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Broker Robert Milton Underwood, Jr.

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"Careers in Real Estate" is a class taught by real estate broker Robert Underwood. Robert has been licensed in real estate in Texas since 1984, and has a BS degree in Radio-Television-Film (1981), a BA degree in Philosophy (1983), an MBA degree in Business Administration (1994), an MS degree in Computer Systems (2002), and an MA degree in Humanities (2011).

The information presented on this Web page is equivalent to the course content taught in the classroom. The purpose of the class is to present a broad overview of the many career paths that one can pursue in the real estate business or in closely-related fields.

Choose a category below for detailed information:

  • Brief History of the Real Estate Profession
  • Real Estate Markets
  • Broad Career Opportunities
  • Specializations in Residential Real Estate
  • Basic Knowledge Required
  • Regular Responsibilities of a Real Estate Agent



    Brief History of the Real Estate Profession

    The Real Estate Profession has ancient roots. Prior to the advent of the "city" as a means of grouping people together for safety and for commerce (about 3000 B.C.), land had little meaning as a measure of wealth. The first large buildings (e.g. the palace, the temple) in ancient times were owned by the king. Cities began to develop around these structures. By about 2500 B.C., all of the features of the city were in place, including streets, walls, marketplace, houses, and a central location for the authority figures. Having property near certain locations, such as a river or main thoroughfare, became important. Land became to have value, and better locations became more desirable (and thus more valuable) as city populations increased. At first the king owned all the land. But eventually detailed laws developed for the transfer of private property.

    Real estate development was well established in Rome by the time of Julius Caesar. Land was considered a stable investment. Individuals were needed who specialized in land transfers and leasing. By 100 A.D. Rome had a population of approximately one million, and was considered overcrowded. Demand for housing in Rome was great, and prices were very high for properties located in the central part of the city. Rental rates were also very high. Those who dealt in real estate profession also realized the value of lower-priced agricultural land outside the city limits.

    The 18th century was a very successful time for real estate development and the real estate profession for four reasons: (1) the rise of capitalism, (2) the growth of cities and suburbs, (3) changes in social attitudes, and (4) technological advances.

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    Real Estate Markets

    Major cycles in real estate average about seven years, but they can be longer or shorter depending on numerous variables. The strength or weakness of a local real estate market is determined by factors such as:

    • Supply and demand
    • Interest rates
    • Local economy
    • Influx of people and businesses

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    BROKERAGE

    Residential Brokerage:
    Sales careers in residential real estate pertain to any brokerage transaction where title of ownership changes hands, and includes houses, duplexes, triplexes, quadruplexes, lots, condominiums, and townhomes. The most common commission paid to sales agents totals 6% per transaction. For instance, a $100,000 sale would generate a total commission of $6,000 ($100,000 x .06), which would be split amongst the agents or brokers involved.

    Leasing involves helping renters find suitable housing, based on price range, location, and availability. Leasing commissions range from about 25% to over 100% of a full month's rent. For example, if an agent leased a duplex unit with a monthly rent of $800, and the commission offered was 50% of a full month's rent, the leasing agent's company would receive a leasing commission of $400 ($800 x .50).

    Commercial Brokerage:
    Commercial real estate brokerage involves the Sales and Leasing of commercial property of the following types:

    • Industrial
    • Retail
    • Office Buildings
    • Apartments
    • Hotels
    • Vacant land (with commercial zoning)

    Licensing
    To obtain a real estate license in Texas, one must be at least 18 years old and a legal resident of Texas at the time of application. There are approximately 51,035 male and 55,222 female real estate agents in Texas. The two types of real estate agents in Texas are the Real Estate Salesperson and Real Estate Broker. Course requirements for each are as follows:

    Real Estate Salesperson: 210 classroom hours, which must include 60 hours of Principles of Real Estate, 30 hours of Law of Agency, 30 hours of Law of Contracts and one additional 30-hour class. The other 90 classroom hours can be "core" real estate courses or related classes. Once a license is issued, the salesperson must complete 30 "core" hours each year for the second, third and fourth years of licensure. "Core" courses include, Property Management, Principles of Real Estate II, Real Estate Appraisal, Real Estate Marketing, Real Estate Math, Real Estate Finance, etc. After the fourth year, licensees must take 15 hours of Mandatory Continuing Education for each license renewal period.

