Illinois Real Estate : Principles and Practices

by Rice,Tim

• ISBN13: 9780324143867
• ISBN10: 0324143869
• Edition: 3rd
• Format: Paperback
• Copyright: 2001-02-01
• Publisher: Cengage Learning

Summary

Prepare for the Illinois Real Estate License Exam. Readable, integrated and user-friendly, this Illinois-specific text meets all requirements for pre-licensing. The comprehensive treatment provides appropriate information and guidance for passing the state-licensing exam.

Table of Contents

Preface	xvii
Basic Real Estate Concepts	2	(14)
General Characteristics of Real Estate	3	(3)
Terminology and Classes of Property	3	(1)
Physical Characteristics	4	(1)
Economic Characteristics	4	(2)
General Concepts of Land Use and Investment	6	(2)
Physical Factors Affecting Land Use	6	(1)
Economic Factors Affecting Land Use	6	(1)
Highest and Best Use	6	(1)
Land Use Restrictions	7	(1)
Investment Objectives	7	(1)
The Real Estate Business	8	(3)
National Association of Relators®	8	(1)
National Association of Real Estate Brokers	9	(1)
Association of Real Estate License Law Officials	9	(1)
Real Estate Licensees	10	(1)
The Fundamentals of a Real Estate Transaction	10	(1)
The Real Estate Market	11	(1)
Important Points	12	(1)
Review Questions	12	(4)
Property Ownership and Interests	16	(30)
The Concept of Property	17	(6)
Bundle of Rights	17	(1)
Real Property	18	(2)
Personal Property	20	(1)
Land, Minerals, Fruits of the Soil	20	(1)
Fixtures	21	(1)
Trade Fixtures	22	(1)
Uniform Commercial Code (UCC)	22	(1)
Land, Tenements, and Hereditaments	22	(1)
Estates in Real Property	23	(1)
Definition of Estate	23	(1)
Groups of Estates in Land	23	(1)
Freehold Estates	23	(5)
Fee Simple Estates	23	(2)
Life Estates	25	(3)
Nonfreehold Estates (Leasehold Estates)	28	(1)
Ownership of Real Property	29	(4)
Ownership in Severalty	29	(1)
Concurrent Ownership	29	(4)
Combination Forms of Ownership	33	(3)
Condominiums	33	(1)
Planned Unit Developments (PUDs)	34	(1)
Cooperatives	34	(2)
Timesharing	36	(1)
Real Property Ownership by Business Organizations	36	(5)
Sole Proprietorship	37	(1)
Partnership	37	(1)
Corporation	38	(1)
Limited Liability Company	39	(1)
Syndication	39	(1)
Joint Venture	40	(1)
Trust	40	(1)
Important Points	41	(2)
Review Questions	43	(3)
Encumbrances and Government Restrictions	46	(18)
Easements	47	(4)
Easements in Gross	47	(1)
Easements Appurtenant	48	(3)
License	51	(1)
Liens	51	(7)
Priority of Liens	51	(1)
Specific Liens	52	(5)
General Liens	57	(1)
Restrictive Covenants	58	(1)
Encroachments	58	(1)
Government Restrictions on Real Property	59	(1)
Power of Eminent Domain	59	(1)
Police Power	59	(1)
Power of Taxation	60	(1)
Power of Escheat	60	(1)
Important Points	60	(1)
Review Questions	61	(3)
Brokerage and Agency	64	(20)
Classification of Agency Relationships	65	(1)
Common Law Agency	66	(3)
Creation of Agency	66	(1)
Fiduciary Relationship	66	(1)
Seller-Broker Relationship Under Common Law	67	(1)
Buyer-Broker Relationship Under Common Law	68	(1)
Buyer Agency Under Common Law	68	(1)
Dual Agency Under Common Law	68	(1)
Accidental Agency Under Common Law	69	(1)
Termination of Agency	69	(1)
Agency in Illinois-Designated Agency	69	(8)
Agency Relationships-Article 15	70	(4)
Escrow Accounts	74	(1)
Brokerage	74	(3)
Antitrust Violations	77	(1)
Important Points	77	(1)
Review Questions	78	(6)
Real Estate Contracts	84	(34)
Basic Contract Law	85	(3)
Terms and Classifications	85	(3)
