1. The Real Estate School
U N I T 1 3
THE REAL ESTATE BUSINESS
1
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2. REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• Brokerage (Unit 14) – A Broker is a person or company licensed to
buy, sell, exchange, or lease real property for others and charge a
fee for these services
2
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3. REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• Real Estate Salesperson – Licensee employed by or associated with
the Broker
• Conducts brokerage
activities on behalf of
or for the broker
• NOTE: Acquiring a PA
license only entitles agent
to sell real estate in PA
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4. REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• Licensee – A person who has
satisfied the requirements set forth
by a licensing agency or state
legislation
• Real Estate Licensing and Registration Act and the State Real
Estate Commission’s Rules and Regulations govern how
licensees provide real estate services
4
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5. REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• Appraisal (Unit 20) – The process of estimating a property’s market
value based on established methods and the appraiser’s
professional judgment
• Appraisers must be licensed or certified
for many federally related transactions
• Appraisers must be certified by the
State Board of Certified Appraisers
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6. REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• Property Management (Unit 22) – A company or person hired to
maintain and manage property on behalf of an owner
• Responsibility to protect the
owner’s investment and
maximize the return on
investment
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7. REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• Financing (Unit 11 & 19) – The business of providing funds to make real
estate transactions possible
7
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8. REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• Subdivision and Development (Unit 2) – Independent processes that
usually occur separately
• Subdivision – The splitting of a
single property into small parcels
• Development – The construction
of improvements on the land
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9. REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• Home Inspection – An analytical report of a visual survey of a
property’s structure, systems, and site conditions
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10. REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• Home Inspection (cont’d)
• Frequently a contingency in an agreement of sale
• Home Inspection Law (2001) requires that
home inspectors be members of a national
trade association with requirements of a
minimum of 100 home inspections, passing
an exam, and continuing education courses
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11. REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• Counseling – Providing clients with competent independent advice
based on sound professional judgment
• Real estate Counselors
must be licensed real
estate brokers
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12. REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• Education – State licensing laws establish the minimum
educational requirements for obtaining and keeping a real estate
license
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13. • Professional Organizations – Many serve the real estate business
• National Association of REALTORS® (NAR) – Largest trade
association that serves real estate licensees
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• Sponsor affiliated organizations that offer
professional designations
• Members subscribe to a code of ethics
REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS

14. • Affiliated institutes, societies, and councils:
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REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS

15. • NAR Code of Ethics is revised every
year
• REALTORS® are responsible for knowing
the document’s content
• “I didn’t know that was a violation” is
not an excuse
15
REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS

16. • NAR Code
16
REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS
• There is no such thing as a licensed
REALTOR®
• A license is only issued by the State

17. 17
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Residential Commercial Mixed-Use
Special-Purpose Agricultural Industrial
• Six categories of real
property
• General real estate
services involving all six
categories are rarely
performed by most
firms
REAL ESTATE: A BUSINESS OF MANY
SPECIALIZATIONS

18. THE REAL ESTATE MARKET
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• The function of a market is to provide a setting in
which Supply and Demand can establish market value

19. THE REAL ESTATE MARKET
• Supply – The available number of
properties in the market at a certain
price
• Demand – The number of Buyers who
desire the property and who have the
financial ability to acquire the property
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20. THE REAL ESTATE MARKET
Supply increases &
Demand remains stable
Prices go DOWN
20
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Demand increases &
Supply remains stable
Prices go UP

21. THE REAL ESTATE MARKET
Supply decreases &
Demand remains stable
Prices go UP
21
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Demand decreases &
Supply remains stable
Prices go DOWN

22. THE REAL ESTATE MARKET
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Less than
5 months
Greater than
7 months
Between
5-7 months

23. Neutral Market
Seller’s Market
(Prices increase)
Buyer’s Market
(Prices decrease)
HOUSING INVENTORY LEVELS
23
SOURCE: National Association of REALTORS®
9.5
8.5
7.5
6.5
5.5
4.5
3.5
2.5
Jan
2011
Jan
2012
1.5
Jan
2013
Jan
2014
Jan
2015
Jan
2016
Jan
2017
Jan
2018
Jan
2019
Jan
2020
Jan
2021
Jan
2022
Jan
2023

24. THE REAL ESTATE MARKET
• Two characteristics of real estate govern the way the market reacts
to the pressures of supply and demand:
• Uniqueness – No two parcels are exactly alike
• Immobility – Property cannot be relocated
24
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25. THE REAL ESTATE MARKET
• Factors Affecting Supply:
• Labor Force & Construction Costs – Increases or decreases affect
number of properties on the market
• High taxes or construction fees
discourage development
• These additional costs are passed
on to Buyers/Tenants causing
market to slow
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26. THE REAL ESTATE MARKET
• Factors Affecting Supply (cont’d):
• Government Controls and Fiscal Policies – Monetary policies
can have a substantial impact on the market
• The Federal Reserve (Fed)
establishes interest rates
• FHA/Ginnie Mae affect the
amount of money available
to lenders
26
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27. THE REAL ESTATE MARKET
27
SOURCE: Freddie Mac
Current Interest Rate
6.74%*
* March 14, 2024
8.86%
12.70%
8.12%
4.09%
Average Interest Rate Over the Last 50 Years
1970s 1980s 1990s 2000s 2010s
6.27%

