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FLORIDAReal Estate Principles, Practices & Law38th Edition | Linda L. Crawford
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FLORIDA
Linda L. Crawford38th Edition
Real Estate Principles, Practices & Law
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This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought.
President: Dr. Andrew Temte Chief Learning Officer: Dr. Tim Smaby Executive Director, Real Estate Education: Melissa Kleeman-Moy Development Editor: Christopher Kugler
FLORIDA REAL ESTATE PRINCIPLES, PRACTICES & LAW 38TH EDITION ©2015 Kaplan, Inc. Published by DF Institute, Inc., d/b/a Dearborn Real Estate Education 332 Front St. S., Suite 501 La Crosse, WI 54601
All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher.
Printed in the United States of America ISBN: 978-1-4754-2427-0 / 1-4754-2427-2 PPN: 1610-0138
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iii
Introduction v
CHAPTER 1 The Real Estate Business 1
CHAPTER 2 License Law and Qualifications for Licensure 15
CHAPTER 3 License Law Administration 39
CHAPTER 4 Authorized Relationships and Ethics 57
CHAPTER 5 Real Estate Brokerage Operations 79
CHAPTER 6 Complaints, Violations, and Penalties 111
CHAPTER 7 Federal and State Laws Pertaining to Real Estate 141
CHAPTER 8 Property Rights: Estates, Tenancies, and Multiple Ownership Interests 161
CHAPTER 9 Titles, Deeds, and Ownership Restrictions 181
CHAPTER 10 Legal Descriptions 205
CHAPTER 11 Real Estate Contracts 225
CHAPTER 12 Residential Mortgages 249
CHAPTER 13 Types of Mortgages and Sources of Financing 265
CHAPTER 14 Computations and Title Closing 301
CHAPTER 15 Estimating Real Property Value 325
CHAPTER 16 Product Knowledge 353
CHAPTER 17 Real Estate Investment Analysis and Business Opportunity Brokerage 365
CHAPTER 18 Taxes Affecting Real Estate 381
CHAPTER 19 The Real Estate Market 405
CHAPTER 20 Planning and Zoning 415
APPENDIX A Practice End-of-Course Exam 431
APPENDIX B List of Acronyms 443
APPENDIX C Know Your -ors and -ees 445
APPENDIX D Math Formulas 447
APPENDIX E Cross-Reference to Federal and Florida Law 451
Glossary 461Index 483
C O N T E N T S
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I N T R O D U C T I O N
Congratulations! Your decision to pursue a career in real estate in Florida is an excit-ing one. You probably have many questions about real estate as a career, requirements for becoming licensed, and real estate in general. I have made every attempt to address your questions. The material is concise, yet presented in sufficient detail to facilitate your understanding. The content conforms to the Florida Division of Real Estate’s prescribed Florida Real Estate Commission (FREC) Course I Syllabus for the prelicense course for sales associates.
As with any profession, the real estate profession has an abundance of terms unique to the industry. Key terms are presented at the beginning of each chapter. Learn what these terms mean, and apply them in your real estate discussions. To aid your learning process, each term presented in a key term section is defined in the corresponding chapter. You should master these definitions in preparation for your licensing examination.
There are literally hundreds of real estate terms that you will use and apply in your professional career. However, only a limited number of these terms appear in the key term sections. This is because a priority system has been used to help you plan your preparation. Bolded key terms are top priority terms. Throughout the chapters, you will also find itali-cized terms. These are important real estate terms that you should understand and be able to apply in your real estate discussions. However, it is not necessary to be able to “recite” a precise definition for italicized terms.
I have also included learning objectives for each chapter. The objectives have been carefully selected to coordinate with the key concepts in the course syllabus. Think of the learning objectives as a “road map” to help guide your journey toward licensure. As you complete each chapter, be sure also to complete the Review Questions section that follows it so that you can see how well you have mastered the content presented in the chapter.
You will note also that in the left margins, each line of the text is numbered for easy reference. In the left margins, you will find screened boxes with Florida Statute and Administrative Rule numbers below. I have cross-referenced the material in your textbook with the FREC statutes and rules. Refer to Appendix E for a table that lists each sec-tion of the FREC statutes and rules cross-referenced to the textbook chapter and section title where the legal reference is discussed. You should read the actual laws and rules in preparation for the license exam. Web links to important rules and statutes are presented throughout this textbook.
Text boxes are featured in your textbook. These boxes contain valuable information. The To Remember boxes contain learning crutches called acronyms to help you recall certain information. Be sure to study these. Other text boxes feature excerpts of Florida statutes and rules for easy reference. The Formula text boxes feature arithmetic formulas that you must be able to apply. You will find all these special features very valuable as you delve into this book. I am excited for you and wish you the very best as you embark on your new career.
