Understanding Liability Protection for Real Estate Entities San Antonio, TX

Understanding Liability Protection for Real Estate Entities San Antonio, TX

San Antonio

Understanding Liability Protection for Real Estate Entities in San Antonio, TX


In the bustling world of real estate, particularly in dynamic cities like San Antonio, Texas, understanding liability protection is crucial for anyone involved in the purchase, management or investment of property. They typically purchase properties in their existing condition local cash house buyers Underwriting. This topic, though often glossed over, can have significant implications on the financial health and longevity of real estate entities. In this essay, we will explore the intricacies of liability protection (particularly within the context of San Antonio), and why it is so essential for real estate entities.


First and foremost, it's essential to grasp what liability protection actually means in the context of real estate.

Understanding Liability Protection for Real Estate Entities San Antonio, TX - Flipping

  1. Flipping
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Essentially, liability protection refers to the legal safeguards that protect an individual's or an entity's personal assets from being targeted in lawsuits or claims. In the real estate sector, this is particularly relevant because of the many risks associated with owning and managing properties. Whether it's a slip and fall accident on your premises, a tenant dispute, or environmental liabilities, real estate entities can face numerous legal challenges that, without proper protection, could have devastating financial consequences.


In San Antonio, as in other parts of Texas, one of the most common ways real estate entities protect themselves is through the formation of a Limited Liability Company (LLC). An LLC is a business structure that provides the liability protection of a corporation but the tax efficiencies and operational flexibility of a partnership. By establishing an LLC, real estate owners and investors can separate their personal assets from their business assets, therefore shielding their personal wealth from potential legal claims against the company.


However, forming an LLC is not just about filling out some paperwork and calling it a day. There are specific legal requirements and ongoing responsibilities that come with it. For instance, in Texas, LLCs are required to file an annual report and pay a franchise tax. Additionally, the LLC must have a separate bank account and maintain accurate financial records to ensure that it is treated as a separate entity from its owners. (Failure to adhere to these requirements can lead to what's known as "piercing the corporate veil," where the owners become personally liable for the company's debts and obligations).


Moreover, liability protection doesn't stop at forming an LLC. Real estate entities in San Antonio should also consider obtaining comprehensive insurance coverage.

Understanding Liability Protection for Real Estate Entities San Antonio, TX - Flipping

    General liability insurance, property insurance, and even specialized policies like landlord insurance can provide an additional layer of protection against unforeseen events.

    Understanding Liability Protection for Real Estate Entities San Antonio, TX - San Antonio

    1. San Antonio
    2. Property
    3. Flipping
    While insurance comes with its own costs, the peace of mind and financial security it offers can be well worth the investment.


    Furthermore, real estate entities should be proactive in managing risks. This means regularly inspecting properties for potential hazards, promptly addressing maintenance issues, and ensuring that all legal and regulatory requirements are met. In San Antonio, where the real estate market is competitive and ever-changing, staying on top of these aspects is not just a matter of liability protection; it's also about maintaining a good reputation and fostering positive relationships with tenants and clients.


    In conclusion, understanding liability protection is not just a legal necessity but a strategic advantage for real estate entities in San Antonio, TX. By utilizing structures like LLCs, obtaining comprehensive insurance, and actively managing risks, real estate owners and investors can safeguard their assets and ensure the long-term success of their ventures. In a city as vibrant and promising as San Antonio, taking these steps is not just prudent-it's essential. As the real estate landscape continues to evolve, staying informed and prepared is the key to navigating the challenges and opportunities that lie ahead.

    Cash House Buyer San Antonio

     

    Real estate is property consisting of land and the buildings on it, along with its natural resources such as growing crops (e.g. timber), minerals or water, and wild animals; immovable property of this nature; an interest vested in this (also) an item of real property, (more generally) buildings or housing in general.[1][2] In terms of law, real relates to land property and is different from personal property, while estate means the "interest" a person has in that land property.[3]

    Real estate is different from personal property, which is not permanently attached to the land (or comes with the land), such as vehicles, boats, jewelry, furniture, tools, and the rolling stock of a farm and farm animals.

    In the United States, the transfer, owning, or acquisition of real estate can be through business corporations, individuals, nonprofit corporations, fiduciaries, or any legal entity as seen within the law of each U.S. state.[3]

    History of real estate

    [edit]

    The natural right of a person to own property as a concept can be seen as having roots in Roman law as well as Greek philosophy.[4] The profession of appraisal can be seen as beginning in England during the 1500s, as agricultural needs required land clearing and land preparation. Textbooks on the subject of surveying began to be written and the term "surveying" was used in England, while the term "appraising" was more used in North America.[5] Natural law which can be seen as "universal law" was discussed among writers of the 15th and 16th century as it pertained to "property theory" and the inter-state relations dealing with foreign investments and the protection of citizens private property abroad. Natural law can be seen as having an influence in Emerich de Vattel's 1758 treatise The Law of Nations which conceptualized the idea of private property.[6]

    One of the largest initial real estate deals in history known as the "Louisiana Purchase" happened in 1803 when the Louisiana Purchase Treaty was signed. This treaty paved the way for western expansion and made the U.S. the owners of the "Louisiana Territory" as the land was bought from France for fifteen million dollars, making each acre roughly 4 cents.[7] The oldest real estate brokerage firm was established in 1855 in Chicago, Illinois, and was initially known as "L. D. Olmsted & Co." but is now known as "Baird & Warner".[8] In 1908, the National Association of Realtors was founded in Chicago and in 1916, the name was changed to the National Association of Real Estate Boards and this was also when the term "realtor" was coined to identify real estate professionals.[9]

