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Real Estate Principles of GeorgiaLesson 1:An Introduction toReal Estate1 of 56The Real Estate Industry The real estate industry is divided into:y Residential real estatey Commercial real estate2 Copyright 2006, Rockwell Publishing, Inc.Real Estate Transactions Real estate transaction may be:y Saley Leasey Exchange3 Copyright 2006, Rockwell Publishing, Inc.1

Real Estate Transactions Most basic real estate transaction is sale of ahome, involving:y Listing propertyy Showing propertyy Submitting and considering offersy Negotiations between seller and buyer3 Copyright 2006, Rockwell Publishing, Inc.Real Estate Transactions, cont.y Execution of the contracty Property inspectionsy Financing arrangementsy Property appraisaly Closing preparationsy Buyer’s walk-throughy Closing3 Copyright 2006, Rockwell Publishing, Inc.Real Estate TransactionsListing Sellers put home on market by listing it.y Seller agrees to pay agent commission inexchange for agent finding a buyer.y Agent (listing agent) submits propertyinformation to MLS.3 Copyright 2006, Rockwell Publishing, Inc.2

Real Estate TransactionsShowing the property Prospective buyerstour home with:y their own agents,y listing agent, ory another agentfrom MLS.3 Copyright 2006, Rockwell Publishing, Inc.Real Estate TransactionsOffers Buyer submits written offer topurchase, including:y Price buyer is willing to payy Closing datey Other terms of sale In active market, desirableproperty often receivesmultiple competing offers.4 Copyright 2006, Rockwell Publishing, Inc.Real Estate TransactionsOffers Offer is usually accompanied by (earnestmoney) deposit to show offer is serious andin good faith.y If offer is rejected, deposit returned tobuyer.y If offer is accepted but sale later fallsthrough, deposit may be returned to buyer.4 Copyright 2006, Rockwell Publishing, Inc.3

Real Estate TransactionsNegotiations Seller may want to negotiate changes in theterms in buyer’s offer.y Seller uses counteroffer to present thesechanges. Buyer may respond with another counteroffer– negotiations then go back and forth.OfferBuyerCounterofferSeller4 Copyright 2006, Rockwell Publishing, Inc.Real Estate TransactionsContract When offer (or counteroffer)is accepted, a legallybinding contract is formed. Typically, contract iscontingent on the fulfillmentof certain specifiedconditions.4 Copyright 2006, Rockwell Publishing, Inc.Real Estate TransactionsInspections Buyer may order homeinspection to havehome’s constructionand conditionevaluated. Other inspections mayalso be ordered: pestinspection, soil stabilitytest, etc.4 Copyright 2006, Rockwell Publishing, Inc.4

Real Estate TransactionsFinancing Unless buyer can pay for property in cash,financing must be arranged.y Usually buyer comes up with cashdownpayment and borrows remainder frommortgage lender.4 Copyright 2006, Rockwell Publishing, Inc.Real Estate TransactionsAppraisal Since property willserve as collateral forloan, lender will requirean appraisal. Appraiser evaluatesproperty and providesestimate of its marketvalue to lender.55 Copyright 2006, Rockwell Publishing, Inc.Real Estate TransactionsClosing preparations Many tasks must be completed before salecloses:y Arrange for seller’s mortgage to be paid offy Order title insurance policyy Have deed and other documents recorded May be handled by parties or by closingagent.6 Copyright 2006, Rockwell Publishing, Inc.5

Real Estate TransactionsWalk-through Buyer may make onefinal visit/inspectionbefore closing toensure required repairshave been completedand that property is insatisfactory condition.6 Copyright 2006, Rockwell Publishing, Inc.Real Estate TransactionsClosing Final step in real estate transaction is closing(settlement).y Closing may take place at meetingattended by parties, agents, andrepresentatives from lender and titlecompany.6 Copyright 2006, Rockwell Publishing, Inc.SummaryReal Estate Transactions Listing Inspections Showing the Financingproperty Offers Negotiations Contract Appraisal Closing preparations Walk-through Closing Copyright 2006, Rockwell Publishing, Inc.6

Real Estate Brokerage Broker: Acts asintermediary,helping to arrangepurchase or sale ofservices on behalfof others.6 Copyright 2006, Rockwell Publishing, Inc.Real Estate BrokerageBrokers and salespersons Real estate salesperson’s license: Allowssalesperson to work with members of publicin real estate transactions, if supervised byreal estate broker.y Broker’s license requires additionaleducation and/or experience.6 Copyright 2006, Rockwell Publishing, Inc.Real Estate BrokerageBrokers and salespersons “Real estate agent”: generic term for personwho sells real estate (broker or salesperson) “Realtor” “real estate agent”y REALTOR : member of NationalAssociation of REALTORS 7 Copyright 2006, Rockwell Publishing, Inc.7

Brokerage ServicesSeller’s agent Services for sellers:y Pricing propertyy Preparing home forshowingy Effective advertisingy Showing toprospective buyersy Negotiations andpaperworky Monitoring closing7 Copyright 2006, Rockwell Publishing, Inc.Brokerage ServicesPricing property Agent performs competitivemarket analysis (CMA) to helpseller set realistic listing price. Requires knowledge of:y recent sales/listings andy area/neighborhood,7 Copyright 2006, Rockwell Publishing, Inc.Brokerage ServicesPreparing the home Agent can tell seller what steps to take toimprove home’s appearance. Some agents specialize in staging homes forshowing.7 Copyright 2006, Rockwell Publishing, Inc.8

