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Local governments establish development goals, also known as a master plan. is not a regulatory document but is rather a guide to planning for change rather than reacting to proposals. usually is long term, perhaps 20 years or longer, and often includes (a) a general plan that can be revised and updated more frequently, (b) plans for specific areas, and (c) strategic plans. Systematic planning for orderly growth consists of the following basic elements:
- Land use, including that which may be proposed for residence, industry, business, agriculture, traffic and transit facilities, utilities, community facilities, parks and recreation, floodplains, and areas of special hazards
- Housing needs of present and anticipated future residents, which may include rehabilitation in declining neighborhoods and accommodation of new housing in different dwelling types for households in all income levels
- Movement of people and goods, which may include highways and public transit, parking facilities, and pedestrian and bikeway systems
- Community facilities and utilities, which may include education, libraries, hospitals, recreation, fire and police, water resources, sewerage and waste treatment and disposal, storm drainage, and flood management
- Energy conservation to reduce energy consumption and promote use of renewable energy sources

In Pennsylvania The Pennsylvania Municipalities Planning Code contains laws governing the planning process. Municipalities are authorized to establish a comprehensive plan, zoning ordinances, and subdivision regulations to govern land use within their jurisdictions.
is a freehold estate that is limited in duration to the life of the owner or to the life of some other designated person or persons. Unlike other freehold estates, a life estate is not inheritable. It passes to future owners according to the provisions of the life estate. can be measured either by the duration of the life tenant's life or the lifetime of another person.

In Pennsylvania The Pennsylvania Probate, Estates, and Fiduciaries Code (which has been adopted consistent with the UPC) creates a legal life estate for the surviving spouse of a deceased owner. The surviving spouse is permitted one-third of the value of the deceased spouse's estate at the time of death. According to the law, the surviving spouse has the option of taking the specified percentage of the estate in lieu of the amount that is directed by the deceased's will. If the spouse dies intestate (without a will), then the statute directs the percentage distribution of assets to the surviving spouse and other specified heirs.

Because a legal life estate provides a future interest in ownership, the possibility exists that a nonowning spouse might attempt to claim an interest, even where there may not be one. Consequently, the nonowning spouse (along with the owning spouse) has been required to sign real estate documents to release any potential common-law interest in the property being transferred. Although the signature of the nonowning spouse is no longer a legal requirement, some lending institutions or title companies may still hold to the long-standing practice of requiring both signatures in real estate documents.
When a tenant breaches a lease or improperly retains possession of the premises, the landlord may regain possession through a legal process

When a court issues a judgment for possession to a landlord, the tenant must vacate the property. If the tenant fails to leave, the landlord can have the judgment enforced by a court officer, who forcibly removes the tenant and the tenant's possessions. The landlord then has the right to reenter and regain possession of the property.

Pennsylvania law requires that the landlord serve notice to the tenant at an appropriate interval before filing the suit—15 days to three months, depending on the circumstances. Once the tenant is served notice, the landlord files a complaint. Then the district justice issues a summons for the tenant to appear and answer the complaint. If the complaint is proven, the district justice enters a judgment against the tenant, ordering the tenant to deliver the property to the landlord. The judgment also may include monetary damages for the unjust detention of the premises, delinquent and unpaid rent, and other costs permitted by law or the terms of the written lease, including reasonable attorney fees.

When the court orders delivery of the property to the landlord, tenants must peaceably remove themselves and all their belongings. Otherwise, the landlord can have the judgment enforced by a constable who will forcibly remove the tenant and the tenant's possessions. The landlord must be careful to avoid harassing the tenant in any manner such as locking the tenant out of the property, impounding the tenant's possessions, or making the property uninhabitable by disconnecting services (such as electricity and natural gas).
held by the landlord during the lease term. is used if the tenant defaults on payment of rent or destroys the premises. Licensees should be aware of local state laws that govern security deposits: how they may be held, maximum amounts, whether interest must be paid, and how and when they are returned. To safeguard against nonpayment of rent, landlords may require an advance rental payment or a contract for a lien on the tenant's property or may require the tenant to have a third-person guarantee payment.

In Pennsylvania The Pennsylvania Landlord and Tenant Act of 1951 governs security deposits for residential properties. Security deposits belong to the tenant and may not be considered the same as rent. A security deposit may not be used for the last month of rent, unless specifically agreed to by the landlord.

For the first year of tenancy, the maximum amount of the security deposit cannot exceed a sum equivalent to two months' rent. At the beginning of the second year of tenancy, the amount drops to a sum equivalent to one month's rent. The landlord must return to the tenant any amount that exceeds the monthly rent being charged in the second year. During the second through fifth years of a lease, the landlord may increase the amount of security deposit, following the same monthly equivalency formula, to keep pace with increasing rents. However, after five years, the landlord cannot increase the amount of security deposit, even if the monthly rent is increased.

Pennsylvania law permits a landlord to purchase a guarantee, or surety, bond to guarantee the return of a security deposit to the tenant. The landlord may exercise this option in lieu of escrowing a security deposit in a financial institution. The landlord must return the amount of the bond (including any interest) less the cost of any necessary repairs to the tenant at the end of the lease term.
When a tenant breaches a lease or improperly retains possession of the premises, the landlord may regain possession through a legal process

When a court issues a judgment for possession to a landlord, the tenant must vacate the property. If the tenant fails to leave, the landlord can have the judgment enforced by a court officer, who forcibly removes the tenant and the tenant's possessions. The landlord then has the right to reenter and regain possession of the property.

Pennsylvania law requires that the landlord serve notice to the tenant at an appropriate interval before filing the suit—15 days to three months, depending on the circumstances. Once the tenant is served notice, the landlord files a complaint. Then the district justice issues a summons for the tenant to appear and answer the complaint. If the complaint is proven, the district justice enters a judgment against the tenant, ordering the tenant to deliver the property to the landlord. The judgment also may include monetary damages for the unjust detention of the premises, delinquent and unpaid rent, and other costs permitted by law or the terms of the written lease, including reasonable attorney fees.

When the court orders delivery of the property to the landlord, tenants must peaceably remove themselves and all their belongings. Otherwise, the landlord can have the judgment enforced by a constable who will forcibly remove the tenant and the tenant's possessions. The landlord must be careful to avoid harassing the tenant in any manner such as locking the tenant out of the property, impounding the tenant's possessions, or making the property uninhabitable by disconnecting services (such as electricity and natural gas).
form of ownership has become increasingly popular throughout the United States. Condominium laws, often called horizontal property acts, have been enacted in every state. Under these laws, the owner of each unit holds a fee simple title to the unit. The individual unit owners also own a specified share of the undivided interest in the remainder of the building and land, known as common elements. Common elements typically include such items as land, courtyards, lobbies, the exterior structure, hallways, elevators, stairways, and the roof, as well as recreational facilities such as swimming pools, tennis courts, and golf courses (see the figure that follows).

The individual unit owners own these common elements as tenants in common. State law usually provides, however, that unit owners do not have the same right to partition that other tenants in common have. Condominium ownership is not restricted to highrise buildings. Lowrises, town houses, and detached structures can all be condominiums.

In Pennsylvania The law requires that the owner of the property take certain steps to protect existing tenants when an existing rental property is converted to condominium ownership. Property owners must ensure that the existing tenants are properly informed about the pending conversion and given ample opportunity to either purchase their units or continue as tenants for a period. The law is also explicit about the way leases and rental rates can be administered during a conversion.

In Pennsylvania Pennsylvania's Uniform Condominium Act requires that prospective purchasers be provided with enough information to ensure that they are knowledgeable about the operation of the condominium association, including the fees that unit owners must pay, and the covenants and restrictions that will affect their ownership.

At least 15 days before a sales contract is signed, prospective purchasers in a new condominium or condominium conversion must be given a public offering statement. The document must detail 22 separate categories of information, including such items as bylaws, rules and regulations, projected operating budgets for the building, liens or encumbrances on the property, and so forth. A purchaser who is not properly provided the statement may cancel the contract without penalty within 15 days after receiving the material. In addition, the prospective buyer may recover an amount equal to 5 percent of the unit's sale price, up to a maximum of $2,000 or actual damages, whichever is greater.
is a legal entity—an artificial person—created under the laws of the state from which it receives its charter. A corporation is managed and operated by its board of directors. The charter sets forth the powers of the corporation, including its right to buy and sell real estate (based on a resolution by the board of directors). Because the corporation is a legal entity, it can own real estate in severalty or as a tenant in common. Some corporations are permitted by their charters to purchase real estate for any purpose; others are limited to purchasing only the land necessary to fulfill the entities' corporate purposes.

As a legal entity, a corporation continues to exist until it is formally dissolved. The death of one of the officers or directors does not affect title to property owned by the corporation.

One disadvantage of corporations, especially when income-producing property is involved, is double taxation. As a legal entity, a corporation must pay tax on its profits. Dividends from the remaining corporate profits are then distributed to the shareholders and are taxed again as part of the shareholders' individual incomes.

For federal tax purposes, an S corporation, composed of 100 or fewer shareholders, offers small businesses many of the benefits of a corporation but avoids double taxation. Only the dividends distributed to shareholders are taxed as part of their individual incomes. The favorable tax treatment may be lost and the entity redefined as some other form of business organization, however, if the IRS determines that the S corporation failed to comply with strict requirements regulating its structure, membership, and operation.
each tenant holds an undivided fractional interest in the property. A tenant in common may hold one-half or one-third interest in a property. The physical property is not divided into a specific half or third. The co-owners have unity of possession, meaning that they are entitled to possession of the whole property. It is the ownership interest, not the property that is divided.

The deed creating a tenancy in common may or may not state the fractional interest held by each co-owner. If no fractions are stated, the tenants are presumed to hold equal shares. For example, if five people hold title, each would own an undivided one-fifth interest.

Because the co-owners own separate interests, they can sell, convey, mortgage, or transfer their individual interest without the consent of the other co-owners. However, no individual tenant may transfer the ownership of the entire property. When one co-owner dies, the tenant's undivided interest passes according to the co-owner's will, heirs, or living trust

In Pennsylvania When two or more new owners acquire title to a parcel of real estate and the deed does not stipulate the tenancy, they acquire title, by operation or rule of law, as tenants in common. But if the conveyance is made to husband and wife with no further explanation, in Pennsylvania a tenancy by the entirety is created

In Pennsylvania The disposition of the deceased tenant's ownership is governed by the joint tenancy with right of survivorship rather than by the person's will or the state's inheritance laws (although a dangerous substitute, joint tenancy is sometimes known as "the poor man's will"). Pennsylvania law requires that right of survivorship be clearly stated for survivorship to occur. For example, the document would say, "A and B as Joint Tenants with Right of Survivorship and not as Tenants in Common."
is a specific, involuntary lien that gives security to those who perform labor or furnish material to improve real property. A mechanic's lien is available to contractors, subcontractors, architects, equipment lessors, surveyors, laborers, and others who have the right to file a lien. This type of lien is filed when the owner has not fully paid for the work or when the general contractor has been compensated but has not paid the subcontractors or suppliers of materials. Statutes in some states prohibit subcontractors from placing liens directly on certain types of property, such as owner-occupied residences. While laws regarding mechanics' liens vary from state to state, there are many similarities.

If improvements that were not ordered by the property owner have commenced, the property owner should execute a document called a notice of nonresponsibility to be relieved from possible mechanics' liens. By posting this notice in some conspicuous place on the property and recording a verified copy of it in the public record, owners give notice that they are not responsible for the work done. This may prevent the filing of mechanics' liens on the property.

In Pennsylvania Under the Pennsylvania Mechanic's Lien Law, a contractor or subcontractor can file a claim with the court of common pleas in the county in which the property is located within six months after the work is completed (entitlement to a lien is subject to certain exceptions and compliance with procedures for serving notice on the property owner). If the claim is successful, the mechanic's lien takes priority as of the date on which the first "visible construction" begins when an improvement is erected or constructed or as of the date the claim is filed when an existing improvement is altered or repaired. A claimant must take steps to enforce the lien within two years of the date the claim is filed. Enforcement is a court action to foreclose the lien through the sale of the real estate. Proceeds from the sale are then used to pay the lien.
special taxes on real estate to fund public improvements to the property. Property owners in the improvement area are required to pay for them because their properties benefit directly from the improvements. For example, the construction of paved streets, curbs, gutters, sidewalks, storm sewers, and street lighting increases the property value. Essentially, the homeowners' property taxes pay for the improvements. If the homeowners request the improvement, it is voluntary; if imposed by the appropriate governmental authority, the assessment is involuntary.

Special assessments are generally paid in equal annual installments over a period of years. The first installment is usually due during the year following the public authority's approval of the assessment. The first bill includes one year's interest on the property owner's share of the entire assessment. Subsequent bills include one year's interest on the unpaid balance. Property owners have the right to prepay any or all installments to avoid future interest charges. For large-scale improvement projects such as streets, sidewalks, and water or sewer construction, a local improvement district (LID) may be created. An LID is a specific geographical area formed by a group of property owners working together to fund needed capital improvements. LID taxation is simply a financing method available for the design and construction of public improvements.

In Pennsylvania An assessment determined by the front-footage method becomes a lien from the date the lien is filed. An assessment determined by the benefit method becomes a lien from the date the taxing authority determines an assessment of benefits.
provides the greatest protection to the buyer because the grantor is legally bound by certain covenants (promises) or warranties. In most states, the warranties are implied by the use of certain words specified by statute. In some states, the grantor's warranties are expressly written into the deed itself. Each state law should be examined, but some of the specific words include convey and warrant or warrant generally. The basic warranties are as follows:

- Covenant of seisin. Grantors warrant that they own the property and have the right to convey its title. Seisin simply means possession. The grantee may recover damages up to the full purchase price if this covenant is broken.

- Covenant against encumbrances. The grantor warrants that the property is free from any liens or encumbrances, except those specifically referenced in the deed. Encumbrances generally include mortgages, mechanics' liens, and easements. If this covenant is breached, the grantee may sue for expenses to remove the encumbrance(s).

- Covenant of quiet enjoyment. The grantor guarantees that the grantee's title will be good against third parties who might bring court actions to establish superior title to the property. If the grantee's title is found to be inferior, the grantor is liable for damages.
Covenant of further assurance. The grantor promises to obtain and deliver any instrument needed to make the title good. For instance, if the grantor's spouse has failed to sign away spousal rights, the grantor must deliver a quitclaim deed executed by the spouse to clear the title.