    Real Estate Broker: A candidate for a Broker's license must have been actively licensed for at least two of the previous three years, and must meet the current educational requirements of 900 classroom hours (including hours obtained toward a Salesperson's license.) Once the license is obtained, a broker must take at least 15 hours of Mandatory Continuing Education to renew the license every two years.

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    INVESTING

    Many individuals invest in real estate on a full-time basis. Others invest only occasionally. Active investors are "actively" involved in the investment decision-making process, and they are "actively" involved in the management of the property. Passive investors may decide what is bought, but they leave the how of managing the property to a professional property manager.

    Investors usually have certain minimum requirements that must be met before a property will be considered for purchase. Return on Investment (ROI) requirements must be met. For example, and investor may not consider a property unless it provides for a ROI of at least 15%.

    Most investors want a positive cash flow on a property, which means that they prefer real estate as an investment that has monthly income from rents exceeding the monthly expenses of the property. If a positive cash flow is not present, then the investor at least expects appreciation in value.

    For some investors financial concerns are not the top priority when choosing an investment. Consider, for example, the situation of a parent buying a condo for a child at college.

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    DEVELOPING

    A developer is an individual or company that acquires land and creates the infrastructure that is needed for residential communities such as roadways and utilities. Real estate development is an old enterprise. Private developers were a well-known part of the commercial landscape during the times of Julius Caesar. Real estate development was given a huge boost when commerce and trade increased around the 11th century A.D., leading to the development of the modern cities of Europe.

    When considering land for purchase, developers usually focus on areas that are in the direction of growth. Developers can go the city offices to examine the master plans that have been developed. Trends evolve that indicate the directions of growth.

    Once a potential site is located, the land acquisition study can begin, and this study can be divided into six categories, as described by Ralph and Robert Pisani in Investing in Land. These categories, and the factors that should be considered in each are listed below.

    Property Inventory: (a) legal description, (b) size of property, (c) current use of land and income earned, (d) title to property, (e) liens against property, (f) easements and rights of way, (g) deed restrictions, (h) assessments, and (i) property taxes.

    Environmental Analysis: (a) microclimate, (b) water, (c) vegetation, (d) topography and land survey, (e) soil type, and (f) external factors (e.g. views, noise, odors)

    Utilities: (a) water, (b) sewer, (c) electricity, (d) gas, (e) telephone, (f) cable television, and (g) solid waste disposal

    Regional Inventory: (a) adjoining land use, (b) community facilities, (c) schools, (d) emergency services, (e) surface transportation, (f) public transportation, (g) existing and proposed land uses, and (h) growth patterns

    Government Regulations: (a) permits and regulations, (b) zoning, (c) subdivision regulations, (d) environmental regulations, and (e) city and county comprehensive plan

    Development Decision: (a) assessment of the land acquisition study, (b) market analysis, (c) development concept, (d) financing options, (e) negotiating land acquisition, (f) price and conditions, and (g) proceed or cancel

    For additional information, visit the Web site of the Urban Land Institute at www.uli.org.

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    BUILDING

    A builder is an individual or company that acquires land, constructs properties, then sells those properties. The difference between what they can ultimately sell the property for and their costs to acquire the land and build is the profit.

    The level of production may range from one to hundreds of homes a year, depending upon the size, resources, and business goals of the builder.

    Construction loans allow the builder to finance the building of the property. Once the property is sold, the construction loan is paid off.

    Larger builders usually have a beautifully decorated model home that is used as a meeting place for prospective buyers to discuss options that are available with the construction of a new home.

    Builders usually sell homes during any one of three phases: (1) A pre-sale is the sale of a vacant lot plus plans for the floorplan/design that the buyer desires, (2) a sale of a property under construction, and (3) the sale of a spec-home (a home with construction completed).

    The larger builders advertise heavily, including placing ads in the local newspaper, and on radio and television. They also send mailers to local real estate agents and renters.

    In the July 1987 issue of Professional Builder, the largest builders in the country, on average, broke down the price of a home as follows:

    • 14.5%: Raw land
    • 11.5%: Land Improvements
    • 24.3%: Materials
    • 20.3%: Labor
    •  7.6%: Overhead
    •  4.3%: Financing charges
    •  6.1%: Marketing and Sales
    •  3.1%: Advertising
    •  8.3%: Profit

    For additional information, visit the Web site of the National Association of Home Builders at www.nahb.com.

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    APPRAISING

    The job of an appraiser is to assist in the determination of fair market value for a specific property. There are several methods for determining value, but all are simply tools for ascertaining current fair market value.

