ARIZONA DEPARTMENT OF REAL ESTATE 2910 North 44th St., Ste 100, Phoenix, AZ

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1 ARIZONA DEPARTMENT OF REAL ESTATE 2910 North 44th St., Ste 100, Phoenix, AZ This is a detailed instructor outline of the prescribed curriculum for the Arizona Real Estate Salesperson's Pre-licensure course. The course comprises a minimum of 90 hours of classroom instruction and is one prerequisite to filing an application for Real Estate Salesperson's License. Student attendance at all sessions of the Pre-license Course is required. Attendance includes that the student pays attention to the instructor, participate in class discussions and activities, and complete all assigned exercises and homework. A student must attend the entire course and successfully pass the school's final examination on the curriculum before the school can certify the student's completion. Consult the Candidate Information Bulletin for detailed information on examination procedures, applicable forms, and registering for the examination Page 1 of 23

2 1. Real Estate Statutes 1.1. Sources of Real Estate Law State Constitution - Article Statutes - Federal, State (A.R.S. Title 32, Chapter 20), Administrative Rules Case Law 1.2. Arizona Real Estate Statutes -Title 32 Chapter Real Estate Department Structure - Article Commissioner Advisory Board Licensing -Article Parties required to be licensed License exemptions Broker & Salesperson requirements Licensing fees Multiple licenses License transfer Renewal of license Designation(s) Temporary licenses Regulation Article Funds -Trust Account Broker requirements - recordkeeping Employment Agreements ( ) Collecting compensation Grounds for denial of license, civil penalty, license suspension or revocation, provisional license Consent Orders, Cease & Desist Orders, Summary Suspensions Restriction on employment or compensation Requirements for Property Management -Article 3.1 ( ) Agreements Employment Agreements Trust accounts Records Unlicensed employee activities Sale of Subdivided Lands -Article Definition Procedures Issuance of Public Report (see Commissioner's Rules, Article 12) Exemptions Bulk Sales Voidable Sales Page 2 of 23

3 Advertising Material Inducements Sale of Unsubdivided Land -Article Definition Procedure and requirement Issuance of Public Report Real Estate Recovery Fund -Article Definition Brokers responsibilities Current changes and updates Cemetery, Real Estate Timeshares & Membership Camping -Articles 6, 9 & Commissioner's Rules -Arizona Administrative Code 1.2. License Timeframes 2.2. General License Requirements Non-resident Licenses Employing Broker- Sole proprietors, Corporations, Limited Liability Companies and Partnerships Renewal, Reinstatement, Changes, Department notification Branch offices, managers Professional Corporations, Professional Limited Liability Companies Temporary Licenses and Certificate of Convenience Unlawful License Activity 2.3. Education Pre-licensure and state examination Continuing education School, course & instructor approval required 2.4. Advertising Requirements Promotional Owner/agent Blind ad Subdivisions, Timeshares & Membership Campgrounds 2.5. Commissions -Article Documents -Article Conveying Documents Offer Acceptance Page 3 of 23

4 Contract Disclosure 2.7. Professional Conduct -Article Duties to Client/Customer Duties to all other parties Duties to other Licensees Fiduciary Responsibility 2.8. Investigations and Administrative Procedures (see also A.R.S , et seq.) 3. Agency Relationships & Managerial Duties 3.1. Law of Agency Types of agents Special General 3.2. Agency Relationships Dual Agency Single Agency Sub Agency 3.3. Fiduciary 3.4. Due Diligence 3.5. Misrepresentation & Fraud Definition Duty to Discover and Disclose Puffing E&O 3.6. Creating an Agency Relationship Expressed Written Oral Implied Ratified Ostensible Estoppel Page 4 of 23