I would be remiss if I did not take a moment to thank the very special people who contributed to this book. Prior to developing this edition of your book, I received spe-cific comments and suggestions that I incorporated into this edition to assure you of the
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vi INTRODUCTION
very best quality textbook. Special thanks are extended to this edition’s textbook review-ers: Howard Stevens, Bob Hogue School of Real Estate, and Janine R. Spiegelman, Palm Beach State College and Broward College. Kudos to Howard, who always provides valu-able input. This was Janine’s first opportunity to review the text. She did an amazing job and offered numerous new ideas to enhance this edition of the textbook. Howard and Janine reviewed every rewrite for this edition. That was a time-consuming task to ask of two very busy instructors, but they both provided great comments and suggestions for this edition. Janine also provided suggestions for updating the PowerPoint slides that are available to instructors. This edition benefited from their reviews. I would also like to thank Nancy Campiglia, attorney, Your Towne Law, P.A., Orlando, Florida, for provid-ing the new deed exhibit in this edition, and Henry A. Johnston of Johnston & Johnston Land Surveying Services, Inc., Hollywood, Florida, who provided the new boundary sur-vey exhibit for this edition.
This book is coordinated with additional study tools designed to assist you with mas-tery of the material. Many students choose the Florida Sales Associate Prelicensing Key Point Review Audio CD, which is designed to aid aspiring real estate sales associates in success-fully completing the prelicensing course, end-of-course exam, and state licensing exam. If you are concerned about the real estate math associated with this course, consider the companion book Real Estate Math: What You Need to Know. If you are looking for a concise overview of the entire course and practice questions to help prepare you for your licensing examination, we recommend Florida Real Estate Exam Manual.
I wish you the very best in your endeavor and would like to hear from you.
Linda L. Crawford November 2014
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1
C H A P T E R
After successfully completing this chapter, you will be able to:
■ describe the real estate sales process;
■ distinguish among the five major sales specialties;
■ distinguish among a CMA, a BPO, and an appraisal;
■ describe the three phases of development and construction; and
■ distinguish among the three categories of residential construction.
KEY TERMS
absentee owneragriculturalappraisalbroker’s price opinion
(BPO)business brokerbusiness opportunity
brokeragecomparative market
analysis (CMA)
counselordedicationfarm areafollow-upmultiple listing service
(MLS)property managementproperty manager real estate brokerage
real estate businessREALTOR®rental agentresidentialrestrictive covenantssubdivision plat mapUniform Standards of
Professional Appraisal Practice (USPAP)
OVERVIEW
The purpose of this chapter is to introduce the reader to the real estate business. The chap-ter discusses real estate brokerage, development, and construction.
AN INTRODUCTION TO THE REAL ESTATE BUSINESS
The real estate business is composed of many specializations. We usually think of this as the buying and selling of properties. Actually, the real estate business is much broader than that and includes property management, subdivision and development, appraisal,
THE REAL ESTATE BUSINESS
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financing, and counseling. Because most licensed professionals are involved in sales and leasing, in this chapter we will focus on real estate brokerage.
Real estate brokers provide specialized service for others in return for compensation in the form of a commission, fee, or other valuable consideration. Today a real estate licensee is paid to handle other people’s properties because the licensee is a professional who pro-vides specialized service and expertise in at least five areas:
1. Details of property transfer. A competent real estate practitioner must know the economic and legal intricacies associated with transfers of title, property taxes, financing, and local zoning ordinances. Real estate practitioners must be inti-mately familiar with the real estate purchase and sale contract used in their locale, and they must be able to complete the form competently.
2. Knowledge of market conditions. No market is ever completely static. Property val-ues are affected by changing market conditions. Changes in market conditions are due to changes in income tax laws, building moratoriums, and fluctuations in supply and demand. These price changes must be taken into consideration when preparing a comparative market analysis (CMA) for buyers and sellers. CMAs are prepared by real estate licensees to help buyers and sellers make informed decisions on pricing a property (CMAs are discussed later in this chapter).
3. Knowledge of how to market real estate or businesses. To be successful, licensees must know how to market real estate and/or businesses. The sale presentation most effective when working with a physician who is relocating to a new city may be completely different from the approach used to assist the owner of an expanding gourmet coffee bar in choosing an additional location.
Marketing also includes expertise in locating prospects. For example, a real estate professional who specializes in finding homes for relocated physicians will develop contacts with the personnel in various local hospitals who work as liaisons with new hospital staff. While there may be exceptions, the bulk of evi-dence indicates that a property handled by a broker normally will be sold more quickly and with less reduction in the desired sale price than if an owner handles the sale without professional assistance.
