Real Estate Chapters

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I. Real Estate Specialization

A. Brokerage—the business of bringing people together in a real estate transaction (Chapter 5)
B. Appraisal—the process of estimating the value of real property (Chapter 18)
C. Property management—the business of managing real estate to protect the owner's investment and maximize the owner's return (Chapter 17)
D. Financing—the business of arranging for or providing funds for real estate transactions (Chapters 14 and 15)
E. Subdivision and development—the activities of splitting a large parcel of real estate into smaller ones and constructing improvements on the land (Chapter 19)
F. Counseling—the activity of providing clients with competent and independent information and advice to assist in their real estate investment decisions
G. Education—the provision of real estate education opportunities both to practitioners and consumers
H. Others—settings in which real estate expertise is required such as the practice of    law, for corporations with extensive land holdings and government agencies

A. National Association of Realtors ® (NAR) Largest trade organization, comprised of national regional and local associations
B. National Association of Real Estate Brokers (NAREB)
C. American Institute of Real Estate Appraisers (AIREA)
D. American Society of Appraisers (ASA)
E. National Association of Independent Fee Appraisers (NAIFEA)
F. Real Estate Educators Association (REEA)*****
G.Real Estate Buyer's Agent Council (REBAC)
H.National Association of Exclusive Buyer's Agents (NAEBA)
I. Building Owners and Managers Association (BOMA)
J. Institute of Real Estate Management (IREM)
K. Commercial Investment Real Estate Institute (CIREI)
L.  American Society of Real Estate Counselors (ASREC)

A. Residential—single-family dwellings, duplexes and double houses, triplexes, fourplexes, apartments, townhouses, condominiums, mobile homes, manufactured housing, modular housing and real estate used for specific residential purposes such as retirement homes, vacation property and others common in different parts of the country
B. Commercial—office buildings, retail stores and shopping centers and other specialized facilities such marinas, air parks and certain mixed-use properties
C. Industrial—factories, industrial parks, warehouses and power plants
D. Agricultural—farms, ranches, orchards, vineyards, feedlots, hatcheries and timberland
E. Special purpose—churches, schools, cemeteries, government-owned property
F. Separate markets for each type of property

1. Sale market—where ownership is transferred from seller to buyer
2. Rental market—where rights to occupy and enjoy a designated portion of the real estate are transferred from the landlord to the tenant for a certain period of  time
3. In Practice: Specialization within real estate firms

A. Market Place - where goods are bought and sold
B. Supply and demand are the economic forces that set prices for products.

1. Characteristics of real estate affecting supply and demand

a. Uniqueness
b. Immobility
c. Effect of natural disasters or changes in financial markets or local events

2. Prices will generally drop as supply increases relative to demand.
3. Prices will generally rise as demand increases relative to supply.

C. Factors affecting supply

1. Labor force
2. Construction costs
3. Government controls at all levels
4. Government fiscal and monetary policies

D. Factors affecting demand

1. Population
2. Demographics—the make-up of the population including mobility, financial stability and size and nature of family unit
3. Employment and wage levels—where and how money is spent;  perceived job security

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I.   Definitions (See Figure 2.1)

A. Land—the earth's surface extending downward to the center of the earth and
upward to infinity, including things permanently attached by nature, such as trees and water
B. Real estate—the land and all things permanently attached to it by either nature or by man (improvements)
C. Real property—real estate plus the interests, benefits and rights inherent in the ownership of real estate
In Practice: "real estate" and "realty" are casual uses of the term accurately
described as "real property"
D. Surface rights - may be sold or leased to others
E. Subsurface rights—includes rights to minerals and other substances in the ground. Such rights may be sold or leased to others in the same manner as surface rights and independent of surface ownership.
F. Air rights may also be sold or leased independent of surface ownership Solar or sun rights have become an ownership issue in recent  years primarily because of solar energy applications that require direct  access to sunlight.
G. Personal property—all property that does not fit the definition of real property

1. Movable Characteristic; chattel (See Figure 2.2)
2. An item of real property may be changed to personal property through severance.

a. Trees, perennial shrubbery and grasses not requiring annual cultivation are real property (Fructus naturales)
b. Crops with a growing season of less than a year (annuals), known as emblements, are personal property (Fructus

   Industriales)
3. An item of personal property may become real estate by annexation

a. Construction materials routinely become real estate.
b. Mobile homes, manufactured housing, and modular housing laws vary regarding whether such housing becomes real estate when and how it is permanently attached to the ground.

