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Hi, this is Joe from Prep Agent, and today I'm going to go over 10 concepts you must know if you want to pass your real estate exam. If you don't know them, don't even bother showing up. If you do know them, you're on the path towards passing your exam, getting a real estate license, and enjoying an awesome real estate career. So, without further ado, let's begin.
Top 10 Most Important Concepts to Know to Pass Your Real Estate Exam.
So, the first concept is real versus personal property. You absolutely must know the difference between real and personal property. Very often, you hear the term real property, immovable, personal property, movable. Real property, immovable; personal property, movable. Now, what they mean by that is when you sell the property, what moves with you? What goes with you? What goes with the person? Another way to remember this is real property goes to the real estate, personal property goes with the person.
So, what are some examples? Well, the example of real property is the house itself and anything that's attached to that house. Personal property are things that go with the person, like a set of keys. A lease is actually considered personal property as well because it's a contract with the person, not with the real estate. But where do you begin? Begin with the concept of real property goes to the real estate, personal property goes to the person. Real property, immovable; personal property, movable. Gotta know that concept. It's a doozy.
The second concept I want you to know is about estates and property. There's two types of estates you're going to learn: freehold estates and less than freehold estates. Freehold estates tend to be indefinite in duration. Less than freehold estates are for a more limited amount of time. Freehold estates basically insinuate ownership. Less than freehold estates are leases.
So, what are the different types? The different types of less than freehold estates are as follows: the estate for years, periodic tenancy, estate at will, and estate at sufferance. So, it's four of them: estate for years, periodic tenancy, estate at will, and estate at sufferance. The estate for years is when there's a defined period of time, like May 1st to August 8th. A summer rental would be a good example of an estate for years. Periodic tenancy is when it's a recurring timeframe, like week to week, month to month, year to year, whatever it will be. Estate at will means it could end at any time. Estate at sufferance means they're staying too long. You could say the landlord's suffering. I often refer to this as having a deadbeat tenant.
The freehold estate I want you to know is fee simple absolute, fee simple to defeasible, and a life estate. Fee simple absolute is the highest degree of ownership. It's not absolute, as there's always encumbrances such as taxes. Fee simple to defeasible means you could have the estate, but you could lose it upon the happening of a certain event, like selling alcohol. That would be a condition put on your title to the property. And a life estate is when you own the property based upon somebody else's life.
The next concept I want you guys to understand is government powers. There are four government powers you need to know to pass the real estate exam, and we remember the acronym PETE. PETE stands for Police Power, Eminent Domain, Taxation, and Escheat. Police Power, Eminent Domain, Taxation, and Escheat.
Police power is a government power where they don't take the property away from you, but they tell you how to use it. Examples of these are things like building codes, rent control, things of that nature. Zoning's another one. Things of that nature would be police power.
Eminent domain, they do take the property away from you. They take the property away from you, and just compensation is paid through a process known as condemnation. Okay, think of condemnation. When a property is condemned, you can't use it anymore. So, condemnation is when the government says you can't use the property anymore, but they pay you for that property. If they make your property unusable and they don't pay you, you could file for what's called inverse condemnation.
Next up is taxation. We all know what that is. Gotta pay the man. And escheat is when the government takes your property because you got no heirs. They can't find who to give it to you after you pass away. So, the property escheats to the state.
So, now we've covered three concepts. Let's go to the fourth: types of ownership. So, when you talk about types of ownership, there's two ways you can own property: in severalty or concurrently. Severalty means you own it by yourself. Concurrent is when you own it with others. Okay, concurrent estates when you own it with others, severalty's by yourself.
There's two types of concurrent estates I want you to know when studying for your real estate exam: joint tenancy and tenancy in common. Joint tenancy and tenancy in common. Joint tenancy follows the acronym TIP, which stands for Time, Title, Interest, and Possession. You got everything unified: the time, the title, the interest, and possession. And there's a right of survivorship with it, meaning if I take property with a joint tenant and I die, you get the property. I cannot will it to my heirs. As opposed to a tenancy in common, where there's only unity of possession, but there's no right of survivorship. So, therefore, if I die, I could will it to my heirs because you don't have the right of survivorship. So, that's the difference between joint tenancy and tenancy in common, and those are types of concurrent estates, as opposed to owning a property in severalty.
