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How to Choose a Real Estate Professional

Choosing a real estate professional is an important decision. A purchase or sale of the family home is often the largest single financial transaction that a family makes. The assistance of a competent real estate professional can go a long way towards making this most significant purchase a smooth, happy and successful transaction. A real estate professional can help you on how to proceed when you decide to buy or sell real property.

Many people feel intimidated by the language of real estate, it may seem like a foreign language to new buyers and sellers. Transactions can seem complicated for any buyer or seller. While there is no requirement that a buyer or seller utilize the services of a real estate professional, most buyers and sellers feel more comfortable taking advantage of the expertise of licensed real estate professionals.

Finding the right real estate professional is important so how do I get started? First of all, you want someone who has a strong track record selling your kind of home in your neighborhood. Put together a list of brokers by asking friends and neighbors for referrals. If you've lived in the area for a while you probably have a sense of which firm has the most market share. If you have time, attend a few open houses one weekend to see some professionals in action. It is good practice to interview more than one salesperson/broker when you do not have the advantage of a successful track record with a broker or when a different or more complex type of transaction is intended.

Friends, family and neighbors are a good starting point for recommendations both pro and con for individual licensees. You may be tempted to give your listing to a friend, but that can easily backfire since disputes can happen. The percentage of real estate transactions that result in problems or disputes is small. Despite the number of transactions that conclude without a hitch, the consequences of an unsatisfactory real estate transfer can be substantial. Some contracts fail and disputes about the cause can and do happen, so really think about who you want to have represent you.

Top professionals will usually make a formal presentation, giving you a detailed marketing strategy that describes their plans for advertising, open houses and marketing to other brokers. You should also get a suggested list price for your home based on comparable sales in the neighborhood and an estimate for the amount of time it will take to sell. DO NOT be fooled into choosing the salesperson/broker who gives you the highest price. Some real estate salespersons/brokers will set an unrealistic price just to get a listing.


How Real Estate Professionals
Were Selected

Consumers’ Research Council of America has compiled a list of top real estate professionals throughout the United States by utilizing a point value system. This method uses a point value for criteria that we deemed valuable in determining the top professional.

The criteria that was used and assessed a point value is as follows:

         Experience Each year the Real Estate Professional has been licensed
Training Education and Continuing Education, special industry related training
Professional Associations Member of Real Estate Associations/Organizations
Industry Certifications Completing an approved program sponsored by a recognized industry association or organization and meeting all requirements for that particular professional designation

Simply put, real estate professionals that have accumulated a certain amount of points qualified for the list. This does not mean that people that did not accumulate enough points are not good real estate professionals, they merely did not qualify for this list because of the points needed for qualification.

Similar studies have been done with other professions using a survey system. This type of study would ask fellow experts whom they would recommend; We found this method to be more of a popularity contest. For instance, professionals who work in a large office have much more of a chance of being mentioned as opposed to a professional who has a small private practice. In addition, many professionals have a financial arrangement for back-and-forth referrals. For these reasons, we developed the point value system.

Since this is a subjective call, there is no study that is 100% accurate. As with any profession, there will be some degree of variance in opinion. We feel that a point value system takes out the personal and emotional factor and deals with factual criteria. We have made certain assumptions. For example, we feel that the more years in the real estate industry is better than less years in the industry; more education is better than less education, being trained and having a professional industry related professional designation is better than not having that additional and specialized education.

The Top Real Estate Professionals list that we have compiled is current as of a certain date and other professionals may have qualified since that date. Nonetheless, we feel that the list of top professionals is a good starting point for you to find a qualified real estate expert.

No fees, donations, sponsorships or advertising are accepted from any individuals, professionals, corporations, associations, real estate companies, title insurance companies, escrow companies etc. This policy is strictly adhered to, ensuring an unbiased selection.


What is a Real Estate Broker?

A real estate broker is a party who acts as an intermediary between sellers and buyers of real estate and attempts to find sellers who wish to sell and buyers who wish to buy. In the United States, the relationship was originally established by reference to the English common law of agency with the broker having a fiduciary relationship with his clients. Estate agent is the term used in the United Kingdom to describe a person or organization whose business is to market real estate on behalf of clients.

In the US, real estate brokers and their salespersons (commonly called "real estate agents") assist sellers in marketing their property and selling it for the highest possible price under the best terms. When acting as a Buyer's agent with a signed agreement (or, in many cases, verbal agreement), they assist buyers by helping them purchase property for the best possible price under the best terms. Without a signed agreement, brokers may assist buyers in the acquisition of property but still represent the seller and the seller's interests.

In most jurisdictions in the United States, a person is required to have a license in order to receive remuneration for services rendered as a real estate broker. Unlicensed activity is illegal, but buyers and sellers acting as principals in the sale or purchase of real estate are not required to be licensed. In some states, lawyers are allowed to handle real estate sales for compensation without being licensed as brokers or agents.

The difference between salespersons and brokers

In the past, when brokers (and their agents) only represented sellers, the term "real estate salesperson’’ may have been more appropriate than it is today, given the different ways that brokers and their agents can help a buyer through the process rather than simply "sell’’ him or her a property. Legally however, the term ‘’salesperson’’ is still used in many states to describe a real estate agent.

Today in many states, the real estate agent (acting as an agent of the broker with whom they are employed) is required to disclose to prospective buyers and sellers who represents whom. See below for a broker/agent’s relationship to sellers and their relationship to buyers.

While some people may refer to any licensed real estate agent as a real estate broker, a licensed real estate agent is a professional who has obtained either a real estate salesperson's license or a real estate broker's license.

In the United States, there are commonly two levels of real estate professionals licensed by the individual states, but not by the federal government:

Real estate salesperson: When a person first becomes licensed to become a real estate agent, they obtain a real estate salesperson's license from the state in which they will practice. To obtain a real estate license, the candidate must take specific coursework (of between 40 and 90 hours) and then pass a state exam on real estate law and practice. In order to work, salespersons must then be associated with (and act under the authority of) a real estate broker.

Many states also have reciprocal agreements with other states, allowing a licensed individual from a qualified state to take the second state's exam without completing the course requirements, or, in some cases, take only a state law exam.

Real estate broker: After gaining some years of experience in real estate sales, a salesperson may decide to become licensed as a real estate broker. Commonly more course work and a broker's state exam on real estate law must be passed. Upon obtaining a broker's license, a real estate agent may continue to work for another broker in a similar capacity as before (often referred to as a broker associate or associate broker) or take charge of his/her own brokerage and hire other salespersons (or broker) licensees. Becoming a branch office manager may or may not require a broker's license. Some states such as New York allow licensed attorneys to become real estate brokers without taking any exam. In states, such as Colorado, there are no "salespeople", as all licensees are Brokers.

A REALTOR®, (pronounced "RE-al-ter"), is a real estate salesperson or broker who is a member of the National Association of Realtors® (NAR). All Realtors® are brokers/salespersons, but not all brokers/salespersons are Realtors®.

The National Association of Realtors® (NAR), whose members are known as Realtors®, is North America's largest trade association, representing over 1 million members (as reported in 2006), including NAR's institutes, societies, and councils, involved in all aspects of the residential and commercial real estate industries. NAR also functions as a Self Regulatory Organization for real estate brokerage.
NAR's membership is composed of residential and commercial real estate brokers, real estate salespeople, immovable property managers, appraisers, counselors, and others engaged in all aspects of the real estate (immovable property) industry, where a state license to practice is required. Members belong to one or more of some 1,600 local Associations of Realtors® and Boards of Realtors® in the 54 state and territory Associations of Realtors®. They are pledged to a Code of Ethics and Standards of Practice, which includes duties to clients, the public, and other Realtors®. The NAR wields substantial power as a lobbying organization on behalf of agents and brokers. In 2005, NAR had the largest Political Action Committee in the United States; it is also the 3rd largest donor in the 2004 Presidential Election.
The National Association of Realtors® is also a member of The Real Estate Roundtable, a policy group in Washington, D.C.

Word as colloquialism

Realtor® is frequently used as a colloquialism in many countries to describe any person or company involved in the real estate trade, regardless of their NAR status or American residence. However, the word REALTOR® (which the NAR prefers rendered in all caps) is a registered trade mark owned by the National Association of Realtors®, and, if maintained, cannot be used in commerce by other parties in a way that is likely to cause confusion as to the origin, sponsorship, or approval of goods, services, or commercial activities. The NAR authorizes usage by National Association of Realtors® members or licensees. See also genericized trademark.

NAR and Multiple Listing Service (MLS) systems

The MLSs are to residential real estate what NASDAQ and the New York Stock Exchange are to securities, and NAR governs the hundreds of local Multiple Listing Services (MLSs) which are the information exchanges used across the nation by real estate brokers. (However, there are many MLSs that are independent of NAR, although membership is typically limited to licensed brokers and their agents; MLSPIN is an example of one of the larger independent MLSs in North America).

Through a complicated arrangement, NAR sets the policies for most of the Multiple Listings Services and, in the late 1990s with the growth of the Internet, NAR evolved regulations allowing Information Data Exchanges (IDX) whereby brokers would allow a portion of their data to be seen on the Internet via brokers' or agents' web sites.

There were attempts to limit access to some or all of that data to certain brokers operating solely on the Internet and, in 2005, this prompted the Department of Justice to file an antitrust lawsuit against NAR alleging its MLS rules in regard to these types of limitations on the display of data were the product of a conspiracy to restrain trade by excluding brokers who used the Internet to operate differently from traditional "brick and mortar" brokers.

Agency relationships with clients versus Non-Agency relationships with customers

Traditionally, the broker provides a conventional full-service, commission-based brokerage relationship under a signed listing agreement with a seller or "buyer representation" agreement with a buyer, in most states thus creating under common law an agency relationship with fiduciary obligations. Some states also have statutes which define and control the nature of the representation. These are then clients of the broker.

Agency relationships in a residential real estate transactions involves the legal representation by a real estate broker (on behalf of a real estate company) of the principal, whether that person or persons is a buyer or a seller. The broker (and his/her licensed real estate agents) then becomes the agent of the principal who is the broker’s client.

In a non-agency situation (where no written agreement nor fiduciary relationship exists), a real estate broker (and his agents) works with a principal who is then known as the broker’s customer. Examples of this would be when a buyer has not entered into a Buyer Agency agreement with the broker, and buys a property where the broker is the sub-agent of the seller’s broker; or where a seller chooses to work with a transaction broker.

Transaction brokers

Some state Real Estate Commissions, notably Florida's after 1992 (and extended in 2003) and the Colorado's after 1994 (with changes in 2003), created the option of having no agency nor fiduciary relationship between brokers and sellers or buyers. The transaction broker assists buyers, sellers, or both during the transaction without representing the interests of either party. They may be then regarded as customers.

As noted by the South Broward Board of Realtors®, Inc. in a letter to State of Florida legislative committees:

"The Transaction Broker crafts a transaction by bringing a willing buyer and a willing seller together and assists with the closing of details. The Transaction Broker is not a fiduciary of any party, but must abide by law as well as professional and ethical standards." (such as NAR Code of Ethics)

The result was that in 2003, Florida created a system where the default brokerage relationship had "all licensees …operating as transaction brokers, unless a single agent or no brokerage relationship is established, in writing, with the customer" and the statute required written disclosure of the transaction brokerage relationship to the buyer or seller customer only through July 1, 2008. In both Florida and Colorado's case, dual agency and sub-agency (where both listing and selling agents represented the seller) no longer exist.

Dual or limited Agency

Dual agency occurs when the same brokerage represents both the seller and the buyer under written agreements. Individual state laws vary and interpret dual agency rather differently.

Many states no longer allow dual agency. Instead, Transaction Brokerage (see above) provides the Buyer and Seller with a limited form of representation, but without any fiduciary obligations (see Florida law). Buyers and sellers are generally advised to consult a licensed real estate professional for a written definition of an individual state's laws of agency, and many states require written Disclosures to be signed by all parties outlining the duties and obligations.

       If state law allows for the same agent to represents both the buyer and the seller in a single transaction, the brokerage/agent is typically considered to be a Dual Agent. Special laws/rules often apply to dual agents, especially in negotiating price.
In some states (notably Maryland), Dual Agency can be practiced in situations where the same brokerage (but not agent) represent both the buyer and the seller. If one agent from the brokerage has a home listed and another agent from that brokerage has a buyer-brokerage agreement with a buyer who wishes to buy the listed property, Dual Agency occurs by allowing each agent to be designated as "intra-company" agent. Only the broker himself is the Dual Agent.
Some states do allow a broker and one agent to represent both sides of the transaction as dual agents. In those situations, conflict of interest is more likely to occur.

Types of services that a broker can provide

Since each state's laws may differ from others, it is generally advised that prospective sellers or buyers consult a licensed real estate professional.

Some Examples:

Comparative Market Analysis - an estimate of the home's value compared with others. This differs from an appraisal in that property currently for sale may be taken into consideration (competition for the subject property).
Exposure - Marketing the real property to prospective buyers.
Facilitating a Purchase - guiding a buyer through the process.
Facilitating a Sale - guiding a seller through the selling process.
FSBO document preparation - preparing necessary paperwork for "Sale By Owner" sellers.
Full Residential Appraisal - but only, in most states, if the broker is also licensed as an appraiser.
Home Selling Kits - guides to how to market and sell a property.
Hourly Consulting for a fee, based on the client's needs.
Leasing for a fee or percentage of the gross lease value.
Property Management.
Exchanging property.
Auctioning property.
Preparing contracts and leases. (Not in all states.)


The sellers and buyers themselves are the principals in the sale, and real estate brokers (and the broker's agents) are their agents as defined in the law. However, although a real estate agent commonly fills out the real estate contract form, agents are typically not given power of attorney to sign the real estate contract or the deed; the principals sign these documents. The respective real estate agents may include their brokerages on the contract as the agents for each principal.

The use of a real estate broker is not a requirement for the sale or conveyance of real estate or for obtaining a mortgage loan from a lender. However, once a broker is used, the settlement attorney (or party handling closing) will ensure that all parties involved be paid. Lenders typically have other requirements, though, for a loan.

Services provided to both buyers and sellers

In addition to the services to sellers and buyers described below, most real estate agents coordinate various aspects of the closing.

Real estate brokers (and their agents) typically do not provide title service such as title search or title insurance, do not conduct surveys or formal appraisals of the property such as those required by lenders, and do not act as lawyers for the parties, although they may "coordinate" these activities with the appropriate specialists. Some real estate brokers may be associated with loan officers who may help to finance buyers to make their purchase.

Regardless of whether a real estate agent assists sellers or buyers of real estate, negotiation and financing skills are important.

Services provided to seller as client

Upon signing a listing contract with the seller wishing to sell the real estate, the brokerage attempts to earn a commission by finding a buyer for the sellers' property for highest possible price on the best terms for the seller. In Canada, most provinces' laws require the real estate agent to forward all written offers to the seller for consideration or review.

To help accomplish this goal of finding buyers, a real estate agency commonly does the following:

        Listing the property for sale to the public, often on a Multiple Listing Service, in addition to any other methods.
Based on the law in several states, providing the seller with a real property condition disclosure form, and other forms which may be needed.
Preparing necessary papers describing the property for advertising, pamphlets, open houses, etc.
Generally placing a "For Sale" sign on the property indicating how to contact the real estate office and agent.
Advertising the property. Advertising is often the biggest outside expense in listing a property.
In some cases, holding an Open house to show the property.
Being a contact person available to answer any questions about the property and to schedule showing appointments.
Ensuring buyers are prescreened so that they are financially qualified to buy the property; the more highly financially qualified the buyer is, the more likely the closing will succeed.
Negotiating price on behalf of the sellers. The seller's agent acts as a fiduciary for the seller. This may involve preparing a standard real estate purchase contract by filling in the blanks in the contract form.
In some cases, holding an earnest payment check in escrow from the buyer(s) until the closing. In many states, the closing is the meeting between the buyer and seller where the property is transferred and the title is conveyed by a deed. In other states, especially those in the West, closings take place during a defined escrow period when buyers and sellers each sign the appropriate papers transferring title, but do not meet each other.

The "listing" contract

Although there can be other ways of doing business, a real estate brokerage usually earns its commission after the real estate broker and a seller enter into a listing contract and fullfill agreed-upon terms specified within that contract. The seller's real estate is then listed for sale, often on a Multiple Listing Service (MLS) in addition to any other ways of advertising or promoting the sale of the property.

In most of North America, where brokers are members of a national association (such as NAR in the United States or the Canadian Real Estate Association), a listing agreement or contract between broker and seller must include the following: starting and ending dates of the agreement; the price at which the property will be offered for sale; the amount of compensation due to the broker and how much, if any, will be offered to a co-operating broker who may bring a buyer. Without an offer of compensation to a co-operating broker (co-op percentage or flat fee), the property may not be advertised in the MLS system.

Brokerage commissions

In consideration of the brokerage successfully finding a satisfactory buyer for the property, a broker anticipates receiving a commission for the services the brokerage has provided. Usually, the payment of a commission to the brokerage is contingent upon finding a satisfactory buyer for the real estate for sale, the successful negotiation of a purchase contract between a satisfactory buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller.

In North America a commission in the 5% to 7% range is considered "standard" for residential real estate and is typically paid by the seller at the closing of the transaction. Commissions are negotiable between seller and broker. The commission could also be paid as flat fee or some combination of flat fee and percentage, particularly in the case of lower-priced properties, vacant lots, or other unusual real estate. The details are determined by the listing contract.

However, some brokers charge as much as 10% while others will offer services for 1%. Fee-for-service or flat-fee real estate brokerages are also increasing in popularity. This is not, however, the norm throughout the world. In Australia, for example, listing agents are paid 1% and very few buyers use an agent. If they do, they pay out-of-pocket.

Out of the commission received from the seller, the broker will typically pay any expenses incurred to do the work of trying to sell the listed properties, such as advertisements, etc.

Real estate brokers who work with lenders may not receive any compensation from the lender for referring a client to a specific lender. To do so would be a violation of a (US) federal law known as the Real Estate Settlement Procedures Act (RESPA). All compensation to a broker must be disclosed to all parties.


With the sellers’ permission, a lockbox is placed on homes that are occupied and, after arranging an appointment with the home owner, agents can show the home. When a property is vacant or where a seller may be living elsewhere, a lockbox will generally be placed on the front door. The listing broker helps arrange showings of the property by various real estate agents from all companies associated with the MLS.

The lockbox contains the key to the door of the property and the box can only be opened by licensed real estate agents (often only with authorization from the listing brokerage), by using some sort of secret combination or code provided by the brokerage or the issuer of the lockbox.

Lock-boxes come in two varieties - mechanical and electronic. Mechanical lock-boxes utilize a combination dial or special mechanical key and are readily purchased at local home improvement centers or over the internet. Mechanical lock-boxes offer the most basic protection of the homeowner's key and therefore expose the most risk of unmonitored or potentially unauthorized access to the home during the sales process. The risk stems primarily from an agent forgetting to change the combination after each sale. The frequency of use of mechanical lock-boxes by agents has steadily declined due to the availability of more secure electronic lock-boxes.

