ASDF

2. If a grantee obtains title insurance, what value, if any, is there in the covenant of seizin in a warranty deed?

If a grantee has title insurance, the covenant of seizing remains an indication that the grantor really believes that they hold good title. The title insurer can still bring action against the grantor of a false title, even though the grantee has been indemnified for loss of title and property.

2. The United States represents about 6 percent of the Earth's land surface, or approximately 2.3 billion acres. Who owns this land? What is the distribution of this land among the various uses (e.g., developed land, federal land, forestland)?

71% of US land is in non-federal rural land uses, 6% is developed land. Much of the undeveloped land is split 4 ways evenly between the federal gov't/water lands, cropland and Conservation Reserve Program, rangeland, and forestland. Lastly pastureland and other rural land consist of the last 6%.

2. A developer of a subdivision wants to preserve the open space and natural habitat that runs along the back portion of a series of large lots in the proposed subdivision. He is debating whether to use restrictive covenants to accomplish this or to create a habitat easement on the same space. What are the pros and cons of each choice?

A developer may choose to use restrictive covenants to limit the use of the land for environmental purposes, while maintaining the quality, stability, and value of the surrounding lots. Restrictive covenants are strictly private because only parties of interest can enforce the covenant. In the case of an isolated deed restriction, the owner who created the restriction or that owner's heirs are the only persons who can enforce the restriction. Court decisions frequently follow common law, which holds that property should be used productively, and favor fewer restrictions over the use of land. Whether the restriction is in an isolated deed or part of a general set of subdivision restrictions, the courts have been reluctant to maintain them for an unreasonably long time. Even in states where no time limit exists, courts may refuse to enforce restrictions due to changing neighborhood character, abandonment (neglect of enforcement), and changing public policy. In most states, it is difficult to maintain individual restrictive covenants for more than a few decades, and several states have enacted time limits of 20 years or so. On the other hand, the developer may choose to use a habitat easement on the property. A habitat easement can limit the use of the land for the specific purpose of protecting the environment. An easement in gross, defined as the right to use land for a specific, limited purpose unrelated to any adjacent parcel, will achieve the developer's objective. The easement can be transferred to another owner without the transfer of a parcel of land. The easement is less likely to "fade away." Courts are more likely to honor and protect the easement than a neglected restrictive covenant.

7. Some people in the real estate industry have suggested that it is good to require a title insurance commitment as evidence of title for rural property, but that it is satisfactory to use the less costly abstract with attorney's opinion as evidence of title for a residence in an urban subdivision. Discuss the merits or risks of this policy.

A platted urban subdivision effectively has a relatively short history in which title could become "clouded." The creation of the subdivision, by implication, represents a point in time where there was very little question about the status of title. Thus, only what has happened to the property subsequently may put marketable title at risk. This greatly shortens the portion of the title history that may contain threats to title. Thus, title insurance may not be as valuable as with unplatted land.

5. Why might it be advisable to require a survey in purchasing a 20-year-old home in an urban subdivision?

A survey can be useful, even in a fairly recent subdivision, to affirm that fences are not encroaching, or that an addition to a structure does not violate a setback. In addition, it is generally good for a purchaser to know the boundaries of the acquired property because often fences and shrubs can create false impressions of boundary locations.

4. How much of the wealth of a typical U.S. household is tied up in housing? How does this compare to the role that assets and investments play in the portfolios of U.S. households?

About a quarter (23%) of total US household wealth is tied up in housing whereas the next largest asset class, corporate stock and mutual fund stock is 17%.

2. A local businessman has applied for a permit to construct a bar that will feature "adult dancing" in a commercially zoned area in view of the entrance to your residential subdivision. As an owner of a $250,000 house within the subdivision, would you favor or oppose this development? What effect do you think it could have on the value of your property? If you were opposed, how could you fight approval of the permit?

Constructing an adult establishment near a residential area creates a negative externality to the surrounding neighborhood. The development will adversely affect home values in the residential subdivision. Opponents to the approval of the permit should argue that zoning laws should exist to protect the value and stability of single-family subdivisions, and homes unprotected by zoning risk a loss in property value if the business locates nearby. Various restrictions exist within the commercial zoning classification, and the adult bar should only be permitted in specific zoned areas that are located away from residential areas.

4. The traditional common law concept of the landlord-tenant relationship was that the landlord's obligation was simply to stay off the property and the tenant's obligation was to pay the rent. Explain why this is an obsolete arrangement for apartment residents in an urban society.