    The stock market crash of 1929 and the Great Depression in the U.S. caused a major drop in real estate worth and prices and ultimately resulted in depreciation of 50% for the four years after 1929.[10] Housing financing in the U.S. was greatly affected by the Banking Act of 1933 and the National Housing Act in 1934 because it allowed for mortgage insurance for home buyers and this system was implemented by the Federal Deposit Insurance as well as the Federal Housing Administration.[11] In 1938, an amendment was made to the National Housing Act and Fannie Mae, a government agency, was established to serve as a secondary market for mortgages and to give lenders more money in order for new homes to be funded.[12]

    Title VIII of the Civil Rights Act in the U.S., which is also known as the Fair Housing Act, was put into place in 1968 and dealt with the incorporation of African Americans into neighborhoods as the issues of discrimination were analyzed with the renting, buying, and financing of homes.[13] Internet real estate as a concept began with the first appearance of real estate platforms on the World Wide Web (www) and occurred in 1999.

    Residential real estate

    [edit]

    Residential real estate may contain either a single family or multifamily structure that is available for occupation or for non-business purposes.[14]

    Residences can be classified by and how they are connected to neighbouring residences and land. Different types of housing tenure can be used for the same physical type. For example, connected residences might be owned by a single entity and leased out, or owned separately with an agreement covering the relationship between units and common areas and concerns.[15]

    According to the Congressional Research Service, in 2021, 65% of homes in the U.S. are owned by the occupier.[16]

    Single-family detached house in Essex, Connecticut, United States
    Townhouses in Victoria, Australia
    Major categories
    • Attached / multi-unit dwellings
      • Apartment (American English) or Flat (British English) – An individual unit in a multi-unit building. The boundaries of the apartment are generally defined by a perimeter of locked or lockable doors. Often seen in multi-story apartment buildings.
      • Multi-family house – Often seen in multi-story detached buildings, where each floor is a separate apartment or unit.
      • Terraced house (a.k.a. townhouse or rowhouse) – A number of single or multi-unit buildings in a continuous row with shared walls and no intervening space.
      • Condominium (American English) – A building or complex, similar to apartments, owned by individuals. Common grounds and common areas within the complex are owned and shared jointly. In North America, there are townhouse or rowhouse style condominiums as well. The British equivalent is a block of flats.
      • Housing cooperative (a.k.a. co-op) – A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit. Majority of housing in Indian metro cities are of these types.
      • Tenement – A type of building shared by multiple dwellings, typically with flats or apartments on each floor and with shared entrance stairway access found in Britain.
    • Semi-detached dwellings
      • Duplex – Two units with one shared wall.
    • Detached dwellings
      • Bungalows
      • Split-level home
      • Mansions
      • Villas
      • Detached house or single-family detached house
      • Cottages
    • Portable dwellings
      • Mobile homes, tiny homes, or residential caravans – A full-time residence that can be (although might not in practice be) movable on wheels.
      • Houseboats – A floating home
      • Tents – Usually temporary, with roof and walls consisting only of fabric-like material.

    Other categories

    • Chawls
    • Havelis
    • Igloos
    • Huts

    The size of havelis and chawls is measured in Gaz (square yards), Quila, Marla, Beegha, and acre.

    See List of house types for a complete listing of housing types and layouts, real estate trends for shifts in the market, and house or home for more general information.

    Real estate and the environment

    [edit]

    Real estate can be valued or devalued based on the amount of environmental degradation that has occurred. Environmental degradation can cause extreme health and safety risks. There is a growing demand for the use of site assessments (ESAs) when valuing a property for both private and commercial real estate.[17]

    Environmental surveying is made possible by environmental surveyors who examine the environmental factors present within the development of real estate as well as the impacts that development and real estate has on the environment.

    Green development is a concept that has grown since the 1970s with the environmental movement and the World Commission on Environment and Development. Green development examines social and environmental impacts with real estate and building. There are 3 areas of focus, being the environmental responsiveness, resource efficiency, and the sensitivity of cultural and societal aspects. Examples of Green development are green infrastructure, LEED, conservation development, and sustainability developments.

    Real estate in itself has been measured as a contributing factor to the rise in green house gases. According to the International Energy Agency, real estate in 2019 was responsible for 39 percent of total emissions worldwide and 11 percent of those emissions were due to the manufacturing of materials used in buildings.[18]

    Development

    [edit]

    Real estate development involves planning and coordinating of housebuilding, real estate construction or renovation projects.[19] Real estate development can be less cyclical than real estate investing.[20]

    Investment

    [edit]

    In markets where land and building prices are rising, real estate is often purchased as an investment, whether or not the owner intends to use the property. Often investment properties are rented out, but "flipping" involves quickly reselling a property, sometimes taking advantage of arbitrage or quickly rising value, and sometimes after repairs are made that substantially raise the value of the property. Luxury real estate is sometimes used as a way to store value, especially by wealthy foreigners, without any particular attempt to rent it out. Some luxury units in London and New York City have been used as a way for corrupt foreign government officials and business people from countries without strong rule of law to launder money or to protect it from seizure.[21] Investment in real estate can be categorized by financial risk into core, value-added, and opportunistic.[22]

