What is Real Estate?

What is Real Estate?

Many people have engaged in business in the real estate industry without fully understanding what real estate is.

They work up every morning and make thousands or even millions of dollars from real property and they have no idea, absolutely or partially, what they are trading in and making money out of. In this article, we shall review what real estate is and the various jobs and careers available in this lucrative industry.

Real Estate

The term real estate refers to land and any physical improvements on it. Improvements affixed to the land include any physical structure or object with a level of fixation to the land such that its removal would cause damage to the land. They include buildings, fences, wells, landscaping, roads, and structures. 

Real estate means real or physical property. In addition to the land, real estate includes the section below the land and anything in it including underground water, minerals, etc. It also includes any air above the land.

The word ‘real’ is derived from the Latin word res which means ‘things’. Other people say it is derived from the Latin word rex which means ‘royal’ because, in the olden days, kings held all the land in their kingdoms in trust for their subjects.

Real Estate Law

Real estate law governs and determines who may hold or own the land and who may use it. This rather simple term (real estate) entails a wide range of legal disciplines that one needs to understand.

Real estate can be owned by one party but used by another person or entity through rental arrangements. Land can be bought or sold, in which case the title to the land is transferred to its new owner.

Due to the high value of the real property, several local laws are enacted to govern the process and ensure transactions are properly done and recorded for reference. Land can also be owned by more than one person.

When dealing with real estate, especially if you are in the development sector, you need to know that state and local governments have various rules and restrictions concerning the uses to which you can put the land.

Each parcel of land must be used according to local zoning laws and not even the proprietor who holds title to the land can change that. Additionally, landowners may not cause damage to the surrounding environment.

The term real estate is also used to refer to the property rights that give the title of ownership to the land, improvements on it, natural resources on or below it, and the air above the land.

Overview of the Real Estate Industry

Overview of the Real Estate Industry

Real estate has also been used to refer to the act of producing, buying, and selling real estate. Real estate is a critical driver of economic growth and contributes greatly to the GDP of various countries annually.

This aspect of the term ‘real estate’ provides the basis of real estate being considered a business because it gives the idea of real estate being a transaction-worthy industry whose assets can be traded.

Types of Real Estate

There are various types of real estate that can be produced and traded or transacted on. They include:

    1) Land- The undeveloped property and vacant land.

   2) Residential Real Estate- Consist of housing for individuals, groups, or families.    

   3) Industrial Real Estate- Refers to land and buildings utilized by industrial businesses for                            mechanical productions, logistics, transportation, factories, etc.

   4) Commercial Real Estate- Land and buildings used by businesses to carry out their daily                        operations.

Common Terms in Real Estate

     1) Title- A legal term that defines who legally and officially owns the land or real property.

    2) Closing- The arrangement in which the ownership of real estate is officially transferred.

    3) Real Estate Agent- A real estate professional who is licensed by the state to negotiate and conduct transactions in the real estate industry.

    4) Escrow- Money held by a third party who does not have an interest in the property in the case of real estate transactions.

    5) Mortgage- A legal agreement by which a lender lends money at an interest in exchange for the title of the debtor’s property. The conveyance of the title becomes void upon completion of the loan repayment.

    6) Foreclosure- The process by which the conveyance of the title in a mortgage agreement is made official, and the lender assumes ownership of the debtor’s property upon failure to complete the loan repayment.

Major Careers in Real Estate

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The real estate industry works in various ways. There are several players in the industry, all of whom perform specific roles. The real estate industry can be divided into several areas, namely:

1. Property Development.
2. Real Estate Brokerage.
3. Sales and Marketing.
4. Property Management.
5. Real Estate Lending.
6. Professional Services.

Let us discuss these six career areas in the real estate industry in more detail.

1)Property Development

Property development entails the purchase of vacant land, rezoning the land, construction of new buildings and renovation of already-existing buildings, and the sale or lease of the resultant products to the end-user(s). 

Property developers spend time studying the property market and take advantage of opportunities that arise in the market and capitalize on them. 

For developers, research is very key. As a developer, you will spend your time studying the market and visiting various locations to collect data. The key is to identify areas with the potential for growth.

Real estate developers earn their profit by the value-addition they make on land (creation of new buildings, rezoning, renovations, etc.) and they are also compensated to the risks they take by financing the project. 

Developers are usually considered to have created the ‘primary market’ by bringing forth a new product for people to start trading in.

