The Market for Real Estate Knowledge Chapter 1
Real Estate - land and things attached to it • The real estate body of knowledge consists of four broad collections of concepts: • legal analysis concepts • market analysis concepts • real estate service industry concepts • financial and investment analysis concepts.
Legal analysis concepts include: • property rights • restrictions on property rights (public and private) • deeds • leases • contracts • title transfer issues
Market analysis concepts include: • real estate market dynamics • real estate space market • real estate asset market • real estate development industry • urban growth models
Real estate service industry concepts include: • real estate brokerage • real estate appraisal • property management
Financial and investment analysis concepts include: • financing methods • time value of money concepts • mortgage mechanics • investment property analysis • development project analysis
Market Model for Real Estate Knowledge • What is a market? • What is demand? • What is supply? • Where do supply and demand come from? • How do supply and demand interact? • Principle of supply and demand applied to the market for real estate knowledge
Industry Trends and Statistics • Figure 1.2 on page 7 shows number of individuals employed in the real estate industry from 1972 though 2001 • Table 1.1 on page 8 shows typical earnings for brokers, salespersons, appraisers, title examiners, and property managers in 1998 and 1999.
Property Rights and Legal Descriptions Chapter 2
Real vs. Personal Property • Real estate • Property • Real property • Personal property • Deeds • Leases
Fixture • A personal property item that has become a part of the real property is called a fixture. • Tests for fixture status include: • Intent of parties • Test of attachment • Test of adaptability
Mineral and Air Rights • Mineral rights refer to the legal interests associated with oil, gals, coal, or other minerals that may be located beneath the surface of a parcel of land. • Air rights refer to the legal interests associated with the space above the surface of a parcel of land.
Water Rights • Water rights refer to the legal interests associated with water that flows across, touches, or is located in or under a parcel of land. • littoral proprietors. • non-navigable bodies of water • riparian rights doctrine • prior appropriation doctrine
Estates in Land • Freehold estates • Present interests • Fee simple absolute estate • Qualified fee estate • Life estate • Future interests include: • Reversion interest • Remainder interest • Leasehold estates • Tenancy for a stated period • Tenancy from period to period • Tenancy at will • Tenancy at sufferance
Concurrent Estates • Tenancy in common • Joint tenancy • Tenancy by the entirety • Community property
Other forms of joint ownership • Condominium • Cooperative • Timeshare • Fee interests • Right to use
Legal Description Methods • Metes and Bounds • Rectangular Survey • Recorded Plats
Metes and Bounds • start at a designated point of beginning and, through specific distances (metes) and directions (bounds), locate the boundary lines of the parcel (see Figure 2.3 on page 27). • Distances are measured in feet (to the nearest tenth or hundredth). • Directions are measured in degrees, minutes, and seconds. (See Figure 2.2 on page 26) • Property corners are marked by reference points.
Rectangular Survey • Principal meridians are north-south lines • Base lines are east-west lines • Range lines • Township lines • Townships • Sections • Divisions of section
Reference to Recorded Plats • Many jurisdictions require developers to prepare accurate engineering drawings of their subdivision projects called plats. • These plats are then entered into the public record as legal documents that can be referred to as needed to identify individual parcels of land that are included in the plat. • With a properly prepared and recorded plat, a legal description for a property can be as simple as “Lot 4 of Block G of Grassy River Estates.”
Private Restrictions on Ownership Chapter 3
Encumbrances • Restrictions or limitations on the owner’s ability to use a property.
Liens • Lien – a financial security interest in a property. • Mortgage – a pledge of real property as collateral for a debt or other obligation • Mortgagor-borrower • Mortgagee-lender • Foreclosure • Mechanic’s lien
Easement • right to use a property in a specified manner. • Types of Easements • Easement Appurtenant • Easement in gross • Creation of Easements by: • Express grant or reservation • Implication • Prescription • Termination of Easements by: • Agreement • Merger • Abandonment
Licenses and Profits • License – a revocable personal privilege to use land for a particular purpose • Profit - profit a prende – a non-possessory interest that permits the holder to remove specified resources from the land
Adverse Possession • Process by which title to land is transferred from its legal owner to someone who openly possesses the land for a statutory time period without the permission of the owner. • Requirements to obtain title by adverse possession • Actual and exclusive • Open and notorious • Hostile • Continuous • Under a claim of right • Statutory period
Other issues • Encroachment – an unauthorized invasion or intrusion of a fixture, building or other improvement onto another owner’s property. • Restrictive Covenants – also called deed restrictions, are promises made by a landowner or previous landowner that the land will or will not be used in certain ways. • See Real Estate Today Feature “Meadow Brook Ranch Use Covenants” on page 54. • See Real Estate Today Feature “Validity of Restrictive Covenants” on page 55.