Electronic lock-boxes increase the level of security because agents wishing to show a property must have a valid electronic key to open the box. The electronic key must be renewed or refreshed at regular intervals by the agent otherwise the key deactivates itself preventing access to the lockbox contents. Electronic keys can range from credit card sized smart cards to a separate electronic box. In addition to greater security, electronic lock-boxes typically record all key access activity internally. This access log can be downloaded and reviewed by the listing agent to determine the date, time and person accessing the lockbox. Electronic lock-boxes also offer a host of other features such as controlling allowed showing times, homeowner privacy modes, special showing restrictions etc.

Shared commissions with co-op brokers

If any buyer's broker (or any of his/her agents) brings the buyer for the property, the buyer's broker would typically be compensated with a co-op commission coming from the total offered to the listing broker, often about half of the full commission from the seller. If an agent or salesperson working for the buyer's broker brings the buyer for the property, then the buyer's broker would commonly compensate his agent with a fraction of the co-op commission, again as determined in a separate agreement. A discount brokerage may offer a reduced commission in the event no other brokerage firm is involved and no co-op commission is paid out.

If there is no co-commission to pay to another brokerage, the listing brokerage receives the full amount of the commission minus any other types of expenses.

Potential points of contention for agents

Real estate commissions are becoming a point of controversy. Home values in many areas have quadrupled over the past 20 years. This may be contributing to the increased number of licensed agents and growing competition between them. The number of real estate agents in areas tends to rise when home values do, and the productivity of existing agents goes down. The rewards have increased, but so have the demands of clients and business risks faced by agents. In North America, agents have had to become familiar with marketing through the internet as well as traditional print and other media. Additionally the law is complicated with issues such as defects in housing, grow houses and other issues of which the agent is the front line defense for his client. There is more liability than ever in advising buyers and sellers.

Another controversy exists for the commissions to real estate agents. If a listing agent sells a property for any amount above the listed price, he in turn will make additional income. In theory, this will motivate him/her to get top dollar price for his client, the seller. However, if the agent representing the buyer attempts to obtain a lower sales price for his client, then they would make a lower commission. Thus, it could be considered to be in the agent's best interest to advise his client to purchase the property at a higher price.

In practical terms, there is rarely a great enough difference between the listing (asking) price and the negotiated selling price to make a significant difference between the commissions generated on each side, and certainly hardly enough to justify an agent failing in his fiduciary duty to obtain the best terms for his/her client.

Another potential conflict of interest exists when a listing agent in a very active real estate market has incentive to sell properties quickly at unnecessarily low prices in order to benefit from a high volume of sales. In any case, agents who create satisfied clients and develop subsequent referrals are likely to do far better in the long run.

Services provided to buyers:

Buyers as clients

With the increase in the practice of buyer brokerage in the US, especially since the late 1990s in most states, agents (acting under their brokers) have been able to represent buyers in the transaction with a written "Buyer Agency Agreement" not unlike the "Listing Agreement" for sellers referred to above. In this case, buyers are clients of the brokerage.

Some real estate brokerages choose only to represent buyers in an exclusive buyer's agency relationship and do not take "listings" from sellers.

A real estate brokerage attempts to do the following for the buyers of real estate only when they represent the buyers with some form of written buyer-brokerage agreement:

         Find real estate in accordance with the buyers needs, specifications, and affordability.
Takes buyers to and shows them properties available for sale.
When deemed appropriate, prescreens buyers to ensure they are financially qualified to buy the properties shown (or uses a mortgage professional to do that task).
Negotiates price and terms on behalf of the buyers and prepares standard real estate purchase contract by filling in the blanks in the contract form. The buyer's agent acts as a fiduciary for the buyer.

Due to the importance of the role of representing buyers' interests, many brokers who seek to play the role of client advocate are now seeking out the services of Certified Mortgage Planners, industry experts that work in concert with Certified Financial Planners to align consumers' home finance positions with their larger financial portfolio(s).

Buyers as customers

In most states, until the 1990s, buyers who worked with an agent of a real estate broker in finding a house were customers of the brokerage, since the broker represented only sellers.

Today, state laws differ. Buyers and/or sellers may be represented. Typically, a written "Buyer Brokerage" agreement is required for the buyer to have representation (regardless of which party is paying the commission), although by his/her actions, an agent can create representation.

         Find real estate in accordance with the buyers’ needs, specifications, and affordability.
Take buyers to and shows them properties available for sale.
When deemed appropriate, prescreen buyers to ensure they are financially qualified to buy the properties shown (or uses a mortgage professional to do that task).
Assist the buyer in making an offer for the property.

The impact of globalization on real estate brokers' activities

Globalization has had an immediate and powerful impact on real estate markets, making them an international working place. The rapid growth of the Internet has made the international market accessible to millions of consumers. A look at recent changes in homeownership rates illustrates this. Minority homeownership jumped by 4.4 million during the 1990s, reaching 12.5 million in 2000, according to the Fannie Mae Foundation. Foreign direct investment in U.S. real estate has increased sharply from $38 billion in 1997 more than $50 billion in 2002 according to Census data.

Most local real estate agents view the foreign market as a significant revenue potential and may have already worked with international clients in their local market, new immigrants or more sophisticated investors from different cultures and from other countries. For example, they are providing value-added services to an overseas relocation employee figure out which inoculations his or her children will need as well as the steps needed to register a car in the United States. Real estate brokers want to keep central to the transaction, protect the best interests of their members and address the unique needs of each multicultural global client by acquiring specialized training and designations. (See below for more)

Recently the Mexican association of real estate practitioners in Mexico, AMPI, and the NAR, National Association of Realtors® in the US, signed a bilateral contract for international real estate business cooperation. Also at the local level, many other state and local associations are helping other countries achieve the same result. For instance, in New Mexico, a historically multicultural state, under the RANM, Realtor® Association of New Mexico and the President’s Advisory Council, is looking into forming an ambassador association to help a foreign country into signing a bilateral agreement with the NAR. In New Mexico, there are 4500 licensed real estate professionals and only 14 or 15 CIPS designees, out of whom, only 6 speak a language other than English.

Real estate brokers / agents and further education

In addition to completing the educational requirements for a state real estate license, most states issue real estate licenses for limited time periods and require real estate professionals to complete a certain number of hours of further education on an annual or biannual basis in order to renew their licenses.

Required course hours range from 10 to 20 per license period. Typically, some specific courses are required to be taken; these would include real estate law updates.

NAR educational requirements and recognized designations.

As adherents to NAR's Code of Ethics, Realtors® are required to update their acquaintance with the Code every 4 years by taking a course, available online or "live".

However, Realtors®, as members of NAR, also have the option of studying for additional certifications in a variety of specialties, several of which are backed by NAR with offerings of certification and update courses available nationwide.

The most well known NAR sponsored designations are the following:

         Accredited Buyer Representative (ABR). The Real Estate Buyers Agent Council has over 40,000 members and is the largest association of real estate professionals focusing on all aspects of buyer representation. Of the REBAC members, over 30,000 have completed REBAC’s two-day course and provided documentation of buyer agency experience. Linked to the ABR is the ABRM, Accredited Buyer Representative Manager (ABRM) for managers.
Accredited Land Consultant (ALC). ALC’s are the recognized experts in land brokerage transactions of all kinds of specialized land services inclusing farms and ranches, raw land sales and development.
Certified Commercial Investment Member (CCIM). CCIMs are recognized experts in commercial real estate brokerage, leasing, valuation and investment analysis. There are more than 7,500 designees and an equal number of candidates principally in North America, but also in Asia and Europe.
Certified Property Manager (CPM). Geared to real estate property management specialists, designees handle all forms of management from residential to commercial to industrial.
Certified Real Estate Brokerage Manager (CRB). The designation is awarded to REALTORS® who have completed the Council's advanced educational and professional requirements. CRB designees consistently increase their level of industry knowledge, advance their earning and career potential, increase their firm’s profitability and benefit from active involvement in our network of real estate professionals.
Certified Residential Specialist (CRS). Designees, with 44,000 members - 4% of NAR members - who average 43 transactions per year and earn four times as much as the average Realtor®, belong to the Council of Residential Specialists which is the largest affiliate of NAR. They are involved in over 27% of all transactions because the consumer prefers to work with a more knowledgeable and seasoned brokers or agents. Requirements for this designation include a total of at least 25 transactions (or specific $$ volume of sales) over a specific time period, significant experience, as well as complete rigorous educational requirements.
Certification for Internet Professionalism (e-PRO). An e-PRO is a Realtor® who has undergone a new training program presented entirely online in order to be certified as Internet Professionals. NAR is the first major trade group to offer certification for online professionalism which involves all aspects of doing business on the internet.
Certified International Property Specialist (CIPS). Realtors® with the CIPS designation have both hands-on experience in international real estate transactions, Whether traveling abroad to put transactions together, assisting foreign investors, helping local buyers invest abroad, or serving an immigrant niche in local markets. CIPS designees have also successfully completed an intensive program of study focusing on critical aspects of transnational transactions, including currency and exchange rate issues and cross-cultural relationships, regional market conditions, investment performance, tax issues and more. The CIPS network is comprised of 1,500 real estate professionals from 50 countries who deal in all types of real estate.
Counselor of Real Estate (CRE). A CRE designee is one of only 1,100 by-invitation-only members of an international group of professionals who provide seasoned, objective advice on real property and land-related matters.
Graduate of the REALTORS®’ Institute (GRI). The GRI designation is held by 19% of Realtors® and courses are offered through state Realtor® Associations with 90 hours of coursework on marketing and servicing listed properties to real estate law. In a 2003 survey, NAR has determined that GRIs earned over $33,200 more annually than non-designees.
Real Estate Professional Assistant (REPA). Designed for administrative assistants or employees of Realtors® (who may or may not hold a real estate license), a two-day certificate course provides an intensive introduction to the real estate business and to the specific ways support staff can become valuable assets to their employers.


What is a Mortgage Broker?

A mortgage broker acts as an intermediary who sources mortgages on behalf of individuals or businesses.

Traditionally, banks and other lending institutions have distributed their own products. However as markets for mortgages have become more competitive, the role of the mortgage broker has become more popular. Today in most developed mortgage markets (especially the U.S., UK, Australia, Spain and Canada) mortgage brokers are the largest distributors of mortgage products for lenders.

However, given the critical nature of the mortgage broker's role, a great number of consumers are now seeking out the services of Certified Mortgage Planners, industry experts that work in concert with Certified Financial Planners to align consumers' home finance position with their larger financial portfolio(s).

The majority of mortgage brokers are regulated to ensure a level of protection for the consumer. The extent of the regulation depends on the jurisdiction.

Why use a mortgage broker?

In competitive mortgage markets many lenders use an array of rate offers and other incentives to attract customers. To many consumers, due to their infrequent purchases of mortgage products, the mortgage market may appear confusing and somewhat daunting. A mortgage broker can guide them through the process of selecting a suitable mortgage and offer mortgage and property related financial advice.

For borrowers with poor credit records, or other unusual circumstances, finding a lender may be difficult. A mortgage broker, having specialized knowledge and multiple lending sources, will normally be a valuable resource in obtaining financing.

Tasks of mortgage broker

The nature and scope of a mortgage broker's activities varies with jurisdiction. For example in the UK anyone offering mortgage brokerage is offering a regulated financial activity; the broker is responsible for ensuring the advice is appropriate for the borrowers circumstances and is held financially liable if the advice is later shown to be defective. In other jurisdictions the transaction undertaken by the broker may be limited to pointing the borrower in the direction of an appropriate lender and no advice given.

Therefore the work undertaken by the broker will depend on the depth of their service and liabilities. Typically the following tasks are undertaken:

         Marketing to attract clients
Assessment of the borrowers circumstances. This may include assessment of credit history (normally obtained via a credit report) and affordability (verified by income documentation).
Assessing the market to find a mortgage product that fits the clients needs.
Applying for a lenders agreement in principle (pre-approval)
Gathering all needed documents (paystubs/payslips, bank statements, etc.),
Completing a lender application form.
Explaining the legal disclosures.
Submitting all material to the lender.

Over 80% of home loans issued in the U.S. today are negotiated by brokers. The banks have used brokers to effectively out source the job of finding and qualifying borrowers, and also to out source some of the liabilities for fraud and foreclosure onto the originators through legal agreements. During the process of loan origination, the broker gathers and processes paperwork associated with mortgaging real estate. As of 2005, there are approximately 20,000 mortgage brokerage operations across the USA. Today, mortgage brokers originate 60% of American mortgages.

Difference between a mortgage broker and a loan officer

A loan officer acts as the conduit between buyer and lender. Most states require the mortgage broker to be licensed. States regulate lending practice and licensing, but the rules vary. Most have a license for those who wish to be a "Broker Associate", a "Brokerage Business", and a "Direct Lender".

A mortgage broker is normally registered with the state, and personally liable (punishable by revocation or prison) for fraud for the life of a loan. A loan officer is typically not liable for their actions, and instead works under the umbrella license of their current institution. Typically, they have less experience in the field.

Also, loan officer usually connotes someone who works for a lender, and has involvement in the internal processes of a lender. A broker exclusively uses the money of others to fund their loans.

Industry competitiveness

A large segment of the mortgage finance industry is commission based. Potential clients can compare a lender's loan terms to those of others through advertisements or internet quotes.

In the 1970s, mortgage brokers did not have access to wholesale markets, unlike traditional bankers. Today, mortgage brokers are more competitive with their access to wholesale capital markets and pricing discounts. A mortgage broker has lower overhead costs compared to large and expensive banking operations because of their small structure. [citation needed] They can lower rates instantly to compete for clients. On the other hand, larger companies are less competitive since they provide their sales representatives their fixed rate sheets. The loan officer often cannot reduce their companies profit margin and may be higher or lower than the marketplace, depending on the decision of managers. Thus, mortgage brokers have gained between 60-70% of the marketplace.

Mortgage brokers can obtain loan approvals from the largest secondary wholesale market lenders in the country. For example, Fannie Mae may issue a loan approval to a client through its mortgage broker, which can then be assigned to any of a number of mortgage bankers on the approved list. The broker will often compare rates for that day. The broker will then assign the loan to a designated licensed lender based on their pricing and closing speed. The lender may close the loan and service the loan. They may either fund it permanently or temporarily with a warehouse line of credit prior to selling it into a larger lending pool.

The difference between the "Broker" and "Banker" is the banker's ability to use a short term credit line (known as a warehouse line) to fund the loan until they can sell the loan to the secondary market. Then, they repay their warehouse lender and obtain a profit on the sale of the loan. The borrower will often get a letter notifying them their lender has sold or transferred the loan.

Brokers must also disclose Yield spread premium while Bankers do not. This has created an ambiguous and difficult identification of the true cost to obtain a mortgage. The stricter Broker disclosure requirements, especially the Good Faith Estimate, can often create the illusion that they are charging more to obtain the exact same mortgage when compared to a Banker, when in fact they may cost the same or the Brokers offer may even be less costly. This topic has been hotly debated on Capitol Hill and state level judiciary committees.

Predatory lending & Mortgage fraud

Sometimes they will sell the loan, but continue to service the loan. Other times, the lender will maintain ownership and sell the rights to service the loan to an outside mortgage service bureau.

Secondary market influence

Even large companies with a lending license sell, or broker, the mortgage loan transactions they originate and close. A smaller percentage of bankers service and keep their loans than those in past decades. Banks act as a broker due to the increasing size of the loans because few can use depositor's money on mortgage loans. A depositor may request their money back and the lender would need large reserves to refund that money on request. Mortgage bankers do not take deposits and do not find it practical to make loans without a wholesaler in place to purchase them. The required cash of a mortgage banker is only $50,000 in New York. The remainder may be in the form of property assets (an additional $200,000), an additional credit line from another source (an additional $1,000,000). That amount is sufficient to make only two median price home loans. Therefore, mortgage lending is dependent on the secondary market, which includes securitization on Wall Street and other large funds.

The top wholesale institutions are Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation, commonly referred to as Fannie Mae and Freddie Mac, respectively. Loans must comply with their jointly derived standard application form guidelines so they may become eligible for sale to larger loan servicers or investors. These larger investors could then sell them to Fannie Mae or Freddie Mac to replenish warehouse funds. The goal is to package loan portfolios in conformance with the secondary market to maintain the ability to sell loans for capital. If interest rates drop and the portfolio has a higher average interest rate, the banker can sell the loans at a larger profit based on the difference in the current market rate. Some large lenders will hold their loans until such a gain is possible.

The selling of mortgage loans in the wholesale or secondary market is more common. They provide permanent capital to the borrowers. A "direct lender" may lend directly to a borrower, but can have the loan pre-sold prior to the closing.

Few lenders are comprehensive. That is, few close, keep, and service the mortgage loan. The term is known as portfolio lending, indicating that a loan has been made from funds on deposit or a trust. That type of direct lending is uncommon, and has been declining in usage.

Improved consumer laws

The laws have improved considerable in favor of consumers. A mortgage broker must comply to standards set by law in order to charge a fee to a borrower. The fees must meet an additional threshold, that the combined rate and costs may not exceed a lower percentage, without being deemed a "High Cost Mortgage". An excess would trigger additional disclosures and warnings of risk to a borrower. Further, the mortgage broker would have to be more compliant with regulators. Costs are likely lower due to this regulation.

Mortgage bankers and banks are not subject to this cost reduction act. Because the selling of loans generates most lender fees, servicing the total in most cases exceeds the high cost act. Whereas mortgage brokers now must reduce their fees, a licensed lender is unaffected by the second portion of fee generation. This is due to the delay of selling the servicing until after closing. Therefore, it is considered a secondary market transaction and not subject to the same regulation.

Predatory lending and Mortgage servicing fraud

Predatory lending runs unregulated in the mortgage services industry. Consumers are often victims of predatory lending according to CNN. The main concern is that mortgage brokers and lenders whilst operating legally, are dishonestly finding loopholes in the law to obtain additional profit. The main culprit is a little known fee called Yield spread premium, which is a cash rebate wholesale lenders pay to brokers for charging a borrower a higher interest rate than they qualify for.

Some signs of predatory lending include:

         Falsifying income/asset and other documentation.
Not disclosing Yield spread premium or other hidden fees BEFORE the settlement/closing.
Failing to provide all RESPA documentation, i.e. Good Faith Estimate, Special Information Booklet, Truth in Lending, etc so the borrower may clearly understand the mortgage terms and lender policies.
Convincing borrowers to refinance a loan without any true benefit.
Influencing a higher Loan Amount and inflated appraisals (usually in tandem with an appraiser).
Unjustly capitalizing on a borrowers relative ignorance about mortgage acquisition.

Another unethical practice involves inserting hidden clauses in contracts in which a borrower will unknowingly promise to pay the broker or lender to find him or her a mortgage whether or not the mortgage is closed. Though regarded as unethical by the National Association of Mortgage Brokers, this practice is perfectly legal. Often a dishonest lender will convince the consumer that he or she is signing an application and nothing else. Often the consumer will not hear again from the lender until after the time expires and then they are forced to pay all costs. Potential borrowers may even be sued without having legal defense.


