The Law and Real Estate

With the exception of medicine, real estate is the only other human endeavor that is intricately intertwined with the law and all its trappings. Real estate involves huge amounts of money. It also involves properties for living as well as for carrying out business transactions. The buyer and the seller are not the only ones involved in the sale of a property; there are, in fact, many hands in the pie, so to speak. In short, real estate is a complicated business.

Property law is an essential aspect that anyone in the real estate business needs to be aware of. Dating back to 3000BC, property law has evolved in the last four thousand years. For every aspect of a property, there is a corresponding array of laws. There are laws governing financing, buying and selling, tenancy and use, environmental aspects and tax considerations. For the majority of the world's population, these laws are as clear as mud.

However, investors need to become familiar with property law in order to achieve long term profitability in the real estate business. And a good place to start learning about property law is the contract. A contract involves a mutual agreement between two parties. In a real estate contract, "mutual assent" is a requirement. Each party needs to agree to an exchange, and this agreement should be in writing.

A contract identifies the parties, the property that is being exchanged and the amount it is being exchanged for. A contract also must include a consideration (a benefit that induces a promise) in order for it to be enforceable. The consideration aspect of the contract involves the determination of the worth of the property to both the seller and buyer. This determination of worth is done through appraisals and other means. Both parties must sign the contract. They must be of legal age and of sound mind for the contract to be valid.

When an investor buys and quickly re-sells a property, he is "flipping," a common practice in the real estate world that is perfectly legal. However, flipping a property becomes illegal when an investor a run down property at a cheap price and then convinces a mortgage broker to doctor documents in order to jack up the price of the property. Government bodies that guarantee loans on such properties usually will take an interest in the transaction and look into it.

In the case of commercial properties, there are a whole other sets of laws and regulations that cover their exchange and use.

Tenancy also involves property laws. For instance, in nearly all countries, tenants have certain rights that are independent of their contractual clauses. In China, legislation that defines and protects a tenant's property rights was recently adopted. Even in triple-net leases (an arrangement wherein the lesses takes on responsibility over the maintenance, repairs, insurances, etc. of the property), landlords have to do more than just collect their check payments from their tenants each month.

In the case of lenders, they are government by laws that specify how much can be loaned, what documents must be drawn for the property title, and even what advertising offering financing can be made.

As if real estate investment isn't complex enough because of property law, tax law adds another layer to the complexity. For instance, tax liens are a given in the sale of any property. Having to clear tax liens before a title can be passed is a common real estate investment activity.

So if you are thinking of going into real estate investing, remember this: Know the laws involved in real estate. Knowing the law will keep you from making costly real estate investment mistakes in the future.