Pricing a Property

Probably the single most important factor to decide when listing a home
for sale is the listing price. We all know that if a home is priced right, it
will sell relatively quickly.
It would be easy for inexperienced sellers to overprice their property.
After all, everyone wants to make a nice profit on the sale of their
home. However, if the home is overpriced, it could lose its appeal after
the first couple of weeks of showings and end up sitting on the market
for some time. Typically, demand and interest fade after 3 or 4 weeks.
On the other hand, it could be just as easy for sellers to underprice their
home. If there are comparable homes for sale in the area and they have
not sold, the seller could easily assume the homes are overpriced and,
in an attempt to get a "quick sale," the seller could choose a price that
is too low.
Even though it is ultimately up to the seller to decide on the final listing
price, it is the listing agent's responsibility to provide the seller with
advice and information to help the seller arrive at the best figure.

Appraisal vs. CMA

As we said previously, it's up to sellers to decide what they want to set
as the asking price for their property. However, sellers usually depend
on the expertise of the agent to help them arrive at a reasonable price.
The two common methods that can help determine a reasonable asking
price for a property are as follows:
 Appraisal. An appraisal is an opinion or estimate of the value of a
property as of a specific date. Appraisals are most often done for
lenders to help set a maximum amount for the loan a buyer is
hoping to get to purchase a property. Appraisals are done by
professional appraisers who are licensed to perform this activity.
 Comparative market analysis (CMA). Also referred to as a
competitive market analysis. A CMA is similar to, but it is not an
appraisal. A CMA is done by a listing agent to give the seller
information about the sales prices of similar homes, so the seller
can decide how much to ask for the property.

In either case, a seller is trying to find out the property's fair market
value, which is the most probable price a property should bring in an
open and competitive market.

Types of Value
Appraisals are done to determine value. There are a number of different
types of value, so the purpose of the appraisal will reflect the type of
value sought.
Types of value include, but are not limited to, the following:
 Use value
 Exchange value
 Market value
 Reproduction value
 Replacement value
 Salvage value
 Assessed value
 Condemned value
 Depreciated value
 Rental value
 Insured value
 Mortgage value

The use value of a property is the value the property holds for the
owner. Several factors contribute to this value.
  Income. Property can produce income through leases. This is
important to value because investors will pay for the income flow
that ownership brings them.
 Appreciation. Property generally increases in value over time.
This is another investment benefit for an owner.
 Use. The specific use of a property (residential, agricultural,
commercial, or recreational) determines its value and its benefits.
 Tax benefits. Property ownership could yield benefits in capital
gains, tax losses, tax deferrals, and depreciation for an owner.

The exchange value of a property results from comparing the property

to other similar properties on the open market. This is the type of value
that real estate agents are concerned with.

Market Value
It can be said that the market value of a property is the highest price a
buyer is willing to pay and the lowest price the seller will accept under
these conditions.
 The market is open and competitive.
 The property is exposed in the market for a reasonable period of
time.
 Both buyer and seller are fully aware of market conditions.
 Both buyer and seller are acting with no undue pressure.
 Buyer and seller are not related.
 Both buyer and seller are aware of the property's potential for
use.
 Both parties are aware of the property's assets and defects.
 The sale is a cash transaction.
 The property has a marketable title.
 The price does not include hidden aspects, such as service fees,
credits, or special financing terms.

When dealing with and counseling sellers, licensees need to be

concerned with market value.

Value vs. Price or Cost

There is an important distinction between market value and selling
price. The market value of a property is an opinion of the value of a
property based on analyzing data collected about the property. The
analysis could include information about potential income and expenses
to the property in addition to the analysis of comparable properties that
have sold previously.
The selling price of a property is the actual sales price. It would be
ideal if the market value and the selling price were the same. However,
in some circumstances, they are not. If a seller is forced to sell because
of a transfer, for example, the property could sell well below market
value. On the other hand, a property could sell above market value if
the price of the property includes personal property.
Oftentimes people have the misconception that market value
and cost are the same. This could be true with new construction: The
cost to build a home may be equivalent to its market value. However, in
many other cases, cost and market value don't correspond. For
instance, a homeowner can spend $25,000 to finish the basement, only
to discover that they have not added $25,000 to the value of the home
and may never be able to recoup that cost at resale.

Check Your Understanding

Answers
1. What is the single most important factor to decide when listing a
home for sale and why?

The listing price, because if a home is priced right, it will sell

relatively quickly.

2. What two common methods can help determine a reasonable

asking price for a property?

Appraisal
CMA
3. What factors contribute to the use value of a property?

Income. Property can produce income through leases.

Appreciation. Property generally increases in value over time.
Use. The specific use of a property (residential, agricultural,
 commercial, or recreational) determines its value and its
benefits.
Tax benefits. Property ownership could yield benefits in
capital gains, tax losses, tax deferrals, and depreciation for
an owner.
4. Explain the difference between market value and selling price.