Brokerage ServicesEffective advertising Types of advertising:y classified newspaper adsy mailed flyersy display ad in “Homes for Sale” magazine Most important: listing in MLS database8 Copyright 2006, Rockwell Publishing, Inc.Brokerage ServicesShowing the property Open house: scheduled time when home isopen for viewing and agent is available toanswer questions. Agent can also show home using lockboxkey provided by agent/broker.8 Copyright 2006, Rockwell Publishing, Inc.Brokerage ServicesNegotiations and paperwork Agents help parties negotiate offer andacceptance. Seller often relies on agent to providedisclosure forms and explain how to fill out.9 Copyright 2006, Rockwell Publishing, Inc.9

Brokerage ServicesMonitoring the closing process Agent acts as liaisonbetween seller,buyer, and otherparties. Helps resolve anyproblems that mayarise.9 Copyright 2006, Rockwell Publishing, Inc.Brokerage ServicesBuyer’s agent Agent can help buyer with:y Finding the right propertyy Entering into contracty Obtaining financingy Completing transaction Agent working with buyer mayactually represent seller.9 Copyright 2006, Rockwell Publishing, Inc.Brokerage ServicesBuyer’s agent Buyer can find sellingagent by:y Referraly Visiting brokeragey Contacting agentafter seeing ForSale signy Open house9 Copyright 2006, Rockwell Publishing, Inc.10

Brokerage ServicesBuyer’s agent Agent determines what buyerwants (and can afford). Agent searches MLS andtakes buyer to see properties. Agent typically helps buyer fillout offer form and presentsoffer.10 Copyright 2006, Rockwell Publishing, Inc.SummaryBrokerage Services Broker Salesperson Staging a home Multiple listing service Open house Keybox Copyright 2006, Rockwell Publishing, Inc.Real Estate as a CareerWorking as a real estate agent Real estate agents workfor themselves.y Brokers expect agentsto get new listings andfind prospective buyers.y To earn a good living,agent must be selfmotivated anddisciplined.10 Copyright 2006, Rockwell Publishing, Inc.11

Real Estate as a CareerWorking as a real estate agent Agents usually settheir own schedules.y May be able towork part-time, butmust be able tomanage their time.y Often must workevenings,weekends, andholidays.10 Copyright 2006, Rockwell Publishing, Inc.Real Estate as a CareerWorking as a real estate agent Agents must have good people skills.y Must work closely with clients.y Transactions can be stressful; parties canbe short-tempered and demanding.y Must be able to tolerate rejection.11 Copyright 2006, Rockwell Publishing, Inc.Real Estate as a CareerReal estate companies Types of companies:y Single broker firms vs. very large firmsy Local vs. national franchisesy Specialized vs. multi-service11 Copyright 2006, Rockwell Publishing, Inc.12

Real Estate as a CareerReal estate companies Support for agents:y Training (formalprogram, mentoring,etc.)y Facilities and services(desk, computer,phone, access to faxand copier, etc.)y Memberships (MLS,trade associations)11 Copyright 2006, Rockwell Publishing, Inc.Real Estate as a CareerReal estate companies Agent’s responsibilities(depending onbrokerage’srequirements):y Floor duty: must be atoffice to handle callsand drop-in visitsfrom prospectiveclientsy Sales goals12 Copyright 2006, Rockwell Publishing, Inc.Real Estate as a CareerAgent compensation Commission split: Listing brokeragetypically splits commission with sellingbrokerage.y Listing broker shares commission withlisting salesperson.y Selling broker shares commission withselling salesperson.13 Copyright 2006, Rockwell Publishing, Inc.13

Agent CompensationCommission split Percentages in commissionsplit are set by agreement. Salespersons may receivesmaller percentages inexchange for more support(better facilities, etc.)y Some brokerages giveagents 100% ofcommissions, but chargedesk fee.13 Copyright 2006, Rockwell Publishing, Inc.Real Estate as a CareerEmployment status and tax withholding Agent may be classified as either:y Independent contractor: Hired to performspecific job; uses own judgment incompleting job.y Employee: Hired to perform whatevertasks employer requires; followsemployer’s instructions.14 Copyright 2006, Rockwell Publishing, Inc.Real Estate as a CareerEmployment status and tax withholding How agent isclassified dependson degree of controlbroker exercisesover agent.y Agent usually isindependentcontractor.14 Copyright 2006, Rockwell Publishing, Inc.14

Real Estate as a CareerEmployment status and tax withholding If agent is employee:y Broker must withholdsocial security andtaxes, etc.y Agent is eligible forunemployment,worker’scompensation, andcertain benefits maybe provided.14 Copyright 2006, Rockwell Publishing, Inc.Real Estate as a CareerEmployment status and tax withholding Agent is independentcontractor if:y agent is a licensed realestate salesperson,y substantially allcompensation iscommission-based, andy agent and broker havewritten contract providingthat agent is independentcontractor.14 Copyright 2006, Rockwell Publishing, Inc.Real Estate as a CareerProfessional associations Professional organizations:y Provide members withinformation, training, andnetworking opportunities.y Some offer professionaldesignations.y Some have code of ethicsfor members.15 Copyright 2006, Rockwell Publishing, Inc.15

Professional Organizations Code of ethics:y Sets standards ofconduct for dealingwith public and othermembers ofprofession.y Provides guidance onhandling ethicaldilemmas.Code of EthicsCode of ethics15 Copyright 2006, Rockwell Publishing, Inc.Real Estate as a CareerProfessional associations Largest and best-known professionalassociation: National Association ofREALTORS (NAR)y Only members of NAR can callthemselves REALTORS .15 Copyright 2006, Rockwell Publishing, Inc.Real Estate as a CareerProfessional associationsy the Appraisal Institutey American Society of Appraisers (ASA)y Building and Office ManagersAssociation (BOMA)y Institute of Real Estate Management(IREM)15 Copyright 2006, Rockwell Publishing, Inc.16