Modern Real Estate Practice 18th Edition. Chapter 1 Introduction to the Real Estate Business The real estate business is more than just houses. As this

Modern Real Estate Practice 18th Edition

Chapter 1Introduction to the Real Estate BusinessThe real estate business is more than just houses. As this chapter says, “Real estate is big business,” and includes commercial properties, condominiums, and open land in addition to single-family homes.

3©2010 Kaplan, Inc.

1 Introduction to the Real Estate Business

• Learning objectives– Identify the various careers available in real

estate, and the professional organizations that support them

– Describe the five categories of real property– Explain the operation of supply and demand in

the real estate market– Distinguish the economic, political, and social

factors that influence supply and demand



• A business of many specializations– Brokerage– Appraisal– Property management– Financing– Subdivision and development– Home inspection– Counseling– Education



• Types of real property– Residential– Commercial– Mixed-use– Industrial– Agricultural– Special Purpose



• The real estate market– Supply and demand– Factors affecting supply– Factors affecting demand

Many types of property define real estate’s “product.” Land is one of the fundamental concepts of real estate, as well as “improvements” in the form of houses and outbuildings. The fence suggests the limits of ownership.

Chapter 2Real Property and the Law


2 Real Property and the Law

• Learning objectives– Identify the rights that convey with ownership

of real property and the characteristics of real estate

– Describe the difference between real and personal property

– Explain the types of laws that affect real estate– Distinguish between the concepts of land, real

estate, and real property



• Land: the earth’s surface extending downward to the center of the earth and upward to infinity, including permanent natural objects

• Real estate: land at, above, and below the earth’s surface, plus all things permanently attached to it, whether natural or artificial

• Real property: the interests, benefits, and rights that are automatically included in the ownership of land and real estate



Air Rights

Surface Rights

The Bundleof Rights

PhysicalImprovements

Subsurface Rights

Earth’s surfaceto the center ofthe earth and the airspace above theland, including the trees andwater

Land plus permanenthuman-made additions

Real estate plus“bundle of legal rights”

Land Real Estate RealPropertyLand

Earth’s surface to the center of the earth and the airspace above the

land, including the trees and water

Real Estate

Land plus permanent human-made additions

Real Property

Real estate plus “bundle of legal rights”

Air Rights

Surface Rights

Subsurface Rights

Physical Improvements

The Bundle of Rights


Bundle of Legal Rights


Possession

Control

Enjoyment

Exclusion

Disposition



• Real property rights– Surface rights– Subsurface rights– Air rights– Water rights



• Personal property (all property that does not fit the definition of real property)

• Manufactured housing• Plants

– Fixtures– Intent– Method of annexation– Adaptation to real estate– Agreement

• Trade fixtures



• Characteristics of real property– Economic characteristics

• Scarcity• Improvements• Permanence of investment• Area preference or location

– Physical characteristics• Immobility• Indestructibility• Uniqueness



• Laws affecting real estate– Contract law– General property law– Agency law– Real estate license law– Federal regulations– Federal, state, and local tax laws– Zoning and land use laws– Federal, state, and local environmental

regulations

Chapter 3Concepts of Home Ownership

A variety of housing types are available under the general heading of “home ownership,” including single family, small multifamily residences, and high-rise condos.


3 Concepts of Home Ownership

• Learning objectives– Identify the various types of housing choices

available to homebuyers– Describe the issues involved in making a home

ownership decision– Explain the tax benefits of home ownership– Distinguish the various types of homeowners

insurance policy coverage



• Types of housing– Single-family home– Apartment complex– Condominium– Cooperative– Planned Unit Development (PUD)– Retirement community



• Types of housing– High-rise development– Converted-use property– Manufactured housing– Modular homes– Time-share



• Housing affordability– Mortgage terms– Ownership expenses and ability to pay– Investment considerations– Tax benefits



• Homeowners’ insurance– Coverage and claims– Basic versus broad-form policies– Liability– Coinsurance clause– Comprehensive Loss Underwriting Exchange

(CLUE)– National Flood Insurance Program

Real estate is an industry about property, but it’s also an industry about people. The concept of agency is entirely about people, and relationships between and among them.

