Real estate law, aka real property law, administers rights to use, own, transfer, and encumber land and its permanent additions. Due to the increasing importance of real estate in our economy and culture, real estate has become a major practice area.
Both federal and state laws administer most real estate law practice aspects. The most important aspects affected by federal laws more often include:
- Environmental statutes
- Federal tax laws
- Bankruptcy laws
- Consumer protection laws
However, state laws that handle real estate matters often include practices such as:
- Property lending or leasing
- Tenancy
- Mortgage
- Land construction
- Property disputes
- Foreclosures, and more.
Real estate law covers an immense legal area, regulated by state and federal statutes. However, knowing the basics of real estate law can let you better deal with property buying and selling matters.
Real estate law: The basics you need to know
Are you planning to buy your new home? Or do you want to work in the field of real estate law? You must learn the basics of real estate law. There are multiple subjects of real estate law ranging from mortgages and deeds to offerings and listings and much more.
Fortunately, the real estate law’s basics aren’t as complicated as you thought. However, learning more about these will surely give you a better understand of these matters.
What is the difference between residential and commercial real estate?
Generally, two types of real estate laws exist there. These include:
- Commercial real estate law
- Residential real estate law
The major difference between these is that commercial real estate law administers properties used for business, specifically. Commercial property can be anything from an agricultural property to a shopping center. Any real estate property that isn’t a private residence that someone can use for any business is commercial. Every commercial property must follow commercial real estate law.
This real estate law subject involves complex variants based on the state or city it’s located in. Therefore, having a commercial real estate attorney on your team to walk through the legal process will always be helpful.
On the other hand, residential real estate laws differ from commercial ones. Residential properties aren’t for business but private residences instead.
Homestead protection law affects multiple states. This law allows any property owner to protect a portion of the property from adverse possession laws and creditors.
Moreover, real estate laws usually include foreclosure and disclosure requirements, tenant and landlord laws, and zoning laws.
These rules usually affect residential properties according to their locations. Navigating different residential property laws can be easier with an expert attorney.
Fundamental real estate law terms to learn.
Real estate laws use different terms that are unfamiliar to laymen. However, learning some of these basic real estate law terms can make it easier to understand your contracts.
So, here we go:
Pre-qualification
Understanding what you can spend before making any real estate purchase is important. You can work with a lender to understand what you can afford realistically.
The lender will give you a pre-qualification document for your real estate agent. Being pre-qualified for a mortgage, you will get more favor from potential sellers; that’s worth it.
Purchase and sale
A purchase and sales agreement is a document you will sign after the seller accepts your offer. The key items on a Purchase and sale agreement usually include:
- Seller’s information
- Buyer’s information
- Property cost
- Mortgage account
- Walkthrough and property inspection details
- Deposit
- Sales commission
- Important dates
Mortgage
It is often almost impossible to collect the huge sum of cash required to buy a property. Buyers usually put down a deposit and finance the remaining amount from the mortgage.
Mortgage refers to borrowing money from a bank or any financial institute required to buy a new home. The debtor promises to pay the mortgage amount back with interest over time.
Most importantly, you will also sign a legally binding contract as a mortgage document, including all the agreement details.
Offers to purchase
If you’ve found a property within the price range you can afford, now you will make an offer to purchase. As a buyer, you can decide what to pay based on what you feel is fair.
You can submit your offer to purchase in writing with an earnest deposit.
Closing
Closing is when all the legal documents will come together with both the parties involved in the transaction. Both parties will sign financial documents and a settlement agreement. The seller will then transfer the property deeds to the buyer.
Earnest money
Earnest money is a certain deposited amount that a seller uses to assure a buyer’s seriousness of buying a property. Generally, a buyer pays up to 2% of the property’s asking price.
You can get the earnest money back if the deal doesn’t work through. However, the earnest money will serve as a down payment in case of a finalized deal.
Property deed
A property deed is a legal document used to transfer the right of property to its buyer. The document grants the ownership rights of the land. It also specifies that the property owner has a legal title to the property.
However, every state has different laws administering the deed’s creation, recording, and execution.
Zoning
Zoning is a constraint that controls the usage of a property. There exist three different zoning categories, including:
- Commercial
- Industrial
- Residential
Each of these categories has subcategories with detailed rules. However, zoning control occurs locally.
Property leasing and tenancy contracts
These contracts generally establish lease terms essential for both tenants and property owners. A real estate attorney can help you negotiate, clarify, and draft the lease agreement’s terms.
Taxes in real estate
The real estate field is subject to federal taxes. The amount of tax you have to pay as a property owner is a legal issue. However, helping you with the tax exemption is a part of the real estate attorney’s duties.
Foreclosure
Foreclosure is a process in which the mortgage lender repossesses the property because of a loan’s non-payment.
Final Verdict:
Even though there are plenty of real estate terms out there, however, the ones we have mentioned above can help you to understand the core of a real estate agreement with ease.
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