Overview of Real Estate Finance

The demand for financing in real estate has amassed over the last century. There are countless numbers of employers around the world who specialize in real estate finance. Below is a briefing on a company that has a solid position in real estate services industry.

CBRE- Corporate Commercial Real Estate Services Firm

• Full-Service real estate firm (Range from consulting to agency brokerage)
• Complete thousands of assignments worldwide each year
• Offer extensive training programs for recent graduates.
• The Wheel Program: 12-18 month rotational program
• Offers the ability to search/ find a property worldwide.
• CBRE Capital Advisers: The investment banking portion of the firm 
• CBRE Website

Real estate markets have been struggling ever since the debt crisis in 2008. Until recently, construction projects have lessened and many people were not buying. This caused a freeze in the market. Although the number has shrunk, many people have outstanding mortgages on their homes that are worth more than the actual home itself.  The lack of balance has caused a lot of foreclosures.


The Fed, in an effort to get the economy rolling, has ensured that interest rates would remain low until 2014 and potentially longer. With the lowered interest rate, this has caused a great amount of refinancing within the real estate market. This has allowed many banks to profit from the fees that they collect when performing a restructuring of a mortgage.

The Federal Reserve

An example of a firm that has recently benefitted from the growing housing recovery is Realogy. The firm owns Century 21, Coldwell Banker, Sotheby's International and other big residential brokerage franchises.  

Realogy Shares Surge on Hopes for Recovery in Housing Market

The article points out that this recent event is one of the strongest hints that investors are beginning to restore confidence in the real estate market through their investing in Realogy; a firm that's success is dependent on the real estate market.

Real Estate Financing

Real estate transactions involve large amounts of capital. Because of the need for these huge transactions, many ways to finance a property with debt have been created. Due to the time value of money, a dollar today is not worth the same as a dollar tomorrow.  When a lender provides a debt service for a borrower, the borrower pays the lender back the principal along with interest payments. As a result many firms have been created in order to take advantage of the profitable opportunities in real estate finance.  The formation of large real estate firms provides a sense of liquidity to the real estate market.

The Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are examples of firms that developed because of the great demand for mortgage financing. 

With the increased creation of long-term mortgages, the Federal Housing Administration (FHA) was created.  The struggle of the U.S. economy during the Great Depression led to many debt obligations not being met.  New construction on properties came to a halt as the entire real estate market froze. 

The FHA was created to restore confidence in the mortgage market. The administration helped establish rigorous borrowing and lending standards.

Freddie Mac: 

• Designed to increase the flow of funds to the mortgage market
• Operated a secondary market for conventional loans
• Sold mortgage backed securities

Freddie Mac

Above is a link to the Federal Home Loan Mortgage Corporation website. This site includes vast amounts of information ranging from the firms inception to its current state.

Fannie Mae:

• Created to buy mortgages from lenders
• To serve as a clearinghouse for the secondary mortgage market for FHA-insured loans
• Provided FHA-insured loans to low-income borrowers

Fannie Mae

The link above serves as an excellent resource for further information about Fannie Mae.

Some of the actual instruments of real estate financing are discussed below. 

Real Estate Investment Trusts (REITSs): Sell shares of stock to investors through public and private markets, then use the proceeds to invest in commercial properties. They provide an excellent opportunity for small investors to participate in the commercial real estate market.

Commercial Mortgage-Backed Securities (CMBS): Commercial mortgages are divided into financial securities that represent claims on the cash flows to the mortgage holder. CMBS can be looked at as a pool of investors receiving their portion of the returns. 

Below is a link to an article that discussed the recent uptick in demand for CMBS. With the QE3 currently happening, investors are seeking higher returns. However, it is important to note that CMBS can be very risky assets to hold as part of a portfolio. They had a intricate part in the recent debt crisis.

CMBS Rally is Welcome News in Property Market

Overview of a Real Estate Appraisal

Appraisal: A estimate of value.

• A appraisal is needed when a seller, mortgage lender, or tax assessor want to find out the estimated value of the property. 

Example: Sellers want to know what their property offers to the marketplace, and buyers want to know if they are getting a fair deal based on other properties in the market.

Examples of Types of Appraisals

• Uniform Residential Appraisal Report( Freddie Mac Form 70): This is the standard appraisal. It requires an interior and exterior inspection of the subject property.
• Individual Condominium Unit Appraisal: This is the standard form of appraisal for condominiums.
• ERC Appraisal: This is used for relocation of appraisals. It is used to report the appraiser's estimate of the anticipated selling price of a property.

Below is a link that contains links of the actual forms used for the types of appraisals mentioned above.

Types of Appraisals

With the increase of information available online, the need for appraisers should remain stable. I believe that no matter how many pictures or details are provided on paper, there will always be a need for the expertise of a certified real estate appraiser. The regulations, both federal and state, put in place are the backbone for the general society's trust in real estate appraisers.  These regulations ensure that people engaged in appraisal services do so in a competent and professional manner. The Appraisal Foundation  was created as a non-profit educational organization with the purpose of promoting professionalism in the appraisal industry. 

The guidelines adopted by the Appraisal Qualifications Board, a group that established minimum education requirements, established four different appraiser categories in an effort to promote levels of specialization.