Essential Elements of Contracts	88	(5)
Offer and Acceptance	89	(1)
Consideration	90	(1)
Legal Capacity of the Parties	90	(1)
Reality of Consent	91	(1)
Legality of Object	92	(1)
Possibility to Complete	92	(1)
Statute of Frauds	93	(1)
Illinois Residential Real Property Disclosure Act	93	(1)
Discharge of Contracts	94	(2)
Agreement of the Parties	94	(1)
Complete Performance	95	(1)
Impossibility of Performance	95	(1)
Operation of Law	95	(1)
Illinois Uniform Vendor and Purchaser Risk Act	95	(1)
Assignment of Contract Rights	96	(1)
Interpretation of Contracts	96	(1)
Contract Remedies	97	(1)
Specific Performance	97	(1)
Rescission	97	(1)
Compensatory Damages	97	(1)
Liquidated Damages	98	(1)
Auction Sales	98	(1)
Listing Contracts and Practices	99	(6)
Definition and Purpose	99	(1)
Commission Entitlement	99	(1)
Types of Listings	100	(1)
Listing Contract Provisions	101	(2)
Data Sheet	103	(1)
Termination	104	(1)
Competitive Market Analysis	104	(1)
Sales Contracts and Practices	105	(5)
Real Estate Sales Contract	105	(2)
Installment Agreement/Contract for Deed	107	(3)
Unilateral Contracts and Practices	110	(3)
Options	110	(1)
Right of First Refusal	111	(2)
Important Points	113	(1)
Review Questions	114	(4)
Transfer of Title to Real Property	118	(26)
Methods of Transferring Title	119	(3)
Intestate Descent	119	(1)
Testate Descent	120	(1)
Voluntary Alienation	120	(1)
Involuntary Alienation	121	(1)
Deeds	122	(7)
Essential Elements of a Valid Deed	122	(2)
Types of Deeds	124	(5)
Transfer Taxes	129	(1)
Illinois Real Estate Transfer Tax Act	129	(1)
Illinois Affordable Housing Act of 1989	130	(1)
Land Trust Recordation and Transfer Tax Act	130	(1)
Inspection Ordinances	130	(1)
Title Assurance	130	(4)
Title Examination	130	(1)
Abstract of Title with Attorney Opinion	131	(1)
Policy of Title Insurance	132	(1)
Recordation	133	(1)
Title Registration/Torrens System	133	(1)
Property Description	134	(6)
Monuments and Markings	134	(1)
Metes and Bounds	134	(2)
Government Rectangular Survey System	136	(2)
Subdivision, Lot, Block, and Tract	138	(2)
Vertical Land Description	140	(1)
Important Points	140	(1)
Review Questions	141	(3)
Real Estate Finance Principles	144	(18)
Notes	145	(1)
Principal, Interest, and Payment Plans	145	(1)
Mortgage and Deed of Trust	146	(3)
Requirements for Validity of a Mortgage or Deed of Trust	147	(1)
Mortgage Clauses and Covenants	148	(1)
Recordation	149	(1)
Priority and Subordination	149	(1)
Releases	149	(1)
Rights of Borrower	149	(1)
Rights of Lender	150	(2)
Foreclosure	150	(2)
Types of Sales Transactions	152	(1)
Cash Sales	152	(1)
New Financing	152	(1)
Mortgage Assumption	152	(1)
Taking ``Subject to'' a Mortgage	152	(1)
Primary Sources of Real Estate Finance	153	(2)
Savings and Loan Associations	153	(1)
Mutual Savings Banks	154	(1)
Commercial Banks	154	(1)
Mortgage Bankers	154	(1)
Rural Economic and Community Development	154	(1)
Life Insurance Companies	154	(1)
Credit Unions	155	(1)
Real Estate Investment Trusts (REITs)	155	(1)
Individual Investors	155	(1)
Secondary Mortgage Market	155	(3)
Secondary Market Activities	156	(2)
Other Aspects of the Market	158	(1)
Important Points	158	(1)
Review Questions	159	(3)
Real Estate Finance Practices	162	(42)
Leverage	163	(1)
Conventional Mortgage Loans	163	(10)
Homeowner's Protection Act of 1998	164	(1)
Types of Conventional Mortgage Loans	164	(9)
FHA-Insured Mortgage Loans	173	(5)
