Blog > What Is the Real Estate Business All About?

What Is the Real Estate Business All About?

by petersellsdc-comJuly 26, 2019

For many people, the process of buying and selling a house is full of mystery. They understand in general terms that it involves the transfer of property from one owner to another, but there are a number of intermediate steps that can be confusing to the novice. What is the role of a real estate agent? What is escrow? What is “real” property? What is the difference between commercial and residential property? These are just a few of the questions that people tend to ask prior to buying or selling a home for the first time.

Fortunately, the real estate business really isn’t as complicated as it may seem. You can also turn to a licensed agent who has the know-how to assist you in handling any challenges in the real estate industry that might arise. To help you better understand the ins and outs of real estate, we’ve put together the following overview of its basic concepts.

Man and woman entering an empty house for sale

What Is Real Estate?

What do we mean when we refer to real estate? What makes it “real”? Real estate is essentially an area of land plus any buildings or natural features that are considered permanent parts of it. Real estate, then, consists of the following:

  • Land
  • Houses, buildings, and other permanent structures
  • The area above the property
  • The area below the property (underground)
  • Various legal rights linked to all of the above

The term “real estate” can be traced back to the 17th century, and it refers to the “actual” or tangible nature of this type of property.

Real Estate and Personal Property

Real estate is not the same as personal property. What is the difference? It all has to do with whether a particular asset is fixed or immovable. Any feature of the property that cannot be moved (or could not without extraordinary effort) is considered part of the estate. A house located on the land is therefore considered real estate, as are any trees, fences, and other man-made structures on the property.

However, the furniture inside the house is not considered part of the estate; it is the personal property of its owner. Automobiles, outdoor trampolines, and similar possessions also fall under the category of personal property, and usually they will not be sold along with the estate.

How Big Is the Real Estate Industry?

According to one report, all the real estate in the world is worth $217 trillion, with residential property making up around 75% of it. In the U.S., real estate construction added $1.15 trillion to the nation’s economy—that’s 6.2% of the GDP.

Different Types of Real Estate

Real estate can be divided into four distinct types:

Commercial – This category covers structures, and the land they are built on, that are used for business purposes (excluding industrial facilities). Real estate in this category can be subdivided into various types:

  • Office buildings – These range from single-tenant to multi-tenant buildings. High-rise properties and skyscrapers also fall under this classification, as do medical facilities. Office real estate is often further divided into three subcategories Class A (high rent), Class B (medium rent), and Class C (low rent).
  • Hotels – Establishments that provide short- or long-term occupancy that is intended primarily for travelers fall under this heading. Hotel real estate includes independently operated facilities as well as those that are part of a chain.
  • Apartment buildings – These include high-rise, mid-rise, senior living, and low-income subsidized housing. Because they generate income for their owner, apartment buildings and related facilities are usually not classified as residential real estate.
  • Retail facilities – This category covers supermarkets and similar types of stores. These can be single-tenant (e.g., Walmart) or multi-tenant (e.g., strip malls).
  • Educational facilities – Private and public schools as well as universities fall under this category.

Residential – This category has to do with structures that people live in. They include single-family houses, townhouses, condos, duplexes, vacation homes, and most other places of residence. Residential property that is offered for sale can be newly built homes or older domiciles.

Industrial – This category encompasses warehouses, manufacturing facilities, research centers, and similar types of buildings.

Vacant land – Land that has not yet been developed for real estate or where existing structures have been demolished fall under this category.

There are other types of real estate that may not comfortably fit into any of the above-mentioned categories, such as farms, ranches, and churches.

Man and woman shaking hands for real estate house deal

Agents and Realtors

It’s common to hear people refer to agents and Realtors as if these two terms were one and the same, but this is not the case. These terms have specific meanings that are distinct from each other.

Agent – In the real estate business, an agent is an individual who is authorized to facilitate the buying and selling of property. To perform these duties legally, the agent must obtain a license from the state in which they practice. The process of issuing real estate licenses varies by state, but it generally involves taking special classes and passing a state-administered examination.

In addition to adhering to a code of professional behavior, individuals also must renew the license on a periodic basis to retain the right to perform their duties as an agent. In many cases, the agent must take continuing education classes every year or so—the types of courses and total number of required credit hours also vary by state—from an accredited university or technical school in order to keep their license valid.

Realtor – Contrary to what many people assume, “Realtor” is not simply another same for a real estate agent. A Realtor (a trademarked word that should always be capitalized) is simply a member of the National Association of Realtors (NAR), the largest real estate trade association in the U.S. Its membership—over 1.3 million individuals as of 2018—is composed of real estate agents and various other licensed professionals involved in the industry.

A real estate agent does not have to be a Realtor in order to work in the industry. Realtors must conform to the NAR’s Code of Ethics and Standards of Practice, which consists of 17 Articles governing different aspects of their professional duties.

Duties of a Real Estate Agent

Real estate agents facilitate transactions that involve the transfer of property from one party to another. Many agents specialize in representing either buyers or sellers, while others can offer both buyer and seller services. An agent who provides seller services is engaged in the business of finding and negotiating with a buyer for the client’s property. An agent who offers buyer services is engaged in the business of a finding and negotiating with a seller who owns property that meets the client’s specifications.

The agent’s job is to help the client get the best price for the property in question, and to protect the client’s best interests while the property is in escrow (i.e., managed by a third party who handles the funds during the transaction).

The agent has various fiduciary responsibilities to their client. These include:

  • Managing the client’s funds properly.
  • Keeping the client’s personal info confidential.
  • Adhering to all applicable laws while dealing with the client.
  • Revealing any information to the client that might help them obtain the best results.
  • Loyalty to the client.

For Sale by Owner sign in front of house

Contact Peter Ferguson of Compass

A licensed agent and Realtor (ID: 654669) serving Maryland, northern Virginia, and the District of Columbia, Peter Ferguson offers a wide range of real estate services, from helping prospective homeowners buy their first house to aiding sellers who want to maximize the profit on their existing property. For the best real estate agent services available in the area, contact Peter Ferguson today.

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