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Write a brief summary of the textbook Chapters 10, 11, & 12, to include the following paragraphs with headings: an overview, 3 key concepts, and a summary. Each “key concept” must include the textbook page numbers. Each paragraph needs a minimum of 3 sentences. Use the template format provided below. Refer to the model assignment (sample) following the template.

After writing your discussion, you must reply to at least 2 other student discussions with feedback of at least 50 words. This is your “peer engagement” component of your grade. NOTE: Spelling and grammar are important, so please spell-check and read your work out loud to catch and correct any errors prior to submitting.

TEMPLATE:

Overview

Key Concept from Chapter 10

Key Concept

from Chapter 11

Key Concept from Chapter 12

Summary

SAMPLE:

BELOW IS A SAMPLE REFLECTION SUMMARY. DO NOT COPY THE CONTENTS. IT IS A SAMPLE ONLY TO ILLUSTRATE THE STRUCTURE.

Course: BRE 100, Real Estate Principles

Student Name: Ima Success

Today’s Date: 02/20/2022

Textbook Author: Huber, W.

Chapters # 10 – 12

Overview

The topic of Chapter 10 is an introduction to real estate principles. This chapter covers four important concepts for the real estate student. First, the real estate licensing in California is discussed, along with the real estate market. Second, the historical influence of real property is examined. Third, the difference between real property and personal property is spelled out clearly. And last, the chapter concludes by analyzing various methods of land description. These concepts are important because they may be on the real estate exam for licensees.

Key Concept from Chapter 10

I learned that real estate can be a profitable professional (p. 4). One of the reasons it can be profitable is because the compensation to agents is based on the sales price of the house. In California, real estate values are typically high, which translates into a high commission. The commission is always paid to the broker, but the real estate salesperson receives a portion. Many real estate agents are using social media to promote their services.

Key Concept from Chapter 11

The second thing I learned is that property owners have a “bundle of rights” (p. 5). It means they have control of certain things because they own the real estate. Generally, people view it as a bundle of sticks, with each one of them being a “right” the owner has. Their types of rights vary based on their level of ownership. For example, homeowners have the right to possess (live in) their houses – unless they rent out the house to tenants. In that case, the tenant now has the right to possess the house.

Key Concept from Chapter 12

The third concept I learned is the definition of real property (p. 6). There are four things that define real property: land, affixed to the land, appurtenant to the land, or immovable. These items “tests” are what separates real property from personal property. For example, a refrigerator can be moved out of the house, so it is considered personal property. However, a fence is permanently dug into the ground so it becomes part of the real property, along with the land and the house.

Summary

This was an interesting chapter and I learned a lot about real estate. Real estate has a long and colorful history in California. There are several types of land description methods, which will probably be on the state real estate exam. I know I will have to study some of the concepts further, such as the MARIA acronym of determining personal versus real property. In addition to the knowledge of concepts, real estate involves math calculations.

Victor Valley College
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Education is not the
filling of a pail,
but the lighting of a fire.
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FINANCIAL INSTITUTIONS
“Educating Generations, Building Communities”
I.
OUR EVER CHANGING ECONOMY (ECONOMIC CYCLES)
II.
SHOPPING FOR A LOAN
III.
SOURCES OF REAL ESTATE FUNDS
IV.
INSTITUTIONAL LENDERS
V.
NONINSTITUTIONAL LENDERS
VI.
GOVERNMENT-BACKED LOANS
VII.
LENDING CORPORATIONS AND THE SECONDARY MORTGAGE MARKET
VIII.
MORTGAGE LOAN BROKERING AS A CAREER
IX.
REAL ESTATE BROKER CAN MAKE LOANS
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Part I.
OUR EVER CHANGING ECONOMY
(ECONOMIC CYCLES)
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 The economy shifts with every new
election as taxing and spending policies
change.
 INFLATION – is the result of too much
money chasing too few goods.
 The value of money decreases.
 DEFLATION – is when prices of real estate,
goods, and services go down.
 The value of money increases.
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 Our national central banking authority.
 Controls interest rates by controlling the
availability of money to banks, and indirectly
to other financial institutions.
 Governed by the Federal Reserve Board:
 Seven-member committee.
 Appointed by the President.
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 The total value of all goods and services
produced by an economy during a
specific period of time.
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 The economy goes in cycles.
 Interest rates go up and down.
 When interest rates go down, people will
buy more homes.
 REFINANCING – is the process of obtaining
a new loan to pay off the old loan.
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Part II.
SHOPPING FOR A LOAN
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 Borrowing the money to buy a home is generally
the largest financial obligation a person will
assume in his or her lifetime.
 Salespersons must advise caution and careful
consideration before a promissory note is signed
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 The percentage of sales price or appraised
value that the lender will loan the borrower
in order to purchase the property.
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“Educating Generations, Building Communities”

Before loan application is completed, lenders must provide a good faith
estimate of the actual settlement costs to the borrower.

