46 topics · Updated 2026-09-17
Appraisals of single-family dwellings are usually based on sales prices of comparable properties (the market/sales comparison approach). The original cost of construction is the least important factor for appraising an old residence.
To arrive at net income for capitalization purposes, an appraiser deducts an allowance for rent loss and vacancies. Cost of loans, federal income tax, and depreciation reserves are not deducted for capitalization.
In arriving at effective gross income, an appraiser deducts for vacancy (and collection loss) from potential gross income.
'Loss in value from any cause' is a common definition of depreciation. Depreciation includes physical deterioration, functional obsolescence and economic (external) obsolescence.
Economic obsolescence results from factors outside the property such as new zoning laws, a city's leading industry moving out, or misplacement of improvements. An outdated kitchen is functional obsolescence, not economic.
Land value can be estimated by capitalizing income: Value = Annual Income / Capitalization Rate. Example: $1,400/month = $16,800/year divided by 11% ≈ $152,700 range (nearest listed answer).
Rate of return = Annual Net Income / Investment. Example: $12,000/month = $144,000/year on $1,800,000 investment = 8% return.
A Realtist shall not discriminate against any person because of Race, Color, Religion, Sex, National Origin, Disability, Familial Status, or Sexual Orientation in the sale/rental, advertising, financing, or provision of professional services. A Realtist shall not establish, reinforce, or extend agreements restricting use or occupancy of property based on these protected classes.
A Realtist shall not engage in the unauthorized practice of law and should advise legal counsel where interests require it. The Realtist must inform all parties of his/her position or pecuniary interest and shall not accept commission from both parties except with written consent signed by all parties. Personal interest in a property's ownership must be disclosed at the inception of dealings.
The Realtist shall keep all monies belonging to others placed in trust in a special escrow account in an appropriate financial institution and shall not co-mingle such monies with his/her own funds. All contracts for ownership, use, or occupancy shall be in writing and signed by all parties or their authorized agents.
It is a Realtist's duty to protect the public against misrepresentation, unethical practices, and fraud, offering all properties solely on merit without exaggeration, concealment, deception, or misleading information. A Realtist is never relieved of the responsibility to observe the Code fully.
Before offering a property for sale or rent, a Realtist shall secure written authorization of the owner or authorized agent, furnish a copy of the authorization to each person who signed it, and fully inform him/herself of pertinent facts concerning the property. Property should always be offered at the price set in the listing agreement.
An easement is a right, privilege, or interest limited to a specific purpose that one party has in another's land. The benefited land is the dominant tenement; the burdened land is the servient tenement. Unless described as 'exclusive,' the owner may still use the land in ways that don't interfere with the easement.
Continuous, uninterrupted use for five years creates a prescriptive easement where use is hostile/adverse (without permission), open and notorious, exclusive (asserting a private right), and under claim of right. Payment of taxes is generally NOT required for prescription (but is for adverse possession).
An appurtenant easement is attached to and 'belongs to' a dominant tenement (e.g., ingress/egress, party wall, support, solar easement per CC 801.5). An easement in gross is personal to the holder with no dominant tenement (e.g., utility company poles/wires). If ambiguous, courts favor construing it as appurtenant.
Easements arise by express grant/reservation, implication of law, or long use (prescription), plus by agreement, necessity, dedication, condemnation, plat reference, or estoppel. A recorded deed or instrument imparts constructive notice. The grantor of a permanent easement must be the fee owner of the servient tenement. Easements cannot violate zoning/law.
Easements may end by express release, legal proceedings, nonuse of a prescriptive easement for five years, abandonment, merger of dominant and servient tenements in one owner, destruction of the servient tenement, or adverse possession. An easement obtained by grant cannot be lost by nonuse.
When dollar damages are inadequate, equity may order the defendant to perform. Because every piece of land is unique, breach of an agreement to transfer real property is presumed not adequately relieved by money. The remedy must generally be mutual, though statute allows compulsion if the counter-performance has been substantially performed or assured.
Specific performance cannot be enforced against a party who received inadequate consideration - a fair and reasonable price is required, and higher offers received during negotiations must be presented. It cannot be enforced if assent was obtained by fraud, misrepresentation, or unfair practices. A buyer is always entitled to merchantable title, required at the time it becomes the seller's duty to convey.
A clause allowing abandonment (e.g., lessee quitclaim right) robs a contract of mutuality and prevents specific enforcement. A supported option is specifically enforceable; the owner cannot withdraw it during the agreed time. Exercise of the option creates a contract of sale giving rise to specific performance; suing establishes mutuality.
By statute, these cannot be specifically enforced: rendering personal service; employing another in personal service; an act one has no lawful power to perform; procuring the consent of a third person; and agreements too uncertain in terms. Both spouses must join in conveying/encumbering community real property or leasing it over one year.
Cancellation of escrow does not necessarily cancel or rescind the purchase agreement. In Cohen v. Shearer (1980) 108 C.A.3d 939, the court held that mutual cancellation of an escrow did not rescind the underlying purchase agreement. Cancellation stops the transaction in place (subject to third-party fees and possible liquidated damages), while rescission returns the principals to their status before the transaction. A broker carrying out a decision to cancel or rescind should ensure all principals agree in writing to precisely that, not merely to cancel the escrow — otherwise a principal may retain the right to specific performance or damages.