    Professionals

    [edit]
    • Real estate agent – North America
    • Estate agent – United Kingdom

    See also

    [edit]
    • Environmental Surveying
    • Green Development
    • Phase I environmental site assessment
    • Commercial real estate
    • Estate (land)
    • Extraterrestrial real estate
    • Fractional financing
    • Land lot
    • Real estate business
    • Real estate economics
    • Right to property

    References

    [edit]
    1. ^ "Real estate": Oxford English Dictionary online: Retrieved September 18, 2011
    2. ^ James Chen (May 2, 2019). "What Is Real Estate?". investopedia.com. Archived from the original on August 18, 2000. Retrieved May 13, 2019.
    3. ^ a b Real Estate. Funk & Wagnalls New World Encyclopedia, 1. 2018.
    4. ^ Alvik, Ivar (2018). "Protection of Private Property in the Early Law of Nations". Journal of the History of International Law. 20 (2): 220. doi:10.1163/15718050-19041026. S2CID 158672172.
    5. ^ Klaasen, R. L. (1976). "Brief History of Real Estate Appraisal and Organizations". Appraisal Journal. 44 (3): 376–381.
    6. ^ Alvik, Ivar (2018). "Protection of Private Property in the Early Law of Nations". Journal of the History of International Law. 20 (2): 218–227. doi:10.1163/15718050-19041026. S2CID 158672172.
    7. ^ "Louisiana Purchase: Primary Documents in American History". Library of Congress Research Guides. Archived from the original on 2022-06-25. Retrieved 2022-05-18.
    8. ^ Richardson, Patricia (June 2, 2003). "Father-son team scores big at home; Nearly 150 years old, family-owned Baird & Warner Inc. is a dominant force in the area's residential real estate industry, and shows no signs of slowing down or selling out". Crain's Chicago Business.
    9. ^ "History of National Association of Realtors". National Association of Realtors. 13 January 2012. Archived from the original on 13 May 2022. Retrieved 18 May 2022.
    10. ^ Nicholas, T.; Scherbina, A. (2013). "Real Estate Prices During the Roaring Twenties and the Great Depression". Real Estate Economics, 41. 2: 280.
    11. ^ Greer, J. L. (2014). "Historic Home Mortgage Redlining in Chicago". Journal of the Illinois State Historical Society. 107 (2): 204–233. doi:10.5406/jillistathistsoc.107.2.0204.
    12. ^ "A Brief History of the Housing Government-Sponsored Enterprises" (PDF). Federal Housing Finance Agency – OIG. Archived (PDF) from the original on 2023-03-08. Retrieved 2022-05-18.
    13. ^ Taylor, K. Y. (2018). "How Real Estate Segregated America". Dissent. 65 (4): 23–24. doi:10.1353/dss.2018.0071. S2CID 149616841.
    14. ^ "Title 16. Conservation; Chapter 1. National Parks, Military Parks, Monuments, and Seashores; Minute Man National Historical Park". US Legal. Archived from the original on 2017-07-08. Retrieved 2015-10-04.
    15. ^ Kimberley Amadeo (March 28, 2019). "Real Estate, What It Is and How It Works". thebalance.com. Archived from the original on May 13, 2019. Retrieved May 13, 2019.
    16. ^ "Introduction to U.S. Economy: Housing Market" (PDF). Congressional Research Service. Archived from the original on 2022-07-29. Retrieved 2022-05-18.cite web: CS1 maint: bot: original URL status unknown (link)
    17. ^ Cutting, Robert H.; Calhoun, Lawrence B.; Hall, Jack C. (2012). "'Location, Location, Location' Should Be 'Environment, Environment, Environment': A Market-Based Tool to Simplify Environmental Considerations in Residential Real Estate". Golden Gate University Environmental Law Journal.
    18. ^ "Global status report for buildings and construction". International Energy Agency. 2019.
    19. ^ Frej, Anne B; Peiser, Richard B. (2003). Professional Real Estate Development: The ULI Guide to the Business (2 ed.). Urban Land Institute. p. 3. ISBN 0874208947. OCLC 778267123.
    20. ^ Geltner, David, Anil Kumar, and Alex M. Van de Minne. "Riskiness of real estate development: A perspective from urban economics and option value theory." Real Estate Economics 48.2 (2020): 406–445.
    21. ^ "Why Manhattan's Skyscrapers Are Empty". The Atlantic. 16 Jan 2020. Archived from the original on 13 April 2021. Retrieved 13 April 2021.
    22. ^ Garay, Urbi, Investment Styles, Portfolio Allocation, and Real Estate Derivatives (2016). Garay, U. “Investment Styles, Portfolio Allocation, and Real Estate Derivatives.” In Kazemi, H.; Black, K.; and D. Chambers (Editors), Alternative Investments: CAIA Level II, Chapter 16, Wiley Finance, 3rd Edition, 2016, pp. 401–421.
    [edit]
    • The dictionary definition of real estate at Wiktionary
    • Quotations related to Real estate at Wikiquote

     

    Real estate makes up the largest asset class in the world. Much larger than bonds and stocks, which respectively rank second and third by total market cap.

    Real estate investing involves the purchase, management and sale or rental of real estate for profit. Someone who actively or passively invests in real estate is called a real estate entrepreneur or a real estate investor. In contrast, real estate development is building, improving or renovating real estate.

