Various Specializations in Real Estate

1. Brokerage.  Bringing people together in a real estate transaction.

    a. Salesperson is employed by or associated with a broker.  Carries out the duties for a broker.

    b. Sales associate.  Same as a salesperson.

2. Appraisal.  Process of developing an opinion of a property's market value.

3. Property Management.  A person or company hired to maintain and manage property on behalf of the property owner.

4. Financing.  Business of providing funds that make real estate transactions possible.

5. Subdivision.  Dividing of a single property into smaller parcels.

6. Home Inspection.  Combines a practioner's interest in real estate with skills and training in the construtction trades to conduct a through visual survey of property's structure, systems, and site conditions.

7. Counseling.  Involves providing clients with competent independent advice based on sound professional judgement.

Ethics

1. Professional conduct and moral principles to two things:

    a. Establishes standards for integrity and competence in dealing with consumers of an industry's services;

    b. Defines a code of conduct for relations within the industry professionals.

2. Code of Ethics.  A written system of standards for ethical conduct.

The Six Categories of Real Property

1.  Residential.  Single or multi-family housing.

2. Commercial.  Business property including office space, shopping centers, stores, theaters, hotels and parking facilities.

3.  Mixed Use.  Property that allows for two uses, commercial and residential in the same building.

4. Industrial.  Warehouses, factories, land in industrial districts, and power plants.

5. Agriculture.  Farms, timberlands, ranches.

6. Special Purpose.  Privately owned properties such as places of worship, schools, cemeteries as well as publicly help properties such as schools, municipal service buildings, and Parks.

Types of Housing

1. Single-family detached.  The most common.

2. Apartment building.  Varying number of units in each building.  Complex may include such things as parking, security, clubhouse, pool, tennis courts or even golf courses.

3. Condominium.  Own property w/o care of and maintenance responsibilites that come with a single family.  

    a. Owner owns a unit.

    b. Shares ownership with other owners of common facilities (common elements).  

4. Cooperative.  Has units that share common walls and facilities within a larger building.  

    a. Owner does not own the unit; owns shares in a cooperation.

    b. Cooperation holds title to the real estate.

    c. Each shareholder receives a proprietary lease to a specified unit in the building.

    d. Like condo owners, shareholders pay their share of the building's expenses.

5. PUDs.  Planned Unit Developments.

    a. Sometimes called master planned communities.

    b. Planned under special zoning ordinances.

    c. Owners do not have direct ownership interest in the common areas.

    d. Community association is formed to maintain common areas.

    e. Varies in size from a few homes to an entire planned city.

6. MUDs.  Mixed Use Developments.

    a. Generally high rise developments.

    b. Combine office space, stores, theaters, and apartment units into a single vertical community.

7. Conveted Use Properties.  Warehouses, office buildings, hotels, schools, churches and other structures that have been converted to residential use.

8. Factory-Built Housing.  Mobile or more commonly referred to today as manufactured homes.  Also modular homes.

Defining Supply and Demand

Simply put, when supply increases and demand remains the stable, prices go down.

When demand increases and supply remains stable prices go up.

Real Estate reactions to Supply and Demand:

Uniqueness means that no matter how identical they often appear, no two parcels of property are exactly alike.

Immobility referes to the fact that property cannot be relocated to satisfy demand when supply is low.

Factors Affecting Real Estate Supply

1. Labor force, construction and material costs.

2. Government controls and financial policies.  Directly related to Govt's monetary poicy.  Think discount rates.

3. Local Gov't factors.  Land-control uses, zoning laws.

Factors Affecting Demand

1. Population.  Includes growth.

2. Demographics.  Number of occupants per household and their ages; ratio of adults to children; number of retirees.

3. Employment and Wages.  Decision on whether to buy or rent based on incoe.  

Definition of Real vs Personal Property

1. Real Property: Defined as the interests, benefits, and rights that are automatically included in the ownership of real estate.

2. Personal Property:  All the property that can be owned and that does not fit the definition of real property.  IMPORTANT DISTINCTION: personal property is movable.  

    Items of personal property are called chattels.

3. A distinction between the two are: Real property is conveyed by a deed while personal property is conveyed by a bill of sale or a receipt.

Bundle of Rights

Ownership of real property are described in the bundle of rights.  These rights are:

1. Right of possession;

2. Right to control the property within the framework of the law;

3. Right of Enjoyment (to use the property in any legal manner);

4. Right of Exclusion (to keep others from entering or using the property);

5. Right of Disposition (to sell, will, transfer, dispose).

Title to Real Property

Title as it relates to real property (also known as real estate) has two meanings.

1. THe right to or ownership of the property including the owner's bundle of legal rights; and

2. Evidence of that ownership by a deed.

NOTE:  Title refers to ownership of the property, not to a printed document.