- Covenant of warranty forever. The grantor guarantees to compensate the grantee for the loss sustained if the title fails any time in the future.
These covenants in a general warranty deed are not limited to matters that occurred during the time the grantor owned the property; they extend back to its origins. Grantors defend the title against both themselves and all those who previously held title.
the legal procedure that confirms the validity of a will and accounts for the decedent's assets. The process can take several months to complete. Probate is the formal judicial process.

is the formal judicial process that

proves or confirms the validity of a will,
determines the precise assets of the deceased person, and
identifies the person(s) to whom the assets are to pass.
The purpose of probate is to see that the assets are distributed correctly. All assets must be accounted for, and the decedent's debts and taxes on the estate must be satisfied before any distribution. Assets distributed through probate are those that do not otherwise distribute themselves. For instance, property held in joint tenancy or tenancy by the entirety passes immediately. Probate proceedings take place in the county in which the decedent resided. If the decedent owned real estate in another county, probate would occur in that county as well.

The person who has possession of the will—normally the person designated in the will as executor—presents it for filing with the court. The court is responsible for determining that the will meets the statutory requirements for its form and execution. If the will was modified or if more than one will exists, the court will decide how these documents should be probated.

The court must rule on a challenge if a will is contested. Once the will is upheld, the assets can be distributed according to its provisions. Probate courts distribute assets according to statute only when no other reasonable alternative exists. When a person dies intestate, the court determines who inherits the assets by reviewing proof from the decedent's relatives of their entitlement under the statute of descent and distribution. To initiate probate proceedings, the court will appoint an administrator or personal representative to administer the affairs of the estate—the role usually taken by an executor.

For Example A broker entering into a listing agreement with the executor or administrator of an estate in probate should be aware that the amount of compensation must be approved by the court and that the commission is payable only from the proceeds of the sale. The broker will not be able to collect a commission unless the court approves the sale.
provides the least protection of any deeds. It carries no covenants or warranties and generally conveys only whatever interest the grantor may have when the deed is delivered. If the grantor has no interest, the grantee will acquire nothing. Nor will the grantee acquire any right of warranty claim against the grantor. A quitclaim deed can convey title as effectively as a warranty deed if the grantor has good title when the deed is delivered, but it provides none of the guarantees of a warranty deed. Through a quitclaim deed, the grantor only "remises, releases, and quitclaims'' the grantor's interest in the property, if any.

Usually, a quitclaim deed is the only type of deed that may be used to convey less than a fee simple estate. This is because a quitclaim deed conveys only the grantor's right, title, or interest.

A quitclaim deed is frequently used to cure a defect, called a cloud on the title. For example, if the name of the grantee is misspelled on a warranty deed filed in the public record, a quitclaim deed with the correct spelling may be executed to the grantee to perfect the title.

A quitclaim deed is also used when a grantor allegedly inherits property but is not certain that the decedent's title was valid. A warranty deed in such an instance could carry with it obligations of warranty, while a quitclaim deed would convey only the grantor's interest, whatever it may be.

One of the most common uses of the quitclaim deed is as a simple transfer of property from one family member to another.
Most states' laws require that conveyances of real estate be taxed, commonly called a transfer tax on conveyances of real estate. In these states, the tax is usually payable when the deed is recorded. In some states, the taxpayer purchases stamps from the recorder of the county in which the deed is recorded. The stamps must be affixed to deeds and conveyances before the documents can be recorded. In other states, the taxpayer simply pays the clerk of court or county recorder the appropriate transfer tax amount in accordance with state and local law.

The transfer tax may be paid by either the seller or the buyer, or split between them, depending on local custom or agreement in the sales contract. The actual tax rate varies and may be imposed at the state, county, or city level. For example, the rate might be calculated as $1.10 for every $1,000 of the sales price, as $0.26 for every $500, or as a simple percentage.

In Pennsylvania A state transfer tax, currently 1 percent, is imposed on the full consideration paid for the real estate. In addition, state law also permits local taxing districts (city, borough, township, and school district) to impose a transfer tax. Local transfer taxes are generally 1 percent of the consideration, though municipalities with a home rule charter government are permitted to charge more. Although the real estate transaction itself (not the buyer or the seller) is taxed, state and local transfer taxes are paid by the seller and/or the buyer according to the terms stated in the agreement of sale.■

Certain deeds that normally are exempt from the transfer tax include

- transfers between parent and child or between siblings;
- deeds not made in connection with a sale, such as changing joint tenants;
- conveyances to, from, or between governmental bodies;
- deeds between charitable, religious, or educational institutions;
- deeds securing debts or deeds releasing property as security for a debt;
- partitions;
- tax deeds;
- deeds pursuant to mergers of corporations; and
- deeds from subsidiary to parent corporations for cancellations of stock.

Transfer of property by ground lease is accomplished by lease assignment. As discussed in a previous unit, transfer taxes are charged on leases in excess of 30 years.
Under the terms of the typical real estate agreement of sale, the seller is required to deliver marketable title to the buyer at the closing. To be marketable, a title must

disclose no serious defects and not depend on doubtful questions of law or fact to prove its validity;
not expose a purchaser to the hazard of litigation or threaten the quiet enjoyment of the property;
convince a reasonably well-informed and prudent person, acting on business principles and with knowledge of the facts and their legal significance, that the property could be sold or mortgaged at a later time; and
be insurable by a reputable title insurance company at ordinary rates.
Although a title that does not meet these requirements still could be transferred, it contains certain defects that may limit or restrict its ownership. A buyer cannot be forced to accept a conveyance that is materially different from the one bargained for in the sales contract. However, questions of marketable title must be raised by a buyer (or the buyer's attorney) before acceptance of the deed. Once a buyer has accepted a deed with unmarketable title, the only available legal recourse is to sue the seller under any covenants of warranty contained in the deed.

Sometimes, a preliminary title search is conducted as soon as an offer to purchase has been accepted. In fact, it may be customary to include a contingency in the sales contract that gives the buyer the right to review and approve the title report before proceeding with the purchase. A preliminary title report also benefits the seller by giving the seller an early opportunity to cure title defects.

In Pennsylvania Proof of ownership is evidence that title is, in fact, marketable. A deed by itself is not considered sufficient evidence of ownership. Even though a warranty deed conveys the grantor's interest, it contains no proof of the condition of the grantor's title at the time of the conveyance. The grantee needs some assurance that ownership is actually being acquired and that the title is marketable. Customarily, in Pennsylvania, a certificate of title or title insurance is used as proof of ownership.
is the act of placing documents in public record. The specific rules for recording documents are a matter of state law. Although the details may vary, all recording acts essentially provide that any written document that affects any estate, right, title, or interest in land must be recorded in the county where the land is located to serve as public notice. This way, anyone interested in the title to a parcel of real estate will know where to look to discover the various interests of all parties. Recording acts also generally give legal priority to those interests recorded first—the first in time, first in right or first come, first served principle.

In Pennsylvania To be eligible for recording in Pennsylvania, a document must be in writing and properly executed (signed). Persons unable to place their signatures on a document may sign by mark in a manner that complies with statutory requirements. The document also must be acknowledged before a notary public. Public record offices may have specific rules about the size of documents and the paper they are printed on. Because an increasing number of public records are managed electronically, the actual filing of documents is more likely to be accomplished by e-mail attachment or electronic fax than in person.

In Pennsylvania The county recorder of deeds maintains most of the public records that affect title to real property. The county treasurer and clerks of courts and other county and municipal offices maintain important records as well.
a growing field in real estate practice because it quickly and efficiently integrates information in a real estate transaction between clients, lenders, and title and closing agents. The transactions are conducted through e-mail or fax and can save a lot of time and money.

Two federal acts govern electronic contracting: the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (E-Sign).

UETA sets forth basic rules for entering an enforceable contract using electronic means and has been enacted in most states. The primary purpose of UETA is to remove barriers in electronic commerce that would otherwise prevent enforceability of contracts. UETA validates and effectuates electronic records and signatures in a procedural manner. It is intended to complement any state's digital signature statute. UETA does not in any way require parties to use electronic means. UETA's four key provisions are as follows:

A contract cannot be denied its legal effect just because an electronic record was used.
A record or signature cannot be denied its legal effect just because it is in an electronic format.
If a state's law requires a signature on a contract, an electronic signature is sufficient.
If a state's law requires a written record, an electronic record is sufficient.
E-Sign functions as the electronic transactions law in states that have not enacted UETA, and some sections of E-Sign apply to states that have enacted UETA. The purpose of E-Sign is to make contracts (including signatures) and records legally enforceable, regardless of the medium in which they are created. For example, contracts formed using e-mail have the same legal significance as those formed on paper.

In Practice When entering into a residential purchase sales agreement, it is important for the parties to feel comfortable with and clearly communicate the method chosen for transacting the agreement, whether by paper and ink or by e-mail.

In Pennsylvania Pennsylvania's Electronic Transaction Act was enacted in January 2000 to facilitate e-commerce and protect the rights of consumers in electronic transactions. The law generally provides that, with the consumer's consent, electronic records or signatures meet the requirement for a record to be in writing, and that an electronic signature is recognized as valid. Acknowledgment or notarization is permitted electronically.
is made up of lenders that originate the loans. These lenders make money available directly to borrowers. From a borrower's point of view, a loan is a means of financing an expenditure; from a lender's point of view, a loan is an investment. All investors look for profitable returns on their investments. For a lender, a loan must generate enough income to be an attractive investment. Income on the loan is realized from two sources:

- Finance charges collected at closing, such as loan origination fees and discount points
- Recurring income, the interest collected during the term of the loan

In addition to the income directly related to loans, some lenders derive income from servicing loans for other mortgage lenders or investors who have purchased the loans. Servicing involves

- collecting payments (including insurance and taxes),
- accounting,
- bookkeeping,
- preparing insurance and tax records,
- processing payments of taxes and insurance, and
- following up on loan payment and delinquency.

Some major lenders in the primary market include the following:

- Thrifts, savings institutions, and commercial banks. These institutions are known as fiduciary lenders because of their fiduciary obligations to protect and preserve their depositors' funds. Thrifts is a generic term for the savings associations. Mortgage loans are perceived as secure investments for generating income and enable these institutions to pay interest to their depositors. Fiduciary lenders are subject to standards and regulations established by governmental agencies such as the Federal Deposit Insurance Corporation (FDIC). The various governmental regulations (which include reserve fund, reporting, and insurance requirements) are intended to protect depositors against the reckless lending that characterized the savings and loan industry in the 1980s.

- Insurance companies. Insurance companies accumulate large sums of money from the premiums paid by their policyholders. While part of this money is held in reserve to satisfy claims and cover operating expenses, much of it is free to be invested in profit-earning enterprises, such as long-term real estate loans.

- Credit unions. Credit unions are cooperative organizations whose members place money in savings accounts. In the past, credit unions made only short-term consumer and home improvement loans. Now, they routinely originate longer-term first and second mortgage and deed of trust loans.

- Pension funds. Pension funds usually have large amounts of money available for investment. Because of the comparatively high yields and low risks offered by mortgages, pension funds have begun to participate actively in financing real estate projects. Most real estate activity for pension funds is handled through mortgage bankers and mortgage brokers.

- Endowment funds. Many commercial banks and mortgage bankers handle investments for endowment funds. The endowments of hospitals, universities, colleges, charitable foundations, and other institutions provide a good source of financing for low-risk commercial and industrial properties.

- Investment group financing. Large real estate projects, such as highrise apartment buildings, office complexes, and shopping centers, are often financed as joint ventures through group financing arrangements like syndicates, limited partnerships, and real estate investment trusts.

- Mortgage banking companies. Mortgage banking companies originate mortgage loans with money belonging to insurance companies, pension funds, and individuals, and with funds of their own. They make real estate loans with the intention of selling them to investors and receiving a fee for servicing the loans. Mortgage banking companies are generally organized as stock companies. As a source of real estate financing, they are subject to fewer lending restrictions than are commercial banks or savings associations. They are not mortgage brokers.

- Mortgage brokers. Mortgage brokers are not lenders. They are intermediaries who bring borrowers and lenders together. Mortgage brokers locate potential borrowers, process preliminary loan applications, and submit the applications to lenders for final approval. They do not service loans once the loans are made. Mortgage brokers also may be real estate brokers who offer these financing services in addition to their regular real estate brokerage activities. Many state governments are establishing separate licensure requirements for mortgage brokers to regulate their activities.

In Pennsylvania The Mortgage Bankers and Brokers and Consumer Equity Protection Act is administered by the Pennsylvania Department of Banking. A mortgage broker is defined as any person or company, who for a fee, arranges or negotiates a first mortgage loan. Failure to obtain a license is a felony offense of the third degree.

Requirements to obtain a mortgage broker license include taking at least 20 hours of approved education, passing the test, undergoing a criminal background history check, and posting a surety bond between $50,000 and $150,000. The mortgage broker who intends to collect fees in advance must post a penal bond for $100,000. Annual continuing education is required to maintain the license.
(or note) is the borrower's personal promise to repay a debt. The mortgagor executes one or more promissory notes to total the amount of the debt.

called the note or financing instrument, is the borrower's personal promise to repay a debt according to agreed terms. The note exposes all the borrower's assets to claims by secured creditors. The mortgagor executes one or more promissory notes to total the amount of the debt.

A promissory note executed by a borrower (known as the maker or payor) is a contract complete in itself. It generally states the amount of the debt, the time and method of payment, and the rate of interest. When signed by the borrowers and other necessary parties, the note becomes a legally enforceable and fully negotiable instrument of debt. When the terms of the note are satisfied, the debt is discharged. If the terms of the note are not met, the lender may choose to sue to collect on the note or to foreclose.

A note need not be tied to a mortgage or a deed of trust. A note used as a debt instrument without any related collateral is called an unsecured note. Unsecured notes are used by banks and other lenders to extend short-term personal loans.

A note is a negotiable instrument like a check or bank draft. The lender who holds the note is called the payee and may transfer the right to receive payment to a third party in one of two ways:

- By signing the instrument over (that is, by assigning it) to the third party
- By delivering the instrument to the third party
When a person purchases real estate that is encumbered by an outstanding mortgage, the buyer may take the property in one of two ways. The property may be purchased subject to the mortgage, or the buyer may assume the mortgage and agree to pay the debt. This technical distinction becomes important if the buyer defaults and the mortgage is foreclosed.