4. Knowledge of how to analyze buyer’s needs. Successful real estate professionals know how to analyze a buyer’s needs, wants, and financial capabilities in order to help meet their goals. Good listening skills will allow the real estate professional to help the buyer focus on priorities when considering alternative properties, as well as assisting with finding the right mortgage professional.
5. Knowledge of laws that pertain to real estate. It is critical that real estate profes-sionals understand and apply the many laws that impact real estate. For example, regarding financing and applying for mortgage loans, laws such as the Real Estate Settlement Procedures Act (RESPA), Equal Credit Opportunity Act (ECOA), and the Truth in Lending Act (TILA) are important. Knowledge and compli-ance with fair housing laws are also extremely important when working with the public. Real estate professionals must also understand and comply with Florida’s real estate licensing laws, including regulations pertaining to brokerage relation-ships. Each of these laws will be discussed in detail later in this textbook. Study the laws carefully—your career depends on it!
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REAL ESTATE BROKERAGE
Real estate brokerage is the business of bringing together buyers and sellers, owners and renters, and completing real estate transactions. Real estate licensees are paid a fee or a commission for their services.
Sales and LeasingSales is the most prevalent and most well-known component of real estate brokerage. Owing to its annual dollar volume, real estate sales has been called the lifeblood of the brokerage business.
Some brokers prefer to specialize in residential property. Others specialize in commer-cial, industrial, or agricultural property, or only in business brokerage. Furthermore, a real estate professional might specialize exclusively in new residential construction, medical office space, or food service businesses. Regardless of the type of property handled, sale transactions are critical to the success of a real estate firm.
The real estate sale process is complex and involves a series of 10 steps (see Figure 1.1).
F I G U R E 1.1 ■ Real Estate Sale Process
Market listing and prospect for buyers
Buyer qualification
Offer, negotiation process, and signed sale contract
Loan approval and Title search
Deed and mortgage are recorded
Follow-up
Loan application and RESPA disclosures
• Credit evaluation • Property appraisal
• Buyer signs mortgage and note • Seller signs deed
Prospect for sellers, and list properties and businesses
Post-Contract Activities:
Title Closing:
• Property survey
Step 1. The process begins by prospecting for sellers. The sales associate develops and presents listing presentations based on market research presented in a CMA. The presen-tation also includes estimating the seller’s net proceeds and the listing agreement.
Step 2. Once the real estate sales associate has acquired the listing on behalf of the broker, it is time to prospect for buyers. The sales associate prepares flyers and newspaper
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advertisements, lists the property in the multiple listing services (MLS), and conducts open houses. During this period, the sales associate shows the property to potential buyers.
Step 3. Key to a successful sale is making sure the prospective buyer has sufficient income, a good credit history, and sufficient longevity in the workforce to be able to purchase the listed property. This process is called buyer qualification.
Step 4. A qualified buyer will make an offer. The sales associate presents the offer and facilitates the negotiation process, which culminates in a signed contract for sale and purchase of the listed property.
Step 5. Most often, the buyer must apply for a loan to purchase the property. The buyer receives RESPA disclosures at the time of loan application or within three business days.
Step 6. At this stage, post-contract activities include the lender’s credit evaluation of the buyer and ordering an appraisal and survey of the property.
Step 7. If the buyer has sufficient income and a good credit score, the lender will likely approve the loan application. At this stage, the lender will order a title search on the property.
Step 8. The sales associate typically attends the title closing. At this stage, the buyer signs the mortgage and promissory note. The seller signs the deed conveying the property to the buyer.
Step 9. The deed and mortgage are recorded.
Step 10. The sales associate should contact the buyers and sellers within a reasonable time after the closing. One of the best ways to ensure satisfied buyers and sellers is through follow-up. Follow-up is what a sales associate does for buyers and sellers after the sale. The follow-up is important to all aspects of sales in real estate because it results in a good reputation, future referrals, and word-of-mouth advertising.
Real estate sales associates involved in sales and leasing often specialize in any of five major sales specialties:
1. Residential. Chapter 475, F.S., defines residential real estate as 4 or fewer resi-dential units, vacant land zoned for 4 or fewer residential units, or agricultural property of 10 or fewer acres. Residential sales associates should acquire a thor-ough understanding of the strengths and weaknesses of the neighborhoods in the areas in which they specialize (farm). To be successful, residential specialists need to know the best access routes and locations of schools, shopping facilities, and recreation facilities. They must be able to explain property taxes, homestead exemptions, restrictive covenants, and approximate utility costs in the area. One of the more important aspects of residential sales is knowing how to help pro-spective buyers obtain financing. Most real estate licensees specialize in the sale and purchase of owner-occupied residential property.