    There are several levels of professional designations. The first level is the Appraiser Trainee, and this designation identifies the absolute beginner in the field. There are no requirements to begin training.

    The Provisional Licensed Real Estate Appraiser (REA) designation does not require experience, but 90 cumulative class hours of instruction are required.

    The State Licensed Appraiser must have acquired 2,000 hours of experience in addition to the 90 class hours of instruction required for the lower level designation.

    The Certified Residential REA must have amassed 2,500 hours of experience and 120 class hours of instruction.

    The Certified General REA is the highest level designated by the state, and requires a minimum of 3,000 hours of experience and 180 class hours of instruction.

    A typical home appraisal costs at least $350.00, and even more if more than one method of valuation is required. Of this fee, between 25% and 100% goes to the appraiser, depending on the level of designation. The lower level appraisers, like the Licensed REA, might only earn 25% of the appraisal fee by his appraisal company. On the other hand, a Certified General REA who owns his or her own appraisal company would receive 100% of the cost of the appraisal as payment.

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    SURVEYING

    Currently there are over 2800 licensees in the State of Texas. The state regulatory agency for surveyors is the Texas Board of Professional Land Surveying. Their phone number is (512) 239-5623.

    The first level is a Surveyor in Training. Four years of experience are required, followed by a 16-hour qualifying examination, before a Surveyor in Training can become a Registered Professional Land Surveyor (RPLS).

    A four-year bachelor's degree is required to become a RPLS, including at least 32 college hours of surveying-related classes.

    Although a property owner can order a survey at any time, a survey is typically ordered only when a property is under contract for sale. The buyer and/or the buyer's mortgage company usually require a survey to be finished prior to closing on the sale. A survey indicates boundaries, building lines, oil or gas pipelines, roadways, easements, and positioning of dwellings and fences on the property. One of the most important aspects of a survey is to make sure a property owner does not have any problems with an adjoining piece of land. For instance, a survey will indicate if a neighbor's fence is placed on the subject property.

    Surveys are very precise, and some surveyors have invested in state-of-the-art equipment such as a GPS (global positioning system). This system can give latitude and longitude coordinates anywhere on earth. A GPS costs at least $70,000. Another high tech piece of equipment is the Total Station, a machine that provides both distance and angular measurements. It costs around $35,000. CAD (computer aided drafting) is also used to ensure precision.

    A survey for a lot in a recorded subdivision in the Austin area costs around $350.00. If documentation about a flood plain is needed, additional costs of up to $200 may be incurred.

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    COUNSELING

    Counseling, in a general sense, is often an activity that an agent does routinely with each and every customer or client. Agents have expertise that they share with customers and clients during transactions. But it is possible that an agent could earn an income by exclusively providing counseling. In this sense, counseling would probably be performed on a fee basis, and the fee would be determined based on one or more factors such as time spent with the customer, and difficulty of the task(s) performed.

    There may be instances when an individual simply needs advice from a qualified real estate professional. In such a case, the agent can counsel the individual and can be paid fairly for that counseling session. One example would be of an individual who is trying to sell their own home without a listing agent. They may prefer to market their own home rather than hiring a real estate professional, but they may realize that there are some segments of the transaction for which they need professional advice. Perhaps they need blank contract forms, or perhaps they need advice from a real estate agent on how to structure an offer on their property.

    For additional information, visit the Web site of Counselors of Real Estate at www.CRE.org.

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    ECONOMIC FORECASTING

    Larger real estate companies may benefit from having an economist as a salaried staff member. The expertise of the economist would benefit the company in many ways, especially with regards to the financial considerations of the firm. Thrifty management of expenditures or consumption of money can benefit a real estate company. The management of the resources of a company, especially with a view towards its productivity, can help the company maintain a competitive edge. An economist with a real estate company would specialize in the knowledge of (a) economic order quantity--a method of determining the optimum amount of materials that need to be ordered on a regular basis, (b) economies of scale--the lowering of costs through the acquiring of larger volumes, and (c) economies of scope--the lowering of costs through the expansion of services.

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    URBAN PLANNING

    An urban planner would not necessarily need a real estate license, but they would be directly involved in real estate matters. As cities grow larger, urban planners help make sure that growth and expansion is results in an optimal physical pattern. Urban planning grew out of the professions of architecture, engineering, surveying, and landscape architecture, as well as from the work of economists, social workers, lawyers, public health specialists, and municipal administrators.

