Real Estate Exam Study Guide: Key Terms and Definitions, Exams of Advanced Education

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MA Real Estate Exam Study Guide Exam

And Actual Answers.

Appraisal - Answer An estimation of a property's value, usually prepared by a professional who is licensed in this field. Brokerage - Answer The business of bringing people together in a real estate transaction. Commerical - Answer The types of properties that include office spaces, shopping centers, stores, theaters, hotels, parking facilities, etc. Development - Answer The term for the construction of improvements upon the land. Elevation Certificate - Answer Insurance agents are required to obtain one of these on any property before issuing quotes for flood insurance. Financing - Answer The pledging of real property and collateral for the repayment of a loan through a mortgage or deed of trust. Federal Deposit Insurance Corporation - Answer This agency can fine and withdraw its insurance from lenders that do not carry flood insurance on required mortgages. Flood Insurance - Answer This type of homeowner's insurance policy covers "rising water" problems such as a burst water main, overloaded drains, and melting snow. It is usually an optional add-on policy that becomes effective 30 days after purchase, unless the property is in a specific area and is collateral for a federal loan, in which case it is a mandatory policy and effective immediately. HO1 - Answer This is the basic form of a homeowner's hazard insurance policy, and the default policy when a property has been empty for any length of time. It covers fire, lightning, hail, and other perils. HO2 - Answer This form of a homeowner's hazard insurance policy covers more than the basic form, but not as much as the special form. It is often available for second homes.

HO3 - Answer This special form homeowner's hazard insurance policy offers the most coverage for the most reasonable price, and is the preferred policy on primary residences. It covers both real and personal property. HO6 - Answer This form of a hazard insurance policy is designed for condominiums and can be customized to comply with the condo association's bylaws. HO4 - Answer This renter's insurance policy is similar to the homeowner's insurance policy carried on primary residences, but doesn't include coverage on real property owned by someone else. Improvements - Answer Additions to property that increase its value or enhance its appearance. It can include buildings, fixtures, and landscaping. Landlord's policy - Answer This insurance policy is the reverse of a renter's policy and covers only the real property. Property Management - Answer A broad term for a person or company hired to maintain and manage a property on behalf of its owners, and who are to maximize the owner's returns. Real Estate Counsellors - Answer These people provide clients with competent, independent real estate advice without representing them as an agent. Special Flood Hazard Area - Answer Properties in this area are required by federal law to have special insurance as part of any federally-backed mortgages. Subdivision - Answer The process of splitting a single property into smaller parcels. Residential - Answer The type of properties that include single and multi-family homes. Industrial - Answer The types of properties that include warehouses, factories, power plants, and other manufacturing areas, even if the property has a storefront attached.

Appurtenance - Answer Anything that is used with land for its benefits. Examples include subsurface, air, and water rights, as well as gardens and certain easements. Exclusion - Answer The right to legally ban other people from entering your property without your consent. Air Rights - Answer These rights are for the use of space above a piece of real property. They can be transferred and subdivided. Subsurface Rights - Answer These rights are for the use of anything found beneath a piece of real property, such as oil, coal, or gas. These rights can be transferred separately from the property itself, and include an implied easement that allows the owner access to the property so that they can exercise their rights. Land - Answer The earth's surface down to the center of the earth and upwards to infinity ("heaven to hell"), including all things attached by nature. Also known by the term real estate. Littoral Rights - Answer The rights granted to owners of land that are adjacent to large, navigable, non- flowing lakes and oceans. These rights state the owner may make use of the water for legal purposes, but they only own the land down to the average high water mark. Percolating Water - Answer Another name for subsurface water. Prior Appropriation - Answer A law used in states where water is scarce. This law limits homeowners' use of any domestic water found on or abutting their property. Riparian Rights - Answer The rights granted to owners of land that are adjacent to flowing waters and/or land that has subsurface water. These rights state the owner can use the water in any legal way as long as it doesn't interfere with the same rights of owners downstream. Water Table - Answer The name for the level at which subsurface water is located below ground.