It must include:
a. rate of interest.
b. points to be charged.
c. any additional loan fees and charges.
d. escrow, title, and other allowable costs.
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“Educating Generations, Building Communities”
 Gives lenders a fast, objective measurement of
your ability to repay a loan or make timely credit
payments.
experian.com
transunion.com
equifax.com
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
BRE – 100 Real Estate Principles
The most widely used
credit bureau scores are
developed by Fair, Isaac
and Company. These
are known as FICO
Scores.
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“Educating Generations, Building Communities”

Provides lender with:
1. Information about property being financed
2. Information about borrower (and co borrower, if any).
3. Sources of income and analysis.
4. Monthly housing expenses (present and proposed).
5. Balance sheet.
6. Other relevant information.
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 Your net worth. It is the amount left
after subtracting all that you owe from
what you own.
 Lenders want to see your equity on
paper.
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 The ability of a borrower to convert
assets into cash so that debt obligation
can be paid when due.
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 The lost profit one could have made
by the alternative investment action
not taken.
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Part III.
SOURCES OF REAL ESTATE
FUNDS
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 Construction funds to build.
 To finance a purchase.
 For refinancing.
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Part IV.
INSTITUTIONAL LENDERS
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 Very large corporations which lend their
depositors’ funds to finance real estate
transactions.
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 A government corporation that, for a fee,
insures each account of a depositor (savings
banks and banks) up to $250,000.
www.fdic.gov
Federal Deposit Insurance Corp.
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
Provide more real estate loans than any other financial institution.

Either federally or state licensed.

Can loan 80% of value of property to be purchased.

Can loan 90 or 95% if loans are protected by Private Mortgage
Insurance (PMI).
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 General purpose lenders.
 National banks must be members of the
Federal Reserve System.
 State banks may be members of “the Fed”
by choice.
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 First trust deed loans – for owners
 Construction loans (or interim loans) – for
builders
 Take-out loans (repayment of interim loan)
 Home improvement loans – for owners
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“Educating Generations, Building Communities”
 Conservative lenders specializing in
large loans to commercial projects.
 Restricted to lending 75% of property
value unless insured by the FHA or VA.
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Part V.
NONINSTITUTIONAL LENDERS
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 NONINSTITUTIONAL LENDERS – are individuals
or organizations that lend on a private or
individual basis.
 CONVENTIONAL LOANS are loans not
insured or guaranteed by the United States
government.
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 Usually second trust deeds taken back by
the seller.
 When the current money is tight, it often
means that a seller will have to take back a
second trust deed as part of the equity in
his/her home.
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
Co-operative associations organized to promote thrift
among members and provide them with a source of credit.

Playing an ever-increasing role in real estate finance.

Most are incorporated and gather funds by selling shares to
members.

Loan rates are generally equal to or below current market
rate.
www.ncua.gov
National Credit Union Administration
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 REIT – Company that sells securities
specializing in real estate ventures.
 Equity Trust – an investment in real estate
itself or in several real estate projects.
 Mortgage Trust – an investment in mortgages
and other loans or obligations.
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 Are an investment organization that
obtains funds from people before
they retire and invests this money
for their clients’ retirements.
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 Usually lend their own money or roll it over
so they can originate, finance, and close
first trust deeds or mortgages secured by
real estate.
 They then sell the loans to institutional
investors and service the loans through a
contractual relationship with the investors.
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“Educating Generations, Building Communities”
 A guarantee to lenders that the
upper portion of a conventional
loan will be repaid if a borrower
defaults and a deficiency occurs at
the foreclosure sale.
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Part VI.
GOVERNMENT-BACKED
LOANS
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1. FHA Title I: Home Improvement Loans – the FHA can
make home improvement loans to a maximum of
$25,000. The funds can be used only for home
improvement purposes.
2. FHA Title II: Home Purchase or Build Loans – Section
203b program: Insures home loans (1-to-4 units) for
anyone who is financially qualified. An FHA loan is
based on the selling price when it is lower than the
appraisal.
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 Guarantees loans from
institutional lenders.
 A VA loan is not a loan, but
rather a guarantee to an
approved institutional lender.
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“Educating Generations, Building Communities”