About Real Property

Real property is a legal term encompassing real estate and ownership interests in real estate (immovable property). It is a type of property differentiated from personal property. This article discusses the ownership of land using the interpretation of real property as a legal term used in Anglo-American common law jurisdictions. Other legal geopolitical systems of government have different legal interpretations concerning the ownership of land. Terminology varies in these systems, as well: for instance, heritable property in Scotland; immovable property in Canada, United States, India, Malta, Cyprus, most of Europe including Russia, also South America, Malaysia, South Africa, Pakistan, Bangladesh, and many other countries and continents; and immobilier (Real Estate) in France.

History of the word

In law, the word real means relating to a thing (from Latin res, matter or thing), as distinguished from a person. Thus the law broadly distinguishes between real property (land and anything affixed to it) and personal property (everything else, e.g., clothing, furniture, money). The conceptual difference was between immovable property, which would transfer title along with the land, and movable property, which a person would retain title to. (The word is derived from the notion of land having historically been "royal" property. The word royal — and its Spanish cognate real — come from the unrelated Latin word rex, meaning king.)

In modern legal systems derived from English common law, classification of property as real or personal may vary somewhat according to jurisdiction or, even within jurisdictions, according to purpose, as in defining whether and how the property may be taxed.

British interpretation

Land Relationship to Owner

Real property is not just the ownership of property and buildings — it includes many legal relationships between owners of immovable property (real estate) that are purely conceptual such as the easement, where a neighboring property may have some right on your property, right-of-way, or the right to pass over a property, and incorporeal heridiments such as profit a prendre. Real property can also be held in various ways. In some jurisdictions real property is held absolutely, in England it may still be considered to be carved out of Crown's ownership of all property in the realm. Such distinctions are important in terms of the law of escheat or when property reverts to the state because it lacks an owner or has been abandoned.


An important area of real immovable property are the definitions of estates in land. These are various interests that may limit the ownership rights one has over the land. The most common and perhaps most absolute type of estate is the fee simple which signifies that the owner has the right to dispose of the property as she/he sees fit. Other estates include the life estate where the owner's rights to the property cease at their death and fee tail estates where the property at the time of death passes to the heirs of the body (i.e. children, grandchildren, descendants) of the owner of the estate before he died.

Estate law

Estates may also be held jointly as joint tenants with rights of survivorship or as tenants in common. The difference in these two types of joint ownership of an estate in land is basically the inheritability of the estate. In joint tenancy (or in marriage this is sometimes called tenancy of the entirety) the surviving tenant (or tenants) become the sole owner (or owners) of the estate. Nothing passes to the heirs of the deceased tenant. In some jurisdictions the magic words "with right of survivorship" must be used or the tenancy will assumed to be tenants in common. Tenants in common will have a heritable portion of the estate in proportion to their ownership interest which is presumed to be equal amongst tenants unless otherwise stated in the transfer deed. There are other types of estates in land that are used to prevent the alienation of land (also used in the law of trusts). Generally these are called future interests, an example being the rule against perpetuities. See also the Rule in Shelley's Case.

Real property may not only be owned it may be leased in which the possession of the property is given to the tenant for a limited period of time. Such leases are also called estates such as an estate for years, a periodic tenancy or an estate at will.

Real property may also be owned jointly through the device of the condominium or cooperative.

Economic aspects of real property

Because real immovable property is essential for industry or other activity requiring a lot of fixed physical capital, economics is very concerned with real immovable property and rules regarding its valuation and disposition, and obligations accruing to its owners. In economic terms, real property consists of some natural capital (or land, one of the factors of production especially in agriculture), and infrastructural capital (the buildings, water and power lines, and other improvements necessary to make immovable property useful for some human purpose). Other fixed physical assets, indistinguishable economically from infrastructure, such as machines, may be stored on immovable property and may require natural or infrastructural attributes (such as running water for a turbine or an isolated location to allow loud noise emissions) hard to duplicate even nearby.

U.S. interpretation

In the United States, each state has its own real immovable property law. All states except Louisiana rely on variations of common law for the basis of their real immovable property laws. Louisiana's laws are derived from Napoleonic Code but have adopted some of the common law terms over the years.

Types of ownership interests

Real property (immovable property) can refer to the real estate itself, or to various types of ownership interests in real estate, including:

         Fee simple or freehold: The most common interest or right in real estate and provides the owner the right to use the real estate for any lawful purpose and sell the interest when and to whom the owner wishes.
Life estate: An interest in real estate (immovable property) which is granted to a life tenant until that person dies. During the life estate, the life tenant has the right to use the real estate for any lawful purpose. The interest terminates upon the death of the life tenant*Estate for years: Similar to a life estate but term is a specified number of years.
Leasehold: The right to possess and use real estate (immovable property) pursuant to the terms of a lease.
Reversion: The right to possess the fee interest in real estate (immovable property) after the expiration of a life estate, estate for years, or leasehold.
Concurrent or co-tenancy: The ownership of an interest in real property (immovable property) by more than one party. Rights of any single party may be limited in various ways depending on the jurisdiction and type of concurrency.

Note that it is possible for a property deed (the legal document used to transfer title) to further restrict these general ownership rights.


Understanding the Appraisal

A real estate appraisal is a service performed by a licensed or certified appraiser, who develops an opinion of value based upon the highest and best use of real property. The highest and best use is that use which produces the highest value for the land, as if vacant. This use is based on 4 parts; physically possible, appropriate, legal, and economically feasible. Also of importance is the definition of the type of value being developed and this must be included in the appraisal, i.e. market value, condemnation value, quick sale value, etc. For mortgage valuations of improved residential property, this value is most often reported on a standardized form, the Uniform Residential Appraisal Report.

An appraisal is performed for a specific client, to whom the appraiser has a fiduciary responsibility, regardless of what party ultimately pays for the appraisal, whether anyone actually pays for the appraisal, or when the appraisal is paid for. Typically residential appraisers agree to accept orders from lending institutions with the understanding that payment will be made following settlement, or closing of the loan. In most cases, the homeowner or buyer ultimately pays for a residential appraisal, either directly or rolled into settlement fees.

In the USA minimum appraisal standards and appraiser qualifications are the province of The Appraisal Foundation which is chartered by Congress. Through one of its boards, The Appraisal Standards Board (ASB), it periodically publishes the Uniform Standard of Professional Appraisal Practice (USPAP). USPAP provides the minimum development and reporting standards an appraiser/appraisal report must meet. The Appraisal Foundation is also responsible for setting the minimum qualifications for appraiser licensure/certification through its other board, The Appraisal Qualifications Board (AQB). The AQB is responsible for establishing the minimum education, examination, and experience requirements for licensed/certified appraisers. Effective January 1, 2008, the requirements to become a state licensed or certified real property appraiser will significantly increase. State licensing was established in the early 1990s in the wake of the Savings and Loan "crisis".

The implementation of licensure and enforcement are state functions. In addition, there are appraisal organizations, private not-for-profits, some of which date back to the Great Depression of the 1930s, such as the American Society of Farm Managers and Rural Appraisers, founded in 1929. Others were founded as needed and opportunity arose in specialized fields, such as the Appraisal Institute and the American Society of Appraisers (founded in the 1930s) and the International Right of Way Association and the National Association of Realtors® (after World War II). These organizations all existed to establish and enforce standards, but their influence has waned as the government increases appraisal regulation.

There are several professional organizations of appraisers in the US. They include the American Society of Appraisers (ASA), the American Society of Farm Managers and Rural Appraisers, and the largest, the Appraisal Institute (AI). In addition to state licensing and certification, appraisers can earn professional designations from the above organizations. The most highly regarded is the MAI (Member, Appraisal Institute) which requires approximately one year of post graduate college level course work, a three year internship, and successful completion of a two day Comprehensive Examination. For further information go to: http:/

In the UK, real estate appraisal is known as property valuation and a real estate appraiser is a land valuer or property valuer (usually a chartered surveyor who specializes in property valuation). Property valuation in the UK is regulated by the Royal Institution of Chartered Surveyors (RICS), a professional body encompassing all of the building and property-related professions. The RICS professional guidelines for valuers are published in the Red Book.

The reader should be aware that differences in nomenclature exist between the different countries. Although the overall concepts are very similar, the reader should be careful to ascertain that the proper nomenclature is being used for their particular area.

Types of value

There are several types and definitions of value sought by a real estate appraisal. Some of the most common are listed:

Market Value – The price at which an asset would trade in a competitive Walrasian auction setting. Market value is usually interchangeable with open market value or fair value. However, the word "fair" is no longer in use when describing Market Value. International Valuation Standards (IVS) define Market Value as: "Market Value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgably, prudently, and without compulsion." (IVS 1 - Market Value Basis of Valuation, Seventh Edition)

Value-in-use – The net present value (NPV) of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, which may be above or below the market value of a property.

Investment value - is the value to one particular investor, which may be above or below the market value of a property.

Insurable value - is the value of real property covered by an insurance policy. Generally it does not include the site value.

It is important to distinguish between Market Value and price. Market value is a fluid concept, ever-changing, while price is a historical fact at the time of a transaction. A price obtained for a specific property under a specific transaction may or may not represent that property's market value: special considerations may have been present, such as a family relationship between the buyer and seller, or else the transaction may have been part of a larger set of transactions in which the parties had engaged. Another possibility is that a specific buyer would be willing to pay a price higher than the market value. Such situations often arise in corporate finance, as per example when a merger or acquisition is concluded at a price which is higher than the value represented by the price of the underlying stock. The usual rationale for these valuations is that the 'sum is greater than its parts', since full ownership of a company entails special privileges for the buyer for which he is willing to pay. Such situations arise in real estate/property markets as well (see value-in-use). It is the task of the real estate appraiser/property valuer to judge whether a certain price obtained under a certain transaction is indicative of market value.

Market value definitions in the US

In the US, "Fair Market Value" and "Fair Value" are commonly used as accounting terms. The equivalent appraisal term is "Market Value." (USPAP Advisory Opinion 8.) USPAP defines Market Value as "a type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal".

Forming an opinion of market value is the purpose of many real property appraisal assignments, particularly when the client’s intended use includes more than one intended user. The conditions included in market value definitions establish market perspectives for development of the opinion. These conditions may vary from definition to definition but generally fall into three categories:

         1) The relationship, knowledge, and motivation of the parties (i.e., seller and buyer);
2) The terms of sale (e.g., cash, cash equivalent, or other terms); and
3) The conditions of sale (e.g., exposure in a competitive market for a reasonable time prior sale).

(Definitions: USPAP 2005.)

In the US, a typical definition of market value can be found on the FNMA residential appraisal forms, as the FNMA 1025, which states the following:

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment. (FNMA form 1025, March 2005.)

Types of ownership interest

         Fee simple value - the most common type of value sought. It is the fair market value of the fee simple interest in a property unencumbered by any external factors such as existing leases.
Leased fee value - is probably the second most common value opinion sought. It is the property owner's interest in a property that is encumbered by existing long term leases which may be at, below, or above prevailing market trends.
Leasehold value - is the lessee's interest in a leased property.

Note that in the US, the above value nomenclature does not apply. In the US, the type of value needs to be examined separately from the ownership interest. Examples of US use would be a market value of a fee simple ownership interest, or an investment value of a leased fee interest, or a liquidation value of a leasehold interest.

Highest and best use

The highest and best use in real estate appraisal is the use that will render the maximum fair market value of a particular property. That use must be legally allowable, physically possible, financially feasible, and result in the maximum value for the property. The test of highest and best use is given to a property both as if vacant and as improved.

For example, "House A" in a residentially zoned area may have a highest and best use as vacant and a highest and best use as improved that are both the same. A similar "House B" in a commercially zoned area may have a highest and best use as vacant as a commercial lot and ''highest and best use as improved as a residence. If the value of the commercial lot as vacant in "House B" exceeds the value of house as a residence as improved plus demolition costs, the overall highest and best use of this property would be the as vacant value of a commercial lot.

Since vacant lots are not improved, such properties are generally given only the as vacant test.

The highest and best use is critical to real property valuation since in order to value a property at its fair market value, comparable properties with similar highest and best uses must be examined. In the "House B" scenario, comparing that house to other houses that do not have a similar highest and best use would result in an inaccurate value opinion.

In the US, the legally permissible aspect of highest and best use is very important. In some locations, the governing jurisdiction can use the "police power" concept to destroy illegally built improvements. This would obviously affect the market value of a property. This overall concept is logical, ie. a governing agency would be remiss to allow a toxic chemical plant to be built in the middle of a suburban area.

Three approaches to value

There are three usual approaches to determining the fair market value of a property: cost approach, sales comparison approach, and income approach. The appraiser will determine which of the approaches is applicable and develop an appraisal based upon information from each individual market area. Costs, income, and sales vary widely from area to area and particular importance is given to the specific location of the property.

Consideration is also given to the market for the property appraised. Properties that are typically purchased by investors (ie. skyscrapers) will give greater weighting to the Income Approach, while small retail or office properties (purchased by owner-users) will give greater weighting to the Sales Comparison Approach. Single Family Residences are most commonly valued with greatest weighting to the Sales Comparison Approach.

Cost approach

The Cost approach was formerly called the summation approach. The theory is that the value of a property can be estimated by summing the land value and the depreciated value of any improvements. It is the land value, plus the cost to reconstruct any improvements, less the depreciation on those improvements. The value of the improvements is sometimes abbreviated to RCNLD—reproduction cost new less depreciation, or replacement cost new less deprecation. Reproduction refers to reproducing an exact replica. Replacement cost refers to the cost of building a house or other improvement which has the same utility, but using modern design, workmanship and materials.

In most instances, when the cost approach is involved, the overall methodology used is a hybrid of the cost and market data approaches. For instance, while the cost to construct a building can be determined by adding the labor and materials costs together, land values and depreciation must be derived from an analysis of the market data. This approach is typically most reliable when used on newer structures, but the method tends to become less reliable as properties grow older.

The underlying premise of the cost approach in appraising market value is that building a substitute property is an alternative to someone who wishes to own such a property. While age is a fairly obvious constraint on that premise, developed urban areas present their own challenges. For instance, if there is little or no vacant land available in a neighborhood, the premise breaks down. Appraising land value is subjective when a scarcity of relevant land sales exists. But also, estimating construction cost is problematic because of an absence of similar construction from which to derive costs. Not only are building codes frequently changing in developed urban areas, but the small number of houses built do not allow the economies of scale available in a new development. The absence of land sales presents more than a data problem for completing the cost approach. The absence of such a market indicates that buyers may not be thinking in terms of building a new home as a substitute for buying an existing home, which tends to expose the unrealistic nature of the underlying premise. Building an individual new home also can be more difficult due to the difficulty in obtaining mortgage financing.

Observe that as the Cost Approach has non-market based components (costs), the approach may not be a good indicator of market value, even when new. This is most noticeable on properties where the market demand is limited. Say for example a military base. The cost to produce the base is not indicative of its market value, even when new. In the US, the government is the only party that would be willing to "buy" this product. This immediate "loss" is a form of obsolescence.

Also observe that this includes "home improvements" that do not recover their costs in the market. A common example in California is the cost of a pool. In most houses, the cost to build a pool is far greater than the increase in market value to the house. This immediate "loss" is again, a form of obsolescence. Accurately determining obsolescence and depreciation (as the property ages) are usually the main problems within the Cost Approach to open market value.

Notwithstanding, the latter challenge must be accepted for insurance purposes. Insurers are interested in insuring structures, not the value of the whole property. After a major disaster, for instance the Oakland Hills Fire of 1991, some perspective is gained on the actual cost of urban construction. The perspective may be through a distorted lens, however. While builders uniformly maintained that costs exceeded those published in cost manuals, the replacement houses, almost as uniformly are larger than those they replaced.

One of the interesting issues in the cost approach is the influence of classical economics. In the example of the swimming pool, above, or many other "home improvements" the relevant question to the homeowner is microeconomic. It is not what the modification in question costs, but rather whether he can modify his existing home more easily and cheaply than buying another house which already has those features. Even in a static market transaction costs related to selling and buying favor home improvements. In an inflationary market, adding the cost of the "improvements" to a decade old cost basis in the property compounds the effect. In a wildly inflationary market it is even dangerous to give up your present home in the hope of replacing it. The price of the replacement home becomes a moving target. This, of course, tends to exacerbate inflation by limiting, at least in the short run, supply.

Sales comparison approach

The sales comparison approach looks at the price or price per unit area of similar properties being sold in the marketplace. Simply put, the sales of properties similar to the subject are analyzed and the sale prices adjusted to account for differences in the comparables to the subject to determine the fair market value of the subject. This approach is generally considered the most reliable, IF good comparable sales exist. In any event, it is the only independent check on the reasonability of an appraisal opinion.

Because this approach applies market derived numeric factors to relate the sold properties to the one being appraised, it is related to Automated Valuation Modeling, below. An interesting perspective on the relationship between relatively subjective human estimation as compared with that obtained by purely mathematic modeling is contained in "Simple Heuristics That Make Us Smart" by Gerd Gigerenzer. Dr. Gigerenzer, a psychologist, asked people to estimate some real world facts based simply on their knowledge, experience and impressions. Common knowledge and some simple rules created models which were close to those produced by multiple regression analysis (MRA) and neural networks. The predictive value of the human models applied to a new sample was a bit better than the mathematical models, suggesting that the mathematical models may have described the data better but missed the predictive relationships. Similarly automated valuation models frequently find building size (square feet or meters) predictive of value, even when that information is not explicitly advertised. This is similar to the example in "The Wisdom of Crowds", Surowiecki, in which the scientist Francis Galton observed a crowd at a fair to, on average, accurately estimate the size of an ox.

Income capitalization approach

The income capitalization approach, often simply called the income approach, is used to value commercial and investment properties. This approach capitalizes an income stream into a present value. This can be done using revenue multipliers or single-year capitalization rates of the net operating income. The Net operating income (NOI) is gross potential income (GPI), less vacancy (= Effective Gross Income) less operating expenses (but excluding debt service or depreciation charges applied by accountants).

Alternatively, multiple years of net operating income can be valued by a discounted cash flow analysis (DCF) model. The DCF model is widely used to value larger and more expensive income-producing properties, such as large office towers.