When the property is sold subject to the mortgage, the buyer is not personally obligated to pay the debt in full. The buyer takes title to the real estate knowing that payments must be made on the existing loan. Upon default, the lender forecloses and the property is sold by court order to pay the debt. If the sale does not pay off the entire debt, the purchaser is not liable for the difference. In some circumstances, however, the original seller might continue to be liable.

In contrast, a buyer who purchases the property and assumes and agrees to pay the seller's debt becomes personally obligated for the payment of the entire debt. If a seller wants to be free of the original mortgage loan, the seller(s), the buyer(s), and the lender must execute a novation agreement in writing. The novation makes the buyer solely responsible for any default on the loan. The original borrower (seller) is freed of any liability for the loan.

The existence of a lien does not prevent the transfer of property; however, when a secured loan is assumed, the mortgagee or beneficiary must approve the assumption and any release of liability of the original mortgagor or trustor. Because a loan may not be assumed without lender approval, the lending institution would require the assumer to qualify financially, and many lending institutions charge a transfer fee to cover the costs of changing the records. This charge can be paid by either the buyer or the seller.
Although judicial foreclosure is the prevalent practice, it is still possible in some states for a lender to acquire mortgaged property through a strict foreclosure process. First, appropriate notice must be given to the delinquent borrower. Once the proper papers have been prepared and recorded, the court establishes a deadline by which time the balance of the defaulted debt must be paid in full. If the borrower does not pay off the loan by that date, the court simply awards full legal title to the lender. No sale takes place.

In Pennsylvania If the foreclosure is caused by default on a mortgage loan, the borrower first receives an Act 91 notice. This is notice of payments being in arrears; it also advises the borrower to file an application for the state's HEMAP assistance. Completion and acceptance of that application can provide a 120-day stay of foreclosure. The borrower then receives an Act 6 notice, otherwise known as a notice of intention to foreclose. At this point, the borrower has 30 days to contact the lender and set up a schedule of payments. If the borrower takes no action, the lender or its service company issues a complaint, which is the beginning of a lawsuit to foreclose. The borrower has 30 days to respond to that complaint. If the borrower fails to answer, the lender may obtain a judgment against the borrower, followed by a writ of execution, which permits the property to be sold at sheriff sale.

If the owner fails to pay taxes or other specific lien charges, the homeowner receives an Act 1 "demand" letter. This demand gives the owner 15 days' notice to pay the amount owed; it also states that attorney's fees involved during collection can be charged. If the owner fails to make payment, the next step is that the owner receives a complaint and has 30 days to file an affidavit of defense. If the owner fails to file a defense, the municipality or its service company may obtain a judgment against the owner, followed by a writ of execution permitting the property to be sold at sheriff sale.
Sections 201 of the RELRA and 35.201 of the Regulations define a broker as an individual or entity (corporation, partnership, or association) who, for another and for a fee, commission, or other valuable consideration, performs one or more of the following acts:

- Negotiates with or aids a person in locating or obtaining for purchase, lease, or acquisition any interest in real estate
- Negotiates the listing, sale, purchase, exchange, lease, time-share, financing, or option for real estate
- Manages real estate
- Acts as a real estate consultant, counselor, agent, or house finder
- Undertakes to promote the sale, exchange, purchase, or rental of real estate (does not apply to an individual or entity whose main business is advertising, promotion, or public relations)
- Undertakes to perform a comparative market analysis
- Attempts to perform any of these acts

Licensure requirements (Sections 511, 512, and 513 of the RELRA and 35.221, 35.222, and 35.271 of the Regulations)
An applicant for a broker license must

- be at least 21 years of age;
- be a high school graduate or equivalent;
- have completed 240 hours (16 credits) of real estate instruction as prescribed by the Commission (instruction required for the salesperson license does not qualify for broker licensure);
- have been engaged as a licensed real estate salesperson for at least three years or have experience and/or education that the Commission considers equivalent (the Commission uses a "point system" as a guide for evaluating the experience of an applicant);
- pass both portions of a written examination within three years of the date of the license application (examinations consist of two portions: the national exam, which is general real estate information relating to the licensed practice, and the state exam, which covers the Act and the Commission's regulations); and
- submit a written application including the name and address under which the applicant will do business and recommendations attesting to the applicant's reputation for honesty, trustworthiness, integrity, and competence.
statutory law, enacted by the state legislature and signed into law by the governor. The State Real Estate Commission does not have the authority to amend or modify the Act; that can be done only by the state legislature.

Section 404 of the RELRA authorized the Commission to promulgate Rules and Regulations (Regulations) that implement and further define the statutory law. Rules and Regulations of the State Real Estate Commission are found in Chapter 35, Title 49 (Professional and Vocational Standards of the Department of State) of the Pennsylvania Code. The Rules and Regulations provide procedures for administering the law and set operating guidelines for licensees. The Regulations have the same force and effect as the law. Both the law and the Regulations are enforced through fines and the denial, suspension, or revocation of licenses. Civil and criminal actions can be brought against violators in serious cases.

The State Real Estate Commission (Commission) functions under the Bureau of Professional and Occupational Affairs within the Pennsylvania Department of State. The Commission is composed of 11 members that include

the commissioner of the Bureau of Professional and Occupational Affairs,
the director of the Bureau of Consumer Protection or a designee,
three members who represent the public at large (known as public members),
five members licensed as real estate brokers (in the real estate business for at least ten years), and
one member licensed as a broker or cemetery broker (having been licensed at least five years and sold cemetery lots for at least ten years).
The Commission annually elects a chairman from its members.

Commissioners are appointed by the governor and confirmed by the senate for five-year staggered terms. Commissioners are compensated on a per diem basis, as stipulated in the Act. Staff is employed by the Bureau of Professional and Occupational Affairs to support the Commission's activities.

The Commission usually meets in Harrisburg, and its regularly scheduled business meetings are open to the public. Additionally, the Commission conducts formal and informal hearings relating to complaints filed against licensees. The Commission is also required to hold public meetings to solicit suggestions, comments, and objections about real estate practices from members of the public. These meetings are held in Philadelphia, Harrisburg, Pittsburgh, and elsewhere in the state.

The RELRA defines activities relating to real estate for which licensure is required and the procedures for obtaining those licenses. The term real estate is defined as any interest or estate in land, whether corporeal, incorporeal, and freehold or nonfreehold, situated in this Commonwealth or elsewhere, including leasehold interests, time-share and similarly designated interests. The sale of mobile homes is considered a transfer of a real estate interest if the sale is accompanied by the assignment of a lease or sale of the land on which the mobile home is situated.

At present, the Department of State may issue ten separate licenses. Individuals must possess a reputation for honesty, trustworthiness, integrity, and competence. In addition to meeting requirements for specific licenses, including appropriate fees, applicants must provide details of a conviction, a plea of guilty or nolo contendere to a felony or misdemeanor, and any sentence imposed.
was established to provide a means for aggrieved persons to collect judgments awarded in civil court. These judgments must result from civil suits against real estate licensees for fraud, deceit, or misrepresentations in a real estate transaction. Judgments involving the sale of a campground or a campground membership salesperson cannot be recovered from this fund. The aggrieved party must first exhaust all other avenues to collect the judgment before applying to the fund.

To collect from the fund, aggrieved persons must show that they are not a spouse or personal representative of the spouse of the licensee, that a final judgment was awarded, that all reasonable remedies have been exhausted to collect the judgment, and that the application is being made within one year of the termination of the proceedings (including appeals). The maximum amount that may be paid from the fund for any one claim is $20,000 and $100,000 per licensee. If $100,000 is insufficient to settle the claims against a licensee, the $100,000 must be distributed according to the same ratio as the respective claims. If the balance in the Real Estate Recovery Fund is insufficient to satisfy any claim or portion of the claim, the Commission must satisfy unpaid claims plus accumulated interest at the rate of 6 percent per year once the fund is reestablished.

Monies for the fund are collected from licensees. When the fund was originally established in 1980, each licensee paid $10 into the fund when the licenses were renewed. Subsequently, any person to whom a license is issued and who has not previously contributed to the fund pays $10. According to section 802 of the RELRA, the Commission may assess an additional fee (not to exceed $10 per licensee) if the fund drops to $300,000 or less to bring the fund's balance up to $500,000. The fees are paid into the state treasury and are allocated exclusively for the purposes of the fund. The money must be invested, and interest and dividends must accrue to the fund.

The license of the person involved in a claim is automatically suspended as of the date a payment is made from the fund. The license cannot be reinstated until the licensee repays the amount of the claim plus interest at 10 percent per year. The Commission can also take action in an attempt to recover monies paid out of the fund.
an individual who is employed by a licensed broker of record to do one or more of the following:

- Sell or offer to sell real estate, or list real estate for sale
- Buy or offer to buy real estate
- Negotiate the purchase, sale, or exchange of real estate
- Negotiate a loan on real estate
- Lease or rent real estate or offer to lease or rent real estate
- Collect, offer, or attempt to collect rent for the use of real estate
- Assist a broker in managing property
- Perform a comparative market analysis
The activities for which a salesperson is licensed are performed under the supervision and responsibility ultimately of the employing broker. Independent contractors are included in the Act's definition of employment. Regardless of how salespersons are treated for income-tax purposes, they are still accountable to the broker under the license law and are considered employees of the broker.

Activities involving the public that are customary in selling real estate must be performed by licensees. These activities include showing properties, preparing and presenting offers, preparing listing information, soliciting listings, hosting open houses for the public, and disseminating any real estate information to the public. Unlicensed people (including unlicensed personal assistants) may not perform activities for which a license is required, including telemarketing. They may, however, host open houses that are not conducted for the public (such as open house tours for licensees) and communicate, but not interpret or explain, property information to the licensees.

A salesperson must be at least 18 years of age, complete 60 hours of real estate as prescribed by the Commission, and pass both portions of the examinations prior to being issued a license (RELRA Sections 521-522; Regulations Sections 35.223, .272).
The Act and the Commission's rules recognize that certain individuals and entities can be appropriately excluded from licensure. Sections 304 of the RELRA and 35.202 of the Regulations establish the following exclusions from requirements for licensure:

- Owners of real estate performing activities associated with the ownership, lease, or sale of their own property. To prevent this exclusion from being used to circumvent licensure, the exclusion does not extend to more than five partners in a partnership or officers of a corporation or to other employees.
- Employees of a public utility acting in the ordinary course of the utility-related business under provisions of Title 66 of the Pennsylvania Consolidated Statutes, with respect to negotiating the purchase, sale, or lease of property.
- Officers or employees of a partnership or corporation whose principal business involves the discovery, extraction, distribution, or transmission of energy or mineral resources. This exclusion applies to the purchase, sale, or lease of real estate during the conduct of this business.
- An attorney-in-fact who renders services under a properly executed and recorded power of attorney from the owner or lessor of real estate. The power of attorney cannot be used to circumvent licensure (the Commission has determined that granting a power of attorney to an unlicensed person to manage property circumvents the intent of the Act). Also excluded are attorneys-at-law who receive a fee but do not represent themselves as brokers for rendering services within the scope of the attorney-client relationship.
- A trustee in bankruptcy, administrator, executor, trustee, or guardian who is acting under the authority of a court order, will, or trust instrument.
- The elected officer or director of any banking institution, savings institution, savings bank, credit union, or trust company operating under federal or state laws involving only the property owned by these institutions.
- An officer or employee of a cemetery company who, as incidental to principal duties, shows cemetery lots without compensation.
- A cemetery company or cemetery owned by a bona fide church, religious congregation, or fraternal organization (this applies to the requirement for registration).
- An auctioneer, licensed under the Auctioneers' License Act, while performing duties at a bona fide auction.
- Any person employed by an owner of real estate to manage or maintain multifamily residential property as long as this person is not authorized to enter into leases on behalf of the owner, negotiate terms or conditions of leases, or hold money belonging to tenants other than on behalf of the owner. As long as the owner retains authority to make all such decisions, the employees may show apartments and provide information about rental rates, building rules and regulations, and leasing qualifications.
- The elected officer, director, or employee of any banking institution, savings institution, savings bank, credit union, or trust company operating under federal or state laws, when acting on behalf of the institution in performing appraisals or other evaluations of real estate in connection with a loan transaction.
Section 604 of the RELRA lists specifically prohibited acts. Common violations include misrepresentation, mishandling escrow funds, inappropriately paying commissions, and misleading advertising. Licensees who engage in a prohibited act may be fined or have their licenses suspended or revoked. For easy reference, a summary of the prohibited acts follows:

- Making any substantial misrepresentation
- Making any false promise to influence, persuade, or induce a person into a contract when the licensee could not or did not intend to keep the promise
- Pursuing a continued and flagrant course of misrepresentation or making false promises through any licensee or any medium of advertising
- Using misleading or untruthful advertising; using any trade name or insignia of a real estate association of which the licensee is not a member
- Failing to comply with all escrow requirements
- Failing to preserve records relating to any real estate transaction for three years following consummation of the transaction
- Acting for more than one party in a transaction without the knowledge of and consent in writing from all parties
- Placing a For Sale or For Rent sign on or advertising any property without the written consent of the owner
- Failing to voluntarily furnish a copy of any contract to all signatories at the time of execution
- Failing to specify a definite termination date that is not subject to prior notice in any listing agreement
- Inducing any party to a contract to break that contract for the purpose of substituting a new one, when the substitution is motivated by personal gain of the licensee
- Accepting a commission or other valuable consideration from any person except the licensed broker who is the employer
- Paying of a commission by a broker to anyone other than the broker's licensed employee or another broker
- Failing to disclose in writing to the owner the licensee's interest in purchasing or acquiring an interest in a property listed with the licensee's office
- Being convicted in court of, or pleading guilty or nolo contendere to, forgery, embezzlement, obtaining money under false pretenses, bribery, larceny, extortion, conspiracy to defraud, or any felony
- Violating any rule or regulation of the Commission
- Failing to provide a disclosure required by this Act or any other federal or state law imposing a disclosure obligation on licensees in connection with real estate transactions
- In the case of a broker, failing to exercise adequate supervision over the activities of the employed licensees
- Failing to provide information requested by the Commission as the result of a formal or informal complaint
- Soliciting or selling real estate by offering free lots, conducting lotteries or contests, or offering prizes for the purpose of influencing a purchase by deceptive conduct
- Paying or accepting, giving, or charging an undisclosed commission, rebate, or compensation on expenditures for a principal
- Performing any act that demonstrates bad faith, dishonesty, untrustworthiness, or incompetency
- Performing any act for which an appropriate license is required if such license is not currently in effect