Real Property - Answer A term that encompasses the earth's surface, all things attached to that property by nature, all permanently attached improvements made by man, and the interests, rights, and benefits inherit in the ownership of the above named items. Nonhomogeneity - Answer A characteristic that states no two parcels of real property are exactly alike, and therefore, one cannot be legally swapped for another. Township - Answer A 36 square mile area of a rectangular survey that is bounded by base and range lines. Each is 6 miles wide by 6 miles long. Each one contains 36 1-acre sections. Legal Description - Answer A formal or informal definition of a specific property that unquestionably describes one property and cannot be applied to any other property. Formal Legal Description - Answer A description of any property in one of the following three methods: metes & bounds, rectangular survey, or plat plan. Metes - Answer A measure of distance and direction used in some formal legal descriptions. Bounds - Answer A name for the landmarks and monuments used in some formal legal descriptions. Metes and Bounds - Answer The oldest and most difficult method of formal legal descriptions. This system is used in Massachusetts. Benchmark - Answer A permanent reference point, such as a street intersection, used in a metes and bounds legal description. Rectangular Survey - Answer A method of formal legal descriptions that involves the use of principal meridians and base lines that can all be located by a specific longitude or latitude. It was established by Congress in 1785. Point of Beginning - Answer The physical location at which a metes and bounds legal description starts. To obtain closure, the description must also end at this location.

Eminent Domain - Answer The right of the government to acquire private land for public use through a process called condemnation. To occur, a court must declare the proposed land use to be beneficial to the public, and fair compensation must be paid to the owner. Emblements - Answer Growing crops or flowers that are produced annually on a property and are referred to as fructus industriales, meaning "fruits of industry." Homestead - Answer A tract of land that is owned and occupied as the family home. Fee Simple Absolute - Answer A type of freehold estate in which the holder of the property is entitled to all rights of property ownership, and which passes to the holder's heirs upon their death. There are no restrictions on its use or its transfer. General Liens - Answer Encumbrances that usually affect all of a debtor's non-exempt property, both real and personal. Examples include judgement liens, debts, federal taxes, etc. Nonmoney Encumbrances - Answer Encroachments, licenses, restrictions, and easements that affect only the physical condition and use of a property. Encroachment - Answer Term that describes when a portion of a building, fence, driveway, or other item extends past its owner's property and onto the land of a neighbor or into an alley or street. Consideration - Answer Something given by a grantee in exchange for property. It can be a specific dollar amount, personal property, or even "love and affection". Bargain and Sale Deeds - Answer These deeds contain no real warranty against unnamed encumbrances, and only imply that the grantor has the right to convey the property. This type of deed is not used in Massachusetts. Alluvion - Answer The accumulation of soil, rock, and other materials on the edge of a property that are deposited by the movement of water.

Reliction - Answer The gradual, permanent withdrawal of water from the shore line, which uncovers more land and therefore increases the size of a specific property. Intestate - Answer A term used to describe one that has died without a will. Erosion - Answer The gradual wearing away of land through natural forces. Involuntary Alienation - Answer Occurs when a transfer of title is done without an owner's consent by operations of law (i.e. escheat, eminent domain, or adverse possession), court order, or natural forces. Partition Suit - Answer This process divides co-tenets interests in real property when the parties cannot all agree to voluntarily terminate the co-ownership. Severalty - Answer Type of ownership where property is owned by a single person or company. Testator - Answer Person who makes a will. Devise - Answer A gift of real property delivered through a will. Bequest - Answer A gift of personal property delivered through a will. Legatee - Answer The recipient of personal property delivered through a will. Holographic Will - Answer A will that is handwritten. Board of Directors - Answer A group of people responsible for the management of a corporation. National Do Not Call Registry - Answer A federal index of consumers that have requested telemarketers not be allowed to call them by telephone.

