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Chapter 1: The Real Estate Business - Vocabulary Flashcards

Real Estate Professions

  • Real estate is described as the largest single industry in the American economy, broadly including the construction industry and the creation, management, and demolition of every residence and business facility in the nation (offices, warehouses, factories, stores, hospitals, government facilities, etc.). It also includes managing undeveloped land such as national parks, forests, and federal property.

  • Real estate professionals are individuals and organizations whose sole enterprise is performing a real estate-related service or function.

  • Real estate activities involve a wide range of functions:

    • creation and improvement

    • management and maintenance

    • demolition

    • investment ownership

    • regulation

    • transfer

  • Creation and improvement

    • Involves creating real properties from raw land through capital formation, financing, construction contracting, and regulatory approvals.

    • Key parties typically involved: the developer, the landowner, and the mortgage lender.

    • Other involved parties include market analysts, architects, engineers, space planners, interior designers, and construction subcontractors.

    • Experts who manage the legal aspects of development projects: real estate attorneys, title companies, surveyors, property insurance companies, and government regulatory officials.

    • The brokerage community, with professional appraisers, usually handles ownership and leasing transactions across multiple development phases.

  • Management and maintenance

    • All real estate, whether raw land or improved property, requires ongoing management and maintenance.

    • Two principal types of managers:

    • Property managers and their staff, who oversee specific properties on behalf of owners, ensuring physical condition and financial performance meet standards.

    • Asset managers, who oversee groups of properties or portfolios with a focus on achieving owners’ investment objectives rather than daily operations.

    • Maintenance personnel include engineers, systems technicians, janitorial staff, and other workers needed to maintain property condition.

  • Demolition

    • Demolition experts, in conjunction with excavation and debris removal professionals, remove properties that are no longer economically viable from the market.

  • Investment ownership

    • A specialized niche where real estate investors commit capital to buy, hold, and sell real properties for profit.

    • Distinction from property owners whose primary interest lies in another business; investors focus on identifying and exploiting real estate opportunities.

    • Investors provide capital and liquidity to the real estate market.

  • Regulation

    • Real estate is regulated by government at multiple levels.

    • Principal regulatory areas: usage, taxation, and housing administration.

    • Professional regulatory functions include public planners, zoning administrators, building inspectors, assessors, and administrators of specific federal statutes such as Federal Fair Housing Laws.

  • Transfer

    • Rights and interests in real estate can be bought, sold, assigned, leased, exchanged, inherited, or otherwise transferred from one owner to another.

    • Real estate brokers and the brokers’ salespeople are centrally involved in such transfers.

    • Other professionals involved include mortgage brokers, mortgage bankers, appraisers, insurers, and title companies.

Property Type Specialization

  • In addition to specializing by function, many professionals specialize by the type of property they work with.

  • By ownership purpose, properties are classified as: 3 property types: residential, commercial, or investment properties.

  • Residential property refers to property owned and used for habitation.

    • May be further classified by how many families they house, whether attached or detached, etc.

  • Commercial property generally refers to retail and office properties, but may also include industrial real estate.

    • The term "commercial" relates to properties that can generate income from business usage.

  • Investment property refers to properties held by owners for investment purposes.

    • All classifications of property may be investment properties, although the term does not typically refer to owner-occupied residences.

    • Apartments, condominiums, cooperatives, and single-family homes may be considered investment properties if non-occupants own them for investment purposes (i.e., residential income properties).

Classifications of Real Estate by Use

  • Common classifications by use include (Exhibit 1.2):

    • residential

    • industrial

    • residential income

    • farm and ranch

    • office

    • retail

    • land

    • special purpose

  • These categories are not absolute; properties often have overlapping uses (e.g., a bank with both retail and office operations; an industrial facility with extensive office space; a retail center with offices).

Forms of Specialization in Real Estate Brokerage

  • Real estate brokerage involves procuring a buyer or tenant for an owner or landlord, or vice versa.

  • Most newly licensed practitioners begin in residential brokerage.

  • Primary brokerage activities involve one or more of the following tasks:

    • locating a buyer for a seller

    • locating a seller for a buyer

    • locating a tenant for a landlord

    • locating a landlord for a tenant

  • To accomplish these tasks, brokers hire licensed agents as assistants.

