April 13

by Florida Real Estate Camp

Unit 1 The Real Estate Business

Real Estate and the Nation

Real estate and the housing market play an important role in the U.S. economy. At the individual level, roughly 65% of households are owner occupied, homes are often a substantial source of household wealth in the United States, and housing construction provides widespread employment. At the aggregate level, the housing market accounts for a significant portion of all economic activity, and changes in the housing market can have broader effects on the economy. (Source) 

In 2018, real estate construction contributed $1.15 trillion to the nation's economic output. That's 6.2% of U.S. gross domestic product. It's more than the $1.13 trillion in 2017 but still less than the 2006 peak of $1.19 trillion. At that time, real estate construction was a hefty 8.9% component of GDP. (Source)

Construction is the only part of real estate that's measured by GDP. But real estate affects many other areas of economic well-being that aren't measured. 

According to the National Association of Home Builder's, their industry accounted for 13.6% of U.S. GDP in the first quarter of 2009, which is down from 2005's numbers of 16.7% of US GDP (As cited by Kruger, 2009)  

 Industries and Real Estate

The Commercial Real Estate industry consists of companies that construct or develop commercial, industrial and multifamily residential property or provide commercial real estate services including renting, leasing, managing, buying and selling real estate. Other related services, such as appraisals and consulting, are also included. Construction and activities related to utilities and energy, such as power plants or water treatment facilities, also depend on Real Estate Activities. 

For example, a decline in real estate sales eventually leads to a decline in real estate prices. That lowers the value of all homes, whether owners are actively selling or not. It reduces the number of home equity loans available to owners. This ultimately reduces consumer spending.

Professional Services

Brokers open a business and provide a place for Sales Associates & Broker Associates to operate.  Services of Real Estate Require Expert Knowledge.  Real Estate Professionals are relied upon for Expert Knowledge in these three areas:

  • Knowledge of Property Transfer - Property Transfer is the actual transaction involved in Real Estate.  We think of it as closing on a deal.  However the knowledge of Property Transfer is very detailed and involves Title transfer, property taxes, financing, and local zoning considerations.  It is your job a as Real Estate Professional to know and understand Fine details associated with  such.  
  • Knowledge of Market Conditions - Market conditions relate to knowing prices and how it relates to the climate of buyers and sellers.  This can include knowing legislature updates that may affect the market.  Buyers will rely on Real Estate Pros to advise them on making offers and listings.  Purchase offers and Property Listings are heavily related to Market Conditions.  Most of us have heard of a buyers market or a sellers market.  These phrases attempt to make a prediction on the current status of Real Estate Market Conditions.  However, as an Expert (One who holds a License) you will be relied upon to educate, inform and help your clients key decisions. 
  • Knowledge of Marketing Real Estate including marketing the Real Estate Business. You may need to make phone calls, send emails, or go talk directly to someone.  Marketing Real Estate is a huge component of your new role.  Attracting Buyers and Sellers is an ongoing task.  

Activities of Real Estate

Real estate is a business of many specializations.  The public depends on Licensed Real Estate Professionals to help them with Real Estate Activities. 

There are 3 Areas of Expertise that Brokers, Sales Associates and Broker Associates must be experts in.  The public rely on us to have detailed knowledge in all three Areas!   

1) Knowledge of property transfer

 The understanding of property transfer is vital(important) to Licensed Real Estate Professionals.  The transfer of property is intricate and detailed.  It is why most people rather hire us, instead of relying on themselves.  

Things can go wrong.  Whenever it's our fault that something got missed we become at risk of committing culpable negligence.  It doesn't matter if we intended for an error or omission to occur.  If the error or omission impacted the deal in a negative way and the buyer or seller gets hurt,  this leaves the door open to being sued for culpable negligence.  

2) Knowledge of market conditions

As a Real Professional, clients will rely on your expertise of the local Market.  Knowing market conditions will allow you to help the customers price homes, and advise buyers with their purchases.  There is no way to determine exactly what will happen within any market at any given time.  So, don't express things you are not certain of. Use tools from your Broker and Trade Organizations to stay on Target.  

 3) Knowledge of how to market real estate 

Real Estate Professionals market in many ways.  Be sure to always observe Federal and State Laws like TCPA (Telephone Consumer Protection Act) whenever advertising.  Later in the course you will learn about Florida Laws and Federal Laws as it pertains to Marketing to the Public.  

The 5 Major  Sales Specialties

  1. Residential - Chapter 475, F.S., defines it as 4 or fewer residential units, vacant land zoned for 4 or fewer residential units, or agricultural property of 10 or fewer acres.

