Lecture 2 Real Estate Business

7/23/2019 Lecture 2 Real Estate Business

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REAL ESTATE BUSINESS

Lecture 2

Jan-May 2015


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REAL ESTATE

1. Real property:

This consist offreehold and/or leasehold

interest in land.

In addition to land real property includes anybuildings or structures attached to land.

Buildings, roads, irrigation schemes , drainage

systems that are constructed they become part

of land (landed properties)

Hence the term real property is used to signify

land and landed properties as mentioned

above means


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REAL ESTATE (2)

Estate:In context, the term is also used in reference to

anestate in landor of a particular kind of

property (such asreal estateorpersonal estate).

An estate is time in land or land for time.

Estates are interests in land by the owner which

continues either indefinitely or fixed or

determinable period. Estate entitles owner to

enjoy the use of land.
http://en.wikipedia.org/wiki/Estate_in_landhttp://en.wikipedia.org/wiki/Real_propertyhttp://en.wikipedia.org/wiki/Personal_propertyhttp://en.wikipedia.org/wiki/Personal_propertyhttp://en.wikipedia.org/wiki/Real_propertyhttp://en.wikipedia.org/wiki/Estate_in_land


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REAL ESTATE (5)

Interests:

Interests in land are rights over someones

land.

Interests entitles someone else ( notnecessarily the owner ) to specific right

over that land which may reduce the

estate owner enjoyment of the land.


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TYPES OF LEGAL ESTATES

1Freehold estates: ( fee simple absolute

possession)It is a legal estate that is nearest to true

ownership that ordinary people can get. No onehas better rights on a piece of land than the

owner of a freehold.

Freehold estate last indefinitely, it can be sold,

given away, split up, leased, inherited by will, itis in possession allowing the owner to remain on

the land


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TYPES OF LEGAL ESTATES

2. Leasehold estate( terms of years

absolute).The owner of a lease is just the estate owner as

much as the freeholder except his estate islimited in time to fixed or determinable period

(99 years for building purposes or 21-33 yrs for

business premises)

Leases are sometimes called tenancies if theperiods are short (weekly, monthly or yearlytenancy)


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COMPONENTS OF REAL

ESTATE (1)

i). Legal concept of land.

ii). improvements and fixtures

a) Legal concept of landThe legal dimension of real estate is the right of

ownership. The rights include the following,i) right to use the commodity

ii) right to posses the commodity/propertyiii) right to exclude others from using the property

iv) right to dispose it by selling or giving it as a gift etc.


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COMPONENTS OF REAL

ESTATE (2)

a) Legal concept of land (cont)

These rights pertain the physical and tangible aspects of

the real estate ( land and on site improvements).

When the ownership dimension of real estate is added ( by

being identifiable by the system that exists), land andimprovements becomesreal property.( either freehold or

leasehold)

Co ownership:This is when the right of ownership is

held by more than one entity , persons or companies are

known as co-owners of the property. The principle forms of co-ownerships are; i) joint tenancy,

ii) tenancy in common, iii) community property etc.


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COMPONENTS OF REAL

ESTATE (3)

b) Improvements and Fixtures: The term improvements are used to denote buildings and

structures on land such as fences, driveways retaining

walls etc( or man-made additions)

All type of permanent erected structures are calledimprovements on land.

Improvement which tend to improve the land such as

drainage, grading, filling or providing utilities such as

water, sewage etc are calledimprovements to landas

they make or change the land to some form of economic orpublic use


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COMPONENTS OF REAL

ESTATE (4)

b) Improvements and Fixtures(cont) Improvements on land and improvements to land together

they form what is referred ason- site improvements.

Fixtures are personal properties such as fridges, washing

machine, stove or kitchen units ; these are legally

considered as real estate if they are attached to land or to

an improvement which is permanently attached to land

An example is when a homeowner wishing to sell the

property with full equipped kitchen then all kitchen

fixtures present are part of the real property.


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CHARACTERISTICS OF REAL

PROPERTY

1.Physical Characteristics:

Land and its improvement is immobile

indestructible and not homogenous

2. Economic Characteristics :

Property is highly priced commodity;expensive

Purchase generally requiresborrowed funds.

Search and information gathering costs.Thepurchase /buyer will need to search for

information which is scattered before making

decision to buy.


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CHARACTERISTICS OF REAL

PROPERTY

2. Economic Characteristics (cont)

Scarcity of the commodity ( land & other

properties)

Location economics , aspect of its location mayaffects its value

Quantity and Quality of surrounding

structures/property may influence the value

Fixity; investment in property is fixed it can notbe moved or changed easily and have a long

physical and economic life.


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REAL ESTATE BUSINESS

Real Estate Business encompasses all individuals or

organizations who receives compensation for providing

a service

It includes real estate agents, financial lenders;

appraisers/valuers; developers, contractors, property

managers, etc insurance agents

The real estate business is composed of four (4) phases

geared to production and disposing of real property as

shown in exhibit 1.2.


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REAL ESTATE BUSINESS (CONT)

Real estate business is very large and it involve

many people and organisations.