    Urban planners deal with numerous issues, including those related to land-use regulations, improvement programs, planning proposals, landscape architecture, and city beautification.

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    MORTGAGE BUYING

    Mortgage note buyers specialize in the purchase of seller-financed notes, deeds of trust, land contracts, contracts for deed, private mortgages, and other real estate notes. Note buyers specialize in buying contracts and notes in the owner-financed mortgage market.

    Two of the most common reasons that a seller would provide financing for a buyer are (a) the buyer has difficulty getting approved for a loan, and (b) the property may not meet the guidelines necessary for it to be able to be sold on the secondary mortgage market.

    Why would an owner of a mortgage want to sell? If an individual is collecting payments on an owner-financed mortgage (seller financing), selling the contract to note brokers or note buyers is an excellent way to have cash in order to realize new financial goals such as starting a new business, investing in real estate, paying a child's college tuition, etc. Also, an individual who sells a note can alleviate the risks and hassles associated with holding the note which include (a) avoiding default and subsequent foreclosure, (b) keeping track of principal and interest, (c) bankruptcy of the payer, (d) federal tax reporting requirements, (e) deterioration or destruction of the property, (f) verifying property taxes and insurance are current, and (g) estate planning issues.

    In some cases note brokers will provide a note holder with two or more quotes. A "whole" purchase results in the most cash to them now and ends the worries regarding the real estate contract or note. A "partial" purchase allows them to get some cash now by selling some of the future payments and then getting the note back with payments resuming to them. Another option is to sell part of their monthly payment for cash now and continue to receive monthly income. Many customers have found our partial purchase options beneficial for tax and retirement planning!

    How notes are bid on:

    When note buyers make a bid on a real estate or land contract, they must consider several factors. Nearly all of the factors fall within one of the three following categories:

    (a) THE REAL ESTATE: What type of property is it? Where is it located? Could it be easily resold if the contract went into default?

    (b) THE PAYER: How long has the current payer been making payments? Have the payments been made on time? Does the payer have a good credit history? Does the payer live in the secured property?

    (c) THE CONTRACT: What is the current balance of the contract? What are the interest rate and payment amount? How long will it take to collect all of the payments?

    Item number three above involves a concept called the Time Value of Money. This concept can be summarized as follows:

    1. A seller has sold property for which they are receiving payments.
    2. The payments they receive continue into the future for a specific period of time.

    They are now selling the future stream of payments to get more cash now instead of waiting for each payment to come in. The amount of cash they are paid you depends VERY MUCH on the amount of time they note buyer must wait for the remainder of the payments under the terms of the original owner-financed contract. Immediate cash has more value than future money because it can be used at once and because inflation and other risk factors impact future dollars to a great extent. Private mortgage contracts, land contracts, and real estate notes usually have higher interest rates than conventional mortgages, which make them very attractive to mortgage investors. This is especially true when interest rates on the regular mortgage market are low.

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    LOBBYING

    The job of a lobbyist is to influence legislation on behalf of a special interest group. The lobbyist also tries to gain support for bills that are proposed that positively affect the special interest group they represent. They get support for a bill by initiating support letters to their colleagues, negotiating compromises, coordinating strategy sessions, and providing guidance, analysis and counsel. It can be difficult to maintain optimism throughout the legislative process, so a lobbyist must have the qualities of patience, tenacity, and diplomacy.

    The National Association of Realtors was recently ranked 17th out of the top 25 most powerful lobbying groups in Washington D. C. by Fortune magazine.

    Recent lobbying efforts at the state level by the Texas Association of Realtors include preliminary actions that led to bills on manufactured housing, property owners' associations, cancellation of PMI at a certain loan-to-value ration, raising FHA loan limits, and requiring specific types of locks on rental property.

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    SYNDICATION

    Syndication involves investing in branch offices or franchise offices. As companies expand, new opportunities arise. Owning one or more branch offices may enable an individual to realize expanded profits in new markets. Success in one geographical location does not, however, guarantee success in a new location or for a new target market. The proper timing of such a venture, coupled with strong management skills, may allow the owner/investor to realize success. Approximately 40 percent of all REALTORS work for a franchise office.

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    INSURANCE SALES

    There are three main types of products that insurance agents sell that are directly related to the real estate industry. The first type is hazard insurance. Hazard insurance protects a homeowner in the event the property is damaged. Most mortgage companies require that a homeowner have current hazard insurance. If the home were to burn down, the hazard insurance would protect the financial interest that the mortgage company has in the property.

