Phase I

THEORY PORTION

REGISTRATION: (3 -4 Exam Questions)

• Phase l, 2. &3 must be completed in 18 MONTHS

• You must register with in ONE YEAR vv·ith RECO (REAL ESTATE
COUNCIL OF ONTARIO) after passing Phase 3.

• Once registered, your licence is valid for 24 months.

o This period is called ARTICLING PERIOD.

o You are a TEMPORARY SALES PERSON during this time .

o You must pass 3 exams to qualify for the next registration period.

• 1. Remaining of the Phase 3 (commercial or residential).

• 2. Real property law (MANDATORY)

• 3. One m:: of 4 Optional :

• Principle of Appraisal
• Principal of Mortgage Financing
• Property management
• Real Estate Investment Analysis.

• Once the above 3 passed, you enter into another 24 MONTHS period.

o You are PERMANENT SALESPERSON now.

o Now you must complete 24 CREDIT HOURS of education for each ~4

Months Period .

. o RECO approved courses are to be taken .

o RECO UPDATE (Commercial or Residential) is MANDATORY.

o Can accumulate MORE THAN 24 CREDITS.

o A maximum of up to 8 CREDIT HOURS can be Carried Forward.

o RECO UPDATE credits CAN NOT BE carried forward.

o The SAME RULES apply FOR BROKERS.

 • After Phase J, you must join a Brokerage.

o You become an INDEPENDENT CONTRACTOR.

o You also enter into EMPLOYER-EMPLOYEE relations.

• You apply with RECO Thru your Brokerage to become a

REGISTRANT.

• RECO gives you LICENSE; and then

• RECO asks you to get The INSURANCE .

• Insurance is for 3 Reasons/Protections:

o EOI (Error and Omission Insurance)-does not cover

fraud.

o CD! (Consumer Deposit Insurance)

o CPI (Commission Protection Insurance)

o If RETIRING, it covers you for 3 YEARS. $100

can cover you for up to 7 years.

o After RECO MEMBERSHIP, the next step is to join your LOCAL BOARD
(TORONTO REAL ESTATE BOARD-TREB)

• After joining local board, you automatically become member of

OREA AND CREA.

• OREA (ONTARIO REAL ESTATE ASSOCIATION) .

• CREA (CANADIAL REAL ESTATE ASSOCIATION)

Important: All the members of RECO are not the members of the Local Board
All the members of the Local Board are the members <?lRECO
RESPONSIBILITIES: (3-4 Exam Questions)
OREA (ONTARIO REAL ESTATE ASSOCIATION):

-Education
-Legal Forms

RECO (REAL ESTA TE COUNCIL OF ONTARIO):

-Licensing
-REBBA administration.
-Consumer' s Complaints.

LOCAL BOARD:

-Local MLS maintenance

-Collecting dues on behalf of CREA and OREA.
-Arbitration between the brokerages.

CREA (CANADIAL REAL ESTATE ASSOCIATION)

-Handles Federal level issues.

-Owns the logo of MLS AND REAL TOR ''R"'

Important: All sales salespc-' rsons -:_;;- e"en members of RECO (Registrants) are not
REALTORS.

INDEPENDENT CONTRACTOR: 0-2 Exam Ouestions)

o Must have stayed at least ONE YEAR in Canada.

o Must be 18 years of age.
o Is on Commission Split with the brokerage.
o Must incur all the advertising expenses.
o Can not be paid directly.
o Can have a max of I 0% voting share in a brokerage.
o Can not work for more than one brokerage.
o Can leave a brokerage with 24 Hours written notice with a reason.
o Can carry forward his listings with the broker's pem1ission.
o Can have multiple licensing as long as there's no conflict.

o Brokerage's major income is Desk Fee.

o Broker of Record maintains a brokerage.
o 2 years experienced sales person can manage a branch office.
REBBA: (4 EXAM QUESTIONS):

o A ll salespersons wi ll be controlled by the REBBA.