Violating any provision of the Pennsylvania Human Relations Act, such as accepting a listing with the understanding that illegal discrimination is to be practiced, giving false information for the purpose of discriminating, making a distinction in location of housing or dates of availability for the purpose of discriminating
Violating the Pennsylvania statutes relating to burial grounds (if a cemetery company registrant)
Violating Sections 606 and 608 of the RELRA
Failing as a broker, campground membership salesperson, or time-share salesperson to comply with the requirements for handling deposits or other monies
Licensees have certain duties or obligations to the parties with whom they work in a transaction, regardless of whether or not the licensee is acting within the scope of an agency relationship. Section 606.1 of the RELRA and Section 35.292 of the Regulations state that a licensee owes the following duties to all consumers:

- Reasonable professional skill and care
- Honest dealings in good faith
- Presentation, in a timely manner, of all written offers, notices, and communications to and from the parties to a transaction, except when otherwise waived
- Compliance with the Real Estate Seller Disclosure Act
- An accounting, in a timely manner, for all money and property received from or on behalf of any consumer to a transaction
- Proper information at the initial interview
- Timely disclosure of any conflicts of interest
- Guidance regarding the use of expert advice for matters that are beyond the licensee's expertise (including the use of attorneys for legal advice)
- Information about the status of the transaction
- Information regarding tasks that must be completed to satisfy an agreement or condition for settlement, regarding document preparation, and regarding compliance with laws pertaining to real estate transactions
- Timely presentation of all offers and
- counteroffers, unless otherwise directed in writing
- Disclosure of any financial interest (including a referral fee or commission) in a service, such as financial title, transfer and preparation services, insurance, construction, repair or inspection, at the time a service is recommended or the licensee learns that the service will be used
- Information gained during the course of the agency relationship may not be revealed or used after the termination of the agency relationship
Section 604(5) of the RELRA and Sections 35.321 though 35.328 of the Regulations set forth detailed requirements for handling escrow funds. Brokers are responsible for depositing funds they receive that belong to others (for example, earnest money and security deposits) into an escrow account in a federally insured or state-insured bank or depository pending consummation or termination of the transaction.

A salesperson or an associate broker who receives a deposit or any escrow money must immediately turn the funds over to the employing broker. The broker must deposit these funds by the end of the business day following their receipt by the broker. However, if the funds are in the form of a check in connection with an offer to buy or lease real estate, then the broker may hold the check until the offer is accepted, at which time the check must be deposited into the trust account by the end of the next banking day. If the offer is not accepted, then the broker (salesperson or associate broker) can return the uncashed check to the buyer or lessee.

The escrow account must be used exclusively for escrow purposes. The broker may not commingle these monies with the broker's business or personal funds; nor may the broker misappropriate money that should be held in escrow with the broker's business or personal funds. However, the broker is permitted to deposit personal money into the escrow account to cover service charges assessed by the banking institution on the account.

If escrow money is expected to be held for more than six months, the broker is encouraged to deposit the funds into an interest-bearing account. The interest follows the principal amount of the escrow funds, unless the parties state otherwise in the agreement.

The broker's duty to escrow cannot be waived or altered by agreement between the parties to the transaction.

The account is established in the name of the broker as it appears on the license, with the broker being designated as trustee of the account. The broker may give written authority to an employee to make deposits and authority to a licensed employee to make withdrawals. However, the broker remains responsible for seeing that the requirements of the regulations are met. Records must be maintained, including the name of the party from whom the money is received; the name of the party to whom the money belongs; and the dates the money is received, deposited, and withdrawn. These records are subject to inspection by the Commission.

If a sales deposit is tendered by a buyer to the listing broker rather than to the selling broker, the listing broker assumes the escrow duty. If the sales deposit is tendered by a buyer to the selling broker, the selling broker assumes responsibility.

In a cobrokerage transaction, local practice or custom often determines which broker holds the deposit money. In many areas, that is the listing broker. However, the selling broker may hold the deposit if the buyer tenders the money to the selling broker without prior knowledge about who the listing broker is or that the listing broker intends to hold the deposit money. The selling broker may deliver the deposit to the listing broker for escrow, in which case the buyer must be given written notice that the selling broker intends to do this. The listing broker then assumes the responsibility for the funds. Regardless of the brokers' arrangements, it is imperative that the parties to the transaction are fully informed and agree to the escrow arrangement. Absent any arrangement, the broker who receives the funds is the one responsible for escrow.

A broker is responsible for depositing the funds into escrow by the end of the next business day following receipt. In the case of multiple-office firms, the deadline applies to receipt by the office out of which the account is administered. If the money has been tendered in the form of a check when an offer to purchase or lease is made, the broker may, with written permission from the buyer and the seller, refrain from depositing the money, pending acceptance of the offer. In this case, the broker must deposit the funds within one business day following acceptance of the offer.

A broker must retain all funds in the escrow account until the transaction is consummated or terminated. Consummation is simple to identify if, in the case of an agreement of sale, the sale proceeds through to settlement and the seller delivers title. However, there are situations following the signing of an agreement of sale in which a dispute arises between the parties and the sale does not proceed to closing. Regardless of the language in an agreement, a dispute is presumed unless the parties sign documents authorizing the release of escrow funds. The broker must retain the escrow money until the dispute is resolved and the parties agree as to whom the deposit money belongs. If resolution of the dispute appears remote without legal action, the broker may, following 30 days' notice to the parties, petition the county court to interplead the rival claimants. The broker may not appropriate any part of the earnest money as compensation as the broker's commission.

Rents that a broker receives as a property manager for a lessor must be deposited into a rental management account. This account is separate from the broker's escrow account (in which security deposits are held) and the general business accounts.
the number of buyers who desire the property and who have the financial ability to acquire the property.

Factors that tend to affect the demand side of the real estate market include population, demographics, and employment and wage levels.

Demographics is the study and description of a population. The population of a community is a major factor in determining the quantity and type of housing in that community. Family size, the ratio of adults to children, the ages of children, the number of retirees, family income, lifestyle, and the growing number of single-parent and empty-nester households are all demographic factors that contribute to the amount and type of housing needed.

Decisions about whether to buy or rent and how much to spend on housing are closely related to income. When job opportunities are scarce and wage levels are low, demand for real estate usually drops. The market might even be affected drastically by a single major employer moving into or away from an area. Licensees must be aware of the business plans of local employers.

The real estate market depends on a variety of economic forces, such as interest rates and employment levels. To be successful, licensees must follow economic trends and anticipate where those trends will lead. How people use their income depends on consumer confidence. Consumer confidence is based not only on perceived job security but also on the availability of credit and the impact of inflation. General trends in the economy, such as the availability of mortgage money and the rate of inflation, will influence people's decisions as to how to spend their income.
The National Flood Insurance Act of 1968 was enacted by Congress to help owners of property in flood-prone areas by subsidizing flood insurance and by taking land-use and land-control measures to improve future management for floodplain areas. 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).

FEMA defines a flood as "a general and temporary condition of partial or complete inundation of two or more acres of normally dry land or two or more properties from

- an overflow of inland or tidal waves;
- an unusual and rapid accumulation or runoff of surface waters;
- mudflows or mudslides on the surface of normally dry land; or
- the collapse of land along the shore of a body of water (under certain conditions)."

The physical damage to a building or personal property directly caused by a flood is covered by flood insurance policies. For example, damage from sewer backups is covered if it results directly from flooding. Flood policies exclude coverage for losses such as swimming pools, cars, money, animals, groundcover, or underground systems.

Homeowners cannot buy coverage based on weather forecasts. When flood insurance is required by the lender as a condition of the mortgage loan, coverage is immediately effective. Otherwise, coverage is not effective until 30 days after the purchase of the policy. In other words, cash buyers and existing homeowners do not have coverage until 30 days later.
a profession that allows practitioners to combine their interest in real estate with their professional skill and training in the construction trades or engineering. Professional home inspectors conduct a thorough visual survey of a property's structure, systems, and site conditions, and prepare an analytical report that is valuable to both purchasers and homeowners. Increasingly wary consumers are relying on the inspector's report to help them make purchase decisions. Frequently, an agreement of sale is contingent on the inspector's report.

In Pennsylvania The Home Inspection Law, effective December 2001, requires that Pennsylvania home inspectors be members, or affiliated with a member, of a national not-for-profit trade association with a membership requirement of a minimum of 100 home inspections, passing that organization's exam, and taking continuing education courses. Home inspectors are prohibited from offering to perform additional repairs within 12 months after inspecting the property, inspecting a property in which the home inspector has a financial interest (without prior notice to the buyer), offering kickbacks for referrals, or earning an inspection fee contingent on the report's conclusions. Home inspectors are required to carry errors and omissions insurance for at least $100,000 per occurrence, $500,000 in the aggregate, and with deductibles of no more than $2,500.

A disgruntled consumer must file a lawsuit within one year after the report was provided. Additional remedies are available under the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Penalties for the first offense include a fine up to $500 and/or imprisonment of up to three months. Second or subsequent violations are misdemeanors of the third degree with fines of $2,000 to $5,000 and/or imprisonment of one to two years.
The government's monetary policy can have a substantial impact on the real estate market. The Federal Reserve Board (the Fed) establishes a discount rate of interest for the money it lends to commercial banks. That discount rate has direct impact on the interest rates the banks charge to borrowers, which in turn plays a significant part in people's ability to buy homes. The Federal Housing Administration (FHA) and Ginnie Mae can also affect the amount of money available to lenders for mortgage loans.

In 2008, America's greatest challenge became the uncertainty of the financial institutions. Until then, Fannie Mae and Freddie Mac, which were private companies under congressional charter, had been the driving force of monies to provide loans to low-, moderate-, and middle-income families. Failed judgments in buying mortgages on the secondary market and irregular accounting practices contributed to the unpredictable and chaotic real estate market in 2009. This resulted in the federal government taking over Freddie Mac and Fannie Mae by placing them into conservatorship.

Virtually any government action has some effect on the real estate market. For instance, federal environmental regulations may increase or decrease the supply and value of land in a local market. Real estate taxation is one of the primary sources of revenue for local governments. Policies on taxation of real estate can have either positive or negative effects. High taxes may deter investors. On the other hand, tax incentives can attract new businesses and industries. And, of course, along with these enterprises come increased employment and expanded residential real estate markets.

Local governments also influence supply. Land-use controls, building codes, and zoning ordinances help shape the character of a community and control the use of land. Careful planning helps stabilize and even increase real estate values.
the formula for homebuyers who were able to provide at least 10 percent of the purchase price as a down payment was that the monthly cost of buying and maintaining a home—mortgage payments, both principal and interest, plus taxes and insurance impounds—could not exceed 28 percent of gross income (i.e., pretax monthly income). The payments on all debts—normally including long-term debt such as car payments, student loans, or other mortgages—could not exceed 36 percent of monthly income. Expenses such as insurance premiums, utilities, and routine medical care were not included in the 36 percent figure but were considered to be covered by the remaining 64 percent of the buyer's monthly income. These formulas may vary, however, depending on the type of loan program and the borrower's earnings, credit history, number of dependents, and other factors. But today, credit scores play a key role when lending institutions decide whether to lend money. (Note that these financial qualification ratios are true for most Fannie Mae and Freddie Mac conforming mortgages, but loans with more liberal ratios are available.)

These formulas allow for other debts of 8 percent of gross monthly income—the difference between the 36 percent and 28 percent figures. If actual debts exceed the amount allowed and the borrowers are unable to reduce them, the monthly payment must be lowered proportionately because the debts and housing payment combined cannot exceed 36 percent of gross monthly income. However, lower debts would not result in a higher allowable housing payment; rather, it would be considered a factor for approval.
is simply the business of bringing parties together. A real estate broker is a person licensed to buy, sell, exchange, or lease real property for others and to charge a fee for these services.

A brokerage business may take many forms. It may be a sole proprietorship (a single-owner company), a corporation, or a partnership with another real estate broker. The office may be independent or part of a regional or national franchise. The business may consist of a single office or multiple branches. Brokers' offices may be located in highrises, suburban shopping centers, or their homes. A typical real estate brokerage may specialize in one kind of transaction or service, or it may offer a variety of services.

No matter what form it takes, a real estate brokerage has the same demands, expenses, and rewards as any other small business. The real estate industry, after all, is made up of thousands of small businesses operating in defined local markets. A real estate broker faces the same challenges as an entrepreneur in any other industry. In addition to mastering the complexities of real estate transactions, the real estate broker must be able to handle the day-to-day details of running a business and to set effective policies for every aspect of the brokerage operation: maintaining space and equipment, hiring employees and real estate salespersons, determining compensation, directing staff and sales activities, and implementing procedures to follow in carrying out agency duties. Each state's real estate license laws and regulations establish the business activities and methods of doing business that are permitted.
A real estate broker can exercise certain controls over salespersons who are employees. The real estate broker may require an employee to follow rules such as those governing working hours, office routine, attendance at sales meetings, assignment of sales quotas, and adherence to dress codes. As an employer, a broker is required by the federal government to withhold Social Security taxes and income taxes from wages paid to employees. The broker is also required to pay unemployment compensation taxes on wages paid to one or more employees, as defined by state and federal laws. In addition, employees might receive benefits such as health insurance, profit-sharing plans, and workers' compensation.

In Pennsylvania In Pennsylvania, the broker is also required to withhold state income tax and pay unemployment and workers' compensation. In addition, employees might receive benefits such as health insurance and profit sharing.■

The Internal Revenue Service (IRS) often investigates the independent contractor-employee situation in real estate offices. Under the qualified-real-estate-agent category in the Internal Revenue Code, the following three requirements are needed to establish an independent contractor status:

The individual must have a current real estate license.
The licensee must have a written contract with the broker that specifies that the licensee will not be treated as an employee for federal tax purposes.
At least 90 percent of the individual's income as a licensee must be based on sales production and not on the number of hours worked.
In Practice Pennsylvania's real estate license law treats the affiliated licensee (associate broker or salesperson) as an employee of the broker, regardless of whether the salesperson is considered an employee or an independent contractor for income tax purposes. The broker is accountable for the salesperson's licensed activities and, therefore, can control what that individual does to ensure that the conduct complies with the law. Note that this is the "what" in the independent contractor discussion, so the salesperson's status for income tax purposes is immaterial in the context of license law.
In 2003, federal do-not-call legislation was signed into law, and real estate licensees must comply with the provisions.

