buyers value the same features: What one buyer sees as high utility, another might see as a liability.
Understanding Property Value
Sales Comparison Approach
Estimates value by comparing subject to recently sold similar properties.
Understanding Property Value
Cost Approach
Estimates value by calculating replacement cost minus depreciation plus land.
Understanding Property Value
Income Capitalization Approach
Estimates value based on the property's ability to generate income.
Understanding Property Value
Comparables (Comps)
Recently sold properties similar to the subject property.
Understanding Property Value
Depreciation
Loss in value due to physical, functional, or external factors.
Understanding Property Value
Net Operating Income (NOI)
Property's income after operating expenses, before debt service and taxes.
Understanding Property Value
Capitalization Rate (Cap Rate)
Rate of return used to convert NOI into an estimated property value.
Understanding Property Value
Appraisal Methods: Sales Comparison, Cost, Income
Think 'SCI-FI' to remember the three approaches: Sales, Cost, Income. And 'FI' reminds you Income is for Income-producing properties!
Understanding Property Value
Appraisal Methods: Sales Comparison, Cost, Income
The PSI exam often tests your understanding of which appraisal method is most appropriate for different property types. Memorize: Sales Comparison for residential/vacant land, Cost for new/unique, Income for income-producing.
Understanding Property Value
Appraisal Methods: Sales Comparison, Cost, Income
Confusing reconciliation with averaging the results of the three approaches.
Understanding Property Value
Appraisal Methods: Sales Comparison, Cost, Income
Applying the wrong appraisal method to a property type (e.g., using income approach for a single-family owner-occupied home).
Understanding Property Value
Appraisal Methods: Sales Comparison, Cost, Income
Forgetting to subtract depreciation in the cost approach or operating expenses in the income approach.
Understanding Property Value
Comparative Market Analysis (CMA)
Informal estimate of value by an agent for listing/offering price.
Understanding Property Value
Comparable Properties (Comps)
Recently sold, active, or expired listings similar to the subject.
Understanding Property Value
Principle of Substitution
Buyer won't pay more than cost of an equally desirable substitute.
Understanding Property Value
Adjustments
Modifications to comp prices to account for property differences.
Understanding Property Value
Subject Property
The property for which the value estimate is being prepared.
Understanding Property Value
Comparative Market Analysis (CMA)
CMA: C-omparables, M-arket, A-djustments. Remember it's about comparing properties in the market and making adjustments!
Understanding Property Value
Comparative Market Analysis (CMA)
The California Bureau of Real Estate (CalBRE) emphasizes that a real estate licensee can only perform a CMA, not an appraisal, unless they are also a licensed appraiser. The CMA must be clearly labeled as such and not presented as an appraisal.
Understanding Property Value
Comparative Market Analysis (CMA)
Presenting a CMA as a formal appraisal to a client or lender.
Understanding Property Value
Comparative Market Analysis (CMA)
Failing to make appropriate adjustments for differences between the subject and comparable properties.
Understanding Property Value
Comparative Market Analysis (CMA)
Using outdated or geographically distant comparable sales.
Understanding Property Value
Comparative Market Analysis (CMA)
Only using active listings and ignoring recently sold or expired listings.
Understanding Property Value
Situs
Area preference; human preference for a location.
Understanding Property Value
Immobility
Land cannot be moved from one place.
Understanding Property Value
Indestructibility
Land cannot be destroyed or worn out.
Understanding Property Value
Nonhomogeneity
Uniqueness; no two parcels of land are identical.
Understanding Property Value
External Factors
Influences outside property lines affecting value.
Understanding Property Value
Internal Factors
Property-specific attributes like condition.
Understanding Property Value
Factors Influencing Property Value
S.P.E.G.I.N. for value factors: Scarcity, Permanence, Economic, Governmental, Internal, Nonhomogeneity.
