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Glossary of Finance 442 Test 1

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Land and things attached to it.
Real Estate
Things that can be owned or possessed.
Property
Legal interest in land and things attached to it.
Real Property
Anything else, other than real property, than can be owned.
Personal Property
Personal Property
Chattel
Ownership rights to property.
Title
A document that transfers title from one person to another.
Deed
Conveys rights and use of possession, but does not transfer ownership.
Lease
A personal property item that has become a part of the real property.
Fixture
1) Intent of Properties
2) Test of Attachment
3) Test of Adaptability
Tests for Fixture Status
Test Intent of Parties
Evidence, usually written, showing that the parties intended the item of personal property to become a fixture.
Test of Attachment
Is the item physically attached, and, if so, will repairs be necessary if it's removed.
Test of Adaptability
Has the item been physically adapted to the space?
Refers to the legal interests associated with oil, gas, coal, or other minerals that may be located beneath the surface of a parcel of land.
Mineral Rights
Refers to the legal interests associated with the space above the surface of a parcel of land.
Air Rights
Refers to the legal interests associated with water that flows across, touches, or is located in or under a parcel of land.
Water Rights
Landowners whose property adjoins navigatable water.
Littoral Proprietors
Non-Navigable Bodies of Water
1) Riparian rights doctrine
2) Prior appropriation doctrine
All owners have equal rights (eastern US).
Riparian Rights Doctrine
First-come, first-served (western US).
Prior Appropriation Doctrine
_____ conveys ownership by sale or gift to the _____.
Grantor, Grantee
_____ conveys rights by sale or gift to the _____.
Lessor, Lessee
The fullest and most comlete set of ownership right one can possess in real property.
Fee Simple Absolute Estate
Owner can transfer any interest in the property while living.
Alienable
Ownership rights can be transferred by will at death of owner.
Devisable
Ownership interests pass to legal heirs even in the absence of a will.
Descindible
Ownership rights are "qualified" by a stated event or condition. Ownership interests will revert to the former owner if the condistion(s) stated in the deed is (are) breached.
Qualified Fee Estate
An ownership interest in real property that normally ends upon the death of a named person.
Life Estate
The future interest associated with a life estate held by someone other than the grantor.
Remainder
The party who holds the remainder interest associated with a life estate.
Remainderman
A remainder interest that has conditions attached that can prevent the remaindermand from receiving a present interest in the property.
Contingent Reminder
A remainder interest when the remainderman is guaranteed ownership of the property at some time in the future.
Vested Remainder
The lessee has rights of use of possession but not ownership.
Leasehold Estate
The landlord's reversionary right to reoccupy the property at the expiration of the lease.
Right of Reentry
The property owner's interest when the property is leased.
Leased Fee Estate
A leasehold estate that has definite starting and ending dates.
Tenancy for a Stated Period
The lelase will stand ad infititum unless terminated by one of the parties with proper notice.
Tenancy from Period to Period
An informal leasehold estate of indeterminable length that may last as long as the parties agree.
Tenancy at Will
A leasehold estate that defines a tenant's rights to occupy the property against the wishes of the lessor.
Tenancy at Sufferance
When a tenant is forced to vacate the premises for failing to adhere to the terms of the rental agreement.
Eviction
Term used to describe ownership interests without regard ot the number of owners.
Estates in Severalty
Ownership intersts held jointly by two or more owners.
Concurrent Estate
An undivided, proportional ownership interest.
Tenancy in Common
Joint ownership in which all owners have an equal, but undivided, interest in a property.
Joint Tenancy
The right of surviving joint owners to automatically divide the share owned by a deceased owner.
Right of Survivorship
A form of concurrent estate in which a husband and wife can own property jointly.
Tenancy by the Entirety
The theory under which all property acquired during a marriage is considered to be equally owned by the husbband and wife, regardless of the financial contribution each spouse actually made to the property's acquisition.
Community Property
Community property states include:
Louisiana, Arizona, California, Idaho, Nevada, New Mexico, Texas, Washington, and Wisconsin
Money either spouse earns during marriage.