The registry is managed by the Federal Trade Commission (FTC) and is a list of telephone numbers from consumers who have indicated their preference to limit the telemarketing calls they receive. The registry applies to any plan, program, or campaign to sell goods or services through interstate phone calls. The registry does not limit calls by political organizations, charities, collection agencies, or telephone surveyors.

Real estate licensees may call consumers with whom they have an established business relationship for up to 18 months after the consumer's last purchase, delivery, or payment, even if the consumer is listed on the National Do Not Call Registry. Also, a real estate licensee may call a consumer for up to three months after the consumer makes an inquiry or submits an application. Note that if a consumer asks a company not to call, despite the presence of an established business relationship, then the company must abide by the consumer's request, which stays in effect for five years.

To access the National Do Not Call Registry, visit www.donotcall.gov. Since January 2005, telemarketers and sellers are now required to search the registry at least once every 31 days and drop registered consumer phone numbers from their call lists.

Most states also have do-not-call rules or regulations. It is important to keep up to date with your own state's laws regarding do-not-call policies, as well as the national law.
The Internet has revolutionized the real estate profession in many ways. One of its more notable effects is that it allows buyers and sellers to have tremendous access to information about real estate, housing, financing, and law. The Internet has caused a radical shift in that the average consumer is now much more knowledgeable about real estate matters. With instant access to real estate knowledge and information, the consumer is more innovative and independent.

While real estate licensees want to encourage consumers to use all their services (full service) for a commission rate, when it becomes apparent that a consumer wants help with one or several services only, it would be helpful for the real estate licensee to have in mind the best compensation model. With the permission of the employing broker, many real estate licensees use either an hourly rate or a flat fee for particular services.

Real estate licensees may also want to develop their own lists of services for sellers and buyers and also a specific list of services to help unrepresented sellers, also known as for sale by owners (FSBOs).

Communicating with consumers and identifying their real estate needs are key. Licensees provide an array of valuable services that consumers can pick and choose from. Knowledgeable and independent consumers can seem threatening to a licensee; however, the licensee has the opportunity to emphasize the value and variety of real estate services offered, for varying fees. Remember that it is ultimately the broker who decides whether an unbundling of services is good for the company.
establishes requirements for sending commercial e-mail, spells out penalties for those that don't comply (not just "spammers"), and gives consumers the right to have e-mailers stop e-mailing them.

The CAN-SPAM Act targets e-mail used to promote or advertise products and services (including online products and services) offered for commercial purposes. The act does not apply to "transactional or relationship content"; that is, those messages meant to facilitate or alter existing customer agreements (for instance, by giving a customer additional information about an existing agreement or conducting business as part of an existing agreement). However, these e-mails must not explicitly or implicitly operate for the purposes of advertising or promotion because this would be in violation of the law.

The CAN-SPAM Act is enforced by the FTC as well as by federal and state agencies that have jurisdiction over the company or companies in question. In addition, companies that violate the CAN-SPAM Act can be sued by Internet service providers. Criminal sanctions can be brought against violators by the U.S. Department of Justice.

Briefly, the CAN-SPAM Act has the following provisions:

- False or misleading header information is banned. An e-mail's "From" field, "To" field, and routing information—including the original domain name and e-mail address—must be accurate and identify the person who initiated the e-mail.
- Deceptive subject lines are prohibited. The subject line cannot mislead the recipient about the contents or subject matter of the message.
- E-mail recipients must have an opt-out method. Each message must include a return e-mail address or another Internet-based response mechanism that allows a recipient to request no future e-mail messages to that e-mail address and requests must be honored.
- Commercial e-mail must be identified as an advertisement and include the sender's valid physical postal address.

Each violation is subject to fines. Deceptive commercial e-mails are also subject to laws banning false or misleading advertising. Additional fines are provided for commercial e-mailers who violate the rules and do any of the following:

- "Harvest" e-mail addresses from Web sites or Web services that have published a notice prohibiting the transfer of e-mail addresses for the purpose of sending e-mail
Generate e-mail addresses using a "dictionary attack"—combining names, letters, or numbers into multiple permutations
Use scripts or other automated ways to register for multiple e-mail or user accounts to send commercial e-mail
Relay e-mails through a computer or network without permission—for example, taking advantage of open relays or open proxies without notification
The Junk Fax Prevention Act of 2005 does not legalize unsolicited fax advertisements or solicitations but does allow for an established business relationship (EBR) exception. As a rule, a real estate licensee cannot legally send an unsolicited commercial fax message without express written consent or without an established business relationship with the recipient.

Following are the provisions of the fax law:

- Sets guidelines for what constitutes an established business relationship (EBR) and reaffirms that EBR when customers pose exceptions to the ban on unsolicited commercial faxes
- Does not place time limits on EBRs
- Requires companies to offer a free method by which fax recipients may opt out of receiving future fax communications. The opt-out method must be available at any time of day, every day; and the opt-out information must be made available on the first page of the fax.
- Requires businesses to receive a customer's written or oral consent to send fax advertising, or in the case of new business relationships, to send only to those customers who have provided their fax numbers willingly to some other source with permission for such use by other parties (including the sender)
- Permits businesses to send faxes to numbers that they had access to via an EBR prior to July 9, 2005, when the act became law
- Requires businesses to receive direct consent from EBR customers for whom they did not already have fax numbers before the effective date of the legislation, or to obtain these numbers via some other source to which the EBR customer willingly provided them with permission for such use by other parties (including the sender)

In 2008, the FCC added the following clarifications to the law:

- Senders have met the consent requirement if they buy the fax number(s) from companies that have obtained the information from published sources; however, if there are errors in the list, the sender could be held liable.
- Senders must make a reasonable effort to ascertain whether recipients have given consent.
- Senders are permitted to provide a Web site, which must be easily accessible and usable, through which recipients may opt out of receiving fax communications.
is a disclosure summary required for the purchase or sale of residential or commercial real estate or for the lease of residential or commercial real estate when the licensee is working on behalf of the tenant (§ 35.336). A different disclosure is required for the lease of residential or commercial real estate when the licensee is working on behalf of the owner (§ 35.337). Although not required in all transactions, use of the form is good business practice. No disclosure is required when the transaction is for the sale or lease of commercial property to consumers who are not individuals, such as corporations or other business entities.

The major provisions of the Consumer Notice are

- a statement advising the party that a licensee is not representing the consumer unless an agency relationship is selected by signing a written agency agreement;
- general duties a licensee owes all consumers, regardless of the nature of the business relationship;
descriptions of the business relationships permitted in Pennsylvania: seller agency, buyer agency, dual agency, designated agency, and transaction licensee;
- contractual terms that must be included in all agreements; and
- a statement about the Real Estate Recovery Fund.

In Pennsylvania, licensees must discuss the Consumer Notice at the initial interview or the first substantive discussion between a licensee and a consumer about the consumer's needs before the licensee provides any services, and before they enter into an agency agreement or agreement of sale. Good business practice is to have the discussion before any confidential information is disclosed about an individual's motivation or financial situation. Licensees should explain to the consumer what agency alternatives exist. The licensee is to retain a copy of the signed/refused acknowledgement for six months and provide the consumer with a copy of the entire disclosure summary.

The law contemplates that this will be the first face-to-face meeting between a licensee and a consumer. However, in practice, telephone conversations or e-mail communications can involve substantive discussions before an in-person meeting. If that occurs, the licensee is required to make the following disclosure to the consumer:

The real estate law requires that I provide you with a written consumer notice that describes the various business relationship choices that you may have with a real estate licensee. Since we are discussing real estate without you having the benefit of the Consumer Notice, I have the duty to advise you that any information you give me at this time is not considered to be confidential, and any information you give me will not be considered confidential unless and until you and I enter into a business relationship. At our first meeting I will provide you with a written Consumer Notice which explains those business relationships and my corresponding duties to you.

This disclosure statement intends to make sure consumers are aware that they may be divulging personal information to a licensee who is not, and may not ever become, the consumer's agent. Hopefully, the consumer will be discouraged from sharing confidential information that should not be entrusted to a licensee without the benefit of an agency relationship.

The disclosure process does not end with the Consumer Notice. The broker of the real estate firm must establish procedures for disclosing

- the specific types of services the firm provides,
- the party the licensee represents in a specific transaction,
- company policies regarding dual agency and designated agency, and
- company policies regarding cooperation with other brokers.
the agent represents two principals in the same transaction. Dual agency requires equal loyalty to two different principals at the same time. Because agency originates with the broker, dual agency arises when the broker is the agent of the buyer and the seller. The salespersons, as agents of the broker, have fiduciary or statutory responsibilities to the same principals as well. The challenge is to fulfill the fiduciary or statutory obligations to one principal without compromising the interests of the other, especially when the parties' interests may be not only separate but also opposite. While practical methods of ensuring fairness and equal representation may exist, it should be noted that a dual agent can never fully represent either party's interests (see the image that follows). Because of the risks inherent in dual agency—ranging from conflicts of interest to outright abuse of trust—the practice is illegal in some states. In those states where dual agency is permitted, all parties must consent to the arrangement, preferably in writing.

In Pennsylvania Pennsylvania licensees may act for more than one party in a transaction only with the knowledge and written consent of all parties being represented. Although the possibility of conflict of interest still exists, disclosure is intended to minimize the risk for the broker. The disclosure alerts the principals that they might have to assume greater responsibility for protecting their interests than they would if they had independent representation. Because the duties of disclosure and confidentiality are limited by mutual agreement, they must be carefully explained to the parties in order to establish informed consent.
The agent has a duty to inform the principal of all facts or information that might affect the principal's position in a transaction. Duty of disclosure includes relevant information or material facts that the agent knows or should have known.

The agent is obligated to discover facts that a reasonable person would feel are important in choosing a course of action, regardless of whether they are favorable or unfavorable to the principal's position. The agent may be held liable for damages for failing to disclose such information. This includes the following disclosures:

- Once an offer is accepted, further offers unless instructed in writing not to
- All offers unless directed by the seller to not present an offer after one has been accepted
- The identity of the prospective purchasers, which may include any relationships they might have with the agent or the agent has to them (such as when the licensee or a relative is a purchaser)
- The purchaser's ability to complete the sale or offer a higher price
- Any interest the agent has in the buyer (such as the broker's agreement to manage the property after it is purchased)
- The buyer's intention to resell the property for a profit
- An incorrect market value of the property

A seller's real estate agent is also expected (and required under many states' laws) to disclose information about known material defects in the property to prospective buyers. Sellers are required to disclose latent defects of which they are aware (i.e., a hidden structural defect that could not be discovered by ordinary inspection and that threatens the property's soundness or safety of its inhabitants).

In turn, the buyer's agent must disclose deficiencies of a property as well as provisions in a sales contract and financing terms that may affect the buyer's decision to purchase. The buyer's agent would suggest the lowest price that the buyer should pay based on comparable values, regardless of the listing price. The agent also would disclose other information, such as how long the property has been listed or why the seller is selling, because such information would affect the buyer's ability to negotiate the lowest purchase price. If the agent represents the seller, of course, disclosure of any of this information would violate the agent's fiduciary duty to the seller.

In Practice Selling a property "as is" does not negate provisions already in the contract. If sellers truly mean "as is," they amend any printed provisions existing in the contract that relate to the condition of systems and appliances.
is not a housing or credit law, it still has a significant effect on the real estate industry. The ADA requires reasonable accommodations in employment and access to goods, services, and public buildings. The ADA is important because real estate brokers are often employers, and their offices are public spaces. The ADA's goal is to enable individuals with disabilities to become part of the economic and social mainstream of society.

Title I of the ADA requires that employers, including real estate licensees, make reasonable accommodations that enable an individual with a disability to perform essential job functions. Reasonable accommodations include making the work site accessible, restructuring a job, providing part-time or flexible work schedules, and modifying equipment that is used on the job. The provisions of the ADA apply to any employer with 15 or more employees.

In Pennsylvania The Pennsylvania Human Relations Act (PHRA) is broader by requiring employers in Pennsylvania with four or more employees to adopt nondiscriminatory practices.■

Title III of the ADA requires that individuals with disabilities have full accessibility to businesses, goods, and public services. As a result, building owners and managers of commercial spaces must be constantly alert to ensure that obstacles are removed.

In Pennsylvania The Pennsylvania Human Relations Act (PHRA) includes commercial property (any building or vacant land used for the purpose of operating a business, an office, or a manufacturing facility).■

The Americans with Disabilities Act Accessibility Guidelines (ADAAG) for buildings and facilities contain detailed specifications for designing parking spaces, curb ramps, drinking fountains toilet facilities, and directional signs to ensure maximum accessibility. Unless the licensee is a qualified ADA expert, it is best to advise commercial clients to seek the services of an attorney, an architect, or a consultant who specializes in ADA issues.
The federal government's effort to guarantee equal housing opportunities to all U.S. citizens began with the passage of the Civil Rights Act of 1866. This law prohibits any type of discrimination based on race, stating that "all citizens of the United States shall have the same right in every state and territory as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property."

The U.S. Supreme Court's 1896 decision in Plessy v. Ferguson established the separate but equal doctrine of legalized segregation. A series of court decisions and federal laws in the 20 years between 1948 and 1968 attempted to address the inequities in housing that resulted from Plessy. Those efforts, however, tended to address only certain aspects of the housing market, such as federally funded housing programs. As a result, their impact was limited. Title VIII of the Civil Rights Act of 1968, however, prohibits specific discriminatory practices throughout the real estate industry.

The Supreme Court upheld the Civil Rights Act of 1866 in Jones v. Alfred H. Mayer Company (392 U.S. 409 [1968]). This decision is important because although the federal Fair Housing Act exempts individual homeowners and certain groups, the 1866 law prohibits all racial discrimination without exception. Racial discrimination is prohibited in the sale or rental of publicly or privately held property, whether facilitated by a real estate agent or sold or rented by the owner. Where race is involved, no exceptions apply.