Valuation methods

In the UK, real estate appraisal, or property valuation, is regulated by the RICS, which publishes the Red Book. The Red Book takes a more subtle approach to valuation than the three approaches to appraisal outlined above. The Red Book recognizes five methods of valuation:

         (1) Comparable method. Used for most types of property where there is good evidence of previous sales. This is analogous to the sales comparison approach outlined above.
(2) Investment/income method. Used for most commercial (and residential) property that is producing future cash flows through the letting of the property. If the current rental value and the passing income are known, as well as the market-determined equivalent yield, then the property value can be determined by means of a simple model. Note that this method is really a comparison method, since the main variables are determined in the market. In standard US practice, however, the closely related capitalizing of NOI is confounded with the DCF method under the general classification of the income capitalization approach.
(3) Accounts/profits method. Used for trading properties where evidence of rates is slight, such as hotels, restaurants and old-age homes. A three-year average of operating income (derived from the profit and loss or income statement) is capitalized using an appropriate yield. Since any income stream can be simulated by an appropriate choice of yield, this method is comparable to DCF (see above). Note that since the variables used are inherent to the property and are not market-derived, the resulting value is value-in-use and not market value.
(4) Development/residual method. Used for properties ripe for development or redevelopment or for bare land only.
(5) Contractor's/cost method. Used for only those properties not bought and sold on the market. Both the development/residual method and the contractor's/cost method would be grouped in the US under the cost approach (see above).

Automated valuation models

Automated valuation models (AVMs) are growing in acceptance. These rely on statistical models such as multiple regression analysis and geographic information systems (GIS). While AVMs can be quite accurate, particularly when used in a very homogeneous area, there is also evidence that AVMs are not accurate in other instances such as when they are used in rural areas, or when the appraised property does not conform well to the neighborhood.

This is most evident where there is a renewal or "revitalization" of a particular area or neighborhood. There can exist within a single city block homes that are in poor condition to homes that have been completely rehabilitated and are in good to excellent condition. The differential of sales prices can be demonstrated to be from 50% to 125%. This can lead to an inaccurate model. In San Francisco, California, something like half of price can be predicted using readily quantified measures and a multiple regression (MRA) AVM. In suburban Redwood City, California, by contrast, over 90% of price can normally be captured. Extreme caution should be exercised when relying on AVMs, especially if the user is unfamiliar with modeling and the math.

Because of the limitations, AVMs have begun to fall out of favor with many lenders but are widely used in other appraisal problems such as mass appraisals for ad valorem real estate tax purposes. One of the problems of using AVMs for lending purposes is control of inputs and results. Everyone in the loan origination process is interested in some way in making the loan. Modifying the inputs (boundary of comparable search, even size of building) to create a favorable answer is a mighty temptation. Even foreclosure is unlikely to result in regret if the mortgage has been securitized and the originator gets paid to service the loans in the package. In property tax assessment, by contrast, there are contesting interests and a quasi-legal dispute resolution process. The assessor, arguably, wants assessments as high as defensibly possible. The taxpayers, clearly, want their assessments low. Disputes are normally adjudicated in assessment appeal. The county assessor is frequently an elected office. The contest of interests tends to refine the accuracy of the valuation results.


In the United States, the rules of real estate appraisal are codified in the Uniform Standards of Professional Appraisal Practice (USPAP) developed by the Appraisal Standards Board which is authorized by Congress as the source of appraisal standards. USPAP guidelines set standards for real estate appraisal practice in the United States. USPAP was developed after the Savings and Loan scandal of the late 1980s when real estate appraisal in almost all states was an unregulated industry. Government regulations such as the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) called for stricter guidelines on the appraisal industry. USPAP was developed to protect lenders against unethical and incompetent appraisers. The core framework of USPAP is from the standards of professional practice of the American Institute of Real Estate Appraisers and the Society of Real Estate Appraisers. Founded along with others in the 1930's, the two organizations merged in the 1980's to form the Appraisal Institute (AI). The AI awards two professional designations: "SRA", or "Senior Residential Appraiser" and MAI, or "Member Appraisal Institute". In the US, the appraisal licensing of individuals is left to the states. However all appraisals for a "Federally Related Transaction" must be performed by an appraiser with the appropriate type of license, and conform to USPAP. The individual states decide if licensing is required for other types of appraisals.

The largest and most influential professional organization of real estate appraisers in America is The Appraisal Institute, but other organizations, such as the American Society of Appraisers, National Association of Independent Fee Appraisers, and the National Association of Master Appraisers were also founding sponsor-members of the Appraisal Foundation.


What is Zoning?

Zoning is a North American term for a system of land-use regulation. The word is derived from the practice of designating permitted uses of land based on mapped zones which separate one part of a community from another. Zoning regulations fall under the police power rights governments may exercise over real property. Theoretically, its primary purpose is to segregate uses that are thought to be incompatible; in practice, zoning is used as a permitting system to prevent new development from harming existing residents or businesses. Zoning is commonly controlled by local governments such as counties or municipalities.

Zoning commonly includes regulation of the kinds of activities which will be acceptable on particular lots (such as open space, residential, agricultural, commercial or industrial), the densities at which those activities can be performed (from low-density housing such as single family homes to high-density such as high-rise apartment buildings), the height of buildings, the amount of space structures may occupy, the location of a building on the lot (setbacks), the proportions of the types of space on a lot (for example, how much landscaped space and how much paved space), and how much parking must be provided.

Most zoning systems have a procedure for granting variances (exceptions to the zoning rules), usually because of some perceived hardship due to the particular nature of the property in question.

Types of residential zones would be R1 for single-family homes, R2 for two-family homes, and R3 for multiple-family homes.

Origins and history of zoning

New York City adopted the first zoning regulations to apply city-wide in 1916 as a reaction to construction of The Equitable Building (which still stands at 120 Broadway). The building towered over the neighboring residences, completely covering all available land area within the property boundary, blocking windows of neighboring buildings and diminishing the availability of sunshine for the people in the affected area. These laws, written by a commission headed by Edward Bassett and signed by Mayor John Purroy Mitchel, became the blueprint for the rest of the country; partly because Edward Basset headed the group of planning lawyers which wrote The Standard State Zoning Enabling Act that was accepted almost without change by most states. The effect of these zoning regulations on the shape of skyscrapers was famously illustrated by architect and illustrator Hugh Ferriss.

By the late 1920s most of the nation had developed a set of zoning regulations that met the needs of the locality. New York City went on to develop ever more complex set of zoning regulations, including floor-area ratio regulations, air rights and others according to the density-specific needs of the neighborhoods.

Among large cities in the United States, Houston, Texas is unique in having no zoning ordinance. Houston voters have rejected efforts to implement zoning in 1948, 1962 and 1993.

Types of Zoning

Zoning codes have evolved over the years as urban planning theory has changed, legal constraints have fluctuated, and political priorities have shifted. The various approaches to zoning can be divided into four broad categories: Euclidean, Performance, Incentive, and Design-based.

Euclidean zoning

Named for the type of zoning code adopted in the town of Euclid, Ohio, Euclidean zoning codes are by far the most prevalent in the United States, used extensively in small towns and large cities alike. Also known as "Building Block" zoning, Euclidean zoning is characterized by the segregation of land uses into specified geographic districts and dimensional standards stipulating limitations on the magnitude of development activity that is allowed to take place on lots within each type of district. Typical types of land-use districts in Euclidean zoning are: residential (single-family), residential (multi-family), commercial, and industrial. Uses within each district are usually heavily prescribed to exclude other types of uses (residential districts typically disallow commercial or industrial uses). Some "accessory" or "conditional" uses may be allowed in order to accommodate the needs of the primary uses. Dimensional standards apply to any structures built on lots within each zoning district, and typically take the form of setbacks, height limits, minimum lot sizes, lot coverage limits, and other limitations on the building envelope.

The zoning ordinance of Euclid, Ohio was challenged in court by a local land owner on the basis that restricting use of property violated the 14th Amendment of the U.S. Constitution. Though initially ruled unconstitutional by lower courts, the zoning ordinance was upheld by the U.S. Supreme Court in Village of Euclid v. Ambler Realty Co. (1926). See below for more information.

Euclidean zoning is preferred by many municipalities due to its relative effectiveness, ease of implementation (one set of explicit, prescriptive rules), long-established legal precedent, and familiarity to planners and design professionals. Euclidean zoning has received heavy criticism, however, for its lack of flexibility and institutionalization of now-outdated planning theory (see below).

Performance zoning

Performance zoning uses performance-based or goal-oriented criteria to establish review parameters for proposed development projects in any area of a municipality. Performance zoning often utilizes a "points-based" system whereby a property developer can apply credits toward meeting established zoning goals through selecting from a 'menu' of compliance options (some examples include: mitigation of environmental impacts, providing public amenities, building affordable housing units, etc.). Additional discretionary criteria may also be established as part of the review process.

Performance zoning is known for its high level of flexibility. However, performance zoning can be extremely difficult to implement and may require a high level of discretionary activity on the part of the supervising authority. For this reason, performance zoning has not been widely adopted and is usually limited to specific categories within a broader prescriptive code when found....

Incentive zoning

First implemented in Chicago and New York City, incentive zoning is intended to provide a reward-based system to encourage development that meets established urban development goals. Typically, a base level of prescriptive limitations on development will be established and an extensive list of incentive criteria will be established for developers to adopt or not at their discretion. A reward scale connected to the incentive criteria provides an enticement for developers to incorporate the desired development criteria into their projects. Common examples include FAR (floor-area-ratio) bonuses for affordable housing provided on-site and height limit bonuses for the inclusion of public amenities on-site. Incentive zoning has become more common throughout the United States during the last 20 years.

Incentive zoning allows for a high degree of flexibility, but can be complex to administer. The more a proposed development takes advantage of incentive criteria, the more closely it has to be reviewed on a discretionary basis. The initial creation of the incentive structure in order to best serve planning priorities can also be challenging and often requires extensive ongoing revision to maintain balance between incentive magnitude and value given to developers.

Design-based zoning

Design-based zoning relies on inter-related schedules of rules to be applied to development sites according to both prescriptive and discretionary criteria. These criteria are typically dependent on lot size, location, proximity, and other various site- and use-specific characteristics.

Design-based codes offer considerably more flexibility than Euclidean codes, but can be very complex to create and administer. Design-based codes have not been widely adopted in the United States and are often criticized as overly-constraining and difficult to interpret where they have been used.

One example of a recently adopted code with design-based features is the Land Development Code adopted by Louisville, Kentucky in 2003. This zoning code created "form districts" for Louisville Metro. Each form district was intended to recognize that some areas of the city were suburban in nature, and some urban. Building setbacks, heights and design features vary according to the form district. As an example, in a "traditional neighborhood" form district, a maximum setback might be 15 feet from the property line, while in a suburban "neighborhood" there might be no maximum setback at all.

Constitutional challenges

There have been notable legal challenges to zoning regulations. In 1926 the United States Supreme Court upheld zoning as a right of U.S. states (typically via their cities and counties) to impose on landowners. The case was Village of Euclid, Ohio v. Ambler Realty Co. (often shortened to Euclid v. Ambler), 272 U.S. 365 (1926). The village had zoned an area of land held by Ambler Realty as a residential neighborhood. Ambler argued that it would lose money because if the land could be leased to industrial users it would have netted a great deal more money than as a residential area. Euclid won, and a precedent was set favorable to local enforcement of zoning laws.

The Euclid case was a facial challenge, meaning that the entire scheme of regulation was argued to be unconstitutional under any set of circumstances. The United States Supreme Court justified the ordinance saying that a community may enact reasonable laws to keep the pig out of the parlor, even if pigs may not be prohibited from the entire community.

Since the Euclid case, there have been no more facial challenges to the general scheme. Beginning in 1987, several United States Supreme Court cases ruled against land use regulations as being a taking requiring just compensation pursuant to the Fifth Amendment to the Constitution. First English Evangelical Lutheran Church v. Los Angeles County ruled that even a temporary taking may require compensation. Nollan v. California Coastal Commission ruled that permit conditions that fail to substantially advance the agency's authorized purposes require compensation. Lucas v. South Carolina Coastal Council ruled that numerous environmental concerns were not sufficient to deny all development without compensation. Dolan v. City of Tigard ruled that conditions of a permit must be roughly proportional to the impacts of the proposed new development. Palazzolo v. Rhode Island ruled property rights are not diminished by unconstitutional laws that exist without challenge at the time the complaining property owner acquired title.

However, the landowner victories have been mostly limited to the U.S. Supreme Court despite that Court's purported overriding authority. Each decision in favor of the landowner is based on the facts of the particular case, so that regulatory takings rulings in favor of landowners are little more than a landowners' mirage. Even the trend of the U.S. Supreme Court may now have reversed with the 2004 ruling in the Tahoe case. Justice Sandra Day O'Connor, who had previously ruled with a 5-4 majority in favor of the landowner, switched sides to favor the government that had delayed development for more than 20 years because of the government's own indecision about alleged concerns to the water quality of Lake Tahoe.

Specific zoning laws have been overturned in some other U.S. cases where the laws were not applied evenly (violating equal protection) or were considered to violate free speech. In the Atlanta suburb of Roswell, Georgia, an ordinance banning billboards was overturned in court on such grounds. It has been deemed that a municipality's sign ordinance must be content neutral with regard to the regulation of signage. The City of Roswell, Georgia has now institued a sign ordinance that regulates signage based strictly on dimensional and aesthetic codes, rather than an interpretation of a sign's content (i.e. use of colors, lettering, etc.).

On other occasions, religious institutions sought to circumvent zoning laws, citing the Religious Freedom Restoration Act of 1993 (RFRA). The Supreme Court eventually overturned RFRA in just such a case, City of Boerne v. Flores 521 U.S. 507 (1997). However, Congress enacted the Religious Land Use and Institutionalized Persons Act (RLUIPA) in 2000 in an effort to correct the constitutionally objectionable problems of the RFRA. In the 2005 case of Cutter v. Wilkinson, the United States Supreme Court held RLUIPA to be constitutional.

Some limitations and criticisms of zoning

Land-use zoning is considered by some to be an important tool in the treatment of certain social ills, a part of the larger concept of social engineering. Criticism of zoning is widespread, however, and its effectiveness as a tool for positive social change is debatable.


Existing development in a community is generally not affected by the new zoning laws because it is "grandfathered" (or legally non-conforming), meaning the prior development is exempt from compliance. Consequently, zoning can only affect new development in a growing community. In addition, if undeveloped land is zoned to allow development, that land becomes relatively expensive, causing developers to seek land that is not zoned for development, and then seek re-zoning of that land themselves. Communities generally react by not zoning undeveloped land to allow development until a developer requests rezoning and presents a suitable plan. Development under this practice appears to be piecemeal and uncoordinated. Communities try to influence the timing of development by government expenditures for new streets, sewers and utilities usually desired for modern developments. However, the development of interstate freeways for purposes unrelated to planned community growth, creates an inexorable rush to develop the relatively cheap land near interchanges. Property tax suppression measures such as California Proposition 13 have led many communities to disregard their comprehensive plans and rezone undeveloped land for retail establishments, desperate to capture sales tax revenue.

Aesthetic criticisms

More prescriptive zoning codes tend to give rise to a phenomenon known colloquially as "Design by Zoning," or DBZ. Jurisdictions with highly prescriptive zoning codes can force the uniform adoption of (often unintentionally negative) aesthetic qualities in all new construction due to the inflexibility of the zoning ordinances. This can lead to urban environments dominated by apparently nonsensical or awkward building configurations. An example of this has occurred in the application of the increasingly-complex low-rise multi-family residential code in Seattle, Washington.

Social criticisms

In more recent times, zoning has been criticized by urban planners and scholars (most notably Jane Jacobs) as a source of new social ills, including the separation of homes from employment and the rise of "car culture." Some communities have begun to encourage development of denser, mixed-use neighborhoods that promote walking and cycling to jobs and shopping. However, a single-family home and car are major parts of the "American Dream" for nuclear families, and zoning laws often reflect this: in some cities, houses that do not have an attached garage are deemed "blighted" and are subject to redevelopment. Movements that disapprove of zoning, such as New Urbanism and Smart Growth, generally try to reconcile these competing demands. New Urbanists in particular try through creative urban design solutions that hark back to 1920s and 1930s practices. Recently, the New Urbanists have also come under attack for the negative aspects of the highly prescriptive nature of their model code proposals.

Exclusionary zoning

Zoning has long been criticized as a tool of racial and socio-economic exclusion and segregation, primarily through minimum lot-size requirements and land-use segregation (sometimes referred to as "environmental racism"). Early zoning codes were often explicitly racist. June Manning Thomas provides a survey of the literature concerned with this particular critique of zoning.

Exclusionary practices remain common among suburbs wishing to keep out those deemed socioeconomically or ethnically undesirable: for example, representatives of the city of Barrington Hills, Illinois once told the Real Estate section of the Chicago Tribune that the city's 5-acre minimum lot size helped to "keep out the riff-raff."

Zoning and housing affordability

Zoning has also been implicated as a primary driving factor in the rapidly accelerating unaffordability of housing in urban areas (see, Glaeser, Edward L. and Gyourko, Joseph, The Impact of Zoning on Housing Affordability, 2002). According to critics, as much as half of the price paid for housing in some jurisdictions is directly attributable to the hidden costs of restrictive zoning regulation.

In 1969 Massachusetts enacted Chapter 40B, a so-called anti-snob zoning statute. Under this law, developers may circumvent local zoning boards in municipalities with less than 10% affordable housing. Similar laws are in place in other parts of the United States, though their effectiveness is disputed.

Inclusionary zoning

Inclusionary zoning, also know as inclusionary housing, refers to city planning ordinances that require a given share of new construction be affordable to people with low to moderate incomes. The term inclusionary zoning is derived from the fact that these ordinances seek to counter exclusionary zoning practices which aim to exclude affordable housing from a municipality through the zoning code. In practice, these policies involve placing deed restrictions on 10%-30% of new houses or apartments in order to make the costs of the housing affordable to lower income households. The mix of "affordable" and "market-rate" housing in the same neighborhood is seen as beneficial by many, especially in jurisdictions where housing shortages have become acute. Inclusionary zoning is becoming a common tool for local municipalities in the United States to help provide a wider range of housing options than the market provides on its own.

Most inclusionary zoning is enacted at the local level. However when imposed by the state, as in Massachusetts, it can be argued that it usurps local control. In these cases, developers can use inclusionary zoning to avoid local zoning laws.

Historical background

During the mid to late 20th century, new suburbs sprouted around American cities as middle class homeowners fled established neighborhoods for newer communities. These newly-populated places were generally far more economically homogeneous than the cities they encircled. Many suburban communities enacted local ordinances, often in zoning codes, to preserve the character of their municipality. For instance, one of the most commonly cited exclusionary practices is the stipulation that lots must be of a certain minimum size and houses must be set back from the street by a certain minimum space. In many cases, these housing ordinances have prevented affordable housing from being built, because the large plots of land required to build within code are cost-prohibitive for more modest homes. Communities have remained only available to the upper classes because of these ordinances, effectively shutting the poor out of access to desirable communities.

Ordinances of this sort have not always been enacted with the conscious intent of excluding lower income households. In many cases it has however been the unintended result of such policies.

By denying poor families access to suburban communities, many feel that exclusionary zoning has contributed to the maintenance of inner city ghettos. Supporters of inclusionary zoning point out that low income households are more likely to become economically successful if they have middle class neighbors as peers and role models. When effective, inclusionary zoning reduces the concentration of poverty in slum districts where social norms may not provide adequate models of success. As education is one of the largest components in the effort to lift people out of poverty, access to high-performing public schools is another key benefit of a reduction in segregation. Statistically, a poor child in a school where 80% of children are poor scores 13-15% lower compared to environments where the poor child's peers are 80% middle class.