  • The brokerage company, in its simplest form, consists of:

    • a broker and the broker’s agents, who together work to locate buyers, sellers, tenants, and landlords for their clients.

Forms of Specialization (Brokerage Context)

  • In the modern brokerage environment, brokers and agents specialize along the following lines:

    • property type

    • geographical area

    • type of transaction

    • type of client

    • type of relationship

  • Choice of specialization is influenced by market competition and perceived opportunities.

  • Property type

    • Different properties require different features and have different potential buyers; common specializations include:

    • residential agents

    • commercial agents (office, retail)

    • industrial agents

    • land agents

  • Geographical area

    • Brokers must maintain current, accurate data on properties; in large markets it is impractical to track every property, so one defines an area of geographical specialization (defined by natural barriers, streets/highways, or subdivisional boundaries).

  • Type of transaction

    • Principal transaction types: sales, leases and subleases, exchanges, and options.

    • Each form involves specific legal documents and considerations; many agents, especially commercial agents, specialize in a type of transaction (e.g., leases vs. sales in urban commercial markets).

  • Type of client

    • Brokers increasingly represent both buyers and tenants as well as sellers and landlords.

    • Conflicts of interest may lead many brokers to restrict their business to representing either buyers/tenants or sellers/landlords exclusively.

    • Some brokers specialize by the client’s industry or business, e.g., hospitals, fast-food chains, or executive relocations.

  • Type of relationship

    • An increasing number of brokers provide advisory services rather than only transaction-based services.

    • In advisory relationships, the broker works on defined real estate tasks or projects for a fee, salary, or retainer, and may or may not focus on completing a transaction.

Related Brokerage Services (Pre-set Fees)

  • Some individual brokerage services offered for a pre-set fee include:

    • comparative price analysis

    • database search

    • prospect screening

    • site analysis

Skills and Knowledge for Real Estate Brokerage

  • Professionals must have a broad range of real estate knowledge and skills:

    • Knowledge areas:

    • local market conditions

    • local properties

    • real estate principles

    • real estate law

    • value estimation

    • real estate financing

    • investment principles

    • license laws

    • related math calculations

    • closing procedures

    • Skills:

    • financial qualification

    • market analysis

    • marketing practices

    • ethical practices

    • liability management

    • data management

    • selling time management

    • communication

    • writing

    • basic computer operation

Professional Organizations

  • The real estate industry includes trade organizations that support and promote various forms of business specialization.

  • Benefits of membership typically include:

    • training programs

    • professional designations

    • communication channels to stay informed about events and laws

    • enhanced business image with clients and the public

  • Major trade organizations, institutes, and related designations include (examples, see Exhibit 1.4):

    • American Society of Appraisers

    • American Society of Home Inspectors (ASHI)

    • Association of Real Estate License Law Officials (ARELLO)

    • Building Owners and Managers Association (BOMA)

    • CCIM Institute

    • CoreNet Global

    • Counselors of Real Estate (CRE)

    • Institute of Real Estate Management (IREM)

    • Certified Property Manager (CPM)

    • International Association of Assessing Officers (IAAO)

    • International Council of Shopping Centers (ICSC)

    • Mortgage Bankers Association of America (MBA)

    • National Association of Exclusive Buyer’s Agents (NAEBA)

    • National Association of Home Builders (NAHB)

    • NAIOP Commercial Real Estate Development Association

    • National Association of Real Estate Brokers (NAREB)

    • National Association of Realtors (NAR)

    • Graduate, Realtors Institute (GRI)

    • Certified International Property Specialist (CIPS)

    • Real Estate Educators Association (REEA)

    • Realtors Land Institute (RLI)

    • Accredited Land Consultant (ALC)

    • Society of Industrial and Office Realtors (SIOR)

    • The Appraisal Institute (AAI, MAI, SRA, etc.)

    • Women’s Council of Realtors (WCR)

    • Performance Management Network (PMN)

Regulation and Licensing

  • Regulation of business practices

    • The real estate industry is regulated by every level of government.

    • Federal and state statutes, plus a considerable body of common law, govern how real estate can be developed, managed, and transferred.