Understanding Property Value
Factors Influencing Property Value
The PSI exam often tests your ability to distinguish between economic and physical characteristics of land. Pay close attention to 'situs' as an economic characteristic and 'immobility' as a physical characteristic. Remember that while land is indestructible, its value can be destroyed by external factors.
Understanding Property Value
Factors Influencing Property Value
Confusing physical characteristics (like immobility) with economic characteristics (like situs).
Understanding Property Value
Factors Influencing Property Value
Underestimating the impact of external factors (e.g., neighborhood decline, school quality) compared to internal factors (e.g., recent renovations).
Understanding Property Value
Factors Influencing Property Value
Forgetting that government actions (zoning, taxes) are major determinants of value.
Understanding Property Value
Mortgage
A legal document pledging property as collateral for a loan.
Real Estate Financing Essentials
Promissory Note
A written promise to repay a debt, outlining loan terms.
Real Estate Financing Essentials
Mortgagor
The borrower who gives the mortgage (pledges property).
Real Estate Financing Essentials
Mortgagee
The lender who receives the mortgage (holds the lien).
Real Estate Financing Essentials
Acceleration Clause
Allows lender to demand full payment upon borrower default.
Real Estate Financing Essentials
Collateral
Property pledged to secure a loan.
Real Estate Financing Essentials
Mortgage Fundamentals & Promissory Notes
Note = 'N' for 'N'umber (the amount you owe); Mortgage = 'M' for 'M'aterial (the property used as security).
Real Estate Financing Essentials
Mortgage Fundamentals & Promissory Notes
The California exam often emphasizes the distinction: the promissory note creates the debt, while the deed of trust (California's equivalent of a mortgage) secures the debt. Know that 'deed of trust' is the common security instrument in CA.
Real Estate Financing Essentials
Mortgage Fundamentals & Promissory Notes
Confusing the mortgage (security) with the promissory note (the debt itself).
Real Estate Financing Essentials
Mortgage Fundamentals & Promissory Notes
Believing the mortgage creates the debt, rather than securing it.
Real Estate Financing Essentials
Mortgage Fundamentals & Promissory Notes
Not understanding the roles of mortgagor (borrower) and mortgagee (lender).
Real Estate Financing Essentials
Conventional Loan
Mortgage not insured/guaranteed by a government agency.
Real Estate Financing Essentials
Private Mortgage Insurance (PMI)
Insurance protecting lenders on conventional loans with low down payments.
Real Estate Financing Essentials
FHA Loan
Mortgage insured by the Federal Housing Administration.
Real Estate Financing Essentials
Mortgage Insurance Premium (MIP)
FHA's mortgage insurance, both upfront and annual.
Real Estate Financing Essentials
VA Loan
Mortgage guaranteed by the U.S. Department of Veterans Affairs.
Real Estate Financing Essentials
VA Funding Fee
Fee paid on VA loans, can be financed or waived for some veterans.
Real Estate Financing Essentials
Types of Loans: Conventional, FHA, VA
Think 'C' for Conventional (Credit-dependent), 'F' for FHA (First-time friendly), and 'V' for VA (Veteran's Victory!).
Real Estate Financing Essentials
Types of Loans: Conventional, FHA, VA
The PSI exam often tests the core difference: Conventional loans are NOT government-backed, while FHA is INSURED and VA is GUARANTEED. Remember the 'no down payment' feature of VA loans.
Real Estate Financing Essentials
Types of Loans: Conventional, FHA, VA
Confusing FHA's insurance with VA's guarantee; they protect the lender differently.
Real Estate Financing Essentials
Types of Loans: Conventional, FHA, VA
Forgetting that conventional loans require PMI if the down payment is less than 20%.
Real Estate Financing Essentials
Types of Loans: Conventional, FHA, VA
Assuming all veterans are exempt from the VA funding fee; it depends on disability status.
Real Estate Financing Essentials
Primary Mortgage Market
Where borrowers get loans directly from lenders.
Real Estate Financing Essentials
Secondary Mortgage Market
Where existing mortgage loans are bought and sold.