90 days or of active military service (181 days during certain
peacetime periods).
a. Persons still in the military.
b. Persons honorably discharged.
c. American citizens who served in the armed forces of our allies during
WWII.
d. Spouses of eligible personnel who died without using their benefits.
e. Persons receiving other than honorable discharges at the discretion of
the VA.
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“Educating Generations, Building Communities”
 CRV is an appraisal of the property to be
purchased by the veteran.
 The amount of the down payment required for
a VA loan is determined by the CRV.
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“Educating Generations, Building Communities”
a. No limit to loans (generally California lenders will only loan
up to $417,000).
b. Usually a 30-year term.
c. No down payment needed unless the purchase price
exceeds the CRV appraisal or for some reason the lender
requires one.
www.va.org
Department of Veterans Affairs
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 Makes direct loans to veterans in the form of
Conditional Sales Contracts repaid in
installments.
 Uses a land contract instead of trust deed.
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“Educating Generations, Building Communities”

No residency requirement—all veterans eligible. Honorably
discharged after at least 90 days active service in the following
military actions:
A. World War II — December 7, 1941 to December 31, 1946
B. Korean Conflict — June 27, 1950 to January 31, 1955
C. Vietnam Era — August 5, 1964 to May 7, 1975
D. Persian Gulf War — August 2, 1990 to date yet to be
determined
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“Educating Generations, Building Communities”
 Participated in a campaign or expedition for which a
medal was awarded by the government of the United
States.
 Was discharged with less than 90 days’ active duty
because of service connected disability incurred
during his or her qualifying service period.
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 State agency that sells bonds so
that it can provide funds for lowincome family housing on project
or individual home basis.
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Part VII.
LENDING CORPORATIONS AND THE
SECONDARY MORTGAGE MARKET
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“Educating Generations, Building Communities”
 At one time, there were 3 federal corporations
that used cash to buy and sell trust deeds
between financial institutions.
 These corporations are now either private or
quasi-governmental.
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“Educating Generations, Building Communities”
 Provides an opportunity for financial
institutions to buy from, and sell first
mortgages (trust deeds) to, other financial
institutions.
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a. Private corporation
b. Sells securities to raise funds (Secondary
Mortgage Market)
c. Buys and sells Conventional, FHA, and VA loans
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a. Government corporation.
b. Sells secondary mortgages to the public.
c. Provides the federal government with cash.
d. Sells federally insured shares on the stock
exchange.
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a. Government corporation.
b. Supervised by the Federal Home Loan Bank Board.
c. Buys home loan mortgages from savings banks to
maintain their supply of money for loans to the public.
d. Financed by the sale of stock.
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Part VIII.
MORTGAGE LOAN BROKERING AS
A CAREER
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“Educating Generations, Building Communities”

This act is designed to enhance consumer protection and
reduce fraud in the real estate finance industry.

The SAFE Act applies to all persons in all states and U.S.
Territories, who for compensation or gain, take a residential
application or offer or negotiate terms for residential mortgage
loan applications, to be licensed or registered as a Mortgage
Loan Originator (MLO).

All MLOs are issued a unique identifier number by the NMLS,
Nationwide Mortgage Licensing System and Registry.
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“Educating Generations, Building Communities”
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“Educating Generations, Building Communities”
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Part IX.
REAL ESTATE BROKERS CAN
MAKE LOANS
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“Educating Generations, Building Communities”
 Brokers and salespeople who arrange financing
for buyers or invest in loans for their own profit.
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 A form which clearly states all the details and
commission charges of a particular loan.
 Keep on file for 3 years.
 Mortgage loan brokers must provide this to the
borrower before the note and instrument are signed.
 Mortgage Loan Brokers need no special license other
than their real estate license.
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 Article 7 – Loan Broker Laws – On loans of $30,000 and
less, for first trust deeds, and $20,000 and less, for junior
deeds of trust, the broker may charge as much as the
borrower will agree to pay.
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 The requirement of reporting annual and quarterly loan
activity (review of trust fund) to the Bureau of Real
Estate if, within the past 12 months, the broker has
negotiated any combination of 20 or more loans to a
subdivision or a total of more than $2,000,000 in loans.
In addition, advertising must be submitted to the BRE
for review.
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
The licensee is prohibited from pooling funds.

