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REAL ESTATE BUSINESS

Lecture 2

Jan-May 2015

REAL ESTATE
1. Real property:

consist of freehold and/or leasehold


interest in land.
In addition to land real property includes any
buildings 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
This

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.

REAL ESTATE (5)


Interests:
Interests in land are rights over someones
land.
Interests entitles someone else ( not
necessarily the owner ) to specific right
over that land which may reduce the
estate owner enjoyment of the land.

TYPES OF LEGAL ESTATES


1 Freehold estates: ( fee simple absolute
possession)

It is a legal estate that is nearest to true


ownership that ordinary people can get. No one
has 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, it
is in possession allowing the owner to remain on
the land

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 is
limited 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 the


periods are short (weekly, monthly or yearly
tenancy)

COMPONENTS OF REAL
ESTATE (1)
i). Legal concept of land.
ii). improvements and fixtures

a) Legal concept of land


The 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/property
iii) right to exclude others from using the property
iv) right to dispose it by selling or giving it as a gift etc.

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 and
improvements becomes real 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.

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 called
improvements on land.

Improvement which tend to improve the land such as


drainage, grading, filling or providing utilities such as
water, sewage etc are called improvements to land as
they make or change the land to some form of economic or
public use

COMPONENTS OF REAL
ESTATE (4)
b) Improvements and Fixtures(cont)

Improvements on land and improvements to land together


they form what is referred as on- 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.

CHARACTERISTICS OF REAL
PROPERTY
Physical Characteristics:
Land and its improvement is immobile
indestructible and not homogenous
1.

2. Economic Characteristics :
Property is highly priced commodity; expensive
Purchase generally requires borrowed funds.
Search and information gathering costs. The
purchase /buyer will need to search for
information which is scattered before making
decision to buy.

CHARACTERISTICS OF REAL
PROPERTY
2. Economic Characteristics (cont)
Scarcity of the commodity ( land & other
properties)
Location economics , aspect of its location may
affects its value
Quantity and Quality of surrounding
structures/property may influence the value
Fixity; investment in property is fixed it can not
be moved or changed easily and have a long
physical and economic life.

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 .

REAL ESTATE BUSINESS (CONT)

Real estate business is very large and it involve


many people and organisations.

Phase in Real estate business


Phase 1 Preparation
Phase 2 Production
Phase 3 Distribution
Phase 4 Service

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.

1. REAL ESTATE AGENT (CONT)

1.1

Regulations:
National or local boards or associations
acts as parent, regulatory or trade
organizations.
The

purpose of each body is to promote


the profession, express the view of its
membership and to support code of ethics.

. 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 is
described 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.

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 id
offered 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.

REAL ESTATE AGENT (CONT )

1.3 Local Real Estate Agents:


Richard Ellis
Knight & Frank
Willy Kathurima Associates
Pam Property and Assets Management
Musta Properties
Premier Properties etc

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 the
others( loans from financial institution such as
banks)

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 .

2. REAL ESTATE LENDERS (CONT)


2.1 Services provided by a Lender;
The lender offers services to the buyers or
borrowers as follows

i) Obtain borrowers credit records to ensure the

borrower 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 the
borrowers employment and income.
iv) Obtain e title deed from attorney ordering the deed
and other legal necessary to transaction to take place .

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.

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 any
outstanding commitments and show whether
any other parties have interest in the property

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
.

6. PROPERTY MANAGER
Property

manager specializes in
management of real estate .
Property as an investment is income
producing asset hence a manager is
needed to collect rent , negotiate leases ,
supervise maintenance , reduce expenses
and advise the investor or property owner
on mattes related to the investment

6. PROPERTY MANAGER (CONT)

6.1Services provided by property Manager;


i) Collection of rent
ii) Letting out vacant units
iii) Pays mortgage for the owner
iv) Supervise maintenance
v) Maintain financial records by providing the
client with income and expense statement
periodically

OTHER PLAYERS IN REAL ESTATE

These includes developers. town planning


authorities , surveyors , contractor, insurance
companies 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 in
a supermarket or department store

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 estate
agent?