Real Estate Financing Essentials
Fannie Mae
GSE that buys mortgages from commercial banks.
Real Estate Financing Essentials
Freddie Mac
GSE that buys mortgages from smaller banks/thrifts.
Real Estate Financing Essentials
Ginnie Mae
Guarantees MBS backed by FHA/VA/USDA loans.
Real Estate Financing Essentials
Mortgage-Backed Securities (MBS)
Investment instruments backed by pools of mortgages.
Real Estate Financing Essentials
Liquidity
Ease with which an asset can be converted to cash.
Real Estate Financing Essentials
Sources of Financing & Secondary Market
Fannie and Freddie BUY and PACKAGE. Ginnie Mae GUARANTEES the government ones.
Real Estate Financing Essentials
Sources of Financing & Secondary Market
For the California exam, be precise about the roles of Fannie Mae, Freddie Mac, and Ginnie Mae. Fannie and Freddie buy and package loans; Ginnie Mae guarantees MBS for government-backed loans. Keywords: 'government-sponsored enterprises' (GSEs), 'mortgage-backed securities' (MBS).
Real Estate Financing Essentials
Sources of Financing & Secondary Market
Confusing the primary market (loan origination) with the secondary market (loan sales).
Real Estate Financing Essentials
Sources of Financing & Secondary Market
Believing Ginnie Mae buys loans; it only guarantees the securities.
Real Estate Financing Essentials
Sources of Financing & Secondary Market
Thinking Fannie Mae and Freddie Mac are government agencies; they are government-sponsored enterprises (GSEs).
Real Estate Financing Essentials
RESPA
Real Estate Settlement Procedures Act; ensures transparency in closing costs.
Real Estate Financing Essentials
TILA
Truth in Lending Act; requires disclosure of credit terms and costs.
Real Estate Financing Essentials
ECOA
Equal Credit Opportunity Act; prohibits discrimination in credit.
Real Estate Financing Essentials
Loan Estimate (LE)
RESPA-required form detailing estimated loan and closing costs.
Real Estate Financing Essentials
Closing Disclosure (CD)
RESPA-required form summarizing final loan terms and costs.
Real Estate Financing Essentials
Annual Percentage Rate (APR)
TILA-required total cost of credit, including interest and fees.
Real Estate Financing Essentials
Right of Rescission
TILA provision allowing 3-day cancellation of some refinance loans.
Real Estate Financing Essentials
Kickbacks
Illegal unearned fees for referrals, prohibited by RESPA.
Real Estate Financing Essentials
Lending Laws: RESPA, TILA, ECOA
Remember 'RATE' for TILA: R-Rescission, A-APR, T-Truth in Lending, E-Equal opportunity (though ECOA handles that, TILA focuses on the 'truth' of the rate).
Real Estate Financing Essentials
Lending Laws: RESPA, TILA, ECOA
The PSI exam often tests the specific forms required by RESPA: the Loan Estimate (LE) and the Closing Disclosure (CD). Memorize that the LE must be provided within 3 business days of application and the CD at least 3 business days before closing. Also, know that the right of rescission under TILA generally applies to refinance loans, not purchase money mortgages.
Real Estate Financing Essentials
Lending Laws: RESPA, TILA, ECOA
Confusing the forms: The Loan Estimate and Closing Disclosure are RESPA forms, not TILA.
Real Estate Financing Essentials
Lending Laws: RESPA, TILA, ECOA
Misapplying the right of rescission: It applies to certain refinances, not typically purchase loans.
Real Estate Financing Essentials
Lending Laws: RESPA, TILA, ECOA
Forgetting ECOA's protected classes: It's broader than just race and sex; remember marital status, age, and public assistance income.
Real Estate Financing Essentials
Express Agency
Created by explicit oral or written agreement.
Agency Relationships in Real Estate
Implied Agency
Created by actions, conduct, or words of parties.
Agency Relationships in Real Estate
Universal Agent
Has authority to act for principal in all matters.