28. THE REAL ESTATE MARKET
• Factors Affecting Demand:
• Population – As population increases or decreases, so does
demand for housing
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29. THE REAL ESTATE MARKET
• Lancaster County Population Growth
29
Geographic Area Pennsylvania Lancaster County
2010 Population 12,702,379 519,445
2022 Population 13,062,074* 559,692*
Increase in Population 359,695 40,247
Percentage Increase in
Population
2.83% (US Rank: 43 of 50) 7.75% (PA Rank: 7 0f 67)
* Projected
SOURCE: United States Census Data

30. THE REAL ESTATE MARKET
• Factors Affecting Demand (cont’d):
• Demographics – Family size, ratio of
adults to children, ages of children,
number of retirees, family income,
lifestyle, single-parents, and empty-
nesters
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31. THE REAL ESTATE MARKET
• Factors Affecting Demand (cont’d):
• Employment and Wage Levels – Decisions about whether to buy
or rent and how much to spend on housing are closely related to
income and employment
31
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32. HOME OWNERSHIP
• People buy their homes for psychological as well as financial
reasons
• Home is an investment that can appreciate and provide tax
incentives
• Home also provides pride,
security, and a sense of
belonging
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33. HOME OWNERSHIP
33
SOURCE: Federal Reserve Board’s Survey of Consumer Finances
Homeowner Renter
$10,400
$396,200
Homeowner’s
Net Worth is
Almost
40X
Greater Than
Renter’s

34. HOME OWNERSHIP
34
Primary Reason For Purchasing a Home
Source:

35. HOME OWNERSHIP
• Types of Housing – Different forms of housing respond to the
demands of a diverse marketplace
35
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• Apartment Complexes
• Condominium
• Cooperative
• Planned Unit Developments (Master
Planned Communities)
• Converted-use Properties
• Retirement Communities
• Mixed-use Developments
• Manufactured Housing
• Modular Homes

36. HOME OWNERSHIP
• Housing Affordability – Factors to consider when making a
decision to purchase rather than rent:
• Length of stay in an area
• Financial situation
• Housing affordability
• Mortgage interest rates
• Tax consequences
36
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37. HOME OWNERSHIP
• Mortgage Terms – Mortgage terms and payment plans are two of
the biggest factors when deciding whether to own or rent a home
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38. HOME OWNERSHIP
• Ownership Expenses and Ability to Pay
• Owners should budget for utilities, trash removal, and
maintenance and repairs
• Monthly mortgage payments are made up of:
• P rincipal
• I nterest
• T axes
• I nsurance
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39. HOME OWNERSHIP
• Ownership Expenses and Ability to Pay (cont’d)
39
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Gross Income
Housing Ratio
28% Mortgage Payment
Gross Income
Total Debt Ratio
36%
Mortgage Payment
Car Payment
Student Loan
Alimony/Child Support
Credit Cards

40. HOME OWNERSHIP
• Ownership Expenses and Ability to Pay (cont’d)
• Housing and Total Debt Ratios can also depend on:
• Work history
• Type of loan
• Credit history
• Number of dependents
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41. HOME OWNERSHIP
• Investment Considerations – There are several financial
advantages to owning real estate:
• Property’s value increases
• Build-up of equity (paid-off
share of the property held
free of any mortgage)
• Income tax deductions
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42. HOME OWNERSHIP
• Tax Benefits – The government encourages home ownership by
allowing homeowners certain income tax advantages
42
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43. HOME OWNERSHIP
• Tax Benefits (cont’d)
• Capital Gains – The difference between the original cost of the
property and what it sells for today, minus certain expenses
• Exemption may be used repeatedly
• Must be the primary residence for at least two of the past five
years
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44. HOME OWNERSHIP
• Tax Benefits (cont’d)
• Capital Gains (cont’d)
• Taxpayers who file singly:
$250,000 exclusion
• Taxpayers who file jointly:
$500,000 exclusion
NOTE: The exclusions listed above are for 2024 – these numbers are different than what is in the book
44
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45. HOME OWNERSHIP
• Tax Benefits (cont’d)
• 2024 Capital Gains Rates with Income Brackets
45
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Long-Term Capital
Gains Tax Rate
Single Filers (Taxable
Income)
Married Filing Jointly Head of Household Married Filing
Separately
0% $0-$47,025 $0-$94,050 $0-$63,000 $0-$47,025
15% $47,026-$518,900 $94,051-$583,750 $63,001-$551,350 $47,026-$291,850
20% Over $518,900 Over $583,750 Over $551,350 Over $291,850
SOURCE: Internal Revenue Service

