Posted by admin on July 24, 2010 under Real Estate License Basics | 
When you are studying for the real estate license exam, there are a lot of real estate terms that you will have to familiarize yourself with during the course of your real estate training. Among the most important of these will be contract terminology. There is a great deal of terminology to cover, so we will focus on the terms that are required components of a legally binding contract.
First and foremost is the contract itself. A real estate sales contract can be referred to as a contract for purchase, an agreement of sale, an earnest money contract, or a contract of purchase and sale. In order for a contract to be valid, it must meet certain criteria.
A contract requires a vendee, which is someone to make the purchase, and a vendor to sell the property. Offer and acceptance are terms that are a part of the first step of completing a sales contract referring to the negotiation process. The vendee must make an offer of the property for sale that must be accepted by the vendor to validate the contract.
A contract must be enforceable. This means it has to meet specific criteria to be considered a valid contract. It must be created as a voluntary act of mutual consent by competent parties with consideration and a legal purpose. The contract must be in writing with the purchase price, property and interested parties all clearly specified. Oral contracts are not enforceable.
An earnest money escrow deposit is the money that the vendee puts up to show good faith and hold the property until the contract is complete. This fulfills the consideration requirement needed to make a contract enforceable.
Contract contingencies are conditions that must be met for a contract to be completed. A statement of contingency must be clearly stated, have an expiration date, and requires parties to make diligent attempts to fulfill the stated contingency. The most common contract contingency is financing. When an offer is accepted it is generally accepted with the contingency that the vendee secures the financing needed to make the purchase. If the contingency of financing is met in a timely manner, then the sale can proceed. If the financing contingency is not met then the contract is terminated.
If the vendee does not make good on the offer that is accepted by the vendor, this could be considered buyer default. If the buyer does not meet the contracts terms then the seller has the right to pursue the buyer legally for defaulting on their contract. Most often the buyer will forfeit their earnest money deposit in a process called liquidated damages.
An agreement of sale is an executory contract. This means that once the terms have been met and the signatures are in place, the contract is complete or fully executed and the contract is then terminated as it will have served its purpose. When a contract is completed, the interest in the property changes hands. This is called the transfer of equitable title.
Posted by admin on July 25, 2010 under Real Estate License Basics |
For this installment of our Real Estate Basics series we will review real estate taxation as it applies to your real estate courses. Here we will cover the basics of what you need to know for your real estate license exam.
There are two types of real estate taxes that are levied on specific properties. These taxes are automatically liens on the property and do not need to be recorded to be valid.
The first type of real estate tax is known as a special assessment tax. If a property benefits from a public improvement like a street or sewer system then the city, county or the state can impose a tax for usage of these services. Unless there is a written agreement in place stating otherwise, special assessment taxes must be paid in full prior to any transfer of property. Special assessment taxes are the priority for payment; they are always paid ahead of other property taxes and in the case of foreclosure are listed first on the deed of trust.
The other type of real estate tax is called a general tax or Ad Valorem. Ad valorem is Latin for “according to valuation”. This type of tax is based upon the property value. The property is appraised and assessed by a government agency for its tax value. Land values are compared to comparable land sales to determine their value while buildings are appraised using replacement cost less depreciation. If one county’s assessments are out of line with other counties in the state, the equalization factor is multiplied by the tax to make the county more or less equal to the rest of the state.
To earn your real estate license you should also know how to calculate tax rates. If you have the taxes and the assessed value of a property, then you can divide the taxes by the assessed value in order to determine the tax rate. If you have the taxes and the rate then you can use the same formula to calculate the assessed value by dividing the taxes by the rate. With the assessed value and the tax rate you would multiply to determine the amount of tax.
Tax rates are stated in Mills which is equal to 1/1000th of one dollar. The appropriate numeric representation of a mill is .001 and this is likely to be something you will be asked on a real estate license exam. Single digit mill rates can be transformed used in an equation by adding a decimal point and two zeros to the left of the mill rate. For example, when you are given a tax rate of 7 mills, .007 should be used for any calculations. For a double digit mill rate you would add a decimal point an a single zero to the left of the rate, so a rate of 15 mills would be .015. A mill rate of 15.5 would be .0155. For example if you were to get a question that read:
What is the amount of tax due on a property with an assessed value of $500,000.00 and a tax rate of 5 mills?