Surface, Subsurface, and Air Rights

1. Surface Rights.  Ownership rights in a parcel of real estate that are limited to the surface of the earth.

2. Subsurface.  The right to natural resources below the earth.

3. Air Rights.  The right to use the space above the earth.

Note: Subsurface and Air rights can be sold.

4. Water Rights.  Common-law (historical) or statuatory rights held by owners of land adjacent to rivers, lakes or oceans and are restrictions on the rights of land ownership.

Riparian vs Littoral Rights

1. Riparian Rights.  Common law rights granted to owners of land along the course of a river, stream, or similar flowing body of water.

    a. Gives unlimited use of the water

    b. Cannot restrict flow of water

    c. Owns to middle of river/stream if water not considered navigable.

    d. Owns to water's edge for commercially navigable rivers (considered public property).  State holds the title to submerged land under the river.

2. Littoral Rights.  Applies to landowners adjacent to lakes.  

    a. Owners enjoy unrestricted use of lake

    b. Only own land up to the average high-water mark.

Doctrine of Prior Appropriation

Examples of Real vs Personal Property

1. Factory Build Housing.  Can go either way, but mainly considered real property if it's permanently affixed to a foundation.

2. Plants.  Fall into two categories.

    a. Trees, perenial bushes are considered real (fructus naturales).

    b. Annually cultivated crops such as vegetables and grain are known as personal property (fuctus industriales).

3. Severance.  Removing from the land, like chopping down a tree.  It was part of the land (real) but it's been cut down so it becomes personal.

4. Annexation.  Personal property changed into real property.  Example: buying stones and turning them into a wall.

Classification of Fixtures

1. A fixture is personal property that has been so attached to the land or as a building that by law, it becomes part of the real property.  Examples are kitchen cabinets, light fixtures, and plumbing.

2. Trade Fixtures.  A special category of fixtures includes property used in the course of a business.  An article owned by a tenant, attached to a rented space or building and used to conduct business.  

Examples:  hydraulic lifts in an auto repair shop; special kilns/ovens used in a restaurant.  Chicken coops and tool sheds may fall under this.

Trade Fixtures must be removed and damage removing them repaired.  If NOT removed by closing they become part of the real property.

In general fixtures are real property so they are included in any sale or mortgage and remain.  Trade fixtures are considered personal property and not included in the sale of the property.

Four Economic Characteristics of Real Estate

1. Scarcity.  Land is not unlimited.

2. Improvements.  What you put on a piece of property (apartment building, shopping center) drives it's economic value.

3. Permanence of Investment.  Real Estate tends to be a long term investment.  

4. Area Preference (situs).  Location, Location, Location.

The Three Physical Characteristics of Land

1. Immobility.  Land can't be picked up and moved to another location.

2. Indestructability.  

3. Uniqueness.  Known as nonhomogenity, is the concept that no two parcels of land are the same.

State Laws Affecting Real Estate

1. Contract Law.

2. General Property Tax Laws.

3. Agency Law.  

4. Real Estate License Law

5. Federal, State, and Local Laws.

Equal Opportunity in Housing 

Civil Rights Act of 1866.  Ends discrimination of the provision of housing.  Prohibits discrimination based on race.  However, largely ignored.

Fair Housing Act of 1988.  Follow-on to the Title VIII of the Civil Rights Act of 1968.  Prohibits discrimination in housing based on:

    a. Race

    b. Color

    c. National Origin

    d. Religion

    e. Sex

    f. Familial Status

    g. Disabililty

 Fair Housing Act is enforced by HUD based on complaints.  Conciliation is the resolution of the complaint.

Housing for Older Persons Act (HOPA)

Requires that at least 80% of occupied units have one person age 55 or older living in the.

Fair Housing Act Terms

Dwelling.  building or part of a building designed for occupancy as a residence by one or more families.

Family/Familial Status.  Family can be as small as a single individual.  Familial Status one or more individuals under the age of 18 living with a parent or guardian.

Disability.  Physical or mental impairment that substantially limits one or more of a person's major life activities.

Exemptions to the Fair Housing Act

1. Owner-occupied buildings with no more than four units

2. Single-family housing sold or rented without the use of real estate professional

3. Housing operated by organizations and private clubs that limit occupancy to members.

Americans with Disabilities Act (ADA)

Title I requires that employers, including real estate professionals, make reasonable accomodations that enable an individual with a disability to perform essential functions.

Title III requires that individuals with disabilities have full accessibility to businesses, goods, and public services.

Fair Housing Practices Terms

1. Blockbusting.  Act of encouraging people to sell or rent their homes by claiming the entry of a protected class of people into a neighborhood.  Example:  Led to flight of whites to suburbs during the 1950s/60s.  