A broker may not accept funds except for a specifically identified loan
transaction.

Before accepting a lender’s money, the broker must:
a. Own the loan or have an unconditional written contract to purchase a
specific note.
b. Have the authorization from a prospective borrower to negotiate a
secured loan.
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
A BRE broker’s license and endorsement are required: A $100 fee plus a
$10,000 surety bond. BRE permit is required to sell specific security.
A. Commissioner’s Permit – the approval of the proposed real property
security and plan of distribution. A commissioner’s permit requires a
$10,000 surety bond.
B. Real Property Securities Dealer (RPSD) – any person acting as principal or
agent who engages in the business of selling real property securities
(such as promissory notes or sales contracts).
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“Educating Generations, Building Communities”
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
OUR EVER CHANGING ECONOMY (ECONOMIC CYCLES)
SHOPPING FOR A LOAN
SOURCES OF REAL ESTATE FUNDS
INSTITUTIONAL LENDERS
NONINSTITUTIONAL LENDERS
GOVERNMENT-BACKED LOANS
LENDING CORPORATIONS AND THE SECONDARY MORTGAGE
MARKET
MORTGAGE LOAN BROKERING AS A CAREER
REAL ESTATE BROKER CAN MAKE LOANS
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“Educating Generations, Building Communities”
 Read Next Chapter
 Write Reflection Assignment
 Study for Quiz
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 Schedule 1 hour of study every day
 Plan to be early!
 Always be ready
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Only what you put into it!
 Take Notes
 Stay Engaged
 Think of How to Apply
 Ask Questions
 Participate / Share
 Do Activities
 Be Grateful
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 Educate yourself by attending class
 Assignments & Activities
 Read every day
 Never stop learning!
“The more you LEARN the more you EARN.”
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Student Learning Objectives met
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Victor Valley College
Victor Valley College
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The more that you read, the
more things you will know,
the more that you learn,
the more places you’ll go.
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APPRAISAL BASICS
“Educating Generations, Building Communities”
I.
II.
WHAT IS AN APPRAISAL?
THE APPRAISAL PROCESS
(7 LOGICAL STEPS PLUS DELIVERY)
III. GENERAL DATA AND SPECIFIC DATA
IV. AREA MEASUREMENT
V. IMPROVEMENTS
VI. BASIC APPRAISAL PRINCIPLES
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Part I.
WHAT IS AN APPRAISAL?
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 An APPRAISAL is an opinion as to the
monetary value of a particular
property at a given date.
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 The total price, including down
payment and financing, that a
property actually brought when
sold.
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 The price that a willing buyer will pay and
a willing seller accept, both being fully
informed and with the sale property
exposed for a reasonable period.
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1.
Demand — the desire, need, and ability
to purchase
2.
Utility — usefulness; ability to instill a
desire for possession
3.
Scarcity — in short supply, usually more
expensive
4.
Transferability — can change
ownership, as with a deed.
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THINK
D.U.S.T
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Part II.
THE APPRAISAL PROCESS
(7 LOGICAL STEPS PLUS DELIVERY)
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 The first step in the appraisal process
must include a definition of what
questions are to be answered during
the appraisal.
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 That use for the
property which will
produce the
maximum amount of
profit or net return.
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 Determining the “highest and best use”
of a property, take into consideration:
A. Is the use physically possible?
B. Is the use legally permissible?
C. Is the use financially feasible?
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1.
COST APPROACH — the cost to
construct new, minus accrued
depreciation, plus the value of
the site
2.
MARKET APPROACH — utilizes
recent confirmed sales of similar
properties
3.
INCOME APPROACH — is based
on the return of income to an
investor
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Part III.
GENERAL DATA AND
SPECIFIC DATA
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1. General Data – Collecting all the background information
which would help determine if one property is worth more
than another.
a. Region (State is Divided into Regions)
b. City (or County)
c. Neighborhood – A limited area where the homes are
physically similar and where the occupants have a certain
degree of social and economic background in common.
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 Location
 SITE – a particular parcel
 Lot
 Improvements
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A. Cul-De-Sac Lot
B. Corner Lot
C. Key Lot
D. T-Intersection Lot
E. Interior Lot
F. Flag Lot
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
The major physical aspects of the actual site are:
1.
Size and Shape of Lot
a. Depth Table
b. Front Footage
c. Plottage (Assemblage)
Plottage – Purchasing an adjacent lot and combining both lots.
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Front Footage – Property line facing the street.
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
There are several ways to
lay out lots in a parcel of
land being subdivided.
Zoning regulations usually
state the minimum
amount of square feet a
lot can have, but a
developer can get better
prices if he or she divides
the land wisely.
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
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 The slope of a lot will lower its value if it will be costly
to improve.
 A lot that is higher or lower in relation to the street
level may be costly to improve because of possible
slope and drainage problems.
 Erosion may also be a part of slope or drainage
problems.
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 The south and west sides of streets are preferred by
merchants.
 The northeast corner is the least desirable.
 Most people appreciate a good view from their homes.
 The house should block yard from winds.
 The backyard should receive the best exposure from
the sun throughout the day.
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 Those improvements or views that
increase the desirability or enjoyment
rather than the necessities of the
residents.
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Part IV.
AREA MEASUREMENT
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 A four-sided parcel whose opposite sides are equal in
length and right angles are formed by the intersection
of the sides
 The most common type of lot
1. Area of a rectangular lot is determined by
multiplying the length by the width
A=LxW
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AREA = LENGTH X WIDTH
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“Educating Generations, Building Communities”
1. Base of a Triangular Lot – The side that is represented as
being horizontal
2. Height of a Triangular Lot – is the perpendicular
distance from the base to the highest point
3. The area of a triangular parcel is determined by