Community Property
Things bought with money either spouse earns during marriage.
Community Property
Separate property that has become so mixed with community property that it can't be identified.
Community Property
Property owned by one spouse before marriage.
Separate Property
Property given to just one spouse.
Separate Property
Property inherited by just one spouse.
Separate Property
A computer your spouse inherited during marriage is considered what and why?
What? Your spouse's separate property.
Why? Property inherited by one spouse alone is separate property
A car you owned before marriage is considered who's and why?
Who's? Your separate property.
Why? Property owned by one spouse before marriage is separate property.
A boat, owned and registered in your name, which you bought during your marriage with your income is considered who's and why?
Who's? Community Property.
Why? It was bought with community property income (income earned during the marriage).
A family home, titled jointly as "husband and wife," which was bought with your earnings is considered who's and why?
Who's? Community Property.
Why? It was bought with community income (income earned during the marriage) and is owned as "husband and wife"
A camera you received as a gift is considered who's and why?
Who's? Your separate property.
Why? Gifts made to one spouse are that spouse's separate property.
A checking account owned jointly, into which you put a $5,000 inheritance 20 years ago is considered who's and why?
Who's? Community property.
Why? The $5,000 (which was your separate property) has become so inexorably mixed that it has become community property.
The _____ unit owner usually has a fee simple ownership of her unit, but common areas are owned in a concurrent arrangement (e.g., tenancy in common).
Condominium
The property is usually owned by a non-profit corporation, shares of which are owned by the residents.
Cooperative (“co-op”)
The shares give the residents the right to live in a particular unit, which is called a _____.
Proprietary Lease
A form of concurrent estate that splits ownership of a property across owners and across time.
Time-Share
The property is divided into (typically) 52 weekly, fee simple ownership "slices."
Fee Interest
A lease arrangement with a leasehold interest for a specific period of time; can be resold, but frequently with more restrictions than "fee interest" time-shares.
Right to Use
A legal method for describing the exact boundaries of a property.
Metes-and-Bounds
_____ refers to the distances.
Metes
_____ refers to the directions of the property's boundaries.
Bounds
Distances are measured in _____.
Feet
Directions are measured in _____, _____, and _____.
Degrees, minutes, seconds
Property corners are marked by _____.
Reference Points
North/south lines
Principal Meridians
East/west lines
Base Lines
North/south lines between principal meridians (6 miles apart).
Range Lines
Restrictions or limitations on the owner's ability to use a property.
Encumbrances
Lines-> Real Estate Taxes, Mechanic's Liens, Mortgage Liens, Judgment
Deed Restrictions
Nonphysical Engumbrances
Encroachments
License
Easements -> Appurtenant, In Gross, By Necessity, By Prescription, Party Walls
Physical Encumbrances
Private techniques for restricting land use.
Covenants, Conditions, and Restrictions (CC&Rs)
Private encumbrances that limit the way a property owner can use a property
Recorded in public record
Enforceable by parties who benefit from the limitations
Generally “run with the land,” i.e., they are perpetual (and thus apply to al
Covenants, Conditions, and Restrictions (CC&Rs)
A financial security interest in a property.
Lien
A pledge of real property as collateral for a debt or obligation.
Mortgage
The borrower, who gives the property as collateral.
Mortgagor
The lender, who receives the property as collateral.
Morgagee
a claim on property held by a supplier of materials or labor for non payment for a debt.
Mechanic's Lien (aka, "Construciton Lien")
Usually filed by subcontractors who aren’t paid by the general contractor
Will (or should be) discovered by a title search of the property, which is what one receives in a Title Insurance policy (i.e., a “clear” title)
Mechanic's Lien (aka, "Construction Lien")
A lien placed on property to settle a judgment from a lawsuit.
Judgment Lien
The right to use a property in a specified manner; it is _____, meaning that the easement holder cannot possess the property, as he or she could if she owned it.
Nonpossessory
As with CC&Rs, _____ "run with the land."
Easements
The estate that is served or benefits from the easement.