The U.S. Supreme Court has expanded the definition of the term race to include ancestral and ethnic characteristics, including certain physical, cultural, or linguistic traits that are shared by a group with a common national origin. These rulings are significant because discrimination on the basis of race, as it is now defined, affords due process of complaints under the provisions of the Civil Rights Act of 1866.
is the resolution of a complaint by obtaining assurance that the person against whom the complaint was filed (the respondent) will remedy any violation that may have occurred. The respondent further agrees to take steps to eliminate or prevent discriminatory practices in the future. If necessary, these agreements can be enforced through civil action.

The aggrieved person has the right to seek relief through administrative proceedings. These proceedings are hearings held by an administrative law judge (ALJ), either during the investigation period or after a charge has been decided. The ALJ has the authority to award actual damages to the aggrieved person or persons and, if it serves the public interest, also to impose monetary penalties. The penalties range from up to $16,000 for the first offense to $37,500 for a second violation within five years and $65,000 for a third violation within seven years. The ALJ also has the authority to issue an injunction to order the offender to either do something (such as rent the apartment to the complaining party) or refrain from doing something.

The parties may elect civil (judicial) action in federal court at any time within two years of the discriminatory act. For cases heard in federal court, unlimited punitive damages can be awarded in addition to actual damages. The court can also issue injunctions. Real estate licensees' errors and omissions insurance normally does not pay on violations of the fair housing laws.

The attorney general, upon finding reasonable cause to believe that any person or group is engaged in a pattern or practice of resistance to the full enjoyment of any of the rights granted by the federal fair housing laws, may file a civil action in any federal district court. Civil penalties may result in an amount not to exceed $50,000 for a first violation and an amount not to exceed $100,000 for second and subsequent violations.

Complaints brought under the Civil Rights Act of 1866 are taken directly to a federal court. The only time limit for action would be the state's statute of limitation for torts; that is, injuries done by one individual to another.
is a physical or mental impairment. It is unlawful to discriminate against prospective buyers or tenants on the basis of disability, which includes those having a history of, or being regarded as having, an impairment that substantially limits one or more major life activities. Persons who have the HIV virus (AIDS), with or without evidence of disease, are protected by the fair housing laws.

Landlords must make reasonable accommodations to existing policies, practices, or services to permit persons with disabilities to have equal enjoyment of the premises. It would be reasonable for a landlord to permit support animals (such as guide dogs) in a normally no-pet building or to provide a designated accessible parking space in a generally unreserved lot.

People with disabilities must be permitted, at their own expense, to make reasonable modifications to the premises at their own expense. Such modifications might include lowering door handles or installing bath rails to accommodate a person in a wheelchair. Failure to permit reasonable modification constitutes discrimination.

The law recognizes that some reasonable modifications might make a rental property undesirable to the general population. In such a case, the landlord is allowed to require that the property be restored to its previous condition when the lease period ends, aside from reasonable wear and tear. Where it is necessary to ensure with reasonable certainty that funds will be available to pay for the restorations at the end of the tenancy, the landlord may negotiate, as part of a restoration agreement, a provision requiring that the tenant pay into an interest-bearing escrow account, over a reasonable period, a reasonable amount of money not to exceed the cost of the restorations. The interest in the account accrues to the benefit of the tenant. A landlord may not increase the required security deposit for people with disabilities.

The law does not prohibit restricting occupancy exclusively to persons with a disability in dwellings that are designed specifically for their accommodation.

In newly constructed multifamily buildings with an elevator and four or more units, the public and common areas must be accessible to persons with disabilities, and doors and hallways must be wide enough for wheelchairs. The entrance to each unit must be accessible, as well as the light switches, electrical outlets, thermostats, and other environmental controls. People in wheelchairs should be able to use the kitchen and bathrooms; bathroom walls should be reinforced to accommodate later installation of grab bars. Ground-floor units must meet these requirements in buildings that do not have an elevator. Licensees should be aware that state and local law may require stricter standards.
The federal Fair Housing Act covers most housing. However, in some circumstances, it provides for certain exemptions. Most of the exemptions in the federal law do not apply under Pennsylvania law (which is discussed later in this unit). The federal exemptions—with Pennsylvania exceptions—include the following:

- Owner-occupied buildings of one to four family dwellings. Pennsylvania law only recognizes an exemption in the rental of an owner-occupied two-unit dwelling; an owner-occupied rooming house with a common entrance and shared bathroom facility; or (in the case of sex) the rental of housing accommodations in a single-sex dormitory.
- Single-family housing sold or rented without the use of a licensee.
- Housing operated by organizations and private clubs that limit occupancy to members.

The sale or rental of a single-family home is exempt under the following conditions:

- The home is owned by an individual who does not own more than three such homes at one time (and who does not sell more than one every two years), and when a real estate licensee and discriminatory advertising is not used in the transaction. This exemption does not apply under Pennsylvania law.
- A real estate licensee is not involved in the transaction.
- Discriminatory advertising is not used.

Furthermore, housing owned by religious organizations may be restricted to people of the same religion if membership in the organization is not restricted on the basis of race, color, or national origin. A private club that is not open to the public may restrict the rental or occupancy of lodgings that it owns to its members as long as the lodgings are not operated commercially. Membership in a private club must be open to people of all races, colors, and national origins.

The Fair Housing Act does not require that housing be made available to individuals whose tenancy would constitute a direct threat to the health or safety of other individuals or that would result in substantial physical damage to the property of others.
(sometimes known as a competitive market analysis) compares location, size, age, style, and amenities of properties that are comparable to the seller's property, as follows:

- Recently sold properties—what buyers were willing to pay for a similar property and what lenders considered to be a value on which they make the lending decision
- Properties currently on the market—the competition to the seller's property
- Properties that were listed but did not sell—generally, what buyers have been unwilling to pay for a similar property

Real estate licensees help sellers arrive at a competitive asking price and/or buyers to make a fair offer. If no adequate comparisons can be made or if the property is unique in some way, the seller may prefer to have a professional appraiser prepare a formal appraisal.

In Pennsylvania Because a CMA is not an appraisal, Pennsylvania licensing law requires that the following statement be printed conspicuously and without change on the first page of the CMA:

This analysis has not been performed in accordance with the Uniform Standards of Professional Appraisal Practice, which require valuers to act as unbiased, disinterested third parties with impartiality, objectivity, and independence and without accommodation of personal interest. It is not to be construed as an appraisal and may not be used as such for any purpose.■

Although the seller makes the final decision about the asking price, the licensee should help the seller understand the consequences about setting a price that is substantially exaggerated or severely out of line with the CMA or appraisal. These tools are the best indicators of what a buyer will likely pay for the property and the basis on which lenders make loan decisions. When the licensee accepts an unrealistically priced listing, the licensee does both the seller and the broker a disservice. An overpriced listing gives the seller false hopes. The broker will have difficulty marketing the property within the agreed-upon listing period, costing the broker time and money. Failure to move an overpriced listing can cost the broker future business opportunities as well. The best advice is to reject such a listing.
one broker is appointed as the sole (exclusive) agent of the seller. The broker is given the exclusive right, or authorization, to market the seller's property. If the property is sold while the listing is in effect, the seller must compensate the broker regardless of who sells the property. In other words, whether the seller finds a buyer with or without the broker's assistance, the seller still must pay the broker a fee. Sellers benefit from this form of agreement because the broker feels freer to spend time and money to actively market the property, making a timely and profitable sale more likely. From the broker's perspective, an exclusive-right-to-sell listing offers the greatest opportunity to receive compensation.

Section 35.332 of the Real Estate Commission's Rules and Regulations requires that an exclusive-right-to-sell or exclusive-right-to-lease agreement contain this statement in boldface type:

The broker earns a commission on the sale (or lease) of the property, regardless of who, including the owner, makes the sale (or lease) during the listing period.

The agreements also must contain (in addition to the other requirements for written contracts) the

- seller's asking price,
- broker's expected commission on the sales prices,
- explanation that payments of money received by the broker will be held by the broker in an escrow account, and
- duration of the agreement.

The broker cannot have authority to execute an agreement of sale for the owner or have an option to purchase the listed property. Nor can the broker have authority to confess judgment for the commission in the event of a sale.
Although an agency relationship may be created orally or by the parties' actions, creating agency relationships with written agreements serves both a legal and practical purpose. The Pennsylvania licensing law requires a written agreement between a broker and a consumer when the consumer is or may be obligated to compensate the broker for services. As a practical matter, a written document provides proof of what the parties are expected to do, which is particularly important if either party takes legal action against the other.

The licensing law (RELRA Section 608.1) requires written agreements to contain

- a statement that the broker's fee and the duration of the contract have been determined as a result of negotiations between the broker and the consumer;
- a statement describing the nature and extent of the broker's services to be provided and the fees that will be charged;
- a statement identifying any possibility that the broker or any licensee employed by the broker may provide services to more than one consumer in a single transaction, along with an explanation of the duties owed to each party;
- statements about the broker's policies regarding cooperation and compensation arrangements with subagents, buyer agents, and listing agents (depending on whether the agreement is with a buyer or a seller), and potential for dual agency;
- a statement describing the purpose of the Real Estate Recovery Fund and the telephone number where a consumer may receive further information; and
a statement regarding any possible conflicts of interest and ongoing duty to disclose conflicts in a timely manner.

The Rules and Regulations of the State Real Estate Commission further address requirements for written agreements in Section 35.331.
Obtaining as many facts as possible about the property ensures that most contingencies can be anticipated. This is particularly important when the listing will be shared with other brokers through the MLS and when the other licensees must rely on the information taken by the listing agent.

The information needed for a listing agreement generally includes the

- names and relationship, if any, of the owners;
- street address and legal description of the property;
- size, type, age, and construction of improvements;
- number of rooms and their sizes;
- dimensions of the lot;
- existing loans, including such information as the - name and address of each lender, the type of loan, the loan number, the loan balance, the interest rate, the monthly payment which includes principal, interest, taxes, and insurance (PITI), whether the loan may be assumed by the buyer and under what circumstances, and whether the loan may be prepaid without penalty;
- possibility of seller financing;
- amount of any outstanding special assessments and whether they will be paid by the seller or assumed by the buyer;
- zoning classification of the property;
- current (or most recent year's) property taxes;
- neighborhood amenities (e.g., schools, parks and recreational areas, churches, and public transportation);
- real property, if any, to be removed from the premises by the seller and any personal property to be included in the sale for the buyer (both the listing contract and the subsequent purchase contract should be explicit on these points);
- any additional information that would make the property more appealing and marketable; and
- required disclosures regarding property conditions.
create a voidable contract; if the contingencies are rejected or not satisfied, the contract is void. A contingency includes the following three elements:

- The actions necessary to satisfy the contingency
- The time frame within which the actions must be performed
- Who is responsible for paying any costs involved

The most common contingencies include the following:

- A mortgage contingency, which protects the buyer's earnest money until a lender commits the mortgage loan funds. In Pennsylvania, a mortgage contingency must state the type and amount of the loan, the maximum interest rate and minimum term, the deadline by which the buyer shall obtain the loan, and the nature and extent of assistance that the broker will provide in helping the buyer obtain the loan.
- An inspection contingency, which means that a sales contract may be contingent on the buyer's obtaining certain inspections of the property. Inspections may be for wood-boring insects, lead-based paint, structural and mechanical systems, sewage facilities, and radon or other toxic materials.
- A property sale contingency, whereby buyers may make the sales contract contingent on the sale of their current home. This protects the buyers from owning two homes at the same time and also helps ensure the availability of cash for the purchase.
- An insurance contingency, whereby buyers may make the agreement of sale contingent on obtaining affordable homeowner's insurance.

The seller may insist on an escape clause, which permits the seller to continue to market the property until all the buyer's contingencies have been satisfied or removed. The buyer may retain the right to eliminate the contingencies if the seller receives a more favorable offer.
is an unintentional misstatement or omission. The misrepresentation or omission does not have to be intentional to result in licensee liability. A negligent misrepresentation occurs when the licensee should have known that a state about a material fact was false. A licensee's lack of awareness of an issue is no excuse. If the buyer relies on the licensee's statement, the licensee is liable for any damages that result. Similarly, a licensee who accidentally fails to perform some act—for instance, forgetting to deliver a counteroffer—may be liable for damages that result from such a negligent omission.

Statements of fact, however, must be accurate. Exaggeration of a property's benefits is called puffing. While puffing is legal, licensees must ensure that none of their statements can be interpreted as fraudulent.

In Pennsylvania In Pennsylvania, licensees also face disciplinary action by the State Real Estate Commission if they make representations or give assurances or advice concerning any aspect of a real estate transaction that is known (or should be known) to be incorrect, inaccurate, or improbable. A licensee may not knowingly be a party to a material false or inaccurate representation.■

When making representations about a property that are based on the seller's representations, the licensee should clearly state that the seller is the source of the information. When acting as a seller's agent, a licensee should caution seller-clients about their liability for any misstatement or omission.
are those that society has found undesirable because of events that occurred there or because a known sex offender lives in the area. Federal law does not mandate active notification, but some state laws do.

A common stigma is a criminal event, such as a homicide, suicide, illegal drug manufacturing, or gang-related activity. Properties have even been stigmatized by rumors that they are haunted. The licensee's responsibility may be difficult to define because the issue is not a physical defect but merely a perception that a property is undesirable. Because of the potential liability to a licensee for inadequately researching and disclosing material facts concerning a property's condition, licensees should seek legal counsel when dealing with a stigmatized property.

Although some states have laws regarding the disclosure of information about such properties, which are designed to protect sellers and local property values against a baseless psychological reaction, Pennsylvania does not. The stigmatized property issue can be even more complicated because in some cultures, a house in which someone has died is considered uninhabitable. While licensees must not discriminate based on nationality, culture, or religious beliefs, state laws on stigmatized properties may put the agent in an awkward position. Again, getting competent legal counsel is important.

