United States of America - Real Estate Trends
Acquisition costs |
Real estate sales commissions are strictly a matter of negotiation between the real estate broker and principal in the U.S. Traditionally, real estate sales commissions have been paid by the Seller, however, there is a growing trend whereby more purchasers are employing real estate brokers. A real estate broker is typically paid a percentage of the purchase or sales price and may represent a seller or buyer or, in certain instances, both seller and buyer. All agency relationships must be disclosed.
Legal costs are usually paid by the party requesting legal representation. Other costs including document preparation, recording charges and closing fees may be paid by either the seller, the buyer or the broker or any combination thereof. |
Property and ownership information |
By law, every instrument creating an estate, interest, right, transfer of ownership or encumbrance may be recorded in the county where the property is situated. This information is publicly available at country recorder’s offices which serve as a central information point for changes in ownership and other interests affecting real property. |
Transaction information |
Open listings for agents are: Not available.
Exclusive listings for agents are: Available.
There are also several commercial sources that repackage and sell publicly available data. May of these sources provide up to date information regarding transfers of real property and transaction prices. Additionally, real estate agents share a multiple listing service which generally includes available property listings, data on sales and county information such as tax records and assessment values. MLS systems are regional in scope and are regulated by local boards and state associations.
Information technology, the Internet and the world wide web may change the flow of MLS data in the coming decade. Multiple Listing Systems have traditionally been owned and controlled by Realtorsâ however new technology is poised to make this information more easily accessible to the general public. |
Real estate trade association |
Name: National Association of Realtors
Address: 430 N. Michigan Avenue, Chicago, IL 60611
Phone/Fax: (312) 329-8200/ (312)329-8576
In addition to the National Association of Realtorsâ , each state and local area also has an association. Members joins the local Board of Realtorsâ as individuals and by virtue of local membership become members of the state association and the National Association of Realtorsâ . There are currently more than 750,000 members of the National Association of Realtorsâ , representing approximately 63% of all practicing real estate salespersons in the U.S. |
License requirements |
Real estate salespeople are required to hold a license in order to conduct real property transactions. Certain exemptions apply, for example, attorneys providing real estate services incidental to other client services and individuals involved in real property transaction on their own account.
To be licensed in the U.S. requires successful completion of minimum education requirements and the passing of a state examination. continuing education is mandatory in many states and licenses are usually valid a period of 1 to 4 years and must be renewed. |
Land description meters and bounds survey system |
There are five common methods of describing the location of land in the U.S.
1) Information reference - refers to street numbers and place names e.g., 123 Maple Street or the Yellowjacket Ranch. Informal referenced are convenient but not necessarily precise and therefore are not adequate for most legal documents.
2) Metes and Bounds - refers to distance (metes) and direction (bounds) and are dependent upon man-made or natural monuments. Distances are measured in feet and direction is measured in degrees, minutes, and seconds. Metes and bounds descriptions are precise and adequate for legal documents.
3) Rectangular Survey System - refers to a system of imaginary lines of longitude (North/South) and Latitude (East/West). This survey system was authorized by Congress in 1785 to provide a quick and simple way to describe land in newly annexed territories of the U.S.
An imaginary grid is superimposed on the land in the form of large rectangles which can then be subdivided into succeedingly smaller units. For example, a check is 24 miles by 24 miles, a township is 6 miles by 6 miles, and a section is 1 mile by 1 mile. Sections can be further divided into quarters, quarters of quarters, and so on. The rectangular survey system; township, range, section, is precise and adequate for legal documents.
4) Recorded Plat - refers to most urban land that has been subdivided into building lots. Recorded plats indicate individual properties by lot and block number according to an approved subdivision plat recorded at the county where the land is located. Each recorded plat is given a book and page number for reference and plats become available for public inspection. Recorded plats are most common for new developments in urban areas and the resulting lot, Block, and subdivision reference is precise and sufficient for legal documents.