multiplying the base by the height then dividing by two
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“Educating Generations, Building Communities”
A=BxH
2
AREA = BASE X HEIGHT
2
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“Educating Generations, Building Communities”
 Irregular Lot – a parcel that does not consist
of a single known shape
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“Educating Generations, Building Communities”
 Is determined by breaking the lot up into the
various rectangles and triangles which comprise
it and totaling their areas
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Answer : The irregular lot is broken up into a square, a rectangle, and a
triangle. The area of the parcel is the total of the areas of each of these.
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Answer :
Area (S) = 1,600 sq ft
Area (R) =
750 sq ft
Area (T) =
450 sq ft
Total Area = S + R + T
Total Area = 2,800 sq ft.
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Part V.
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IMPROVEMENTS
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 This section
identifies different
roof types on a
house.
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 Footings = the expanded portion of the
concrete foundation.
 Rafters = sloping members of a roof used to
support the roof boards and shingles.
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“Educating Generations, Building Communities”
 An insurance plan that provides financial
protection against defects in any major
home construction.
 New homes automatically carry a 1-year
contractor warranty against labor or
material defects.
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Part VI.
BRE – 100 Real Estate Principles
BASIC APPRAISAL
PRINCIPLES
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1. Change
2. Conformity
3. Contribution
4. Substitution
5. Progression
6. Regression
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“Educating Generations, Building Communities”
 As the supply of land decreases, the
value of land increases, because more
people are competing for the desirable
land.
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
Real property is constantly changing in the three stages of the real
property life cycle:
1. Development (Integration)
2. Maturity (Equilibrium)
3. Decline (Disintegration)
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“Educating Generations, Building Communities”
 Maximum value is obtained when a
reasonable degree of building similarity is
maintained in a neighborhood.
 Similar homes keep a neighborhood viable.
 Identical homes (“cookie cutters”), however,
are less desirable.
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“Educating Generations, Building Communities”
 The value of a particular component is
measured in terms of its contribution to the
value of the whole property.
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“Educating Generations, Building Communities”
 A buyer will not pay more for a particular
property if it costs less to buy a similar
property of equal utility and desirability.
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“Educating Generations, Building Communities”
 The value of the best property in a
neighborhood will be adversely affected
by the value of other properties.
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“Educating Generations, Building Communities”
 The value of a lesser residence is
increased by its location in a
neighborhood of better homes.
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“Educating Generations, Building Communities”
I.
WHAT IS AN APPRAISAL?
II.
THE APPRAISAL PROCESS
(7 LOGICAL STEPS PLUS DELIVERY)
III. GENERAL DATA AND SPECIFIC DATA
IV. AREA MEASUREMENT
V.
IMPROVEMENTS
VI. BASIC APPRAISAL PRINCIPLES
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“Educating Generations, Building Communities”
 Read Next Chapter
 Write Reflection Assignment
 Study for Quiz
BRE – 100 Real Estate Principles
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“Educating Generations, Building Communities”
 Schedule 1 hour of study every day
 Plan to be early!
 Always be ready
BRE – 100 Real Estate Principles
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Only what you put into it!
 Take Notes
 Stay Engaged
 Think of How to Apply
 Ask Questions
 Participate / Share
 Do Activities
 Be Grateful
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“Educating Generations, Building Communities”
 Educate yourself by attending class
 Assignments & Activities
 Read every day
 Never stop learning!
“The more you LEARN the more you EARN.”
BRE – 100 Real Estate Principles
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Student Learning Objectives met
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BRE – 100 Real Estate Principles
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57
Victor Valley College
Victor Valley College
BRE – 100 Real Estate Principles
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2
Life is a succession of
lessons which must be
lived to be understood.
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APPRAISAL METHODS
“Educating Generations, Building Communities”
I.
II.
III.
IV.
V.
VI.
COMPARISON APPROACH (MARKET DATA METHOD)
COST APPROACH (REPLACEMENT COST METHOD)
CAPITALIZATION APPROACH (INCOME APPROACH)
RECONCILIATION OF VALUE
FINAL ESTIMATE OF VALUE (APPRAISAL REPORT)
LICENSING, FEE APPRAISERS, AND APPRAISAL
ORGANIZATIONS
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 The appraiser uses 3
appraisal methods
and then reconciles
(correlates) this data
to arrive at a final
valuation for a
property
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Part I.
COMPARISON APPROACH
(MARKET DATA METHOD)
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 Takes current selling
prices of properties
similar to the
appraised property
and adjusts those
prices for any
differences.
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“Educating Generations, Building Communities”
 Subtract the value of any improvements found in the
comparable houses but not in the house to be appraised.
 Add the value of any improvements found in the appraisal
house but not found in the comparable houses.
 Adjust also for differences in location, lot size, building size,
condition of the property, time differences between the sales.
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“Educating Generations, Building Communities”
 Compare with cost of similar unsold properties which
have been on the market for a long time they are
probably overpriced.
 Compare with comparable properties from many
different sources
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“Educating Generations, Building Communities”
 It is easy to learn and, with a little experience, easy to apply.
 Required information is usually readily available since there
are generally many recent comparable sales.
 This is the most effective appraisal approach for home and
condominium sales.
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“Educating Generations, Building Communities”
 This method requires many recent comparable sales of similar
properties.
 This method is least reliable when there are rapid economic
changes.
 The market data method is less valid with certain income
properties because a separate analysis of the income is
required.
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Part II.
COST APPROACH
(REPLACEMENT COST METHOD)
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“Educating Generations, Building Communities”