Americans with Disabilities Act - Answer A law that states any buildings that provide public goods or services must be free of architectural barriers that would impede access to disabled persons. Externalities - Answer Forces outside of a property that affect its value. These forces can be physical, political, economic, or social in nature. Salvage Value - Answer The worth of an asset after it has been depreciated. Assemblage - Answer The process of merging adjacent parcels into a single, larger parcel. Functional Obsolescence - Answer This results when depreciation of property is the result of outdated function or poor design. If easily remedied, then it is considered curable. If design constraints prevent remedy, then it is incurable. Ex: not enough bathrooms, lack of a laundry area, inadequate electrical system, etc. Depreciation - Answer Any condition that negatively affects the value of an improvement or personal property. There are three classes: physical deterioration, functional obsolescence, and external (economic) obsolescence. Index - Answer A financial indicator upon which the interest rate of a mortgage loan or note is based. Monuments - Answer Fixed objects that are used to establish real estate boundaries, typically in a metes and bounds formal legal description. They may be natural (trees, lakes, etc.) or artificial (fences, posts, etc.). Ad Valorem Taxes - Answer Taxes that are based upon the value of the specific property being taxed. Equitable Right of Redemption - Answer A property owner's right to prevent a foreclosure or tax sale on their property by bringing the delinquent balances current, including any interest and fees. Statutory Right of Redemption - Answer A period of time after a tax sale in which the defaulted owner may reclaim the property by paying the purchaser of the property the full amount paid, along with any interest and fees. In Massachusetts, this time period is six months from the date of sale.

Special Assessments - Answer A type of property tax applied to properties within a limited and determinable area, to offset the cost of providing those same properties with an advantage or betterment. Ex: taxing a neighborhood for sidewalk improvements done in their area. Also known as an improvement tax. 6D Certificate - Answer If the sale property is a condominium, this document states the amount the seller owes in condominium fees and is used to establish if the unit is free of association fee liens. In Massachusetts, this document is required at the time of closing. Title 5 - Answer An inspection of private, on-site sewage disposal systems, often required in title transfers. Correction of a defective septic system may be required prior to a property being eligible for some mortgages. Abandonment - Answer A listing agent is considered to have performed this act if they have invested neither time nor money to market a property. Acceptance - Answer Before a title transfer can become effective, the deed must be delivered by the grantor, and the grantee must perform this act either actually or by implication. Abstract of Title - Answer A condensed history of a property's title, including the original grant and any subsequent conveyances and encumbrances affecting the property and certification by the preparer that the history is complete and accurate. Adverse Possession - Answer The loss of land to another person that has taken possession and used it without the owner's permission for an extended period of time as defined by state law (20 years in MA). This is a form of involuntary alienation. Special Performance Suit - Answer A transfer of title ordered by a court to transfer property to a buyer as promised in a previous contract. It may be done to satisfy a debt. Probate - Answer A legal process in which a court determines who will inherit a decedent's property and what the estate's assets are.

Covenant of Further Assurance - Answer A grantor's promise to obtain and deliver any instrument necessary to make a title good. This warranty is included in a general warranty deed. Covenant of Quiet Enjoyment - Answer A grantor's guarantee that there are no 3rd parties that have a superior right to the title of the property being conveyed. It is included in a general warranty deed. Comingling - Answer The mixing of a clients' funds with business operating funds. This is an illegal practice in Massachusetts that can result in revocation of an agent's license. Blockbusting - Answer An illegal act of frightening homeowners in an area to sell their homes by stating that members of another race or class are going to be moving into the area. Homeowners are induced to sell cheaply, and the homes are then resold for a profit. This practice is also called panic selling. Steering - Answer An illegal act of channeling homebuyers to a particular area on the basis of race, religion, country of origin, or any other protected class, and limiting their access to other areas. It can be done by an agent unintentionally due to their own biases. Redlining - Answer An illegal act of refusing to make mortgage loans or issue insurance policies in specific geographic areas or to a specific class of people without any regard for the applicant's financial qualifications. Situs - Answer Peoples' personal preferences for one area over another, which is not necessarily based upon objective facts or knowledge. Subrogation - Answer The substitution of one creditor for another, in which the new party receives the legal claims and rights of the original party. This is usually done so a title company can acquire the rights of an injured party to sue and recover any claims the insurers may have paid. Subprime Loan - Answer A note given to a borrower with less than perfect credit. It usually has a higher interest rate and may require a larger down payment or shorter term.