The correct equation would be 500,000 X .005
Posted by admin on July 24, 2010 under Real Estate License Basics |
Once you have your real estate license you will spend your entire career striving for the next closing. It this edition of Real Estate Basics we are going to breakdown this process to help you understand the anatomy of a closing. Your real estate courses will provide great detail of the closing process. For our purposes we will review the basic steps involved in a real estate closing.
In earlier editions of our series we have covered the real estate contract as well as sources of financing and how to qualify for a mortgage. All of these steps are leading us to a real estate closing. The closing is the completion of all of the contracts contingencies and the point where the title of the property actually changes hands.
The beginning of the closing process begins once the offer has been accepted. The buyer then provides an earnest money deposit to be held in escrow to secure the transaction. At this point the title check will begin. This is where a professional, it could be a title company, title agent of a title attorney depending on what state you are in, begins a search on the title of the property under contract. This is to ensure that the property is owned by the seller and is free of liens and encumbrances.
In the process of securing the financing they will need to complete the sale, buyers will be required to purchase homeowners insurance. Financing will not be approved until proof of insurance has been provided to the lender.
The next step involves disclosures, inspections and clearing contract contingencies. The seller is required to disclose any pertinent information on the condition of the property to the buyer. Home inspections will be done at this stage. With the disclosures and inspections satisfactorily completed, the real estate agent or broker will then work to remove any contingencies listed on the contract.
Most real estate closings require some sort of financing and the loan closing will happen simultaneously with the real estate closing. The lender will request an appraisal of the property value. With all of the steps required by the lender complete and a satisfactory appraisal, the lender will notify the title agent that the financing for the property has been approved. The loan closing documents are forwarded to the title agent for signature at the closing. The title agent will schedule the closing appointments for and the buyer and seller separately.
Estimates of settlement costs are provided to the buyer in advance with the final figures given to them upon loan approval. The buyer must secure a cashier’s check for the amount due at the closing appointment. The title agent will handle the request to pay off the sellers existing mortgage as well as the request for the release documents.
A typical closing will take 1-2 hours for the buyer. Many times the seller will have already signed the documents and at the closing appointment the buyer will be required to sign all of the title documents along with the mortgage closing documents. Once all of the signatures have been received, the property transfer will be recorded and the closing is complete.
Posted by admin on July 25, 2010 under Real Estate License Basics |
The real estate industry has always been one of the largest wealth generating industries anywhere. Investing in real estate is something that you will need to understand to earn your real estate license. In this installment of Real Estate Basics we will review real estate investing as it will be covered in your real estate courses.
An investment is when someone purchases something of value with the intention of putting it to use in a way that will increase its value over a period of time. With that being said, a real estate investment, by definition, would be the purchase of a real estate property primarily for its investment benefits or potential increase in value and not for its usefulness.
Real estate investors can invest in either an income property or a non-income property. An income property would be one where it is purchased specifically its investment benefits, such as a rental or lease property. The benefits of the investment can be in income like rent payments, or in the form of tax benefits, leverage or appreciation of value.
Since investment benefits do not always need to be by way of income generation, an investor can also invest in a non-income property. The investor may live in the property, but its purchase was primarily for the benefit of the investment and not solely to secure a residence. The benefits of such a purchase would be the potential for appreciation, tax benefits, and of course for the enjoyment of the use of the property.
Unlike other types of investment, there are a number of complexities involved in real estate investing. Investors in real estate will require a real estate agent or broker with a great deal of real estate training and understanding of the variables that can affect a real estate investment transaction. When necessary the client should be referred to a financial advisor for the analysis of a real estate investment, but the real estate licensee should have a solid understanding of the essentials of real estate investing.
As with any investment there are rewards as well as risks. In a real estate investment, some of the risks involve changes in the market, shortfalls in income, changes to tax laws, negative leverage, and just plain poor returns on the investment. Even with the significant risks involved in real estate investment, historically the rewards of investment outweigh the risks in the long run, making real estate one of the most solid investments around.
Many types of investments have liquidity while real estate investments are generally illiquid. This means that they cannot be sold off quickly for cash. Even when a property is placed for sale, there will in most cases be a significant period of time for the property to be marketed, sold and closed on. This differs greatly from investments like stocks which can be liquidated instantly.
An investment property requires hands on investor management to ensure that the property maintains its value. The investor must remain involved as they are responsible for taxes, maintenance, repairs and improvements that are necessary to preserve the value of the property.