2. Steering.  Channeling of homeseekers to particular neighborhoods or discouraging potential buyers from considering some areas. Examples:  Landlord saying there's no vacancy in an apartment when one exists.  Or, putting same class occupants on one floor.

3. Advertising.  Properties for sale or rent may not include language indicating a preference or limitation.

4. Redlining.  Practice of refusing to make mortgage loans or issue insurance policies in specific areas for reasons other than economic qualifications of the applicants.  Refusal to lend based on race and/or location.

Estates in Land

Defines the degree, quantity, nature, and extent of an owner's interest in real property.

Freehold Estate.  An ownership interest that continues for an indefinite period.  Two Types:

    a. Fee simple estate.  Passed along to an owner's heirs.  Fee simple defeasible is an estate that is qualified because it's subject to the occurrence of a specified event.

    b. Freehold estate.  Valid only for the lifetime of a person (who may or may not be the owner of the property).  Ends when the individual dies.

Easements

Easement is the right to use the land of another for a particular purpose.

Easement Appurtenant.  Attached to the ownership of real estate that allows the owner of that property the use of neighbor's land.  Requires two adjacent parcels of land.  Benefitor is know as the dominant tenement.  Parcel over which the easement runs is known as the servient tenement.

Easement in Gross.  An individual or company interrest in or right to use someones property.  Examples are utility companies; railroad easements.  

Easements terminate when the need no longer exists, the two properties come under one onwer, release of the easement to the servient; abandonement or non use.

 Government Powers

Four Powers State/Govt can Use to Acquire Proprty.

1. Police Power.  States have the power to enact legislature to preserve order, protect the public health and safety, and promote the welfare of the citizens.

2. Eminent Domain.  Right of Gov't to acquire privately owned real estate for public use.

3. Taxation.  If owner does not pay taxes.

4. Escheat.  Onwer dies but leaves no heir.

Forms of Co-Ownership

1. Tenancy in Common (TIC)

    a. Two or more people, each tenant holds an undivided interest in the property.

    b. Unity of posession where each tenant has equal possession and use of the property.

    c. No one individual may transfer ownership of the entire property.

    d. Tenant dies his right to property is passed on according to his will.

    e. Most common form of ownership.

2. Joint Tenancy

    a. Distinguishing feature is the right of survivorship.  Upon death of a joint tenant the deceased interest is passed to surviving joint tenant(s).  In effect, there's one less owner.

    b. When all joint tenants die, the property goes as TIC to the willed survivors.  The joint tenancy is resolved.

    c. One of multiple tenants can pass his share of ownership to another.  However, the new owner is not a joint tenant but is tenant in common (joint tenancy can't be passed on).  The other original tenants remain joint tenants.

    d. Partition is a way to terminate a Joint tenancy.

3. Tenancy by the Entirety.

Special form of co-ownership used in some states that allows a spouse to inherit the other spouse's ownership interest upon death.

4. Community Property

Unlike tenancy by the entirety rather than merging into one owner when the other owner dies, each are equal partners in the marriage.  This means that the real and personal property of each owner can be willed to someone else.  The surviving spouse does not automatically assume real and personal property.

Trusts and Business Organizations

1. Trust.  Device by which one person transfers ownership of a property to someone else to hold or manage for the benefits of a third party.

2. Land Trust.  Land only. Property conveyed to a trustee and the beneficial interest belongs to the beneficiary.

3. Partnership.  Association of two or more persons who carry on a business for profit as co-owners.

     a. General Partnership. Equally share in running the partnership.

     b. Limited Partnership.  Business run by the general partners.  Limited partners not allowed to legally participate.

4. Corporations.  A legal entity-an artificial person-created under the authority of the laws of the state from which it receives its charter.  Board of Directors elected.

5. Limited Liability Companies.  Offers benefits of the limited liability of a corporation, the tax advantages of a partnership, and a flexible management structure.

Condominiums, Cooperatives, Time-Shares

1. Condominium Ownership.  

    a. Each owner holds simple title to a unit.

    b. Individual unit owners own a specified share of the undivided interest in the common areas (common elements).

    c. Taxes are levied on each unit.

    d. Can sell to whomever owner want unless the condo association provides for right of first refusal.  Then, the remaining owners have to be offered the right to buy the unit).

    e. Usually a home owners association (HOA).

2. Cooperative Ownership

    a.  Corporation holds title to the land and building.

    b. Corporation sets price of the stock to prospective tenants.

    c. Purchaser becomes a shareholder in the corporation.

    d. Due to stock, the owner does not own the real estate like a condo.  Instead they own an interest in a corporation that has only one asset: the building.

3. Time Sharing Ownership

    a. Permits multiple purchasers to buy relatively small interest in real estate.

    b. Each owner has the right to share the property for a specified period of time.