    The second type of insurance product related to the real estate industry is that which is commonly known as a "home warranty," or a "home service contract." Salespeople of home warranties work closely with real estate agents. Home warranties are typically paid for at the time that a home is purchased, and they protect a new homeowner when repairs are needed to the systems within a home. For instance, if the air conditioning unit in a home becomes faulty while a home warranty is in effect, the homeowner only needs to pay for the cost of a service call; the repair itself (i.e., parts and labor) is paid for by the home warranty company.

    The third common insurance product offered by insurance salespeople to those in the real estate industry is known as Errors and Ommissions (E&O) insurance. E&O insurance is paid for by real estate companies and is used when a customer or client sues the real estate company.

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    ZONING SPECIALIST

    Zoning specialists are experts in matters related to the zoning of real estate. Most urban real estate has a certain zoning designation, and that zoning type determines what type of structure can be constructed on the property. A property that is zoned for residential use cannot have a commercial structure built on it without first changing, or gaining an exception to, the zoning designation. A zoning specialist may be hired on an as-needed basis to represent a client (e.g., a developer) for a specific proposed project. The zoning specialist would work through the proper local governing body when requesting a modification of a zoning designation for a property.

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    EDUCATION

    An educator in real estate has many opportunities.

    College-credit courses may be offered at local universities and colleges. These courses are usually part of a curriculum of a degree program that may be useful for a career in real estate. For example, courses in finance, advertising, marketing, geography, and mass communications may be very helpful for anyone planning a career in real estate.

    Community colleges may offer courses that may be taken to satisfy licensing or renewal-of-license requirements. In Texas, depending upon the number of college-level courses taken upon application for a real estate license, applicants for a real estate license need to take from three to six 30-hour courses.

    Private real estate instruction schools also offer the 30-hour courses. They may also offer the shorter courses that are required for licensees to satisfy the requirements for periodic MCE (Mandatory Continuing Education).

    Educators for real-estate related topics can design and implement instruction for their own seminars and instructional classes. Home-buying seminars are common. Also, seminars and classes instructing real estate agents in the use of modern technology are becoming more and more necessary as technology becomes increasingly integrated in the real estate profession.

    For additional information, visit the Web site of the Real Estate Educators Association at www.REEA.org.

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    BUILDING PERMIT SPECIALIST

    Those interested in building a structure must often get approval from the city before construction commences. A building permit specialist typically works for a local government, and is in charge of reviewing and approving or disapproving requests for building permits. Building plans are submitted by a developer or builder to the building permit specialist who, in turn, reviews the plans to make sure they are consistent with current building codes.

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    EASEMENT AND RIGHT-OF-WAY REGISTRANT

    A right-of-way specialist is one who is registered with, and works for, a governmental entity, typically at the local or county level. As cities expand, it is often necessary to acquire land that is privately owned. The right-of-way specialist works with all aspects of the acquiring of that land. In Texas, Easement and Right-of-Way specialists are registered at the state level by the Texas Real Estate Commission. There are approximately 808 male and 134 female Registrants at the present time.

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    PROPERTY INSPECTION

    Currently there are approximately 1,861 male and 86 female licensed real estate inspectors in the State of Texas. The state regulatory agency for inspectors is the Texas Real Estate Commission. Their phone number is (512) 459-6544.

    Real estate inspectors examine a property in great detail, often spending up to two or more hours at a home. They basically want to determine if the features of the subject property are functioning as intended. They are usually hired by home buyers who want to ascertain the condition of a property prior to purchase. But they may also be hired by the seller(s) of a property prior to placing a home for sale in an attempt to anticipate the repairs that may be necessary.

    Since real estate inspectors are very conservative by nature, they not only indicate the repairs that a property needs, but they will also indicate any potential problem that a property may have.

    Since building codes are modified from time to time, inspectors will also place an item on their repair report that, while it may be functioning properly, does not meet current building codes.

    There is a uniform inspection report that all inspectors are required to use. Inspectors may add to this report, but the uniform report form, filled out completely, is the minimum paperwork that is required. A property inspection for a single family home in the Austin area starts around $185.00, and can cost up to $500.00 for very large homes. For an additional fee of around $49 to $100, many inspectors are qualified to perform inspections for wood-destroying insects such as termites.