2. Commercial. To provide competent service to investors, real estate professionals who specialize in commercial sales need expertise regarding income-producing properties, investment analysis, and the various techniques for increasing after-tax cash flow. Improved residential property of more than four units, retail stores, office buildings, and shopping centers are examples of income-producing com-mercial properties. Contacts with financial institutions and mortgage lenders are important to facilitate commercial transactions.
475.278(5)(a), F.S.
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3. Industrial. The industrial sales associate deals in three types of properties: (1) sites in industrial parks or subdivisions; (2) redeveloped industrial parcels in central areas; and (3) industrial acreage. Sales associates of industrial real estate must have technical knowledge of the needs of different industries, such as transportation requirements, including access to railroad or airport transporta-tion; industrial construction features, such as steel versus concrete block con-struction; and local land-use restrictions affecting industrial properties. With the increase in technological industries, more and more industrial brokers are finding it rewarding to develop and sell beautifully landscaped and well-conceived indus-trial subdivisions. Almost every large city in Florida has experienced the devel-opment of industrial parks.
4. Agricultural. Agricultural property is defined in Chapter 475, F.S., to mean agri-cultural property of more than 10 acres. Professionals who specialize in the sale of farms and agricultural land must be familiar with the operation of farms and the economic problems associated with the various types of farming. One of the licensee’s most important skills is the ability to communicate with farmers. Sales associates who are effective in dealing with farm operators are knowledgeable about farm operations and the federal programs affecting farm operations.
5. Businesses. Real estate licensees who engage in the sale, purchase, or lease of businesses are called business brokers. This real estate activity is sometimes called business opportunity brokerage. Business opportunity brokerage involves the sale or lease of an existing business, including the sale of tangible and intan-gible assets. In most states, if real property is an asset of the business, a real estate broker’s license is required to sell the business. There is a presumption in Florida law that businesses will have some sort of real property involved, either land and physical improvements such as a building or a long-term lease. For this reason, in Florida, an active current real estate license is required to sell or lease busi-ness opportunities (business opportunity brokerage is explained in more detail in chapter 17).
Many brokers and sales associates prefer to select one specific portion of a city and become an expert in that particular portion, called a farm area. Licensees get to know almost every lot, house, and business in their farm areas. Farming involves maintaining data on each property, including when it was built, the sale history, typical marketing time, assessed value, the amount of property taxes, and so forth. Real estate profession-als meet the people in the area and make it known that they specialize in that section of town. The farm area soon begins to produce a harvest in the form of listings and sales. Licensees create a reputation for expertise through hard work. When residents in the farm area move or decide to sell, they call on the area expert who knows what value their prop-erty will bring in the current market.
Property ManagementProperty management is a professional service conducted by a person or company hired to maintain and manage property on behalf of property owners. The scope of the work the property manager performs is spelled out in the management agreement. Property man-agement typically involves, leasing, managing, marketing, and maintenance of property. Property management is much more involved than being a rental agent. Rental agents typically find a tenant for property and collect a fee. Property managers continue to man-age the property once a tenant is secured.
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A property manager is the local representative of the property’s owner. The property manager is responsible for maintaining the property and managing the expenses. The property manager’s primary task is to protect the owner’s investment and to maximize the return on the investment, thereby producing the greatest possible net income over the longest possible time.
Many investors desiring to participate in the growth of income-producing property have become absentee owners. An absentee owner is a property owner who does not reside on the property and who often relies on a professional property manager to manage the investment. The field of property management has experienced rapid growth and spe-cialization, primarily because of the increase in absentee ownership. As agents of absentee owners, property managers are typically responsible for rent collection, improving tenant relations, and advertising and merchandising the space. Investors normally hire qualified property managers because the investors have neither the time nor the desire to become involved in the complexities of property management.
Property managers are compensated in a number of ways. Some work for a guaranteed base amount plus a small percentage of effective gross income (total income collected after taking into account vacancies). The method of compensation is detailed in the man-agement agreement.
AppraisingAppraisal is the process of estimating the value of real property. It is an opinion given by a skilled appraiser that concludes with an estimate of the property’s worth. Appraising is considered to be an art, not a science, because although the appraisal process involves mathematical calculations, and published tables and charts of the appraising trade, appraisers also use their own judgment when appraising real property.
Real estate brokers and sales associates may appraise real property for compensation (cer-tain exceptions exist). However, they may not represent themselves as state-certified, registered trainee, or licensed appraisers unless they also hold those licenses and certifica-tions. Florida law requires appraisers and real estate brokers and sales associates to abide by the Uniform Standards of Professional Appraisal Practice (USPAP) when conduct-ing appraisals of real property. The USPAP is a set of guidelines (standards of practice) to follow when providing appraisal services. A real estate licensee who fails to abide by the USPAP when conducting appraisal services may be subject to disciplinary proceedings and sanctions.