Note that in many of the communities where inclusionary zoning has been put in practice, income requirements allow households that earn 80-120% of the median income to qualify for the "affordable" housing. This is because in many places, high housing prices have prevented even the middle class from buying market-rate properties. This is especially prominent in California, where only 16% of the population could afford the median priced home during 2005.

Differences between ordinances

Inclusionary zoning ordinances vary substantially between municipalities. These variables can include:

         Mandatory or voluntary ordinance. While many cities require inclusionary housing, many more offer zoning bonuses, expedited permits, reduced fees, cash subsidies, or other incentives for developers who voluntarily build affordable housing.
Percentage of units to be dedicated as inclusionary housing. This varies quite substantially between jurisdictions, but appears to range between 10-30%.
Minimum size of development that the ordinance applies to. Most jurisdictions exempt smaller developments, but some require that even developments incurring only a fraction of an inclusionary housing unit pay a fee (see below).
Whether inclusionary housing must be built on site. Some programs allow housing to be built nearby, in case of hardship.
Whether fees can be paid in lieu of building inclusionary housing. Fees-in-lieu allow a developer to "buy out" of his/her inclusionary housing obligation. This may seem to defeat the purpose of inclusionary zoning, but in some cases the cost of building one affordable unit on-site could purchase several affordable units off-site.
Income level or price defined as "affordable," and buyer qualification methods. Most ordinances seem to target inclusionary units to low- or moderate-income households, earning approximately the regional median income or somewhat below. Inclusionary housing typically does not create housing for those with very low incomes.
Appearance and integration of inclusionary housing units. Many jurisdictions require that inclusionary housing units be indistinguishable from market-rate units, but this can increase costs.
Longevity of price restrictions attached to inclusionary housing units, and allowable appreciation. Ordinances that allow the "discount" to expire essentially grant a windfall profit to the inclusionary housing buyer, preventing that subsidy from being recycled to other needy households. On the other hand, preventing price appreciation removes a key incentive of homeownership. Many programs restrict annual price appreciation (by, for instance, enrolling inclusionary housing into community land trusts), often tying it to inflation plus market value of home improvements, striving to balance the community's interest in long-term affordability with the homeowner's interest in accruing equity over time.
Whether housing rehabilitation counts as "construction," either of market-rate or affordable units. Some cities, like New York City, allow developers to count rehabilitation of off-site housing as an inclusionary contribution.
Which types of housing construction the ordinance applies to. For example, high-rise housing costs more to build per square foot (thus raising compliance costs, perhaps prohibitively), so some ordinances exempt it from compliance.

Alternative solutions

While many suburban communities feature Section 8 for low income households, they are generally restricted to concentrated sections. In some cases, counties specify small districts where Section 8 properties are to be rented. In other cases, the market tends to self-segregate property by income. For instance, in Montgomery County, Pennsylvania, a wealthy suburban county bordering Philadelphia, only 5% of the county's population live in the borough of Norristown yet 50% of the county's Section 8 properties are located there. Norristown's local government and school district are burdened with a large population of lower income residents, while much of the county is free to reap the benefits of a wealthy tax base.

Inclusionary zoning aims to reduce residential economic segregation by mandating that a mix of incomes be represented in a single development.


Inclusionary zoning is a controversial issue. Affordable housing advocates seek to promote the policies in order to ensure that housing is available for variety of income levels in more places. These supporters hold that the inclusionary zoning produces needed affordable housing, and creates income-integrated communities.

Detractors claim that inclusionary zoning levies an indirect tax on developers, so as to discourage them from building in areas that face supply shortages. Furthermore, to ensure that the affordable units are not resold for profit, deed restrictions generally fix a long-term resale price ceiling, eliminating much of the benefit of home ownership.

Free market advocates oppose attempts to fix given social outcomes by government intervention in markets. They claim inclusionary zoning as one of many onerous land use regulations that exacerbate housing shortages. Affordable housing supporters note that the very act of zoning land creates value through the associated roads, utilities, sewers, and schools that are non-market benefits, subsidized by taxpayers, that accompany zoning decisions.

Homeowners sometimes contend that their property values will be reduced if low income families are given access to their community. Others counter that this is thinly-concealed classism.

Some of the most widely publicized inclusionary zoning battles have involved the REIT AvalonBay Communities. According to the company's website, AvalonBay seeks to develop properties in "high barrier-to-entry markets" across the United States. In practice, AvalonBay uses inclusionary zoning laws, such as Chapter 40B in Massachusetts, to bypass local zoning laws and build large apartment complexes. In some cases, local residents fight back with a lawsuit. In Connecticut, similar developments by AvalonBay have resulted in attempts to condemn the land or reclaim it by eminent domain. In most cases AvalonBay has won these disputes and built extremely profitable apartments or condos.

The clash between these various interests is reflected in this study published by the libertarian-leaning Reason Foundation's public policy think tank, and the response of a peer review of that research. Local governments reflect and in some cases balance these competing interests. In California, the League of Cities has created a guide to inclusionary zoning which includes a section on the pros and cons of the policies.

Inclusionary zoning in practice

More than 200 communities in the United States have some sort of inclusionary zoning provision.

Montgomery County, Maryland is often held to be a pioneer in establishing inclusionary zoning policies. It is the 6th wealthiest county in the United States, yet it has built more than 10,000 units of affordable housing since 1974, many units door-to-door with market-rate housing.

All municipalities in the state of New Jersey are subject to judicially imposed inclusionary zoning as a result of the New Jersey Supreme Court's Mount Laurel Doctrine, and subsequent acts of the New Jersey state legislature (See NJ Fair Housing Act).

Madison Wisconsin's inclusionary zoning ordinance respecting rental housing was struck down by Wisconsin's 4th District Court of Appeals in 2006 because that appellate court construed inclusionary zoning to be rent control, which is prohibited by state statute. The State Supreme Court declined the City's request to review the case.

Other communities with inclusionary zoning ordinances on the books include:

                 Burlington, Vermont       Chapel Hill, North Carolina
Princeton, New Jersey Frederick County, Maryland
Fairfax County, Virginia,
the wealthiest county in the US
Barnstable County, Massachusetts,
which contains Cape Cod
Davidson, North Carolina Tallahassee, Florida
Boulder, Colorado Santa Fe, New Mexico
San Francisco, California Palo Alto, California
San Mateo County, California Sacramento, California
West Hollywood, California Huntington Beach, California
San Diego, California New York, New York
Montclair, New Jersey



What is Subdivision?

Subdivision is the act of dividing land into pieces that are easier to sell or otherwise develop, usually via a plat. The former single piece as a whole is then known as a subdivision; if it is used for housing it is typically known as a housing subdivision or housing development, although some developers tend to call these areas communities. Subdivisions may also be for the purpose of commercial or industrial development, and the results vary from retail malls with independently owned out parcels to industrial parks.


In the United States, the creation of a subdivision was often the first step toward the creation of a new incorporated township or city.

Contemporary notions of subdivisions rely on the Lot and Block survey system, which became widely used in the 19th century as a means of addressing the expansion of cities into surrounding farmland. While this method of property identification was useful for purposes of conveyancing, it did not address the overall impacts of expansion and the need for a comprehensive approach to planning communities.

In the 1920s, the Coolidge administration formed the Advisory Committee on City Planning and Zoning, which undertook as its first task the creation of the Standard State Zoning Enabling Act. When it completed this work in 1926, it then worked to develop the Standard City Planning Enabling Act (SCPEA), which it completed in 1928. The SCPEA covered six subjects:

(1) the organization and power of planning commissions, which was directed to prepare and adopt a master plan; (2) the content of the master plan; (3) provisions for a master street plan; (4) provisions for approval of all public improvements by the planning commission; (5) control of private subdivision of land; and (6) provisions for the creation of regional planning commissions.

Despite drawing charges of Communism from some, the SCPEA has been adopted by all states in some form.

Subdivision defined

The SCPEA included the following definition:

"Subdivision" means the division of a lot, tract, or parcel of land into two or more lots, plats, sites, or other divisions of land for the purpose, whether immediate or future, of sale or of building development. It includes re-subdivision and, when appropriate to the context, relates to the process of subdividing or to the land or territory subdivided."

Attached to this definition was the following footnote:

for the purpose of sale or of building development: Every division of a piece of land into two or more lots, parcels or parts is, of course, a subdivision. The intention is to cover all subdivision of land where the immediate or ultimate purpose is that of selling the lots or building on them. The object of inserting a definition in the text of the act is to avoid the inclusion, within the planning commission's control, of such cases as a testator's dividing his property amongst his children, partners' dividing firm property amongst themselves on dissolution, or cases of that nature.

This definition, and its clarifying footnote, serves to underscore some important points about the legal nature of subdivisions. Importantly, a subdivision does not need to be sold, in whole or in part, for its resulting pieces to be considered separate parcels of land. A subdivision plat approved by a local planning commission, once recorded in a registry of deeds, is generally deemed to have created the parcels of land identified on the plat itself.

The problem of testamentary division of property was identified by the SCPEA in the footnote to the definition of subdivision, but it not fully clarified by it. In some jurisdictions, a testamentary division of property does not constitute a legal subdivision for purposes of separate conveyancing of the "subdivided" parcels (see, e.g., In re Estate of Sophia Sayewich, 120 N.H. 237 (1980)).

Similarly difficult is the notion of "building development" in the definition, and whether the identification of multiple construction sites on a single parcel of land constitutes a subdivision subject to the review and approval authority of the planning commission. Interpretations of this vary among American jurisdictions.

Government Bond Requirements

Often, local municipalities will require a developer to obtain a surety bond to guarantee that any required public improvements are completed per the terms of the government. These subdivision bonds can be difficult to place at times, but they are still being written regularly, provided you can find the appropriate markets.

Mixed-Use Development

Mixed-use development refers to the practice of containing more than one type of use in a building or set of buildings. In zoning terms, this can mean some combination of residential, commercial, industrial, office, institutional, or other uses.


Mixed-use development in New York City. Note the residential space above the retail space in the same building.

Mixed-use development in New York City. Note the residential space above the retail space in the same building.

Mixed-used development was the most prominent style of development during the large majority of the history of human cities and towns. Because people walked for daily transportation, it was most convenient to locate the uses in proximity. People often made a living from their own homes. This was particularly true in cities, where the bottom floor was often devoted to some sort of commercial use, and living space was upstairs.

Mixed-used development fell out of favor during the Industrial Age in favor of more efficient manufacturing in dedicated structures. Many of these buildings produced substantial industrial pollution, detrimental to those who lived nearby. These factors were important in the push for Euclidian zoning that separated land uses.

Another impetus for Euclidian zoning was the birth of the skyscraper. Fear of buildings blocking out the sun led many to call for zoning regulations, particularly in New York City. Zoning regulations, first put into place in 1916, not only called for limits on building heights, but eventually called for separations of uses. This was largely meant to keep people from living next to polluted industrial areas. This separation however, was extended to commercial uses as well, setting the stage for the suburban style of life that is common in America today. This type of zoning was widely adopted by municipal zoning codes.


Throughout the late 20th century, it began to become apparent to many urban planners and other professionals that mixed-use development had many benefits and should be promoted again. As American cities deindustrialized, the need to separate residences from dangerous factories became less important. Completely separate zoning created isolated "islands" of each type of development. In many cases, the automobile became a requirement for transportation between vast fields of residentially zoned housing and the separate commercial and office strips. Jane Jacobs' influential The Death and Life of Great American Cities argues that a mixture of uses is vital and necessary for a healthy urban area.

Zoning laws attempt to address these problems by using mixed-use zoning. A mixed use district will most commonly be the "downtown" of the community. The mixed use guidelines often result in residential buildings with streetfront commercial space. Retailers have the assurance that they will always have customers living right above and around them, while residents have the benefit of being able to walk a mere number of yards to get groceries and household items, or see a movie.


Mixed use development is seen as too risky by many developers and lending institutions because economic success requires that the many different uses all remain in business. Most development throughout the mid to late 20th century was single-use, so many development and finance professionals see this as the safer and more acceptable means to provide construction and earn a profit. Christopher B. Leinberger notes that there are 19 standard real estate product types that can obtain easy financing through real estate investment trusts. Each type, such as the office park and the strip mall, is designed for low density, single use construction. Another issue is that short term discounted cash flow has become the standard way to measure the success of income-producing development, resulting in "disposable" suburban designs that make money in the short run but are not as successful in the mid to long term as walkable, mixed use projects.

Mixed use commercial space is often seen as being best suited for retail and small office uses. This precludes its widespread adoption as the trend to ever-larger corporate and government employment accelerates.

Mixed use residential space is best suited to those who prefer public amenities to private, regulated personal space. The lack of private outdoor space for kids and pets is anathema to some, particularly in some North American cultures.

Construction costs for mixed-use development currently exceed those for similar sized, single-use buildings. Challenges include fire separations, sound attenuation, ventilation, and egress. Leinberger explains," Good urban architecture costs upward of 50 percent more than typical suburban buildings. In urban areas, residents and businesses demand a higher quality of building, since you are walking past them, not driving by at 45 miles an hour with the buildings set back 150 feet".

Additional costs arise from meeting the design needs: In some designs, the large, high-ceilinged, columnless lower floor for commercial uses may not be entirely compatible with the smaller scale of walled residential space above. Often the parking space requirements for businesses exceed those of residential development. Thus, mixed use projects often require a large number of parking spaces that may be difficult to finance. It should be noted however that in mixed-use developments in some denser areas, owning an automobile might be considered a luxury rather than a necessity.

Others maintain that modern consumers prefer big box retailers, as evidenced by the fact that most grocery shoppers today would prefer the convenience of weekly shopping, as opposed to picking up each day's food items from many small shops.


Titles and Title Insurance

Title is a legal term for an owner's interest in a piece of property. It may also refer to a formal document that serves as evidence of ownership. Conveyance of the document may be required in order to transfer ownership in the property to another person. Title is distinct from possession, a right that often accompanies ownership but is not necessarily sufficient to prove it. In many cases, both possession and title may be transferred independently of each other.


The three elements of title are possession, the right of possession, and the right of property. Possession is the actual holding of a thing, with or without any right thereto. The right of possession is the right to legitimacy of possession (with or without actual possession), the evidence for which is such that the law will uphold it unless a better claim is proven. The right of property is that right which, if all relevant facts were known (and allowed), would defeat all other claims. Each of these may be in a different person.

For example, suppose A steals from B, what B had previously bought in good faith from C, which C had earlier stolen from D, which had been an heirloom of D's family for generations, but had originally been stolen centuries earlier (though this fact is now forgotten by all) from E. Here A has the possession, B has an apparent right of possession (as evidenced by the purchase), D has the absolute right of possession (being the best claim that can be proven), and the heirs of E, if they knew it, have the right of property, which they cannot prove. Good title consists in uniting these three (possession, right of possession, and right of property) in the same person(s).

The extinguishing of ancient, forgotten, or unasserted claims, such as E's in the example above, was the original purpose of statutes of limitations. Otherwise, title to property would always be uncertain.


In countries with a sophisticated private property system, documents of title are commonly used for real estate, motor vehicles, and some types of intangible property. When such documents are used, they are often part of a registration system whereby ownership of such property can be verified. In some cases, a title can also serve as a permanent legal record of condemnation of property, such as in the case of an automobile junk or salvage title. In the case of real estate, the legal instrument used to transfer title is the deed. A famous rule is that a thief cannot convey good title, so title searches are routine (or highly recommended) for purchases of many types of expensive property (especially real estate). In several counties and municipalities a standard Title search (generally accompanied by Title Insurance) is required under the law as a part of ownership transfer.

However, most personal property items do not have a formal document of title. For such items, possession is the simplest indication of title, unless the circumstances give rise to suspicion about the possessor's ownership of the item. Proof of legal acquisition, such as a bill of sale or purchase receipt, is contributory. Transfer of possession to a good faith purchaser will normally convey title if no document is required.

Political implications

Title laws have been manipulated by governments to discriminate against ethnic groups whom they perceived to be of a minority group, not necessarily undesireable or inferior. For example, California prevented aliens (mainly Asians) from holding title to land until the law was declared unconstitutional in 1952. Currently there are no restrictions on foreign ownership of land in the United States, although sales of real estate by non-resident aliens are subject to certain special taxation rules.

Title insurance

insurance is insurance against loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. It is available in many countries but it is principally a product developed and sold in the United States. It is meant to protect an owner's or lender's financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.

Typically the real property interests insured are fee simple ownership or a mortgage. However, title insurance can be purchased to insure any interest in real property, including an easement, lease or life estate. Just as lenders require fire insurance and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate. Some mortgage lenders, especially non-institutional lenders, may not require title insurance.

Why Title Insurance Exists in the United States

Title insurance exists in the US in great part because of a comparative deficiency in the US land records laws. Most of the industrialized world uses land registration systems for the transfer of land titles or interests in them. Under these systems, the government makes the determination of title ownership and encumbrances on the title based on the registration of the instruments transferring or otherwise affecting the title in the applicable government office. With only a few exceptions, the government's determination is conclusive. Governmental errors lead to monetary compensation to the person damaged by the error but that aggrieved party usually cannot recover the property.

A few jurisdictions in the United States have adopted a form of this system, e.g., Minneapolis, Minnesota and Boston, Massachusetts. However, for the most part, the states have opted for a system of document recording in which no governmental official makes any determination of who owns the title or whether the instruments transferring it are valid. The reason for this is probably that it is much less expensive to operate than a land registration system; it doesn't require the number of legally skilled employees that the registration systems do.

Greatly simplified, in the recording system, each time a land title transaction takes place, the transfer instrument is recorded with a local government recorder located in the jurisdiction (usually the county) where the land lies. The instrument is then indexed by the names of the grantor (transferor) and the grantee (transferee) and photographed so it can be found and examined by anyone who wants to see it. Usually, the failure by the grantee to record the transfer instrument voids it as to subsequent purchasers of the property who don't actually know of its existence.

Under this system, determining who owns the title requires the examination of the indexes in the recorders' offices pursuant to various rules established by state legislatures and courts, scrutinizing the instruments to which they refer and making the determination of how they affect the title under applicable law. (The final arbiters of title matters are the courts, which make decisions in suits brought by parties having disagreements.) Initially, this was done by hiring an abstractor to search for the documents affecting the land in question and an attorney to opine on their meaning under the law, and this is still done in some places. However, this procedure has been found to be cumbersome and inefficient in most of the US. Substantial errors made by the abstractor or the attorney will be compensated only to the limit of the financial responsibility of these parties (including their liability insurance). The opinions given by attorneys as to each title are not uniform and often require time consuming analysis to determine their meanings.