Agency Relationships in Real Estate
Special Agent
Has authority for a specific act or transaction.
Agency Relationships in Real Estate
General Agent
Has authority for a range of matters in a business.
Agency Relationships in Real Estate
Power of Attorney
Legal document granting agent authority to act.
Agency Relationships in Real Estate
Types of Agency: Express, Implied, Universal
Remember 'E.I.U.S.G.' for the types of agency: Express, Implied, Universal, Special, General. Think of it as a spectrum of authority!
Agency Relationships in Real Estate
Types of Agency: Express, Implied, Universal
The California Bureau of Real Estate (CalBRE) emphasizes that agency relationships must be disclosed and confirmed in writing. Oral agreements for real estate compensation are generally unenforceable. Be aware of the 'Agency Disclosure Form' (ADF) which clarifies roles.
Agency Relationships in Real Estate
Types of Agency: Express, Implied, Universal
Confusing implied agency with no agency: Implied agency still creates fiduciary duties.
Agency Relationships in Real Estate
Types of Agency: Express, Implied, Universal
Believing all agency agreements must be written: While best practice, oral express agency can exist (though often unenforceable for real estate commissions).
Agency Relationships in Real Estate
Types of Agency: Express, Implied, Universal
Overestimating a special agent's authority: They cannot bind the principal to contracts.
Agency Relationships in Real Estate
Fiduciary
A person in a position of trust and confidence.
Agency Relationships in Real Estate
Client (Principal)
The party who hires an agent and to whom fiduciary duties are owed.
Agency Relationships in Real Estate
Customer
A third party in a transaction with whom the agent has no agency relationship.
Agency Relationships in Real Estate
Material Fact
Information that could influence a reasonable person's decision.
Agency Relationships in Real Estate
Commingling
Mixing client funds with an agent's personal or business funds.
Agency Relationships in Real Estate
Confidentiality
Protecting a client's private information indefinitely.
Agency Relationships in Real Estate
Agent's Fiduciary Duties to Clients (OLD CAR)
Remember 'OLD CAR' for Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable Care. Imagine an old car that's reliable because it's been cared for diligently, just like your client relationship!
Agency Relationships in Real Estate
Agent's Fiduciary Duties to Clients (OLD CAR)
The California Real Estate Law emphasizes the highest good faith and loyalty from an agent to their principal. Remember that the duty of confidentiality is perpetual, even after the agency relationship ends. The duty of disclosure applies to all known material facts, even if the client instructs otherwise.
Agency Relationships in Real Estate
Agent's Fiduciary Duties to Clients (OLD CAR)
Confusing a client with a customer and thinking fiduciary duties are owed to everyone.
Agency Relationships in Real Estate
Agent's Fiduciary Duties to Clients (OLD CAR)
Believing that confidentiality ends when the transaction closes or agency terminates.
Agency Relationships in Real Estate
Agent's Fiduciary Duties to Clients (OLD CAR)
Withholding material facts about a property because the seller instructed you to, or because it might jeopardize the sale.
Agency Relationships in Real Estate
Conflict of Interest
When an agent's personal interests clash with client's best interests.
Agency Relationships in Real Estate
Informed Consent
Agreement given after full disclosure of all relevant facts.
Agency Relationships in Real Estate
Dual Agency
When one agent represents both buyer and seller in a transaction.
Agency Relationships in Real Estate
Stigmatized Property
Property with a psychological stigma, not a physical defect.
Agency Relationships in Real Estate
Disclosure Requirements & Conflicts of Interest
DISCLOSE: **D**efects, **I**nterests (conflicts), **S**tatus of parties, **C**onditions (material), **L**egal issues, **O**ffers, **S**afety concerns, **E**nvironmental hazards.
Agency Relationships in Real Estate
Disclosure Requirements & Conflicts of Interest
California law requires specific disclosures, including a Transfer Disclosure Statement (TDS) for residential properties, and mandates disclosure of natural hazards. Agents must also disclose if they are acting as a principal in the transaction.
