BREA Broker Exam flashcards
BREA Broker Exam · Build recall with a focused review session.
40 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Value in exchange
- The most probable price a property would bring in a competitive and open market under all conditions requisite to a fair sale, with buyer and seller acting prudently and knowledgeably.
- Principle of substitution
- A buyer will pay no more for a property than the cost of acquiring an equally desirable substitute property with similar utility, absent undue delay or expense.
- Principle of contribution
- The value of any component of a property equals the amount it adds to the total property value, which may differ from its actual cost.
- Highest and best use
- The reasonably probable, legally permissible, physically possible, financially feasible, and maximally productive use of a site that results in the highest present value.
- Surplus land
- Land that is not needed to support the existing or highest and best use of the improvements and cannot be separately developed because of zoning or site constraints.
- Excess land
- Land that is larger than needed to support the existing improvements but can be separately developed or sold as an independent building site.
- Absorption rate
- The rate at which available units in a market are sold or leased over a given period, typically expressed as units per month or year.
- Market segmentation
- Dividing a market into groups by property type, price range, buyer or tenant characteristics, and geographic area to analyze supply and demand.
- Cost approach formula
- Value equals replacement or reproduction cost new, minus physical deterioration, functional obsolescence, and external obsolescence, plus land value.
- Functional obsolescence
- A loss in value due to a deficiency or superadequacy in the property's design, materials, or technology, measured by the cost of the defect less curable items.
- External obsolescence
- A loss in value caused by factors outside the property, such as neighborhood decline, adverse zoning, or economic conditions, generally incurable and allocated to land and improvements.
- Gross income multiplier
- A market-derived factor equal to sale price divided by gross income, applied to the subject's gross income to indicate value.
- Direct capitalization
- A method that converts a single year's stabilized net operating income into a value indication by dividing by an overall capitalization rate.
- Band of investment
- A capitalization rate technique weighting mortgage and equity components: mortgage ratio times mortgage constant plus equity ratio times equity dividend rate.
- Effective gross income
- Potential gross income less vacancy and collection loss, plus other income such as parking or laundry, before deducting operating expenses.
- Net operating income
- Effective gross income minus operating expenses, excluding debt service, depreciation, income taxes, and capital improvements.
- Debt coverage ratio
- Net operating income divided by annual debt service; lenders use it to measure the property's ability to cover mortgage payments.
- Mortgage constant
- Annual debt service divided by the original loan amount; it reflects both the interest rate and the amortization of principal over the loan term.
- Loan-to-value ratio
- The loan amount divided by the property value or purchase price, expressing the lender's exposure relative to collateral value.
- Positive leverage
- Occurs when the property's overall return exceeds the cost of borrowed funds, so borrowing increases the return on equity.
- Fixture test
- Courts consider annexation to the realty, adaptation to the property's use, and the parties' intention to determine whether an item is real property.
- Easement appurtenant
- An easement that benefits a dominant parcel and burdens a servient parcel, passing with the land when either parcel is transferred.
- General warranty deed
- A deed containing five covenants, including seisin, quiet enjoyment, against encumbrances, further assurance, and warranty forever.
- Adverse possession
- Acquiring title by actual, open, notorious, exclusive, hostile, and continuous possession of another's land for the statutory period.
- Police power
- The government's authority to regulate land use for public health, safety, and welfare through zoning and building codes, without compensation.
- Scope of work rule
- USPAP requires identifying the problem, determining and performing the scope of work necessary for credible assignment results, and disclosing it in the report.
- Competency rule
- An appraiser must have the knowledge and experience to complete an assignment competently, or disclose the deficiency and take steps to gain competency.
- Jurisdictional exception
- A USPAP provision allowing departure from a standard when it conflicts with law, with the exception disclosed in the report.
- Workfile retention
- USPAP requires retaining the workfile for at least five years after delivery of the report, or two years after final disposition of litigation.
- Appraisal review
- The act of developing and reporting an opinion about the quality of another appraiser's work, performed under Standards 3 and 4.
- Metes and bounds
- A legal description using bearings and distances from a point of beginning, returning to that point to close the parcel boundary.
- Rectangular survey system
- The public land survey dividing land into townships six miles square containing 36 one-mile-square sections of 640 acres each.
- Extraordinary assumption
- A report statement about a condition that, if false, would change the appraiser's opinion; it must be clearly disclosed and supported.
- Hypothetical condition
- A condition contrary to what exists on the effective date, assumed for analysis, such as completion of proposed construction, and disclosed in the report.
- Exposure time
- The estimated length of time a property would have been on the market before the effective date at the appraised value.
- Reconciliation
- The appraiser's analysis of value indications from the approaches, explaining the weighting and selecting the most reliable indication of value.
- Intended use
- The purpose for which the appraisal is prepared, such as lending, litigation, or tax appeal, which determines the appropriate scope and report type.
- Restricted appraisal report
- A brief report permitted under USPAP for a stated intended user, with limited supporting information, not intended for other parties.
- Anticipation
- The principle that value is created by the expectation of future benefits, so present value equals future benefits discounted to the effective date.
- Conformity
- The principle that maximum value is achieved when properties in a neighborhood are reasonably similar in use, design, and condition.