5) Assessors Parcel Number - refers to arbitrary reference numbers given to individual parcel so land by county assessors. Parcel numbers are ordered geographically and can be useful in researching a property or an area, however parcel numbers are not adequate legal descriptions for deeds, etc. |
Rights and interests in land |
While the concept of private property is especially important in the U.S., nevertheless the government pertains certain rights in all privately held property.
Eminent Domain - is the right of government to seize private property for a valid public purpose upon the payment of "just" compensation. The process by while eminent domain is enforced is condemnation.
Property taxes - are levied on all privately held parcels of real property, with certain exemptions (i.e., churches, synagogues). Property is taxed according to its value (ad valorem) and the property tax lien is superior to all other liens placed upon a property.
Escheat - refers to right of government to acquire title to property when a property owner dies intestate and with no heirs, or when property has been abandoned. To escheat means to fall back or revert. The governments right of escheat solves the problem of property becoming ownerless.
Police power - is the right of government to control private actions in order to protect the health, safety and general welfare of the public. Zoning is an example of the application of public power in order to separate incompatible land uses to protect the public. The key difference between police power and eminent domain is that the former only controls the use and not the ownership of real property.
freehold ownership - refers to the bundle of rights remaining in land after the provision of the governmental rights outlined above.
Freehold or fee simple ownership is land refers to a bundle of rights including the right to sell, mortgage, use, exclude others from use, rent, gift and even abandon among others. Fee simple estates can be granted subject to conditions or for limited determinable time periods.
Leasehold estates on the other hand, grant possessory rights only, not ownership. The lessee or tenant has the right to use the property and the lessor or owner retains a revisionary interest. There are four major types of leasehold estates.
1) Estate for years - characterized by a definite starting and ending date
2) Periodic estate - characterized by a specific starting date but no specific expiration date (e.g., month to month)
3) Estates at will - characterized by unknown and indefinite duration, but consented to by both parties.
4) Estate at suffrage - characterized by a tenant holding over without consent of the landlord.
Aside from freehold and leasehold estates, there are also certain estates in real property crated by state law and referred to as statutory estates
dower - gives a wife rights in real property held by her husband.
curtsey - gives a husband rights in his wife’s real property.
community property - gives spouses equal rights in all real property. |
Forms of ownership |
Real property in the U.S. can be owned in severalty (one owner) or concurrence (more than one). Concurrent ownership between individuals usually is in the form of joint tenancy or tenancy in common.
Joint tenancy is typically how married persons hold title to real estate. Joint tenancy require the unity of time, title, interest and possession meaning that title must have been acquired by the joint tenants at the same time and from the same source. Joint tenants share the ownership and use of the property equally. The distinguishing feature of joint tenancy is the right of survivorship whereby death extinguishes the ownership of the deceased in favor of the other joint tenant.
Tenants in common on the other hand, do not need to have equal ownership, can acquire title and at different time from different sources but must have undivided ownership, e.g., a b75% tenant in common of a 4 bedroom condominium cannot claim exclusive ownership of 3 of the bedrooms. A tenant in common may will, sell,, or otherwise convey his or her interest independently of the other co-tenants.
Other forms of concurrent ownership include general partnerships, in which all partners are fully liable for partnerships liabilities, limited partnerships, in which at least one general partner is responsible for all liabilities and limited partners are responsible only to the extent of their capital contributions; corporations, joint ventures, trusts and limited liabilities companies. |
Transfer of title |
Real property in the U.S. is conveyed using a written legal document called a deed. A valid deed must be in writing and must state consideration, however, the exact consideration need not be stated. Both the grantor and grantee must be identified and the grantor must execute the deed. All deeds in order to be valid must contain an adequate legal description of the property being conveyed and must contain worlds of conveyance, e.g., to have and to hold forever. Various deeds possessing differing level so warranty are used. In descending order of warranty these are general warranty deed, special warranty deed, grant deed, bargain and sale deed and quit claim deed.
Title to real property may also be conveyed after death via a written (holographic) will. Oral wills are sufficient to transfer personal property but not real property.