Agency Relationships in Real Estate
Disclosure Requirements & Conflicts of Interest
Assuming a fact is not material because the client didn't ask about it.
Agency Relationships in Real Estate
Disclosure Requirements & Conflicts of Interest
Failing to disclose a conflict of interest because it seems minor or manageable.
Agency Relationships in Real Estate
Disclosure Requirements & Conflicts of Interest
Not getting written informed consent for dual agency or other conflicts.
Agency Relationships in Real Estate
Termination
The ending of an agency relationship.
Agency Relationships in Real Estate
Revocation
Principal's act of ending the agency.
Agency Relationships in Real Estate
Renunciation
Agent's act of ending the agency.
Agency Relationships in Real Estate
Operation of Law
Termination due to legal events (e.g., death).
Agency Relationships in Real Estate
Fulfillment of Purpose
Agency ends when its objective is achieved.
Agency Relationships in Real Estate
Expiration of Term
Agency ends when the agreed time period passes.
Agency Relationships in Real Estate
Incapacity
Lack of legal ability to act (e.g., due to illness).
Agency Relationships in Real Estate
Termination of Agency Relationships
To remember what terminates an agency: D-I-E-S. Destruction of property, Incapacity/Death, Expiration of term, Sale/Fulfillment of purpose.
Agency Relationships in Real Estate
Termination of Agency Relationships
The California exam emphasizes that while an agency can be terminated by either party, there may be contractual penalties for doing so prematurely. Also, the duty of confidentiality is one of the few duties that survives the termination of the agency relationship.
Agency Relationships in Real Estate
Termination of Agency Relationships
Assuming all agent duties end immediately upon termination; confidentiality persists.
Agency Relationships in Real Estate
Termination of Agency Relationships
Confusing revocation (by principal) with renunciation (by agent).
Agency Relationships in Real Estate
Termination of Agency Relationships
Forgetting that death or incapacity of either party automatically terminates the agency.
Agency Relationships in Real Estate
Latent Defect
A hidden structural defect not discoverable by reasonable inspection.
Property Disclosures & Hazards
Patent Defect
A readily observable defect discoverable by reasonable inspection.
Property Disclosures & Hazards
Fiduciary Duty
An agent's legal obligation to act in the client's best interest.
Property Disclosures & Hazards
Caveat Emptor
Latin for 'let the buyer beware'; largely superseded by disclosure laws.
Property Disclosures & Hazards
Material Facts & Latent Defects
L-A-T-E-N-T: **L**ooking **A**t **T**he **E**xterior **N**ever **T**ells - for hidden defects!
Property Disclosures & Hazards
Material Facts & Latent Defects
California law (Civ. Code § 1102 et seq.) requires sellers of 1-4 unit residential properties to complete a Transfer Disclosure Statement (TDS) detailing known defects. Agents must also conduct a 'diligent visual inspection' and disclose what they observe or should have observed.
Property Disclosures & Hazards
Material Facts & Latent Defects
Assuming an 'as-is' clause negates the duty to disclose known latent defects.
Property Disclosures & Hazards
Material Facts & Latent Defects
Relying solely on the seller's disclosure without disclosing other known material facts.
Property Disclosures & Hazards
Material Facts & Latent Defects
Failing to investigate obvious red flags, assuming they are minor or not material.
Property Disclosures & Hazards
Lead-Based Paint (LBP)
Paint containing lead, common before 1978.
Property Disclosures & Hazards
Title X
Federal law requiring LBP disclosure for pre-1978 homes.
Property Disclosures & Hazards
Friable
Easily crumbled or reduced to powder; dangerous state of asbestos.
Property Disclosures & Hazards
Encapsulation
Sealing lead-based paint with a coating.
Property Disclosures & Hazards
Abatement
Professional removal of hazardous materials like LBP or asbestos.
