Posted by admin on August 1, 2010 under Real Estate License Basics | 
A great deal of the real estate training to earn a real estate license will require you to have a solid understanding of real estate finance. At the core of the financial market is the Federal Reserve. In this edition of our Real Estate Basics series we will review what you will need to know about the Federal Reserve System.
The Federal Reserve is the central banking system managing the national economy. Many of the functions of the Federal Reserve System have a significant effect on the real estate market. The Federal Reserve can impact the real estate market with decisions that affect the cost of borrowing money. The ways the Federal Reserve controls the cost and ease of borrowing money are with reserves, discount rates, and the buying and selling of securities.
Reserves are the assets that a bank is required to keep on hand at any given time. If there is an increase in reserves, then a bank must keep an increased amount of money actually in their institution. This leaves banks with less money available to lend, triggering higher interest rates as loans are more difficult to get. When reserves are decreased, the banks are not required to keep as much money on hand, leaving them free to loan more funds. The increased availability of loans keeps interest rates down. It generally takes anywhere from 30 to 60 days before changes in reserves will affect the market.
Next is the discount rate; this is the interest rate charged to banks borrowing money from the Federal Reserve Bank. Unlike changes in reserves, changes in the discount rate are felt in the economy almost instantly. When the banks are charged and increased discount rate, it costs them more to borrow money, and that cost is passed on to the individual or business borrowing from the bank. Loans become more expensive and fewer people will be able to qualify. Decreasing discount rates makes loans less expensive and easier to qualify for.
The buying and selling of securities will also have an effect on lending, although it could take up to six months for it to affect the market. When the Fed buys more securities, interest rates go down and there is more money in the market. When they sell more securities, there is less money so rates increase making loans harder to get.
In addition to the decisions that can indirectly have an effect on the lending market, it is also the job of the Federal Reserve System to implement and oversee lending laws to protect consumers such as the Real Estate Settlement Procedures Act, Equal Credit Opportunity Laws and Truth in Lending.
Posted by admin on August 21, 2010 under Real Estate License Basics |
One very important part of your real estate training is the math associated with real estate transactions. There are many formulas you should get to know before you will be able to earn your real estate license. In this three part installment of Real Estate Basics we will review the real estate math that you will need to understand in order to pass your real estate license exam. In part one of this installment we will cover the how to calculate commissions and loan interest.
Calculating commissions
Calculating commissions involves the purchase price of the property and the commission rate on the contract to determine the amount of commission to be paid. For the purposes of our example, we will use a purchase price of $150,000.00 and a commission rate of 5%. Use the T to help with your calculations.
_____________COMMISSION____________
Sales price | Commission rate
A commission rate is generally a percentage of the purchase price of a property. If you have the purchase price and the commission rate, simply multiply the commission rate by the purchase price to find the commission.
$150,000.00 X .05 = $7500.00 commission on the sale
If you have been given a commission amount and the purchase price you need to divide the amount of commission paid by the purchase price to determine the commission rate.
$7500 / 150,000 = .05 or 5% commission
If you are only given the commission rate and the commission amount, divide the amount of commission by the commission rate to determine the purchase price.
$7500 / .05 = $150,000.00
Financing
Math for financing is a little bit different. The calculations are usually to determine interest rates and the principle and interest paid on a mortgage payment. It is important to remember that when you are dealing with interest rates they are expressed in annual rates. Our T for these calculations looks like this:
_________________INTEREST_________________
LOAN AMOUNT | INTEREST RATE
To determine the interest amount, simply multiply the loan amount by the interest rate. Assuming the interest rate for a $150,000.00 loan is 6% you can calculate the interest.
$150,000 X .06 = $9000.00 in interest
If you have only the rate and the interest amount, divide the interest by the interest rate to determine the purchase price.
$9000 / .06 = $150,000.00
If you have only the loan amount and the interest amount, divide the interest amount by the loan amount for the interest rate.
$9000 / 150,000 = .06 or 6% interest
In the next part of Real Estate License Math we will the calculations used on a settlement sheet for things like interest and taxes as well as when and who to debit and credit at closing.
Posted by admin on August 22, 2010 under Real Estate License Basics |
In part one of the Real Estate Basics – Real Estate Math installment we reviewed how to calculate loan interest and commissions for the purposes of taking the real estate license exam. In part two we will take a look at the calculations behind the figures on the settlement sheet.
