Introduction to Real Estate
Why Study Real Estate ?
•Many occupational opportunities
•Broker / Agent / Property Mgmt
•Banks / Mortgage Lender / Title Insurer
•Home Inspector / Appraiser
•Developer / Investor
• Real Estate Attorney
•Federal Agencies (HUD, GSA, DFIC, Bureau of Land Mgmt,
Forest Service, etc…)
•Home Ownership (Pride of Ownership)
•2/3 of all Americans own at least 1 home
Some Statistics
In 2001 the number of billionaires dropped
from 538 in 2000 to 497 in 2001.
However those billionaires who attribute
their wealth to Real Estate went from 32 to
33. Fifteen of them were from the US.
Big Names
Donald Trump (1.8 Billion)
Leona Helmsley (1.9 Billion)
Sam Zell (2.1 Billion)
Statistics Cont.
Sector
Gross Domestic
Product
Dollar Output
$9,872.9
% of GDP
100.0
Real Estate
$1,116.3
11.3
Finance &
Insurance
$819.9
8.3
Manufacturing:
Durable Goods
$901.7
9.1
One of the Best Investments
You Can Make
Real Estate Prices have gone up in recent years while the
stock market dropped. It is better to buy a first home before
putting money in the market.
- Peter Lynch
Vice Chairman of Fidelity Management and Research Co.
former manager of Fidelity’s flagship Magellan Fund
One of the Best Investments
You Can Make
Beyond the beneficial economics of home ownership such as
low down payments, capital appreciation, and tax
deductions, there are key psychological reasons a home is a
great investment: you aren’t inclined to sell the roof over
your head to satisfy a whim or escape a bear market. Also
there is no stock ticker for real estate investments or TV
Commentators mentioning that the house next to you
declined 10%.
Also the average price increase nationally has been about
5% for the past 10 years. It does not sound like much, but if
you buy a $100,000 house and you put 20% down, and it
goes up 5% a year, you’re getting $5,000 on your $20,000
down payment.
That’s a 25% return on your investment!
Objectives
• Define Real Property vs. Personal Property
• Define Property Rights and Estates
• Define types of Deeds and Titles
• Methods of Title Assurance
• Understand the purpose of a Mortgage and a Note
Definition
• Real
Estate is land at, above
and below the earth’s surface,
plus everything permanently
attached to it. This includes:
Buildings, Trees, Fences, etc…
Types of Real Estate
•Residential
•Commercial
•Industrial
•Agricultural
•Special Purpose
Supply and Demand
• Market Value
•Uniqueness
•Immobility
•Supply
• Demand
• Labor Force
• Population
• Material Costs
• Demographics
• Gov’t Finance Policies
• Employment/Wages
Real Property Descriptions
Legal descriptions for real estate must be written
and accurate.
3 ways to describe property
• Metes and Bounds (Oldest Type)
•POB (Point of Beginning) Must start and return at POB
•Monuments (Natural Object, Tree, Lake, Stream etc..)
• Rectangular
• Principle Meridian / Range Lines
• Base Line / Township Lines
• Lot and Block
•Plat map
•Lot (numerical designation of parcel)
•Block (Subdivision plat map is filed under)
Property Rights
Legal descriptions only identify the
surface of the land.
• Air Rights
• Fly Over Rights
• Surface Rights
• Sub-Surface Rights
Bundle of Rights
• Possession
• Control
• Enjoyment
• Exclusion
• Disposition
Real vs. Personal
Personal property is anything that does
not fit the definition of real property.
• Severance
-Real property becoming personal
property by severing it from the land.
• Annexation
-Personal property becoming real
property.
Definition of a Fixture
When an item of personal
property is so affixed to real
property that it is deemed a part
of the real property, it is known
as a fixture.
Legal Tests of Fixture
Fixtures become real property and are
included in the sale and mortgage.