    History

    [edit]

    During the 1980s, real estate investment funds became increasingly involved in international real estate development. This shift led to real estate becoming a global asset class. Investing in real estate in foreign countries often requires specialized knowledge of the real estate market in that country. As international real estate investment became increasingly common in the early 21st century, the availability and quality of information regarding international real estate markets increased.[1] Real estate is one of the primary areas of investment in China, where an estimated 70% of household wealth is invested in real estate.[2]

    Overview

    [edit]

    Types of real estate investments

    [edit]

    Real estate investing can be divided according to level of financial risk into core, value-added, and opportunistic.[3] Real estate is divided into several broad categories, including residential property, commercial property and industrial property.[4]

    Valuation

    [edit]

    Real estate markets in most countries are not as organized or efficient as markets for other, more liquid investment instruments. Individual properties are unique to themselves and not directly interchangeable, which makes evaluating investments less certain. Unlike other investments, real estate is fixed in a specific location and derives much of its value from that location. With residential real estate, the perceived safety of a neighbourhood and the number of services or amenities nearby can increase the value of a property. For this reason, the economic and social situation in an area is often a major factor in determining the value of its real estate.[5]

    Property valuation is often the preliminary step taken during a real estate investment. Information asymmetry is commonplace in real estate markets, where one party may have more accurate information regarding the actual value of the property. Real estate investors typically use a variety of real estate appraisal techniques to determine the value of properties before purchase. This typically includes gathering documents and information about the property, inspecting the physical property, and comparing it to the market value of similar properties.[6] A common method of valuing real estate is by dividing its net operating income by its capitalization rate, or CAP rate.[7]

    Numerous national and international real estate appraisal associations exist to standardize property valuation. Some of the larger of these include the Appraisal Institute, the Royal Institution of Chartered Surveyors and the International Valuation Standards Council.[6]

    Investment properties are often purchased from a variety of sources, including market listings, real estate agents or brokers, banks, government entities such as Fannie Mae, public auctions, sales by owners, and real estate investment trusts.

    Financing

    [edit]

    Real estate assets are typically expensive, and investors will generally not pay the entire amount of the purchase price of a property in cash. Usually, a large portion of the purchase price will be financed using some sort of financial instrument or debt, such as a mortgage loan collateralized by the property itself. The amount of the purchase price financed by debt is referred to as leverage. The amount financed by the investor's own capital, through cash or other asset transfers, is referred to as equity. The ratio of leverage to total appraised value (often referred to as "LTV", or loan to value for a conventional mortgage) is one mathematical measure of the risk an investor is taking by using leverage to finance the purchase of a property. Investors usually seek to decrease their equity requirements and increase their leverage, so that their return on investment is maximized. Lenders and other financial institutions usually have minimum equity requirements for real estate investments they are being asked to finance, typically on the order of 20% of appraised value. Investors seeking low equity requirements may explore alternate financing arrangements as part of the purchase of a property (for instance, seller financing, seller subordination, private equity sources, etc.)

    If the property requires substantial repair, traditional lenders like banks will often not lend on a property and the investor may be required to borrow from a private lender using a short-term bridge loan like a hard money loan. Hard money loans are usually short-term loans where the lender charges a much higher interest rate because of the higher-risk nature of the loan. Hard money loans are typically at a much lower loan-to-value ratio than conventional mortgages.

    Some real estate investment organizations, such as real estate investment trusts (REITs) and some pension funds and hedge funds, have large enough capital reserves and investment strategies to allow 100% equity in the properties that they purchase. This minimizes the risk which comes from leverage but also limits potential return on investment.

    By leveraging the purchase of an investment property, the required periodic payments to service the debt create an ongoing (and sometimes large) negative cash flow beginning from the time of purchase. This is sometimes referred to as the carry cost or "carry" of the investment. To be successful, real estate investors must manage their cash flows to create enough positive income from the property to at least offset the carry costs.[citation needed]

    In the United States, with the signing of the JOBS Act in April 2012 by President Obama, there was an easing on investment solicitations. A newer method of raising equity in smaller amounts is through real estate crowdfunding which can pool accredited and non-accredited investors together in a special purpose vehicle for all or part of the equity capital needed for the acquisition. Fundrise was the first company to crowdfund a real estate investment in the United States.[8][9]

    Sources of investment returns

    [edit]

    Real estate properties may generate revenue through a number of means, including net operating income, tax shelter offsets, equity build-up, and capital appreciation. Net operating income is the sum of all profits from rents and other sources of ordinary income generated by a property, minus the sum of ongoing expenses, such as maintenance, utilities, fees, taxes, and other expenses. Rent is one of the main sources of revenue in commercial real estate investment. Tenants pay an agreed upon sum to landlords in exchange for the use of real property, and may also pay a portion of upkeep or operating expenses on the property.[10]

    Tax shelter offsets occur in one of three ways: depreciation (which may sometimes be accelerated), tax credits, and carryover losses which reduce tax liability charged against income from other sources for a period of 27.5 years. Some tax shelter benefits can be transferable, depending on the laws governing tax liability in the jurisdiction where the property is located. These can be sold to others for a cash return or other benefits.

    Equity build-up is the increase in the investor's equity ratio as the portion of debt service payments devoted to principal accrue over time. Equity build-up counts as positive cash flow from the asset where the debt service payment is made out of income from the property, rather than from independent income sources.