    • Key law areas relevant to agents and brokers include:

    • agency

    • contracts

    • disclosure

    • environmental impact

    • fair housing

    • In addition to laws and regulations, the industry is self-regulated to some extent by ethical codes from trade organizations (e.g., the National Association of Realtors Code of Ethics), which reflect the law while setting higher performance standards for members.

    • New practitioners must understand and adhere to the various applicable laws.

  • Real estate license laws

    • State real estate license laws form the primary legal framework governing brokerage practice.

    • License laws specify who must obtain a license and outline requirements for obtaining and maintaining it.

    • License laws define critical brokerage practices, including:

    • handling escrow deposits and fees

    • advertising guidelines

    • client and customer relations

    • State license laws are administered by a state real estate commission, which enforces license laws and may pass regulations to refine or clarify statutes.

Snapshot Review (Key Takeaways)

  • Real estate professions involve activities to create, improve, manage, maintain, demolish, own, regulate, and transfer real properties.

  • Property type specializations include: 3 main categories - residential, residential income, office/retail/industrial, farm and ranch, special purpose, land (clarified to include investment aspects).

  • Real estate brokerage revolves around procuring counterparties for transactions and can include advisory roles; many brokers use licensed agents.

  • Forms of specialization in brokerage include: by property type, by geographical area, by type of transaction, by type of client, and by type of relationship (transaction-based vs advisory).

  • Professionals require broad knowledge of market conditions, law, financing, and ethics, plus strong people skills and technical abilities.

  • There are numerous professional organizations that provide training, designations, and industry standards; membership enhances credibility.

  • Regulation and licensing encompass federal, state, and local laws; license laws govern who can practice real estate and how; commissions oversee enforcement; ethical codes supplement legal requirements.

Exhibits (Key References)

  • Exhibit 1.1: Professions in Real Estate — Creating; Managing & Maintaining; Destroying; Holding; Regulating; Transferring; and Property Type Specialization (Residential, Residential Income, Office, Retail, Industrial, Farm & Ranch, Special Purpose, Land).

  • Exhibit 1.2: Classifications of Real Estate by Use — residential, industrial, residential income, farm & ranch, office, retail, land, special purpose.

  • Exhibit 1.3: Skills and Knowledge in Real Estate Brokerage — Knowledge: local market conditions; local properties; real estate principles; real estate law; value estimation; real estate financing; investment principles; license laws; related math calculations; closing procedures. Skills: financial qualification; market analysis; marketing practices; ethical practices; liability management; data management; selling; time management; communication; writing; basic computer operation.

  • Exhibit 1.4: Real Estate Trade Organizations and Designations — extensive list of associations and designations (e.g., NAR, CCIM, IREM, SIOR, GRI, CIPS, CPM, MAI, SRA, etc.).

Regulation and Licensing (Summary)

  • All facets of the real estate industry are regulated by federal, state, and local laws, plus professional ethics codes.

  • Agents must understand relevant laws and adjust business practices accordingly.

  • The primary legal framework for licensure and conduct is provided by state real estate commissions through license laws and related regulations.

Real estate is the largest U.S. industry, encompassing the creation, management, demolition, investment, regulation, and transfer of properties. Professionals specialize by function and property type, which are broadly classified as residential, commercial, or investment properties.

Real Estate Activities

  • Creation and Improvement: Involves developing raw land through financing, construction, and regulatory approvals. Key parties include developers, landowners, and lenders.

  • Management and Maintenance: Ongoing oversight of properties; includes property managers (daily operations) and asset managers (investment objectives).

  • Demolition: Removing economically unviable properties.

  • Investment Ownership: Acquiring properties for profit, providing market capital and liquidity.

  • Regulation: Government oversight of usage, taxation, and housing, involving public planners, zoning administrators, and building inspectors.

  • Transfer: Facilitating the buying, selling, leasing, or exchange of property rights, primarily handled by real estate brokers and their agents.

Property Type Specialization

  • Properties are classified by ownership purpose into residential, commercial, or investment types.

  • Common classifications by use include: residential, industrial, residential income, farm and ranch, office, retail, land, and special purpose.

Real Estate Brokerage

  • Brokerage involves procuring buyers/tenants for owners/landlords (and vice versa).

  • Specializations in brokerage include: by property type (residential, commercial, industrial, land), geographical area, transaction type (sales, leases), client type (buyers, sellers), and relationship type (transactional vs. advisory).