Property Disclosures & Hazards
Environmental Hazards: Lead-Based Paint & Asbestos
LBP: 'Lead Before 1978' – helps you remember the key year for disclosure. Asbestos: 'A-S-BEST-OS, not the best for us!' – reminds you it's a hazard.
Property Disclosures & Hazards
Environmental Hazards: Lead-Based Paint & Asbestos
The California Lead-Based Paint Disclosure (Form FLD) is required for all pre-1978 residential properties. For asbestos, while no specific state disclosure form exists, its presence is a material fact that must be disclosed if known, and the buyer should be advised to investigate.
Property Disclosures & Hazards
Environmental Hazards: Lead-Based Paint & Asbestos
Assuming no LBP exists just because the seller doesn't know about it; the property's age is the key indicator.
Property Disclosures & Hazards
Environmental Hazards: Lead-Based Paint & Asbestos
Advising clients to remove asbestos themselves; always recommend certified professionals.
Property Disclosures & Hazards
Environmental Hazards: Lead-Based Paint & Asbestos
Failing to provide the federal LBP pamphlet or allow the 10-day inspection period.
Property Disclosures & Hazards
Mitigation
Actions taken to reduce or eliminate a hazard, like radon.
Property Disclosures & Hazards
Mold
Fungus thriving in damp conditions, causing health issues.
Property Disclosures & Hazards
Remediation
Process of cleaning up and removing mold or other contaminants.
Property Disclosures & Hazards
Carbon Monoxide
Odorless, colorless gas from incomplete combustion, toxic.
Property Disclosures & Hazards
Radon, Mold, and Other Common Issues
Remember 'R-M-C' for Radon, Mold, Carbon Monoxide – the three invisible dangers!
Property Disclosures & Hazards
Radon, Mold, and Other Common Issues
California requires sellers to disclose if the property is located in a radon zone as identified by the California Department of Conservation, and to provide a 'Residential Environmental Hazards Guide' which includes information on radon, mold, and CO.
Property Disclosures & Hazards
Radon, Mold, and Other Common Issues
Assuming 'no knowledge' on a disclosure means no hazard exists.
Property Disclosures & Hazards
Radon, Mold, and Other Common Issues
Downplaying potential health risks to avoid scaring a buyer.
Property Disclosures & Hazards
Radon, Mold, and Other Common Issues
Advising clients on how to 'fix' a hazard instead of recommending professionals.
Property Disclosures & Hazards
Disclosure Form
Standardized document for sellers to reveal property defects.
Property Disclosures & Hazards
Non-Disclosure
Failure to reveal known material facts, leading to legal issues.
Property Disclosures & Hazards
Misrepresentation
False statement of fact, intentional or unintentional.
Property Disclosures & Hazards
Fraud
Intentional misrepresentation or concealment to deceive.
Property Disclosures & Hazards
Seller Disclosure Obligations
To remember 'Material Fact,' think: 'M' for 'Makes a difference' to the buyer's decision. If it makes a difference, it's Material!
Property Disclosures & Hazards
Seller Disclosure Obligations
California is a 'full disclosure' state. Sellers must complete a Transfer Disclosure Statement (TDS) for 1-4 unit residential properties, disclosing all known material facts and defects, even if 'as-is' sale.
Property Disclosures & Hazards
Seller Disclosure Obligations
Assuming 'as-is' sales relieve sellers of disclosure obligations.
Property Disclosures & Hazards
Seller Disclosure Obligations
Believing that an agent's knowledge of a defect doesn't need to be disclosed if the seller doesn't disclose it.
Property Disclosures & Hazards
Seller Disclosure Obligations
Failing to advise buyers to get independent inspections, even with a detailed disclosure form.
Property Disclosures & Hazards
Contract
Legally enforceable agreement between parties.
Real Estate Contracts
Offer and Acceptance
Mutual agreement on contract terms.
Real Estate Contracts
Consideration
Something of value exchanged by parties.
Real Estate Contracts
Legal Capacity
Parties are competent (age, sound mind).
Real Estate Contracts