Title insurers utilize this recording system to produce an insurance policy for any purchaser of land, or interest in it, or mortgage lender if the premium is paid. Title insurers use their employees or agents to perform the necessary searches of the recorders' offices records and to make the determinations of who owns the title and to what interests it is subject. The policies are fairly uniform (a fact that greatly pleases lenders and others in the real estate business) and the insurers carry, at a minimum, the financial reserves required by insurance regulation to compensate their insureds for valid claims they make under the policies. This is especially important in large commercial real estate transactions where many millions of dollars are invested or loaned in reliance on the validity of real estate titles. As stated above, the policies also require the insurers to pay for the costs of defense of their insureds in legal contests over what they have insured. Abstractors and attorneys have no such obligation.

Comparison with other insurance

Title insurance differs in several respects from other types of insurance. Where most insurance is a contract where the insurer indemnifies or guarantees another party against a possible specific type of loss (such as an accident or death) at a future date, title insurance generally insures against losses caused by title problems that have their source in past events. This often results in the curing of title defects or the elimination of adverse interests from the title before a transaction takes place. Title insurance companies attempt to achieve this by searching public records to develop and document the chain of title and to detect known claims against or defects in the title to the subject property. If liens or encumbrances are found, the insurer may require that steps be taken to eliminate them (for example, obtaining a release of an old mortgage or deed of trust that has been paid off, or requiring the payoff) before issuing the title policy. In the alternative, it may "except" those items not eliminated from coverage. Title plants are sometimes maintained to index the public records geographically, with the goal of increasing searching efficiency and reducing claims.

The explanation above discloses another difference between title insurance and other types: title insurance premiums are not principally calculated on the basis of actuarial science, as is true in most other types of insurance. Instead of correlating the probability of losses with their projected costs, title insurance seeks to eliminate the source of the losses through the use of the recording system (see Recording (real estate)) and other underwriting practices. As a result, a relatively small fraction of title insurance premiums are used to pay insured losses. The great majority of the premiums are used to finance the title research on each piece of property and to maintain the title plants used to efficiently do that research. There is significant social utility in this approach as the result conforms with the expectations of most property purchasers and mortgage lenders. Generally, they want the real estate they purchased or loaned money on to have the title condition they expected when they entered the transaction, rather than money compensation and litigation over unexpected defects.

Types of policies

Standardized forms of title insurance exist for owners and lenders. The lender's policies include a form specifically for construction loans, though this is rarely used today.

Owner's policy

The owner's policy insures a purchaser that the title to the property is vested in that purchaser and that it is free from all defects, liens and encumbrances except those which are listed as exceptions in the policy or are excluded from the scope of the policy's coverage. It also covers losses and damages suffered if the title is unmarketable [1] The policy also provides coverage for loss if there is no right of access to the land. Although these are the basic coverages, expanded forms of residential owner's policy exist that cover additional items of loss.[2]

The liability limit of the owner's policy is typically the purchase price paid for the property. As with other types of insurance, coverages can also be added or deleted with an endorsement. There are many forms of standard endorsements to cover a variety of common issues. The premium for the policy may be paid by the seller or buyer as the parties agree; usually there is a custom in a particular state or county on this matter which is reflected in most local real estate contracts. Consumers should inquire about the cost of title insurance before signing a real estate contract which provide that they pay for title charges. A real estate attorney, broker, escrow officer (in the western states), or loan officer can provide detailed information to the consumer as to the price of title search and insurance before the real estate contract is signed. Title insurance coverage lasts as long as the insured retains an interest in the land insured and typically no additional premium is paid after the policy is issued.

Lender's policy

This is sometimes called a loan policy and it is issued only to mortgage lenders. Generally speaking, it follows the assignment of the mortgage loan, meaning that the policy benefits the purchaser of the loan if the loan is sold. For this reason, these policies greatly facilitate the sale of mortgages into the secondary market. That market is made up of high volume purchasers such as Fannie Mae and the Federal Home Loan Mortgage Corporation as well as private institutions.

The American Land Title Association ("ALTA") forms are almost universally used in the country though they have been modified in some states. In general, the basic elements of insurance they provide to the lender cover losses from the following matters:

1. The title to the property on which the mortgage is being made is either

         Not in the mortgage loan borrower,
Subject to defects, liens or encumbrances, or

2. There is no right of access to the land.

3. The lien created by the mortgage:

         is invalid or unenforceable,
is not prior to any other lien existing on the property on the date the policy is written, or
is subject to mechanic's liens under certain circumstances.

As with all of the ALTA forms, the policy also covers the cost of defending insured matters against attack.

Elements 1 and 2 are important to the lender because they cover its expectations of the title it will receive if it must foreclose its mortgage. Element 3 covers matters that will interfere with its foreclosure.

Of course, all of the policies except or exclude certain matters and are subject to various conditions.

There are also ALTA mortgage policies covering single or one-to-four family housing mortgages. These cover the elements of loss listed above plus others. Examples of the other coverages are loss from forged releases of the mortgage and loss resulting from encroachments of improvements on adjoining land onto the mortgaged property when the improvements are constructed after the loan is made.

Construction loan policy

In many states, separate policies exist for construction loans. Title insurance for construction loans require a Date Down endorsement which recognizes that the insured amount for the property has increased due to construction funds that have been vested into the property.

Land title associations

In the United States, the American Land Title Association (ALTA) is a national trade association of title insurers. ALTA has created standard forms of title insurance policy "jackets" (standard terms and conditions) for Owner's, Lender's and Construction Loan policies. ALTA forms are used in most, but not all, U.S. states. ALTA also offers special endorsement forms for the various policies; endorsements amend and typically broaden the coverage given under a basic title insurance policy. ALTA does not issue title insurance; they provide the policy forms that title insurers issue.

Some states, including Texas and New York, may mandate the use of forms of title insurance policy jackets and endorsements approved by the state insurance commissioner for properties located in those jurisdictions, but these forms are usually similar or identical to ALTA forms.

While title insurance generally insures owners and lenders against things that have occurred in the past, in some limited circumstances, in some states, coverage is available for certain events that can occur after a title insurance policy is issued. Most notably, coverage is now available that includes the risk that a third party may place a forged mortgage or deed of trust against a property after the owner's policy has been issued. This coverage is included in the "Homeowners Policy of Title Insurance" (a specific policy form), published by ALTA and the California Land Title Association (CLTA). Note that this is not the same as a so-called CLTA Standard Policy, which provides much less coverage than the Homeowners Policy of Title Insurance.

Industry profitability

The title insurance industry is a profitable one. In 2003, according to ALTA, the industry paid out about $662 million in claims, about 4.3% percent of the $15.7 billion taken in as premiums. By comparison, the boiler insurance industry, which like title insurance requires an emphasis on inspections and risk analysis, pays 25% of its premiums in claims.

Comparing claims with premiums tells only part of the story, since, for example, title insurance companies have marketing expenses not incurred by the boiler insurance industry. But the industry's profitability is also hinted at by the repeated instances of state regulators uncovering cases where title insurers have engaged in illegal marketing tactics. Although owners are free to shop around for title insurance, many owners defer such decisions to lenders or real estate agents, and title insurance companies have sometimes used illegal tactics in marketing to those decision-makers. Illegal tactics noted in a CNN/Money article include kickbacks, free vacations, and the free use of office space and equipment. The article noted that in 2005 alone over a dozen title insurers settled with regulators for tens of millions of dollars over these practices.

Further evidence of the industry's profitability can be found by comparing the title insurance costs in the 49 states where such insurance is issued with the costs associated with the state-run Title Guaranty Program in Iowa, where title insurance is illegal. The program is run by the Iowa Finance Authority. It costs $110 for up to $500,000 in coverage in the state; after adding costs for the services of an abstractor (who does the research on the property) and the legal fees, such a title guaranty costs about $400.00, versus the $1,100.00 paid for that same home in other states (based on figures cited by the Iowa Bar Association).

In many states, the price of title insurance is regulated by a state Insurance Commissioner. In these states, such as Florida, the rate for the insurance premium cannot be controlled by the industry. Unlike other forms of insurance such as life, medical or home owners; title insurance is not paid for annually, it has one payment for the term of the policy, which is in effect until the property is resold.

The Real Estate Contract

A real estate contract is a contract for the purchase/sale, exchange, or other conveyance of real estate between parties. Real estate called leasehold estate is actually a rental of real property such as an apartment, and leases (rental contracts) cover such rentals since they typically do not result in recordable deeds. Freehold ("More permanent") conveyances of real estate are covered by real estate contracts, including conveying fee simple title, life estates, remainder estates, and freehold easements. Real estate contracts are typically bilateral contracts (i. e., agreed to by two parties) and should have the legal requirements specified by contract law in general and should also be in writing to be enforceable.

Details explained on the contract

In writing

In many countries, real estate contracts must be in writing to be enforceable. In the United States the Statute of Frauds require real estate contracts to be in writing to be enforceable. In South Africa, the Alienation of Land Act specifies that any agreement of sale of immovable property must be in writing.

Additionally, a real estate contract must:

Identify the parties: The full name of the parties must be on the contract. In a sales contract, the parties are the seller(s) and buyer(s) of the real estate, who are often called the principals to distinguish them from real estate agents, who are effectively their intermediaries and representatives in negotiation of the price. If there are any real estate agents brokering the sale, they are typically listed also as the real estate brokers/agents who would earn the commission from the sale.

         Identify the real estate (property): At least the address, but preferably the legal description must be on the contract.
Identify the purchase price: The amount of the sales price or a reasonably ascertainable figure (an appraisal to be completed at a future date) must be on the contract.
Include signatures: A real estate contract must be entered into voluntarily (not by force), and must be signed by the parties, to be enforceable.
Have a legal purpose: The contract is void if it calls for illegal action.
Involve Competent parties: Mentally impaired, drugged persons, etc. cannot enter into a contract. Contracts in which at least one of the parties is a minor are voidable by the minor.
Reflect a meeting of the minds: Each side must be clear and agree as to the essential details, rights, and obligations of the contract.
Include Consideration: Consideration is something of value bargained for in exchange of the real estate. Money is the most common form of consideration, but other consideration of value, such as other property in exchange, or a promise to perform (i.e. a promise to pay) is also satisfactory.

Notarization by a notary public is normally not required for a real estate contract, but many recording offices require that a seller's or conveyor's signature on a deed be notarized to record the deed. The real estate contract is typically not recorded with the government, although statements or declarations of the price paid are commonly required to be submitted to the recorder's office.

Sometimes real estate contracts will provide for a lawyer review period of several days after the signing by the parties to check the provisions of the contract and counterpropose any that are unsuitable.

If there are any real estate brokers/agents brokering the sale, the buyer's agent will often fill in the blanks on a standard contract form for the buyer(s) and seller(s) to sign. The broker commonly gets such contract forms from a real estate association they belong to. When both buyer and seller have agreed to the contract by signing it, the broker provides copies of the signed contract to the buyer and seller.

Offer and acceptance

As may be the case with other contracts, real estate contracts may be formed by one party making an offer and another party accepting the offer. To be enforceable, the offers and acceptances are normally in writing and signed by the parties agreeing to the contract. Often, the party making the offer prepares a written real estate contract, signs it, and transmits it to the other party who would accept the offer by signing the contract. As with all other types of legal offers, the other party may accept the offer, reject it - in which case the offer is terminated, make a counteroffer - in which case the original offer is terminated, or not respond to the offer - in which case the offer terminates by the expiration date in it. Before the offer (or counteroffer) is accepted, the offering (or countering) party can withdraw it. A counteroffer may be countered with yet another offer, and a counteroffering process may go on indefinitely between the parties.

To be enforceable, a real estate contract must possess original signatures by the parties and any alterations to the contract must be initialed by all the parties involved. If the original offer is marked up and initialed by the party receiving it, then signed, this is not an offer and acceptance but a counter-offer.

Deed specified

A real estate contract typically does not convey or transfer ownership of real estate by itself. A different document called a deed is used to convey real estate. In a real estate contract, the type of deed to be used to convey the real estate may be specified, such as a warranty deed or a quitclaim deed. If a deed type is not specifically mentioned, "marketable title" may be specified, implying a warranty deed should be provided. Lenders will insist on a warranty deed. Any liens or other encumbrances on the title to the real estate should be mentioned up front in the real estate contract, so the presence of these deficiencies would not be a reason for voiding the contract at or before the closing. If the liens are not cleared before by the time of the closing, then the deed should specifically have an exception(s) listed for the lien(s) not cleared.

The buyer(s) signing the real estate contract are liable (legally responsible) for providing the promised consideration for the real estate, which is typically money in the amount of the purchase price. However, the details about the type of ownership may not be specified in the contract. Sometimes, signing buyer(s) may direct a lawyer preparing the deed separately what type of ownership to list on the deed and may decide to add a joint owner(s), such as a spouse, to the deed. For example, types of joint ownership (title) may include tenancy in common, joint tenancy with right of survivorship, or joint tenancy by the entireties. Another possibility is ownership in trust instead of direct ownership.


Contingencies are conditions which must be met if a contract is to be performed.

Contingencies that suspend the contract until certain events occur are known as "suspensive conditions". Contingencies that cancel the contract if certain event occur are known as "resolutive conditions".

Most contracts of sale contain contingencies of some kind or another, because few people can afford to enter into a real estate purchase without them. But it is possible for a real estate contract not to have any contingencies.

Some types of contingencies which can appear in a real estate contract include:

         Mortgage Contingency - Performance of the contract (purchase of the real estate) is contingent upon or subject to the buyer getting a mortgage loan for the purchase. Usually such a contingency calls for a buyer to apply for a loan within a certain period of time after the contract is signed. Since most people who buy a house get a mortgage loan to finance their purchase, mortgage contingencies are one of the most common type of contingencies in real property contracts.
Inspection Contingency - Purchase of the real estate is contingent upon a satisfactory inspection of the real property revealing no significant defects. Contingencies could also be made on the satisfactory repair of a certain item associated with the real estate.
Another Sale Contingency - Purchase or sale of the real estate is contingent on a successful sale or purchase of another piece of real estate. The successful sale of another house may be needed to finance the purchase of a new one.
Appraisal Contingency - Purchase of the real estate is contingent upon the contract price being at or below a fair market value determined by an appraisal. Lenders will often not lend more than a certain percentage (fraction) of the appraised value, so such a contingency may be useful for a buyer.
72-Hour Kick Out Contingency - Seller contingency, which allows the seller to keep the property in the market while the buyer contingencies are not yet fulfilled.

Date of closing and possession

A typical real estate contract specifies a date by which the closing must occur. The closing is the event in which the money (or other consideration) for the real estate is paid for and title (ownership) of the real estate is conveyed from the seller(s) to the buyer(s). The conveyance is done by the seller(s) signing a deed for buyer(s) or their attorneys or other agents to record the transfer of ownership. Often other paperwork is necessary at the closing.

The date of the closing is normally also the date when possession of the real estate is transferred from the seller(s) to the buyer(s). However, the real estate contract can specify a different date when possession changes hands. Transfer of possession of a house, condominium, or building is usually accomplished by handing over the key(s) to it. The contract may have provisions in case the seller(s) hold over possession beyond the agreed date.

The contract can also specify which party pays for what closing costs. If the contract does not specify, then there are certain customary defaults depending on law, common law (judicial precedents), location, and other orders or agreements, regarding who pays for which closing costs.

Condition of property

A real estate contract may specify in what condition of the property should be when conveying the title or transferring possession. For example, the contract may say that the property is sold as is, especially if demolition is intended. Alterrnatively there may be a representation or a warranty (guarantee) regarding the condition of the house, building, or some part of it such as affixed appliances, HVAC system, etc. Sometimes a separate disclosure form specified by a government entity is also used. The contract could also specify any personal property (non-real property) items which are to be included with the deal, such as washer and dryer which are normally detachable from the house. Utility meters, electrical wiring systems, fuse or circuit breaker boxes, plumbing, furnaces, water heaters, sinks, toilets, bathtubs, and most central air conditioning systems are normally considered to be attached to a house or building and would normally be included with the real property by default.


Riders are special attachments (separate sheets) that become part of the contract in certain situations.

Earnest money deposit

Although, it is not absolutely required for a valid real estate offer or a contract, an earnest money deposit from the buyer(s) customarily accompanies an offer to buy real estate. The amount, a small fraction of the total price, is listed in the contract, with the remainder of the cost to be paid at the closing.

Financial qualifications of buyer(s)

The better the financial qualification of the buyer(s) are, the more likely the closing will be successfully completed, which is typically the goal of the seller. Any documentation demonstrating financial qualifications of the buyer(s), such as mortgage loan pre-approval or pre-qualification, may accompany a real estate offer to buy along with an earnest money check. When there are competing offers or when a lower offer is presented, the seller may be more likely to accept an offer from a buyer demonstrating evidence of being well qualified than from a buyer without such evidence.


What is a Deed?

A deed is a legal instrument used to grant a right. The deed is best known as the method of transferring title to real estate from one person to another, often using a description of its "metes and bounds." However, by the general definition, powers of attorney, commissions, patents, and even diplomas conferring academic degrees are also deeds.

Historically under common law, for an instrument to be a valid deed it needed five things:

         It must indicate that the instrument itself conveys some privilege or thing to someone. This is indicated by using the word hereby or the phrase by these presents in the sentence indicating the gift.
The grantor must have the legal ability to grant the thing or privilege.
The person receiving the privilege or thing must have the legal capacity to receive it.
A seal must be affixed to it. Most jurisdictions have eliminated this requirement and replaced it with the signature of the grantor. However, for conveyances of real estate, most jurisdictions require that the deed be acknowledged before a notary public or a civil law notary and some may require a witness or witnesses in addition.
It must be delivered to and accepted by the recipient.

Conditions attached to the acceptance of a deed are known as covenants.

In the transfer of real estate, a deed conveys ownership from the old owner (the grantor) to the new owner (the grantee), and can include various warranties. The precise name of these warranties differ by jurisdiction. However the basic difference between them is the degree to which the grantor warrants the title. The grantor may give a general warranty of title against any claims, or the warranty may be limited only to claims which occurred after the grantor obtained the real estate. The latter type of deed is usually known as a special warranty deed. While a general warranty deed is normally used for residential real estate sales and transfers, special warranty deeds are more commonly used in commercial transactions. A third type of deed, known as a bargain and sale deed, implies that the grantor has the right to convey title but makes no warranties against encumbrances. This type of deed is most commonly used by court officials or fiduciaries that hold the property by force of law rather than title, such as properties seized for unpaid taxes and sold at sheriff's sale. A so-called quitclaim deed is (in most states) actually not a deed at all--it is actually an estoppel disclaiming rights of the person signing it to property.

Usually the transfer of ownership of real estate is registered at a cadastre in the United Kingdom. In most parts of the United States, deeds must be submitted to the Recorder of deeds, who acts as a cadastre, to be registered. An unrecorded deed may be valid proof of ownership between the parties, but may have no effect upon third-party claims until disclosed or recorded. A local statute may prescribe a period beyond which unrecorded deeds become void as to third-parties, at least as to intervening acts.