Fixtures
•Method of Annexation
•Adaptation to Real Estate
•Agreement
Trade Fixtures
• Special Category of fixtures used in business
• Belong to the tenant
• Considered permanent part of the building
Economic Characteristics of
Real Estate
• Scarcity
– Supply in a given location
• Improvements
– Building, Drainage, Sewer, Electrical
• Permanence
– Large fixed investment
– Return is long term
• Location
– Based on Area, Crime Rate etc…
Physical Characteristics of
Real Estate
• Immobility
• Can never be changed or moved
• Indestructibility
• Stabilizes Investment
• Tear Down and Rebuilds
• Uniqueness
• Never exactly the same
TITLE WORK
Transferring Title
• Title – Right to land, shows ownership
• Grantor – (Seller) Conveys property to a grantee
• Grantee – (Buyer) Receives property from grantee
• Deed – Legal document which shows evidence of
ownership and is used to transfer title to someone
else.
Types of Deed
• General Warranty Deed
• Quit Claim Deed
• Special Warranty Deed
• Bargain and Sale Deed
• Trustee and Court Ordered Deeds
Ways of Giving Notice
• Physically occupy the property
• Provides actual notice
• Record the documents in the public record
• Best way of doing it
• Recorder of Deeds
Document Recording
2 Major Purposes
• Protect existing interest.
• Protect future purchases against
secret, unrecorded interests.
Docs that can be recorded
• Land Contracts
• Mortgages
• Leases
• Deeds
• Power of Attorney to sell
• Mortgage Release
• Easements
• Mortgage Assignments
• Purchase options.
Protecting Titles
1. Attorney’s Title Opinion
2. Title Insurance
3. Torrens System
Attorney’s Title Opinion
Lawyer reviews the chain of title and
renders and opinion that you have
clear marketable title.
Advantages
•Abstract Review
• Cheaper Option
• Insured multiple parties
Title Insurance
Definition: Insures against financial
losses caused by existing title defects.
• Insures against existing hazards not
future
• One single premium not periodic
payments.
• Lenders Policy
• Owners Policy
Policies Protect Both Parties
• Forged Documents
• Grantors lack of capacity to sign
• A lien remains after transfer
• Title not marketable
• Mortgage not enforceable (Lender)
• Priority of liens was incorrect
Estates In Land
Titles and Ownership
• Title - Right of ownership of the property
• Deed – Written Document that conveys title to
Real Estate
Estates In Land Cont.
Present Interest
Future Interest
Tenancies(manner of holding current estates)
Fee simple absolute
With right of
inheritance
Freehold Estates
(Ownership)
Defeasible fee
(restricted)
Determinable
(automatic termination)
Conditional
(not automatic)
Interest in
Real Property
Legal
Without right
of
inheritance
Absolute
life estate
Curtesy (husband)
Life tenancy
life estate
Tenancy for life of
another
Non-Freehold Estates
(lease or rental interests)
Possible
reversion to
original grantor
or heirs
Dower (Wife)
Homestead right
Conventional
Inheritance or Gift
(pour autre vie)
Remainderman
Limitations on Property Rights
• Encumbrance - Claim against the title of the
property which prevents the passing of
full and complete title.
• Easement – The right to use another persons
property for a specific purpose.
• By Express Grant
• By Necessity
• By Reservation
• Implied Easement
• Easement by Prescription
• Adverse Possession
• Profit Easement
• License Easement
Limitations on Property Rights
Encroachments – Occur when a building or other
improvement illegally intrudes into the
property of another.
Lien – Charge or claim against a persons
property, made to enforce the payment
of money.
Does not prevent the transfer/sale of property.
• Mortgage Lien
• Mechanics Lien
• Judgment Lien
• Tax Lien
Govt. Limitations on Rights
Ownership of land is subject to other
interests. The enjoyment of land must not
interfere with others.
Government Regulations
• Police Powers
• Eminent Domain
• Taxation
• Escheat