Get Paid to Write at Home
On the production side of this endeavor, I want to thank Natasha Graf, the acquisitions editor who was my first contact with Wiley Publishing. Whatever ability she recognized in me is the reason you're holding this book in your hands. My project editor, Georgette Beatty, has been a true joy to work with. Without a doubt, this book, in its final version, is due in large part to her abilities. And I want to acknowledge all the copy editors who worked on this book, including Josh Dials, Chad Sievers, and especially Neil Johnson, who kept me on my toes and gave me a few laughs along the way. Their work made me a better writer than I am and ultimately gave you a better book to read. I'd also like to thank Mikal Belicove, who graciously and patiently listened to my marketing suggestions. Finally I want to thank the technical reviewer, Donna Pfafman. Her experiences and knowledge as a real estate broker and an educator ensure that you, the reader, will reap the benefits of this...
Remember that exam writers may give you a choice of (A) or (B) that looks really good, but choice (D) nevertheless is the best answer. You won't know that unless you read everything. Beware of the partially correct answer. An answer has to be completely correct to be the right answer, and only one of the choices is completely correct. On the flip side, you also need to remember that you may encounter questions in which all the answers seem wrong. Nevertheless, one of them is the correct choice. And that answer may very well be the best of a bad lot, so to speak. That's the one to pick.
I Read the problem carefully to make sure you've done all the steps. Exam writers frequently give you an answer that merely appears correct, but only because you didn't go far enough into the problem. For example, you'll find an answer about area that is correct when written in square feet, but the problem calls for the answer in square yards. Or perhaps an answer needs to be in months, but one of the choices is the correct answer for a year. Don't forget to divide by 12
I'm going to give you some information in this chapter about careers in the real estate field. Some of the information is nothing more than background so that you have an understanding of what real estate agents actually do and where they do it. Things like career opportunities probably are not information about which state exam writers are concerned, but you're going to need to know them just the same. I also give you plenty of information about property management as a career within the real estate business. Depending on your state, exam writers may also ask questions about this subject, particularly on a broker's exam. A few job-related laws also are discussed. As a means of putting all this information into the right context, I also give you an overview of a typical real estate transaction.
1 Net listing A net listing is a listing for which a broker is hired to sell the property for a certain amount of money called the net amount or net price. The broker keeps any amount in excess of the net price. So if you take a net listing on a house for which the owner wants to net 200,000 from the sale, and you sell it for 225,000, you get to keep 25,000 as your fee. Note Net listings are illegal in some states and discouraged in others. Some states allow it only if the maximum commission to be earned by the agent is made clear to the seller in writing in the original listing agreement. Check out your state law about this kind of listing. Questions about net listings tend to be favorites among test writers, especially if it's illegal in your state.
Who you represent and your obligations are the essence of your work as an agent. And state test writers want to make sure you understand all of this. Expect a fair number of questions on this material on both the broker's and salesperson's exams. The salesperson's exam likely will ask more definition-type questions, and the broker's exam will expect more understanding and the ability to apply the law to short case studies.
Ownership of real estate by business organizations is not so much about the forms of ownership as it is about the organizational structures of the businesses. You're not likely to be involved very often with this type of transaction in your everyday real estate practices, unless you work a great deal with commercial real estate and developers. State exam writers, however, expect you to know something about different business organizations.
One characteristic of liens, the one that test writers like to ask about, is called the priority of liens. A more appropriate term is priority of payments because it refers to who gets paid first when property is sold against the owner's wishes to satisfy a number of different debts. It also is referred to as the position of the person being paid, such as the mortgage is in first position after taxes.
You may wonder what types of liens can be put on real estate. In this section, I point out what actions prompt someone to place a lien on a piece of real estate and some of their characteristics. Pay particular attention to whether the liens are general or specific, and voluntary or involuntary. For some reason, state test writers love asking at least a few questions about these four types of liens
In this section, the subject of interstate land sales becomes part of the discussion however, strictly speaking, it isn't a regulation about how land is developed but rather how it is marketed when subdivisions and land sales are discussed. And yet, it's important enough that state test writers want you to know something about it.
As you're going to see, three systems of preparing a legal description can be used anywhere in the United States. Some parts of the country rely more heavily on one system than others. Exam writers like to ask about all three systems regardless of what state you're in. So don't get fooled into studying only the system of legal description that's most often used in your state. No one is trying to turn you in to a land surveyor, the professional who surveys the property, locating the property boundaries on the ground and prepares these legal descriptions. Exam questions tend to be recognition type questions, the kind that require you to be able to tell the difference between the characteristics and key definitions of each system of legal description.
