BREA Broker Exam cheat sheet

Value in exchange is the most probable price in a competitive market; value in use is the worth to a specific owner for a specific purpose.

The four agents of production are land, labor, capital, and entrepreneurship (coordination); land's share of income is ground rent.

Anticipation: present value is the worth of future benefits discounted to today.

Substitution: a buyer will pay no more than the cost of acquiring an equally desirable substitute.

Conformity: maximum value occurs when properties in an area are reasonably similar in use, design, and condition.

Contribution: an item's value equals the amount it adds to (or subtracts from) total property value, not its cost.

Highest and best use is determined as if vacant and as improved; interim use may be temporary until a higher use is feasible.

The appraisal process: define the problem, preliminary analysis and scope of work, data collection, market analysis, HABU, apply approaches, reconcile, report.

Change and balance: neighborhoods move through growth, stability, decline, and revitalization; supply and demand balance drives value.

Cost approach: value = replacement or reproduction cost new − physical deterioration − functional obsolescence − external obsolescence + land value.

Sales comparison: adjust comparables to the subject; adjust for differences, never adjust the subject.

Gross adjustment percentage = sum of absolute adjustments ÷ comparable's sale price; net adjustment = sum of signed adjustments ÷ sale price.

Income approach direct capitalization: V = NOI ÷ R, where R is the overall capitalization rate.

Gross income multiplier (GIM) = sale price ÷ gross income; value = GIM × subject gross income.

Potential gross income − vacancy and collection loss + other income = effective gross income; EGI − operating expenses = NOI.

Operating expenses exclude debt service, depreciation, income taxes, and capital improvements.

Band of investment cap rate = (mortgage ratio × mortgage constant) + (equity ratio × equity dividend rate).

Yield capitalization discounts or capitalizes future income streams at a discount rate reflecting return on and return of capital.

A fixture is a personal property item legally attached to real property; tests include annexation, adaptation, and intention.

Easement appurtenant benefits a dominant parcel and burdens a servient parcel; an easement in gross benefits a person or entity.

A lien is a claim against property securing a debt; liens are classified as voluntary or involuntary and general or specific.

Deed elements: grantor and grantee, words of conveyance, legal description, consideration, signature, and delivery with acceptance.

General warranty deed warrants seisin, quiet enjoyment, against encumbrances, further assurance, and warranty forever; quitclaim conveys only the grantor's interest.

Title by adverse possession typically requires actual, open and notorious, exclusive, hostile, and continuous possession for the statutory period.

Eminent domain requires public use and just compensation; police power includes zoning and building codes without compensation.

USPAP competency rule and ethics rule require impartiality, objectivity, no undisclosed contingent fees, and no misleading reports.

Federal fair housing law prohibits discrimination based on race, color, religion, sex, national origin, familial status, and disability.

USPAP is published by The Appraisal Foundation's Appraisal Standards Board; the current edition applies as adopted by the jurisdiction.

The ethics rule addresses conduct, management, confidentiality, and record keeping; the competency rule requires knowledge and experience or disclosure and steps to gain it.

The scope of work rule requires identifying the problem, determining and performing the scope, and disclosing it; scope must be sufficient for credible results.

Standards 1 and 2 govern real property appraisal development and reporting; Standards 3 and 4 govern review development and reporting.

Standard 3 review requires forming an opinion about the quality of another appraiser's work, not merely restating it.

Jurisdictional exception: when law conflicts with USPAP, comply with law and disclose the exception.

Record keeping: retain workfile for at least five years after delivery, or two years after final disposition of litigation.

An appraisal is an opinion of value; an appraisal review is the act of developing and reporting an opinion about the quality of another's work.

Signature requirements: a signed certification must be included and the report must disclose the signatory's role and extent of participation.

Market analysis examines demand, supply, and the interaction of the two for a specific property type in a defined market area.

Highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive.

Legally permissible considers zoning, deed restrictions, easements, and environmental regulations.

Financially feasible means the use produces a positive return to land after all costs, including entrepreneurial incentive.

As-improved HABU: the existing use must be compared with demolition and redevelopment alternatives.

Market segmentation: define the property type, buyer/tenant profile, price range, and geographic market area.

Absorption rate = units absorbed per period ÷ total units available; it indicates how quickly demand consumes supply.

Vacancy and collection loss estimates come from market data on comparable properties, not from the subject's historical performance alone.

Excess land can support additional development; surplus land cannot and is valued as part of the site.

Legal descriptions: metes and bounds (bearing and distance from a point of beginning), lot and block (recorded plat), and rectangular survey (township, range, section).

A township is 6 miles square (36 square miles) containing 36 sections; each section is 1 mile square (640 acres).

Section numbering begins with 1 in the northeast corner and proceeds west, then serpentine back east.

A quarter section is 160 acres; a quarter-quarter section is 40 acres.

Acre = 43,560 square feet; a square mile = 640 acres.

Front foot value applies to lots of similar depth; depth factor tables adjust for lots with nonstandard depth.

Site analysis includes size, shape, topography, drainage, utilities, access, frontage, and easements.

Functional utility and floor plan efficiency affect obsolescence and value; functional obsolescence may be curable or incurable.

Environmental and physical hazards (flood zone, wetlands, contamination) can affect legally permissible use and marketability.

Report must state the intended use, intended users, purpose, value definition, effective date, and scope of work.

Three report options: appraisal report, restricted appraisal report, and oral report; content must be sufficient for credible results.

Extraordinary assumptions and hypothetical conditions must be clearly disclosed and their effect on value stated.

Reconciliation explains why the approaches were weighted and which best indicates value; it is not an average.

A review report must identify the reviewed appraisal, the reviewer's scope, and the basis for the reviewer's opinion.

Common review findings: unsupported adjustments, inadequate highest and best use analysis, math errors, and inconsistent comparable selection.

The report must include a signed certification and disclose prior services to the property within the required period.

Market conditions and exposure time must be supported; exposure time is retrospective and precedes the effective date.

Report writing should separate facts, data, and the appraiser's analysis, and avoid misleading omissions.

Loan-to-value ratio = loan amount ÷ property value; equity = value − loan balance.

Monthly payment on an amortizing loan: PMT = P × [i(1+i)^n] ÷ [(1+i)^n − 1], where i is the monthly rate and n the number of payments.

Mortgage constant = annual debt service ÷ original loan amount; it combines interest and principal amortization.

Debt coverage ratio = NOI ÷ annual debt service; lenders typically require a ratio above 1.0.

Capitalization rate = discount rate − growth (Gordon model) when income grows at a constant rate.

Discount rate reflects risk and return; a higher discount rate lowers present value.

Leverage is positive when the return on the property exceeds the mortgage constant; it is negative otherwise.

The Federal Reserve influences short-term rates; long-term mortgage rates generally track Treasury yields and credit spreads.

Supply and demand, employment, population, and interest rates drive real estate market cycles and value trends.