Historically, the common law application of a landlord-tenant relationship centered on agrarian relationships formed in pre-industrial England. Modern society views residential tenancy as the provision of services. It can be difficult or impossible for one tenant, alone, in an apartment complex to control pests or repair a roof, etc. Thus, the obligation of the landlord must be more than merely to "stay away" from the property. States have enacted elaborate residential landlord-tenant laws that take great strides in defining the rights and obligations of both parties under a residential lease. Laws address such matters as obligations for care and repair of the premises, rights of entry, handling of deposits, notification requirements, and many other matters.

6. Explain the role of government in real estate at the federal, state, and local level. Which has the most significant impact on real estate markets?

Local government probably plays the largest role when talking about real estate markets, since it can have a direct impact on the supply and cost of real estate through zoning codes and other land usage regulations. Next they affect the user markets and rental rates through imposing property taxes. Lastly the local government can affect the supply and quality of real estate in an area through the various services that they provide. Next the State government has probably the least impact on the real estate market they still affect it. Through licensing requirements of professionals and agents, states can control entry into real-estate occupations. Through statewide building codes they can affect the cost of building. Next they set up the provision of public services important to communities. Lastly the federal government can affect the real estate market in many ways. For example income tax policy can affect the value of real estate and incentive to invest in it. Housing subsidy programs and government programs such as fair housing and civil rights legislation can greatly influence the real estate market. Lastly large government financial agencies such as the Fed and FDIC can have a large impact on the real estate capital market.

7. Identify and describe the interaction of the three economic sectors that affect real estate value.

Local user markets compete for the currently available supply of real estate which affects the rental rates and expected cash flows from these properties, which in turn affects it's value. Next the capital markets are in charge of financing for the acquisition and development of real estate. As with any investment they have a required rate of return which affects the price at which they are willing to sell/rent the property for, thus affecting the value.

6. A friend has owned and operated a small recreational vehicle camp on a lake in Daytona Beach, Florida. It is close to the ocean and close to the Daytona Speedway, home of the Daytona 500 and a host of other prominent races. The occupants are very loyal, making reservations far in advance, and returning year after year. She is asking your thoughts on whether to continue the camp as a short-term rental operation, to convert it and sell the parking spaces as condominium parking spaces, or to convert to condominium timeshare lots What thoughts would you offer?

Maintaining ownership of the small recreational vehicle camp provides the owner continued control of the property, but she also retains responsibility for property management and expenses associated with running the camp. Converting the space to condominium parking would require an effective transfer of the property from your friend to the condominium association. The land on the lake would no longer belong to your friend, and she would lose any future use of the land. In addition, bylaws and a condominium declaration must be created. Time-share lots would divide the estate into separate time intervals. By creating timeshare condominium lots in a tenancy for years, the land could revert to your friend after a set number of years.

1. Assume that you own a small apartment building close to a major commercial street and a service station. You learn that there has been a major leak of underground storage tanks from the service station, and the gasoline has spread onto and below the surface of your property. Discuss sources of value loss to your property from the contamination.

Most importantly, as the owner, you might be responsible for the cleanup on the property despite not causing the contamination. Second, the potential resale value is reduced because the site is contaminated. Further, the site may be tarnished in the future, even if the hazardous materials were cleaned up.

5. A friend has an elderly mother who lives in a house adjacent to her church. The church is growing, and would welcome the opportunity to obtain her house for its use. She would like to support the needs of her church, but she doesn't want to move and feels strongly about owning her own home. On the other hand, your friend knows that she will not be able to remain in the house many more years, and will be faced with moving and selling within a few years. What options can you suggest as possible plans to explore?

One possible option is to unbundle the fee simple absolute into an ordinary life estate and remainder estate. The church can purchase a remainder estate while the owner retains a life estate. The owner thereby receives either additional income or, if the remainder is donated, a tax deduction. This simplifies the eventual settlement of her estate, while assuring the continued right to occupy her home. At the time of her death the remainder estate becomes a complete fee simple absolute owned by the church. Another possible option is an outright sale to the church and the creation of a tenancy for years in which the elderly mother rents the property from the church, creating a leasehold estate for a period of time.

3. Describe the value of U.S. real estate by comparing it to the values of other asset classes (e.g., stocks, bonds).

Real estate accounts for the single largest asset class in the US (22.6%). Followed closely by corporate equities (20.3%), then mortgage debt (13.6%), corporate & foreign bonds (11.5%), U.S. treasuries (10.1%), and municipal securities (3.7%).

real estate markets are different from the markets for other assets that trade in well-developed public markets.