H. Classification of Fixtures

1. Fixture—an article that was once personal property but has been so affixed to land or a building that the law now
recognizes it as part of the real estate
2. Legal tests of a fixture

a. The intention of the annexer
b. The method of annexation
c. The adaptation to real estate
d. The existence of an agreement

3. Trade fixture—an article owned by a tenant and attached to rented space or a building for use in operating a business

a. Tenant’s personal property
b. Must remove on or before last day of lease.
c. Not removed - becomes landlord’s real  property.

4. Importance in a real estate transaction—to avoid confusion about which items are intended to be included in the sale, they should be clarified when a property is listed and the sales agreement is negotiated,

A. The concept comes from old English law
B. The bundle of legal rights includes the rights of

1. Possession—the right to occupy the premises
2. Control—the right to determine certain interests for others
3. Enjoyment—possession without harassment or interference
4. Exclusion—legally refusing to create interests for others
5. Disposition—determining how the property will be disposed of
6. Encumbrance —the right to use property as security for loan

A. Economic characteristics (SIPA)

1. Scarcity—although the total supply of land is not in short supply,  land of  a particular quality or location may be limited.
2. Improvements—they can affect both the improved parcel and  surrounding parcels, either favorably or unfavorably.
3. Permanence of investment—improvements are considered to create fixed investments.
4. Area preference—peoples' choices of one area or site over another (situs); the most important economic characteristic

B. Physical characteristics (IIU)

1. Immobile—the geographic location of any given parcel of land can never be changed.
2. Indestructible—land is durable and indestructible, even though erosion, flood, volcanic action, and fire may change its topography and value.
3. Unique—the law holds that no two parcels of land are exactly the same; this uniqueness is also known as "nonhomogeneity" or  “heterogeneity."

A. Specific areas of Law important to real estate practitioners

1. Law of Contracts
2. General Property Law
3. Law of Agency
4. State Real Estate License Law
5. Federal Regulations
6. Zoning and Land Use laws
7. Environmental regulations
8. Federal, state & local tax laws

B. Real Estate Practitioners may not act as attorneys

C. Real Estate license laws

1. Purpose is to protect the public interests by promoting confidence in brokerage industry
2. All 50 states, District of Columbia and Canadian provinces require licensing
3. State laws similar, but differ in detail
4. Specific education and personal requirements for licensure
5. Exam required
6. Certain standards of ethical and personal conduct required
7. Some states require continuing education courses for license renewal

I.   Home Ownership

A. Reasons

1. Sign of financial stability
2. Investment – appreciation/depreciation, income tax deduction/exclusion of gain from tax for many homeowners
3. Intangible benefits

B. Ownership - single, married couple with children, “empty nesters”

C. Types of housing—emphasize those that are available in your area

1.       Single-family detached dwellings—a concept that is declining in the newer developments in some areas
2. Apartment complexes—including low-rise and high-rise buildings, many with swimming pools, clubhouses, golf courses, and tennis courts
3. Condominiums and cooperatives—for those who want to own their own housing but do not want the responsibility for    caring for or maintaining its exterior
4. Planned unit developments ("PUDs")—diverse uses in one development
5. Converted-use properties—existing structures converted into residential use that  provide opportunities for greater       creativity in the design and use of interior space
6. Retirement communities—including facilities particularly suited for senior citizens. Fair housing laws establish certain requirements that must be met for these complexes to exclude families with children.
7. High-rise developments—including residential space, parking, retail shopping, personal service business, and other amenities; generally found in large cities
8. Mobile homes—usually found in a park-like setting with varied amenities
9. Modular homes—known also as manufactured housing, pre-assembled structures placed on a building site; some assembled on-site rather than preassembled; another       growing segment of the housing market
10. Time-shares—shared ownership of a vacation home, with      varied popularity