Methods of Describing Real Estate

1. Metes and Bounds

2. Rectangular (or Gov't) survey

3. Lot and Block (recorded plat)

A legal description is a detailed way of describing a parcel of land for documents such as deeds and mortgages that will be accepted in a court of law.

Metes-and-Bounds

1. Metes means to measure; Bounds means linear direction

2. All descriptions begin at a designated place on the parcel, called the point of beginning (POB).  Note: it' also the point at which the parcel ends.

3. Uses monuments (fixed points) to identify the POB.  Iron stakes are now used to ID POBs.

Rectangular (Government) Survey System

1. Divides land into rectangles called townships.

2. Township lines within a section run east to west parallel to the base line, six miles apart.  Range lines run north to south parallel to the principal meridian.

3. Rows of townships are called tiers and columns of townships are called ranges.

4. Township divided into 36 sections.

Lot-and-Block Method

1. Uses lot an block numbers referred to in a plat map

2. Divides a subdivision into block and lot (individual parcel) numbers

Measuring Property Rights

1. Elevations must be measured if air lots above the surface or subsurface rights below the datum.

2. Datum.  Mean sea level and New York Harbor.  Point, line, or surface from which elevations are measured or indicated. 

3. Monuments.  Mark surface measurments between points.  Can be metal bars, stakes or pipes drilled into the ground.

4. Benchmarks.  Monuments that have been established as permanent reference points throughout the US.  Primarily used to for marking datums.

Purpose of Brokerage and Real Estate Licenses

1. Establishing basic requirements for obtaining a real estate license and to outline continuing education;

2. Defining which activities require licensing;

3. Describing the acceptable standards of conduct and practice for liccensees;

4. Enforcing those standards though a disciplinary system.

Brokerage

The business of bringing parties together.  A real estate broker is licensed to buy, sell, exchange, or lease real property for others and to charge a fee for those services.

Real estate brokerage may be independent or part of a regional or national franchise.

Real Estate Sales Associate

Salesperson (or broker) who is licensed to perform real estate activities only on behalf of a licensed real estate broker.

Broker is liable for the actions of the sales associate.

Independent Contractor

1. Employee who usually receives a commission with no withholding for social security tax and other purposes.

2. Note: an employee may receive a salary in lieu of or in addition to commission.  An employee may also be eligible for company benefits.

Services Offered by Real Estate Professionals

SELLER

1. helping prepare the property for sale;

2. performing a comparative market analysis (CMA) to assist in determining market price;

3. Assist in marketing the property (MLS);

4. Locating and screening a buyer;

5. Helping fill out the sales agreement;

6. Assisting with negotiations;

7. Being available to assist with the closing

BUYER

1. Working out the economics of renting vs owning

2. Helping a buyer with mortgage pre approval

3. Consulting on a buyers desired location

4. Visiting properites with a buyer and checking property information;

5. Helping fill out the offer to purchase;

6. Assisting with negotiations;

7. Assisting with closing.

AntiTrust Laws

1. Price Fixing.  Competitors agree to set prices or other terms and conditioners for products or services rather than letting the competition set the price;

2. Group Boycott.  Two or more businesses conspiring against another business or agree to withhold their patronage to reduce competition;

3. Allocation of Customers.  Happens when real estate brokers agree to break up their markets into sections with one broker taking one section and the other broker another section;

4. Tie-in Agreements.  Agreements to sell one product only if the buyer purchases another product as well.  The selling of the first product (desireable) is tied into the purchase of a second (less desireable) product.

General Sales Terms

1. Broker's commission.  Earned when the seller accepts an offer from a ready, willing, and able buyer prepared to buy on the seller's terms.

2. Sales Associates Compensation is set by mutual agreement of the employing broker and the sales associate.

3. Fee for Services.  Broker's compensation is based on charges for separate activities that the client desires (unbundling of services).  Note: some states require minimum services to be offered by the broker.

Technology in Real Estate Practice

1. IDX (Internet Data Exchange).  Allows all MLS members to have equal rights to display MLS data while representing the rights of buyers and sellers.

2. Laws governing Internet Advertising

   a. All electronic communication by a real estate pro must include the professional's name, office, address, and broker affiliation;

    b. Pros must disclose their license status on each page of a website that contains an advertisement;

   c. Listing of only the sale associate's name w/o the sponsoring borker's name in an ad is prohibited.

3. Uniform Electronic Transaction Act (UETA).  Legalizes the electronic filing of real estate transactions.

4. Do Not Call.  Prohibits interstate calls to those on the list in order to sell goods.  Real Estate professionals must conform to the law.

Law of Agency

1. Agent-A preson authorized to act on behalf of the principal in dealings with a third party.

2. Principal-The individual who hires he agent and delegates to that agent the responsibility of representing the principal's interest.  In real estate that could be the buyer, seller, landlord or the tenant.