    Capital appreciation is the increase in the market value of the asset over time, realized as a cash flow when the property is sold. Capital appreciation can be very unpredictable unless it is part of a development and improvement strategy. The purchase of a property for which the majority of the projected cash flows are expected from capital appreciation (prices going up) rather than other sources is considered speculation rather than investment. Research results that found that real estate firms are more likely to take a smaller stake in larger assets when investing abroad (Mauck & Price, 2017).

    Foreclosure investment

    [edit]

    Some individuals and companies focus their investment strategy on purchasing properties that are in some stage of foreclosure. A property is considered in pre-foreclosure when the homeowner has defaulted on their mortgage loan. Formal foreclosure processes vary by state and may be judicial or non-judicial, which affects the length of time the property is in the pre-foreclosure phase. Once the formal foreclosure processes are underway, these properties can be purchased at a public sale, usually called a foreclosure auction or sheriff's sale. If the property does not sell at the public auction, then ownership of the property is returned to the lender.[11] Properties at this phase are called Real Estate Owned, or REOs.

    Once a property is sold at the foreclosure auction or as an REO, the lender may keep the proceeds to satisfy their mortgage and any legal costs that they incurred minus the costs of the sale and any outstanding tax obligations.

    The foreclosing bank or lending institution has the right to continue to honor tenant leases (if there are tenants in the property) during the REO phase but usually, the bank wants the property vacant to sell it more easily.[12]

    Buy, rehab, rent and refinance

    [edit]

    Buy, rehab, rent, refinance (BRRR)[13] is a real estate investment strategy, used by real estate investors who have experience renovating or rehabbing properties to "flip" houses.[14] BRRR is different from "flipping" houses. Flipping houses implies buying a property and quickly selling it for a profit, with or without repairs. BRRR is a long-term investment strategy that involves renting out a property and letting it appreciate in value before selling it. Renting out a BRRR property provides a stable passive income source that is used to cover mortgage payments while home price appreciation increases future capital gains.[15]

    The phrase was slightly updated in a 2022 Bloomberg News article noting that BiggerPockets added "Repeat" to the end, making it "BRRRR" to describe a real estate investing strategy of Buy, Rehab, Rent, Refinance, Repeat.[16]

    Impact

    [edit]

    According to Lima et al. (2022), in Ireland, the financialization of rental housing, which includes the entry of institutional investors into urban rental housing markets, contributed to structural factors that create homelessness directly by worsening affordability and security in the private rental market, and indirectly by influencing state policy.[17][18] It was found that the history, politics, and geography of the REITs cause the collapse of Irelands market (Waldron, 2018).

    See also

    [edit]
    • Cash on cash return
    • Depreciation recapture
    • Internal rate of return
    • Investment company
    • Investment rating for real estate
    • Investors United (School of Real Estate Investing)
    • Real estate appraisal
    • Real estate investment trust (REIT)
    • Off-plan property
    • Wholesaling

    References

    [edit]
    1. ^ MacGregor, Bryan D.; Schulz, Rainer; Green, Richard K. (7 December 2018). Routledge Companion to Real Estate Investment. Routledge. ISBN 9781317687856.
    2. ^ Lau, Yvonne (2 December 2021). "China stores 70% of its wealth in real estate. Now, the property crisis is forcing investors to reconsider their favorite means of savings". Fortune.
    3. ^ Garay, Urbi, Investment Styles, Portfolio Allocation, and Real Estate Derivatives (2016). Garay, U. “Investment Styles, Portfolio Allocation, and Real Estate Derivatives.” In Kazemi, H.; Black, K.; and D. Chambers (Editors), Alternative Investments: CAIA Level II, Chapter 16, Wiley Finance, 3rd Edition, 2016, pp. 401–421.
    4. ^ Glickman, Edward (14 October 2013). An Introduction to Real Estate Finance. Academic Press. ISBN 978-0-12-378627-2.
    5. ^ Levy, Richard M. (5 November 2019). Introduction to Real Estate Development and Finance. Routledge. ISBN 978-0-429-89113-7.
    6. ^ a b Morri, Giacomo; Benedetto, Paolo (9 July 2019). "Introduction to Property Valuation". Commercial Property Valuation: Methods and Case Studies. John Wiley & Sons. ISBN 978-1-119-51215-8.
    7. ^ Glickman, Edward (14 October 2013). An Introduction to Real Estate Finance. Academic Press. p. 129. ISBN 978-0-12-378627-2.
    8. ^ "Fundrise Adds Big Name Investors Including Ratner, Elghanayan & Guggenheim: Funding Now at $38 Million". 26 September 2014.
    9. ^ Gage, Deborah (26 September 2014). "Renren-Backed Fundrise Bulks up in Real Estate Crowdfunding Sector". Wall Street Journal.
    10. ^ Glickman, Edward (14 October 2013). An Introduction to Real Estate Finance. Academic Press. pp. 95–107. ISBN 978-0-12-378627-2.
    11. ^ Lex Levinrad (17 December 2010). "Investing in Foreclosures For Beginners". Distressed Real Estate Institute. Archived from the original on 2 January 2013. Retrieved 31 December 2012.
    12. ^ Portman, Janet (7 February 2008). "Foreclosure causes heartache for renters". Inman News. Retrieved 24 February 2008.
    13. ^ Eisen, Ben (9 December 2018). "Housing Slowdown Unnerves the Fix-and-Flip Crowd". WSJ. Retrieved 15 October 2019.
    14. ^ "How young investors are chasing early retirement". Albany Business Review. Retrieved 15 October 2019.
    15. ^ Greene, David (16 May 2019). Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple. pp. 13, 15.
    16. ^ Gopal, Prashant (25 March 2022). "Homeowners Spin Soaring Prices Into U.S. Real Estate Riches". Bloomberg.com. Retrieved 28 March 2023.
    17. ^ Lima, Valesca; Hearne, Rory; Murphy, Mary P. (11 May 2022). "Housing financialisation and the creation of homelessness in Ireland" (PDF). Housing Studies: 1–24. doi:10.1080/02673037.2022.2042493.
    18. ^ Lima, Valesca (2 January 2023). "The political frame of a housing crisis: Campaigning for the right to housing in Ireland" (PDF). Journal of Civil Society. 19 (1): 37–56. doi:10.1080/17448689.2023.2206158.