Types of FHA Mortgage Loans	174	(1)
FHA Mortgage Insurance Premium (MIP)	175	(1)
FHA Loan Qualification	175	(1)
FHA Maximum Loan Amount	175	(1)
FHA Loan Assumption Policies	176	(1)
FHA Changes	177	(1)
Contract Requirement	178	(1)
Department of Veteran Affairs Guaranteed Loan Program	178	(4)
Eligibility	178	(1)
Qualifying for VA Loans	179	(2)
Restoration of Eligibility	181	(1)
Unused Eligibility	181	(1)
History of Loan Guarantees	181	(1)
Other Aspects of FHA and VA Loans	182	(1)
Escrow Account	182	(1)
Down Payment	183	(1)
Miscellaneous	183	(1)
Residential Lending Practices and Procedures	183	(10)
Loan Origination	183	(5)
Loan Processing	188	(2)
Loan Underwriting	190	(2)
Discount Points	192	(1)
Closing or Settlement Costs	193	(1)
Financing Legislation	194	(6)
Truth-in-Lending Simplification and Reform Act (TILSRA)	194	(1)
Real Estate Settlement Procedures Act (RESPA)	195	(1)
HUD's New Escrow Rules	196	(4)
Illinois Mortgage Escrow Account Act	200	(1)
Equal Credit Opportunity Act (ECOA)	200	(1)
Important Points	200	(1)
Review Questions	201	(3)
Closing Real Estate Transactions	204	(24)
Methods of Closing	205	(1)
Face-to-Face Closing	205	(1)
Escrow Closing	205	(1)
Preliminaries to Closing	206	(3)
Parties	207	(1)
Survey and Location Endorsement	207	(1)
Pest Inspection	207	(1)
Title Examination, Insurance, and Defects	207	(1)
Property Inspection	207	(1)
Insurance	208	(1)
Perc and Soil Tests	208	(1)
Additional Documents	208	(1)
Prorations at Closing	209	(2)
Items Prorated	209	(1)
Proration Rules and Methods	209	(2)
Preparation of Closing Statements	211	(1)
Format and Entries	211	(1)
Handling Closing Funds	211	(1)
Cash Sale Statement	211	(4)
Analysis of the Cash Sale Statement	213	(2)
Purchase Money Mortgage Statement	215	(2)
Analysis of Purchase Money Mortgage Statement	216	(1)
Reconciliation	217	(1)
Mortgage Assumption Statement	217	(2)
Analysis of Mortgage Assumption Statement	218	(1)
New First Mortgage Statement	219	(2)
Analysis of New First Mortgage Statement	221	(1)
Important Points	221	(1)
Practice Problem 1: Mortgage Assumption	222	(1)
Practice Problem 2: New First Mortgage	223	(1)
Solutions to Practice Problems	224	(2)
Review Questions	226	(2)
Property Valuation	228	(26)
Defining Appraisal and Valuation	230	(2)
Valuation Versus Evaluation	230	(1)
Types of Value	230	(2)
Appraisal Versus Competitive Market Analysis	232	(1)
Basic Real Estate Appraisal Concepts	232	(2)
Characteristics of Real Property	232	(1)
Factors Affecting Value	233	(1)
Basic Economic Valuation Principles	234	(4)
Highest and Best Use	234	(1)
Substitution	235	(1)
Supply and Demand	235	(1)
Conformity	235	(1)
Progression and Regression	235	(1)
Anticipation	236	(1)
Contribution	236	(1)
Increasing and Decreasing (Diminishing) Returns	236	(1)
Competition	237	(1)
Balance	237	(1)
Change	237	(1)
Growth, Equilibrium, and Decline	237	(1)
Age	238	(1)
Appraisal Methodology	238	(1)
Approaches to Value: Market, Cost, Income	238	(12)
Market Data or Comparison Approach	238	(5)
Income Approach	243	(4)
Cost Approach or Approach by Summation	247	(1)
Depreciation	248	(2)
Correlation and Reconciliation	250	(1)
Important Points	250	(1)
Review Questions	251	(3)
Land Use Controls	254	(18)
Historical Development of Land Use Controls	255	(1)
Public Land Use Controls	256	(4)
Local Controls	256	(3)
State Controls	259	(1)
Environmental Concerns and Legislation	260	(6)
Illinois Environmental Protection Act	260	(2)