Chapter 4Agency


4 Agency

• Learning objectives– Identify the various types of agency

relationships common in the real estate profession and the characteristics of each

– Describe the fiduciary duties involved in an agency relationship

– Explain the process by which agency is created and terminated and the role of disclosure in agency relationships

– Distinguish the duties owed by an agent to his or her client from those owed to customers


4 Agency

• Real estate agency– Common-law history– Definitions:

• Agent• Principal• Agency • Fiduciary• Client• Customer• Nonagent


4 Agency

Agent

SellerBuyer


4 Agency

• Fiduciary duties of an agent– Care– Obedience– Loyalty– Disclosure– Accounting– Confidentiality


4 Agency

• Creation and termination of agency– Creation

• Express agency• Implied agency

– Termination• Completion, performance, or fulfillment • Death or incapacity• Destruction or condemnation of the property• Expiration • Mutual agreement• Breach• Operation of law


4 Agency

• Limitations on authority– Universal agent

• Empowered to do anything the principal could do personally

– General agent• Represents the principal in a broad range of matters

related to a particular business or activity

– Special agent• Authorized to represent the principal in one specific

act or business transaction under detailed instructions


4 Agency

• Types of agency relationships– Single agency– Seller representation– Buyer representation– Owner as principal– Dual agency

• Disclosed dual agency• Designated agency• Undisclosed dual agency


4 Agency

Agent

SellerBuyer


4 Agency

• Types of agency relationships– Disclosure laws– Nonagency– Agency statutes


4 Agency

• Customer-level services– Reasonable care and skill in performance– Honest and fair dealing– Disclosure of all facts the licensee knows (or

should be expected to know) that materially affect the value or desirability of the property

– State law may require additional services or disclosures


4 Agency

• Puffing– Exaggeration of a property’s benefits

• Misrepresentation– Fraud: Intentional misrepresentation of a

material fact to harm or take advantage of another

– Negligent Misrepresentation: Broker should have known a statement was false


4 Agency

• Property conditions– Latent defect

• A hidden structural defect that would not be discovered by ordinary inspection

– Stigmatized property• Properties branded “undesirable” because of actual or

rumored criminal, tragic, or scandalous events that occurred on the property

A real estate brokerage is more than a room full of desks. It’s a hive of activity; dependent on people, information, and technology to keep the business running.

Chapter 5Real Estate Brokerage


• Learning objectives– Identify the role of technology, personnel, and

license laws in the operation of a real estate business

– Describe the various types of antitrust violations common in the real estate industry, and the penalties involved with each

– Explain how a broker’s compensation is usually determined

– Distinguish employees from independent contractors and explain why the distinction is important

5 Real Estate Brokerage



• Brokerage– The business of bringing parties together

• Real estate broker– A person licensed to buy, sell, exchange, or lease

real property for others and to charge a fee for these services



• Broker-salesperson relationship– A real estate salesperson is licensed to perform

real estate activities on behalf of a licensed real estate broker

– Employee—broker may require employee to follow rules for hours, attendance, etc.

– Independent contractor—broker cannot require specific office hours, attendance, etc.



• Broker’s compensation– Commission is always negotiable– Commission is usually earned when

• A completed sales contract has been executed by a ready, willing, and able buyer

• The contract is accepted and executed by the seller• Copies of the contract are in the possession of all

parties



• Broker’s compensation– Procuring cause

• Broker started a chain of events that resulted in a sale

– Ready, willing, and able buyer• One who is prepared to buy on the seller’s terms and

ready to take positive steps toward consummation of the transaction



• Salesperson’s compensation– Amount and method of compensation is set by

agreement between the broker and the salesperson

– Fixed salary– Share of commission– 100% commission plan– Graduated commission split


5 Real Estate Brokerage$189,000 6% (.06 as a decimal) = $11,340

Broker Harry$11,340 50% (.50) = $5,670to be split between Broker Harry

and salesperson Ed

Broker Matt$11,340 50% (.50) = $5,670to be split between Broker Matt

and salespersonTom

$5,670 55% (.55) = $3,118.50(salespersonTom’s share)

$5,670 45% (.45) = $2,551.50(Broker Matt’s share)



• Recent issues– Fee-for-services– Minimum level of services



• Antitrust laws– Price-fixing– Group boycotting– Allocation of customers or markets– Tie-in (or tying) agreements– Penalties



• Legal considerations and technology– Internet, Web Sites, e-mail– Internet advertising– Electronic contracting– Do-not-call registry

Documents

Modern Real Estate Practice 18th Edition. Chapter 1 Introduction to the Real Estate Business The real estate business is more than just houses. As this