THE COST APPROACH is the process of appraising a property by
calculating the cost of the land and buildings as if they were new
today, and then subtracting the accrued depreciation in order to
arrive at the current value.
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“Educating Generations, Building Communities”

Direct Costs – expenditures for labor and materials used in the
construction of the improvement(s). A contractor’s overhead and
profit are generally treated as direct costs.

Indirect Costs – expenditures other than material and labor costs.
Examples are administrative costs, professional fees, financing
costs, insurance, and taxes.
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“Educating Generations, Building Communities”
 Estimate the value of the vacant land
using the market comparison
approach.
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“Educating Generations, Building Communities”

Replacement Cost – the cost of building a similar new structure today using
modern construction methods. The most current information is available from
construction cost engineers.

Three Replacement Methods


Comparative-Unit Method

Unit-In-Place Method

Quantity Survey Method
The simplest way to determine replacement cost is to determine the Square
Footage, which is obtained by measuring the outside of the structure.
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“Educating Generations, Building Communities”
 Depreciation – reduction in the value of property due to
any cause.
 Three types:

Physical Deterioration (Curable or Incurable)

Functional Obsolescence (Curable or Incurable)

Economic Obsolescence (Incurable)
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“Educating Generations, Building Communities”
 Add the depreciated value of any
improvements to the value of the land. This
figure is the market value of a property
using the cost approach.
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“Educating Generations, Building Communities”
 New buildings
 Unique structures
 Public buildings
 Cost equals value when improvements are new and of the
highest and best use.
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“Educating Generations, Building Communities”

There must be an accurate value of the site (land).

Since determining depreciation is more difficult as buildings age,
the reliability of the depreciation estimate may be questioned.