Environmental Protection Legislation	262	(1)
Environmental Hazards	262	(4)
Private Land Use Controls	266	(2)
Typical Restrictive Covenants	267	(1)
Enforcement of Covenants	268	(1)
Termination of Covenants	268	(1)
Important Points	268	(2)
Review Questions	270	(2)
Fair Housing	272	(14)
Civil Rights Act of 1866	273	(1)
Enforcement	273	(1)
Federal Fair Housing Act of 1968	273	(6)
1988 Amendments to Fair Housing Act	274	(1)
Prohibited Acts	275	(3)
Exemptions	278	(1)
Enforcement and Penalties	278	(1)
Community Reinvestment Act	279	(1)
Illinois Human Rights Act	279	(1)
Exemptions	280	(1)
Enforcement and Penalties	280	(1)
Equal Housing Opportunity Today	280	(1)
Discrimination in Sale of Real Estate Act	281	(1)
Americans with Disabilities Act	281	(1)
Important Points	282	(1)
Review Questions	283	(3)
Landlord and Tenant (Leasehold Estates)	286	(16)
Definitions Concerning The Landlord/Tenant Relationship	287	(1)
Essential Elements of a Lease	288	(2)
Property Description	288	(1)
Term	288	(1)
Rent	288	(1)
Other Lease Provisions	288	(1)
Written or Oral Provisions	288	(2)
Recordation	290	(1)
Obligations of Landlord and Tenant	290	(4)
Mutual Obligations	290	(1)
Landlord's Duties	290	(1)
Tenant's Duties	291	(1)
Law of Negligence	291	(1)
Lead Paint Disclosures	291	(1)
Withholding Rent	292	(1)
Security Deposits	292	(1)
Other Laws Affecting the Rental of Property	292	(1)
Termination and Eviction Remedies	293	(1)
Leasehold (Nonfreehold) Estates	294	(2)
Estate for Years	294	(1)
Periodic Estate (Estate from Year-to-Year)	295	(1)
Estate (Tenancy) at Will	295	(1)
Estate (Tenancy) at Sufferance	295	(1)
Types of Leases	296	(1)
Gross and Net Leases	296	(1)
Graduated Lease	296	(1)
Escalated Lease	296	(1)
Index Lease	296	(1)
Fixed Lease	297	(1)
Reappraisal Lease	297	(1)
Percentage Lease	297	(1)
Ground Lease	297	(1)
Oil and Gas Leases	297	(1)
Sale and Leaseback	297	(1)
Important Points	297	(1)
Review Questions	298	(4)
Property Management and Insurance	302	(12)
The Basics of Property Management	303	(2)
Types of Properties and Management	304	(1)
The Owner-Manager Relationship	305	(1)
Authority	305	(1)
Duties	306	(1)
Fees	306	(1)
Principal Functions of Property Managers	306	(2)
Rental Schedule	306	(1)
Budget	306	(1)
Marketing	307	(1)
Handling Funds	307	(1)
Legal Actions	307	(1)
Maintenance	307	(1)
Records	308	(1)
Basic Insurance Concepts and Terminology	308	(1)
Property Insurance	308	(1)
Liability Insurance	308	(1)
Package Policy (Homeowner's Policy)	308	(1)
Standardized Homeowner's Insurance Policies	309	(1)
Selected Legal Issues	309	(2)
Insurable Interest	309	(1)
Coinsurance	309	(1)
Unoccupied Building Exclusion	310	(1)
Policy Interpretation	310	(1)
Homeowner's Warranty (HOW) Policies	311	(1)
Important Points	311	(1)
Review Questions	312	(2)
Federal Income Taxation of Real Estate	314	(18)
Taxpayer Relief Act of 1997	315	(2)
Capital Gain	315	(1)
Depreciation	316	(1)
Passive Income	316	(1)
Tax Implications of Home Ownership	317	(6)
Capital Gain on a Principal Residence	317	(2)
Effect of Purchase and Sale	319	(1)
The Age-55-and-Over Exemption	320	(1)
Taxpayers with Two Properties	320	(1)
Computation of Gain	321	(1)
Inheritance Basis	322	(1)
Mortgage Interest Deduction	322	(1)
Points	322	(1)
Vacation Homes	322	(1)
Installment Sales	323	(1)
Investment Property	323	(3)
Depreciation	323	(1)
Income Shelter	324	(1)
Deductible Expenses	325	(1)