o No Trading can be done until Licensed .
o No Employment by the broker until Licensed.
o To take an action for commission, you must be regi stered.
o RECO adm inistrates the Real Estate and Business Brokers Act (REI3 BA)
and imposes the duties and Code of Ethics on the sales people.
o RECO Registrar can Suspend the Licence right away. iffeels something is
wrong.
o RECO Registrar can not terminate the license with out the notice.
o RECO Registrar can refuse, suspend, terminate, reinstate the license, but
certain procedure to follow. ·
o The brokerage is the agent and the agency means the brokerage.
o The client (buyer or seller) is the Principal.
o The Agreement is always between the agent and the principle.

PEOPLE EXEMPTED:

Lawyers, Auctioneers, Trust Nominees, Full time employees of the Builders, Home
owners are exempted to have a Real Estate Licence.
CONDOMINIUMS: 0-2 exam questions)
o Common Elements
o Tenancy in Common.
o Reserve Funds are for Future Developments and Repairs.
o Unit Owners are responsible for Debts. ·,
o By-Laws of the condo's can be changed by the unit owners.
o Status Certificate verifies Old Condo's Financial Status.
o I 0 days cooling off for the new condo ' s.
o Declaration and Descriptions are Legal Documents of the Condo.
o Free Hold, Basements, and Co-op Buildings are not Condo's.
o High Rise Buildings, Commercial Complexes and Golf Courses are examples of
condo's

CMHC:
o CMHC (Canadian Mortgage and Housing Corporation):
-Besides Insurance, also does Market Research, Statistical Reports and
underwriting.
• CMHC also publishes reports on housing.

I. Houses completed but not sold yet. .. Means "Housing Completed; Not absorbed'"
2. Houses Completed and Pre Sold .. ... . Means "Housing Completed and Absorbed''
3. Footing Done .. . ... ................. .. .... Means "Housing Starts··
4. No Work Started but Permission Granted ... Means " Pending Sta11''

MISCELLANEOUS:

o ICI stands for Industrial, Commercial and Investment

o Canadian Economy is a MIXED ECONOMY

o You give MORTGAGE (as a security) and get Mortgage (the loan)
o 25 years amortization means the loan will be Zero up to that time.
o TERM means the interest rate is fixed for that period.
o BLENDED MONTHLY PAYMENT means Principal plus Interest.
o Commission Contribution is between the two Brokerages.
o Commission Split is between the Sales person and the Broker.
o CLS stands for Commercial Listing Services.
o Property taxes are calculated by multiplying the Assessed Value of the property
by the Tax rate.
o The Tax rate is when you divide the required taxes by the Municipal Budget.
PROPERTY VALUES: ( 1-2 Exam Guest ions)

SELLER -~~~~~-­ SALESPERSON .. . Direct Comparison

(OBJECTIVE VALUE) (MARKET VALUE)

i
Sold price is MARKET PRICE

t
BUYER Puts an Offer
(SUBJECTIVE VALUE)

o EXTRA PRICE PAID:

o VALUEISEXCHANGE
(External Reasons)
o E.g. due to some relatives living there ...

o VALUE IN USE
(Internal reasons)
o E.g. liked some house features ...

_P_R_IN_C_I_P_L_E_S_:~<#_8_6~2 _99~)_ _ (5 Exam Questions)

I. ANTICIPATION:
o Expecting Future Benefit
o E.g. Fireplace with w/o to Deck.

$275000 $285000

2. SUBSTITUTION:

$250000 $250000
3. CHANGE:
o Refers to Economic Change.
o E.g. factory Lay outs.

4. EXTRNAL FACTORS:
o e.g. Factory Pollution, Crime.

5. PROGRESSION :
o Small house in Big Houses Fetch More Price.

6. REGRESSION:
o Big House is Small Houses Fetch Less Price.

7. CONSTITENT USE:
o No Separate val ue for land and Construction.

8. PRINCIPLE OF HIGHEST AND BEST USE:

o You change Zoning and sell for more.