Dominant Estate or Tenement
The estate that is burdened by the easement.
Servient Estate or Tenement
Allows a non-owner the right to use the property in some manner.
Positive Easement
Prevents the owner from using the property in some manner (e.g., erecting a tall structure that would block another's view).
Negative Easement
Legally, pertains to an adjoining property owned by another party; primarily applies to access-related issues (e.g., lake access).
Easement Appurtenant
Includes only a servient estate(s); these easements are given to individuals or corporations, e.g., in the case of a utility easement.
Easement in Gross
Created by law over an adjoining property (e.g., land-locked property)
Easement by Necessity
When a wall of a building straddles the boundary line of two separate properties.
Party Wall
An easement that is contractually granted or reserved by the seller.
Express Grant or Reservation
An easement that is not contractually granted or reserved, but is implied by the circumstances or usage.
Implication
An easement caused by someone other than the owner who uses the land "openly, hostilely, and continuously."
Perscription (e.g., and "Easement by Prescription")
Acts as though he or she "owns the place;" the usage is "visible, open, and notorious," ie, it would be easy for the owner to learn of the adverse use.
Openly
Treats the property as if the owner, without permission of the owner.
Hostilely
Continuous use for a statutory period of time (perhaps 7 to 20 years).
Continuously
Termination of Easement by:
1) Agreement
2) Merger
3) Abandonment
Both the dominant and servient estate owners agree, and publicly make record that the easement no longer exists.
Agreement
When the dominant servient estates become owned by the same owner.
Merger
The easement isn’t used for an extended period of time (which is determined by State law)
Abandonment
A personal privilege to use land for a particular purpose, revocable at the owner’s discretion
License
A nonpossessory interest (easement in gross) that permits the holder to remove specified resources from the land (e.g., timber, produce, etc.).
Profit, aka Profit a Prendre
A "negative" easement increasingly used for historical preservation or environmental protection.
Conservation Easement
Process by which title to land is transferred from its legal owner to someone who openly possesses the land for a statutory time period without the permission of the owner.
Adverse Possession
Requirements to obtain title by Adverse Possession:
1) Actual and exclusive (Does not require the “squatter” to occupy the land at all times. Examples: Building a residence, Clearing the land, Farming the land)
2) Open and notorious
3) Hostile
4) Continuous
5) Under a claim of right (the adverse possessor has some basis for believing that s/he has a basis in ownership)
6) Statutory period (typically from 7-20 years)
_____ most often occurs today because of boundary disputes
Adverse Possession
An unauthorized invasion or intrusion of a fixture, building, or other improvement onto another owner’s property.
Encroachments
_____ usually occurs because of carelessness, not malice aforethought.
Encroachments
_____ can lead to “adverse possession” issues if left unattended
Encroachments
Four Basic Powers of Government Over Real Estate
1) Taxation
2) Escheat
3) Eminent Domain
4) Police Power
A tax that is levied based on a percentage of value
“Ad Valorem” Tax
One “mill” = $1 of tax for every $1,000 of value; stated another way, one mill = 1/1000 of a dollar.
Millage rate
What the property is deemed to be worth (often the subject of dispute between the owner and the taxing authorities).
Market Value
The value upon which the property tax is levied.
Assessed Value
The “assessed” value of the property divided by the “market value” of the property (often less than 1.00).
Assessment Ratio
Amounts that are subtracted from the assessed value prior to the tax levy (allows political authorities to provide tax relief to particular taxpayers - e.g., low-income homeowners).
Exemptions
Tax Bill Calculation
Market Value x Assessment Ratio = Assessed Value - Exemptions (if any) = Taxable Value ∻ 1000 x Millage Rate = Property Tax
Administering the Property Tax
1) First step, identify all properties and estimate their values.
2) Second step, develop a budget and tax rate.
3) Third step, bill the property owners and collect the taxes.
Developing a Budget and Tax Rate
1) The budget is determined by the appropriate government officials based on the costs of providing government services to the community (police and fire protection, schools, libraries, street, etc.)