     

     

    Lawn signs advertising houses for sale

    Real estate agents and real estate brokers are people who represent sellers or buyers of real estate or real property. While a broker may work independently, an agent usually works under a licensed broker to represent clients.[1] Brokers and agents are licensed by the state to negotiate sales agreements and manage the documentation required for closing real estate transactions.

    Categories of representation

    [edit]

    A real estate broker typically receives a real estate commission for successfully completing a sale. Across the U.S, this commission can generally range between 5-6% of the property's sale price for a full-service broker but this percentage varies by state and even region.[2]

    Real estate licensing and education

    [edit]

    In most jurisdictions in the United States, a person must have a license to perform licensed activities, and these activities are defined within the statutes of each state. The main feature of the requirement for having a license to perform those activities is the work done "for compensation". Hence, hypothetically, if a person wants to help a friend out in either selling or buying a property, and no compensation of any kind is expected in return, then a license is not needed to perform all the work. However, since most people would expect to be compensated for their efforts and skills, a license would be required by law before a person may receive remuneration for services rendered as a real estate broker or agent. Unlicensed activity is illegal and the state real estate commission has the authority to fine people who are acting as real estate licensees, but buyers and sellers acting as principals in the sale or purchase of real estate are usually not required to be licensed. It is important to note that in some states, lawyers handle real estate sales for compensation without being licensed as brokers or agents. However, even lawyers can only perform real estate activities that are incidental to their original work as a lawyer. It cannot be the case that a lawyer can become a seller's selling agent if that is all the service that is being requested by the client. Lawyers would still need to be licensed as a broker if they wish to perform licensed activities. Nevertheless, lawyers do get a break in the minimum education requirements (for example, 90 hours in Illinois).[3]

    Some other states have recently eliminated the salesperson's license, instead, all licensees in those states automatically earn their broker's license.

    The term "agent" is not to be confused with salesperson or broker. An agent is simply a licensee that has entered into an agency relationship with a client. A broker can also be an agent for a client. It is commonly the firm that has the actual legal relationship with the client through one of their sales staff, be they salespersons or brokers.

    In all states, the real estate licensee must disclose to prospective buyers and sellers the nature of their relationship [4]

    Specific representation laws

    [edit]

    Some U.S. state real estate commissions – notably Florida's[5] after 1992 (and extended in 2003) and Colorado's[6] after 1994 (with changes in 2003) created the option of having no agency or fiduciary relationship between brokers and sellers or buyers.

    As noted by the South Broward Board of Realtors, Inc. in a letter to State of Florida legislative committees:

    "The Transaction Broker crafts a transaction by bringing a willing buyer and a willing seller together and provides the legal documentation of the details of the legal agreement between the same. The Transaction Broker is not a fiduciary of any party, but must abide by the law as well as professional and ethical standards." (such as NAR Code of Ethics).

    The result was that, in 2003, Florida created a system where the default brokerage relationship had "all licensees ... operating as transaction brokers, unless a single agent or no brokerage relationship is established, in writing, with the customer"[7][8] and the statute required written disclosure of the transaction brokerage relationship to the buyer or seller customer only through July 1, 2008.

    In the case of both Florida[8] and Colorado,[6] dual agency and sub-agency (where both listing and selling agents represent the seller) no longer exist.

    Other brokers and agents may focus on representing buyers or tenants in a real estate transaction. However, licensing as a broker or salesperson authorizes the licensee to legally represent parties on either side of a transaction and providing the necessary documentation for the legal transfer of real property. This business decision is for the licensee to decide. They are fines for people acting as real estate agents when not licensed by the state.

    In the United Kingdom, an estate agent is a person or business entity whose business is to market real estate on behalf of clients. There are significant differences between the actions, powers, obligations, and liabilities of brokers and estate agents in each country, as different countries take markedly different approaches to the marketing and selling of real property.