9. CONTRIBUTION:
o Renovation by the seller

I 0. INCREASING AND DECREASING RETURNS:

o Builders, Investors and Investors.

11. BALANCE:
o Referred to PARKING related examples.

12. COMPETITION:
o 3 Same businesses in one place reduce the price.

13. CONFORMITY:
o Odd houses (e.g. fireplace in living room)

14. SUPPLY AND DEMAND:

o More Sellers in the Market Less price; More Buyers in the market High Price.

15. SURPLUS PRODUCTIVITY:

o Net profits Increase value.
 PHASE 1
MATH PORTION

A. MEAN and MEDIAN:

• Mean is Average

-Sum of All the Numbers divided by the Total numbers.

Q: What's the average of 110,000, 115,000, 130,000, and 145,000?

110000+ I 15000+ 130000+ 145000/4= 125000 is the mean.

• Median is the middle number.

(You must re-arrange the numbers from Smaller to Bigger first.

If number of data is Even, Take middle two numbers, add them and divide
the sum by 2)

Q: 11 7.000, 1~;2000 , i 29000, and 110000.

Step#l-Rearrange i.e. 110000, 112000, 129000, 132000

Step#2 112000+129000/2=$ 120500

B. COMMISSION SPLIT:
Q: A house listed and sold by ABC Realty Inc. for $400,000. The Commission earned is
5% to be divided 50/50 by the Listing Brokerage and the Cooperating Brokerage XYZ
Realty Inc. if Garcia, the sales person of ABC Realty is at 90/10 Split and Salesperson
Lee of the XYZ Realty is at 95/5 Split, How much each salesperson and the.irrespective
brokerages earned?

$400000 x 5% = $ 20000

/~
ABC Realty XYZ Realty
$10000 $10000

Garcia: 90% = $9000 Lee: 95%=$9500

ABC Brokerage = $1000 XYZ Brokerage = $500

c. LAND TRANSFER TAX:

0-$55000 0.5% no deduction

$55001-$250000 1% minus $275

$250001-$400000 I .5% mmus $1525

More than $400000 2% mm us $3525

(No deduction for Land if the value is more than $400000)

Q: $44000 House $44000 x .5% = $220

$230000 House $230000 x 1% = 2300- 275 = $2025
$350000 Land $350000 x 1.5% = $5250 - 1525 = $3 725
$435000 House $435000 x 2% = $8700 - 3525 = 51 75
$435000 Land $435000 2% = $8700 (No deduction done)

o. MUNICIPALITY/PROPERTY TAXES:
• Tax Rate: Annual Municipal Budget I Assessment Base x I 00

• Tax Payable by the owners: Assessed Value x Tax Rate

E. CLOSING ADJUSTMENTS:

• IMPORTANT: Closing Day is BUYER'S RESPONSIBILITY.

• The year has 365 days. Always count February as 28.

• While calculating rent per days, always divide the rent by 31 days.

Jan 1 June I 5 Closing Dec 31

Seller Buyer
June 15 plus remaining days on the buyer.

• Must calculate rate per days first for any payment in question.
• E.g. Taxes: Yearly Taxes/365 x #of days
• If Seller paid, calculate buyer's number of days; if buyer paid, work out seller's da)'S.
 F. AREA CALCULATIONS:

Triangle:
• Base x Height I 2

L]B 30.60 80
(ignore thi s)

30.60 x 40.2 I 2 = 615.06

Trapezoid:
• A<ld both sides I 2 x Centre Height.

/ 85

• 64 + 85 /2 x 23 =: 1713.50

Parallelogram:
• Base x Centre Height.

75

Rectangle:

• Base x Height.

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Q. Linda has One Acre Parcel of Land; she wants to sever it to 3 lots. City tells her to
leave 10% for the sidewalk. What will be the area in Sq. feet of each parcel?