2)Real Estate Brokerage

A real estate brokerage is a firm that employs a team of certified real estate agents. A real estate agent is a professional who serves to facilitate the transactions between a property buyer and seller.

 They represent either party to help complete the transaction with the best possible terms for their client hence the existence of two types of real estate agents; buyer’s agent and seller’s agent.

A buyer’s agent will ask the buyer for their wish-list and try to match what the buyer is looking for to their inventory. The seller’s agent will try very hard to market the seller’s property to potential buyers and get an end-buyer for that particular property.

Real estate agents are particularly responsible for bringing buyers and sellers together and are paid a commission for the roles they play during a transaction. The commission is usually a certain percentage of the property’s sale price. Therefore, the higher the sale price the higher the commission they receive.

3)Sales and Marketing

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Sales and marketing agencies and firms usually work alongside the property developers to sell the buildings and units that they have developed. The sales and marketing firms create marketing materials and task their salespeople to sell the inventory of completed units. 

These entities are focused on marketing new units and developments. They earn a commission for the work they do.

Some of the techniques applied by the sales and marketing personnel are quite similar to those employed by the real estate agents. That is understandable because one of the major roles played by real estate agents in the marketing role. 

One of the most common ones in the modern market is online marketing. It is complex and highly convoluted, but very effective if done properly. 

Sales and marketing personnel can build a website that they will use to showcase and promote the properties they are marketing. They almost always have to include real estate photography as part of their marketing strategy. 

Photos have always been a vital part of real estate marketing. People will always judge your book by its cover, and photos allow real estate marketers to make their cover superb.

4)Property Management

In a nutshell, property management is the process of managing property that is owned by another party or entity. The property manager acts on behalf of the owner of the property to preserve its value while the owner generates income from it. 

It is the act of a person or company overseeing commercial, residential, and industrial property instead of the owner of the property and the person or company gets remunerated for that. 

Property managers help the real estate owners to rent out the units in their buildings. They carry out such roles as rent collection, carrying out maintenance and repairs (or at least overseeing the repair and maintenance works), fixing deficiencies, showing units to potential renters, and managing the tenants. 

Property managers charge a fee, usually a certain percentage of the rent collected, to the owner of the property.

5)Real Estate Lending

Lenders are very vital in the real estate industry as virtually all real estate developments use debt as the primary source of finances. Lenders include banks, private lenders, government institutions, and credit unions.

Real estate lending usually occurs in the form of lending against the potential future cash flow of the real estate project. This is the most traditional form of real estate financing, popular among real estate investors. A loan is given to the borrower and is repaid using the rental income from the borrower’s real property for a given period.

Real estate investment transactions are categorized into investment transactions and development transactions. In investment real estate finance transactions, a loan facility is provided to the borrower to purchase a property or a group of properties. 

In development real estate finance transactions, a loan facility is provided to the borrower to purchase a property or group of properties and go-ahead to provide funds for the development of the property or properties.

6)Professional Services

There are several other professionals, other than those mentioned above, who offer other vital services and help the industry to function. The most common ones are lawyers, accountants, stagers, and interior designers.

Real Estate Lawyers

Real Estate Lawyers

Also known as real estate attorneys, real estate lawyers are certified to oversee the legal aspects of real estate transactions. They are tasked with the preparation and review of legal documents about real estate and can negotiate the terms and conditions of real estate transactions. They also facilitate the transfer of property titles.

Real Estate Accountants

Real estate accountants on the other hand provide financial advice, guidance, and assistance during real estate transactions. They prepare financial documents and materials for property management firms and development firms. They examine accounting records and draft financial reports that help other real estate practitioners to make better budgetary decisions.

Home Stagers

Home staging professionals prepare a home, commercial building, or other real property for sale. They meet with clients, assess the property and its suitability for the proposed use, and make recommendations to the owner of the property or make improvements themselves. They can recommend landscaping improvements, the placement of furniture, etc.

Interior Designers

Interior designers work to make indoor spaces safe, functional, and appealing to the eye by determining the space requirements and selecting the essential items to satisfy these requirements. They choose items such as colors, lighting, and materials.

Conclusion

Most of the other aspects of real estate stem from the aspects of the real estate industry that we have reviewed. They include real estate investment, online real estate investment, real estate appraisal, etc.

It is, therefore, very important for anyone who is involved in the real estate sector, or is interested in joining the industry, to grasp these aspects and understand them fully.