The Florida Real Estate Appraisal Board (FREAB) regulates state-certified, licensed, and registered trainee appraisers. A state-certified or licensed appraiser must prepare an appraisal that involves a federally related transaction (federally related transactions are explained in detail in chapter 15).
The USPAP is available at www.appraisalfoundation.org. Select “USPAP (Standards).”
An appraiser carefully analyzes past sales, computes the cost to reproduce a structure, and determines the worth of future income that a property might produce. These cal-culations are important not only to buyers and sellers but also to mortgage lenders and insurance companies. Various levels of government also use appraisers to arrive at a value for properties condemned in order to build roads, highways, and expressways. Individual investors have learned the value of obtaining an appraisal before investing.
475.612, F.S.
475.25(1)(t), F.S.
475.611, F.S.
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Appraisers charge a fee based on the time and difficulty of the work. Appraisers are not paid a commission—to reduce the possibility of a conflict of interest. If an appraiser were to be paid a percentage of the appraised value, the temptation to exaggerate the value might prove irresistible. The USPAP’s ethics rule states that it is unethical for an appraiser to accept compensation that is contingent on the value of the property (see chapter 15).
Comparative Market Analysis and Broker’s Price Opinion. Sellers often ask real estate brokers and sales associates what a buyer is likely to pay for their properties. Real estate licensees may help potential sellers determine an asking price by preparing a comparative market analysis (CMA). Also, sales associates and brokers prepare CMAs for buyers to help them make informed decisions when offering to purchase real property. CMAs are developed by collecting information concerning real estate activity in the area, includ-ing recent sales of similar properties, properties currently offered for sale, and recently expired listings. A CMA is a marketing tool and may not be referred to or be represented as an appraisal. Licensees may charge a fee or otherwise be compensated for preparing a CMA, either as a part of or in addition to the normal sale commission. However, licensees typically prepare CMAs for sellers for free as a courtesy to the sellers and to solicit new business.
A broker’s price opinion (BPO) is a written opinion of the value of real property. Florida real estate licensees are allowed to prepare and charge for BPOs provided the BPO is not called an appraisal. Price opinions are often requested by relocation companies and lenders involved in short sales of distressed properties (a short sale produces less money than is owed the lender; the lender releases its mortgage so that the property can be sold free and clear to the new purchaser). A licensed or certified appraiser must conduct an appraisal when the valuation assignment involves originating a federally related mortgage loan.
Sales associates may perform BPOs only at the direction and under the control and management of the associate’s employing broker. If a sales associate or broker associate performs a BPO, the compensation must be paid to the broker and not directly to the sales associate or broker associate who prepared the BPO. The USPAP standards of practice do not apply to brokers, broker associates, and sales associates who, in the ordinary course of business, perform CMAs or broker price opinions.
FinancingIf sales are the lifeblood of real estate, financing can be regarded as the lifeblood of real estate sales. Most purchases are financed. Knowledge of how to arrange financing and how to solve financing problems is essential to success in real estate. The licensee who can demonstrate how a prospective buyer can afford to buy has a tremendous advantage over the individual who only can show houses. A real estate licensee who does not also hold a Florida mortgage loan originator license may not operate as a mortgage loan originator. A real estate licensee also may not accept a referral fee from a lender without also being licensed as a mortgage loan originator (see chapter 13).
CounselingReal estate counselors provide advice to individuals and firms regarding the purchase and use of real estate investments. A counselor is typically paid a flat fee. Because few people have the education, experience in real estate, knowledge of investing, and tested judgment required to be a qualified counselor, they are few in number. Our expanding economy, the increasing complexity of problems associated with real estate, and the need
475.25(1)(t), F.S.
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for professional counseling services all indicate that counseling will grow as a real estate specialty. The services of counselors are already in demand by developers, investors, cor-porations, and large-scale buyers and sellers.
DEVELOPMENT AND CONSTRUCTION
Development and construction involve dividing larger parcels of land into lots, construct-ing roads and other off-site improvements, and then constructing buildings on the devel-oped lots. There are three general phases of development and construction:
1. Land acquisition and pre-development. Developers and builders acquire raw land and then prepare the site for construction. They must carefully study zoning and land-use plans to determine what type of development is permissible. During this phase, the developer seeks approval for the proposed project from the local municipality. The developer incurs costs for engineering plans, attorney fees, surveys, and application fees.
2. Subdividing and development. Subdividing is the process of converting parcels of land into smaller units or lots. Development is the process of improving raw land so that it can be put to productive use.