2) Dividing the budget amount by the tax digest (total value of properties in the jurisdiction) yields the tax rate necessary to generate the budget amount.
Government’s right to acquire ownership of land when the landowner dies without an heir or a valid will.
Power of Escheat
This governmental power is a carryover from Feudal times, wherein the King could claim property left by lower royalty with no male heirs.
Power of Escheat
This power doesn’t amount to much today because most people have at least one surviving heir, even if it is that nasty fifth cousin on your mother’s side.
Power of Escheat
The rationale for this power is that no property should be “unowned."
Power of Escheat
Right of the government to take private property for public use upon the payment of just compensation.
Power of Eminent Domain
Must be a “valid public use,” but as the textbook indicates, that phrase has proven quite broad in practice.
Power of Eminent Domain
Initially was a Federal government power, but, by virtue of the 14th Amendment to the Constitution, it was extended to lower level government.
Power of Eminent Domain
Property owner must be compensated “fairly” (according to the 5th Amendment); disputes, which are frequent, often end up in court.
Power of Eminent Domain
When a property owner sues the government to force a condemnation (and, thus, “fair compensation”).
Inverse Condemnation
A new roadway is announced (thus rendering the property in its path unsaleable), but the government makes no move to condemn (“take”) the property. Until it does so, the property owner is stuck; she has neither been fairly compensated by the governme
Inverse Condemnation
Kelo vs. New London
A very controversial Supreme Court decision that allowed New London, CT, to use Eminent Domain to take private property for a new private use
Why did New London want to do this? The project would replace lower income housing with a new industrial development. The upshot? A larger property tax base, i.e., more money for New London.
Meanwhile, Susan Kelo and the other plaintiffs would have to move, after being “fairly” compensated for their property
The concern? That private property rights have been severely compromised if ED can be used to seize property for some other, private, use
Consider the implications for graft and corruption
A counter-argument: The Kelo decision gives Gov’t greater power to improve blighted property
Power to regulate use of private property to protect public health, safety, morals, and general welfare.
Land uses are interdependent, meaning that the way one property is used affects other nearby properties.
Police Power
Comprehensive General Plan
1) Projected economic development
2) Transportation plan to provide for necessary circulation
3) Public-facilities plan that identifies such needed facilities as schools, parks, civic centers, water, and sewage disposal plants
4) Land-use plan
5) Official map
Division of a community’s land into districts to regulate the use of land and buildings and the intensity of various uses.
Zoning
Residential, commercial, industrial (also, special purpose categories such as “agricultural,” “floodplain,” and “historic preservation.”
Zoning- Type of Use
Developmental density
1) Height and bulk limitations
2) Bulk regulations
3) Floor-area ratio
4) Minimum lot size and setback regulations
Zoning- Intensity of Use
Zoning regulations can frequently be controversial, seemingly random and arbitrary, even nonsensical.
Innovative Zoning
Usually through the local zoning authority (via public hearings); can often be quite controversial.
Legislative Relief
usually for minor zoning changes, frequently done by way of zoning variances (“slight” deviations from the “norm” of the zoning regulations) or special use permits (exceptions to the norm).
Administrative Relief
“Slight” deviations from the “norm” of the zoning regulations
Zoning Variances
Zoning Changes
1) Legislative relief
2) Administrative relief
3) Judicial relief (last resort)
Uses that deviate from current regulations, but were okay in the past; usually will last only a limited time (not indefinitely).
Nonconforming Uses
Regulations dictating building construction requirements, usually for health and safety reasons.
Building Codes
Died without a valid will.
Intestate
Establishes consistent development of subdivisions.
Subdivision Regulations (“Subdivision Approval Process”)
Requiring portions of the development to be set aside for a public use.
Mandatory Dedication
Special assessments (i.e., money!) used to pay for new development (e.g., putting in sidewalks).
Impact Fees
Involuntary Methods of Transferring Title (6)
1) Descent (without a will)
2) Eminent Domain
3) Enforcing Liens
4) Adverse Possession
5) Escheat
6) Erosion/Accretion (loss by natural causes)
Voluntary Methods of Transferring Title (3)
1) Will
2) Gift
3) Sale
Written document that transfers title (ownership) to real estate from the grantor to the grantee.