5 3.7. Terminating an Agency Relationship 3.8. Employment Agreements Definition Types Requirements for an Employment Agreement Listing Buyer's broker Commissions Multiple Listing Service/Co-brokerage. 4. Contracts and Contract Law 4.1. Contract Essentials and Terminology Expressed contracts versus implied contracts Unilateral Contracts versus bilateral contracts Executed contracts Valid, void, and voidable contracts Enforceable contracts versus unenforceable contracts Elements of a valid contract Competent parties Of legal age ("emancipated minors") Not a ward of the state (mentally ill or incarcerated) Not under duress (undue influence/or menace) Not under the influence of drugs Offer and acceptance (and proper notification of acceptance) Lawful objective (no conspiracy) Consideration ("valuable" vs. "good") Adequate description of the property/legal description In writing (Statute of Fraud) Signed by all appropriate parties Joinder for contract amendments 4.2. The Concept "Reasonableness" Implication The ordinary, reasonable and prudent person 4.3. A "Bona Fide" Purchaser Definition Innocent Purchaser for Value 4.4. Real Estate Contract Requirements per Arizona Rules and Regulations Broker Responsibilities -General Notification of Acceptance Earnest Money Responsibilities Page 5 of 23

6 Responsibilities to Present All Offers 4.5. Purchase Contract Concerns Offer and Acceptance Amount of Earnest Deposit Equitable Interest /Equitable Title Close of Escrow -Actual Occurrence Risk of Loss Before C.O.E Marketable Title "Time is of the Essence" Contingencies Joinder for Contract Amendments 4.6. Contract Assignability Nominee Assignee Assignability Problems Fiduciary Responsibility; Disclosure as Nominee 4.7. Contract Termination Generally 4.8. Options and First Rights of Refusal 5. Property Interests, Estates and Tenancies 5.1. Property Real versus Personal When can sell manufactured home Affidavit of Affixture Fixtures/trade Fixtures Characteristics of Real Property Land and its Elements Definitions Mineral Rights Air Rights Horizontal Regimes Alternative Housing 5.2. The Estate Concept Estates in Land Freehold Estates Conventional Life Estates Homestead Page 6 of 23

7 5.3. Easements Appurtenant Engross Prescription 5.4. Sole Ownership -Severalty 5.5. Co-Ownership -Concurrent Tenancy 5.6. Joint Tenancy 5.7. Joint Tenancy with Right of Survivorship 5.8. Tenancy in Common 5.9. Community Property Community Property with Right of Survivorship Syndication Modern Types of Common Ownership Cooperative Condominium Timeshare Ownership Land Trust Membership Camping Contracts Real Estate Investment Trust (REIT) Joint Venture Corporations, Limited Liability Companies, Partnerships (General, Limited) 6. Government Rights in Real Property 6.1. Eminent Domain 6.2. Police Power 6.3. Escheat 6.4. Real Property Taxation Taxes Page 7 of 23

8 Residential Vacant land Commercial property Tax ratios and tax rates Lien priority Tax Sale Special Tax Assessments/Improvements 7. Tax Implications on Real Estate 7.1. Types of Income Ordinary Income Capital Gain Income 7.2. Sale of Principle Residence -Examples Computing Gain Deductibility of Expenses Interest Deductions 7.3. Investment Real Estate Depreciation "Cost Recovery" Tax Shelter Concept Tax Deferred Exchanges - Basic Concepts 8. Water Law 8.1. Definitions Erosion and accretion Avulsion, alluvion and alluvium Water table 8.2. Types of Water Sources Aquifers Percolated water Underground rivers Lakes, reservoirs, rivers and streams Central Arizona Project (CAP) Colorado River Effluent 8. 3 Water Users Residential, commercial and industrial Municipal (cities, towns, water districts) and private water companies Page 8 of 23

9 8.3.3 Special users (golf courses, lake developments, recreational) 8.4. Doctrine of water law applicable to Arizona Riparian Doctrine Navigable Non-navigable Doctrine of Prior Appropriation First in time, first in right Reasonable use Beneficial use Adjudication of Indian Tribe claims 8.5. Arizona Groundwater Act of Reasons for the act Overdraft Subsidence Arizona Department of Water Resources Classification of water Groundwater Surface water Active Management Areas Irrigation Non-expansion Areas Grandfathered rights Irrigation Type I Non-irrigation Type II Non-irrigation Assured water supply versus Adequate Water Supply Transfer of Well Rights Is it required Transfer request Other permits and exemptions Service area rights Storage and recovery permits (recharge/percolation) Withdrawal permits Exempt wells 8.6. Wetlands in Arizona Definition Location in Arizona 9. Environmental Law / Disclosures 9.1. Regulators Environmental Protection Agency (EPA) Arizona Department Of Environmental Quality (ADEQ) Page 9 of 23