43560 - 10% = 39204 I 3 = 13068

B. If she had 2 Acres Lot: 2 x 43560 -10% I 3 = 26136 sq. feet.

Q. John has a 3000 sq foot house, wants to do some extension. City allows maximum of
10% extension. Out of the following sizes, what will b~)_he best choice for John?

a. 5x5 sq. mtr. =25 sq. mtr

b. 6x6 sq. mtr. = 36 sq. mtr
c. 7 x 3.9 sq. mtr. = 27.3 sq. mtr
d. 8x8 sq. mtr. = 36 sq. mtr

3000 x 10% = 300 sq. ft. x .0930 = 27.8 sq. mtr. The answer is C
 Q. Michael has a lot of 97 feet x 147 feet. I le wants to construct a bungalow on it. City
requires a minimum of 1300 sq. rntr lot to allow construction. If Michael ·slot is more
than the city's requirement, what will be the size of the building if city allows only 14%
construction?

- 97 x 147 x .0930 = 1324.66 sq. mtr x 14% = 1855 sq. mtr.

Q. Your Living Room is IO' 8", x 11 ' 9". How much sq. feet is the area?

10 + 8/ 12 x 11 + 9112 or 10.6666 x 11.75 = 125 .3 3 sq. feet.

If 4 different Room sizes given, Add all of them together.

G. VOLUME CALCULATION:

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Q: A two story home has 960 sq ft. p•:.r foot. (Hint : do not multiply hy 2).
Height is 25.5 ft. from the Surface (means: add 0.5.foof).
What's the construction cost?
lfthe construction Cost is $100 per cub. yd. (divide by 27)

960 x (25 .5 + .5) I 27 = x I 00 =$92444.44

If the construction cost is $5.10 per cub. Foot (no need to divide by 27)
96x26=x5.10 =$127296

Q: Each Drive way is 40 feet long, 20 feet wide and 5 inches thick, what's the
construction cost for 4 Drive ways?

• Construction Cost is $45 per cub. Yd. (divide by 27)

• 40x20x5/12=x4x45=$2222
 H. MORTAGAGE AVERAGE:

(I st. Mortgage x Interest Rate+ 2nd. Mortgage x Interest Rate) = I Total Mortgage (I st.+ 2"d)

Q: l st. Mortgage=$ I 00000 at 5% interest rate per year.

2"J. Mortgage= $15000 at 15% interest rate
= (100,000 x 5%) + (15000 x 15%)
= (5000 + 2250) =7250 I 115000 = 0.063 or 6.3%

1. EFFECTIVE RA TE:

Q: If the Mo11gage Interest Rate is I 0% calculated semi annually, not in advance, what"s
the Effective Rate?
n
Effecti ve Rate =(I/100/c + 1)-1x100 I = Interest Rate =10%
c = Compounding in a year =2
n =no. of compounding occurred ='
2
= ( I 011 0012 +1) -1 x 1CO
= 1.05 x 1.05 -1 x 100 = I 0.25

J. COMPOUNDED FUTURE VALUE:

Smith borrowed a loan of $5000 at 9% interest, compounded monthly, for a period of 3

months._How much interest smith will pay after 3 months?

n
= (I/I 00/c + 1)-1 x P I = Interest rate =9%
c = Compounding in a year =12
_.,
n = no. of compounding occurred. - _)

p =Principal =5000
3
= (9/100112 + 1)-1x5000
= ( 1.0075 x 1.0075 x 1.0075) -1 x 5000 = $113.35 (Interest paid after J months)

• In the above question, if compounded semi annually, how much interest paid after a year:
2
(9/100/2 + 1) -1 x 5000= $460.12
K. MORTGAGE PAYMENT FACTOR:

• Select the Right page, take the factor. multiply by the loan amount an<l Divide by 1000.