Cloud on the Title - Answer Any encumbrance that may impair the title to real property or that makes the title doubtful. It is usually discovered by a title search and is cleared with either a quitclaim deed or suit to quiet the title. Abstract of Judgement - Answer The written determination of a judge or jury as a result of a judgement lien. It has no effect on the owner's property until it is recorded, but still creates a cloud on the title. Writ of Execution - Answer A court order that authorizes an officer of the court to seize and sell the debtor's property in order to satisfy a judgement. Execution Lien - Answer An involuntary lien that is issued by court order at the same time as a writ of execution, and ends when the property is sold. It is issued to satisfy a money judgement. Lis Pendens - Answer A notice filed in public records that gives constructive notice to all interested parties of a creditor's possible claim that will affect the title to a specific parcel of property. Often listed in local newspapers, it creates a cloud on the title. Writ of Attachment - Answer The process by which a court takes custody of a piece of land until the outcome of a court suit is determined. It is usually placed on an unencumbered property to prevent a quick sale by the owner, but does not affect homestead exemptions or joint tenets' interests. Surety Bond - Answer Insurance purchased to cover the loss of monies placed in trusts or escrow accounts. Used by property managers and escrow agents. Can be used to cover a deposit made by a creditor to cover any losses to the debtor that result if a creditor's writ of attachment is found to be invalid. Mechanic's Lien - Answer A right given by statute to give security to those that perform labor or furnish materials for the improvements of a property. It is a specific, involuntary claim that can only be placed on a property if there was a contract with the property owner (or their representatives) that was breached. Leasehold Estates - Answer An estate of a predetermined length of time. Ownership remains with the landlord, but the tenet has rights of exclusive possession and use during the period of contract. There are four main types: estate for years, estate for period to period, an estate at will, and an estate at sufferance. Also known as nonfreehold estates.

Competition - Answer The value principal that states excess profits will attract rivals that can, in some instances, destroy profits. Change - Answer The value principal that states no physical or economic condition will remain constant. Adjustments can be the result of natural phenomena (tornadoes, fires, erosion, wear and tear, etc.) or a shift in the demands of the local market. Anticipation - Answer Values in an area can increase or decrease with the expectation of future events. This is one of the principals of value. Ex: a rumor regarding the rezoning of adjacent properties may make a property currently for sale more desirable (and therefore more expensive). Regression - Answer Occurs when the value a higher-quality property is limited or decreased because of the presence of lower-valued properties in the area. This is one of the principals of value. Progression - Answer Occurs when the value of a lower-quality property is increased due to the presence of higher-quality properties in the area. This is one of the principals of value. Increasing Returns - Answer The principal of value that occurs if money spent on an improvement produces an increase in the property's income or value. Decreasing Returns - Answer The principal of value that occurs if money spent on an improvement does not produce a proportionate increase in the property's income or value. Remodeling a home to standards much higher than neighboring properties will result in this happening. Supply and Demand - Answer The principal of value that states the value of a property will increase if the number of available properties decreases (as in a seller's market), and the value will decrease if the number of available properties increases (as in a buyer's market). Sales Comparison Approach - Answer A valuation method in which an estimate of a property's value is obtained by comparing the subject property with the recent sales of similar properties in the area, and adjusting for any dissimilar features. This is also called a market data approach.