Calculating interest due at closing
Much of the math on your real estate license exam will have to do with calculating interest due from the buyer and seller at closing. If the seller has an existing loan on the property it will need to be paid off at closing. The seller is responsible for their loan amount and the interest back to the first of the month. On closing paperwork this is a DEBIT to the seller only. The buyer must secure a new loan and pay the interest up to the end of the month, including the interest for the day of closing.
Let’s say that the seller owes $100,000.00 on their loan on September 1. Since mortgage payments are paid in arrears, that payoff amount remains the same through September 30. If the interest rate on that loan in 6%, and the closing is on the 30th the equation for the interest due is
$100,000 X .06 = $6000.00 /12 months = $500.00 due from the seller for the month of September.
For a mid month closing, the monthly interest rate translates into a daily rate when divided by 30. So to change our closing to September 15th, then the buyer owes interest from the day of closing on, 16 days.
$500.00 / 30 = $16.67 per day X 16 days = $266.72 due from buyer at closing.
Calculating taxes
The first step when you are calculating taxes on a settlement sheet is to figure out if the taxes have been paid or not. Next is to determine whether the seller owes a credit or is due a credit and to break the taxes down to a daily number. For the purposes of real estate license math, a month has 30 days and a year is 360 days. In order to calculate the total tax per day, the annual tax amount is divided by 360 days. If the taxes for a property are $2500.00 annually, the equation for the daily tax is
$2500.00 / 360 = $6.95 per day
If the taxes have not been paid in full for the year and the closing happens on September 15 the seller owes tax for 8 months and 15 days, or 255 days, which equals $1772.25. The way that is calculated is
8 months X 30 days = 240 + 15 days = 255 days
255 days X 6.95 per day
This will show on the settlement sheet as a $1772.25 debit to the seller and a $1772.25 credit to the buyer.
In the event that the taxes for the year have been paid in full by the seller then the settlement sheet would show a credit to the seller for $1772.25 and a debit to the buyer in the same amount.
Posted by admin on August 21, 2010 under Real Estate License Basics |
For this installment of the Real Estate Basics series we will review real estate brokerage and the basics of what you need to know to get your real estate license.
The real estate brokerage business is the facilitation, listing, marketing and managing of information for the procurement of buyers, sellers, tenants or leased property for clients. This is accomplished with the help of other brokers and the use of a network of broker shared listing known as the Multiple Listing Service.
Real estate can be brokered legally by sole proprietors, joint ventures, limited partnerships, general partnerships, or for profit corporations. Not for profit corporations, cooperative associations and business trusts are not permitted to broker real estate. There are many types of brokerage organizations. There are limited and full service agencies, independents and franchises as well as brokerage agencies by client type, property type, or transaction type.
The relationship between brokers and salespersons is important to understand and will be covered in your real estate courses. The real estate broker’s role is to negotiate an agreement for the sale, purchase, rent, lease, or otherwise exchange interest in real property for a fee or a commission. Real estate brokers are also responsible for supervising all their salespersons activities as well as accepting and keeping all of the funds being held for the transaction in an escrow account. Salespersons must be affiliated with a licensed real estate broker, either as an employee or as an independent contractor. The real estate salesperson role is much the same as the broker’s role except that they cannot negotiate the final terms of an agreement and they are not permitted to hold or accept escrow funds.
The salesperson and the broker have certain obligations to each other. The salesperson must obtain and sell listings for the real estate broker, abide by all regulations and policies as per their employment agreement, and always promote ethics and protect the broker’s reputation. The broker’s responsibility to the salesperson is to provide the policies and an employment agreement to the salesperson. They must also provide salespersons necessary information, office support, training and compensation while upholding ethical standards.
Operating a real estate brokerage requires more than obtaining and marketing property listings and managing information about the market, clients, and properties; real estate brokerages must follow all advertising regulations and Anti-Trust Laws. Real estate brokers are responsible for the content of all advertising material. Every advertisement must contain the broker’s identification information. Blind ads and misleading ads are prohibited. Antitrust Laws like the Sherman Act and the Clayton Act are in place to protect against unfair business practices, monopolies, and trade restraints.
Real estate brokerage is a large subject and you will need to understand it to pass the real estate license exam. In this installment of Real Estate Basics we have only summarized the general parameters of real estate brokerage in the hopes of making the information easier to understand. Your real estate courses will cover the subject more in depth for you.