When the big day finally arrives, the buyer, seller, attorneys, and you, the agent, meet to close on the title to the property. By the end of the day, the seller has some money (and technically so do you) and the buyer owns some property. The people who come to a closing, the roles they play, and the specific activities and papers that are signed vary greatly from state to state and even from area to area within a state. I discuss the people, roles, activities, and documentation that are most important and common, because they are what exam writers like to ask questions about.
In this section, I tell you about different ways that contracts can be created and give information on the elements of a valid contract. Although this section is about contracts in general, rather than real estate contracts in particular, remember that state real estate exam writers like to know that you know at least some basic information about contracts.
These situations are the kind in which one of the parties but not the other refuses to do what he or she promised in the contract to do. A number of remedies and actions can be taken when a breach of contract occurs. I discuss these remedies from the buyer's side and the seller's side. (For remedies related to tenants and landlords in leases, see Chapter 12.) State exam writers expect you to know these different remedies and be able to identify them in a question.
One of the primary functions of a real estate agent is to be sensitive to and aware of possible environmental issues with respect to a piece of property that the agent may be involved with as a seller's or buyer's agent. State test writers therefore expect a certain basic level of knowledge about where contamination might be found or what environmentally sensitive issues might present themselves.
Value doesn't just happen people have to create it. Most of these personal actions, usually called economic influences, are nothing more than normal human behavior. In fact, as I go through these influences that affect real estate values, I expect you to say, Oh Sure I knew that or Of course people want that. What you may not have known and unfortunately what the test writers want you to know are the technical names for these normal behaviors. The definitions in the following sections always are covered on the exam, so be sure to remember them. Try not to think about that economics class you had in high school or college and read on as I discuss the economic forces affecting real estate value.
One of the important pieces of information that a real estate agent can provide a buyer is where to go for a mortgage loan, but oddly enough, it isn't something that exam writers ask questions about beyond distinguishing between the primary and secondary mortgage markets, which is what I'm going to tell you about right here. The primary market is comprised of the lenders who lend money to people who want to buy property. The primary market is where you go to get a mortgage loan. The secondary market is comprised of financial institutions to which the banks sell the mortgages to get more money to lend to you. You can find out more about the primary and secondary mortgage markets in the two sections that follow this one. So I'll just define some terms related to the primary and the secondary markets so you can make some sense of the topics in the rest of this chapter, which exam writers do ask questions about. On a related note, I also cover different federal loan insurance programs and...
One key way that loans vary is in how they are paid back. Before I explain, I need to tell you about fixed and adjustable interest rates, which will make describing several different repayment plans and doing the math the exam writers want you to know a little easier. Remain keenly aware of the terminology and definitions as you go through this material, and remember that what I'm telling you about here are the terms of the note that the borrower signs, even though most people refer to it as the mortgage.
Exam writers rely on a series of math problems to test your skills calculating different aspects of an amortized mortgage. Here are examples of the more typical of these kinds of problems. (Check out Chapter 18 for more mortgage math, including ways to figure out annual and monthly interest payments.)
People who buy property are concerned about the taxes they pay and will ask you (if they ask nothing else) what the taxes are on the property. Buyers expect agents to know what amount of taxes are due on a piece of property. State exam writers expect you to know much more, like why taxes are collected, how tax rates are established, how to calculate the taxes on a particular piece of property, and how to protest tax assessments that may be unfair.
Mf eal estate long has been considered one of the best ways to build wealth. Real estate W w agents often are asked by buyers to locate properties for investment. Likewise sellers frequently use the services of real estate agents to sell investment properties. A real estate agent who provides services to people who are buying and selling investment properties needs to be knowledgeable about different types of investment properties, various ways you can make money by investing in real estate, and some of the tax issues that affect real estate as an investment. Although they don't expect you to become an investment analyst or financial advisor, state exam writers do expect you to know the basics of real estate investing. They expect you not only to know how to provide appropriate service to your buyers and sellers but also to know when to call in experts because something is beyond your knowledge or capabilities.
People invest in real estate as individuals or sometimes together with another person or several other people. Different organizational structures are used to accomplish different investment goals. Does it surprise you to find out that you also can invest in real estate without actually owning property or having ownership responsibilities You don't have to become an expert in this area, but in this section I talk about each of these types of ownership and investment situations in enough detail to enable you to distinguish one form from the other, which is what state exam writers expect of you.
Contrary to popular opinion, the federal tax code is not just about the government figuring out new and exciting ways to take away your money. Much of the code is devoted to encouraging different kinds of business activities. Real estate investments benefit from several programs that help investors retain more of their profits. This section tells you about the most common programs, some of which involve a little math that exam writers want you to know how to do. And one other thing, this section should leave no doubt as to your need for a good accountant if you invest in real estate.
