FINC 371 - Exam 1 (Peterson)

What is Real Estate?

Land + Improvements

Improvements = Anything reasonably permanently attached/affixed to land

What are the 6 most important things in Real Estate?

Location, Location, Location

Timing, Timing, Timing

Real EstateSpecial Characteristics (7)

1. Fixed Location

2. Uniqueness

3.Interdependence of land uses

4. Long life

5. Long-term commitments

6. Large transactions

7. Long gestation period

4 Main Sectors of Real Estate

1. Residential

2. Commercial

3. Industrial

4.Ranch/Agriculture

Residential Real Estate (2)

1. Single Family Attached

- Duplex/ Quad-plex

- Apartment Complex (No Ownership)

- Rowhouse

- Condominium (Ownership Structure)

2. Single Family Detached

- Single Family Residence "Home"

- Patio Home

- Zero Lot Line Home

4 Food Groups of Commercial Real Estate

1. Industrial

2. Retail

3. Multifamily

4. Office

Commercial Real Estate

1. Retail

2. Office

3. Office/Warehouse

4. Medical

5. Hospitality

6. Education

7. Religious

Industrial Real Estate (2)

1. Manufacturing Plant

2. Oil & Gasoline Refineries

Ranch/Agricultural Real Estate

1. Recreational

2. Land

3. Cattle Production

4. Farmland

5. Wildlife Refuge

6. Wetlands

- Mitigation Credits

4 Factors of Production in Economics

1. Land

2. Labor

3. Capital

4. Entrepreneurship

3 Economic Attributes of Land

1. Durable

2. Finite

3. Useful

Real Estate

- Is the physical land and appurtenances (improvements or buildings) affixed to the land

- Immobile and Tangible

- Natural part of land

- Building and site

- All permanent buildings attachments (fixtures)

- Attachments above and below ground

Real Property

- All interests, benefits, and rights inherent in the ownership of the real estate

- Estate is a right or interest in real estate

- "Bundle of Rights" - Right to use, sell, lease, enter, give away, etc.

- When transferred, a written document must be prepared

Title

Ownership rights to real property

(Actual Ownership)

Deed

Document used to convey right from one property to another

(Document showing ownership)

Lease

Conveys the rights of use and possession of the real property under the agreed upon terms

(Ownership is not transferred)

Personal Property (aka "Chattel")

Movable items or property that are not permantely affixed to , or part of, the real estate

Fixture

An article that was once personal property, but has since been installed or attached to the land or building in a rather permanent manner

- Considered Real Estate

Trade Fixtures (aka "Chattel Fixture")

An article that is owned and attached to a rented space or building by a tenant and used in conducting business

Testing for Fixture Status (3)

1. Test of Intent of the Parties

2. Test of Attachment

3. Test of Adapability

Test of Intent of the Parties

Intention of the party who attached the item

Best to have it written in Real Estate Contract

Test of Attachment (2)

1. Manner in which item is affixed

2. Can it be removed without serious injury to real estate?

Test of Adaptability (2)

1. Character of item and its adaption to the real estate

2. Would its removal alter the usefulness of the real estate?

Air Rights

Real property rights to the space above the earth's surface

- Pie Shaped

- Transferable

Mineral Rights

Real property rights to the minerals and other useful materials that exist because the surface

- Transferable

Water Rights

Right to withdraw water from the land

Rights to Navigable Bodies of Water

- The owner whose land joins the body of water generally owns up to the high water mark

- Owner is also called "littoral proprietor"

- Government typically owns land underneath the water

Rights to Non-navigable Bodies of Water (2)

1. Riparian Rights Doctrine

2. Prior Appropriation Doctrine

Riparian Rights Doctrine

- Dominates the Eastern US

- All owners whose land underlies or borders the water have equal rights to the water

- Can use all water needed, as long as not depriving other users

Prior Appropriation Doctrine

- Popular West of the Mississippi (Arid Land)

- First person to use the water for some beneficial economic purpose has the right to use all the water they desire

- "First Come, First Served"

- Rule of Capture, can deprive other users

Underground or Subterranean Stream

- Water that flows in a defined channel

- Apply same principles used if the body of water existed on the surface

Percolating Water

- Water in pockets not clearly located

- Landowner may use water beneath land for industrial, agricultural, or other purposes necessary, unless depletes adjoining neighbors

Estates in Land

Bundles of ownership interest in real property

2 Basic Types of Estates

1. Freehold

- Ownership

- Grantor = Seller

- Grantee = Buyer

2. Leasehold

- Right to use and possess

- Lessor = Owner

- Lessee = Renter

Freehold Estates (2)