Before work can begin, most local governments require that developers submit a subdivision plat map of a new development for review by the appli-cable government planning board (commission). A subdivision plat map is an engineer’s plan for land use superimposed on a map of the land to be developed (see Figure 10.9 on page 218). The subdivision plat map indicates the proposed size and location of individual building lots, streets, and public utilities, includ-ing water and sewer lines, and other clarifying information. The developer is responsible for improving the raw land with paved streets, curbs, storm drains, and so forth. The building lots are sold to the public. Typically, the streets, curbs, and other public area improvements are dedicated to the local city or county. Dedication is the gift of land by an owner, in this case a developer, to a govern-ment body for a public use. A valid dedication of land from the owner to the municipality requires both an offer to dedicate (donate) the land and an accep-tance by the municipality. To accomplish this, the developer typically indicates on the plat map that the streets, sidewalks, park areas, and other improvements that will not be sold to private individuals will be dedicated to the local munici-pality. Plat approval and recording of the plat into the public records serves as an acceptance of the dedicated streets and public areas and obligates the local government to maintain them once they are installed. County subdivision ordi-nances, in effect, have combined subdividing the land into individual lots with the development phase to provide greater protection to the public.
Developers of residential subdivisions typically record in the public records restrictive covenants that affect the entire subdivision. Restrictive covenants affect how the land can be used and establish criteria such as minimum square footage, type of construction, architectural design, and so forth, to ensure that homes built there conform to the neighborhood (see “Restrictive Covenants and Deed Restrictions” on the next page). Developers use restrictive covenants to ensure that no homes will be built that might decrease the value of neighboring properties.
177.081, F.S.
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3. Construction. Licensed contractors construct buildings on the prepared site. There are three general categories of residential construction:
■ Speculative (spec) homes. Building “on speculation” involves purchasing one or more lots and constructing a home (or homes) without a buyer in advance of construction.
■ Custom homes. A custom builder constructs homes under contract with a buyer, often using building plans provided by architects or buyers.
■ Tract homes. Tract homes are a type of speculative building. A new subdivi-sion will typically feature several model homes. Buyers select a floor plan from the models and a lot on which to build in the new subdivision.Effective marketing is critical to new construction. For large-scale develop-
ments, the use of model homes is an important part of the marketing function. While many developers employ a small sales force to show their model homes, some developers rely on help from real estate brokers to market their houses and lots. Normally, developers pay for all advertising, and brokers agree to accept a reduction in their customary sale commission to help offset this expense.
RESTRICTIVE COVENANTS AND DEED RESTRICTIONS
People sometimes use the terms restrictive covenants and deed restrictions interchangeably. However, deed restrictions refer to a single parcel of land, whereas restrictive covenants concern entire subdivisions.
Restrictive covenants impose limitations on the use of land in an entire subdivision. Examples of restric-tive covenants that may affect a particular subdivision control such things as the minimum allowable square footage, whether the garage doors may face the street, or whether recreational vehicles and boats may be parked within view of the street.
Deed restrictions are placed by an owner who has created a restriction on future owners of the parcel of real estate. A deed restriction, for example, may prevent future landowners from selling alcoholic beverages on the site.
THE ROLE OF GOVERNMENT
The real estate business is regulated or influenced by the federal, state, and local governments:
■ Local government impacts the real estate business through property taxation and regulatory activities such as occupational licensing, business tax receipts, build-ing permits, building moratoriums, zoning, and building codes.
■ State government owns and manages a large amount of property and identifies coastal regions and other areas that are protected from development. State docu-mentary and intangible taxes are required when ownership to real property is transferred or pledged as collateral for a mortgage (see chapter 14).
■ The federal government impacts the real estate business through its fiscal and monetary policies. Various agencies influencing the real estate field include the Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), the Envi-ronmental Protection Agency (EPA), and the Internal Revenue Service (IRS).
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Subsequent chapters will cover in greater detail the role of the various units of government in the real estate business.
PROFESSIONAL ORGANIZATIONS
Professional associations and trade organizations play an important role in the real estate industry. The largest trade organization in the world is the National Association of REAL-TORS® (NAR). Today, in Florida, approximately one-third of real estate licensees belong to NAR. NAR promotes ethics and education in the real estate industry. Many of the state laws designed to promote professionalism and improve ethical standards begin in NAR’s REALTORS® Code of Ethics and Standards of Practice (see chapter 4 for more informa-tion concerning the Code of Ethics).
NAR’s fundamental strength is the local association of REALTORS®. A REAL-TOR® is a real estate professional who is a member of a local board (or association) of REALTORS® and is affiliated with the Florida REALTORS® and NAR. Local associa-tions (or boards) are organized across the nation. To become a member of a local associa-tion, licensees must apply to and be approved by the association’s membership committee. Each real estate brokerage makes the decision regarding whether to join a local associa-tion of REALTORS®. A real estate broker is assessed local trade association dues based on the number of associates registered under the broker. Typically, the broker will require all the associates in the brokerage to also join the association; however, the trade associa-tion does not require that the associates join. If the real estate brokerage does not join an association, individual licensees within that brokerage cannot join the association.