10 9.1.3 County and City Health Officials 9.2. Environmental Laws And Regulations Federal - Comprehensive Environmental Response Compensation & Liability Act (CERCLA) State - Water Quality Assurance Revolving Fund (WQARF) 9.3. Current Issues Mold Radon Asbestos Lead paint -contract requirements Underground storage tanks (UST) Formaldehyde/urea PCB's SBS (sick building syndrome) Pesticides and fertilizers Alternative wastewater systems/bulletin Wood infestation Dry wells and on-site retention 9.4. Due Diligence And Information Sources Public information Environmental audits Property inspection/observation 9.5. Liabilities Owner and operator Brokers and agents' disclosures 9.6. Remedy Terminology Abatement/remediation Management in place / encapsulation 10. Land Descriptions Monuments and Markers Oldest Method Occasionally used today Metes and Bounds Precise Directional Notations Primary System Many States Used as Supplement to Prevailing Descriptive Form metes Page 10 of 23

11 bounds directional notation P.O.B. (point of Beginning) Rectangular Survey Meridian Baselines Range Lines Township Lines Correction Lines Quadrangles/Checks Sections Fractional Sections Government Lots Subdivision (Lot, Block and Tract) Plat of Survey Filed with government office (zoning) city county Filed with Arizona Department of Real Estate when creating a lawful Subdivision Assessors Maps 11. Land Development & Construction Land Development Land Planning Terminology General Plan Master Planned Community Planned Unit Development Transportation Plan Buffer Zones Zoning/Changes Non-Conforming Use Variances Grandfathered Rights Page 11 of 23

12 11.3. Environmental Concerns -Impact Studies/Audits Interstate Land Sales -Requirements Construction Fundamentals Soil Preparation Orientation Foundation Roof Framing Styles Joist, Rafters And Load-Bearing Walls Exterior Trim Building Code -Regulations New Home Builders' Warranties 12. Encumbrances Non-monetary Easements Deed Restrictions/CC&R's Encroachments Clouds Monetary (lien) Theory General vs. Specific Voluntary vs. Involuntary Equitable vs. Statutory Application Financing Liens Property Tax Liens Mechanic's Liens (1) Justification (2) Who has the lien right (3) Pre-lien Notices (4) Costs that cannot create a lien on the property (5) What does a mechanic's lien attach to (6) Priority of mechanic's liens (7) Release or assignment of mechanic's liens (8) Statutory rights/time periods Judgment Liens (1) Creation (2) Recordation (3) Enforcement and Renewal Income Tax Liens Page 12 of 23

13 13. Acquisition and Transfer of Title 13.1 Terminology Methods of Transfer Voluntary Involuntary Descent Will Deeds Types Essential Elements Notice Actual Constructive Adverse Possession (Title and Easement) Probate Title Insurance Types of Policies Standard / Residential Extended ALTA Plain language Homeowner's Commitment for Title Insurance Schedule A Schedule B Endorsements 14. Escrow and Settlement (Not Including Math) Definitions Parties to the Escrow Duties of the Escrow Officer Settlement Statements Debits and Credits Page 13 of 23

14 Sample Statement and Worksheet Seller's disclosures required by law 15. Fair Housing and Americans With Disabilities Act Fair Housing Laws History Civil Rights Law Federal Fair Housing Jones vs. Mayer Amendments Equal Opportunity Lending Steering Blockbusting Redlining Fair Housing Legislation Fair Housing Enforcement Provisions Exemptions Federal State Penalties for violations Federal State City Advertising Requirements Americans With Disabilities Act Potential Conflicts Landlord Tenant Act CC&R's / Deed Restrictions 16. Leases and Leasehold Estates Types of Leasehold Estate Essentials of a Valid Lease Types Of Leases/Payment Plans Graduated Lease Index Lease Percentage/Participation Lease Net Lease Page 14 of 23