Real estate markets differ from the markets for other assets that trade in well-developed public markets in two main ways, heterogeneity and immobility. The heterogeneity is caused by the vastly differing features and characteristics that varies from property to property. Whereas one of the key features that make securities and debt so liquid and easily tradable is their uniformity. Secondly housing is for the most part, immobile, and stuck in its original location, therefore it is subject to the changing environment around it and the owner cannot simply move their house. Next the real estate market is largely localized, whereas stocks and bonds are widely available and distributed globally. Next, the real estate market is highly segmented meaning that people are generally set upon the characteristics that they are searching for and thus easily identified in segments. Lastly, this market is privately negotiated and incurs high transactions costs, since there is so much that goes into the appraisal and transaction of a single property.

3. Why are restrictive covenants a good idea for a subdivision? Can they have any detrimental effects on the subdivision or its residents? For example, are there any listed in the chapter that might have questionable effects on the value of a residence

Restrictive covenants are used most often in subdivision developments to ensure the quality, stability, and value of the lots. However, they can sometimes have detrimental effects on the subdivision. For example, adding a free standing garage or a chain link fence to one's residence may ideally increase the value, but the existence of restrictive covenants may limit a homeowner's ability to increase the property's value in that manner. Excessive restrictive covenants may diminish the property's value by effectively reducing the rights of the owner. Restrictive covenants may also become obsolete if the character of the neighborhood changes and hinder a property owner's rights.

1. Explain how rights differ from power or force, and from permission.

Rights have three characteristics. First, rights are claims or demands that our government is obligated to enforce. Second, rights are nonrevocable and cannot be canceled, ignored, or otherwise lessened by other private citizens. Third, rights are enduring and do not fade away with time.Rights are different from power because the government is obligated to honor and support the claims arising from rights. Government will not support claims without right, based merely on the use of force or threat. The government is obligated to defend property rights in subsequent generations, and it does not have the power to abandon this obligation. Unlike permission, which is revocable, rights are nonrevocable and cannot be taken away or lessened in stature by other private citizens.

4. Name at least six adverse (conflicting) claims to property or other title defects that will not be evident from a search of property records but which might be detected by inspection of the property and its occupants.

Six adverse or conflicting claims to property that will not appear in a search of records include these: (1) claim to adverse possession, (2) easement by prescription, (3) easement of necessity, (4) easement by estoppel, (5) leasehold claim, and (6) easement for extraction of crops or mineral rights.

7. In the United States the bundle of rights called real property seems to have gotten smaller in recent decades. Explain what has caused this. Why is it good? Why is it bad?

The bundle of rights has gotten smaller in recent decades because of the government's increased use of its police power. The government has the duty to protect the health, safety, and welfare of the American people. Additionally, after the 1970's, the consciousness of "Spaceship Earth" alerted many Americans to environmental concerns and the potential adverse environmental and ecological effects of some land uses. On the other hand, excessive regulations interfere with property owners' rights to do as they please with their property. If the exercise of police power goes too far, it becomes a "taking," which requires just compensation.

3. The use of Torrens certificates, never large in the United States, has diminished in recent years. Explain how marketable title laws, recently adopted in many states, might have made Torrens certificates less interesting and useful.

The idea of a Torrens certificate was to eliminate the need for a search of historical public records to affirm chain of title. Marketable title laws may have accomplished this objective in that they usually establish a "root" transaction that generally is taken for face value as the status of title at that time (say, 30 years earlier). Unless there is evidence to the contrary, title search need not reach back earlier than the "root" transaction. Thus, much of the value of the Torrens certificate is accomplished without the administrative costs of maintaining an elaborate certificate updating process.

1. The term real estate can be used in three fundamental ways. List these three alternative uses or definitions.

The term real estate is used in three fundamental ways. First, its most common use is to identify the tangible assets of land and buildings. Second, it is used to denote the "bundle" of rights associated with the ownership and use of the physical assets. Finally, the term real estate may be used when referring to the industry or business activities related to the acquisition, operation, and disposition of the physical assets.

1. Explain how title insurance works. What risks does it cover? Who pays for the insurance, and when? What common exceptions does it make?

Title insurance protects an owner (or lender) from legal challenges or complications with title. Title insurance protects a grantee (or mortgagee) against the legal costs of defending title, and against loss of the property in case of an unsuccessful defense. It cannot save a title that is genuinely false. However, it indemnifies the policyholder against litigation costs, and compensation for loss of the property, should that occur. In many localities it is customary for the seller to pay for title insurance, though this is negotiable. For a mortgage policy protecting a lender, the borrower pays. There are important limits or exceptions to title insurance. First, it is not hazard insurance; that is, it does not protect the owner from the threat of physical damage to the property. It only protects against legal attack on the owner's title. Second, title insurance typically excepts any facts that would be revealed by an inspection and survey of the property.