3. Agency-The fiduciary relationship between the principal and the agent by which the agent is authorized to represent the principal in one or more transactions.

4. Fiduciary-The relaltionship in which the agent is held in a position of special trust and confidence by the principal.

5. Client-The principal in a real estate transaction for whom a real estate broker acts as agent.

6. Customer-The third party or nonrepresented consumer who is not a principal but for whom some level of service may be provided and who in entitled to fairness and honesty.  The customer can be represented by a separate agent.

7. Nonagent-Someone who works with a buyer and a seller (or landlord and tenant) assisting one or both parties with the transaction without representing either party's interest.  Also referred to as a facilitator, intermediary, transactional broker, transaction coordinator or contract broker.

More on Agencies

1. A single agent works for the principal and with the customer.

2. Relationship between principal and agent must be consensual: principal delegates authority and the agent consents to act.  

3. Express Agency--Entering into a contract; and express agreement in which the parties formally express their intention to establish as agency and sate its terms and conditions.

4. Implied Agency--Occurs when the parties act as though they have mutuall consented to an agency even if they have not entered into a formal contract.

Listing and Buyer Agreements Defined

Listing Agreement.  Called a seller representation agreement.  Authorizes the broker to find a buyer or a tenant for the owner's property.

Buyer Reprsentative Agreement.  An express relationship between a buyer and  a broker.  Stipulates the activities and responsibilities the buyer expects from the broker in finding the appropriate property to purchase or rent.

Six Common Law Fiduciary Duties

An agent is bound to:

1. Care--Expect agent's skill and expertise in real estate matters to be superior to that of an average person.

2. Obedience--Obligates an agent to act in good faith at all times.  Agent may not obey instructions that that are unlawful or unethical.

3. Loyalty--Agent place the principal's interest above those of all others, including the agent's self-interest.

4. Disclosure--Agent's duty to keep the principal informed of all acts or information that might affect a transaction.

5. Accounting--Agent must be able to report the status of all funds received from or on behalf of the principal.  

6. Confidentiality--Key element of fiduciary duties.  An agent may not disclose the principal's information, i.e. the principal's financial condition.

Conversion

Disclosure

It is the agent's duty to keep the principal informed of all facts or information that may affect a transaction.  Information that must be disclosed in a real estate transaction:

1. The identity of prospective purchasers which include any relationships the the purchasers may have with the agent;

2. The purchaser's ability to complete the sale or offer a higher price;

3. Any interest the prospective interest the agent has in the buyer or the buyer's business (such as the broker's agreement to managae the property after it is pruchased) and

4. An incorrect market value of the property.

Types of Agency Relationships

1. Universal Agent.  A person empowered to do anything the principal could do personnally.  

2. General Agent.  Represents the principal in a broad range of matters related to a particular business or activity.  Examples are property managers and sales associates working for a particular broker.  A principal could have several general agents like an entertainer who has one agent to find gigs and another general agent who works finances.

3. Special Agent.  A limited agent, generally authorized to represent the principal in one specific act or business transaction only.

Single and Dual Agencies

Single: Agent represents only one party in a transaction.  i.e., representing a buyer or a seller.

Dual: Agent represents tow principals in the same transaction.  

• Informed Consent. Requires by law the informed consent of both principals.
• Undisclosed Dual Agency.  If occurs inadvertently can result in recissopm of the sales contract, forfeiture of a comission, a law suit for damages and possibly revocation of licenses.

Termination of an Agency

An agency may be terminated for any of the following reasons:

1. Completion, performance, or fullfillment of the purpose for which the agency was created;

2. Death or incapacity of either party;

3. Destruction or condemnation of the property;

4. Expiration of the terms of the agency;

5. Mutual agreement by all parties to cancel the contract;

6. Breach by one of the parties;

7. By operation of law, as in bankruptcy of the principal.

Note:  For a buyer representation to be terminated all the above apply except for 3 and 7.

Customer Level Services

Terms for Customer-Level Services

1. Puffing--exageration of a property's value;

2. Fraud--intentional misreprentation of a material fact in such a way as to harm or take advantage of another person.  Concealing information or making false statements about a property;

3. Negligent misrepresentation--occurs when the real estate professional should have known that a statement about a material fact was false;

4. Disclosures--environmental hazards which can render a property unusable;

Note: Seller has the responsibility to disclose any known defects that threaten structural soundness or personal safety.  A latent defect is a hidden structural defect that would not be discovered by ordinary inspection.  Seller must disclose these if aware of any;

5. Stigmatized Properties--those that society has found undesirable because of events that occurred there or because of proximity of the property to a known nuisance.  Examples: previous drug activity or a crime or even a suicide.

Megan's Law

Listing Agreement

Types of Listing Agreements

1. Exclusive Right-to-Sell Listing.  One broker is employed as the seller's sole representative.  The broker is given the exclusive right or authorization to market the seller's property. 