Public Restrictions on Ownership Rights Chapter 4
Four Basic Powers of Government Over Real Estate • Taxation • Escheat • Eminent domain • Police power
Property Tax • “ad valorem tax • millage rate • assessment ratio • exemptions • The tax bill for a property with a market value of $120,000 in a jurisdiction that assesses a millage rate of 25 mills on 40% of a property’s market value and permits a exemption of $2,500 for this type of property is calculated as follows: Market Value $120,000 multiplied by Assessment Ratio x .40 equals Assessed Value $48,000 minus Exemptions (if any) -$2,500 equals Taxable Value $45,500 divided by 1000 1000 times Millage Rate x 25 equals Property Tax $1,137.50
Administering the Property Tax • First step, identify all properties and estimate their values • Second step, develop a budget and tax rate. • The budget is determined by the appropriate government officials based on the costs of providing government services to the community (police and fire protection, schools, libraries, street, etc.) • Dividing the budget amount by the tax digest (total value of properties in the jurisdiction) yields the tax rate necessary to generate the budget amount. • Third step, bill the property owners and collect the taxes.
Power of Escheat • Government’s right to acquire ownership of land when the landowner dies without an heir or a valid will
Power of Eminent Domain • right of the government to take private property for public use upon the payment of just compensation • Use must be a valid public use. • Property owner must be compensated fairly. • Inverse condemnation
Police Power • Power to regulate use of private property to protect public health, safety, morals and general welfare • Land uses are interdependent, meaning that the way one property is used affects other nearby properties. • Comprehensive general plan • projected economic development • transportation plan to provide for necessary circulation • public-facilities plan that identifies such needed facilities as schools, parks, civic centers, water and sewage disposal plants • land-use plan • official map
Implementing Comprehensive General Plan • Zoning – division of a community’s land into districts to regulate the use of land and buildings and the intensity of various uses • Type of use – residential, commercial, industrial categories • Intensity of use - developmental density • Height and bulk limitations • Bulk regulations • Floor-area ratio • Minimum lot size and setback regulations
Zoning Changes • Legislative relief • Administrative relief • Variances • Special use permits • Judicial relief
Other Issues: • Nonconforming Uses • Building Codes • Subdivision Regulations • Subdivision Approval Process • Mandatory Dedication • Impact Fees • Innovative Land-use Control Methods • Planned unit development • Performance zoning • Incentive zoning • Transfer of development rights
Deeds and Leases Chapter 5
Deeds • Written document that transfers title (ownership) to real estate from the grantor to the grantee • Necessary Elements of a Deed • Designation of the parties • Consideration given by grantee • Legal description • Specific interest conveyed • Signature of the grantor and witnesses
Additional Deed Elements • Covenant against encumbrances • Covenant of seisin • Covenant of quiet enjoyment • Covenant of further assurances • Warranty forever
Types of Deeds • General warranty deed • Special warranty deed • Bargain and sale deed • Quitclaim deed • Deeds for special uses
Leases • Agreement between a property owner and tenant that transfers the rights of use and possession • Requirements of a Properly Prepared Lease • Names of the lessor and lessee • Conveyance of the premises • Description of the premises • Term or duration of the lease • Amount of rent and manner of payment • Duties and obligations of parties • Signatures of the parties
Classification of Leases Duration of term • Tenancy for stated period • Tenancy from period to period • Tenancy at will • Tenancy at sufferance • Type of Use • Ground Lease • Residential lease • Commercial lease • Methods of Payment • Gross lease • Net lease • Net net lease • Net net net lease • Fixed-rent lease • Graduated-rent lease • Reappraisal lease • Percentage lease • Index lease
Issues in the Landlord-Tenant Relationship • Renewal option • Expense stops • Assignment and subleasing • Security deposits • Improvements • Covenant of quiet enjoyment • Implied warranty of habitability • Maintenance of common areas • Protection against criminal acts
State Statutes affecting Landlord-Tenant Relationship • Each state has enacted laws that regulate the behavior and relationship between landlords and tenants. To view these laws for individual states, visit www.nolo.com on the World Wide Web.
Contracts in Real Estate Transactions Chapter 6
Contracts • An exchange of promises between parties, conditioned on certain events and enforceable by law. • Necessary Elements of a Contract • Offer and acceptance • Consideration • Capacity of parties • Lawful purpose • Writing requirement (Statute of Frauds)
Contract Issues • Oral Contracts • Specific Performance • Partial Performance • Breach of Contract
Contract Contingencies • Specified conditions in a contract that relieve the parties of their promises to perform • financing contingency • title contingency • inspection and repair contingency
Common Real Estate Contracts • Real Estate Sales Contract • Option-to-Buy Contract • Contract for Deed