 Residential specialists need to know the best access routes and locations of schools, shopping facilities, and recreation facilities. Must be able to explain property taxes, homestead exemptions, restrictive covenants, approximate utility costs in the area

 One of the most important aspects of residential sales is knowing how to help prospective buyers obtain financing. Most real estate licensees specialize in the sale and purchase of owner-occupied residential property.  

2. Commercial -Real estate professionals who specialize in commercial sales need expertise regarding; Income-producing properties, Investment analysis, Techniques for increasing after-tax cash flow.

Examples of income-producing commercial properties; Improved residential property of more than four units, Retail stores, Office buildings, Shopping centers

Contacts with financial institutions and mortgage lenders are important to facilitate commercial transactions.

3. Industrial -The industrial sales associate must have technical knowledge to deal in three types of properties; Sites in industrial parks or subdivisions, Redeveloped industrial parcels in central areas, Industrial acreage

4. Agricultural - Agricultural property is defined as more than ten acres. Professionals must be familiar with the operation of farms and the economic problems associated with the various types of farming including knowledge in federal programs.

 5. Businesses - Licensees who engage in the sale, purchase, or lease of businesses are referred to as business brokers.  This real estate activity is sometimes referred to as business opportunity brokerage.

Selling Business Enterprises

Brokers are authorized to sell business opportunities or business enterprises. This applies to businesses that don’t include real property or land – for example, a retail store. The statute’s definition of real property or real estate includes “any interest in business enterprises or business opportunities …”  (Section 475.01(1)(a), Florida Statutes)

Sales associates forming a professional corporation

Sales associates and broker associates are able to create a professional corporation (P.A.), limited liability company (LLC) or professional limited liability company (PLLC) in their licensed name only. For tax purposes usually.   Remember Sales Associates and Broker Associates are not allowed to advertise Real Estate Services without also advertising the name of the Broker. Sales Associates do not practice real estate without registering with a broker.    

A Sales Associate or a Broker Associate may have ownership in a brokerage. However, no sales associate or broker associate may be registered as that brokerage’s officer, director or general partner. (Section 61J2-5.016, Florida Administrative Code)  

Five major sales specialties

 1. Residential - Chapter 475, F.S., defines it as 4 or fewer residential units, vacant land zoned for 4 or fewer residential units, or agricultural property of 10 or fewer acres.

Residential Specialists should know the best access routes and locations of schools, shopping facilities, and recreation facilities. A well studied Residential Specialist will be able to explain property taxes, homestead exemptions, restrictive covenants, and approximate utility costs in the area. 

One of the most important aspects of residential sales is knowing how to help prospective buyers obtain financing. Most real estate licensees specialize in the sale and purchase of owner-occupied residential property.  

2. Commercial

Real estate professionals who specialize in commercial sales need expertise regarding;

Income-producing properties, Investment analysis, Techniques for increasing after-tax cash flow.

Examples of income-producing commercial properties;

Improved residential property of more than four units, Retail stores, Office buildings, Shopping centers

Contacts with financial institutions and mortgage lenders are important to facilitate commercial transactions.

3. Industrial 

The industrial sales associate must have technical knowledge to deal in three types of properties; Sites in industrial parks or subdivisions, Redeveloped industrial parcels in central areas, & Industrial acreage.

4. Agricultural

Agricultural property is defined as more than ten acres.

Professionals must be familiar with the operation of farms and the economic problems associated with the various types of farming including knowledge in federal programs.

 5. Businesses 

Licensees who engage in the sale, purchase, or lease of businesses are referred to as business brokers. This real estate activity is sometimes referred to as business opportunity brokerage. 

 Property Management

There is a growing need for Property Managers.  As absentee owners do not live on premise they often rely on a landlord to care for the daily responsibilities at their rental property.  A property manager can be hired for one simple task, such as collecting rent or can be completely responsible for the operations at the rental property.   

Brokers may accept compensation for Property Management Services.  Sales Associates can not be hired directly as a Property Manager unless they are paid a salary.  If a Sales Associate is hired as a Property Manager, payment must be under the control of his or her Broker. 

Good property managers have an in-depth knowledge of statewide and national laws regarding the proper ways to:

  • Screen a Tenant
  • Handle Security Deposits
  • Leasing 
  • Evict a Tenant
  • Comply with Property Safety Standards

         View a Property Management Agreement!  