The next concept you absolutely must know if you want to pass your real estate exam is the essential elements of value. I like to remember the acronym STUD. STUD stands for Scarcity, Transferability, Utility, and Demand. Some people remember the acronym DUST: Demand, Utility, Scarcity, Transferability. Does STUD, does DUST, I don't care as long as you remember the four essential elements of value. STUD: Scarcity, how much of there is it? Transferability, can you sell it? Utility, can you use it? And Demand, do people even want it? Those are the four essential elements of value. You absolutely must know.
Next up is types of depreciation. So, you have the four essential elements of value, and there's three ways that your property could depreciate. It all falls under these three categories. These categories are economic obsolescence, functional obsolescence, and physical deterioration. All depreciation falls under one of these three categories.
Economic obsolescence is when your property loses value due to causes outside the property. That would be something like an airport being built in your neighborhood, train tracks being laid down, or crime in the neighborhood. That's the most difficult one to cure.
Functional obsolescence is when there's poor design, like you have a five-bedroom house with one bathroom. And physical deterioration is just simply your home falling apart. Those are the three types of depreciation you need to know to pass your real estate exam.
Next up, we've got the three appraisal methods that you need to know, and they are as follows: the market data approach, the cost replacement approach, and the capitalization income approach.
The market data approach simply uses comps. If one item is $100,000 and the one next to it is very similar, that one's going to be about $100,000 too. That's the basic one most real estate agents use, and frankly, it's the one you probably use when you go buy shoes. You like one pair of shoes, how much is it worth? Well, how much does it sell everywhere else? Okay, so that's the market data approach, very often referred to as using comps.
The cost replacement approach finds value by looking at how much would it cost to replace this building brand new. This is typically used for special purpose properties, for things such as libraries, schools, and police stations.
And the capitalization approach says how much does the income of that property contribute to the value you see. In the cost replacement approach, those buildings don't have income, and there's no comps, so they just see how much it costs to replace brand new. But with a capitalization income approach, there is some income, and if that building draws a lot of income, well, obviously that building has more value. How much more value? Well, that's what this approach calculates.
Next concept you absolutely must know if you want to pass your real estate exam is the difference between deeds and title. A deed is evidence of the transfer. Title is ownership. You must know that. Obviously, that subject goes into a lot more detail, but you don't need to know anything else if you don't understand that a deed is evidence of a transfer and title is ownership.
Liens. Lien means you owe money. Say to yourself, lien, money. Lien, money. Lien, money. Keep saying until you turn blue in the face. Liens fall into two categories: specific liens and general liens. A specific lien means if you don't pay that money, they could go after one thing specifically, namely your house. A general lien means if you don't pay it, they could take everything.
What are some examples of this? Well, examples of a specific lien could include your mortgage, property taxes, or mechanic's liens. Examples of general liens would be things like not paying your income tax, or if you lose a judgment in court, a judgment lien would be a general lien, meaning if you lose it, they come after everything.
You need to know fair housing laws, not only for passing a real estate exam but also to be a good real estate agent. Fair housing laws deal with discrimination, and it was enacted in 1968, a good year to know.
Examples of fair housing violations you should know are steering, blockbusting, panic peddling, panic selling, and redlining.
Steering has to do with when you have buyers and you're telling them, "You should live in that neighborhood. Your people live over there," or "Your people shouldn't live by those people over there." That would be an example of steering. Just think, you're steering a car, and you're driving the buyers to an area you believe they should go based upon their racial or ethnic makeup, which is a violation of the Fair Housing Act.
Blockbusting, panic peddling, and panic selling have to do with sellers. They have differences between them, but you don't need to know them just yet. For now, you should know the deal with sellers, and it's basically saying, "You better sell your house because those people are moving to town. You don't want to live by those people, do you?" That's a fair housing violation.
And redlining has to do with loans. Redlining is when they say, "Hey, those people live in that area. I'm going to circle that area on a map with a red line, and those people who live in that area, don't lend to them. Don't lend to those people." That would be redlining, and that's a fair housing violation.
So, the fair housing violations you must know are steering, blockbusting, panic peddling, panic selling, and redlining. And fair housing was enacted in 1968.
So, this is Joe from Prep Agent. I hope this helped you. These are 10 concepts you absolutely must know to pass your real estate exam, and I sincerely hope your studying doesn't end there. Many of these concepts can go into much more detail, but this is a great place to start, and it's 10 concepts you absolutely must know, which will form the foundation of everything else. So, don't move on to anything else if you don't understand these 10 concepts. Go to prepaagent.com for more information on how to pass the real estate exam, and I hope everybody has a great day. Thanks, bye.