A. Mortgage terms, including types of loans, their availability, interest rates and monthly payments

1. Ownership expenses, such as insurance, real estate taxes,
utilities and maintenance
2. Ability to meet mortgage payments—the most important economic consideration
3. Math Concept: PITI Payment

B. Investment considerations

1. Tax benefits for homeowners – income tax deductions(See Figure 3.1)

a.  Mortgage interest on first and second homes
b.  Real estate taxes
c.  Certain loan origination fees
d.  Some loan discount points
e.  Loan prepayment penalties

2. Capital gain: profit realized from sale

a. Lifetime exclusion of $250,000 gain ($500,000 for married couples) from tax on sale of residence;
b. Must have lived there 2 of last 5 years
c. Need to keep good records

3. In Practice: Real estate practitioners should tell their clients and customers to consult with experts for tax advice.

A. Coverage and claims

1. Basic form policy—provides coverage against fire or lightening, glass breakage, windstorm or hail, explosion, riot or civil commotion, damage by aircraft, damage from vehicles, damage from smoke, vandalism and malicious mischief, theft and loss of property removed from the premises when endangered by fire or other perils
2. Broad-form policy—

also covers falling objects; weight of ice, snow, or sleet; collapse of all or part of the building; bursting, cracking, burning, or bulging of a steam or hot water heating system; accidental discharge, leakage, or overflow of water or steam from within a plumbing, heating or air conditioning system; freezing of plumbing, heating or air conditioning system; injury to electrical appliances, devices, fixtures, and wiring from short circuits or other accidentally generated currents

3. Comprehensive policy; further coverage available
4. Coverage for condominium owners and apartment renters—covers the unit and its contents but not the structure
5. Most policies have a coinsurance clause.

a.   Most require insurance of at least 80 percent of the replacement cost of the structure.
b.   Loss settlement either for actual cash value (replacement cost less depreciation) or prorated by dividing the percent of replacement cost actually covered by policy .

B. Federal Flood Insurance Program

1. Administered by the Emergency Management Agency (FEMA)
2. Program subsidizes flood damage insurance.
3. Required on all properties located in flood-prone area ("flood plains") that have federally-related financing
4. Maps of flood-prone areas prepared by Army Corps of Engineers.

I. Introduction to Real Estate Agency

A. History of the nature of real estate services and
B. Common misconceptions the public has had regarding who the broker represents

A. Origin of Law

A. Common law: rules of society
B. Statutory law: enacted by legislatures and other governing bodies

B. Definitions in the Law of Agency

1. Agent—the individual who is authorized to and consents to represent the    interest of another person In real estate the broker of the firm is the agent.
2. Subagent—the agent of the agent.
3. Principal—the individual who hires and delegates to the agent the
responsibility of representing his or her interests. This may be the buyer, seller, owner or tenant.
4. Agency—the fiduciary relationship between the principal and the agent
5. Client—the principal
6. Customer—the third party for whom some level of service is provided
7. Non-agent—facilitator, transaction broker, etc. - NOT IN ARIZONA
8. Consensual agreement

C. Fiduciary duties:

1. A fiduciary relationship is one of trust and confidence between   employer (principal) and employee (agent).
2. Differences between client and customer services (See Table 4.1)
3. Common law of agency duties include the following as a minimum:

a. Care—liability can result from negligence or carelessness (confidentiality according to CG broker)
b. Obedience—the agent must act in good faith and according to the principal's instructions (as long as those instructions are
legal and relative to the terms of their contract).
c. Accounting—the broker must account for all pertinent funds and documents placed in his or her care.
d. Loyalty—the principal's interests must come before the  agent's; 100 percent loyalty is required; agent must inform the principal when purchasing the property for himself or herself or when selling his or her own property to the  principal.
e. Disclosure—the agent must keep the principal fully informed of all facts, including those required by the duty of discovery.