Property Manager's role is to protect the owner's investment and maximize the owner's returns. 

Appraisal

The process of estimating the value of the real estate is regulated under the Florida Real Estate Appraisal Board (FREAB).  Existing Florida statutes (F.S.A. § 475.610 et seq.), provide for the licensure and regulation of real estate appraisers and vests the duty of enforcing and administering that law in the FREAB. Certification by the FREAB is mandatory in order for a person to issue an appraisal report and to receive compensation for providing valuation services. Real Estate Appraisers are paid on a fee basis, instead of commission basis to avoid conflict USPAP standards mandate this.  

Types of real estate activities that require Appraisal services include: 

Federal Related transactions (mortgage loans) requires a Certified State Appraiser or Registered Licensed Appraiser.

Comparative Market Analysis (CMA's) and Brokers Price Opinion (BPO's) are not valid for appraising homes whenever there is a loan involved.  CMA's and BPO's are used to to help create listing prices for home sellers and offers for home buyers. Compensation may be paid for CMA's and BPO's.  As long as it is paid directly to the Broker.  The Broker is responsible for paying the Sales Associate or Broker Associate.  

A Broker’s Price Opinion (BPO) is a written opinion of real property value.  Florida Sales Associates and Broker Associates are allowed to create BPO’s under the guidance of his or her employing Brokerage.  

Comparative Market Analysis is done by analyzing similar sales and listing of similar properties in a nearby area of a subject home.  Information collected will help sellers create listing prices to sell their home.  CMA's are also use to help buyers place competitive offers. 

All State-certified licensed and registered appraisers are regulated by the Florida Real Estate Appraisal Board See FREAB forms and related documents. 

Real estate licensees may appraise real property provided they do not represent themselves as state-certified, registered or licensed appraisers.

Real estate licensees must conform to USPAP when conducting appraisals of real property--define USPAP

Uniform Standards of Professional Appraisal Practice (USPAP) is the generally recognized ethical and performance standards for the appraisal profession in the United States.  USPAP was adopted by Congress in 1989, and contains standards for all types of appraisal services, including real estate, personal property, business and mass appraisal.  Compliance is required for state-licensed and state-certified appraisers involved in federally-related real estate transactions.  USPAP is updated every two years so that appraisers have the information they need to deliver unbiased and thoughtful opinions of value.  USPAP

 Comparative market analysis versus appraisal

CMAs must be prepared by a licensed real estate Broker, Sales Associate, Broker Associate, a registered, licensed, or Certified Appraiser. A CMA is an estimate of the probable selling price of a property. The price typically is expressed as a range rather than a single quantity. 

A CMA reflects the following information: 

An inspection of the subject property,

An analysis of the subject neighborhood 

An analysis of local and regional market information and trends.

Since no two properties are identical, agents adjust for the differences between the sold properties and the one that is about to be purchased or listed to determine a fair offer or sale price. Essentially, a comparative market analysis is a less-sophisticated version of a formal, professional appraisal.  

CMAs exempt from USPAP

Because CMA’s are not used for federal lending, they are exempt from USPAP.  In addition to this, CMA’s are prepared by Real Estate Brokers, Sales Associates, and Broker Associates to gauge listing and selling prices. 

An appraiser will use similar methods in coming to a property value as your broker but they must also follow strict licensing and industry guidelines as well as follow the Uniform Standards of Professional Appraisal Practices (USAP)

USPAP's Ethics Rule regarding compensation

USPAP rule regarding compensation states an Appraiser must not agree to perform an assignment(appraisal) or have a compensation arrangement for an assignment(appraisal) that is contingent on the amount of a value opinion.  (Source)

In other words, Appraisers must base their compensation on time, and difficulty of work rather than the outcome of the appraisal report.  

Financing

 The business of providing funds for real estate transactions is widely known as Mortgage Lending.  There are various Mortgage Products to choose from. Every situation is unique. And lender options are constantly evolving while government regulations and change over time. Financing with a mortgage broker to help consider the best financing to meet goals is an American go to when it comes to financing Real Estate.  

Sources of funds to finance real estate transactions

Primary Sources: Savings and Loan Associations, Commercial Banks, Life Insurance Companies, Mutual Saving Banks.