    There are three levels of licensing for real estate inspectors. The Apprentice Inspector is the beginning-level inspector and must work for at least 90 days under a Professional Inspector (described below), and must assist in a minimum of 25 inspections. The second level of inspection licensing is the Real Estate Inspector. A minimum of 90 class hours of courses are required for this license. Many inspectors choose to remain at this level and can work on their own to do so. However, if they want to have other inspectors work for them they must obtain the third level of licensing, the Professional Inspector. To qualify for this level, more education is required, and a total of 200 inspections must have been completed.

    For additional information, visit the Web site of the American Society of Home Inspectors at www.ASHI.com.

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    PERSONAL ASSISTANT

    Personal assistants work for licensed real estate sales professionals, and do not need to be licensed. However, if a personal assistant does have a real estate license, that individual is allowed a greater scope of responsibilities, including the actual showing of properties to prospective purchasers.

    The term "assistant" does not imply a menial job. It is difficult for a successful real estate agent to expand their business or increase production without a good support staff. The assistant helps the real estate agent in matters that will allow the agent to meet more customers, earn more listings, and sell more property.

    An unlicensed personal assistant may perform the following duties: (a) answer incoming phone calls and e-mail, (b) send out information packets prepared by the licensed agent, (c) develop marketing tools such as flyers and mailings, to be approved by the licensed agent, (d) schedule appointments, (e) put up yard signs, (f) get keys duplicated and obtain lockboxes, (g) enter listings into the MLS and other database management, (h) arrange for property repairs, (i) meet with appraisers and inspectors, and (j) coordinate closing tasks with title company and mortgage company. A licensed personal assistant can do all of the above with the addition of (a) list property, (b) show property, (c) discuss or negotiate terms of a possible sale, (d) discuss or interpret features of a property such as location, neighborhood, and schools, (e) solicit prospective clients, (f) give MLS data to clients, (g) provide property information, and (h) discuss or interpret the content of contracts and other forms.

    A personal assistant may be compensated in any number of ways including salary, percent of commissions, profit-sharing, and incentives.

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    PROPERTY MANAGEMENT

    The job of a property manager is to manage rental real estate. Many investors do not have the time, nor do they want to devote the time, to active property management. Investors often do not even have time to see their properties on a regular basis, especially if they live out of town, and the services of a professional property manager are indispensable.

    The duties of property managers may vary, depending upon the agreement they have made with the owner of the property, but their primary duties consist of leasing the property when vacant, holding rental deposits, collecting rents from current tenants, evicting non-paying tenants, providing routine maintenance, and coordinating capital repairs to the property.

    The fee that a property manager charges is usually based on a percentage of the monthly rent. Eight to ten percent of the monthly rent is considered typical. If a property manager is responsible for multiple units in a condominium complex, the fee charged may be approximately five to six percent of the rents collected.

    Property managers usually provide cash flow statements to the owners of the properties on a monthly basis. They communicate verbally with owners on an as-needed basis; for instance, when an owner's approval is needed prior to commencement of repairs.

    For further education in the field of property management, courses are offered from a number of sources. Two of those are The National Apartment Association (NAA) and The Institute of Real Estate Management (IREM). The NAA can grant the following designations or certifications: Certified Apartment Manager (CAM), and Certified Apartment Property Supervisor (CAPS). IREM also has courses that can be taken and designations that can be earned.

    For additional information, visit the Web site of the Institute of Real Estate Management, www.irem.org.

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    ON-SITE SALES REPRESENTATIVE

    An on-site sales rep is an individual who works at a single location selling the properties of one owner (e.g., one builder). The on-site rep sells new homes that have recently been built, or homes that are under construction, or homes to-be-built.

    Another example of an on-site rep is when one owner owns multiple properties at one location, like at a condominium complex, or a multiple-duplex owner on one or more adjacent streets. An on-site rep may be needed to manage the properties full time for the owner, and may work to sell units when needed.

    An individual who represents the properties of only one owner does not need to have a real estate license. They can be licensed, however, and an owner may prefer that the on-site rep have a real estate license. A licensee who is also a member of a local Board of Realtors may also choose to have the benefit of belonging to the multiple listing service. The multiple listing service provides wide exposure of homes for sale to all other subscribing members.

