Real Estate Class

Provide three alternative definitions for real estate

Tangible asset: Raw land, improvements to and on the land

A bundle of rights/ benefits: Possession of real property for use or enjoyment, disposition rights, and rights to divide property among multiple owners and non-owners

Real Estate: An industry and profession: activities associated with evaluating, producing, acquiring, managing, and selling real property assets

What percentage of US land is urban developed land?

urban land represents approx 3% of land in the US

How do local governments affect real estate values?

• Zoning and Land Use Regulations: They regulate how land can be used within their jurisdiction.

• Building Codes: They enforce construction and safety standards.

• Tax Codes: They implement local property taxes and tax policies.

• Infrastructure and Public Services: They provide and maintain essential public services and infrastructure that affect a property's appeal and accessibility.

List the characteristics of real estate markets.

• Heterogeneous products: Each property features unique characteristics and attributes

• Immobile products: Properties are generally fixed in location and stationary

• Localized markets: Competing properties are typically situated within a tight geographic radius, usually 2 to 5 miles

• Segmented markets: Markets are divided by property type and quality

• Privately negotiated transactions: Deals involve a complex bundle of rights negotiated between parties

• High transaction costs: Transactions involve multiple professionals such as brokers, attorneys, appraisers, inspectors, and surveyors

List a few ways that real estate development can impact communities

• Shapes the economic condition of both individuals and firms

• Affects a community's ability to attract and support profitable business activities

• Impacts the overall quality of life within the community

What two contracts are embedded in a mortgage loan?

• Details the rights and obligations between the borrower and lender (or the loan terms).

• Mortgage (or deed of trust): Pledges the property as security for the debt.

What is the right of prepayment? Why is this beneficial to borrowers?

• For residential loans, borrowers have the right to prepay without penalty. (Note: Subprime residential and commercial loans may face prepayment penalties).

• Benefit: It allows borrowers to pay off their loan early without being penalized.

What is the insurance clause? why is it included in mortgage?

• A clause that requires the borrower to maintain property casualty insurance that covers fire and smoke, lightning strikes, windstorms and hail, weight of ice, snow, and sleet, vandalism, theft, gas leaks/explosions, falling objects, vehicles/aircraft crashing into the house, and accidental water damage inside the house.

• Why it is included: To ensure the property acting as security for the debt is protected against physical damage and hazards

What is the Escrow Clause?

A clause that requires the borrower to make regular monthly deposits into an account to pay property taxes and insurance premiums.

What is the acceleration clause? What might cause a lender to accelerate a loan?

• Acceleration Clause Definition: If a borrower defaults, the lender can declare the entire loan balance is due and payable.

• What causes a lender to accelerate: A borrower defaulting on the loan, such as missing payments or an insurance lapse (or triggering a due-on-sale clause by selling the property/leasing with option to buy/adding someone to the deed

Explain the difference between actual default and technical default

• Actual default: Missing payments (e.g., 90 days of missed payments).

• Technical default: Violating loan terms other than missing payments, such as an insurance lapse or failing to maintain the property.

If a borrower defaults on a mortgage loan, the lender may initiate foreclosure, explain why foreclosure is costly to borrowers and lenders.

• Costly to lenders: Usually less than 80% of the loan balance is recovered, and there is a risk of obtaining a faulty title.

• Costly to borrowers: Credit score impact with an immediate drop of 100–200 points, and it remains on the credit report for 7 years.

If a borrower defaults on a mortgage loan, the lender may initiate foreclosure, list non-foreclosure options available to lenders if a borrower defaults.

• Loan Modification (temporary reduction of payments, deferred payments)

• Refinance

• Short-sale (if loan balance exceeds house value)

• Deed in lieu of foreclosure (borrower conveys the deed to the lender)

What is redlining?

Discriminatory lending patterns addressed by the community reinvestment