Skills and Knowledge

  • Professionals need knowledge in local markets, property law, financing, investment, and license laws.

  • Essential skills include financial qualification, market analysis, marketing, ethical practices, liability management, and communication.

Professional Organizations

  • Trade organizations offer training, professional designations, communication channels, and enhance business image.

Regulation and Licensing

  • The industry is regulated by federal, state, and local laws, supplemented by ethical codes.

  • State real estate license laws form the primary legal framework, administered and enforced by state real estate commissions.

Real estate is the largest U.S. industry, encompassing the creation, management, demolition, investment, regulation, and transfer of properties. Professionals specialize by function and property type, which are broadly classified as residential, commercial, or investment properties.

Real Estate Activities

  • Creation and Improvement: Involves developing raw land through financing, construction, and regulatory approvals. Key parties include developers, landowners, and lenders.

  • Management and Maintenance: Ongoing oversight of properties; includes property managers (daily operations) and asset managers (investment objectives).

  • Demolition: Removing economically unviable properties.

  • Investment Ownership: Acquiring properties for profit, providing market capital and liquidity.

  • Regulation: Government oversight of usage, taxation, and housing, involving public planners, zoning administrators, and building inspectors.

  • Transfer: Facilitating the buying, selling, leasing, or exchange of property rights, primarily handled by real estate brokers and their agents.

Property Type Specialization

  • Properties are classified by ownership purpose into residential, commercial, or investment types.

  • Common classifications by use include: residential, industrial, residential income, farm and ranch, office, retail, land, and special purpose.

Real Estate Brokerage

  • Brokerage involves procuring buyers/tenants for owners/landlords (and vice versa).

  • Specializations in brokerage include: by property type (residential, commercial, industrial, land), geographical area, transaction type (sales, leases), client type (buyers, sellers), and relationship type (transactional vs. advisory).

Skills and Knowledge

  • Professionals need knowledge in local markets, property law, financing, investment, and license laws.

  • Essential skills include financial qualification, market analysis, marketing, ethical practices, liability management, and communication.

Professional Organizations

  • Trade organizations offer training, professional designations, communication channels, and enhance business image.

Regulation and Licensing

  • The industry is regulated by federal, state, and local laws, supplemented by ethical codes.

  • State real estate license laws form the primary legal framework, administered and enforced by state real estate commissions.

Real Estate Ecosystem: Key Functions & Specializations (Core Components)
Real Estate Activities (Categorization):

  • Creation & Improvement

  • Management & Maintenance

  • Demolition

  • Investment Ownership

  • Regulation

  • Transfer

Property Type Specializations (Main Classifications):

  • Residential (Habitation)

  • Commercial (Retail, Office, Industrial for business income)

  • Investment (Properties held for profit, distinct from owner-occupied)

Brokerage Specializations (Areas of Focus):

  • By Property Type (Residential, Commercial, Industrial, Land)

  • By Geographical Area

  • By Transaction Type (Sales, Leases, Exchanges, Options)

  • By Client Type (Buyers/Tenants, Sellers/Landlords)

  • By Relationship (Transactional, Advisory)

Professional Requirements (Key Attributes):

  1. Knowledge Areas:

    • Local Markets & Properties

    • Real Estate Principles & Law

    • Value Estimation & Financing

    • Investment Principles & License Laws

    • Math Calculations & Closing Procedures

  2. Skills:

    • Financial Qualification

    • Market Analysis & Marketing Practices

    • Ethical Practices & Liability Management

    • Data Management & Selling

    • Time Management & Communication (Writing, Basic Computer Operation)

Professional Organizations (Support & Standards):

  • Benefits: Training, Designations, Information, Enhanced Image

  • Examples: NAR, CCIM, IREM, SIOR, GRI, CIPS, CPM, MAI, SRA

Regulation & Licensing (Governing Framework):

  • Multi-level Regulation: Federal, State, Local Laws & Common Law

  • Key Legal Areas: Agency, Contracts, Disclosure, Environmental, Fair Housing

  • Self-Regulation: Ethical Codes (e.g., NAR Code of Ethics)

  • Licensing: State-specific, administered by Real Estate Commissions