The promissory note is the evidence of indebtedness and the borrower's promise to pay; the security instrument makes property collateral.
A negotiable instrument is a written unconditional promise or order to pay a certain sum at a definite time or on demand.
Negotiation transfers an instrument so the transferee becomes a holder; endorsements convey the instrument.
When the note and deed of trust conflict, the note generally controls, but the security follows the note.
There are seven basic kinds of promissory notes used with deeds of trust or mortgages.
A qualified endorsement ('without recourse') does not eliminate all contingent liability.
A holder in due course takes a negotiable instrument for value, in good faith, and without notice of defect or dishonor.
The FTC rule limits holder-in-due-course rights in consumer credit contracts.
Effective October 11, 2009, California law (SB 94, Civil Code 2944.6 and 2944.7) prohibits any person, including licensees and attorneys, from charging or collecting an advance fee for loan modification or forbearance services on 1-4 unit residential dwellings. No compensation until every service is fully performed.
Real estate brokers may lawfully perform loan modification and forbearance services under B&P 10131(d) and are exempt (except regarding surplus funds) from the Mortgage Foreclosure Consultants Law. Attorneys may render such services within the course and scope of their law practice.
A person offering loan modification services must provide a prescribed statutory notice (14 pt bold) before entering a fee agreement, referring the borrower to HUD-approved non-profit counseling. If offered in a Civil Code 1632 language (Spanish, Vietnamese, Tagalog, Chinese, Korean), documents must be translated.
A violation by a natural person is punishable by a fine up to $10,000 and/or up to one year in jail; by an entity, a fine up to $50,000. Penalties are cumulative to other remedies. The advance fee prohibition section was subject to repeal January 1, 2013 absent extension.
The Mortgage Disclosure Improvement Act (MDIA), effective July 30, 2009, requires early TILA disclosures for all dwelling-secured residential loans (not just purchase/construction). Early disclosures must be given before the borrower pays any fee other than a credit report fee. TILA and RESPA GFE disclosures must be completed before payment of fees to any party. Mailed disclosures are deemed received three business days after mailing.
Creditors/lenders must deliver or mail early disclosures at least seven business days before consummation. If a material term (such as the APR) becomes inaccurate, corrected disclosures must be received at least three business days before consummation. For these periods, business day means all calendar days except Sundays and federal legal holidays.
Distinguishable disclosures apply based on whether the loan is open-end or closed-end. Open-end credit for an owner-occupied dwelling is a Home Equity Plan or HELOC. Conventional, HUD/FHA insured, VA indemnified, and alternative mortgage loans secured by 1-4 residential units are examples of closed-end credit. Disclosures must be made before consummation (when the borrower becomes contractually liable under state law).
If the borrower determines credit is needed to meet a bona fide personal financial emergency, the seven-day or three-day waiting period may be modified or waived. The borrower must give a dated written statement signed by each liable borrower describing the emergency and specifically waiving the period. Printed waiver forms are prohibited.
HOEPA of 1994 amended TILA/Reg Z for loans secured by a borrower's principal dwelling where either: (1) the APR at consummation exceeds Treasury yield by more than 8 points (first liens) or 10 points (junior liens); or (2) total points and fees exceed the greater of 8% of the loan amount or $400 (annually adjusted; $583 for 2009). These are called Section 32 or high-cost mortgage loans.
In addition to standard disclosures, a Section 32 loan requires conspicuous-type disclosure of: a required notice warning the borrower they could lose their home; the APR; the regular payment and any balloon payment; for variable-rate loans a statement that rate/payment may increase plus the maximum monthly payment; and for refinances the total amount borrowed (noting any credit insurance premiums included).
A Section 32 mortgage may not include: balloon payments (for loans under 5 years, except bridge loans under 1 year); negative amortization; advance payments consolidating more than two periodic payments; interest rate increases after default; unfavorable rebate methods; or prepayment penalties (except under limited conditions). Due-on-demand clauses are prohibited except for fraud, failure to meet repayment terms, or borrower action harming security.
Exempted from Section 32 are residential mortgage transactions, reverse mortgages under 226.33, and open-end credit/HELOCs. 'Points and fees' includes items under 226.4(a)/(b) (except interest), all compensation paid to mortgage brokers, certain 226.4(c)(7) items unless reasonable and unaffiliated, and credit insurance/debt-cancellation premiums. 'Affiliate' means a company under common control per the Bank Holding Company Act of 1956.
A Section 32 mortgage may provide a prepayment penalty only if: the penalty will not apply after two years following consummation; will not apply if prepayment funds come from refinancing by the lender or its affiliate; the borrower's total monthly debt payments do not exceed 50% of monthly gross income at consummation (verified); and the periodic payment amount cannot change during the four years following consummation.
Formerly the market data comparison approach, this is most adaptable for brokers/salespersons and best for land, residences, and similar improvements with a ready market. It is based on the principle of substitution. Sources include sales prices, listings, offers, rents, and leases.
Adjustments are always made TO the comparable, never to the subject. Subtract if comparable is superior; add if comparable is inferior. Units of comparison include site size, square footage, rooms, units. Elements include financing, time, sale conditions, location, physical characteristics, and income.
Advantages: most easily understood, most common among brokers, efficient for single-family residences. Disadvantages: locating enough comparables, excessive adjustments reduce reliability, dated sales become unreliable in changing markets, and limitations during high inflation/interest.
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