Market value is an opinion of the value of a property based

on analyzing data collected about the property. The selling
price of a property is the actual sales price and can in some
circumstances, be greater or lesser than market value.

Accuracy of Listings

Ultimately, it is the real estate agent and employing brokerage company

with the most financial and legal liability as it relates to incorrect
information about property listings online in some type of a “listing
portal” or “syndicator” service. If the agent posts a listing on the most
local multiple listing service (MLS) site that correctly shows that the
home has three bedrooms, two baths, and 2,000 square feet, the agent
can still be liable if other online listing sites incorrectly post the listing
as having four bedrooms instead of three bedrooms.
A “listing portal” is a reference to sites like www.realtor.com , Trulia, and
Zillow. A “syndication” listing site may apply to companies such as
Postlets, ListHub, or other sites that send listings to multiple portal sites
around Kentucky and the rest of the nation. Other times, agents might
post their listings on Facebook, YouTube, Google+, Pinterest,
Instagram, Twitter, or Craigslist.
A survey completed by Discover Home Loans back in 2014 found that
only 22% of consumers polled believed that online real estate listings
were always accurate. In the same survey, upward of 83% of
respondents used Zillow and Trulia to find listings. These two sites
were visited much more than any other online resource. One of the
main problems for non-real estate listing sites was that the property
details aren’t updated or changed as often as MLS sites. Many times,
the property listings have expired or sold, which can be quite frustrating
to viewers interested in the property. These same unhappy site visitors
may later decide to file complaints with various state agencies about
the incorrect property listings that are outdated or filled with inaccurate
property descriptions.
In recent years, REALTOR.com® has said that they have the largest
and most accurate database of listings anywhere in the United States,
with direct feeds from at least 864 MLS sites. Most listings are updated
every 15 minutes, whereas the remainder are updated at least every 24
hours. For real estate agents, the odds are much higher that their
property details will be more accurate on individual MLS sites and the
main www.realtor.com website than on other consumer syndication
sites. Even if agents do not intentionally make a mistake in regard to
the property listing details about the subject property, they must make
sure that any and all online sites that include the agent’s listings are
completely accurate.

Listings and Intellectual

Property Rights
To better understand how copyright and intellectual property rights are
protected, let’s first review the origins of federal copyright laws dating
back to the Copyright Law of the United States of America and
Related Laws Contained in Title 17 of the United States Code.
Some of the more important quotes related to real estate licensees
include the following guidelines within the same Copyright Law listed
here.
A “collective work” is a work, such as a periodical issue, anthology, or
encyclopedia, in which a number of contributions, constituting separate
and independent works in themselves, are assembled into a collective
whole.
A “compilation” is a work formed by the collection and assembling of
preexisting materials or of data that are selected, coordinated, or
arranged in such a way that the resulting work as a whole constitutes
an original work of authorship. The term “compilation” includes
collective works.
A “computer program” is a set of statements or instructions to be used
directly or indirectly in a computer in order to bring about a certain
result.
“Copies” are material objects, other than phonorecords, in which a work
is fixed by any method now known or later developed, and from which
the work can be perceived, reproduced, or otherwise communicated,
either directly or with the aid of a machine or device. The term “copies”
includes the material object, other than a phonorecord, in which the
work is first fixed.
“Copyright owner,” with respect to any one of the exclusive rights
comprised in a copyright, refers to the owner of that particular right.
A work is “created” when it is fixed in a copy or phonorecord for the first
time; where a work is prepared over a period of time, the portion of it
that has been fixed at any particular time constitutes the work as of that
time; and where the work has been prepared in different versions, each
version constitutes a separate work.

Listings and Intellectual

Property Rights
A “derivative work” is a work based upon one or more
preexisting works, such as a translation, musical arrangement,
dramatization, fictionalization, motion picture version, sound
recording, art reproduction, abridgment, condensation, or any
other form in which a work may be recast, transformed, or
adapted. A work consisting of editorial revisions, annotations,
elaborations, or other modifications, which, as a whole,
represent an original work of authorship, is a “derivative work.”
A “digital transmission” is a transmission in whole or in part in
a digital or other nonanalog format.
To “display” a work means to show a copy of it, either directly
or by means of a film, slide, television image, or any other
device or process or, in the case of a motion picture or other
audiovisual work, to show individual images nonsequentially.
An “establishment” is a store, shop, or any similar place of
business open to the general public for the primary purpose of
selling goods or services in which the majority of the gross
square feet of space that is nonresidential is used for that
purpose, and in which nondramatic musical works are
performed publicly. The term “financial gain” includes receipt,
or expectation of receipt, of anything of value, including the
receipt of other copyrighted works.
A work is “fixed” in a tangible medium of expression when its
embodiment in a copy or phonorecord, by or under the
authority of the author, is sufficiently permanent or stable to
permit it to be perceived, reproduced, or otherwise
communicated for a period of more than transitory duration. A
work consisting of sounds, images, or both, that are being
transmitted, is “fixed” for purposes of this title if a fixation of
the work is being made simultaneously with its transmission.