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    FINANCING

    Mortgage lenders work to generate loans for property purchases, property refinances, or home equity loans. A distinction should be made between "loan officer," mortgage banker, and mortgage broker. In 1999, the Texas Legislature passed SB 1074, The Mortgage Broker License Act, which requires the licensing of mortgage brokers. The law defines a mortgage broker as "a person who receives an application from a prospective borrower for the purpose of making a mortgage loan from that person's own funds or from the funds of another person. The law defines a loan officer, who also must be licensed, as "an individual sponsored by a licensed mortgage broker for the purposes of performing the acts of a mortgage broker." A mortgage banker is exempt from the licensing law. Such a banker is defined as a person (a) approved by HUD as a mortgagee with direct endorsement authority, (b) an approved seller/servicer of Fannie Mae or Freddie Mac, and/or (c) an approved issuer for Ginnie Mae.

    The National Association of Mortgage Brokers (NAMB) recently reported that two-thirds of its members closed loans in the lender's name with the lender's funds while one-third closed loans in their own name using lender's funds. Brokers are now very active in the residential loan market and offer borrowers a variety of sources for a brokerage fee.

    The main role of the mortgage lender is to meet new customers and generate new business. Loan officers typically have both a loan processor and a loan underwriter who assist in singular phases of the loan process. The processor is an individual who helps the loan officer collect all of the required financial-related data from a customer. Once the file is complete, it is submitted to an underwriter who approves or denies the loan. The underwriter's primary role is to make sure that a loan meets the guidelines and requirements for its respective loan type. Not all customers are qualified for the loans for which they apply. It is therefore to the benefit of both the loan officer and processor to submit a loan for a customer that fulfills the minimum standard for that loan type.

    Loan officers typically earn a commission of around one-half of one percent of the loan amount of each loan they generate. For example, a loan officer would earn $500.00 for generating a $100,000 loan ($100,000 x .005). In order to avoid a personal financial interest in loan generation, an underwriter is usually a salaried employee of a loan institution. A loan processor may be paid on either a salaried or a commission basis, depending on the arrangement made with the loan officer or lending institution.

    Loan processors are typically paid a salary, but can earn a bonus for each file closed.

    Underwriters are almost always salaried employees.

    For additional information, visit the Web site of the Mortgage Bankers Association of America at www.MBAA.org.

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    TITLE INSURER

    Title insurers, or escrow officers, work at title companies and specialize in coordinating all of the documentation that is necessary for the transfer of ownership of real estate. Their duties include researching public records for recorded documents relating to a property, such as deeds and liens. They also organize all of the documentation required at the settlement of a sale. A standardized settlement statement is used at most closings, and it clearly shows the costs are charged to the buyer and the seller.

    Perhaps the most important role of the title insurer is to make sure that the title transfers "clean" to the buyer, and that all prior liens against the property have been settled. Title companies routinely issue two types of policies: "owner's," which covers the home buyer; and "lender's," which covers the bank or other lending institution over the life of the loan. The title policies are issued at closing after an extensive research of a property's history has been completed. A owner's title policy is basically an insurance policy that guarantees clear title to a buyer of a property. If ever a claim of ownership was made against the owner of a property, the title company would protect the insured owner, and would go to court, if necessary, to guarantee clear title.

    Escrow officers are licensed by the State. The fees they earn are usually determined by the premium amount of a title policy. Premiums for title insurance are based on the sales price of a property, and are standardized across the state of Texas. Approximately 17% to 19% of the title premium goes to the underwriter, and approximately 81% to 83% of the title premium goes to the issuing office. Title companies also charge a nominal escrow fee or settlement fee, which is usually split at closing by the buyer and seller of a property.

    For additional information, visit the Web site of the American Land Title Association at www.alta.org.

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    EXCHANGE SPECIALIST

    Section 1031 of the Internal Revenue Code allows owners of investment real estate to exchange (rather than sell) real estate in order to defer recognition of capital gains taxes. An exchange specialist is one who knows the rules associated with Section 1031 and works with a property owner to implement an exchange. By deferring the capital gains tax, and investor can increase cash available for re-investment by approximately 28 percent, which allows a significantly larger re-investment. For instance, if an investor has a gain of $100,000 upon which tax of 28 percent would be payable, by leveraging the tax savings of $28,000 with an 80 percent loan, the investor can purchase an additional $140,000 property.

    To qualify for deferral of gain under Section 1031 of the Code, the taxpayer must exchange investment property or property held for use in a trade or business for "like kind" property. "Like kind" property is very broadly defined and almost any type of real estate will qualify. For instance, and investor can exchange a small apartment complex for a retail center, a farm, a triplex, a warehouse, or any other type of real estate. A personal residence does not qualify because it is not considered investment property.