WHO MAY USE THE TERM REALTOR®?
The terms REALTOR® and real estate licensee are not synonymous. REALTORS® are members of a local board (association) of REALTORS®. The Florida REALTORS® and the National Association of REALTORS® are privately run professional organizations. The DBPR does not set their rules, fees, or membership requirements.
Both NAR and the Florida REALTORS® sponsor comprehensive educational pro-grams for members and publish trade papers and periodicals. The NAR also sponsors affili-ated organizations that offer professional designations to real estate licensees and appraisers who complete required courses in areas of special interest. These and other resources help to develop the true professional—an individual constantly seeking self-improvement.
An important service created by NAR is the multiple listing service (MLS). The MLS is a database that allows real estate brokers representing sellers under a listing con-tract to share information about properties with real estate brokers who may represent potential buyers. The MLS compiles the listings of all member brokers, making the prop-erty information available to all brokers and their associates.
Before the existence of the MLS, properties that were for sale had very little exposure outside the listing brokerage. To find properties to show a buyer that were listed by other brokerages, real estate licensees would look in the newspaper for ads placed by the listing brokerage, visit other brokers’ offices to find out what properties they had available, and drive around looking for yard signs. Because the listing agreement usually specified that only the listing broker’s associates could show the property, other brokerages would have to get the listing broker’s permission to show the property to a buyer.
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However, with the advent of the MLS and technology, it became easy to access infor-mation about all properties listed by MLS brokers. Today, buyers working with licensees who are members of their local MLS will have access to information about all properties regardless of which brokerage actually has the property listed.
To participate in an MLS, brokers agree to cooperate with each other in a sharing of the commission between the listing broker and the selling broker. The terms for division of commission can vary from broker to broker. Depending on the population of an area, a broker may be a member of more than one MLS. The MLS is not a copyrighted trademark of NAR. Anyone can create an MLS.
S U M M A R Y O F I M P O R T A N T P O I N T S
■ Real estate brokers provide specialized service for others in return for compensa-tion in the form of a commission, fee, or other valuable consideration.
■ The five major sales specialties are (1) residential, (2) commercial, (3) industrial, (4) agricultural, and (5) businesses.
■ Farm area refers to a selected and limited geographic area to which a sales associ-ate devotes special attention and study.
■ Business opportunity brokerage involves the sale or lease of an existing busi-ness. A real estate license is required to sell and lease business opportunities for others.
■ Property management is devoted to leasing, managing, marketing, and overall maintenance of property for others. Absentee owners are property owners who do not reside on the property and who often rely on a professional property man-ager to manage the investment.
■ Florida law requires appraisers and real estate licensees to abide by the Uniform Standards of Professional Appraisal Practice (USPAP). The USPAP is a set of guidelines (standards of practice) to follow when conducting appraisal services. Real estate licensees may not represent themselves as state-certified, registered, or licensed appraisers unless they also hold those licenses.
■ A comparative market analysis (CMA) is a marketing tool that is prepared for a potential buyer or seller based on recent sales of similar properties, properties currently on the market, and recent expired listings. A CMA may not be referred to or represented as an appraisal.
■ A broker’s price opinion (BPO) is a broker’s written opinion of the value of real property. A broker may charge a separate fee for a BPO, provided it is not used in connection with originating a federally related loan and it is not labeled as an appraisal.
■ Developers must submit a subdivision plat map to the local planning board (commission). The streets, parks, and other improvements for public use are typically dedicated to the local municipality. Dedication is the gift of land by an owner to a government body for public use. The developer installs the improve-ments and the local municipality agrees to maintain the improvements as part of the subdivision plat approval process.
■ The three categories of residential construction are (1) speculative (spec) homes, (2) custom homes, and (3) tract homes.
■ A REALTOR® is a real estate professional who is a member of a local board (or association) of REALTORS® and is affiliated with the Florida REALTORS® and NAR.
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R E V I E W Q U E S T I O N S
1. A developer acquires a tract of land that he divides into 25 homesites. Before marketing the homesites, the developer must submit the subdivision plat to thea. Department of Housing and Urban Development.b. local governmental planning agency.c. Florida Real Estate Commission.d. local building code enforcement department.
2. The term follow-up refers toa. returning calls in a timely manner.b. completing instructions given by one’s broker.c. following through on listing calls made to For Sale by Owners.d. what a sales associate does for buyers and sellers after the sale.
3. Even though certain exceptions apply, an active real estate licensee is legally entitled to appraise real property for compensation concerning a nonfederally related transactiona. as long as she does not represent herself as a state-certified or licensed appraiser, and complies with
the USPAP.b. only if the appraisal is called a comparative market analysis.c. provided the compensation is based on a commission agreed on before the appraisal work is done.d. provided a licensed or certified appraiser signs the appraisal report.