(1) Agent for Seller

(a)    All offers
(b)    Identity of prospective buyers and agent’s relationship to them
(c)    Ability of buyer to complete sale; offer a higher price
(d)    Agent’s interest, if any
(e)    Buyer’s intention to resell property for profit.

(2) Agent for Buyer

(a)    Property deficiencies
(b)    Unsuitable contract provisions and financing
(c)    Suggest lowest price to offer
(d)    Length of time property on market

f.  confidentiality: duty not to disclose certain information that would have an adverse impact on client’s real estate transaction.

D. Creation of Agency

1.   The principal delegates and the agent consents to act.
2. Express agency

a. The parties state the terms of the agreement and express their intentions either orally or in writing.
b. In real estate, generally written agreements rather than oral; either a listing agreement or buyer-agency agreement

3. Implied agency

a. Implied by the actions of the parties rather than a contract they signed
b. In real estate, the actions of the parties may create an agency relationship unintentionally, inadvertently or accidentally where
none was intended, leading to an undisclosed dual agency.
c. Despite the disclosure of agency relationships, customers may assume that a licensee is representing them.

4. Compensation—because a person pays the compensation to the agent does not determine that person is the principal.

E.  Termination of agency—except for an agency coupled with an interest, at any time for the following reasons

1. Death or incapacity of either party (notice of death is not necessary)
2. Destruction or condemnation of the property by eminent domain
3. Expiration of the terms of the agency
4. Mutual agreement to terminate the agency
5. Breach by one of the parties, such as abandonment by the agent or revocation by the principal (the breaching party might be liable for damages)
6. By operation of law, as in a bankruptcy of the principal (since title to the property would be transferred to a court-appointed receiver)
7. Completion or fulfillment of the purpose for which the agency was created
8. Exception: agency coupled with an interest—the agent has an interest in the subject of the agency (such as the property being sold)

a.   Cannot be revoked by the principal
b.   Does not automatically terminate at the principal's death

A. Limitations on an Agent’s Authority

1. Universal agent - no limits on authority
2. General agent - one who represents the principal in a range of  matters

a.   Created by a "general power of attorney"
b.   Makes the agent an "attorney in fact"
c.   Receives power to enter into contracts on behalf of the principal within the agent's scope of authority.

3. Special agent - one who represents the principal in one specific transaction or one business activity only

a.   Created by the terms of the listing agreement or buyer-agency contract in the real estate business
b.   The agent cannot enter into contracts on behalf of the principal and cannot bind the principal to any act.

4. Designated Agent - one who is authorized by the broker to act as the agent of a specific principal

a. Others in office free to act for another party in a transaction
b. Broker may be in position of dual agent, so disclosure required
c. Varies from state to state

B. Single agency—the broker represents either the seller or the buyer, not both in the same transaction; any third party is a customer. (See Figure 4.1)   Precludes the sale of in-house listings to represented buyers.   Broker must establish policies for firm that define client-services.

1. Seller as principal

a. The broker becomes the agent of the seller.
b. The relationship is established by a listing contract.
c. The buyer becomes the customer who represents him or herself.
d. The broker may utilize the services of other brokers who become subagents.

2. Subagency (See Figure 4.2)- the broker appoints other cooperating brokers who have same fiduciary responsibilities as the listing broker:

a. Offered through MLS
b. Created by offer of cooperation and compensation
c. Other brokers can accept or reject subagency offer.

3. Buyer as principal

a. The broker becomes the agent of the buyer.
b. The relationship is established by a buyer-agency contract.
c. The broker becomes responsible to the buyer to locate real estate with certain specified characteristics.
d. The seller becomes the customer.

4. Owner as principal

a. The broker becomes the agent of the owner to manage or lease the owner's real estate.
b. The relationship is established by a property management agreement or a listing contract.

C. Dual agency—the broker represents two principals in the same transaction. (Consult state laws regarding the legal procedures for performing dual agency.)

1. Disclosed dual agency—both principals must be informed and consent to    the dual representation. Parties must understand how the dual representation could affect their respective interests when the agent is essentially trying to serve two masters
2. Undisclosed dual agency—the actions of the parties can create an agency relationship where none was intended.