    Besides the "like kind" requirement, the other basic elements of a 1031 tax-deferred exchange include (a) the replacement property (properties) must be identified within a specified time period, (b) the taxpayer must not actually or constructively receive money or property before the actual receipt of like-kind replacement property, and (c) as mandated by the federal tax code since 1991, a "qualified intermediary" must be used in all exchanges.

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    REAL ESTATE LAW

    Some attorneys specialize in real estate law. If they do so, then their full focus is devoted to matters pertaining to real estate. Some attorneys organize and handle real estate closings. Others may offer professional consultation as needed.

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    PARTNERSHIPS

    There are many real estate activities that a partnership may participate in, but the most common are investing, developing, and building. There are two types of partnerships:

    A general partnership consists of general partners who share the management of the entity and are personally responsible for the partnership's obligations.

    A limited partnership consists of two classes of partners: general partners and limited partners. The general partners manage the limited partnership and are personally responsible for its obligations. The limited partners are similar to shareholders of a corporation. They cannot participate in the management of the entity, but can only determine who will manage the partnership. The limited partners share in the profits of the partnership, but their losses are limited to the amount of their capital contribution.

    Income from the partnership is taxed to the individual partners at their individual tax rates. The partnership is required to file a tax form (Form 1065) that reports its income and loss to the IRS, and also reports each partner's share of income and loss on Schedule K-1 of the 1065. For tax purposes, all of the income of the partnership must be reported as distributed to the partners, and they will be taxed on it through their individual returns. This is true whether or not the partners actually received their shares of the income, and even if the partnership agreement requires that the money be retained in the business as partnership capital.

    Partnerships are generally the most flexible form of business for tax purposes, since the income and losses distributed to each of the partners can vary (e.g., one partner can receive 33 percent of any profits but 50 percent of any losses), as long as a business purpose other than tax avoidance can be shown for the split. In the early years of most businesses, the company generates losses rather than profits, and the partnership form allows the partners to use these losses to offset other income they may have from investments or another job. One caveat: the partners may not deduct losses that exceed the amount of their investment in the business. But any losses that can't be deducted as a result of this rule can be deducted in subsequent years if the partner increases his or her investment.

    Although the individual partners (not their partnership) are the ones paying the income tax, most of the choices affecting how income is computed must be made by the partnership, rather than the individual partners on their own returns. These choices include elections of general methods of accounting, methods of depreciation, and accounting for specific items such as organization and business startup expenses and installment sales. Partners are required to treat partnership items in the same way on their individual tax returns as they were treated on the partnership return.

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    WRITING

    There are many writing opportunities for real estate professionals. Countless periodicals, journals, and newspapers contain articles written by experienced real estate practitioners. Also, as new educational courses are developed, the course content is outlined and written by one or more individuals. Some real estate professionals write entire books on various topics related to investing in or practicing real estate.

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    Specializations in Residential Real Estate

    A residential salesperson may decide to specialize in some area and may focus on a particular niche market. Below are listed some of the specializations that may be chosen. Specialization is not for everyone, however. Many agents may find it practical to develop expertise in two or more specific areas.

    Neighborhood New homes Buyer's representative
    Vacant lots First-time buyers Certain price range
    Investment properties Property value protestation Sphere of influence
    Mortgage Insurance refunds Retirement residences Vacation residences
    Foreclosures For sale by owners (FSBOs) Timeshares
    International customers Relocation Leasing
    Builder sales representative Realty office management (hybrid specialization)

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    Basic Knowledge & Skills Required
    Marketing Advertising Negotiating
    Versatile social skills Financing Technology
    Property condition Construction basics Topography
    Legislation Current events Effective time management
    Legal issues Environmental concerns Impeccable Integrity



    Regular Responsibilities of a Real Estate Agent
    Preview properties Send thank-you letters Send e-mail
    Computer searches Follow-up calls Cold calling (where legal)
    Show properties Design flyers, newsletter, etc. Update contact database
    Update Web site Continuing education Keep up with technology
    Networking Distribute business cards Prior-customer communication
    Current events Communicate with lenders Hold Open Houses


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    © Robert Milton Underwood, Jr.

    Robert Underwood is the licensed Texas Real Estate Broker of real estate company Underwood Investments