Real Estate Terms & Concepts

1. Real Estate Terms & Concepts Jerry Rioux, CCRH Board Member grioux@sbcglobal.net http://www.angelfire.com/jazz/jrioux/

2. Workshop Outline • Part I - Terms & Concepts • Part II - Financing • Part III - Purchase Process

3. Part I Terms & Concepts

4. What Is Real Estate? • Land • Affixed to the Land • Appurtenant to Land • Immovable by Law

5. Real Estate = Bundle of Rights • Old English Concept of Ownership • The Right to Possess, Enjoy, Control and Dispose of Real Estate • The Individual “Rights” May be Bought and Sold or Rented Separately

6. Title & Estates • Title = Ownership of Real Estate • Estate = Character of Interest • Fee Simple • Less Than Fee Estate • Life Estate

7. Real Estate Legal Descriptions • Lot, Block and Tracks • Metes and Bounds • Section and Township

8. Deeds • Legal Documents that Convey (Transfer) the Title to Real Estate • Usually Recorded against the Property in the County Recorder’s Office

9. Examples of Deeds • Warranty Deed • Grant Deed • Quitclaim Deed • Tax Deed • Trust Deed (or Deed of Trust) • Deed of Reconveyance

10. Encumbrances • Things that Burden the Title to Property • Claims of Others to Property • Non-Monitory Encumbrances • Monitory Encumbrances

11. Non-Monitory Encumbrances • C C & Rs • Easements • Encroachments • Mineral Rights • Leases • Regulatory Agreements • Public Rights of Way

12. Covenants, Conditions and Restrictions (C C & Rs) • Private Land Use Controls • Lot Size, Set-Backs... • Home Size, Architectural Style… • Parking, Pets… • Public Deed Restrictions • Price & Occupancy Controls

13. Covenants, Conditions and Restrictions (C C & Rs) • Judicial Enforcement • Invalid • Racial & Religious Covenants • Unenforceable • Restrictions the Cause Waste • Can Be Released by Beneficiary

14. Monitory Encumbrances • aka Liens • Loans, Taxes & Assessments • Voluntary or Involuntary • General or Specific • “Blanket Encumbrances” CoverMultiple Parcels

15. Lien Priorities • Based on Recording Dates or Subordination Agreement • Legal Description (lot split) • C C & Rs • Property Taxes • 1st Mortgage • 2nd Mortgage

16. Real Estate Contracts • Real Estate Purchase Agreement • Land Contract (Contract for Deed) • Option • Lease Option • First Right of Refusal

17. Valid Real Estate Contracts • In Writing • Capable Parties • Mutual Consent • Lawful Object • Sufficient Consideration

18. Purchase Contract • Consideration • Purchase Price • Timing • Financing & Other Terms • Contingencies

19. Contingencies • Financing • Appraisal • Clear Title • Due Diligence

20. Option to Purchase • Right to Purchase • Consideration • Time Limits for Performing • Extension Fees • Purchase Price or Formula • No Obligation to Buy

21. First Right of Refusal • Right to Buy • When Offered for Sale • Match Price or Formula • Limited Time to Perform • No Obligation to Buy

22. Title Insurance Companies • Title Plants - duplicates county records • Organizes Records by Parcel • Provides Title Reports • Records Documents • Issues Title Insurance

23. Title Reports • Preliminary (not Title) Reports • Lists Ownership Interests and Encumbrances • Encumbrances are “Exceptions” to the Title • Buyers want Exceptions Removed

24. Types of Insurance • Title Insurance • CLTA & ALTA • Mortgage Insurance • PMI & MMI • Hazard Insurance • also Flood & Earthquake

25. Escrow • Independent 3rd Party who Processes Real Estate Sales Transactions • Acts Only When All Conditions Are Met • Divides or Allocates Costs as Agreed • Can Handled by • Title Insurance Companies • Private Escrow Companies • Real Estate Brokers

26. Closing Costs - Recurring • Property Taxes • Insurance • Interest • HOA Dues • Assessments

27. Closing Costs - Non-Recurring • Escrow Fees • Title Insurance • Transfer Fees • Recording Fees • Doc Prep Fees • Loan Fees & Points • Home Warrantee

28. Part II Financing

29. Single Family Financing • Value of Collateral • Payment Ratios • Buyer’s Credit Worthiness • Stability of Buyer’s Income

30. Loan to Value Ratio (LTV) • Loan Amount • divided by Property Value • $160,000 / $200,000 = 80% • 97% and 100% are Possible • over 80% needs Mortgage Insurance

31. Payment Ratio (Housing) • PITI • Principal • Interest • Taxes • Insurance • divided by Gross Income • 28%, 32%, 40%...

32. Payment Ratio (Overall) • PITI • plus Other Recurring Debt • divided by Gross Income • 36%, 40%, 45%...

33. Market Rate Home Buyer

34. Assisted Home Buyer

35. Multi-Family Financing • Value of Collateral • Debt Coverage Ratio • Market Demand & Absorption Rates • Buyer’s Credit Worthiness • Management Capacity

36. Proforma or Pro Forma • Jargon for Budget • Project Financial Performance • Development Pro Forma • Operating Pro Forma • Development & Operating together

37. Development Pro Forma

38. Sources of Funds

39. Operating Pro Forma

40. Operating Pro Forma

41. Appraisals • Estimates of the Value • Three Approaches • Competitive Market • Income • Replacement Cost • MAI Appraisals

42. Competitive Market Approach

43. Income Approach

44. Types of Lenders • Institutional • Banks and Savings Banks • Pension Funds • Insurance Companies • Non-Institutional • Mortgage Bankers • Mortgage Brokers • Government

45. S&L Concept • Intermediation • Accept lots of small short-term deposits to make 30-year home loans • Disintermediation • Depositors withdraw money faster than it is collected from Borrowers

46. Secondary Mortgage Market • The Buying and Selling of Mortgages • Lenders Now Originate, Sell and Service Mortgages • Fannie Mae & Freddie Mac • Government Chartered Companies • Sell Mortgage-Backed Securities

47. Types of Loans • Amortized Loan • Fixed Rate & Adjustable Loans • Balloon Payment Loan • Straight Note • Insured & Guaranteed Loans

48. Typical Loan Documents • Promissory Note • Deed of Trust • Regulatory Agreement • (assisted housing only)

49. Promissory Note • Agreement to Repay the Loan • Amount Borrowed • Interest Rate • Repayment Terms • Other Conditions • Between Lender & Borrower

50. Straight Note • Frequently used for interim financing and seller carry back loans • monthly payments of interest only • balloon payment of principal • due on specific date or occurance