15 Gross Lease Ground Lease Sale And Leaseback Rental Agreement Commercial Lease Vs. Residential Lease Assignment Vs. Subleasing Termination Of The Lease Bankruptcy Of The Lessee Foreclosure Of A Mortgage 17. Arizona Residential Landlord and Tenant Act 17.1 General Provisions Purposes Applicability Enforcement Exclusions Jurisdiction/Service of Process Definitions Good Faith Unconscionability Notice Terms and Conditions of Rental Agreement Utility Charges Prohibited Provisions in Rental Agreements Separation of Rents and Obligations to Maintain Property Forbidden Discrimination Against Tenants with Children Early Termination for Domestic Violence Conditions Lock Replacement Access Refusal Damages Immunity 17.2 Landlord Obligations Security Deposits Written Agreement Possession Fit Premises Limitation of Liability Regulation of Rents Records 17.3 Tenant Obligations Maintain Dwelling Unit Rules and Regulations Page 15 of 23

16 Access Use and Occupancy 17.4 Remedies Noncompliance by Landlord Failure to Deliver Possession Self-Help for Minor Defects Withholding Essential Services Landlord s Remedies Fire or Casualty Damages Tenant s Remedies Noncompliance with Rental Agreement by Tenant Failure to Pay Rent Utility Discontinuation Liability for Guests Failure to Maintain Abandonment Partial Payments Landlord Liens; Distraint After Termination Recovery of Possession Holdover Tenants Abuse of Access Forcible Entry and Detainer 17.5 Retaliatory Conduct Prohibited 17.6 Residential Rental Property Recording Temporary Receivers Inspections Slum Property Property Management Training Registration with One-Call Notification Center 18. Property Management Licensing Requirements Exemptions Owner -Broker Management Agreement Basic Requirements -per Title 32 Chapter 20, Article Salesperson Acting as a Property Manager Page 16 of 23

17 18.3. Trust Account -Property Management Specifics Agency Law and the Property Manager Owner/Tenant Associations Residential Commercial General Property Management Issues Credit Issues Privacy Act Bankruptcy Issues Arizona Slumlord Abatement Act (A.R.S et seq.) Owner Liability Dangerous Dogs Drugs and Other Current Legal Issues 19. Property Insurance And Warranties Insurance Terminology Types Of Properties And Policies Indemnification Warranties Contractors' Homeowners National Flood Insurance Program Claims History (Clue Report) 20. Appraisal -Terminology & Concepts Terminology Appraisal /Appraiser Value Components of Value (Demand, Utility, Scarcity, Transferability) Objective Value versus Subjective Value Page 17 of 23

18 Market Value (worth) versus Market Price (Value in Exchange) Types of Value Market Value Loan (Mortgage) Value Insurable Value Assessed (Taxable) Value Condemnation Value Salvage/Residual Value Concepts of Measurements Appraisal Concepts and Principles of Value Highest and best use Substitution Change Anticipation Supply and Demand Contribution Increasing and Decreasing Returns (Marginal Returns) 8. Balance Conformity Progression and Regression Competition Integration, Equilibrium, and Disintegration (Growth, Stability, Decline, and Renewal) Plottage (Assemblage) Directional Growth Orientation Opportunity Cost Externalities The Appraisal Process Sales comparison analysis approach to value Collection and analysis of data Extraction of component market values Adjustments to comparables for features different from the subject Cost Approach to Value (Appraisal by Summation) Estimation of site value (land value) Estimation of construction costs (building costs) Estimation of accrued depreciation from all sources Income Approach to Value Gross Rent Multipliers versus Gross Income Multipliers Direct Capitalization Correlation Appraiser Licensing and Certification Requirements Page 18 of 23

19 a. Separate License b. Dual Licensure Competitive Market Analysis ("CMA") Appraisal Broker Price Opinion (Exemption for Real Estate Licensees (A.R.S (A)) 21. Primary Lenders And The Secondary Market Primary Lenders Commercial Banks Mortgage Brokers And Bankers Life Insurance Companies Credit Unions Private Investor Secondary Mortgage Market I Federal National Mortgage Association Government National Mortgage Association- Pools -Securities Federal Home Loan Mortgage Corporation Private Investor Paper Terminology/Holder In Due Course Types Of Repayment Plans Fixed Rate Loan Level Payment Loan Straight/Term Loan Adjustable Rate Loan Graduated Payment Loan Open Ended Loan Blanket Loan Bi-Weekly Loan Reverse Annuity Mortgage Zero Percent Interest Interest Only 22. Residential Financing FHA Title Programs Qualification of Borrower Requirements of an FHA Insured Loan Veterans Administration Borrower's eligibility Page 19 of 23