    The difference between salespersons and brokers

    [edit]

    Before the Multiple Listing Service (MLS) was introduced in 1967, when brokers (and their licensees) only represented sellers by providing a service to provide legal documentation on the transfer real property, the term "real estate salesperson" may have been more appropriate than it is today, given the various ways that brokers and licensees now help buyers through the legal process of transferring real property. Legally, however, the term "salesperson" is still used in many states to describe a real estate licensee.[citation needed]

    Real estate broker (or, in some states, qualifying broker)

    [edit]

    After gaining some years of experience in real estate sales, a salesperson may decide to become licensed as a real estate broker (or Principal/qualifying broker) in order to own, manage, or operate their own brokerage. In addition, some states allow college graduates to apply for a broker's license without years of experience. College graduates fall into this category once they have completed the state-required courses as well. California allows licensed attorneys to become brokers upon passing the broker exam without having to take the requisite courses required of an agent. Commonly more coursework and a broker's state exam on real estate law must be passed. Upon obtaining a broker's license, a real estate agent may continue to work for another broker in a similar capacity as before (often referred to as a broker associate or associate broker) or take charge of their own brokerage and hire other salespersons (or broker licensees). Becoming a branch office manager may or may not require a broker's license. Some states allow licensed attorneys to become real estate brokers without taking any exam. In some states, there are no "salespeople" as all licensees are brokers.[9]

    Types of services that a broker can provide

    [edit]

    Real Estate Services are also called trading services [10]

    Real estate brokers and sellers

    [edit]

    Flat-fee real estate agents

    [edit]

    Flat-fee real estate agents charge a seller of a property a flat fee, $500 for example,[11] as opposed to a traditional or full-service real estate agent who charges a percentage of the sale price. In exchange, the seller's property will appear in the multiple listing service (MLS), but the seller will represent him or herself when showing the property and negotiating a sales price.[11] The result is the seller pays less commission overall (roughly half) when the property sells.[11] This is because a seller will pay a percentage of the sales price to a buyer's agent but not have to pay a percentage to a seller's agent (because there isn't one; the seller is representing himself).

    Brokerage commissions

    [edit]

    In consideration of the brokerage successfully finding a buyer for the property, a broker anticipates receiving a commission for the services the brokerage has provided. Usually, the payment of a commission to the brokerage is contingent upon finding a buyer for the real estate, the successful negotiation of a purchase contract between the buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller. Under common law, a real estate broker is eligible to receive their commission, regardless of whether the sale actually takes place, once they secure a buyer who is ready, willing, and able to purchase the dwelling.[12]

    Economist Steven D. Levitt famously argued in his 2005 book Freakonomics that real estate brokers have an inherent conflict of interest with the sellers they represent because their commission gives them more motivation to sell quickly than to sell at a higher price. Levitt supported his argument with a study finding brokers tend to put their own houses on the market for longer and receive higher prices for them compared to when working for their clients. He concluded that broker commissions will reduce in future.[13] A 2008 study by other economists found that when comparing brokerage without listing services, brokerage significantly reduced the average sale price.[14]

    RESPA

    [edit]

    Real estate brokers who work with lenders can not receive any compensation from the lender for referring a residential client to a specific lender. To do so would be a violation of a United States federal law known as the Real Estate Settlement Procedures Act (RESPA). RESPA ensures that buyers and sellers are given adequate notice of the Real Estate settlement process.[15]

    Realtor

    [edit]

    In the United States, the term realtor is trademarked by the National Association of Realtors, which uses it to refer to its active members, who may be real estate agents or brokers.[16][17][18] In Canada, the trademark is used by members of the Canadian Real Estate Association.[19] Both organizations advise against the use of realtor as a generic synonym for real estate agent.[19]

    Continuing education

    [edit]

    States issue licenses for an annual or multi-year period and require real estate agents and brokers to complete continuing education prior to renewing their licenses. For example, California licensees must complete 45 hours of continuing education every 4 years in topics such as agency, trust fund handling, consumer protection, fair housing, ethics, and risk management.[20]

    Organizations

    [edit]

    Several notable groups exist to promote the real estate industry and to assist professionals.

    • The National Association of Realtors (NAR)
      • The Realtor Political Action Committee (RPAC) is the lobbying arm of the NAR.
    • The National Association of Real Estate Brokers (NAREB)
    • The Real Estate Institute of Canada (REIC)[21][22]
    • The Real Estate Roundtable[23]

    Notable agents and brokers

    [edit]
    • Alice Mason[24]

    See also

    [edit]
    • Buyer brokerage
    • Closing (real estate)
    • Estate (land)
    • Exclusive buyer agent
    • Flat-fee MLS
    • Home inspection
    • Index of real estate articles
    • Investment rating for real estate
    • Listing contract
    • Mortgage broker
    • Property manager
    • Real estate contract
    • Real estate development
    • Real estate investing
    • Real estate settlement company
    • Strata management