Q: Loan is $55000; Interest 11 %, amortization 25 years, FIND MONTI-IL Y

PAYMENT.

9.62592 x 55000 I 1000 == $529.39

L. PERCENTAGES:
Q.
House A Listed for $149900; Sold for $139900
House B Listed for $230000; Sold for $227000
House C Listed for $241000; Sold for $229900

What's the sold - to - listing percentage?

• A 139900/149900 x 100 == 93%

• B 227000/230000 x 100 == 98%
• C 229900/241000 x I 00 = 96%

• When asked, which house sold for the lowest %age difference?

• Lowest difference means Highest percentage Sold i.e House B (98%)

Q. What's the highest to the lowest percentage sold? B,C,A

Q. What's the lowest to the highest percentage sold? A,C,B

• Big number- small number I small number== x 100

Q. Last year Rent was $8.55 per sq. feet, this year it is $8.75, the next year it will
be $9.05 per sq. feet. What's the %age increase each year?

Last year: $8.55

This year: $8.75 8.75 - 8.55 I 8.55 x 100 == 2.34%
Next year: $9.05 9.05 - 8.75 I 8.75 x 100 = 3.43%

Q. If the area of the building is 3500 sq. feet, what will be the Rent per Sq. foot
next year?

9.05 x 3500 == $31675 Ifaskedmonthly: /12

M. CAPITALIZATION:
Q. Building Gross Income is $342000, Vacancy Loss is 3%, Ex penses $283500. Cap
Rate l 0 .5%. What's the Value of the building?

Value= (gross Income- Vacancy Loss- Expenses) I Cap Rate

= 342000 - 3% -283500 I I0.5% = $459429

• If the size of the Building is 12350 sq. ft ., what's the$ value per sq. ft . and per
sq. mtr.

459429112350 = $37.20 per sq. ft.

459429 I l 148.55 = $400 per sq. mtr (12350 x .0930=11 4 8.55)

N. GOS and TDS

GDS =Pl+ TI BI PI= Principal+ Interest
TDS =(Pl + T +car loan+ 'h condo fee+ Heating) I Bl T =Property Tax
BI= Buyer's Income
R =Ratio (GOS or TDS)

• R =PIT I Bl
• PIT =Bl x R
• PI =BlxR-T
• Bl =PIT IR

• Any thing given Monthly, multiply it with I 2 first.

• If the answer is in monthly, divi sion by I 2 is required.

Q.
• Buyer' s Income $60000
PI $13500
TAXES $2000
WHAT IS GOS (i.e. R)?

R =PIT I BI
R = 13500 + 2000 I 60000 = .02583 or 25.83 %

• BI $50000
Pl $723.46
Taxes $ 1800
What's the Ratio?

(723.46 x 12) + 1800 I 50000 = 20.96 %

 • Bl $38000 I year
PI $678.25 per montl·.
Taxes $1350 per yr
Car Loan $435 per month.
Find out TDS Ratio?

(678.25 x 12) +(-BS x 12) + 1350 I 38000 = 38.71'!/o

• BI $45000/yr
GDS 30%
Taxes $1450/yr,
WHAT'S THE PI?

PI= BI x R-T
45000 x 30% - 1450 = 12012 /12 = 1004.17 per month.

• BI $66000/yr
TDS 40%
Taxes $2450/yr
Car Loan $520/month (520 x 12) = 6240
What's the PI?

66000 x 40% - 2450- 6240 = 17710 /12 = $1475.83 I month.

• If Condo fee is given, take Yi of it.

• BI $50000/yr
PIT $14700/yr.
Condo fee $300/month (300/2 x 12 = 1800)
TDS ??????

14700 + 1800 I 50000 = 33%

o. LISTING TO SALE RATIO:

New .Sold
700 900 9001700 = 1.28 -If the answer is more than I, it's Sellers Market.
900 700 700/900 = . 77 -If the answer is less than I, it's Buyer' Market.

• The formula is Sold I New---always.