Real Estate Terminology and Calculations Explained

Ad Valorem Tax Calculation

The annual ad valorem tax is calculated by multiplying the assessed value of a property by its tax rate: assessed value x tax rate = annual tax.

To determine the daily tax, divide the annual tax by the number of days in the year: annual tax / days in year = daily tax.

Finally, the ad valorem tax owed is calculated by multiplying the daily tax by the number of days the property was owned: daily tax x # of days property owned = ad valorem tax.

Annual Property Tax

The annual property tax is determined by: assessed value x tax rate.

Financial Calculations

• Part/Percentage: part / percentage = total
• Total x Percentage: total x percentage = part
• Percentage: part / total = percentage

Measurements

• 1 yard = 3 feet
• 1 mile = 5,280 feet
• 1 cubic yard = 27 cubic feet
• 1 square yard = 9 square feet
• 1 acre = 43,560 square feet
• 1 square mile = 640 acres

Real Estate Notes

• Developer: Improves land then resells or leases it.
• Subdivider: Divides land into lots then sells or leases them.
• Subject Property: The property being appraised.
• Government-Sponsored Enterprises: Freddie Mac, Farmer Mac, Fannie Mae.
• Government-Owned Agency: Ginnie Mae.
• Affidavit as to Debts and Liens: A sworn statement where the seller assures the title company of clear title, free of liens, unpaid bills, and disclosed defects.
• FDIC (Federal Deposit Insurance Corporation): Created by Congress after bank failures in the 1920s and 1930s.
• Regulation Z: Covers mortgages secured by a residence.
• RESPA (Real Estate Settlement Procedures Act): Protects consumers from abusive settlement practices, provides information, prohibits specific practices (kickbacks), and limits the use of escrow accounts.
• DTPA (Deceptive Trade Practice Act).
• Holographic Will: A handwritten will created solely by the maker and not witnessed.

Real Estate Transaction Process

1. Offer and Acceptance
2. Presenting Offer
3. Offer Acceptance (Express/Implied)
4. Closing

Types of Easements

• Easement Appurtenant: Runs with the land and applies to neighboring properties (e.g., Joy can use a portion of Rob's driveway).
• Easement in Gross: Attached to a person, but not transferable (e.g., Rob can use Joy's dock to access his property, but the next owner cannot).
• Easement by Necessity: Created when the dominant tenement could not be accessed otherwise (e.g., Rob's lot, created by dividing a larger lot, can only reach the road by crossing Joy's lot).
• Easement by Prescription: An implied easement granted after the dominant estate has used the property in a hostile, continuous, and open manner for a statutorily prescribed number of years (e.g., Rob has crossed Joy's lot for 20 years with knowledge, not consent, granting him an easement).

Property Transfer and Value

• Voluntary Alienation: Example: Marjorie wills her family home to her children.
• Closing Statement: Form used to itemize services and fees charged to borrowers.
• Market Value: Based on collected data about the property.
• Principle of Substitution: A buyer will not pay more for a property than they would for an equally desirable property.

Types of REITs

• Equity REITs: Own and operate income-producing real estate.
• Mortgage REITs: Provide money to real estate owners.

Legal Notions

• Constructive Notice: The recording of a deed in public accessible records.
• Use and Occupancy Clause: Allows one party (typically the buyer) to occupy a property either before the closing date or after the seller has transferred ownership. It's a temporary agreement that outlines the terms and conditions of occupancy, often used when there are timing issues with the sale.
• Leverage: Using borrowed funds to increase purchasing power with associated risks.
• Revisionary Rights: Refers to the right of an original property owner or their heirs to regain possession and ownership of a property after a specific condition or time period has passed or been violated.
• Prorate: Dividing certain costs between the buyer and seller at closing, based on the time of ownership.
• Preventative Maintenance: Regular, proactive tasks performed to maintain the property's condition and prevent future issues. It involves inspecting, servicing, and repairing building components and systems before they break down or cause major problems, thus avoiding costly repairs and potential safety hazards.
• Requirements for a Valid Deed: Must be in writing, identify the grantor (seller) and grantee (buyer), contain clear words of conveyance, provide a legal description of the property, be signed by the grantor, delivered to and accepted by the grantee. The grantor's signature needs to be notarized or witnessed.
• CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act): A federal law that provides broad authority to respond directly to releases or threatened releases of hazardous substances that may endanger public health or the environment; also known as the Superfund.
• Concessions: When the seller pays for certain costs normally paid by the buyer, usually at closing, to help the buyer purchase a home. These concessions can make a property more attractive to buyers, help them afford a home, or facilitate a faster sale.
• Zoning Variances: Permission to deviate from the requirements of a local zoning ordinance.
• Closing Agents: The representative of the title insurance company; usually conducts the closing.
• Reconciliation: An appraiser's use of a combination of more than one approach to value.
• CMA (Comparative Market Analysis): A report that compares the prices of recently sold or listed homes ("comparables") in order to estimate the market value of a similar property (the "subject property") located in the same area.
• Interstate Land Sales Full Disclosure Act: A federal law designed to protect consumers from fraud and misrepresentation when purchasing land, particularly in large subdivisions sold across state lines.
• Eminent Domain: The taking of private property for public use.
• On the Closing Disclosure, earnest money is credited to the buyer.

Types of Leases

• Gross Lease: Tenant pays a fixed rent; landlord handles expenses.
• Net Lease: Tenant pays rent plus taxes, insurance, or maintenance.
• Percentage Lease: Common in retail; rent is based on sales.
• Ground Lease: Tenant owns only the land, often long-term.
• Oil and Gas Lease: Rights for mineral extraction.
• Lease Purchase and Sale-Leaseback: Options for buying or financing.

Special Programs

Texas Veterans Land Board: Offers programs to protect Texas veterans, including land, home, and home improvement loans.

Appraiser Certification

Certified Residential Appraiser: A real estate professional authorized to appraise residential properties with one to four units, regardless of the property's complexity or transaction value. They can also appraise vacant or unimproved land if the intended use is for a one to four-unit residential property. This certification level allows for a broader range of appraisal assignments compared to a Licensed Residential Appraiser.