Secondary Sources: Federal National Mortgage Association (Fannie Mae), Government National Mortgage Association (Ginnie Mae), Federal Loan Mortgage Corp (Freddie Mac)

 Other Sources: Pension Funds, Finance Companies, Real Estate Investment Trusts, Credit Unions, Individual Investors, Foreign Funds, Farmers Home Administration 

 3. Importance of expertise in financing matters and knowledge of how to solve financing problems

4. Mortgage brokers and mortgage bankers must be licensed as such 

ML: Mortgage Lender – Chapter 494, Florida Statutes: This license is required for an entity making a mortgage loan for compensation or gain, directly or indirectly, or selling or offering to sell a mortgage loan to a non-institutional investor.

Counseling

The service of analyzing existing or potential projects and providing advice 

Real Estate Counseling is the act of providing advice or guidance which significantly affects real estate decisions, without personal bias and/or conflict of interest.

Counselors come from a wide array of professional backgrounds-from valuation, consulting, law, brokerage, and asset management to development, investment, lending, and corporate real estate. They are service providers, owners, capital sources, fiduciaries, academics and public servants.

 Extensive knowledge and expertise is required. Counselors are renowned for applying rigorous, independent, and informed analysis to a wide range of complex real estate decisions facing a full range of market participants.

  • Investment management
  • Investment analysis and strategy
  • Pension fund consulting
  • Capital formation and syndication
  • Public/private partnerships
  • Economic and fiscal impact studies
  • Property and portfolio financing strategies
  • Development
  • Energy, environmental and sustainability
  • Site location, relocation, lease/purchase evaluation
  • Corporate real estate strategy and execution
  • Acquisitions, dispositions, market research and due diligence
  • Land use/master planning and redevelopment
  • Arbitration and mediation
  • Expert witness testimony and litigation support
  • Valuation counseling
  • Transaction structuring  (Source)

Development and Construction

A. Land Acquisition

Land is acquired by developers and builders for construction projects.  Adhering to local zoning to create new usable real estate.  This land is funded in various ways, but usually with construction loans.   

B. Subdividing and Development

A subdivision is the division or platting of real property into three or more lots or parcels. 

C. Subdivision plat map is recorded before a new development can proceed.  The subdivision plat map needs to include a piece of land, drawn to scale, with details such as nearby properties, boundaries, land size, flood zones, the surrounding neighborhood, easements, and monuments. When you purchase a home, one of the documents you receive is typically a plat map. 

 D. Developers often gift land to a governmental body for public use this is called a dedication.

When a tract or parcel of land has been subdivided and a plat thereof bearing the dedication executed by the owners of record and mortgagees having a record interest in the lands subdivided, and when the approval of the governing body has been secured and recorded in compliance with this part, all streets, alleys, easements, rights-of-way, and public areas shown on such plat, unless otherwise stated, shall be deemed to have been dedicated to the public for the uses and purposes thereon stated. FS 177.081 Dedication and approval.—

F.  Construction

Types of residential construction

a.     Spec homes - Building without a present buyer.  The builder speculates that once the home is constructed a buyer will come along. 

b.     Tract homes – Similar to Spec Homes, but buyer gets to select the floor plan.  

c.     Custom homes - Builder contracts with a buyer to construct the home.  Plans can be provided by the buyer instead of the builder.  

The Role of Government

A. Local government - Regulated property taxes, zoning, building codes and so much more.  

B. State government - 

Designates regions, and determines intangible taxes and so much more. States and municipalities use property taxes to build, provide transportation, drinking water and wastewater systems. State and local property taxes also help fund services that indirectly impact housing and businesses, including schools, and police and fire stations  See how your state impact real estate.

 C. Federal government - 

Though many think of the United States as a free market economy, real estate is greatly influenced by government policies. These policies, programs and spending impact what is built in communities across the nation, which influences the housing choices and business opportunities available to families and businesses. The federal government also makes an impact through taxes, loans, and grants and subsidies.  Learn more about the federal government impact on real estate

V. Professional Organizations - 

 A. Variety of professional organizations are in existence

B. National Association of REALTORS (NAR) 

The National Association of REALTORS® is America's largest trade association, representing 1.4 million members, including NAR's institutes, societies, and councils, involved in all aspects of the residential and commercial real estate industries. This organization is different from state regulator compliance set forth by the DBPR.  

C. Florida Association of REALTORS (FAR)

In 1916, 68 real estate brokers from 16 Florida communities gathered in Jacksonville for their first convention. That first meeting marked the beginning of a vision and an ongoing mission to serve the Realtors of Florida and the people who make their home in the Sunshine State. 

Their goal: to bring order, fairness and professionalism to the real estate business in Florida. Learn more about FAR

 D. Local Board (Association) of REALTORS

Unit 1 Video Lesson

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