In some jurisdictions, a deed of trust is used as an equivalent to a mortgage. A trust deed isn’t like the other types of deeds; it’s not used to transfer property directly. It is commonly used in some states (California, for example) to transfer title to land to a "trustee," usually a trust or title company, which holds the title as security ("in escrow") for a loan. When the loan is paid off, title is transferred to the borrower by recording a release of the obligation and the trustee's contingent ownership is extinguished. Otherwise (upon default), the trustee will liquidate the property (with a new deed) and offset the lender's loss with the proceeds.

Ownership transfer may also be crafted within deeds to pass by demise, as where a property is held in concurrent estate such as "joint tenants with right of survivorship" (JTWROS), "tenants by the entirety", or as a life estate. In each case, the title to the property immediately and automatically vests in the named survivor(s) upon the death of the other tenant(s).


Closing Costs

Real property in most jurisdictions is conveyed from the seller to the buyer through a real estate contract. The point in time at which the contract is actually executed and the title to the property is conveyed to the buyer is known as the "closing". It is common for a variety of costs associated with the transaction (above and beyond the price of the property itself) to be incurred by either the buyer or the seller. These costs are typically paid at the closing, and are known as closing costs.

Examples of typical closing costs might include:

         Attorney (Lawyer) fees, paid by either or both parties, for the preparation and recording of official documents. The principals and/or lender may each be represented by their own attorney. Typically required by institutional/commercial lenders to ensure documents are prepared correctly.
Title service cost(s), paid by either party according to the contract but by default seller may pay the majority, for title search, title insurance, and possibly other title services. In some cases the attorney may do the title search or the title service and attorney fees may be combined. Required by institutional/commercial lenders and often by the real estate contract.
Recording fees, paid by either party, charged by a governmental entity for entering an official record of the change of ownership of the property. Required by the government for recording the deed.
Document or Transaction Stamps or Taxes, paid by either or both parties depending on location (area of jurisdiction), charged by a governmental entity as an excise tax upon the transaction. Required by law.
Survey fee for a survey of the lot or land and all structures on it, paid by either party, to confirm lot size and dimensions and check for encroachments. Required by institutional/commercial lenders.
Brokerage Commission, paid by the seller to a Real Estate Broker, to compensate the Broker(s) involved in the sale for their services in marketing the property, finding a buyer, and assisting in the negotiations. Brokerage commissions are usually computed as a percentage of the sale price, and are established in a listing agreement between the seller and the listing broker. The listing broker may offer Buyer Agents a portion of their commission as an incentive to find buyers for the property. Payment is required if real estate brokerage service was used. This is often one of the largest closing costs.
Mortgage Application Fees, paid by the buyer to the lender, to cover the costs of processing their loan application. In some cases, the buyer would pay the lender the application directly and prior to closing, while in other cases the fee is part of the buyer's closing costs payable at closing.
Points, paid by the buyer to the lender. Points are a form of pre-paid interest, charged by the lender as an alternative to charging a higher rate of interest on the mortgage loan. One point equals one percent of the loan principal.
Appraisal Fees, usually paid by the buyer (although occasionally by the seller through negotiation), charged by a licensed professional Appraiser. Many lenders will require that an appraisal be performed as a condition of the mortgage loan. The purpose of this appraisal is to verify that the sale price of the property (upon which the underwriting of the loan is based) is equal to or less than the fair market value of the property.
Inspection Fees, usually paid by the buyer (although occasionally by the seller), charged by licensed home, pest, or other inspectors. Some lenders require inspections (such as termite inspection) to verify that the property is in good condition, which is necessary to assure that the property will retain the necessary collateral value to secure the mortgage loan.
Home Warranties, paid by either the buyer or the seller. Warranties are available on resale homes insuring major household systems against repair or replacement for the buyer's initial year of ownership. Sellers will sometimes offer these warranties as a marketing strategy, or buyers can elect to purchase them at closing.
Pre-paid Property Insurance, paid by the buyer. Lenders will typically require that a mortgaged property be insured at all times throughout the life of the mortgage, and will usually require that the first full year's property insurance premium be paid in advance by the buyer. If the buyer has not already paid the insurance company directly, this would become another closing cost payable at closing.
Pro-rata property taxes, paid by the seller, the buyer, or both. Most (but not all) jurisdictions assess taxes on real property, which are usually payable at a specified date annually. Since all but a tiny fraction of real estate transactions close on a date other than this one specified annual date, most transactions must include an adjustment to assure that both the seller and the buyer end up paying their share of the annual property tax, proportionate to the percentage of the year that each has ownership of the property. Usually required by institutional/commercial lenders and by the real estate contract.
Pro-rata Homeowner Association Dues, paid by the seller, buyer, or both. If the property is covered by a Homeowner Association (HOA), the HOA will normally be funded by dues assessed against each property owner. Again, since the ownership of the seller and buyer are each fractional in the year of the transaction, there must be an adjustment made so that each owner pays their proportional share. Often required by institutional/commercial lenders and by the real estate contract.
Pro-rata Interest, paid by the buyer. The monthly mortgage payment is calculated and payable on a specified day each month. If the closing does not actually fall on that specified date (which is usually the case), then an adjustment must be made to calculate the interest on the loan for the number of extra days until the first payment is due.

Other items in addition to the above may be common in some jurisdictions, and some transactions may include unusual or unique items as closing costs. In the United States, Federal law requires that all residential transactions financed by a mortgage have all closing costs documented in detail upon the standard HUD-1 form. This information must be provided to the principals but does not have to be sent to the government. Instead a Declaration or Statement by Buyer and/or Seller is often required to be provided to the government office recording the deed. Form 1099-S may be required to be sent to the United States Internal Revenue Service, but Federal law does not allow a charge for this.


Escrow Information

Escrow is a legal arrangement in which an asset (often money, but sometimes other property such as art, a deed of title, website, or software source code) is delivered to a third party (called an escrow agent) to be held in trust pending a contingency or the fulfillment of a condition or conditions in a contract such as payment of a purchase price. Upon that event occurring, the escrow agent will deliver the asset to the proper recipient, otherwise the escrow agent is bound by his or her fiduciary duty to maintain the escrow account.

Not all escrow agreements impose the duties of a legal trustee on the escrow agent, and, in fact, in many such agreements, escrow agents are held to a mere gross negligence standard and benefit from indemnity and hold harmless provisions.

While escrow is best known in the United States in the context of real estate (specifically in mortgages where the mortgage company establishes an escrow account to pay property tax and insurance during the term of the mortgage), escrow companies are also commonly used in the transfer of high value personal and business property, like websites and businesses, and in the completion of person-to-person remote auctions (such as eBay).

Escrow is also known in the judicial context. So-called escrow funds are commonly used to distribute money from a cash settlement in a class action or environmental enforcement action. This way the defendant is not responsible for distribution of judgment monies to the individual plaintiffs or the court-determined use (such as environmental remediation or mitigation). The defendant pays the total amount of the judgment (or settlement) to the court-administered or appointed escrow fund, and the fund distributes the money (often reimbursing its expenses from the judgment funds).

In some jurisdictions, real estate brokers are considered to act as escrow agents when they accept deposits or earnest money for the purchase of real property. In many jurisdictions, the duties of such agents are codified.

Source code escrow agents hold source code of software in escrow just as other escrow companies hold cash. The highly valuable (and often secret) source code is only released by the agent to either party upon specific terms of the escrow agreement.

Escrow is also used in the field of Banking Equipment (such as Automatic Teller Machines - ATMs) and is the function which allows the machine to hold the money deposited by the customer separately, and in case he or she challenges the counting result, the money is returned.


Mortgage Guaranty Insurance Corporation

Mortgage Guaranty Insurance Corporation (a subsidiary of MGIC Investment Corporation) NYSE: MTG is the largest provider of private mortgage insurance in the United States.

Private mortgage insurance covers residential first mortgage loans and expands homeownership opportunities by enabling people to purchase homes with less than 20% down payments. It also facilitates the sale of low down payment and other mortgage loans in the secondary mortgage market, including to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

In addition to mortgage insurance, MGIC provides lenders with various underwriting and other services and products related to home mortgage lending.


Federal Housing Administration (FHA)

The Federal Housing Administration (FHA) was created as part of The National Housing Act of 1934. The goals of this organization are: to improve housing standards and conditions; to provide an adequate home financing system through insurance of mortgages; and to stabilize the mortgage market.

During the Great Depression, the banking system failed, causing a drastic decrease in home loans and ownership. At this time, most home mortgages were short-term (three to five years), no amortization, balloon instruments at loan-to-value (LTV) ratios below fifty to sixty percent. The banking crisis of the 1930’s forced all lenders to retrieve due mortgages. Refinancing was not available, and many borrowers, now unemployed, were unable to make mortgage payments. Consequently, many homes were foreclosed, causing the housing market to plummet. Banks collected the loan collateral (foreclosed homes) but the low property values resulted in a relative lack of assets. Because there was little faith in the backing of the U.S. government, few loans were issued and few new homes were purchased.

In 1934, the federal banking system was restructured. The National Housing Act of 1934 was passed and the Federal Housing Administration was created. Its intent was to regulate the rate of interest and the terms of mortgages that it insured. These new lending practices increased the number of people who could afford a down payment on a house and monthly debt service payments on a mortgage, thereby also increasing the size of the market for single-family homes. (Garvin 2002)

The FHA Today

In 1965, the Federal Housing Administration became part of the Department of Housing and Urban Development (HUD). Since 1934, the FHA and HUD have insured over 34 million home mortgages and 47,205 multifamily project mortgages. Currently, the FHA has 4.8 million insured single family mortgages and 13,000 insured multifamily projects in its portfolio. The Federal Housing Administration is the only government agency that is completely self-funded. It operates solely from its own income and comes at no cost to taxpayers. This department spurs economic growth in the form of home and community development.

FHA Mortgage Insurance

Mortgage insurance is available for housing loan lenders, protecting against homeowner mortgage default. For a small fee, lenders can obtain insurance for a value of ninety percent of the appraised value of the home or building. In the event of a mortgage default, this value is transferred to the FHA and the lenders receive a large percentage of their investment. The other ten percent is received from the original down payment for the home.

FHA Mortgage Loans

The Federal Housing Administration offers various types of housing loans. These include:

         Adjustable Rate Mortgages
Fixed Rate Mortgages
Energy Efficient Mortgages
Graduated Payment Mortgages
Mortgages for Condominium Units
Growing Equity Mortgages

In order to qualify for an FHA housing loan, applicants must meet certain criteria, including employment, credit ratings and income levels. The specific requirements are:

         Steady employment history, at least two years with the same employer.
Consistent or increasing income over the past two years
Credit report should be in good standing with less than two thirty day late payments in the past two years
Any bankruptcy on record must be at least two years old with good credit for the two consecutive years.
Any foreclosure must be at least three years old
Mortgage payment qualified for must be approximately thirty percent of your total monthly gross income


The creation of the Federal Housing Authority successfully increased the size of the housing market. By convincing banks to lend again, as well as changing and standardizing mortgage instruments and procedures, home ownership has increased from 40% in the 1930s to nearly 70% today. By 1938, only four years after the beginning of the Federal Housing Association, a house could be purchased for a down payment of only ten percent of the purchase price. The remaining ninety percent was financed by a twenty-five year, self amortizing, FHA-insured mortgage loan. After World War II, the FHA helped finance homes for returning veterans and families of soldiers. It has helped with purchases of both single family and multi-family homes. In the 1950s, 1960s and 1970s, the FHA helped to spark the production of millions of units of privately-owned apartments for elderly, handicapped and lower income Americans. When the soaring inflation and energy costs threatened the survival of thousands of private apartment buildings in the 1970s, FHA’s emergency financing kept cash-strapped properties afloat. In the 1980s, when the economy didn’t support an increase in homeowners, the FHA helped to steady falling prices, making it possible for potential homeowners to finance when private mortgage insurers pulled out of oil producing states.

The greatest effects of the Federal Housing Administration can be seen within minority populations and in cities. Nearly half of FHA’s metropolitan area business is located in central cities, a percentage that is much higher than that of conventional loans. The FHA also lends to a higher percentage of African Americans and Hispanic Americans, as well as younger, credit constrained borrowers. Because some feel that these groups include riskier borrowers, it is believed that this is part of the reason for FHA’s contribution to the home ownership increase.


United States Department of Housing and Urban Development (HUD)

The 'United States Department of Housing and Urban Development', often abbreviated HUD, is a Cabinet department of the United States government. Although its beginnings were in the House and Home Financing Agency, it was founded in 1965 to develop and execute policy on housing and cities. It has largely scaled back its urban development function and now focuses primarily on housing.

The department was established on September 9, 1965 when President Lyndon Johnson signed the Department of Housing and Urban Development Act (PL 89-174) into law. It stipulated that the department was to be created no later than November 8, sixty days following the date of enactment. The actual implementation was postponed until January 13, 1966, following the completion of a special study group report on the federal role in solving urban problems.

HUD has experimented with Enterprise Zones - granting economic incentives to economically depressed urban areas, but this function has largely been taken over by states. HUD is administered by the United States Secretary of Housing and Urban Development.

Larry Thompson, who served in senior positions for 25 years at HUD, has written A History of HUD, which he hopes will be of value to a wide audience interested in housing and community development.

Operating units

The major program offices are:

         Community Planning and Development: Many major affordable housing and homelessness programs are administered under Community Planning and Development. These include the Community Development Block Grants (CDBG), the HOME program, Shelter Plus Care, Emergency Shelter Grants (ESG), Section 8 Moderate Rehabilitation Single Room Occupancy program (Mod Rehab SRO), and Housing Opportunities for Persons with AIDS (HOPWA).
Housing: This office is responsible for the Federal Housing Administration; mission regulation of Fannie Mae and Freddie Mac; regulation of Manufactured Housing; administration of Multifamily housing programs, including Supportive Housing for the Elderly (Section 202) and Supportive Housing for Persons with Disabilities (Section 811); and Healthcare facility loan insurance.
Public and Indian Housing: This office administers the public housing, HOPE VI, and (Section 8) programs, and housing block grants for Indian tribes, Native Hawaiians and Alaskans.
Fair Housing and Equal Opportunity: This office enforces Federal laws against discrimination against minority households, families with children, and persons with disability.
Policy Development and Research (PD&R): This office is responsible for maintaining current information on housing needs, market conditions, and existing programs, as well as conducting research on priority housing and community development issues through the HUD USER Clearinghouse.
Government National Mortgage Association (Ginnie Mae)
Healthy Homes and Lead Hazard Control.

Accounting Problems at HUD

Susan Gaffney, Inspector General of HUD, testified before Congress in 2000 that she could not sign off on the fiscal 1999 audit because of "the undetermined effects of the conversion problems of the general ledger from the Program Accounting System [PAS] to HUD’s Central Account and Program System [HUDCAPS] during the fiscal year, the integrated state of HUD’s reconciliation efforts and their documentation for the general ledger accounts for the fund balance with Treasury, and the late manual posting of numerous and significant adjustments (some as late as Feb. 25, 2000) directly to the financial statements, for which we lacked sufficient time to test their legitimacy." See Gaffney's testimony documenting $17 billion of undocumentable adjustments in fiscal 1998 and $59 billion of undocumentable adjustments in fiscal 1999.


Notary Public Information

A notary public is an officer who can administer oaths and statutory declarations, witness and authenticate documents and perform certain other acts varying from jurisdiction to jurisdiction. Generally speaking, a notary public in the United States of America has powers that are far more limited than the role of a civil law notary in the rest of the world, with the exception of Louisiana. For the purposes of authentication, most countries require commercial or personal documents which originate from or are signed in another country to be notarized before they can be used or officially recorded or before they can have any legal effect.

In some countries and states, notaries are required to undergo specific training in the performance of their duties. Many must also first serve as an apprentice before being commissioned or licensed to practice their profession. Even licensed lawyers (such as barristers or solicitors) must go through additional specialized notarial training and apprenticeship, in many countries, before being allowed to practice the profession of a notary. A notary public commissioned in the United States of America is not an attorney-at-law unless also admitted to the bar. (Although some countries consider the profession of a civil law notary, itself, to be the practice of law. Many even have institutes of higher education issuing degrees in the field. In the United Kingdom, for example, a notary public can perform any task a solicitor or other lawyer can perform, as part of their notary public duties, with the sole exception of representing others before the courts, unless they are also licensed as a barrister.)

Notaries Public (also called "notaries" or "public notaries") hold an office which can trace its origins back to ancient Rome, when they were called scribae , tabellius or notarius. They are easily the oldest continuing branch of the legal profession, existing throughout the whole of the world.

The history of Notaries is set out in detail in Chapter 1 of Brooke's Notary (12th edition):

The office of a public notary is a public office. It has a long and distinguished history. The office has its origin in the civil institutions of ancient Rome. Public officials, called "scribae", that is to say, scribes, rose in rank from being mere copiers and transcribers to a learned profession prominent in private and public affairs. Some were permanent officials attached to the Senate and courts of law whose duties were to record public proceedings, transcribe state papers, supply magistrates with legal forms, and register the decrees and judgments of magistrates.

In the last century of the Republic, probably in the time of Cicero, a new form of shorthand was invented and certain arbitrary marks and signs, called "notae", were substituted for words in common use. A writer who adopted the new method was called a "notarius". Originally, a notary was one who took down statements in shorthand and wrote them out in the form of memoranda or minutes. Later, the title "notarius" was applied almost exclusively to registrars attached to high government officials, including provincial governors and secretaries to the Emperor.

Notwithstanding the collapse of the Western Empire in the 5th century AD, the notary remained a figure of some importance in many parts of continental Europe throughout the Dark Ages. When the civil law experienced its renaissance in medieval Italy from the 12th century onwards, the notary was established as a central institution of that law, a position which still obtains in countries whose legal systems are derived from the civil law.

The separate development of the common law in England, free from most of the influences of Roman law, meant that notaries were not introduced into England until later in the 13th and 14th centuries. At first, notaries in England were appointed by the Papal Legate. In 1279 the Archbishop of Canterbury was authorized by the Pope to appoint notaries. Not surprisingly, in those early days, many of the notaries were members of the clergy. In the course of time, members of the clergy ceased to take part in secular business and laymen, especially in towns and trading centres, began to assume the official character and functions of a modern notary.

The Reformation produced no material change in the position and functions of notaries in England. However, in 1533 the enactment of "the Act Concerning Peter's Pence and Dispensations" (The Ecclesiastical Licenses Act, 1533) terminated the power of the Pope to appoint notaries and vested that power in the King who then devolved it to the Archbishop of Canterbury who in turn devolved it to the Master of the Faculties.

Traditionally, notaries recorded matters of judicial importance as well as private transactions or events where an officially authenticated record or a document drawn up with professional skill or knowledge was required.

