The 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.

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
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1 Introduction to the Real Estate
Business
• A business of many specializations
– Brokerage
– Appraisal
– Property management
– Financing
– Subdivision and development
– Home inspection
– Counseling
– Education
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1 Introduction to the Real Estate
Business
• Types of real property
– Residential
– Commercial
– Mixed-use
– Industrial
– Agricultural
– Special Purpose
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1 Introduction to the Real Estate
Business
• The real estate market
– Supply and demand
– Factors affecting supply
– Factors affecting demand
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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.

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
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2 Real Property and the Law
• 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
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2 Real Property and the Law
Physical
Improvements
Air Rights
Surface
Rights
Subsurface
Rights
Land
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
The Bundle of Rights
Real Property
Real estate plus
“bundle of legal rights”
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2 Real Property and the Law
Bundle of Legal Rights
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2 Real Property and the Law
• Real property rights
– Surface rights
– Subsurface rights
– Air rights
– Water rights
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2 Real Property and the Law
• 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
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2 Real Property and the Law
• Characteristics of real property
– Economic characteristics
• Scarcity
• Improvements
• Permanence of investment
• Area preference or location
– Physical characteristics
• Immobility
• Indestructibility
• Uniqueness
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2 Real Property and the Law
• 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
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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
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3 Concepts of Home Ownership
• Types of housing
– Single-family home
– Apartment complex
– Condominium
– Cooperative
– Planned Unit Development (PUD)
– Retirement community
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3 Concepts of Home Ownership
• Types of housing
– High-rise development
– Converted-use property
– Manufactured housing
– Modular homes
– Time-share
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3 Concepts of Home Ownership
• Housing affordability
– Mortgage terms
– Ownership expenses and ability to pay
– Investment considerations
– Tax benefits
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3 Concepts of Home Ownership
• Homeowners’ insurance
– Coverage and claims
– Basic versus broad-form policies
– Liability
– Coinsurance clause
– Comprehensive Loss Underwriting Exchange
(CLUE)
– National Flood Insurance Program
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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.

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
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4 Agency
• Real estate agency
– Common-law history
– Definitions:
• Agent
• Principal
• Agency
• Fiduciary
• Client
• Customer
• Nonagent
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4 Agency
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4 Agency
• Fiduciary duties of an agent
– Care
– Obedience
– Loyalty
– Disclosure
– Accounting
– Confidentiality
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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
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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
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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
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4 Agency
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4 Agency
• Types of agency relationships
– Disclosure laws
– Nonagency
– Agency statutes
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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
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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
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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
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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.

5 Real 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
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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
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5 Real Estate Brokerage
• 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.
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5 Real Estate Brokerage
• 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
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5 Real Estate Brokerage
• 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
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5 Real Estate Brokerage
• 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
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5 Real Estate Brokerage
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5 Real Estate Brokerage
• Recent issues
– Fee-for-services
– Minimum level of services
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5 Real Estate Brokerage
• Antitrust laws
– Price-fixing
– Group boycotting
– Allocation of customers or markets
– Tie-in (or tying) agreements
– Penalties
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5 Real Estate Brokerage
• Legal considerations and technology
– Internet, Web Sites, e-mail
– Internet advertising
– Electronic contracting
– Do-not-call registry
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