1. Present Interests:

- Fee simple absolute estates

- Qualified fee estates

- Life estates

2. Future Interests:

- Accompany qualified fee and life estates

- Reversion Interests

- Remainder Interests

Fee Simple Absolute Estate

- Fullest and most complete ownership rights one can possess in real property

- Alienable, Devisable, & Descendible

Qualified Fee Estate

- Owner's rights can be "defeased" or lost in the future should a stated event occur

- Future interests follow "reversions"

- Lumpkin House @ University of Georgia

Life Estates

- Ownership terminates automatically and immediately upon the death of a named person

- Life Tenant = Owner of the property as long as he lives ("To Joe, for Joe's Life")

- Estate pur autre vie = Life tenant is someone other than the person who's life the estate is tied to ("To Joe, for Bill's Life")

Life Estates (2)

1. Remainder: rights to property upon death of life tenant

2. Remainderman: the party that receives the remainder interest associated with a life estate

Types of Remainder Interests (2)

1. Vested Remainder: when remainderman is guaranteed ownership of the property at some time in future

2. Contingent Remainder: conditions attached to the remainder interest that could prevent the remainderman from receiving the land

Leasehold estate

Rights of use and possession (but not ownership) held by a tenant as a result of a lease agreement with a property owner

Rights to Reentry (3)

1. Landlord has reversionary interest at termination of lease estate

2. Landlord holds "Lease Fee Estate"

3. Tenant holds "Leasehold Estate"

4 Categories of Leases or Tenancies

1. Tenancy for a stated period

2. Tenancy from period to period

3. Tenancy at will

4. Tenancy at sufferance

Tenancy from Period to Period

Typically monthly payments and more expensive

Tenancy at Will

No new lease agreement, but your still living in the home

Tenancy at Sufference

Lease ends, and tenant won't leave = Eviction

Estates in Severalty

Estates "Standing alone"

Estates in Concurrent

Ownership of property simultaneously by 2 or more people

Concurrent Estates (4)

1. Tenancy in Common

2. Joint Tenancy (with rights of survivorship)

3. Tenancy by the Entirety (specialized joint tenancy)

4. Community property

Tenancy in Common

2 people own a business, rights split 50/50

Joint Tenancy (with rights of survivorship)

When a party dies, rights transfer to other owner

Tenancy by the Entirety (specialized joint tenancy)

- Special to husbands and wives

- Cannot sell interest unless spouse or court agrees

- All interests pass on to surviving spouse

- Not common for all sales

Other Ownership Terms (3)

1. Condominium ownership

2. Cooperate ownership

3. Time-Shares

Condominium Ownership

Own everything inside of the walls and a percentage of the common area

Cooperative Ownerhsip

Own shares of property

Time-Shares

Buying time in a piece of property

Meets-and-Bounds Description

- Meets = distance used in description

- Bounds = directions of boundaries enclosing piece of land

Rectangular Survey System (4)

Largest to Smallest:

1. Principal Medians and Base Lines

2. Townships

3. Sections

4. Recorded Plat

Principal Meridians and Base Lines

- Principal Meridians run North and South

- Base Lines run East and West

Townships

- Are 6 mile squares (36 miles)

- Range lines run North and South, numbered consecutively from principal mederians

- Township lines are 6 miles wide strips running East and West

- 640 * 36 = 23,040 Acres in a township

Sections

- 640 Acres in 1 square Mile

- 36 equal sized sections in a township

Recorded Plat

Lots, Blocks, and Streets

How many square feet in an acre?

43,560

What is a Hectare?

- 10,000 square meters

- 2.471 Acres

Encumbrances

Restrictions and limitations on the fee simple ownership rights that generally run with the land

- Public

- Private

Private Encumbrances (6)

1. Covenants, Conditions, Restrictions

2. Liens

3. Easements

4. Profit a prendre

5. Adverse Possession

6. Encroachments

Covenants, Conditions, & Restrictions

Private encumbrances that limit the way a property owner can use a property

- Deed Restrictions created by developer

- Land across from Central Baptist Church in College Station

Liens

- Claim on a property as either security for a debt or fulfillment of some monetary charge or obligation

Voluntary Lien

A lien placed on property with the knowledge and consent of the property owner

- Mortgage

Involuntary Lien

Protect the interest of persons who have valid claims against the owner of real property

- Unpaid taxes & lawsuits

Specific Liens

Created to protect creditors using a particular parcel of real estate as security for repayment