4. The field of property management has experienced growth and specialization primarily because ofa. the deregulation of the real estate industry.b. the increase in the number of licensees specializing in property management.c. the increase in the number of absentee owners.d. higher construction costs that have caused an increase in the number of renters.
5. Real estate licensees must comply with the Uniform Standards of Professional Appraisal Practice (USPAP) when conducting which value estimates? a. Appraisals b. Broker price opinions c. Comparative market analyses d. Real estate licensees are exempt from the provisions of USPAP
6. Appraisers are paid a fee becausea. to accept compensation based on the appraised value is a conflict of interest.b. custom dictates the method of compensation.c. the fee would be too high if it were based on a percentage of property value.d. only brokers and sales associates are paid commissions for their services.
7. When a developer makes lots available for custom building in a newly developed subdivision, the over-all purpose of restrictive covenants is to ensure that custom-built homes willa. not conflict with local zoning ordinances.b. not exceed the minimum square-footage requirements.c. conform to standard building codes.d. not decrease the value of neighboring properties.
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8. The real estate activity that is devoted to leasing, managing, marketing, and overall maintenance of property for others is calleda. commercial sales.b. property management.c. counseling.d. rental agents.
9. Which type of construction involves building to a buyer’s specifications?a. Tract homesb. Spec homesc. Custom homesd. Model homes
10. The term dedication as it applies to development and construction refers toa. a gift of land by the owner to the local government for a public use.b. the builder’s careful attention to construction details.c. recording a subdivision plat map in the public records.d. preparing raw land for site improvements.
11. What type of license is required to sell or lease business opportunities for another person?a. Business broker licenseb. Business opportunity broker licensec. Real estate licensed. Not required, unless a building is being sold with the business
12. Residential real estate is defined in Chapter 475, F.S., asa. property that is zoned agricultural land of more than 10 acres.b. five or more residential units.c. vacant land zoned for four or fewer residential units.d. all of the real estate described above.
13. The real estate profession requiresa. skill and experience in real estate values, specialized service, and expertise.b. only the ability to list property.c. expertise in all types of real estate.d. that licensees also act as mortgage brokers from time to time.
14. Selecting a limited geographical area in which a real estate professional develops special expertise is calleda. farming.b. follow-up.c. subdividing.d. dedicating land.
15. A broker charges a prospective seller $50 for a comparative market analysis (CMA). Which statement applies?a. Brokers are not permitted to charge for CMAs.b. This is permissible, provided the broker does not represent the CMA as an appraisal.c. The broker must be a state-certified or licensed appraiser to do this.d. The CMA must be signed by a state-certified or licensed appraiser.
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Florida Real Estate Principles, Practices & Law sets the standard for real estate education in
Florida. Written and researched by Linda Crawford, a Florida real estate expert, this exciting
new edition provides you with the latest developments in Florida real estate laws and practices.
SUPPLEMENTAL TOOLS:
Florida Real Estate Exam Manual for Sales Associates and Brokers offers sample questions, including two 100-question practice exams, a Broker exam including Settlement Statement (HUD-1) questions, and a flashcard CD-ROM to thoroughly test your understanding of the material.
Florida Sales Associate Prelicensing Key Point Review Audio CDs or MP3 will enhance your understanding of each chapter of Florida Real Estate Principles, Practices & Law.
Real Estate Math: What You Need to Know helps develop your basic math skills and demonstrates how you will use this knowledge on the job. Real Estate Math contains more than 360 practice math problems with step-by-step solutions.
NOTE TO USERS OF THIS BOOK: This text is intended for classroom instruction as part of the prelicense educational requirement; therefore, the answer key for the end-of-chapter review questions is not included in this textbook. Your instructor will make the answer key available to you when you take your course.
If you have already fulfilled your educational requirement and are using this book for reference or additional study, please visit www.dearborn-fla.com/ppl38key/ for information on how to obtain the answer key.
FLORIDAReal Estate Principles, Practices & Law38th Edition | Linda L. Crawford
• This edition has been updated with information on residential mortgages and sources of financing.
• New figures help illustrate important concepts.
• New Practice Problems set in shaded boxes follow key concepts to reinforce understanding.
• Examples of actual disciplinary cases are used to explain various legal terms and rule violations.
• A sample closing statement problem and text explain the Settlement Statement (HUD-1).
• Every rule, Florida statute, and federal regulation covered on the state license exam is cross-referenced to assist with exam preparation.
• This textbook provides excellent review material for broker exam candidates studying for the Florida broker license exam.
For comments or queries about this product, please email us at [email protected].
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