• One authorized listing broker recieves a commission
• Seller pays listing broker regardless of who sells the property

2. Exclusive Agency Listing.  One broker is authorized to act as the exclusive agen of the principal, but seller retains the right to sell the property w/o the obligation to pay the broker.

• There is one authorized agent for the principal
• Broker receives a commission only if the procuring cause
• Seller retains the right to sell w/o obligation

Multiple Listing Service (MLS)

Exclusive Listings

1. All exclusive listings should specify a definite period during which the broker is to be employed.

2. Exclusive Listings should not have automatic extension clauses.

3. Brokerage Clasue.  Provides that the property owner will pay the listing broker a commission if, within a specified number of days after the listing expires, the owner transfers the property to someone the broker originally introduced to the owner.

Information Needed for a Listing Agreement

1. Names and relationships of owners;

2. Steet address and legal description of the property;

3. Number of rooms and their sizes;

4. Dimensions of the lot;

5. Existing Loans, Lender information, PITI, Can loan be assumed;

6. Possibility of Seller financing;

7. Amount of any outstanding assessments and whether they will be paid by the seller or assumed by the buyer;

8. Zoning classification of the property;

9. Current property taxes;

10. Neighborhood amenities (i.e.,, schools, parks, places of worship);

11. Real property, if any to be removed;

12. Any additional information that would make the property more appealing and marketable; and

13. Required disclosures regarding property condition.

Representing the Buyer

1. Buyer Representative Agreement.  An employment contract in which a prospective property buyer employs a broker for the purpose of finding a suitable property.

2. Exclusive Buyer Representation.  The buyer works with only one broker, but the broker is free to represent other buyer clients.

3. The buyer's broker will be compensated by a retainer, flat fee, a percentage of the purchase price, or some combination of those methods.  Note: source of compensation does not determine the relationship of the parties and compensation is always negotiable.

What is a Contract

A contract is a voluntary promise between two competent parties to perform (or not to perform) some legal act in exchange for consideration.

Express contract--the parties state the terms and show their intentions in words, either oral or written.  Most real estate contracts fall into this category.

Implied Contract--the agreement of the parties is demonstrated by their acts and conducts.

Characteristics of a Contract

1. Voluntary--no one may be forced into a contract;

2. An agreement or promise--a contract is essentially a promise or set of promises;

3. Made by legally competent parties--the parties must be viewed by the law as capable of making a legally binding promise;

4. Suported by lawful consideration--a contract must be supported by something of value that induces a party to enter into the contract; and

5. For a legal act--a contract is invalid if it attempts to have an illegal objective.

More Types of Contracts

Bilateral and Unilateral

    a. Bilateral:  Both parties promise to do something; one promise is given in exchange for another.  A real estate contract is bilateral: the seller promises to sell a parcel of real estate while the buyer promises to deliver a sum of money for said real estate.

    b. Unilateral: One sided agreement.  One party makes a promise to entice a second party to do something.  Offer is usually accepted by the performance of the party to whom the offer is made.  Second party is not legally obligated to act.  But if second party complies the first party is obligated to keep the promise.

Executed and Executory Contracts.

    a. Executed contract.  One in which all parties have fulfilled their promises.

    b. Executory contract.  Exists when one or both parties still have an act to perform.

Elements of a Contract

1.  Offer and Acceptance.  Sales contract sets out the offer by the buyer that is accepted by the seller.

2. Consideration.  Something of legal value offered by one party and accepted by another as an inducement to perform or to refrain from performing some act.

3. Legally competent parties.  All parties must have legal capacitiy meaning that they must be of legal age and have mental capacity.

4. Consent.  Must be entered into by consent as a free and voluntary act of each party.

5. Legal purpose.  A contract must be for a legal purpose (a contract for an illegal purpose or for the performance of an act against public policy is not valid).

Validity of a Contract

A contract may be:

1. Valid.  Has all legal elements.

2. Void.  Lacks one or more elements and has no legal force or effect.

3. Voidable.  Has all legal elements on its face, but it may be rescinded or disaffirmed; or

4. Uneforceable.  Appears to have all legal elements but cannot be enforced in court.

Assignment vs Novation of a Contract

Assignment--substitution of parties; a transfer of rights or duties under a contract.

Novation--substitution of a new contract; may still be between same two parties.  

Reasons for Cancelling a Contract

1. Partial Performance of the terms.  If both parties agree that the work performed is close enough to completion they can terminate the contract.  Need written acceptance.

2. Substantial Performance.  Nearly all is done.  Like maybe door handles missing.  THis is enough for contractor to be paid.

3. Impossibility of Performance.  Unforseen circumstance arises that keeps contract from being fullfilled.

4. Mutual Agreement.  

5. Operation of Law.  Like voiding a contract due to a minor.

Recission - returns the parties to their original positions before the contract.  Monies, etc, must be returned.