Common law jurisdictions

The duties and functions of notaries public are described in Brooke's Notary on page 19 in these terms:

"Generally speaking, a notary public [...] may be described as an officer of the law [...] whose public office and duty it is to draw, attest or certify under his official seal deeds and other documents, including wills or other testamentary documents, conveyances of real and personal property and powers of attorney; to authenticate such documents under his signature and official seal in such a manner as to render them acceptable, as proof of the matters attested by him, to the judicial or other public authorities in the country where they are to be used, whether by means of issuing a notarial certificate as to the due execution of such documents or by drawing them in the form of public instruments; to keep a protocol containing originals of all instruments which he makes in the public form and to issue authentic copies of such instruments; to administer oaths and declarations for use in proceedings [...] to note or certify transactions relating to negotiable instruments, and to draw up protests or other formal papers relating to occurrences on the voyages of ships and their navigation as well as the carriage of cargo in ships." [Footnotes omitted.]

A notary, in almost all common law jurisdictions, is a qualified, experienced practitioner trained in the drafting and execution of legal documents. (A notable exception being 48 of the 50 U.S. States and some parts of Canada.) Traditionally, notaries recorded matters of judicial importance as well as private transactions or events where an officially authenticated record or a document drawn up with professional skill or knowledge was required. Specifically, the functions of notaries include the preparation of certain types of documents (including international contracts, deeds, wills and powers of attorney) and certification of their due execution, administering of oaths, witnessing affidavits and statutory declarations, certification of copy documents, noting and protesting of bills of exchange and the preparation of ships' protests.

Significant weight attaches to documents certified by notaries. Documents certified by notaries are sealed with the notary's seal or stamp and are recorded by the notary in a register (also called a "protocol") maintained and permanently kept by him or her. These are known as "notarial acts". In countries subscribing to the Hague Convention Abolishing the Requirement for Legalization for Foreign Public Documents only one further act of certification is required, known as an apostille) and is issued by a government department (usually the Foreign Affairs Department or similar). For other countries an "authentication" or "legalization" must be issued by the Foreign Affairs Ministry of the country from which the document is being sent or the Embassy, Consulate-General or High Commission of the country to which it is being sent.


After the passage of the 1533 Act, which was a direct result of the Reformation in England, all notary appointments were issued directly through the Court of Faculties. The Court of Faculties is attached to the office of the Archbishop of Canterbury.

In England there are several classes of notaries. English notaries, not to be confused with commissioners of oaths, also acquire the same powers as solicitors and other law practitioners, with the exception of the right to represent others before the courts (unless also licensed as barristers) once they are licensed or commissioned notaries. There are also Scrivener notaries, who get their name from the Scriveners' Company; until 1999, when they lost this monopoly, they were the only notaries permitted to practice in the City of London.

The other notaries in England are either ecclesiastical notaries whose functions are limited to the affairs of the Church of England or other qualified persons who are not trained as solicitors or barristers but perfectly satisfy the Master of the Faculties of the Archbishop of Canterbury that they possess an adequate understanding of the law. Both the latter two categories are required to pass examinations set by the Master of Faculties. The regulation of notaries was modernized in the 1990s as a result of the Courts and Legal Services Act 1990, section 57.


In all Australian States and Territories (except Queensland) notaries public are appointed by the Supreme Court of the relevant State or Territory. A very few have been appointed as a notary for more than one State or Territory. Queensland, like New Zealand, persists with the archaic practice of appointment by the Archbishop of Canterbury acting through the Master of the Faculties.

Many Australian notaries are lawyers but the overall number of lawyers who choose to become a notary is relatively low. For example, in South Australia (a State with a population of 1.5 million), of the over 2,500 lawyers in that state only about 100 are also notaries and most of those do not actively practice as such. In Melbourne, Victoria, in 2002 there were only 66 notaries for a city with a population of 3.5 million and only 90 for the entire state. Compare this with the United States where it has been estimated that there are over 3 million notaries for a nation with a population of 296 million.

As Justice Debelle of the Supreme Court of South Australia said in the case of In The Matter of an Application by Marilyn Reys Bos to be a Public Notary [2003] SASC 320, delivered September 12, 2003, in refusing the application:

As a general rule, an applicant [for appointment as a notary] should be a legal practitioner of several years standing at least. Even a cursory perusal of texts on the duties and functions of a public notary demonstrates that a number of those functions and duties require at the very least a sound working knowledge of Australian law and commercial practice. In other words, the preparation of a notarial act plainly requires a sound knowledge of law and practice in Australia especially of the due preparation and execution of commercial and contractual instruments. It is essential that notaries in this State have a sufficient level of training, qualification and status to enable them efficiently and effectively to discharge the functions of the office.

Historically there have been some very rare examples of patent attorneys or accountants being appointed, but that now seems to have ceased.

However, there are three significant differences between notaries and other lawyers.

Firstly, the duty of a notary is to the transaction as a whole, and not just to one of the parties. In certain circumstances a notary may act for both parties to a transaction as long as there is no conflict between them, and in such cases it his or her duty is to ensure that the transaction that they conclude is fair to both sides.

Secondly, a notary will often need to place and complete a special clause or attach a special page (known as an eschatocol) on or to a document in order to make it valid for use overseas.

In the case of some documents which are to be used in some foreign countries it may also be necessary to obtain another certificate known either as an "authentication" or an "apostille" (depending on the relevant foreign country) from the Department of Foreign Affairs and Trade.

Thirdly, a notary identifies himself or herself on documents by the use of his or her individual seal. Such seals have historical origins and are regarded by most other countries as of great importance for establishing the genuineness of a document.

Their principal duties include:

         1. attestation of documents and certification of their due execution for use Australia and internationally,
2. preparation and certification of powers of attorney, wills, deeds, contracts and other legal documents for use in Australia and internationally,
3. administering of oaths for use in Australia and internationally,
4. witnessing affidavits, statutory declarations and other documents for use in Australia and internationally,
5. certification of copy documents for use Australia and internationally,
6. exemplification of official documents for use internationally,
7. noting and protesting of bills of exchange, and,
8. preparation of ships' protests.

Although it was once usual for Australian notaries to use a red embossed seal it is now common for them to use a red inked stamp that contains the notary's full name and the words "notary public". It is also common for the seal or stamp to include the notary's chosen logo or symbol.

In South Australia and Scotland, it is acceptable for a notary to use the letters "NP" after their name. Thus a South Australian notary may have "John Smith LLB NP" or similar on his business card or letterhead.

Australian notaries do not hold "commissions" which can expire. Once appointed they are authorized to act as a notary for life and can only be "struck off" the Roll of Notaries for proven misconduct.

All Australian jurisdictions also have Justices of the Peace (JP) or Commissioners for Affidavits who can witness affidavits or statutory declarations and certify documents. However they can only do so if the relevant affidavit, statutory declaration or copy document is to be used only in Australia rather than in a foreign country, with the possible exception of a few Commonwealth countries not including the United Kingdom or New Zealand except for very limited purposes. Justices of the Peace (JPs) are (usually) laypersons who have minimal, if any, training (depending on the jurisdiction) but are of proven good character. Therefore a US notary resembles an Australian JP rather than an Australian notary.

New Zealand

Unless excluded under dominion or colonial law, the Master of the Faculties formerly had authority to appoint notaries public in a dominion or colony. The admission of notaries in the Commonwealth was governed specifically by the Public Notaries Act 1833 (UK). The provisions of the Public Notaries Act 1801-43 requiring a notary to be a solicitor did not apply overseas, nor need a notary have a practicing certificate as a solicitor, or from the Court of Faculties.

The usual procedure followed is that the applicant lodges with the Court of Faculties a memorial counter-signed by local merchants, shipping companies, bankers and other persons of substance, which show the local need of a notary and the fitness of the applicant. They also lodge their certificate of admission as a solicitor. A fee accompanies the application. The applicant, with the support of two other notaries public, who vouch that the applicant is well skilled in the affairs of notarial concern, petitions the Master of the Faculties.

The chief consideration for the approval of an application is whether there is sufficient need in the district, regarding the convenience of bankers, ship-owners and merchants. The local society of notaries must be satisfied that a need exists for an additional notary in the area served by the applicant. Priority is given, as a matter of practice, to an applicant within the same firm, as a replacement in the case of the death of a notary, or where a practicing notary is reducing his or her workload because of age or infirmity.

The Master of the Faculties continues to appoint notaries overseas in the exercise of the general authorities granted by s 3 of the Ecclesiastical Licenses Act 1533 (Eng). In these cases he is guided by local considerations of public convenience.

United States

In the United States, generally speaking, a notary public is a person appointed by a state government (often the governor or the secretary of state of the state, or in some cases the state legislature) to serve the public as an impartial witness. Since the notary is a state officer, whether the jurisdiction is common law or civil law is determined on a state-by-state basis; Louisiana is the only civil law state.[1] In most states, only qualified persons can apply for such an appointment, called a commission. Qualifications vary from state to state, but states often bar people with certain types of criminal convictions and/or below a certain age from being appointed, and applicants usually must pass some type of relatively simple examination covering notary practices and law. The material for such exams is usually easily contained in a booklet. Some states also require a bond or insurance.

Notaries in the United States are much less closely regulated than notaries in civil law jurisdictions or in most other common law countries, typically because U.S. notaries have less authority. In the United States, a non-attorney notary may not offer legal advice or prepare documents (with the exception of Louisiana) and cannot recommend how a person should sign a document or even what type of notarization is necessary. In many cases, a notary cannot authenticate a copy of a document. The most common notarial acts in the United States are the taking of acknowledgements and oaths.

* An acknowledgment is an attestation by a notary that a person proved his or her identity to the notary's satisfaction; then either signed the document in question in the notary's presence or acknowledged that a signature on the document was their own; and that they signed intending to "execute," or put into legal effect, the document. States vary in the specific requirements for identification and whether the person need actually sign the document in front of the notary. The typical form for an acknowledgement is:

On the of .... in the year...before me, the undersigned, personally appeared ...personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.

A jurat is the official written statement by a notary public that he or she has administered and witnessed an oath or affirmation for an oath of office, or on an affidavit - that, is that a person has sworn to or affirmed the truth of information contained in a document, under penalty of perjury, whether that document is a lengthy deposition or a simple statement on an application form. The simplest form of jurat and the oath or affirmation administered by a notary are:

Jurat: "Sworn to before me this ........ day of ........, 20 ......"

Oath: "Do you solemnly swear that the contents of this affidavit subscribed by you is correct and true?"

Affirmation (for those opposed to swearing oaths): "Do you solemnly, sincerely, and truly, declare and affirm that the statements made by you are true and correct?"

In most cases, all of the acts of a notary must include a venue, or official listing of the place where they happened, usually in the form of the state and county, with the abbreviation "ss" for the Latin scilicet, "more particularly," often in this form:

State of .......)


County of.......)

The National Notary Association estimates the United States has 4.5 million notaries public.

Finding A Notary

Banks will often have a notary public on staff to notarize documents for their clients. In addition, mail box companies often have a Notary Public on hand with the fees varying by state. Most state web sites have online information on notary regulations and may provide resources on finding a notary as well. In certain states, government offices offer notary services with some states providing the service at no charge.

For individuals who are unable to travel to a notary, there are mobile notaries who travel to the individual to notarize the document. These mobile notary publics may be found in local phone directories as well as through search engine results.


A Maryland requirement that to obtain a commission, a notary declare his belief in God, as required by the Maryland Constitution, was found by the United States Supreme Court in Torcaso v. Watkins, 367 U.S. 488 (1961) to be unconstitutional. Historically, some states required that a notary be a citizen of the United States. However, the U.S. Supreme Court, in the case of Bernal v. Fainter 467 U.S. 216 (1984) (the Fainter case), declared that to be impermissible.

In the U.S., there are reports of notaries (or people claiming to be notaries) having taken advantage of the differing roles of notaries in common law and civil law jurisdictions to engage in the unauthorized practice of law. The victims of such scams are typically illegal immigrants from civil law countries who need assistance with, for example, their immigration papers and want to avoid hiring an attorney. Confusion often results from the mistaken premise that a notary public in the United States serves the same function as a Notario Público in Spanish-speaking countries (which are civil law countries, see below). Prosecutions in such cases are difficult, as the victims are often deported and thus unavailable to testify.


California notaries must take a 6 hour class before taking the notary exam. California anti-fraud law requires a thumbprint in the journal entry for certain types of transactions. Documents with blank spaces cannot be notarized (a further anti-fraud measure). California explicitly prohibits notaries from using the literal Spanish translation of their title. The use of a notary seal is required.

Certificates frequently used by California notaries include acknowledgments and jurats. An acknowledgment is a signed statement by the notary that the signer (1) personally appeared before the notary, (2) is personally known or was positively identified by the notary, and (3) acknowledged having signed the document. A jurat is a certificate stating that the signer (1) personally appeared before the notary, (2) is personally known or was positively identified by the notary (3) signed the document in the presence of the notary, and (4) took an oath or affirmation administered by the notary. The oath or affirmation is designed to compel truthfulness in a signer, through fear of the law or of God.


Florida Notary Public are appointed by the Governor to serve a four year term. New applicants and commissioned notary public must be bona fide residents of the State of Florida and first time applicants must complete a mandatory three hour online or in-person Notary Public Education class. Florida state law also requires that a notary public have a bond in the amount of $7,500.00, A bond is required in order to compensate an individual harmed as a result of a breach of duty by the notary. In other words, the bond protects a notary's client (not the notary). Applicants are submitted and paid through a state approved bonding agent. Florida is one of three states (Maine and South Carolina are the others) where a Notary Public can solemnize the rites of matrimony (Perform a marriage ceremony).


The Louisiana Notary is a civil law notary with broad powers, as authorized by law, usually reserved for the American style combination "Barrister/Solicitor" lawyers and other legally authorized practitioners in other states. A commissioned notary in Louisiana is a civil law notary that can perform/prepare many civil law notarial acts usually associated with attorneys and other legally authorized practitioners in other states, except, represent another person or entity before a court of law for a fee. Notaries are not allowed to give "legal" advice, but they are allowed to give "notarial" advice (i.e.) explain or recommend what documents are needed or required to perform a certain act and do all things necessary or incidental to the performance of their civil law notarial duties. They can prepare any document a civil law notary can prepare and, if ordered or requested to by a judge, prepare certain notarial legal documents, in accordance with law, to be returned and filed with that court of law.


Maine Notary Public are appointed by the Secretary of State to serve a seven year term. Maine is one of three states (Florida and South Carolina are the others) where a Notary Public can solemnize the rites of matrimony (Perform a marriage ceremony).[5]


Maryland Notary Public are appointed by the Secretary of State to serve a four year term. New applicants and commissioned notary public must be bona fide residents of the State of Maryland.


The Secretary of State is charged with the responsibility of appointing notaries by the provisions of Chapter 240 of the Nevada Revised Statutes. Nevada Notary Publics who are not also practicing attorneys are prohibited by law from using "notario", "notario publico" or any non-English term to describe their services. (2005 Changes to NRS 240)

Nevada notary duties: administer oaths or affirmations; take acknowledgments; use of subscribing witness; certify copies; and execute jurats or take a verification upon oath or affirmation.

New Jersey

Notaries are commissioned by the State Treasurer for a period of five years. Notaries must also be sworn in by the clerk of the county in which he or she resides. One can become a notary in the state of New Jersey if he or she: (1) is over the age of 18; (2) is a resident of New Jersey OR is regularly employed in New Jersey and lives in an adjoining state; (3) has never been convicted of a crime under the laws of any state or the United States, for an offense involving dishonesty, or a crime of the first or second degree, unless the person has met the requirements of the Rehabilitated Convicted Offenders Act (NJSA 2A:168-1). Notary applications must be endorsed by a state legislator.

Notaries in the state of New Jersey serve as impartial witnesses to the signing of documents, attests to the signature on the document, and may also administer oaths and affirmations. Seals are not required; many people prefer them and as a result, most notaries have seals in addition to stamps. Notaries may administer oaths and affirmations to public officials and officers of various organizations. They may also administer oaths and affirmations in order to execute jurats for affidavits/verifications, and to swear in witnesses.

Notaries are prohibited from pre-dating actions; lending notary equipment to someone else (stamps, seals, journals, etc); preparing legal documents or giving legal advice; appearing as a representative of another person in a legal proceeding. Notaries should also refrain from notarizing documents in which they have a personal interest.

New York

New York notaries are empowered to administer oaths and affirmations (including oaths of office), to take affidavits and depositions, to receive and certify acknowledgments or proof of deeds, mortgages and powers of attorney and other instruments in writing; to demand acceptance or payment of foreign and inland bills of exchange, promissory notes and obligations in writing, and to protest these (that is, certify them) for non-acceptance or non-payment. They are not empowered to marry couples, their notarization of a will is insufficient to give the will legal force, and they are strictly forbidden to certify "true copies" of documents. Every county clerk's office in New York must have a notary public available to serve the public free of charge.


A notary in the Commonwealth of Pennsylvania is empowered to perform seven distinct official acts: take affidavits, verifications, acknowledgments and depositions, certify copies of documents, administer oaths and affirmations, and protest dishonored negotiable instruments. A notary is strictly prohibited from giving legal advice or drafting legal documents such as contracts, mortgages, leases, wills, powers of attorney, liens or bonds.

South Carolina

South Carolina Notary Public are appointed by the Governor to serve a ten year term. All applicants before submitting their application to the Secretary of State must first have that application endorsed by a state legislator. South Carolina is one of three states (Florida and Maine are the others) where a Notary Public can solemnize the rites of matrimony (Perform a marriage ceremony). [6]


Utah requires that impression seals be used, and the seal must be in purple ink.


A Virginia notary is authorized to acknowledge signatures, take oaths, and certify copies of non-government documents which are not otherwise available, e.g. a notary cannot certify a copy of a birth or death certificate since a certified copy of the document can be obtained from the issuing agency.

Civil Law jurisdictions

The role undertaken by notaries in civil law countries is much greater than in common law countries. Notaries in the former countries frequently undertake work done in common law countries by the Titles Office and other Government agencies. The qualifications imposed by some countries is much greater. In Greece, for example, a practitioner must choose to be either a solicitor or a notary.

This should be contrasted with the Latin American notario who may be similar to an attorney at law or lawyer. A French notaire, a German Notar and an Italian Notaio register wills and other documents, and authenticates transactions of real estate.

In the few United States jurisdictions where trained notaries are allowed (such as Puerto Rico), the practice of these jurists is limited to non-judicial legal advice, property conveyancing and legal drafting. See civil law notary.


In Germany, the Notar (pl. Notare) (civil law notary) plays an important role in contractual agreements relating to special laws such as

         1. property law
2. land charge certification
3. law of succession
4. family law
5. corporate law.

The Notar has legal training equivalent to the training of a solicitor. They are appointed by State government and are authorized to certify deeds. They provide independent and impartial advice to contractual parties. Depending on the State, German notaries officiate either as a "single-profession notary" (i.e. their only profession is being a civil law notary), or as a "solicitor and notary" (i.e. a solicitor who may also act as civil law notary).

The notary drafts the deeds in accordance with German law and provides legal advice regarding a contract. They will read aloud the deed in front of all parties involved. The deed is signed by all parties and sealed by the notary. It is irrevocable.

In Germany, a notary is very important to daily business. All property transactions must be signed and sealed at the office of the notary public (§ 311 b of the German Civil Code).



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