Before you start doing most of the math problems in this chapter, you need to remember that test writers often throw problems at you that contain different measurements. Before you can solve the problems, you need to convert those measurements. Make sure you multiply feet by feet, yards by yards, and so on. Also, you may have to calculate the area of a room in square feet but later convert it to square yards.
Why did I use the 60 percent and not 40 percent If you read the question carefully, the 60 40 split is in the same order as the you and your broker. If the problem doesn't give you any more information, you have to interpret what test writers mean. Scan the following problem, which contains more than one split.
Proration is the allocation or dividing of certain money items at the closing. (I discuss proration and closings in more detail in Chapter 9.) An attorney, a real estate salesperson, or a broker does the proration calculations at the closing. In any case, most test writers expect you to know the basics of proration math. The key to remember about prorations is that the person who uses it needs to pay for it. Here's an example that illustrates the point of proration. When you get out into the real world, find out what the local practice is for dividing up the year for prorations. Some areas and attorneys use the exact day, rather than the month. So in the previous examples, divide by 365 days to get the amount of taxes paid per day. Some people use the 12-month annual calculation and then divide by the exact number of days in a month when the closing dates occurs midmonth. As far as I know, no state law governs this practice, but rather, it's a matter of local practice. On the exam,...
Real estate salespeople and brokers, buyers, and sellers always are interested in how much a property's value has increased or decreased. Investors, real estate brokers, and salespeople may want to know what tax benefits of a property are attributed to depreciation, although more often than not, an accountant needs to be doing these calculations for an investor. Test writers expect you to know the basics of how to calculate appreciation and depreciation.
Keep an eye open for whether test writers ask you either of the preceding questions using the word change rather than appreciate or depreciate. For example By what percentage did the value of the house change In that case, your answers will have either a plus or a minus sign in front of them. The appreciation answer would be +25 percent, and the depreciation answer would be -25 percent.
In Chapter 17, I explain the concept of depreciation that sometime is called cost recovery. Although in the real world, accountants working for real estate investors usually do these calculations, test writers expect you to understand and be able to apply the basics. This type of depreciation has nothing to do with a property going down in value but rather is based on government regulations that are designed to help real estate investors reduce their tax burdens.
If you want the lowdown on appraising property, check out Chapter 14. As a real estate agent, you won't actually be doing appraisals, but you can use these formulas to roughly estimate property values, particularly if you deal in investment properties. You can read about real estate investing in Chapter 17, but in the meantime, state test writers expect you to understand and be able to apply these formulas. In this section, the only real math-driven formulas for appraising, at least at the level that you're expected to know it, are formulas for finding value using the income approach. Two different methods are used in that approach to value. I give you formulas and examples for both.
Real estate agents are key players in promoting fair housing and preventing discrimination in housing. State exam writers expect you to know about fair housing laws at the federal level, because those laws apply to all parts of the country. Many states, counties, and cities have enacted additional fair housing laws that supplement federal law. State examiners expect you to know about these localized laws. As you study for the state licensing exam, you need to be sure to find out about fair housing laws that apply only to your state or local municipality.
Is it reasonable to make him open an office to write his books if your study is adequate to the task Obviously not, and it might cost you a good tenant if you remained firm on this point. What about a criminal attorney who wants to see his clients at home because it is more convenient than traveling to his office downtown Can you restrict the attorney from bringing accused criminals to your home Isn't a person considered innocent until proven guilty Let's take it a step further. What do you think about someone running a flea market out of your garage Local zoning ordinances might take care of that situation, but the authorities usually take action only if they are alerted by a complaint from the neighbors. By that time, you as the owner may inherit some type of liability as the owner of the property. There are numerous cases where the tenants open a baby-sitting service or day-care provider (as it is now called) operation out of their home. What if...
Test writers may go further and ask you to calculate the second month's interest. To answer the question, you need to know what the total monthly payment is, and the test writers will tell you. I'll continue using the numbers from the previous problem. In this case, the monthly payment, which includes principal and interest, is 1,101. The question is how much is the second month's interest payment.
A graduate of the New York University graduate writing program, his freelance work has appeared in Texas Monthly and Memphis Magazine. Jay spent several years as an editor at HarperCollins Publishers, where he worked on such bestselling books as Body-for-Life by Bill Phillips and Go for the Goal by Mia Hamm. In his free time, he pursues his hobbies fly fishing, soccer, and the quest for the ultimate key lime pie. He resides in Austin, Texas, with his wife, Wendy, and their cat, Booboo.
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