D. Disclosure of agency—many states require that licensees make certain disclosures (Consult your state's laws.) (See Figure 4.4) – In Arizona, you must have disclosure

1. Alternatives for the level of services
2. Who the licensee represents
3. The advantages and consequences of representation, including subagency
4. Mandatory or voluntary disclosures

E. Agency Statutes—state legislatures are enacting agency reform  legislation. Most require agents to:

1. Exercise reasonable care and skill in performing duties
2.  Obey client’s specific instructions
3. Account for all money and property received.
4. Disclose material facts.
5. Perform according to brokerage agreement terms
6. Keep confidential all confidential information received from client.
7. Generally comply with terms of statute.

A. Duties to the third party include

1.   Reasonable care and skill in performance
2.   Honest and fair dealing
3.   Disclosure of all facts known to the licensee that materially affect the value or desirability of the property

a. Use of property disclosure forms
b. Use of pre-purchase inspections (i.e. structure, termites, environmental hazards)

B. Disclosure of environmental hazards—which include lead paint, radon,  asbestos, toxic waste, contaminated soil and water or other hazards common in the area—may be required

C. Opinion versus fact

1. Opinions—must be stated as licensee's opinions with no intention to deceive
2. Facts—must be accurate

a. Fraud—intentional misrepresentation of material fact in a way so  a as to harm or take advantage of an individual
b. Puffing—exaggeration of a property's benefits; legal as long as statements are not considered fraudulent
c. Negligent misrepresentation—broker may be ignorant about a material fact should have known; buyer relies on broker’s

    statement.

D. Latent defects—a hidden structural defect that would not be uncovered by ordinary inspection; duty to discover any latent defects that threaten structural soundness or personal safety

E. Stigmatized properties—society has branded as undesirable because of events that occurred there, such as criminal events or other tragedies such as suicide (see state's laws and seek legal counsel for guidance about disclosure) You do not need to disclose AIDS, Murders, Deaths, etc. in Arizona. You can disclose illegal activities. “Check the neighborhood out for yourself/Check police records or the Internet.”

I.   History of Brokerage

A. Practice changed significantly in recent years.

1. Formerly, one-office, family- run operations.
2. Common law dictates caveat emptor was the rule.
3 MLS became widely used industry service.
4. Buyers began to question and demand representation.

A.  Purpose

1. Establish basic and continuing education requirements
2. Define activities requiring licensing
3. Describing acceptable standards of conduct and practice
4. Enforce standards through disciplinary system

B. Each state has licensing authority

1. Issues licenses, enforces statutory real estate law
2. Adopts administrative rules and regulations to define law

A. Broker - one who is licensed to buy, sell, exchange or lease real property for others and charge a fee for services.

B. Business forms

1. Sole proprietorship
2. Corporation
3. Partnership
4. Independent
5. Franchise

C. Operation

1. Management of business
2. Set effective office policies
3. Maintain space and equipment
4. Direct staff and sales activities
5. Mastering of real estate transactions

 D.   Legal rights and obligations

1.  Brokers should seek legal counsel to protect themselves and their salespeople.
2.   Real estate licensees cannot give legal advice to any party to a transaction; they should recommend that the party consult an attorney.

E. Real Estate assistants and technologies

1. Assistant

a. Combination office manager, marketer, organizer, facilitator
b. May/may not be licensed (state law requirements)

2. Technologies

a. Computers and related systems
b. Multi-listing and mortgage information “online” service.
c. Portable Fax, beepers, cellular phones, computers and printers

F. Broker-salesperson relationship

1.   The employing broker is directly responsible for supervising all salespersons' real estate activities.
2.   The salesperson is responsible only to his or her employing broker. All activities must be performed in the name of the employing broker.
3. Cannot receive compensation from anyone other than own broker.