This approach may be difficult to apply to condos or planned unit
developments because the land, improvements, and marketing
costs are not always easy to determine just for appraising one
unit.
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Part III.
CAPITALIZATION APPROACH
(INCOME APPROACH)
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“Educating Generations, Building Communities”
 Figure out how much gross rental income is
currently being generated if the property is fully
rented.
 Adjust this figure upward if more rent could be
charged and downward if rent is too high and
causing a lot of vacancies.
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“Educating Generations, Building Communities”

The basic expense categories are:

Property taxes

Insurance and licenses

Manager fees

Utilities

Maintenance, repairs, and services (gardener, pool man, etc.)

Replacement Reserves – the cost of replacing an item in the
future
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3. Deduct Related Operating Expenses (Step 2)
from Gross Income (Step 1 to get Net Income)
4. Divide Net Income by the Appropriate
Capitalization Rate
5. Result of Dividing Net Income by the
Appropriate Capitalization Rate
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“Educating Generations, Building Communities”

A multiplication “rule of thumb” for converting rental value into
market value.

Neighborhoods have determinable multipliers (rules of thumb).

Select the proper multiplier.

Find out the gross rents of the appraisal property.

Multiply the rent times the multiplier.

The result is an approximate value of the property.

Not an accurate appraisal by any means.
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“Educating Generations, Building Communities”
 The advantage of the income approach method is that
no other method focuses solely on determining the
present value of the future income stream from the
subject property.
 Emphasis is on the income generated by the real
property. This is of primary importance to investment
buyers. = VALUE OF PROPERTY
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“Educating Generations, Building Communities”
 Sometimes difficult to determine
capitalization rate.
 May also be difficult to estimate vacancy
rate, economic rent, operation expenses,
and reserve requirements.
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Part IV.
BRE – 100 Real Estate Principles
RECONCILIATION
OF VALUE
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“Educating Generations, Building Communities”
 RECONCILIATION is the process of selecting the
most appropriate appraisal method for a
particular type of property and giving it the most
consideration in pinpointing final value.
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Part V.
FINAL ESTIMATE OF VALUE
(APPRAISAL REPORT)
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 Documentation
of the
appraiser’s
findings
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
There is little need to pay for an expensive appraisal simply to
determine a selling price for a home or condominium.

A local broker can help you.

On the other hand, appraisal of large parcels, commercial buildings,
and apartment houses, or appraisals to be used in court, may require
the services of a highly skilled appraiser.
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Part VI.
LICENSING, FEE APPRAISERS, AND
APPRAISAL ORGANIZATIONS
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BRE – 100 Real Estate Principles


Trainee Appraiser
Licensed Residential Appraiser


Certified Residential Appraiser
Certified General Appraiser
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“Educating Generations, Building Communities”
 An independent, self-employed
appraiser; he or she appraises for a
fee or charge.
http://naifa.com
National Association of Independent Fee Appraisers
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“Educating Generations, Building Communities”
I.
COMPARISON APPROACH (MARKET DATA METHOD)
II.
COST APPROACH (REPLACEMENT COST METHOD)
III.
CAPITALIZATION APPROACH (INCOME APPROACH)
IV.
RECONCILIATION OF VALUE
V.
FINAL ESTIMATE OF VALUE (APPRAISAL REPORT)
VI.
LICENSING, FEE APPRAISERS, AND APPRAISAL
ORGANIZATIONS
BRE – 100 Real Estate Principles
4/20/2020
40
“Educating Generations, Building Communities”
 Read Next Chapter
 Write Reflection Assignment
 Study for Quiz
BRE – 100 Real Estate Principles
4/20/2020
41
“Educating Generations, Building Communities”
 Schedule 1 hour of study every day
 Plan to be early!
 Always be ready
BRE – 100 Real Estate Principles
4/20/2020
42
Only what you put into it!
 Take Notes
 Stay Engaged
 Think of How to Apply
 Ask Questions
 Participate / Share
 Do Activities
 Be Grateful
BRE – 100 Real Estate Principles
4/20/2020
43
“Educating Generations, Building Communities”
 Educate yourself by attending class
 Assignments & Activities
 Read every day
 Never stop learning!
“The more you LEARN the more you EARN.”
BRE – 100 Real Estate Principles
4/20/2020
44
Student Learning Objectives met
BRE – 100 Real Estate Principles
4/20/2020
45
BRE – 100 Real Estate Principles
4/20/2020
46
Victor Valley College

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