A disclosure that a property's previous owner or occupant died of AIDS or was HIV positive constitutes illegal discrimination under the federal Fair Housing Act.
- The purchaser's name and a statement of the purchaser's obligation to purchase the property, including how the purchaser intends to take title
- An adequate description of the property, such as the street address (while a street address is adequate for a sales contract, it is not adequate for a legal description)
- The seller's name and a statement of the type of deed a seller agrees to give, including any covenants, conditions, and restrictions
- The purchase price and how the purchaser intends to pay for the property, including earnest money deposits, additional cash from the purchaser, and the conditions of any mortgage financing
- The amount and form of the down payment toward the loan and earnest money deposit and whether the payments will be in the form of a check or promissory note
- A provision for the closing of the transaction and the transfer of possession of the property to the purchaser by a specific date
A provision of title evidence
- The method by which real estate taxes, rents, fuel costs, and other expenses are to be prorated
- A provision for the completion of the contract should the property be damaged or destroyed between the time of signing and the closing date
- A liquidated damages clause, specific performance clause, or other statement of remedies available in the event of default
- Contingency clauses (such as the buyer's obtaining financing or selling a currently owned property, the seller's acquisition of another desired property or clearing of the title; attorney approval and home inspection are other commonly included contingencies)
- The dated signatures of all parties (in some states, the seller's nonowning spouse may be required to release potential marital or homestead rights)
In most states, an agency disclosure statement
Any personal property to be left with the premises for the purchaser (such as major appliances or lawn and garden equipment)

- Any real property to be removed by the seller before the closing (such as a storage shed)
- The transfer of any applicable warranties on items such as heating and cooling systems or built-in appliances
- The identification of any leased equipment that must be transferred to the purchaser or returned to the lessor (such as security systems, cable television boxes, and water softeners)
- The appointment of a closing or settlement agent
- Closing or settlement instructions
- The transfer or payment of any outstanding special assessments
- The purchaser's right to inspect the property shortly before the closing or settlement (often called the walk-through)
- The agreement as to what documents will be provided by each party and when and where they will be delivered.
are any loans that are not government insured or guaranteed. They are often viewed as the most secure loans because the loan-to-value ratio is lowest. Traditionally, the ratio is 80 percent of the value of the property or less; the borrower makes a down payment of 20 percent or more. The security for the loan is provided solely by the mortgage; the payment of the debt rests on the ability of the borrower to pay. In making such a loan, the lender relies primarily on its appraisal of the property. Information from credit reports indicates the reliability of the prospective borrower is also important. Usually with a 20 percent down payment and a conventional loan, no additional insurance or guarantee is necessary to protect the lender's interest. A conventional loan is not government-insured or guaranteed, in contrast to FHA-insured and VA-guaranteed loans.

Lenders can set criteria by which the borrower and the collateral are evaluated to qualify for the loan. Today, the secondary mortgage market has a significant impact on borrower qualifications, standards for the collateral, and documentation procedures followed by lenders. Loans must meet strict criteria to be sold to Fannie Mae and Freddie Mac. Lenders still can be flexible in their lending decisions, but they may not be able to sell unusual loans in the secondary market.

To qualify for a conventional loan under Fannie Mae guidelines, for instance, the borrower's monthly housing expenses, including PITI (principal, interest, taxes, and insurance), must not exceed 28 percent of total monthly gross income. Also, the borrower's total monthly obligations, including housing costs plus other regular monthly payments, must not exceed 36 percent of total monthly gross income (80 percent LTV loans). Loans that meet these criteria are called conforming loans and are eligible to be sold in the secondary market.

Loans that exceed the limits are called nonconforming loans and are not marketable, but they must be held in the lender's investment portfolio.
refers to a loan that is insured by the agency. These loans must be made by FHA-approved lending institutions. The FHA insurance provides security to the lender, in addition to the real estate. As with private mortgage insurance, the FHA insures lenders against loss from borrower default.

The most popular FHA program is Title II, Section 203(b), which are fixed interest rate loans for 10 to 30 years on one- to four-family residences. Rates are competitive with other types of loans, even though they are high-LTV loans. According to the FHA Web site (in 2011), the borrower is eligible for approximately 96.5 percent financing for one- to four-unit structures. Certain technical requirements must be met before the FHA will insure the loans. These requirements include the following:

- The borrower must pay a down payment of at least 3.5 percent of the purchase price, but most of the closing costs and fees can be included in the loan.
- The borrower is charged a mortgage insurance premium (MIP) for all FHA loans. The up-front premium is charged at closing and can be financed into the mortgage loan. The borrower is also responsible for paying an annual premium that is usually charged monthly. The up-front premium is charged on all FHA loans, except those for the purchase of a condominium, which require only a monthly MIP.
- The mortgaged real estate must be appraised by an approved FHA appraiser.
- The FHA sets maximum mortgage limits for various regions of the country.
- The borrower must meet standard FHA credit qualifications.
- Financing for manufactured homes and factory-built housing is also available, both for those who own the land that the home is on and also for manufactured homes that are, or will be, located on another plot of land.

If the purchase price exceeds the FHA-appraised value, the buyer may pay the difference in cash as part of the down payment. Some exceptions are made for special programs, such as the Good Neighbor Program in which HUD can offer an incentive of up to 50 percent list price reduction in order to help law enforcement officers, teachers, and firefighters purchase a home in certain designated revitalization areas. These buyers must sign a second note for the discounted amount, but no interest or payments are required, provided the recipient fulfills the three-year occupancy requirement.

Other types of FHA loans are available, including one-year adjustable-rate mortgages, home improvement and rehabilitation loans, and loans for the purchase of condominiums. Specific standards for condominium complexes and the ratio of owner-occupants to renters must be met for a loan on a condominium unit to be financed through the FHA insurance programs.

A qualified buyer may assume an existing FHA-insured loan. The application consists of a credit check to demonstrate that the person assuming the loan is financially qualified. The process is quicker and less expensive than applying for a new loan. Sometimes, the older loan has a lower interest rate and no appraisal is required.
applies to any residential real estate transaction involving a new first mortgage loan. RESPA is designed to ensure that the buyer and the seller are fully informed of all settlement costs.

is a federal consumer law that requires certain disclosures about the mortgage and settlement process and prohibits certain practices that increase the costs of settlement services, such as kickbacks and referral fees that can increase settlement costs for homebuyers.

RESPA regulations apply to first-lien residential mortgage loans made to finance the purchases of one- to four-family homes, cooperatives, and condominiums, for either investment or occupancy, as well as second or subordinate liens for home equity loans when a purchase is financed by a federally related mortgage loan. Federally related loans are those made by banks, savings and loan associations, or other lenders whose deposits are insured by federal agencies; loans insured by the FHA and guaranteed by the VA; loans administered by HUD; and loans intended to be sold by the lenders to Fannie Mae, Ginnie Mae, or Freddie Mac. RESPA is administered by HUD.

RESPA does not apply to the following settlements:

- Loans on large properties (i.e., more than 25 acres)
- Loans for business or agricultural purposes
- Construction loans or other temporary financing
- Vacant land loans on large properties (i.e., more than 25 acres)
- Loans for business or agricultural purposes
- Construction loans or other temporary financing
- Vacant land (unless a dwelling will be placed on the lot within two years)
- A transaction financed solely by a purchase-money mortgage taken back by the seller
- An installment contract (contract for deed)
- A buyer's assumption of a seller's existing loan (If the terms of the assumed loan are modified, or if the lender charges more than $50 for the assumption, the transaction is subject to RESPA regulations.)

RESPA prohibits certain practices that increase the cost of settlement services:

Section 8 prohibits kickbacks and fee-splitting for referrals of settlement services, and unearned fees for services not actually performed. Violators are subject to criminal and civil penalties, including fines up to $10,000 and/or imprisonment up to one year. Consumers may privately pursue a violator in court; the violator may be liable for an amount up to three times the amount of the charge paid for the service.
Section 9 prohibits homesellers from requiring that homebuyers buy title insurance from a particular company. Buyers may sue the seller for such a violation; violators are liable for up to three times the amount of all charges paid for the title insurance.
Section 10 prohibits lenders from requiring excessive escrow account deposits, money set aside to pay taxes, hazard insurance, and other charges related to the property.
Effective January 1, 2010, RESPA required the use of the new Good Faith Estimate (GFE) and Uniform Settlement Statement (HUD-1) forms. Although the burden of implementing the new reforms is the responsibility of the lender, real estate licensees should be aware of the requirements because failure to meet the standards can and will delay closings. To make it easier for borrowers to understand costs, the new rules and forms require lenders to provide a GFE that clearly discloses key loan terms and closing costs. More important, most of these disclosed costs cannot vary greatly between the time that the GFE is issued and closing.
is the process of analyzing the extent of risk a lender will assume in connection with a mortgage loan. In addition to assessing the value of the collateral being pledged for the loan, the lender evaluates the capacity and creditworthiness of the borrower based on the following criteria:

- Occupancy. Lenders reserve the best rates for owners who occupy the property.
- Income. Lenders apply ratios to determine whether the borrowers have enough income to support themselves and repay normal household expenses while making their mortgage payments.
- Assets and cash reserves. Lenders scrutinize existing bank accounts, often asking for verification of funds. The borrowers must be able to account for the money in the account as being theirs and not from someone else expecting repayment.
- Debt. Ideally, lenders prefer that housing payments (PITI) and association fees be less than 28 percent of gross income and, when combined with other debts longer than 10 months or so, the total is less than 36 percent of gross income.
- Loan-to-value (LTV). The loan-to-value (LTV) ratio is the ratio of the debt to the sale price or appraised value, whichever is less. The greater the borrower's stake in the collateral, the lower the lender's risk. If the down payment is less than 20 percent, lenders frequently require some insurance to cover deficiencies in case of default.

Lenders commonly use risk-based pricing—the interest rate or other terms reflect the lender's assessment of the risk associated with the loan. They often rely on automated scoring systems as part of their underwriting process. Automated scoring should provide an objective standard against which to balance the more subjective, professional judgment of a loan officer. Several commonly used automated systems are Freddie Mac's Loan Prospector and Fannie Mae's Desktop Underwriter. Automated scoring can shorten the loan approval time and may lower the cost of processing and approving loan applications.

However, lenders may never base lending decisions on the race, color, religion, national origin, sex, age, marital status, source of income, or the neighborhood in which the collateral is located (otherwise known as redlining).
is a loss in value due to any cause. It refers to a condition that adversely affects the value of an improvement to real property. Land does not depreciate—it retains its value indefinitely, except in such rare cases as down-zoned urban parcels, improperly developed land, or misused farmland.

Depreciation is considered to be curable or incurable, depending on the contribution of the expenditure to the value of the property. For appraisal purposes (as opposed to depreciation for tax purposes), depreciation is divided into three classes, according to its cause:

- Physical deterioration. A curable item is one that can be repaired (such as painting walls), is economically feasible, and would result in an increase in value equal to or exceeding the cost. An item is incurable if its correction is not economically feasible or would not contribute a comparable value to the building (such as a crack in the foundation). The cost of a major repair may not warrant the financial investment.
- Functional obsolescence. Obsolescence means a loss in value from the market's response to the item. Outmoded or undesirable physical or design features are curable. Such features could be replaced or redesigned at a cost that would be offset by the anticipated increase in ultimate value. Outmoded plumbing, for instance, is usually easily replaced. Room function may be redefined at no cost if the basic room layout allows for it. A bedroom adjacent to a kitchen, for example, may be converted to a family room. However, currently undesirable physical or design features that cannot be easily remedied because the cost of the cure would be greater than its resulting increase in value are considered incurable. An office building that cannot be air-conditioned, for example, suffers from incurable functional obsolescence if the cost outweighs its contribution to the value.
- External depreciation. Depreciation is always incurable if caused by negative factors not on the subject property, such as environmental, social, or economic forces. For example, close proximity to a polluting factory or a deteriorating neighborhood are factors that could not be cured by the owner of the subject property.

Much of functional obsolescence and all of external depreciation can be evaluated only by considering the actions of buyers in the marketplace.

The easiest but least precise way to determine depreciation is the straight-line method (also called the economic age-life method). Depreciation is assumed to occur at an even rate over a structure's economic life, the period during which it is expected to remain useful for its original intended purpose. The property's cost is divided by the number of years of its expected economic life to derive the amount of annual depreciation.

For instance, a $420,000 property may have a land value of $240,000 and an improvement value of $180,000. If the improvements are expected to last 60 years, the annual straight-line depreciation would be $3,000 ($180,000 ÷ 60 years). Such depreciation can be calculated as an annual dollar amount or as a percentage of the improvement's replacement cost.
to value is based on the present value of the rights to future income. It assumes that the income derived from a property will, to a large extent, control the value of that property. The income approach is used for valuation of income-producing properties such as apartment buildings, office buildings, shopping centers, and the like. In estimating value using the income approach, an appraiser must take the following five steps:

Estimate annual potential gross income. An estimate of economic rental income must be made based on market studies. Current rental income may not reflect the current market rental rates, especially in the cases of short-term leases or leases about to terminate. Potential income also includes other income to the property from such sources as vending machines, parking fees, and laundry machines.
Deduct an appropriate allowance for vacancy and rent loss, based on the appraiser's experience, and arrive at effective gross income.
Deduct the annual operating expenses from the effective gross income to arrive at the annual net operating income. Management costs are always included even if the current owner manages the property. Mortgage payments (principal and interest) are debt service and are not considered operating expenses. Capital expenditures are not considered expenses, though an allowance can be calculated representing the annual usage of each major capital item.
Estimate the price a typical investor would pay for the income produced by this particular type and class of property. This is done by estimating the rate of return (or yield) that an investor will demand for the investment of capital in this type of building. This rate of return is called the capitalization rate (or cap rate) and is determined by comparing the relationship of net operating income to the sales prices of similar properties that have sold in the current market. For example, a comparable property that is producing an annual net operating income of $15,000 is sold for $187,500. The capitalization rate is $15,000 ÷ $187,500, or 8 percent. It may be concluded that 8 percent is the rate that the appraiser should apply to the subject property if other comparable properties sold at prices that yielded substantially the same rate.
Apply the capitalization rate to the property's annual net operating income to arrive at the estimate of the property's value.
With the appropriate capitalization rate and the projected annual net operating income, the appraiser can obtain an indication of value by the income approach.

This formula and its variations are important in dealing with income property:

Income ÷ Rate = Value income ÷ Value = Rate value × Rate = Income

Net operating income ÷ Capitalization rate = Value

Example: $18,000 income ÷ 9% cap rate = $200,000 value or

$18,000 income ÷ 8% cap rate = $225,000 value

Note the inverse relationship between the rate and value. As the rate goes down, the value estimate increases.

