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Real Estate Terms & Concepts

Join us for an informative workshop led by Jerry Rioux, a CCRH Board Member, as we delve into essential real estate concepts, financing methods, and the purchase process. This workshop will cover key topics including property rights, types of ownership, legal descriptions, encumbrances, real estate contracts, and various financing options. You will gain valuable insights into the intricacies of real estate transactions and learn to navigate the market with confidence. Perfect for aspiring buyers, real estate professionals, and investors.

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Real Estate Terms & Concepts

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  1. Real Estate Terms & Concepts Jerry Rioux, CCRH Board Member grioux@sbcglobal.net http://www.angelfire.com/jazz/jrioux/

  2. Workshop Outline • Part I - Terms & Concepts • Part II - Financing • Part III - Purchase Process

  3. Part I Terms & Concepts

  4. What Is Real Estate? • Land • Affixed to the Land • Appurtenant to Land • Immovable by Law

  5. Real Estate = Bundle of Rights • Old English Concept of Ownership • The Right to Possess, Enjoy, Control and Dispose of Real Estate • The Individual “Rights” May be Bought and Sold or Rented Separately

  6. Title & Estates • Title = Ownership of Real Estate • Estate = Character of Interest • Fee Simple • Less Than Fee Estate • Life Estate

  7. Real Estate Legal Descriptions • Lot, Block and Tracks • Metes and Bounds • Section and Township

  8. Deeds • Legal Documents that Convey (Transfer) the Title to Real Estate • Usually Recorded against the Property in the County Recorder’s Office

  9. Examples of Deeds • Warranty Deed • Grant Deed • Quitclaim Deed • Tax Deed • Trust Deed (or Deed of Trust) • Deed of Reconveyance

  10. Encumbrances • Things that Burden the Title to Property • Claims of Others to Property • Non-Monitory Encumbrances • Monitory Encumbrances

  11. Non-Monitory Encumbrances • C C & Rs • Easements • Encroachments • Mineral Rights • Leases • Regulatory Agreements • Public Rights of Way

  12. Covenants, Conditions and Restrictions (C C & Rs) • Private Land Use Controls • Lot Size, Set-Backs... • Home Size, Architectural Style… • Parking, Pets… • Public Deed Restrictions • Price & Occupancy Controls

  13. Covenants, Conditions and Restrictions (C C & Rs) • Judicial Enforcement • Invalid • Racial & Religious Covenants • Unenforceable • Restrictions the Cause Waste • Can Be Released by Beneficiary

  14. Monitory Encumbrances • aka Liens • Loans, Taxes & Assessments • Voluntary or Involuntary • General or Specific • “Blanket Encumbrances” CoverMultiple Parcels

  15. Lien Priorities • Based on Recording Dates or Subordination Agreement • Legal Description (lot split) • C C & Rs • Property Taxes • 1st Mortgage • 2nd Mortgage

  16. Real Estate Contracts • Real Estate Purchase Agreement • Land Contract (Contract for Deed) • Option • Lease Option • First Right of Refusal

  17. Valid Real Estate Contracts • In Writing • Capable Parties • Mutual Consent • Lawful Object • Sufficient Consideration

  18. Purchase Contract • Consideration • Purchase Price • Timing • Financing & Other Terms • Contingencies

  19. Contingencies • Financing • Appraisal • Clear Title • Due Diligence

  20. Option to Purchase • Right to Purchase • Consideration • Time Limits for Performing • Extension Fees • Purchase Price or Formula • No Obligation to Buy

  21. First Right of Refusal • Right to Buy • When Offered for Sale • Match Price or Formula • Limited Time to Perform • No Obligation to Buy

  22. Title Insurance Companies • Title Plants - duplicates county records • Organizes Records by Parcel • Provides Title Reports • Records Documents • Issues Title Insurance

  23. Title Reports • Preliminary (not Title) Reports • Lists Ownership Interests and Encumbrances • Encumbrances are “Exceptions” to the Title • Buyers want Exceptions Removed

  24. Types of Insurance • Title Insurance • CLTA & ALTA • Mortgage Insurance • PMI & MMI • Hazard Insurance • also Flood & Earthquake

  25. Escrow • Independent 3rd Party who Processes Real Estate Sales Transactions • Acts Only When All Conditions Are Met • Divides or Allocates Costs as Agreed • Can Handled by • Title Insurance Companies • Private Escrow Companies • Real Estate Brokers

  26. Closing Costs - Recurring • Property Taxes • Insurance • Interest • HOA Dues • Assessments

  27. Closing Costs - Non-Recurring • Escrow Fees • Title Insurance • Transfer Fees • Recording Fees • Doc Prep Fees • Loan Fees & Points • Home Warrantee

  28. Part II Financing

  29. Single Family Financing • Value of Collateral • Payment Ratios • Buyer’s Credit Worthiness • Stability of Buyer’s Income

  30. Loan to Value Ratio (LTV) • Loan Amount • divided by Property Value • $160,000 / $200,000 = 80% • 97% and 100% are Possible • over 80% needs Mortgage Insurance

  31. Payment Ratio (Housing) • PITI • Principal • Interest • Taxes • Insurance • divided by Gross Income • 28%, 32%, 40%...

  32. Payment Ratio (Overall) • PITI • plus Other Recurring Debt • divided by Gross Income • 36%, 40%, 45%...

  33. Market Rate Home Buyer

  34. Assisted Home Buyer

  35. Multi-Family Financing • Value of Collateral • Debt Coverage Ratio • Market Demand & Absorption Rates • Buyer’s Credit Worthiness • Management Capacity

  36. Proforma or Pro Forma • Jargon for Budget • Project Financial Performance • Development Pro Forma • Operating Pro Forma • Development & Operating together

  37. Development Pro Forma

  38. Sources of Funds

  39. Operating Pro Forma

  40. Operating Pro Forma

  41. Appraisals • Estimates of the Value • Three Approaches • Competitive Market • Income • Replacement Cost • MAI Appraisals

  42. Competitive Market Approach

  43. Income Approach

  44. Types of Lenders • Institutional • Banks and Savings Banks • Pension Funds • Insurance Companies • Non-Institutional • Mortgage Bankers • Mortgage Brokers • Government

  45. S&L Concept • Intermediation • Accept lots of small short-term deposits to make 30-year home loans • Disintermediation • Depositors withdraw money faster than it is collected from Borrowers

  46. Secondary Mortgage Market • The Buying and Selling of Mortgages • Lenders Now Originate, Sell and Service Mortgages • Fannie Mae & Freddie Mac • Government Chartered Companies • Sell Mortgage-Backed Securities

  47. Types of Loans • Amortized Loan • Fixed Rate & Adjustable Loans • Balloon Payment Loan • Straight Note • Insured & Guaranteed Loans

  48. Typical Loan Documents • Promissory Note • Deed of Trust • Regulatory Agreement • (assisted housing only)

  49. Promissory Note • Agreement to Repay the Loan • Amount Borrowed • Interest Rate • Repayment Terms • Other Conditions • Between Lender & Borrower

  50. Straight Note • Frequently used for interim financing and seller carry back loans • monthly payments of interest only • balloon payment of principal • due on specific date or occurance

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