2 Types of Specific Liens

1. Mortgages

- Mortgagor gives property rights (homeowner)

- Mortgagee receives property rights (bank)

2. Mechanics' Liens (aka Construction Liens)

- If you don't pay someone for construction on your property, they have to be paid when the house is sold

General Liens

Placed on all of the property that might be owned by an individual, including any real estate

- Judgement liens & income tax liens

Easement

Right given to one party by a landowner to use the land in a specified manner (utility, oil and gas, ranch access)

2 Types of Easements

1. Easement Appurtenant

2. Easement in Gross

Easement Appurtenant

Exist when an easement is legally connected to an adjoining property

- Dominant Estate (Benefit) = get to use someone else's property in a certain way

- Servient Estate (Burden) = give up some rights

Easement in Gross

- Only has servient estate (no dominant estate)

- Utility company, not adjoining property benefits from easement

3 Methods to Create an Easement

1. Express Grant or Express Reservation

2. Easement by Implication

3. Easement by Prescription

Express Grant/Reservation

1. Express Grant - Grant neighbor right to use a portion of property for driveway

2. Express Reservation - Reserve a right of passageway

Easement by Implication

- Right to use land may be implied from the factual circumstances even when an easement is not expressly created

- Reflects intentions of the parties

Implied Grant/Reservation

1. Implied Grant - use of property allowed, despite having made not mention of an easement

2. Implied Reservation - when continued use of the property is allowed after property is sold

- Both arise from necessity - land would lose all value in no access allowed

Easement by Prescription

- May be created when someone other than the owner uses the land "openly, hostilely, and continuously" for a statutory time period

(Usually 7-20 years uninterrupted)

- Lessons:

1. Never let anyone use property without permission

2. Interrupt property use at intervals

Nature of Easements

1. Permanent in nature

- Easements "run with the land"

2. Easement is not a "license"

- Licenses are revocable

Termination of Easements (3)

1. Agreement

2. Merger

3. Abandonment

Agreement

Parties affected by easement may expressly agree to terminate their respective rights in the easement

- Must be written

- Can be costly, and have time restrictions

Merger

Merger of dominant and servient estate can terminate easement

- Servient estate purchases dominant estate's parcel

Abandonment

If the benefited party does not exercise his or her rights to use the servient estate over an extended period of time

Conservation Easement

- Negative Easement

- Prevents specific uses of real estate by the owner

- Protects raw land from being developed and preserves the natural area

Profit an Prendre

A non-possessory interest in real property that permits the holder to remove part of the soil or produce of the land

- Oil companies have this interest in real property, or right, when they own mineral rights

Encroachment

An unauthorized invasion or intrusion of a fixture, a building, or other improvement onto another person's property

- Fence cuts across adjoining property

- If not contacted, other party may claim legal rights to adverse possession

Adverse Possession

Allows individuals to acquire title to land they do not own because they have openly possessed it for a statutory period of time

- "Squaters rights"

Squaters Rights (3)

1. Actual and Exclusive

- Building a house on a farming land

2. Open and notorious, hostile, and continuous

- Same as prescriptive Easement

3. "Claim of Right"

- Adverse possessor must have a basis for believing he/she owns property

Government Limitations on Real Estate (4)

1. Taxation

2. Eminent Domain

3. Police Power

4. Escheat

Ad Valorem Tax

Tax is levied as a % of the value of the property

- Is NOT a tax on the income earned from property

- Typically expressed in Millage Rates (NOT basic % rates)

- Typically NOT market value, but ASSESSED value

- Exemptions lower tax burdens from properties that qualify for special treatment (elderly, disabled, etc.)

Millage Rate

- $1 per $1,000 of value

- .001, or 1/1000

Assessment Ratio

Percentage of market value

Computing Property Tax (3)

1. Market Value * Assessment Ratio = Assessed Value

2. Assessed Value - Exemptions = Taxable Value

3. (Taxable Value / 1000) * Millage Rate = Property Tax

Administering the Property Tax (3)

1. Property Value Assessment

2. Development of the Budget and Tax Rate

3. Tax Billing and Collection

Property Value Assessment

- Estimating market value for all properties within jurisdiction

- Performed by government official called Assessor (Gatekeeper), Property Assessor, & Property Appraiser

Tax Billing and Collection

- Procedures vary, typically annual or semi-annual billing cycle

- If not paid, government can place a lien on the real estate

- If left unpaid for a certain period of time, property can be sold at public auction to fulfill the lien