Real Estate License Exams For Dummies
Taking a real estate license exam can help launch you into a whole new career. A career in real estate puts you in a land of strange terms, odd ownership arrangements, and potentially quirky clients. You need to know how to interpret the language of real estate, what kind of listing agreement to aim for, and what responsibilities you have to your clients.
Real Estate Listing Agreements
To pass a real estate license exam, you need to know the types of listing agreements. Listing agreements establish the relationship between the real estate agent and the property seller. Similar agreements are used in localities that include buyer agents as well as real estate agents.
The types of listing agreements are as follows:
Exclusive right to sell listing: In this agreement, the agent gets paid no matter who sells the property, regardless of whether it’s the agent or the seller.
Exclusive agency listing: Agents get paid in this type of agreement only if they sell the property. No fee is earned if the owner sells the property on his own.
Open listing: In this type of agreement, sellers have the right to use as many brokers as they want. The seller is not, however, obligated to pay any of them if he sells the property.
Net listing: This type of agreement is illegal in some states. The agent gets to keep everything he can get that’s more than the sale price the owner wants.
Fiduciary Duties of a Real Estate Agent
If you’re planning to take a real estate license exam, you need to be familiar with the financial obligations a real estate agent agrees to. The relationship between an agent and a client is called a fiduciary relationship. Fiduciary means faithful servant, and an agent is a fiduciary of the client. In real estate, a broker or a salesperson can be the agent of a seller or a buyer.
A real estate agent owes clients certain fiduciary duties:
Accounting: The agent must account for all funds entrusted to her and not commingle (combine) client/customer funds with her personal and /or business funds.
Care: The agent must use all of her skills to the best of her ability on behalf of the client.
Confidentiality: The agent must keep confidential any information given to her by her client, especially information that may be damaging to the client in a negotiation.
Disclosure: The agent must disclose to the client any information she receives that may benefit the client’s position in a negotiation.
Loyalty: The agent owes undivided loyalty to the client and put the client’s interests above her own.
Obedience: The agent must obey all lawful orders that the client gives her.
Types of Real Estate Ownership
If you’re studying to take a real estate license exam, brushing up on the ways people can own real estate, individually and together, is a given. The following list goes through some of the most common types of ownership:
Tenancy in severalty: Although it may sound like more, this type of ownership is by a single person or a corporation, and not being married doesn’t have anything to do with it.
Tenancy in common: Equal or unequal undivided ownership between two or more people is what characterizes this type of ownership. If an owner dies, the deceased person’s share is conveyed to his or her heirs, not the other owners.
Joint tenancy: The four unities that must exist for this type of ownership to exist are
Interest: Each owner has the same interest.
Possession: All owners hold an undivided interest.
Time: All owners receive their interest at the same time.
Title: All owners acquire their interest with the same deed.
If one owner of a joint tenancy dies, that owner’s interest reverts to the other owners. This right of survivorship may vary by state.
Tenancy by the entirety: Available only to married couples, tenancy by the entirety means that property may not be sold without the agreement of both parties. The right of survivorship exists to the extent that if one spouse dies, his/her interest reverts to the other spouse.
Real Estate Terms and Definitions
As you prepare to take a real estate license exam, real estate terms and definitions are probably foremost in your mind. Terms that mean one thing in the real world take on a whole new meaning in the real estate world. For example, dedicating a song to your sweetie is nothing like dedicating property to the government. The following lists contain terms and their context.
Terms for giving up and losing property:
Adverse possession: When someone uses your property, you may end up losing the property or having your rights to the property restricted.
Avulsion: Avulsion is the sudden loss of land by an act of nature like a landslide.
Dedication: When you dedicate property, you essentially give it up voluntarily to the government. An example is a developer giving up streets in a subdivision.
Erosion: A little like avulsion, erosion is the gradual loss of land by an act of nature, like property lost along the bank of a river.
Partition: A partition is a legal proceeding to divide property owned by two or more people.
Public grant: A public grant of land is just the opposite of dedication; the government actually is giving property to private individuals.
Potentially confusing pairs of real estate terms:
Condominium/cooperative: A condominium owner actually owns real estate. This ownership is usually the air space and an interest as a tenant in common of the land. A cooperative owner owns shares in a corporation that owns a building. The shareholder also gets a proprietary lease, which enables the shareholder to occupy a unit.
Foreclosure/forfeiture: Foreclosure is the loss of property to pay off a debt. Forfeiture is losing the property because of disobeying a condition in the deed.
Grantor/grantee: The grantor gives, sells, or transfers the property to the grantee. The grantee receives the property.
Leasehold/leased fee: The leasehold interest is the tenant’s interest in the property. The tenant holds the lease. The leased fee interest is the owner or landlord’s interest.
Mortgagor/mortgagee: The mortgagor is the borrower. The mortgagee is the lender. The borrower gives a mortgage to the lender.
Replacement cost/reproduction cost: These terms are associated with the cost approach to valuing a property. Replacement cost is the cost to produce a structure that is essentially the same as the existing structure but using modern materials and standards. Reproduction cost is an estimate of the cost to produce exactly the same structure with the same materials.
Tax credit/tax deduction: A tax credit is subtracted from taxes due. A tax deduction is subtracted from income. If all things are equal, a tax credit generally is more valuable than a tax deduction of the same amount.