G.   Independent contractor versus employee status—broker controls employee; may specify what an independent contractor does but not how or require specific actions (See Figure 5.1)

1. IRS has three requirements to be met for independent contractor status as a "qualified real estate agent".

a. The individual must have a current real estate license.
b.   He or she must have a written contract with the broker stating  that "The salesperson will not be treated as an employee for
federal tax purposes."
c.   Minimum 90 percent of the salesperson's income must be based on sales production and not on the number of hours worked.

2.   In Practice: Broker should have standardized employment agreement drafted by attorney

H.   Broker's compensation

1.   Must be negotiated between the principal and the agent
2.   Usually a percentage of the total amount of money involved (sales price or rent) May be a fixed dollar amount.
3. The agent is entitled to a commission when he or she

a.   was licensed when the event occurred.
b.   was employed with a (written) contract by the principal.
c.   was the procuring cause of the transaction—the one who started a chain of events resulting in a sale—in many cases, even if the transaction is not consummated

I.   Salesperson's compensation

1.   Must be contained in an agreement between the broker and the salesperson
2.   May be fixed salary, a share of the broker's commission, a draw on future commissions, or graduated commission splits
3.   May be incorporated into a 100 percent commission program
4. Math Concept: Sharing Commissions

J. Transactional Brokerage (not in Arizona - an agent must represent one party)

1. Also referred to as non-agent, facilitator, coordinator or contract broker.
2. Equally responsible to both parties, but may not negotiate on behalf of either, must not disclose confidential information but must disclose known defects.

K.   Antitrust laws

1.   Brokers must not conspire to "fix prices"—rates must be independently determined by broker for his or her firm based on the broker's business  judgment and revenue requirements; must avoid even the impression that rates are standard.
2.   Business must not conspire against other businesses or agree to withhold their patronage—known as group boycotting.
3. Brokers must not divide their markets by allocating customers.
4. May not “tie” the sale of first product to purchase of a second.
5.   Penalties are

a.   A maximum $100,000 fine and three years in prison
b. Corporations subjected to up to $1 million in penalties
c.   In a successful lawsuit, triple damages, plus attorney's fees and court costs

I.   Listing Agreements

A.  Definition

1. Listings are personal service contracts between the broker and the principal
2. Creates an employment contract
3. Most states require that they must be in writing to be enforceable in court.

B. Types of listing agreements (See Figure 6.1)

1.  Exclusive-right-to-sell listing*one broker is appointed as the sole agent for the seller and is entitled to a commission regardless of who procures the buyer, including the seller
2.   Exclusive-agency listing*one broker is appointed as the sole agent for the seller and is entitled to a commission regardless of who procures the buyer except the seller
3.   Open (non-exclusive) listing*any number of brokers as well as the seller can procure the buyer, with only the procuring broker, if any, being entitled to a commission

C.   Special listing provisions

1.   Multiple listing service (MLS)*an organization of brokers that pools     listings and distributes them to its members, who then share commissions on cooperating sales
2.   In Practice: Most MLS's are now computerized.
3.   Net listing*the broker may claim all proceeds above the net amount to the seller; illegal in some states, unethical in most others.
4.   Option listing*the broker has the right to purchase the listed property.

A.   Termination for any of the following reasons

1.   Fulfillment of the purpose of the listing
2.   Expiration of the time period stated in the agreement
3.   Destruction of the property
4.   A change in property use by outside forces (such as a change in zoning or condemnation under eminent domain)
5.   Transfer of the title to the property by operation of law (such as a      bankruptcy)
6.   Mutual consent
7.   Death or incapacity of either party
8.   Breach or cancellation by one of the parties (although that party may     later be liable for damages)

B.   Expiration of listing period.

1. Contract must state definite termination date.
2. Automatic extension clauses are specifically prohibited by licensing authorities in some jurisdictions; the wording of some contracts also prohibits such extensions.
3. Some contain broker protection clause; protects broker who was procuring cause from losing commission

A.   Pricing the property

1. Market value*the most probable price a property would bring in an arm's length transaction under normal conditions on the open market
2.   A competitive market analysis (CMA) is valuable to the seller in helping to price the property.
3.   An appraisal might not be warranted when the listing is taken. Seller may prefer formal appraisal.