1031 Tax-Deferred Exchanges	325	(1)
Starker Exchange (Starker Trust)	326	(1)
Investment Syndicates	326	(1)
Important Points	327	(1)
Review Questions	328	(4)
Illinois Real Estate License Act of 2000	332	(32)
Administration of Licenses	333	(16)
Commissioner, Director of Real Estate, Deputy Director of Real Estate	333	(1)
Real Estate Administration and Disciplinary Board	334	(1)
Real Estate Education Advisory Council	334	(1)
Licensed Activities	334	(2)
License and Pocket Cards	336	(1)
Application for a Leasing Agent License	336	(1)
Application for a Salesperson or a Broker License	337	(1)
Illinois Auction License Act	338	(1)
Illinois Real Estates Licensing Exam	338	(1)
Employment and Termination of Agents, Sponsor Cards	339	(1)
Brokerage Offices	339	(1)
Branch Offices	340	(1)
License Expirations	340	(1)
Inoperative Licensees	340	(1)
Reciprocal Licensing	341	(1)
Continuing Education	342	(1)
Compensation and Disclosure of Compensation	342	(1)
Referral Fees and Affinity Relationships	343	(1)
Inducements	343	(1)
Licensed and Unlicensed Personal Assistants	343	(2)
Sponsoring Broker and Employment Agreements	345	(1)
Licensee's Corporation for Indirect Payment	345	(1)
Advertising	345	(1)
Internet Advertising	346	(1)
Rules Regarding the Sale of a Licensee's Own Property	347	(1)
Written Agreements	347	(1)
Brokerage Agreements	348	(1)
Stigmatized Properties	348	(1)
Guaranteed Sales Plan	349	(1)
Violations of the Act and Disciplinary Procedures	349	(7)
Unlicensed Practice	349	(1)
Violations of the Act	349	(2)
Returned Checks and Fees	351	(1)
Violations of the Tax Act, Delinquent Student Loans, and Delinquent Child Support	352	(1)
Illegal Discrimination	352	(1)
Recovery From the Real Estate Recovery Fund	353	(1)
Hearings, Investigation and Notice, Statute of Limitations	354	(2)
Real Estate License Administration Fund and Real Estate Research and Education Fund	356	(1)
Escrow Regulations	356	(3)
Escrow Moneys, Time of Deposit, and Bookkeeping Systems	356	(1)
Consent to Audit Escrow Accounts	357	(1)
Bookkeeping System	357	(2)
Record Keeping	359	(1)
Forms of Ownership	359	(1)
Ownership Restrictions	359	(1)
Review Questions	360	(4)
Real Estate Math	364	(28)
Applications of Real Estate Math	365	(2)
Finance	365	(1)
Appraisal	366	(1)
Closing	366	(1)
Miscellaneous Calculations	366	(1)
General Practice in Real Estate Mathematics	367	(3)
Percentages	367	(1)
Formulas	367	(1)
Commission Problems	367	(3)
Estimating Partial Sales of Land	370	(1)
Profit/Loss on Sale of Real Estate	370	(1)
Area Calculations	370	(3)
Acreage	371	(1)
Square Footage	372	(1)
Cost/Size	372	(1)
Ad Valorem Property Taxes	373	(2)
Transfer Tax Calculations	375	(1)
Prorations at Closing	375	(1)
Financial Calculations	376	(4)
Simple Interest	377	(1)
Principal and Interest	377	(1)
Debt Service	377	(1)
Fees and Points	378	(1)
Loan-to-Value Ratios	378	(1)
Yields	379	(1)
Qualifying for Loan	379	(1)
Appraisal Calculations	380	(1)
Captialization	380	(1)
Depreciation	380	(1)
Income Tax Calculations	381	(1)
Deductions	381	(1)
Basis	382	(1)
Miscellaneous Calculations	382	(1)
Review Questions	383	(5)
Solutions to Review Questions	388	(4)
Appendix A Basic House Construction	392	(12)
Appendix B Practice Questions: Illinois Portion of Exam	404	(6)
Appendix C Practice Exam 1: National Portion of Exam	410	(10)
Appendix D Practice Exam 2: National Portion of Exam	420	(13)
Answer Key	433	(6)
Glossary	439	(26)
Index	465