20 Requirements of a V A Guaranteed Loan Conventional Loans Buyer Qualifications Private mortgage insurance Seller Carryback/Wraparound Financial Institutions Reform Recovery Enforcement Act (FIRREA) Truth in Lending (Regulation Z) RESPA Assumption Policies Federal Reserve impact on interest 23. Commercial Financing Financial Analysis Property Income & Expense Analysis (Annual Property Operating Data) Capitalization Rates Cash-On-Cash Returns Debt Coverage (Net Income-To-Deb) Ratios Cash Flow Projections Uniform Commercial Code Search (Secretary Of State, Corporation Commission) Seller Carry-Backs 24. Financing Documents FinancingTheory Lien Theory vs. Title Theory Hypothication vs. Pledging Page 20 of 23

21 24.2. Promissory Notes Mortgages Deeds of Trust Agreement for Sale 25. Foreclosure Processes of Foreclosure - Mortgage Filing of legal action Recording Lis Pendens Acceleration of Debt CourtAction Sheriffs sales and bidding Sheriffs Certificate Six-month statutory redemption period Sheriffs Deed and delivery Rights of borrower in possession Difference between equity of redemption and statutory right of redemption 25.2 Processes of Foreclosure - Deed of Trust Contrasts to a Mortgage Foreclosure Non-Judicial Foreclosure (power of Sale) Preparation and recordation of Notice of Default and Trustee's Sale Parties required to be notified Use of Request for Notice of Default Trustor's right of reinstatement Absence of acceleration of debt Minimum time period prior to day of Trustee's Sale Trustee's sale and bidding h. Delivery of Trustee's Deed Absence of Statutory Right of Redemption Judicial Foreclosure Alternative Deed in Lieu of Foreclosure Cancellation of debt Acquisition by lender subject to prior and subordinate liens Use of Deed in Lieu with estoppel Consideration (Purchaser for Value) Page 21 of 23

22 25.4. Proceeds and Lien Priorities Upon Foreclosure Recorded/ Non-recorded Interests Application of Foreclosure Proceeds Post-Foreclosure Remedies Terminology Deficiency Judgments Residential Arizona Anti-deficiency Statutes Exceptions Commercial Recourse versus Non-recourse Forfeiture of Agreement for Sale (aka Land Contract, Contract for Deed, Installment Contract, Land Sales Contract) Difference between foreclosure and forfeiture Default by Vendee Statutory reinstatement periods given to the buyer Notice of Election to Forfeit Notices to persons with recorded interests Completing the forfeiture through the Affidavit of Completion of Forfeiture versus quiet title action Required use of an account servicing agent to avoid quiet title action 26. Bankruptcy And Its Effect On Real Estate Business Types Of Bankruptcy Relief Impacts On Contracts/Transactions 27. Math Proration Calculations Appreciation and Depreciation Calculations Property Tax Calculations Net Proceeds Calculations Loan Interest Calculations Area and Volume Calculations Capitalization Calculations Commission Calculations Ratio Calculations 28. Selling A Business When is Real Estate License Not required Area of Specialization, Designations Recording of Interests 29. Cooperative Nature Of Real Estate Professional Boards and Associations Page 22 of 23

23 Functions Standards Multiple Listing Service How it works Who operates it Types (Residential, other) Ethics and Professional Conduct Practice of Brokerage Compensation Insurance Contractor agreements Expectations Performance standards Office policies Related Careers Property management Finance Appraisal (limited to CMA as licensee) Property development 30. Disclosure/Consumer Protection Stigmatized Property Law Affiliated business Relationships Privacy Act Flood hazard areas Military airports and ancillary military facilities Military training routes and military restricted airspace Public and private airports Expansive soils Fissures as shown on earth fissure maps issued by the Arizona Geological Survey Special tax assessment areas/special assessments Radon gas potentials zones Superfund Sites and Water quality Assurance Revolving Fund Sites Any other condition that affects the real property Page 23 of 23