This formula and its variations are important in dealing with income property.

Income ÷ Rate = Value

Income ÷ Value = Rate

Value × Rate = Income
(also known as the market data approach), an estimate of value is obtained by comparing the subject property (the property being appraised) with recently sold comparable properties (properties similar to the subject). Because no two parcels of real estate are exactly alike, each comparable property must be analyzed for differences and similarities between it and the subject property. This approach is a good example of the principle of substitution (as discussed above). The sales prices of the comparables must be adjusted for any differences. The elements of comparison for which adjustments must be made include the following:

- Property rights. An adjustment must be made when less than the fee simple legal bundle of rights is involved. This includes land leases, ground rents, life estates, easements, deed restrictions, and encroachments.
Financing concessions. The financing terms must be considered, including adjustments for differences such as mortgage loan terms and owner financing or buydowns by a builder-developer.
Market conditions. Interest rates, supply and demand, and other economic indicators must be analyzed.
Conditions of sale. Adjustments must be made for motivational factors that would affect the sale, such as foreclosure, a sale between family members, or some nonmonetary incentive.
Market conditions since the date of sale. An adjustment must be made if economic changes occur between the date of sale of the comparable property and the date of the appraisal.
Location, or area preference. Similar properties might differ in price from neighborhood to neighborhood or even between locations within the same neighborhood.
Physical features and amenities. Physical features such as the building's age, size, and condition may require adjustments.
The sales comparison approach is considered the most reliable of the three approaches when appraising single-family homes, where the intangible benefits may be difficult to otherwise measure. Most appraisals include a minimum of three comparable sales reflective of the subject property
(also known as the market data approach), an estimate of value is obtained by comparing the subject property (the property being appraised) with recently sold comparable properties (properties similar to the subject). Because no two parcels of real estate are exactly alike, each comparable property must be analyzed for differences and similarities between it and the subject property. This approach is a good example of the principle of substitution (as discussed above). The sales prices of the comparables must be adjusted for any differences. The elements of comparison for which adjustments must be made include the following:

- Property rights. An adjustment must be made when less than the fee simple legal bundle of rights is involved. This includes land leases, ground rents, life estates, easements, deed restrictions, and encroachments.
- Financing concessions. The financing terms must be considered, including adjustments for differences such as mortgage loan terms and owner financing or buydowns by a builder-developer.
- Market conditions. Interest rates, supply and demand, and other economic indicators must be analyzed.
- Conditions of sale. Adjustments must be made for motivational factors that would affect the sale, such as foreclosure, a sale between family members, or some nonmonetary incentive.
- Market conditions since the date of sale. An adjustment must be made if economic changes occur between the date of sale of the comparable property and the date of the appraisal.
- Location, or area preference. Similar properties might differ in price from neighborhood to neighborhood or even between locations within the same neighborhood.
- Physical features and amenities. Physical features such as the building's age, size, and condition may require adjustments.

The sales comparison approach is considered the most reliable of the three approaches when appraising single-family homes, where the intangible benefits may be difficult to otherwise measure. Most appraisals include a minimum of three comparable sales reflective of the subject property
established by the foundation's Appraisal Standards Board. The rules define the education, examination, and experience requirements required to obtain the certification. Continuing education is required.

A federally related transaction is any real estate-related financial transaction in which a federal financial institution or regulatory agency is engaged. These transactions involve the sale, lease, purchase, investment, or exchange of real property. They also include the financing, refinancing, or use of real property as security for a loan or an investment, including mortgage-backed securities. Appraisals of residential property valued at $250,000 or less are exempt and need not be performed by licensed or certified appraisers. Nonresidential properties valued at more than $250,000 require a certified appraiser.

In Pennsylvania Federal law required Pennsylvania to pass the Real Estate Appraisers Certification Act and create the Board of Certified Real Estate Appraisers. In Pennsylvania, any person who acts as an appraiser and/or prepares an appraisal must be certified, not just those for federally related financial transactions. The Pennsylvania law and the Appraisal Board's Rules and Regulations can be obtained online from the Department of State portal.

The three classes of certification are as follows:

- State-certified general real estate appraiser. A certified general real estate appraiser is permitted to appraise any residential or nonresidential property. For federally related transactions, only a certified general appraiser may appraise commercial property valued over $1 million.
- State-certified residential real estate appraiser. A certified residential real estate appraiser is permitted to appraise only residential property of one to four units, regardless of whether the transaction is federally or nonfederally related. A certified residential appraiser may appraise only these types of properties valued over $250,000.
- Broker/appraiser. A broker/appraiser is permitted to appraise only properties valued under $250,000 that are not involved in federally related transactions. This certification was offered to all licensed real estate brokers who applied by September 3, 1998. After this date, any real estate broker who desires certification must meet the qualifications for a certified general or residential appraiser.

The appraiser certification act also certifies county assessors who value properties for ad valorem tax purposes in Pennsylvania. Certified Pennsylvania Evaluator (CPE) certificates are issued to individuals who meet certain education requirements and pass an exam.■
has changed how buyers and sellers, lenders, mortgage brokers, title agents, and real estate licensees prepare for a closing. The timeliness of certain disclosures now affects the date of closings. Lenders and licensees should keep in mind the numbers 3, 7, and 3:

- 3 business days from application to provide the truth-in-lending (TIL) statement and good-faith estimate (GFE)
- 7 business days before the signing of loan documents, after the borrower receives the final truth-in-lending statement and GFE
- 3 business days to wait for closing if the annual percentage rate (APR) has changed more than 0.125 percent from the original or most recent TIL and GFE

Until the applicant/borrower receives the GFE and the TIL, the lender may collect only a reasonable fee for accessing the applicant's credit history. Plus, the Home Valuation Code of Conduct (HVCC) requires that the borrower be provided with a copy of the home's appraisal within three business days of closing.

Lenders must provide a statement to the applicants indicating that they are not obligated to complete the transaction simply because disclosures were provided or because they applied for a loan. If the APR increases more than 0.125 percent from the original TIL, then creditors must provide new disclosures with a revised APR and then wait an additional three business days before closing the loan. Consumers are permitted to accelerate the process if a personal emergency, such as a foreclosure, exists.

The intent of this law is to prevent consumers from receiving an enticing low rate at the initial application and then learning at settlement that the lender is charging more in fees. Licensees should encourage their buyers to discuss all loan options with their lenders before signing a contract so that lenders can provide the disclosures in a timely fashion. Borrowers should lock in interest rates with a date that is about ten days from an anticipated settlement. Any change to the interest rate, loan amount, loan product, or lender's or escrow fees can affect the APR, which may then require a redisclosure. Redisclosures can potentially delay settlement.

Before closing, everyone involved in the real estate transaction should check and double-check that the GFE and TIL forms are consistent with the original application. No one—buyers, sellers, or real estate agents—should schedule closings that do not account for the seven-day waiting period.
are expenses to be prorated (such as fuel oil in a tank) that have been prepaid by the seller but not fully used. They are, therefore, credits to the seller.

In Pennsylvania, although the parties may agree otherwise, the following are typical:

- The seller owns the property on the day of closing, and prorations are usually calculated up to and including the day of closing.
- Mortgage interest, water taxes, insurance premiums, and similar expenses are usually computed by using 360 days in a year and 30 days in a month. However, the rules in some areas provide for computing prorations on the basis of the actual number of days in the calendar month of closing. The agreement of sale should specify which method will be used. Depending on the time of year the settlement occurs and the tax payment schedule, proration could be for either accrued or prepaid taxes.
- Special assessments for municipal improvements such as sewers, water mains, or streets are usually paid in annual installments over several years, with annual interest charged on the outstanding balance of future payments. The seller normally makes the current payments, and the buyer assumes all future payments. The special assessment installment generally is not prorated at the closing. A buyer may insist that the seller allow the buyer a credit for the seller's share of the interest to the closing date. The agreement of sale may address the manner in which special assessments will be handled at closing.
- Rents are usually adjusted on the basis of the actual number of days in the month of closing. Customarily, the seller receives rent for the day of closing and pays all expenses for that day as well. If any rent for the month of settlement is uncollected, the buyer often agrees by a separate letter to collect the rent if possible and remit the pro rata share to the seller.
- Security deposits made by tenants to cover the cost of repairing damage caused by the tenant or prepaid rent (rent for the last month of the tenancy) are generally transferred by the seller to the buyer. Because of Pennsylvania's regulations for holding security deposits, it is wise to get the tenant's consent to such a transfer.
- Depending on local custom, evidence of monthly or quarterly municipal utility charges (such as water and sewage charges) may be required at closing. The portion owed by the seller is debited through the date of closing; the prepaid portion is credited to the seller. Private utility companies normally handle their own final billing.
itemize all charges normally paid by a borrower and a seller in connection with settlement, whether required by the lender or another party, or paid by the lender or any other person (click here to view the form). Charges required by the lender that are paid before closing are indicated as paid outside of closing (POC). The third page of the HUD-1 provides for a comparison of the original good-faith estimates to the actual charges appearing on the HUD-1. Lenders are permitted to correct any violation of the tolerances by reimbursing the borrower within 30 days of settlement.

RESPA prohibits lenders from requiring borrowers to deposit amounts in escrow accounts for taxes and insurance that exceed certain limits, thus preventing the lenders from taking advantage of the borrowers. While RESPA does not require that escrow accounts be set up, certain governmental loan programs and some lenders require escrow accounts as a condition of the loan. RESPA places limits on the amounts that a lender may require: on a monthly basis, the lender may require only one-twelfth of the total of the disbursements for the year, plus an amount necessary to cover a shortage in the account. No more than one-sixth of the year's total disbursements may be held as a cushion (a cushion is not required). Once a year, the lender must perform an escrow account analysis and return any amount over $50 to the borrower.

By law, borrowers have the right to inspect the completed HUD-1, to the extent that the figures are available, one business day before the closing (RESPA does not require that this right be extended to sellers; in practice, however, they often do get to preview the statement). Lenders must retain these statements for two years after the date of closing, unless the loan (and its servicing) is sold or otherwise disposed of. In addition, Pennsylvania requires that brokers retain all records of a transaction for at least three years following consummation of the transaction.
When an abstract of title is used, the purchaser's attorney examines it and issues an opinion of title. The attorney's opinion of title is a statement of the quality of the seller's title, and it lists all liens, encumbrances, easements, conditions, and restrictions that appear on the record and to which the seller's title is subject. The attorney's opinion is not a guarantee of title.

When the purchaser pays cash or obtains a new loan to purchase the property, the seller's existing loan is paid in full and satisfied on the record. The exact amount required to pay the existing loan is provided in a current payoff statement from the lender, effective the date of closing. This payoff statement notes the unpaid amount of principal, the interest due through the date of payment, the fee for issuing the certificate of satisfaction or release deed, credits (if any) for tax and insurance reserves, and the amount of any prepayment penalties. The same procedure is followed for any other liens that must be released before the buyer takes title.

When assuming the seller's existing mortgage loan, the buyer needs to know the exact balance of the loan as of the closing date. Usually, the lender is required to provide the buyer with a mortgage reduction certificate, which certifies the amount owed on the mortgage loan, the interest rate, and the date and amount of the last interest payment.

The closing agent examines the title commitment or the abstract that was issued several days or weeks before the closing. Because liens may have been filed during the interval, two searches of the public record are often made. The first search shows the status of the seller's title on that date. The second search, known as a bringdown, is made after the closing and before any new documents are filed. The title or opinion of title discloses all liens, encumbrances, easements, conditions, and restrictions on the property.

In Pennsylvania In Pennsylvania, buyers are responsible for determining that they are taking good title to the property. Either the abstract of title or a title commitment from a title insurance company will disclose those liens, encumbrances, easements, conditions, or restrictions that appear on the record and affect the seller's title.■
is complex, requiring the manager to wear many hats. It is not unusual for a property manager to be a market analyst, salesperson, accountant, advertising specialist, and maintenance person—all in the same day. In addition, the property manager frequently interacts with people in various professions, including lawyers, environmental engineers, and accountants. The three principal responsibilities of the property manager are to

- achieve the objectives of the property owners,
- generate income for the owners, and
- preserve and/or increase the value of the investment property.

A property manager carries out the goals of a property owner. In the process, the property manager is responsible for maintaining the owner's investment and making sure the property earns income. These goals can be accomplished in several ways. The physical property must be maintained in good condition. Suitable tenants must be found, rent must be collected, and employees must be hired and supervised. The property manager is responsible for budgeting and controlling expenses, keeping proper accounts, and making periodic reports to the owner. In all these activities, the manager's primary goal is to operate and maintain the physical property in such a way as to preserve and enhance the owner's capital investment.

Some property managers work for property management companies. These firms manage properties for a number of owners under management agreements. Others are independent contractors in an agency relationship with the owner that involves greater authority and discretion over management than an employee would have. A property manager or an owner may employ building managers to supervise the daily operations of a building. In some cases, these individuals might be residents of the building.

In Pennsylvania A property manager who serves the public for a fee must be a licensed real estate broker or a real estate licensee affiliated with a property management company or a brokerage firm that has a property management department. A property manager may be an employee of the owner of the real estate.
Proper selection is the first step in establishing and maintaining sound, long-term relationships with tenants. The manager should be sure that the premises are suitable for the tenant in terms of size, location, and amenities, and that the tenant can afford the space. A commercial tenant's business should be compatible not only with the building but also with the businesses of the other tenants.

Some commercial leases prohibit the introduction of similar businesses, but in any event, introduction of competitors into the same property should be undertaken with care. Managers should always ask commercial tenants about the potential for expansion. Because the property may not have enough room for expansion, the manager could soon lose the tenant to a larger space.

The residential property manager must be sure to comply with all federal, state, and local fair housing laws in selecting tenants. Although fair housing laws do not apply to commercial properties, commercial property managers need to be aware of federal, state, and local antidiscrimination and equal opportunity laws that may govern industrial or retail properties.

Most states have strict requirements as to how security deposits should be handled by the property manager: how soon they must be deposited, into what kind of account, and when they must be refunded. In general, funds belonging to others, such as security deposits and collected rents, should be placed into a trust or escrow account. Property managers should not use any of these funds personally (conversion) or mix the funds into personal accounts (commingling).