46. HOME OWNERSHIP
• Equity vs. Capital Gain
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Sales Price
$400,000
Mortgage Amount
$200,000
Equity
$200,000
Original Price
$100,000
Capital Gain
$300,000

47. HOME OWNERSHIP
• Capital Gains Tax Example:
John and Mary bought their primary residence 25 years ago for $95,000. They
are considering selling their home for $775,000 which was suggested by their
REALTOR®. There is no mortgage on the home. Between them, they make
$145,000/year in income and file their taxes as married filing jointly. If they sold
their home at the price recommended by their REALTOR®, would they have to
pay a capital gains tax? If so, how much?
47
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$775,000
- 95,000
$680,000
Sale Price
Original Cost
Capital Gain
$680,000
- 500,000
$180,000
Capital Gain
Exclusion
Taxable Amount X 15% = $27,000

48. HOME OWNERSHIP
• Tax Benefits (cont’d)
• IRA Withdrawal for down payment on home is allowed
• Must be a 1st time
homebuyer
• Limit on withdrawal
of $10,000
• Must be used within
120 days
48
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49. HOME OWNERSHIP
• Tax Benefits (cont’d)
• Homeowners may deduct the following from their gross income:
• Mortgage interest payments on 1st and 2nd mortgages*
• Real estate taxes*
• Loan origination fees
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• Discount points
• Prepayment penalties
* Certain limits apply

50. HOME OWNERSHIP
• Homeowners’ Insurance – Lenders usually require that
homeowners obtain insurance when the loan is secured by a
property
50
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51. HOME OWNERSHIP
• Coverage and Claims
• The most common policy is called a basic form
51
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• Fire or lightning
• Glass breakage
• Windstorm or hail
• Explosion
• Riot or civil commotion
• Damage from aircraft
• Damage from vehicles
• Damage from smoke
• Vandalism and mischief
• Theft
• Loss of property removed from
premises

52. HOME OWNERSHIP
• Coverage and Claims (cont’d)
• A broad form policy is also available
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• Falling objects
• Ice, snow, sleet damage
• Collapse of building
• Damage to hot water heater
• Leakage from plumbing or
heating/AC systems
• Freezing of plumbing or heating/AC
systems
• Damage to appliances, fixtures,
and wiring from short circuits

53. HOME OWNERSHIP
• Coverage and Claims (cont’d)
• Apartment and Condominium policies provide fire and
windstorm, theft, and public liability coverage for injuries and
damage sustained within the unit
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54. HOME OWNERSHIP
• Coverage and Claims (cont’d)
• Coinsurance Clause – Requires
owner to maintain insurance
equal to a specified percentage
of the replacement cost of the
dwelling
54
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55. HOME OWNERSHIP
• Comprehensive Loss Underwriting Exchange (CLUE Report) –
Database of consumer claims history that enables insurance
companies to access prior claims information in the underwriting
and rating process
• Five years of claims history
• Premium based on condition of
the property and buyer’s
insurance financial score
55
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56. HOME OWNERSHIP
• Flood insurance is always a separate policy and only covers
damage due to flooding
• The Federal Emergency Management Agency (FEMA) administers
the National Flood Insurance Program (NFIP)
56
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57. HOME OWNERSHIP
• Special Flood Hazard Areas (SFHAs) – Flood prone areas are
identified based on flood history and location
• Federally related loans require flood insurance
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58. HOME OWNERSHIP
• Special Flood Hazard Areas (SFHAs) (cont’d)
• Elevation Certificate – Supplied
by a licensed surveyor, engineer,
or architect that shows
compliance with community
floodplain regulations and
determines appropriate flood
insurance rates
58
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59. HOME OWNERSHIP
59
Enter the
address of the
property
https://msc.fema.gov/portal/search

60. HOME OWNERSHIP
60
Flood Insurance Rates in Pennsylvania*
* April 19, 2022

61. HOME OWNERSHIP
61
Flood Insurance Rates
• As of April 1, 2022, almost 4 million policyholders will see increased rates
• About 200,000 of them will face sharp increases
• 3.6 million will see moderate rate increases
• Adjustments will happen as policyholders renew their coverage
Question to Ponder: Should the
government be involved with
insuring flood prone properties?

62. HOME OWNERSHIP
• Special Flood Hazard Areas (SFHAs) (cont’d)
• Flood – A general and temporary condition of partial or
complete inundation of two or more acres of normally dry land
or two or more properties
• Physical damage to a building or personal property “directly”
caused by a flood
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63. HOME OWNERSHIP
• Advance Purchase
Required – Cannot
buy flood insurance
coverage based on
weather forecasts
63
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64. HOME OWNERSHIP
• Mine Subsidence Insurance (MSI) limits coverage
to damage to the structure
• Surrounding site and
personal property is
not covered
64
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