Deed
Necessary Elements of a Deed
1) Designation of the Parties
2) Consideration Given by Grantee
3) Legal Description
4) Specific Interest Conveyed
5) Signature of the Grantor and Witnesses
Designation of the Parties
Who's who
Consideration Given by Grantee
The stated consideration is frequently very small to protect the privacy of the grantor and the grantee (since deeds are public documents, the parties may not wish for the actual amount paid to be part of the public record).
Once the necessary elements of a deed are in place, the deed is said to have been _____.
Executed
The right to convey (sell) the property.
Covenant of Seisin
No disturbances from persons claiming a lien against the property.
Covenant of Quiet Enjoyment
The grantor will provide any future documents necessary to protect the grantee’s interest.
Covenant of Further Assurances
A promise by the grantor to always defend the title conveyed to the grantee.
Warranty Forever
Provides greatest title protection to grantee.
General Warranty Deed
Provides least title protection to grantee; often useful, however, particularly to “clean up” title.
Quitclaim Deed
Agreement between a property owner and tenant that transfers the rights of use and possession, but not ownership.
Leases
Requirements of a Properly Prepared Lease
1) Names of the lessor and lessee
2) Conveyance of the premises (Formally declares what is being conveyed)
3) Description of the premises
4) Term or duration of the lease
5) Amount of rent and manner of payment
6) Duties and obligations of parties
7) Signatures of the parties (both parties)
Ground Lease
1) Usually a long-term lease involving unimproved land
2) Allows the separation of ownership of the land from the improvements
3) Generally, however, at the end of the lease, control (ownership) of the property (with the improvements) reverts to the land owner.
Property leased to those who will live on the property.
Residential Lease
Property leased to those who will run a business on the property.
Commercial Lease
Lessee pays rent; lessor pays everything else.
Gross Lease
Lessee pays rent AND operating expenses; lessor pays everything else.
Net Lease
Lessee pays rent AND operating expenses AND insurance premiums; lessor pays everything else.
Net Net Lease
Lessee pays rent AND operating expenses AND insurance premiums AND real estate taxes; lessor pays everything else.
Net Net Net (“Triple Net”) Lease
Fixed for the initial term, but then “stepped up” at designated intervals (e.g., every year) by a specified amount or percentage.
Step-Up (or “Graduated-Rent”) Lease
Fixed for the initial term, but then “stepped up” at designated intervals (e.g., every year) by a specified index (usually by the CPI).
Index Lease
Similar to the Step-up Lease, where the step-up is established by a new appraisal.
Reappraisal Lease
Often a flat lease rate per term (per month, typically) PLUS a percentage of sales sold during that term (month).
Percentage Lease
Specifies what the rent will be if the lease is renewed (protects the renter/lessee from a large rental increase).
Renewal Option
The landlord/lessor agrees to pay expenses only up to a certain point; the lessee picks up the rest.
Expense Stops
the lessee assigns all of her rights to another; however, she is not released of her liability to the lessor automatically!
Assignment
the lessee assigns only part of her rights to another; usually contingent upon the approval of the landlord.
Sublease
Provide some security to the landlord/lessor if the tenant/lessee moves out early, doesn’t pay the rent, or trashes the place. In a sense, the security deposit is like equity in a home: the renter wants to get it back so she keeps the place up.
Security Deposits
Issues in the Landlord-Tenant Relationship (9)
1) Renewal Option
2) Expense Stops
3) Assignment and Subleasing
4) Security Deposits
5) Improvements
6) Covenant of quiet enjoyment
7) Implied Warranty of Habitability
8) Maintenance of Common Areas
9) Protection Against Criminal Acts
The tenant may be allowed to make improvements to the property, but will frequently not be able/allowed to take them with her (esp. if damage to the unit will result).
Improvements
The landlord agrees to maintain the property to a livable standard.
