C.H. Gopinatha Rao

Unlike in India, where real estate is in the unorganised sector, in the US there are strict laws governing realty transactions and agents, writes C.H. Gopinatha Rao.

The real estate business in India is an unorganised sector. Many feel the need for relevant laws to protect the public from fraud and stabilise land prices.

In the US, on the other hand, all 50 States, the district of Colombia and all Canadian provinces have laws that require real estate brokers and salespersons to be licensed practitioners.

At the Federal level, the Sherman Antitrust Law mandates specific penalties for illegal activities. Each State has its own antitrust laws that prohibit monopolies and restrictive contracts.

Title insurance is a contract that protects the property owner from losses arising from defects in the title.

Different types of housing

Single family home, apartment complex, condominium, cooperative, planned unit development, retirement community, high-rise development, converted use property, modular home, manufactured housing and timeshares.

Home ownership is a sign of financial stability, an investment that appreciates in value and provides federal income tax deductions, besides intangible benefits such as pride, security and a sense of belonging to the community.

Sources of information

Real estate agents, realty boards, house builders' association, remodelling contractors, insurance agents, banker or lender,

Planning Department, local newspapers and neighbours.

Licence laws

Although the licence laws are similar across different States, they differ in details such as the amount and type of pre-licence, and the educational qualificationrequired.

In all the States, applicants must pass an examination to ensure a minimum level of competency to do real estate business.

Laws affecting real estate

Law of Contract, General Property law, Law of Agency, Real Estate Licence Law, Environmental laws, Federal Regulations, Federal and State tax laws, and State Land Use and Zoning Laws.

One of the income tax benefits available to homeowners is deduction of mortgage interest payments with certain limitations and property tax from the federal income tax returns. Most homeowners will never need to pay capital gains tax on the property in which they reside.

Professional organisations

* National Association of Realtors (NAR), which is composed of State, regional and local associations. NAR also sponsors several affiliated organisations. The members subscribe to a code of ethics.

* National Association of Real Estate Brokers (NAREB) whose members, known as Realists, also adhere to a code of ethics.

* American Society of Appraisers.

* American Society of Home Inspectors.

The services of brokers can be used to identify the property while the attorney examines the title, and the Home Inspector gives a complete analysis, including spotting potential problems, recommending solutions and estimating the cost of repairs needed. The appraiser will evaluate the value of the property.

Agency

The Law of Agency governs the principal agent relationship. In single agency relationship, the broker or the agent represents one party — either the buyer or the seller. If the agent avails the services of other brokers, they become subagents of the principal agent.

Many States establish the responsibilities and duties of the parties.

Representing two parties, namely both buyer and seller, constitutes dual agency. This requires consent from both the buyer and the seller.

The brokers have certain duties and obligations to the consumers, who are entitled to fair and honest dealings, and to accurate information necessary to take a decision Some States have mandatory property disclosure laws.

It is better to bind the Home Inspector to provide some compensation in the event the inspector fails to note flaws that could result in costly problems for the buyer. In the case of condominiums, the inspector should check not only the unit for sale but also the common areas.

In the US, issues of radon levels and lead paints should also be dealt with. Radon is believed to be carcinogenic and lead paint is believed to affect the central nervous system.

Some common terms

`Land' includes the earth's surface, mineral deposits under the earth and the air above it.

`Real estate' includes all natural and human-made improvements on the land.

`Real property' describes real estate plus the bundle of legal rights associated with ownership.

Ownership of real estate is not absolute. The rights are subject to Government powers. The Government can acquire privately owned land for public use. The States enact legislations such as environmental protection laws and zoning ordinances. Taxes are imposed to raise Government funds.

Encumbrances against real estate can be liens, deed restrictions, easements, licences and encroachments.

An easement is the right acquired by one person to use another's real estate. A licence is permission to enter another's property for a specific purpose. An encroachment is an unauthorised use of another's real estate.

In States where water is scarce, water belongs to the State and is allocated to users who have permits.

The author is Former National President, Institution of Valuers.

© Copyright 2000 - 2009 The Hindu Business Line