Phase in Real estate businessPhase 1 Preparation

Phase 2 Production

Phase 3 Distribution

Phase 4 Service


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PLAYERS IN THE REAL STATE

BUSINESS

1. Real estate Agent

An individual or organization licensed by state to

enter into contractual relationship with the

client for the purchase or sale of real estate in

expectation of a commission.

The requirements for one to act as an agent

includes academic qualification , experience,

recommendation from property owners references

covering good character and high morals etc.


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1. REAL ESTATE AGENT (CONT)

1.1 Regulations:

National or local boards or associations

acts as parent, regulatory or tradeorganizations.

The purpose of each body is to promotethe profession, express the view of its

membership and to support code of ethics.


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. REAL ESTATE AGENT (CONT )

1.2 Services provided by an estate agent;

i) Advertise the property in proper places to

ensure that it receives maximum exposure

ii) Screen all enquires to ensure property isdescribed properly to interested buyers.

iii) Make suggestion for improvements that

will make the property to be presented in the

best condition

iv) Show property to interested buyers

v) Save buyer s time by showing only those

properties that satisfy buyers needs.


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REAL ESTATE AGENT (CONT )

1.2 Services provided by an agent (cont);

vi) Educate both the buyer & seller about the

local market trends to ensure the property idoffered for sale at a reasonable price or the

buyer make a reasonable offer

vii) Provide transport to buyer to see the

properties

viii) Assist the buyer in locating /identifying

sources of finance.


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REAL ESTATE AGENT (CONT )

1.3 Local Real Estate Agents:

Richard Ellis

Knight & Frank

Willy Kathurima AssociatesPam Property and Assets Management

Musta Properties

Premier Properties etc


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2. REAL ESTATE LENDERS

Because real property is expensive there is a

need for lenders to provide equity and debt funds

to investors and borrowers who do not have

sufficient cash to pay the full development or

purchase price of the property .

Equity funds comes from the assets of potential

buyer ( pension funds or insurance companies

while debt funds are supplied from assets of theothers( loans from financial institution such as

banks)


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2. REAL ESTATE LENDERS

(CONT )

Usually the buyer can not borrow 100% of

property value. The buyer needs to have

sufficient funds for down payment (to his/her

show commitment) ussually it varies between

10%-20% of the purchase price.

2.1. Lenders:

Botswana Building society (BBS) Financial

institutions such as national Development Bank

(NDB), BDC, CEDA, Commercial Banks etc .


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2. REAL ESTATE LENDERS (CONT)

2.1Services provided by a Lender;

The lender offers services to the buyers or

borrowers as followsi) Obtain borrowers credit records to ensure theborrower is a good credit risk and will not become over

extended

ii) Arrange for property to be valued to determine its

value

iii) Conduct employment verification to determine theborrowers employment and income.

iv) Obtain e title deed from attorney ordering the deed

and other legal necessary to transaction to take place.


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3. APPRAISERS OR VALUERS

They provide an independent estimate of the

value of real property. S/he inspect the premises

gather information on local market and trends

and applies professional approach to determine

the property value

3.1 Services provided by Valuer:i) to help the buyer to determine the limit of the

offering price.

ii) Helps the seller to establish limit on the asking

price for the property.


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4.REGISTRAR OF DEEDS OR DEED

ATTORNEY OR TITLE COMPANY

Prepares an abstract containing the history of a

real property in question. The history off all title

transfers , all encumbrances against the

property, including mortgage releases

outstanding credits etc.The abstract gives the buyer and his/her attorney

the facts to determine whether the seller is

actually the true owner of the property .

It also help to inform the buyer of anyoutstanding commitments and show whether

any other parties have interest in the property


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5. ATTORNEY

Real estate attorney specialises in estate

matters . His or her training includes among

others property law and mortgages.

5.1 Services provided to the clients (seller

&buyer)

Attorney writes contract of sale if the buyer

requires assistance, give opinion about the

validity of present owners rights for

outstanding encumbrances , prepares the

deed and any other necessary legal documents.


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6. PROPERTY MANAGER

Property manager specializes in

management of real estate .

Property as an investment is income

producing asset hence a manager isneeded to collect rent , negotiate leases ,

supervise maintenance , reduce expenses

and advise the investor or property owner

on mattes related to the investment


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6. PROPERTY MANAGER (CONT)

6.1Services provided by property Manager;

i) Collection of rent

ii) Letting out vacant units

iii) Pays mortgage for the owneriv) Supervise maintenance

v) Maintain financial records by providing the

client with income and expense statement

periodically


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OTHER PLAYERS IN REAL ESTATE

These includes developers. town planning

authorities , surveyors , contractor, insurancecompanies etc. Individuals or firms in construction

sector ( contractors , subcontractors, suppliers,

labour market, utility companies are also involved.

Unique feature of real estate transactions;A

typical transaction involve several parties working

together to ensure sale progresses smoothly

The transaction takes considerable time to go

through the process unlike when you buy an item ina supermarket or department store


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QUESTIONS FOR DISCUSSION

Q.1 Should the prospective buyer or seller always

use the agent who is registered

Q. 2 What are the merits of using a real estateagent?

Documents

Lecture 2 Real Estate Business