Implied Warranty of Habitability
Murky according to legal precedent, but landlords must be diligent (but reasonably so) in protecting their tenants and property.
Protection Against Criminal Acts
State Statutes Affecting Landlord-Tenant Relationship
Each state has enacted laws that regulate the behavior and relationship between landlords and tenants.
An exchange of promises between parties, conditioned on certain events and enforceable by law.
Contracts
A contract establishes the _____ for the conveyance of title
Terms
A deed actually conveys _____ to the property
Title
Necessary Elements of a Contract
1) Offer and acceptance
2) Consideration
3) Capacity of parties
4) Lawful purpose
5) Writing requirement (Statute of Frauds)
An _____ establishes the terms acceptable to the “offeror” (in real estate, the one selling – i.e., offering - the property).
Offer
An _____ occurs when the “offeree” accepts the expressed terms of the offeror without change.
Acceptance
If the offeree makes any changes, it would be considered a _____.
Counteroffer
Anything that incurs a legal detriment or the forgoing of a legal benefit (i.e., you’ve got to give something to get something).
Consideration
Persons that have the ability to understand the contract and what it represents are said to have _____.
Capacity
Two exceptions of capacity of parties
1) Persons declared “mentally incompetent”
2) Minors (under the age of 18)
Writing requirement (Statute of Frauds)
1) In order for real estate contracts to be enforced, they must be in writing
2) This rule may be excepted if there is partial performance of a non-written (“oral”) contract.
The parties show their intentions by words (spoken or written).
Express Contract
The parties show their intentions by their actions (e.g., getting into a cab).
Implied Contract
Where one party makes a promise that persuades another party to act (“a promise for an act”).
Unilateral Contract
Where one party makes a promise in exchange for another party’s promise (“a promise for a promise”).
Bilateral Contract
A contract in which one or more of the required elements are missing.
Void Contract
Where at least one of the parties has the power to rescind (cancel) or enforce the contract, at will.
Voidable Contract
Appears to be valid, but not legally enforceable in a court of law (e.g., an oral contract for real estate).
Unenforceable Contract
As a matter of law, oral contracts are dangerous for both parties, as there is too much of an “I said, he said” component if the contract is breached.
Oral Contracts
When either party to a contract fails to perform some aspect of the contract, they are said to have “breached” the contract.
Breach of Contract
The aggrieved party may sue for specific performance, i.e., that the contract breach be redressed by the aggrieving party.
Specific Performance
When one party to an alleged oral contract has actually physically performed some aspect of that agreement, the court may well rule that the oral contract is valid and enforce it (see p. 113 for a counter example, however).
Partial Performance
Specified conditions in a contract that relieve the parties of their promises to perform (these tend to protect the buyer more than the seller).
Contract Contingencies
If the buyer is unable to arrange financing for the purchase, the contract is voided.
Financing Contingency
If clear title is not produced, the buyer is relieved of having to purchase the property.
Title Contingency
If a property inspection reveals serious structural issues with the property, the contract is void.
Inspection and Repair Contingency
Allows the owner to continue marketing the property while the contingencies of a contingent offer are being fulfilled.
Escape Clause
Gives the buyer the right to drop his contingencies (ie, so he doesn’t lose the property).
Kick-Out Clause
Real Estate Sales Contract
1) Almost always a standardized form, especially for residential properties.
2) Contracts are contracts…the fine print counts!
3) Cautious parties should have a lawyer review the contract; most people don’t, but probably should.
Option-to-Buy Contract
1) An agreement between a property owner and a potential buyer where the property owner agrees to keep an offer open for acceptance during a stated period of time
2) The owner is almost always given consideration (above and beyond the sale price) for offering such an option
Contract for Deed (or, “Installment Sale”)
1) Under such, a property is purchased after a series of payments.
2) Note that actual title doesn’t pass until the last payment is made; the seller continues to be the owner during the installment period.
The process of verifying the ownership rights being offered by the seller of a property.
Title Examination
Title that is free and clear of all past, present, and future claims; no reasonable buyer would reject it.