Essentail Elements of a Sales Contracts

1. Include the sale price and terms;

2. Adequate description of the property;

3. Statement of the kind and condition of the title and the form of deed to be delivered by the seller;

4. Kind of title evidence required, who will provide it, and how many defects in the title will be eliminated; and

5. Statement of all the terms in the agreement between the parties, including any continegencies.  

Other Key Terms Concerning Contracts

1. Binder-a buyer's offer may be presented in a shorter document called a binder, or letter of intent, instead of a sales contract.  A binder is most frequently used when the details of the transaction are too complex for the standard sales contract.  (Awaiting formal contract to be drawn up).

2. Equitable Title.  A person who holds equitable title has rights to the property.  Title occurs upon delivery and acceptance of the deed.

3. Disclosure.  Disclosure of a property conditions may be included as part of a sales contract or may be required in a separate doc.

4. Land Contract (also called contract for deed, contract of sale, bond for title).  Seller (also known as vendor) finances the property and retains legal title.  Buy (also known as vendee) takes possession and receives equitable title to the property.

Lessor vs Lessee

Types of Leasehold Estates

A tenant's right to possess real estate for the term of the lease is called leasehold estate.

Types:

1. Estate for Years. An estate (tenancy) for years is a leasehold estate that continues for a definite period. Sometimes called estate for term.  Does not terminate by death of lessor.

2. Estate from Period to Period.  Or periodic tenancy, is created when the landlord and tenant enter into an agreement for an indefinite time; there is no expiration date.  Automatically renewable until one of the parties gives notice to terminate.  Can be a month to month tenancy, for example.

3. Estate at Will.  Gives the tenant the right to possess property with landlord's consent for an unspecified or uncertain term.  Difference here is that the landlord has control.

4. Estate of Sufferance.  Tenant's previously lawful possession continues without landlord's consent.  Happens when the tenant fails to surrender possession at the lease's expiration.

     a. The landlord can accept rent thereby creating a new tendancy under conditions of the old lease (holdover tenancy);

    b. Landlord can treat the tenant as a tenant of sufferance by either objecting to the tenance or informing the tenant of such treatment.  Creates a month-to-month or periodic tenancy.

    c. Can treat tenant as a trespasser; legal action; notice to quit requirement in lease.

Requirements of a Valid Lease

1. Capacity to Contract.  Be of legal age and sound mind.

2. Legal Objective.  Can't lease for purpose of making drugs, as an example.

3. Offer and Acceptance.  Parties must reach a mutual agreement (meeting of the minds) on all the terms of the contract.

4. Consideration.  The lease must be supported by valid consideration, an exchange of promises.

Types of Leases

1. Gross lease.  Tenant pays a fixed rent and some or all of the utililties.  Landlord pays taxes, insurance, repairs and utilities connected with the property.

2. Net Lease.  In addition to the rent, tenant pays all or most of the property expenses such as hazard insurance, property taxes, and/or common area maintenance.

3. Percentage Lease.  Either a gross or net lease applies.  Generally used for retail business leases.  The rent is based on a minimum fixed rental fee plus a percentage of the gross income recieved by the tenant doing business on the leased property.

4. Variable Lease.  Allows changes to rent based on either (1) graduated (specified); or (2) indexed where increased/decreased based on consumer price index or some other indicator.

5. Ground Lease.  Leasing of unimproved land to a tenant to erect a building.  Usually run at least 50 years to make it profitable for a leasee to erect a building.  Usually a Net Lease.

6. Oil and Gas Lease.  Used for exploration.

7. Lease Purchase.  Used when a tenant wants to purchase the property but is not yet able to.

8. Sale and Leaseback.  Owners sell the property and then lease it back for an agreed period and rental.

Discharge of a Lease

1. Breach.  When tenant violates the provisions in the contract.

2. Suit for Possession-Actual Eviction.  Must serve notice, usually minimum of 10 days.  Distraint, user can change locks.  

3. Tenant's Remedies-Constructive Eviction.  If a landlord breaches any clause of a lease agreement, the tenant has the right to sue and recover damages against the landlord  Constructive Eviction which terminates the lease.

Note: Lease does not terminate if the parties die or if the property is sold.  

Laws Affecting Leasing

1. Uniform Residential Landlord and Tenant Act

    a. Addresses landlord's right of entry;

    b. Addresses maintenance of the premises;

    c. Addresses the tenants protection against retaliation by the landlord for complaints; and

    d. Addresses the disclosure of the property owner's name and address to the tenant.

2. Fair Housing and Civil Rights Laws

All persons must have access to housing of their choice w/o any differentiation in terms and conditions based on race, color, religion, national origin, sex, disabiity, or familial status.