Title to real property may also be acquired by adverse possession. Adverse possessors msut maintain actual, visible, open, notorious and hostile use of the property continuously for a long period of time prescribed by state statute. |
Recordation and transfer of title |
Public records regarding the ownership , encumbrances and other matters affecting real property are maintained at the county level. Documents affecting real property are recorded in the country where the property is located.
Usually a document must be acknowledged by a notary prior to recording.
A chain of title can be constructed for a particular parcel of real property showing the linkage of ownership that connects the present property owner to the original source of the title. An abstract of title showing a complete history of ownership, encumbrances and all other recorded documents affecting title can then be constructed. Title insurance is now widely available in the U.S. and diminished the need for title abstracts and attorney opinion letters on those abstracts. Sellers of real property often pay for title insurance coverage in favor of the buyer. |
Contracts |
Contracts for the sale of real property or for an interest in real property must be in writing pursuant to the stature of frauds. Oral leases for a term of less than one year are also enforceable. In addition to the requirement that contracts be in writing when required by law there are for additional essential elements of a contract.
1) All parties to the contract must be legally competent.
2) There must be mutual agreement or "a meeting of the minds." A mutual willingness to enter into a contract.
3) The contract must be for a lawful purpose, i.e., not contrary to law.
4) The contract must be supported by consideration, i.e., something of value, be it money, a promise, property or services.
When a contract is breached, the wronged party may choose to accept partial performance, rescind the contract or sue for specific performance or damages or both. It is common for real estate contracts to contain a provision for liquidated damages in case of default by a purchaser and specific performance in cases of default by a seller.
Real property contracts are typically drawn using standard and approved forms by real estate agents. |
Mortgages |
Mortgages are used to make property security for repayment of a debt. Mortgages place the property as security or collateral for a debt through hypothecation. Borrowers (mortgagors) retain possession and use of mortgaged property.
Most mortgages contain convenants whereby the mortgagor agrees to pay taxes, not demolish or remove improvements an to keep the property in good repair and provide insurance coverage. Upon breach of a mortgage convenant the mortgagee may accelerate the mortgage calling the entire amount due.
The same property may be used as security for more than one mortgage in most instances. Date and time of recordation of mortgages establishes priority.
Upon default of a mortgage, a lender has the rights to foreclose, either by judicial or non-judicial means. Lenders often retain the right to an assignment of rents upon default of a mortgage.
Prior to the foreclosure sale of a mortgage have an equity right of redemption following the foreclosure sale borrowers have a statutory right of redemption which varies in length of property type and from state to state.
In certain states, deeds of trust are used in place of mortgages. While a mortgage is two party agreement between a borrower and a lender; a deed of trust is a the party agreement between a borrower (trustee), a lender (beneficiary) and a neutral third party (trustee). |
Financing and lending practices |
There are many types of loans available on real property in the U.S. Some are guaranteed or insured by the government and others are conventional.
Lenders typically look for a minimum loans to value ratio and a minimum debt coverage ration for income producing properties, however, most borrowers personally guarantee that repayment of loans on real property.
Most loans on residential properties are originated in the primary mortgage market and then packaged and sold as securities in the secondary mortgage market. For this reason the underwriting criteria for residential loans is fairly consistent from lender to lender and even from state to state. Legislation such as the Truth in Lending Act (1969) protects consumers and requires lenders to disclose the true costs of borrowing.
Commercial properties are typically financed through banks, savings and loans, insurance companies and pension funds. Many commercial property loans are held by or warehoused by the lender for the duration of the loan. |
Property taxes |
Local governments in the U.S. rely on property taxes as their greatest single source of income. Real property taxes support schools, libraries, police and fire departments as well as social service programs, parks and hospitals among many others.
Property taxes are ad valorem, or according to the value of property. Local governments, typically counties, assess the value of each parcel of real estate for tax purposes. Each year a lien is placed on each taxable property by the county and is removed when real property taxes are paid. The property tax lien is superior to all other liens on the property.
