Introduction to Real Estate Why Study Real Estate

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 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 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