    References

    [edit]
    1. ^ "Real Estate Professionals Explained: Agent, Broker, REALTOR". Real Estate News and Advice | Realtor.com. 2014-03-10. Retrieved 2018-12-27.
    2. ^ "How Much Is Real Estate Agent Commission?". Bankrate. Retrieved 2018-12-20.
    3. ^ "FAQs". www.illinoisrealtors.org. Illinois Realtors. Retrieved August 16, 2018.
    4. ^ "Realtor Code of Ethics - Disclosure" (PDF). Real Estate Association Standards of Business Practice.
    5. ^ "Statutes & Constitution :View Statutes : Online Sunshine". Leg.state.fl.us. Retrieved 2014-02-10.
    6. ^ a b "Outline of types of representation available in Colorado, including Transaction Brokerage" (PDF). Dora.state.co.us. Retrieved 2014-02-10.
    7. ^ Evans, Blanche (2 July 2003). "Florida Implements Default Transactikn Brokerage Statute". realtytimes.com/. Realty Times. Retrieved 2 February 2014.
    8. ^ a b The 2007 Florida Statutes. Chapter 475 Real Estate Brokers — Part I; Real Estate Brokers, Sales Associates, and Schools (ss. 475.001-475.5018), Section 475.278 Authorized brokerage relationships; presumption of transaction brokerage; required disclosures (1) Brokerage Relationships: (a) Authorized brokerage relationships. — A real estate licensee in this state may enter into a brokerage relationship as either a transaction broker or as a single agent with potential buyers and sellers. A real estate licensee may not operate as a disclosed or non-disclosed dual agent ... (b)Presumption of transaction brokerage. — It shall be presumed that all licensees are operating as transaction brokers unless a single agent or no brokerage relationship is established, in writing, with a customer."
    9. ^ "Real Estate Broker's License: Examination and Licensing Application Requirements". New Mexico Administrative Code. State of New Mexico Commission of Public Records. 21 January 2021.
    10. ^ "Real Estate Laws Website". BC Real Estate Laws - Pat 1 Trading Services.
    11. ^ a b c Quigley, John M. (2000). "A Decent Home: Housing Policy in Perspective". Brookings-Wharton Papers on Urban Affairs. 2000 (1): 53–88. CiteSeerX 10.1.1.369.6806. doi:10.1353/urb.2000.0011. ISSN 1533-4449. S2CID 154714417.
    12. ^ "Getting a Brokerage Commission Paid | New York Law Journal".
    13. ^ Daniel Gross (20 February 2005). "Why a Real Estate Agent May Skip the Extra Mile". The New York Times. Archived from the original on 29 May 2015.
    14. ^ B. Douglas Bernheim; Jonathan Meer (13 January 2012). "Do Real Estate Brokers Add Value When Listing Services Are Unbundled?". The National Bureau of Economic Research. Working Paper Series. doi:10.3386/w13796. Retrieved 3 September 2016.
    15. ^ "CFPB consumer laws and regulations RESPA" (PDF). Consumer Financial Protection Bureau. Retrieved 13 October 2021.
    16. ^ Buch, Clarissa (20 April 2023). "What Is a Realtor? A Member of the National Association of Realtors". Realtor.com. National Association of Realtors. Retrieved 17 June 2023.
    17. ^ "Understanding the Difference Between a Realtor and a Real Estate Agent". The CE Shop. Retrieved 19 June 2023.
    18. ^ Colestock, Stephanie (August 13, 2021). "Realtor vs. real estate agent: What's the difference?". Fox Business. Retrieved 20 June 2023.
    19. ^ a b "Using the REALTOR® Trademark in Advertisements - CREA". 12 November 2020.
    20. ^ "Continuing Education Requirements". Ca.gov. California Department of Real Estate. Retrieved 26 June 2023.
    21. ^ "Professional Recognition of our Programs". Real Estate Division at Sauder, UBC. January 8, 2019.
    22. ^ "Real Estate Institute of Canada (REIC)". Thomson Reuters Canada Limited. Retrieved 8 January 2019.
    23. ^ "Lobbying Spending Database: National Assn of Realtors : 2007". Retrieved 2008-10-25.
    24. ^ Kodé, Anna (10 November 2024). "A Real Estate Queen and the Secret She Couldn't Keep Hidden". New York Times.
    [edit]
    • Media related to Real estate agents at Wikimedia Commons

     

    Reviews for


    Matt Bigach

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    Reviews for Danny Buys Houses


    William Porter

    (5)

    I have been working with Danny for a very long time (close to 15 years) . On every transaction that we have done, he is professional, quick and proficient. He is also very patience and thoughtful to the owners concerns and needs. I would definitely recommend him to anyone looking to sell a home. You will not be s disappointed!

    Kay Barnes

    (5)

    I had a fantastic experience working with Danny Buys Houses in San Antonio, Texas! From start to finish, the process was smooth, transparent, and stress-free. Danny and his team were professional, honest, and extremely knowledgeable about the local real estate market. If you're looking to sell your house fast in San Antonio, TX, I highly recommend Danny Buys Houses. They made what could have been a complicated process feel simple and straightforward. Whether you’re dealing with foreclosure, an inherited property, or just need a fast home sale, this team is the real deal. I would definitely work with them again in the future!

    Jessica Middleton

    (5)

    If you're looking to sell your house fast, definitely call Danny. He and his team make the entire process seamless and stress-free. He is local, credible, and has 20+ years of experience! Keep up the awesome work, Danny!

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    Frequently Asked Questions

    In San Antonio, TX, real estate entities can protect themselves through forming legal structures such as Limited Liability Companies (LLCs), corporations, or partnerships. These structures help separate personal assets from business liabilities and offer varying degrees of protection against lawsuits or debts incurred by the business.
    Forming an LLC provides cash home buyers with limited liability protection, meaning that personal assets are typically shielded from any financial obligations or legal actions taken against the business. Additionally, LLCs offer flexibility in management and tax benefits compared to other corporate structures.
    Yes, cash home buyers should consider obtaining general liability insurance and professional liability insurance to cover potential risks associated with property transactions. These policies can provide coverage for bodily injury claims, property damage, and errors or omissions during the transaction process.
    Real estate entities should consult with a local attorney to understand Texass specific laws regarding real estate transactions and entity formation. They should also register their business appropriately with state authorities, maintain proper documentation and records, obtain necessary licenses or permits, and regularly review their legal structure for optimal liability protection.