In cases where a local municipal improvement is necessary that will benefit property owners within a limited area special assessments may be levied against real property. Additionally, voters within a municipality or district ;may choose to increase their property taxes for a specified time to retire bond debt incurred to improve some specific municipal service such as schools or open space.
State and local real property taxes are deducted from personal income when calculating income taxes.
Properties exempt from property tax include government owned property, schools, and most properties owned by and used for religious and charitable organizations.
Some states, countries, and cities levy a documentary tax, real property transfer tax or other conveyance taxes. |
Closing and escrows |
The closing is a meeting at which the purchaser delivers the funds for the property and receives a deed to the property. At the closing, all matters pertaining to the sale are concluded. Some states use an escrow losing procedure whereby documents and funds are deposited with a neutral third party who conducts the closing within a specified time and under specific instructions. Other states use a title closing procedure which is a final meeting between seller and buyer.
Prepaid and ongoing expenses are typically prorated to the date of closing including hazard insurance, interest on loans being assumed, rents, utility charges, property taxes and homeowners association dues.
Real estate closing and settlement procedures are standardized under RESPA 1975 "Real Estate Settlement Procedures Act" throughout the U.S. RESPA is administered by HUD and applies whenever "federally related" first mortgage loans are involved. RESPA contains restrictions on the amount of advance insurance payments and property tax a lender may impound and also prohibits the payment of fees for services not performed during the closing process. |
Appraisal |
Appraisal is defined under federal law as "a written statement used in connection with a federally-related transaction that is independent and impartially prepared by a licensed, certified, appraisal that states an opinion of the defined value of an adequately described property as of a specific date that is supported by the presentation and analysis of relevant market information." It is an estimate of value.
Typically, there are three approached to estimating value.
1) The market approach - uses similar properties which have sold recently as benchmarks in estimating the value of the subject property.
2) The cost approach - combines the cost of the individual components i.e., lumber, plumbing, labor, etc., minus depreciation and the value of land to estimate the value of the subject property.
3) The income approach - considers the amount of net income and appreciation which can reasonably be expected to accrue in the future and discounts these to a present value.
In 1989, Congress passed the Financial Institutions Reform, Recovery and Enforcement act (FIRREA) creating mandatory requirements for real estate appraisals as well as federal standards for certification and licensing of appraisers. |
Insurance |
To protect against loss due to fire and other catastrophic events lenders require that property owners maintain adequate levels of hazard insurance. Property owners typically desire additional insurance coverage for personal liability and other risks such as earthquakes, floods and vandalism.
Homeowner insurance policies typically cover a variety of hazards and liability and are widely used in the U.S. there are several standardized homeowners insurance policies available to property owners with varying costs and coverages. Contents only coverage is available to tenants. |
Land use control |
Land use controls describe how a parcel of real estate may be used. Land use control scan be either republic or private.
Public land use control stems from the application of police power (see Section Rights and Interests in Land) and include zoning, building codes and subdivision regulations. The intent of zoning is to separate incompatible land uses in order to protect the health, safety, and general welfare of the public. Building codes establish minimum acceptable material and construction standards. Subdivision regulations control how land may be divided into building lots and set forth standards regarding the provision of streets, utilities and dedications for public uses such as parks and schools.
The application of public land use controls, especially zoning, can be challenged by landowners as a "taking" of private property rights. The courts have established however that normal zoning is a government has the duty to protect the health, safety and general welfare of the public, without providing compensation to the landowner.
Private land use controls typically take the form of covenants or deed restrictions. An owner of real property may sell or lease property under any conditions the owner wishes, as long as the conditions do not discriminate on the basis of race, color, religion, sex, or natural origin. This is never a "taking" issue with regard to private land use controls because they are embodied within the deed which transfers title to the property. Covenants or deed restrictions may dictate such matters as the purpose of the structure, size, aesthetics and even the design of structures to be built. |
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