B.   Math Concept: Calculating Sales Prices, Commissions and Net to Seller

C.   Information needed for listing agreements:

1.   Names and relationships, if any, of the owners
2.   Street address of the property
3.   Size of the improvements (residence, garage, et cetera)
4.   Age of the improvements and their type of construction
5.   Numbers and the sizes of the rooms ("room count")
6.   Size of the lot, including its dimensions
7.   Existing loans on the property
8.   Possibility of seller financing?
9.   Amount of any outstanding special assessments and who will pay them
10.   Zoning classification of the property
11.   Current (or most recent year's) property taxes
12.   Neighborhood (schools, parks and recreational areas, churches, public transportation)
13.   Any real property to be removed from the premises by the seller and any  personal property to be left on the premises for the buyer
14.   Any additional information that would make the property more appealing and marketable
15. Any required disclosures concerning agency representation and property condition.

D. Disclosures*state's laws regarding agency and property conditions  (See Chapter 4)

A. What is listed?

1.   Type of agency created
2.   Broker's authority and responsibilities
3.   Names of all the parties to the contract
4.   Brokerage firm
5.   Listing price
6.   Real property and personal property
7.   Leased equipment
8.   Description of the premises
9.   Proposed dates for the closing and for the buyer's possession
10.   The closing (Settlement)
11.   Evidence of ownership
12.   Encumbrances
13.   Broker protection clause
14.   Homeowner warranty program
15.   Warranties by the owner
16.   Indemnification ("hold harmless") wording
17.   Nondiscrimination ("equal opportunity") wording
18.  Antitrust wording
19.   Signatures of the parties
20.  Date the contract is signed

B. Beginning and ending Date must be stated!

A. Employment

1. Broker - Buyer Agent
2. Principal- Buyer
3. Purpose - to find suitable property
4. Fiduciary relationship

B. Types of Buyer Agency Agreements

1. Exclusive buyer agency agreement

a. Completely exclusive agency agreement.
b.  Buyer legally bound to compensate broker whether that broker l    located property or not

2. Exclusive agency buyer agency agreement

a. Limits broker’s right to compensation
b. Buyer free to find property on own

3. Open buyer agency agreement

a. Non-exclusive agency contract
b. Buyer may enter into similar agreements with unlimited number of brokers.

C. Buyer Representation Issues

1. Explain agency agreement
2. Parties rights and responsibilities
3. Compensation

a. Flat fee, hourly rate, or percentage
b. Retainer
c. Source - either party, seller or buyer
d.  Always negotiable

4. Buyer financial Information

I.   Government powers ("PETE")—limitations on the ownership imposed by the government for the general welfare of community; supersede rights or interests of the individual owner

A.   Police power

1. Enabling acts grant authority from the state to local governments to protect the public health and safety and general welfare.
2.   Zoning ordinances, building codes, environmental protection laws and other regulations (See Chapter 19 for details)

B.   Eminent domain

1.   The right of the government to take privately-owned real estate for public use; condemnation is the process by which this right is exercised.
2.   Legal protections for the property owner

a.   The proposed use must be declared by the courts to be a legitimate public use; used not just to create public facilities but  also to protect the public from hazards.
b.   Just compensation must be paid to the owner for both the property taken and the diminished value of what is left.
c.   The rights of the owner must be protected under due process  of law (5th and 14th Amendments of the United States  Constitution)

3.   Right extends to quasi-government bodies (public housing authority, land-clearance commission); can include renewal projects.

C.   Taxation—funding to cover the costs of government operations  (See Chapter 10)

D.   Escheat—provides that the ownership of real estate will revert to the state in    which it is located when its former owner dies without a will (intestate) and has no heirs capable of being discovered by the state.

