Real Estate Principles

Types of Property

• Residential:
  • Single-family homes
  • Multifamily homes
• Commercial:
  • Office spaces
  • Retail spaces
  • Entertainment venues
  • Hotels
• Mixed-Use:
  • Commercial and residential spaces in the same building
  • Example: A hotel with a restaurant
• Agricultural:
  • Farms
  • Timberland
  • Ranches
  • Orchards
• Industrial:
  • Warehouses
  • Manufacturing facilities
  • Land used for industrial purposes
  • Power plants
• Special Purpose:
  • Worship places
  • Schools
  • Museums
  • Parks
  • Usually government-owned or privately owned

Types of Housing

• Single Family:
  • Detached house on its own land
  • Owned by the resident
• Apartment:
  • Rental unit
• Condo (Condominium):
  • Homeowners association (HOA) involved
  • Individual units are owned, but common areas are managed collectively
• Cooperative (Co-op):
  • Similar to a condo, but owned through a cooperative corporation
• PUD (Planned Unit Development):
  • Individual ownership of a unit, plus shared ownership of common areas
  • The land, however, is owned privately
• Converted Building:
  • A building repurposed from its original use
• Factory Built Housing:
  • Homes ordered from a factory and placed on a lot
  • Example: A trailer or manufactured home

Supply and Demand

Factors Affecting Supply:

• Property Availability with Price Ranges:
  • The number of properties available at different price points
• Cost of Construction:
  • Includes labor costs, material costs, and fees
• Government Controls:
  • Zoning regulations, building codes, and other government restrictions
• Interest Rates:
  • The cost of borrowing money for construction and development

Factors Affecting Demand:

• Demographics:
  • Population size, age distribution, and household composition
• Employment:
  • Job growth and unemployment rates
• Wage Levels:
  • Income levels and purchasing power
• Consideration for Homeowners:
  • Consumer confidence and attitudes toward homeownership

Taxes

• Real estate brokers should not give tax advice.
• Deductions allowed on a first and second residence:
  • Property tax
  • Mortgage interest
• Points Paid on Loans:
  • Deductible when used to improve or acquire property
• Deductibles:
  • Points
  • Origination fees
  • Interest
  • Taxes
• Must itemize deductions on tax return to claim these

Investing

• Short-Term Gain:
  • Property held for less than twelve months
  • Taxed at the taxpayer's ordinary income tax rate
• Long-Term Gain:
  • Property held for more than twelve months
  • Taxed at different (potentially lower) rates
• Tax Benefits (Specific Numbers):
  • 250,000 max if single filing taxes
  • 500,000 max if married and filing together
  • Taxpayers must own and occupy the property for two out of the five years preceding the sale.

Definitions

• Real Estate Brokerage:
  • A business or company licensed to buy, sell, exchange, or lease real property on behalf of others for compensation.
• Real Estate Broker:
  • Similar to real estate brokerage.
• Real Estate Salesperson:
  • An individual employed by or associated with a broker to conduct brokerage activities.
• Real Estate Licensee:
  • Someone who has met the requirements of the licensing agency.
• Appraisal:
  • The process of developing an opinion of value for a property.
• Appraisal Licensing:
  • Required for federally related transactions.

True or False Questions

• Improvements such as roses are considered appurtenances and run with the land. (True)
• Government rights to real property include land use control, taxation, eminent domain, and escheat. (True)
• Water rights with priority based on beneficial use rely on the doctrine of prior appropriation. (True)
• Water rights do not automatically include the right of access. (True)
• Mineral rights are rarely separated from surface rights and are typically conveyed to the buyer. (False)
• Personal property attached to an improvement becomes a fixture. (True)
• Land is not a fixture, and fixtures are not transferred by a bill of sale. (True)
• Countertops, attached tools, and other pieces of restaurant equipment are considered trade fixtures. (True)

Types of Properties: Real and Personal

• Real Estate:
  • Land and any improvements that are permanently attached to it.
• Real Property:
  • The rights, interests, and benefits associated with the ownership of real estate.
• Personal Property:
  • Everything that is not attached to the land.
  • Transferred via a bill of sale.
• Bill of Sale:
  • A legal document that transfers ownership of personal property.
• Rights and Interests in the Land:
  • Surface rights, subsurface rights (mineral rights), and air rights.
• Improvements:
  • Natural (e.g., trees) or man-made (e.g., buildings, fixtures).
• Personal Property Attached to Improvements:
  • These become fixtures.
• Land is Not a Fixture.

Distinguishing Fixtures

• Method of Attachment:
  • How permanently the item is attached.
• Adaptation of the Item to the Property:
  • How well the item fits or is customized for the property.
• Relationships of the Parties:
  • The relationship between the buyer and seller or landlord and tenant.
• Intention of the Fixture:
  • What was the intent when the item was installed?
• Agreement of the Parties:
  • Any written agreements specifying whether an item is a fixture or personal property.
• Fixtures become real property.
• Real estate and fixtures are transferred via a deed.
• All property other than real estate is considered personal property.
• Ownership of Creekside rights is considered riparian rights.

Key Concepts Summary

• Real estate consists of land, improvements, rights, interests, and fixtures.
• If a seller is taking a fixture, it must be excluded from the purchase contract.
• Personal property is transferred via a bill of sale.
• Emblements are cultivated crops that belong to the party who planted them.
• Fixtures (like a fireplace mantle) are considered built-in, while personal property is freestanding.
• Trade fixtures are owner- or tenant-installed additions that are a necessary part of their trade.
• A deed transfers the ownership of land and appurtenances.
• Emblements and trade fixtures do not transfer with the deed.