Valuation Methods - Answer A process to estimate the value of a property in one of three basic systems: sales comparison approach, cost approach, and the income approach. External Obsolescence - Answer A form of depreciation that results from negative factors outside of the subject property that are incurable because they are beyond the property owner's control. Ex: noisy airports, nearby landfills, pollution, etc. This can also be the result of deteriorating local economics. Economic Life - Answer The length of time in which an improvement is expected to add value to the land. This time period is based upon the condition and utility of the structure, and can be less than the actual age of the improvement. Testers - Answer Undercover volunteers that visit real estate offices to see whether consumers and clients are being treated equally and being offered a free choice of properties within a given price range without regard to any of the protected classes (ie race, nationality, familial status, gender, etc.). Protected Classes - Answer Groups of people against whom discrimination is illegal if it is based upon any of the following characteristics: race, color, religion, national origin, sex, disability or handicap, or familial status (per the Federal Fair Housing Act of 1968). The Massachusetts Fair Housing Act (MGL c 151B) adds the following: number of children, age, ancestry, veterans or members of the armed forces, marital status, use of public assistance or rental assistance, genetic information, and any legal sexual orientation. Masschusetts Fair Housing Act - Answer This law adds the following protected classes to the ones already listed in the Federal Fair Housing Act of 1968: number of children, age, ancestry, veterans or members of the armed forces, marital status, use of public assistance or rental assistance, genetic information, and any legal sexual orientation. A part of the Massachusetts General Laws, Chapter 151B (MGL c 151B). Massachusetts Commission Against Discrimination - Answer This state agency investigates fair housing complaints and reports directly to the governor's office. If probable cause for the complaint is determined, the accused violator is sent a conciliation agreement ordering him or her to comply with the law, make a specific restitution (up to $2,000 in damages), or take other affirmative action. This agency has the right to suspend and revoke an agent's license. Wetlands - Answer Legally protected property consisting of waterways around which the Department of Environmental Protection may draw nonencroachment lines to prevent harmful or destructive practices such as dredging, filling, or polluting. Acts that protect these areas include the Coastal Zone

Judgement - Answer A formal court decision regarding the respective rights and claims of involved parties in an action or suit. After it has been entered and recorded with the count recorder, it usually becomes a general lien on the property of the defendant. Liquidity - Answer The ability to sell and an asset and convert it into cash, at a price close to its true value, in a short period of time. Market Rent - Answer The amount of income a leaseable property would command in a fully informed competitive marketplace, based upon the going rate for leased spaces in the area. Loan Origination Fee - Answer A fee charged by lenders to cover the expenses of generating a loan. They vary in amount but are usually figured in points, at a rate of 1 point being 1% of the loan value. It is not prepaid interest. The maximum allowed under an FHA or VA loan is 1%. Megan's Law - Answer A federal law that requires individuals convicted of certain sex offenses (especially those involving minors) to register their home addresses so that community members may protect themselves and their children from child molesters. Acceleration Clause - Answer A provision in a mortgage or deed of trust that can be enforced to make the debt immediately due in its entirety if the borrower defaults on an installment payment or other covenant. Acknowledgment - Answer A legal declaration made before a duly authorized officer (usually a notary public) by a person who has signed a document. The purpose is to guarantee the signature is not forged or made under duress. Addendum - Answer A document that was not part of the original contract. It may contain additional contract terms, and may be known as a rider. Appropriation - Answer An action taken by a taxing body that authorizes the expenditure of funds and provides for the sources of the money. It generally involves the adoption of an ordinance or the passage of a law setting forth the specifics of the proposed taxation. Caveat Emptor - Answer A Latin phrase meaning "let the buyer beware."

Building Code - Answer A set of ordinances that specifies minimum standards of construction for buildings in order to protect public health and safety. Banker's Year - Answer Statutory period that contains 12 months, with 30 days in each month, for a total of 360 days. Buffer Zone - Answer A strip of land, usually a park or some other designated space, that is used to separate land dedicated to one use from land dedicated for another. Ex: separating commercial property from residentially zoned areas with a playground. Condemnation - Answer The process of private land being taken for public use by the government under the right of eminent domain. Constructive Notice - Answer The presumption of law that makes a party responsible for inspecting a property and searching public records to learn of other partys' possible interests. Notice is given to the world by recorded documents, and all parties are responsible for knowledge of their contents, whether or not they have actually examined them. Cost Approach - Answer The process of estimating the total value of a property by estimating the value of the land alone, adding the cost of reproduction or replacement of the improvements, and subtracting depreciation. This is a valuation method. Chain of Title - Answer A record of a property's ownership over a period of time. Statute of Frauds - Answer A requirement that instruments affecting interests in real estate must be in writing, with applicable signatures, in order to be legally enforceable. It may also stipulate that they must be recorded publicly. Wraparound Loan - Answer A larger loan that includes the assumption of an existing mortgage or deed of trust, plus additional funding. These loans often have a higher interest rate. The lender assumes the original mortgage and makes the regular payments.