A.   Leasehold estates—estates for fixed periods of time (See Chapter 16)

1.   Estate for years
2.   Estate from period to period (periodic estate)
3.   Estate at will
4.   Estate at sufferance

B.   Freehold estates—estates for an indeterminable period of time (See Figure 7.1)

1.   Fee simple estate-the highest type of interest in real estate recognized by law

a.   Fee simple absolute—no limitations on fee simple ownership
b.   Fee simple defeasible—qualified (limited); may be lost by the    occurrence or nonoccurrence of a specified event

(1)   Fee simple subject to a condition subsequent—exists provided condition is not violated; former owner retains a right of reentry
(2)  Fee simple with special limitation—exists "so long as" limitation is met; former owner retains the possibility of a reverter, called fee simple determinable..

2.   Life estate—limited to the duration of a lifetime, either that of the owner     or of another designated person

a. Conventional life estate—created by the owner by deed or will    for a life tenant for the life of the life tenant or another person    (pur autre vie)

(1)   Remainder interest—a future interest in the fee simple     estate for the remainderman (See Figure 7.2)
(2) Reversionary interest—returns to the grantor (or the grantor's heirs) (See Figure 7.3).

b.   Legal life estates—created by statute rather than voluntarily by      the owner

(1)   Dower—the life estate interest of a wife in the real property of her deceased husband
(2)   Curtesy—the life estate interest of a husband in the real property of his deceased wife

(a)   Community property states do not use dower or curtesy
(b)   Potential legal life estates may require both spouses to sign conveyances

(3)   Homestead rights—protect the equity in a residence from a judgment by unsecured creditors

A. Two Classifications

1. Liens – monetary $$$$$
2. Encumbrances - physical—restrictions, easements, encrouchments

B. Liens—charges against property that provide security for the debts or
other obligations of the property owner (See Chapter 10)
C. Restrictions—private agreements that affect the use of land (See Chapter 19)
D. Easements—rights to use the land of others for particular purposes

1. Appurtenant easement—annexed to the ownership of one parcel and used for its benefit on the land of another (Figure 7.5)

a. Servient tenement
b. Dominant tenement

2.   Easement in gross—an individual interest in or a personal  right to use the land of another (frequently for utilities) (Figure 7.6)

3. Party wall easement—used for a wall that straddles the property line of adjacent properties with different owners.

4. Easement by necessity—arising because owners must have ingress to and egress from their land.

5. Easement by prescription—arises when use has been continuous,
exclusive and without the owner's approval

a. Open, notorious, visible
b. Tacking – different parties continually use land

6. Easement by condemnation—acquired for a public purpose; requires compensation for loss in property value

7.   Creating an easement

a.   By express grant in a deed from the owner of the property
b.   By express reservation by the grantor in a deed of  conveyance
c.   By use
d.   By implication

8.   Terminating an easement

a. When the purpose for which it was created no longer exists
b. By the owner of either the dominant or the servient tenement becoming the owner of both under one legal description(merger)
c. By release of the right of easement to the owner of the servient tenement.
d. By abandonment of the easement
e.   By the nonuse of a prescriptive easement by its owner
f.   By adverse possession by the owner of the servient tenement
g. By destruction of the servient tenement (for instance, party wall)
h. By court decision of a quiet title action against someone claiming an easement
i.   By excessive use (possibly a change in land use)

E.  License—the privilege to use another's land for a specific purpose

F. Encroachment—anything extending from one property across the property line onto another parcel or beyond legal building lines

G.   In Practice: Need to note any encroachment in the listing, make the purchase contract subject to the encroachment and possibly advise the buyer to obtain a survey of the property.

A. Riparian rights—generally pertain to non-navigable waters (See Figure 7.6)

1. RIVERS
2. To the center of a non-navigable river or stream
3. Right to use all

B. Littoral rights—generally pertain to navigable waters (See Figure 7.7)

1. LAKES (navigable) – oceans, seas, bays,
2. Light House
3. Own land to the mean high-level mark

C. Accretion, Erosion and Avulsion

1. Accretion - increases in land resulting from deposit of soil
2. Erosion- Loss of soil by gradually wearing away
3. Avulsion- sudden removal of soil due to act of nature

D.   Doctrine of prior appropriation—the right to use any water, except for limited domestic use, is controlled by the state when water is scarce in that particular state.