1. Trainee Appraiser: The most basic form. It requires at least 75 hours of classroom instruction. However, there is no experience requirement. 
2. Licensed Real Property Appraiser: Authorized to perform appraisals involving complex one- to four-unit residential properties in transactions of less than $250,000. They can also perform non-complex one- to four unit residential properties in transaction of less than $1 million. Also, they must have completed 150 hours of classroom instruction, written examination, and 2,000 hours of appraisal experience.
3. Certified Residential Appraiser- There is no transaction limitations. They must have completed 200 hours education and 2,500 hours in experience.
4. Certified General Appraiser- They can appraise any type of property. Must have completed 300 hours in the classroom and at least 3,000 hours of appraisal experience. 

Below is a link to a website that can be used to begin attaining a real estate appraisal license. There is a link for continuing education, which is very important for appraisers to do in order to ensure they stay up to date with the market regulations. Online courses are available as well so that a individual can complete their education at their preferred pace.

Appraisal Education and Licensing

Overview of a Real Estate Appraiser

A real estate appraiser is someone who is often used to estimate the value of real property prior to a sale, mortgage, insured, taxed, and even developed. The expertise of a real estate appraiser allow them to evaluate the real estate market conditions and arrive at sound estimates of property value.

To qualify as a real estate appraiser, one must have met the state requirements.  Prior to 1989, there were few regulations in the appraisal industry. Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). This established a level of federal regulation in the appraisal industry. Any appraisals for properties that involve federally related transactions must be performed by state-licensed appraisers. As far as education and experience, the amount of each varies amongst each state.

How to Become a Real Estate Appraiser

The job outlook for real estate appraisers is predicted to grow at a slower pace than the average growth for all occupations. The link below elaborates by providing some estimated statistics.

Real Estate Appraiser Outlook


Compensation for a independent-fee real estate appraiser consist of fees in proportion to each appraisal. According to United States Department of Labor, the median annual wage was $48,500 in 2010.

There are virtually unlimited amounts of appraisal firms around the nation. Some examples of firms include T.H. Reenstierna LLC and Scott Appraisal Company.  The former is a nationally represented appraisal firm as to where the ladder is focused on the central california area. Below is a link to the T.H. Reenstierna LLC website.

T.H. Reenstierna LLC

Public Restrictions on Ownership

Similar to private restrictions, public restrictions also create limitations on the ownership of real estate.  However, when dealing with public restriction, these limitations arise from government's powers.

Examples:
- Taxation
- Eminent Domain
- Police Power

With all restrictions or limitations come conflict.  Some examples of these controversial areas are zoning changes, development rights,  etc. A land owner may want to develop a commercial building, but cannot due to the zoning limitation. Below are some articles that present several controversial scenarios.

Zoning map: Battles loom as Baltimore County changes zoning map

This article talks about a scenario where a man has 16 acres of woodland and wants to potentially develop it. He is up against a conservatism group that wants to protect the rural characteristics of Baltimore county. This has been an on going battle.

DuPage County Zoning Change

This zoning change has to do with the idea of religious centers being built in DuPage County. This is a very serious matter and one that must be solved. A similar more popular matter has to do with the issue of the Islamic center near ground zero in Manhattan. I feel that this country is a free country and that we must honor that. However, my opinion weighs little due to my lack of validity for this particular instance.

Private Restrictions on Ownership

Private restrictions on ownership come into play when someone who contains the simple ownership rights of a piece of real estate is limited by certain restrictions placed on the property by another private entity.  These restrictions effect the owners of the real estate through the limitation of certain acts.

Examples of Private Restrictions:
 - Liens
 - Easements
 - Zoning

Below are two links to articles that discuss Private Restrictions.

1) Private Land Use Restrictions

 In this article, I found it very interesting in the portion where it discussed how far back land-use controls have gone.  Suburbanization after WWII played a crucial role in the development and fine tuning of  land restrictions. People began to have access to more land and wanted to do more with that land and in return caused need for these private restrictions.

2) Private Restrictions on Property

This article points out that as long as a developer's limitations abide by the local, state, and national law, then they can legally enforce them. Also, after reading this article, it is evident in how important it is to research the property's potential limitations before buying. Often times, developer's have a pre-determined set of limitations that the buyer must agree to if they want to purchase the land.

Property Rights and Legal Descriptions

Property rights consists of the assessment of the ability of individuals to accumulate private property. Another way to describe a property right is the exclusive right to determine the usage of a resource. They play a crucial role in everyday life. If property rights did not exist, then there would be no order to   the way we live. No one would have a "home", and there would be no way to profit from real estate due to the fact there are no original rights to the property. A legal description is for a third party in the instance of buying or selling land. It must accomplish specificity in regards to the real estate so that a third party can easily identify it.

Legal Description Explained

The article gives a brief overview of what a legal description consists of and also brief examples. The amount of detail that goes into the legal description shows the importance of the document. This link gives a good brief overview of the process.


"Legal descriptions, as the name implies, are the way and means by which real property, or real estate, is legally identified, conveyed, assessed and taxed."
- Michigan Government

Michigan Government Document

This is an example of Michigan government document describing a legal description. The article is a formal representation of the state of Michigan's views on the legal description.