Responsibilites of a Property Manager

1. Achieve the goals of the owner;

2. Generate income; and

3. Preserve and/or increase the value of the property.

Opportunities for Property Managers

1. Asset management.  A manager who monitors a portfolio of properties similar to a securites portfolio by analyzing the performance of the properties and making recommendations to the owners.

2. Corporate Property Manager.  Allows a corporation to invest in real estate and increase its capital w/o knowledge of the real estate field. Manager usually works for the corporation.

3. Leasing Agent.  Usually an independent contractor working on a commission basis.  

Management Plan

Should:

1. Describe the property;

2. Define the term of the agreement and how it will be terminated;

3. Define the manager's responsibilities;

4. State the owner's responsibility for management expenses;

5. Indciate the manager's compensation;

6. List the financial reports that the manage must make;

7. Require compliance with all applicable laws; and

8. Provide for an operating budget.

Duties of Property Manager

1. Cash flow report will summarize income and expenses;

2. Produce profit ad loss statements;

3. Sets rents;

4. Selects tenants;

5. Establish collection plans;

6. Devise effective marketing strategy; and

7. Effect preventitive maintenance.

Risk Management for Property Management

In considering the possibility of a loss, the property manager must decide whether it is better to:

1. Avoid it by removing the source of the risk (e.g., removing a swimming pool);

2. Control it by preparing for an emergency before it happens (e.g., sprinklers, fire doors);

3. Transfer it by shifting the risk to another party (taking out an insurance policy);

4. Retain it by deciding that the chance of the event occurring is too small to justify the expense.

Sales Associate Liabilities for Environment Issues

1. Become familiar with common environmental problems in the licensee's area;

2. Look for signs of environment contamination;

3. Suggest and including as a contingency an environmental audit if the licensee suspects contamination; and

4. Give no advice on environmental issues; seek advice from experts.

Types of Environment Contaminants

1. Abestos.  Mineral composed of fibers.  Banned in construction since 1978.

• Encapsulation prevents asbestos fibers from becoming airborne.

2. Lead.  Found in pipes, pipe solder, paints, air and soil.

3. Radon.  Odorless, tasteless, radioactive gas produced by the natural decay of radioactive substances.

4. Formaldehyde.  Colorless chemical with a strong, pronounced color used widely in the manufacture of building materials.

     Urea-Formaldehyde Foam Insulation (UFFI). Once popular, then banned, now legal again.

5. Carbon Monoxide.  Colorless, odorless.

6. Polychlorinated Biphenyls (PCBs).  Banned in 1979 they are still found in electrical motors, caulking, oil in older equipment.

7.  Mold can be found almost anywhere and can grow on almost any organic substance.

8. Waste Disposal Sites.  Landfill as an example.  Capping is the proces of laying two to four feet of soil over the top of the site and then planting grass on top.  Used frequently for recreational areas.

Lead Based Paint Hazard Reduction Act

LBPHRA of 1992 requires the disclosure of the presence of any known lead-based paint hazards.

1. Landlords must disclose known information on lead-based paint and hazards before leases take affect;

2. Sellers have to disclose known information on lead-based paint and hazards prior to execution of a contract for sale;

3. Buyers must have up to 10 days to conduct a risk assessment or inspection for the presence of lead-based paint hazards;

4. Sales Associates mut provide buyers and lessees with Lead Pamphlet;

5. Anyone doing work in properties built before 1979 must be trained an certified in EPA lead based work practices;

6. Real Estate professionals must ensure that all parties comply with the law; and

7. Sellers, lessors, and renovators are required to disclose any prior test result or any knowledge of lead-based paint hazards.

Underground Storage Tanks

1. Commonly found on sites where petroleum products are used or where gas stations and auto repair shops are.

2. UST owners are required to strict Gov't rules regarding:

   -- Installation

   -- Maintenance

   -- Corrosion Prevention

   -- Overspill Prevention

   -- Monitoring

   -- Recordkeeping

3. The following are types of tanks exempt from the federal regulations

   -- tanks that hold less than 110 gallons

   -- Farm and residential tanks that hold 1100 gallons or less of motor fuel used for noncommercial purposes

   -- Tanks that store heating oil burned on the premises

   -- Tanks on or above the floor of underground areas such as basements or tunnels

   -- Septic tanks and systems for collecting storm or waste water

Environment Laws Passed

1. Brownfields Law.  The Small Business Liability Relief and Brownsfields Revitalization Act signed in 2002.  Provided funds to assess and clean up brownfields, clarifies liability protections, and provides tax incentives toward enhancing state and tribal response programs.  Protects land developers if they find contamination on their property when they did not know about it.

2. Comprehensive Environmental Response, Compensation, and Liability Act.  Created a superfund of $9 billion to clean up uncontrolled hazardous waste sites and to respond to spills.