Marketable Title
Title that a reasonable title insurer would insure.
Insurable Title
Title that shows no defects whatsoever.
Title Perfect of Record
Detailed examination of all public records that reveals the ownership history of a property (usually covers no more than 40-60 years).
Title Search
Any document that affects title to a property must be recorded.
Recording Requirement
Each county in the US keeps one of these on each property (see next slide).
Grantor and Grantee Indexes
Are any taxes delinquent?
Tax Records Search
Are there any other liens of record?
Lien Search
A written summary of the chain of title for a given parcel of real estate.
Title Abstract
An opinion to the buyer as to the validity or defectiveness of the title.
Title Opinion
Title Insurance
1) Typically is required in order to obtain financing
2) Typically is the preferred method of protecting title (as title opinions are often more expensive and less protective)
3) Paid for in full at the time the policy is issued
4) Not transferable
5) Protects only against past events that were in existence but undiscovered at the time the policy was issued
Torrens System
1) The owner receives a “title certificate” much like she would with a car
2) To get one, she must go before a judge for a legal registration proceeding
3) Once she has the “title certificate,” it becomes very easy to transfer title (as with a car)
4) Why hasn’t the Torrens system become more widespread?
The final step in the process of transferring title from grantor to grantee.
Title Closing
Buyer’s responsibilities before closing
1) Obtaining financing
2) Examining the title evidence
3) Having the property surveyed
4) Obtaining property insurance
5) Having the property formally inspected
Seller’s responsibilities before closing
1) Prepare the deed
2) Remove encumbrances
3) Cooperate with inspectors
HUD Settlement Statement
The “HUD-1” settlement statement is effectively a summary snapshot” of the financial transaction between the buyer and the seller.
Prorated Expenses
1) Real estate taxes
2) Hazard insurance premium, if assigned to the buyer
3) Mortgage payment paid, if the loan is assumed by the buyer
4) Rents that have been paid
5) Other, less frequent, items (e.g., a pest-control contract)
1. Suppose a lender is providing a mortgage loan of $150,000 at 6% annual interest to a buyer in a transactio that will close on October 13th. The first mortgage payment will be due from the borrower on December 1st. This first payment will include the i
$459.68
2. Suppose a property has estimated real estate taxes for the current year of $3,568 and that taxes are paid at the end of the year. If the property is being sold on October 13th (in a year with 365 days) and the buyer is responsible for the date of clos
$2,785.97
3. Suppose a property owner paid real estate taxes of $3,568 in advance for the current year. If the property is being sold on October 13th (in a year wil 365 days) and the buyer is responsible for the date of closing, what amount will be charged to the
Nothing, he will be credited for the taxes he has already paid.
Marketing
300
Why do we buy Real Estate?
1. To live in or on it - RESIDENTIAL
2. To do something with or on it - BUSINESS
3. To use it as a “store of value” - INVESTMENT
Physical Real Estate Characteristics
1. Immobility
2. Indestructibility (aka, durability)
3. Nonhomogeneity (aka, uniqueness or heterogeneity)
The geographic location of real estate doesn’t change.
1. Thus the phrase: “Location, location, location!”
2. Real estate markets are, by definition, local
3. Land is easily regulated and taxed (it can’t run away!)
4. Value is
Immobility
1. Real estate investments tend to be stable & long-term
2. Land can’t be depreciated, as it “doesn’t wear out”
3. Land isn’t (or shouldn’t be) insured
Indestructibility (aka, durability)
No two parcels of land are exactly alike.
1. Buyers with unique needs frequently need unique properties
2. Real estate purchases take time
3. Real estate is nonsubstitutable (aka, nonfungible)
Nonhomogeneity (aka, uniqueness or heterogeneity)
Economic Real Estate Characteristics
1. Scarcity
2. Modification
3. Permanence of Investment (Fixity)
4. Area Preference (Situs)
The supply of usable land is limited (ie, “God isn’t making any more of it”).
Scarcity
Changes to a parcel of land affect its value (for good or for ill).
Modification

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