CHAPTER START

Listings and Intellectual

Property Rights
A “joint work” is a work prepared by two or more authors with the
intention that their contributions be merged into inseparable or
interdependent parts of a unitary whole.
“Literary works” are works, other than audiovisual works,
expressed in words, numbers, or other verbal or numerical
 symbols or indicia, regardless of the nature of the material objects,
such as books, periodicals, manuscripts, phonorecords, film,
tapes, disks, or cards, in which they are embodied.
“Publication” is the distribution of copies or phonorecords of a work
to the public by sale or other transfer of ownership, or by rental,
lease, or lending. The offering to distribute copies or phonorecords
to a group of persons for purposes of further distribution, public
performance, or public display, constitutes publication. A public
performance or display of a work does not of itself constitute
publication.
To perform or display a work “publicly” means—
(1) to perform or display it at a place open to the public or at any
place where a substantial number of persons outside of a normal
circle of a family and its social acquaintances is gathered; or
(2) to transmit or otherwise communicate a performance or display
of the work to a place specified by clause (1) or to the public, by
means of any device or process, whether the members of the
public capable of receiving the performance or display receive it in
the same place or in separate places and at the same time or at
different times.
Source: http://www.copyright.gov/title17/92chap1.html#101

Real Estate Licensee’s

Protected Intellectual Rights
Real estate agents have a duty to protect both themselves and their
clients by actively managing the written listing content posted online or
offline. Agents who fail to take the most appropriate action to safeguard
their intellectual content could be at risk for personal liability. This is
especially true if a court of law, or some other legal entity, determined
that the agent acted in a negligent manner.
Prior to the Internet and social media boom, licensed agents didn’t have
to worry as much about copyright laws and intellectual property rights.
However, in today’s digital world, it can be quite easy and free to
circulate property information worldwide at just the touch of a button.
Agents not only need to worry about their written, posted information,
they also need to worry about obtaining permission from third-party
vendors who contributed to their listing information, such as the
photographer or video camera artist who took interior and exterior
photos and films of the subject property. In many cases, the agent
needs to have written approval and permission from the photographer
prior to sharing the information publicly.
Listing agents and their employing brokers must also obtain written
permission and preapproval from the client to share content information
on their property. In addition, the MLS may require copyright permission
from one or more parties prior to posting the listing information on the
MLS or elsewhere.

Intellectual Property Rights

and Legal Disputes
At the heart of most legal disputes regarding intellectual property rights
is the distinction of short- and long-term trademarks, copyrights, and
patents. For any legal case to proceed within Washington state boards
or in federal courts, plaintiffs and defendants need to understand what
the dispute is about.
Let’s review the official definitions for trademarks, copyrights, and
patents as defined by the U.S. Patent and Trademark Office (USPTO).
A trademark is a word, phrase, symbol, and/or design that identifies and
distinguishes the source of the goods of one party from those of others.
A service mark is a word, phrase, symbol, and/or design that identifies
and distinguishes the source of a service rather than goods. Think
brand names, slogans, and logos.
The term "trademark" is often used to refer to both trademarks and
service marks. Unlike patents and copyrights, trademarks do not expire
after a set term of years. Instead, a trademark can last forever, as long
as the owner continues to use the mark in commerce to indicate the
source of goods and services.
Must all marks be registered? No, but federal registration has several
advantages, including a notice to the public of the registrant's claim of
ownership of the mark, a legal presumption of ownership nationwide,
and the exclusive right to use the mark on or in connection with the
goods or services set forth in the registration.

Intellectual Property Rights

and Legal Disputes, continued
A patent is a limited duration property right relating to an invention,
granted by the USPTO in exchange for public disclosure of the
invention. Patentable materials include machines, manufactured
articles, industrial processes, and chemical compositions. The duration
of patent protection depends on the type of patent granted: 14 years for
design patents and 20 years for utility and plant patents.
A copyright protects works of authorship that have been tangibly
expressed in a physical form. Think songs, books, movies, and works of
art. The duration of copyright protection depends on several factors.
For works created by an individual, protection lasts for the life of the
author, plus 70 years. For works created anonymously,
pseudonymously, and for hire, protection lasts 95 years from the date of
publication or 120 years from the date of creation, whichever is shorter.
The Trademark Operation of the USPTO handles trademarks only. For
information on patents, please visit Patents or contact 800-786-9199.
For information on copyrights, please contact the U.S. Copyright
Office (a division of the Library of Congress).”
Source: http://www.uspto.gov/trademarks-getting-started/trademark-
basics/trademark-patent-or-copyright
Linked here is a video entitled Basic Facts: Trademarks, Patents, and
Copyrights provided by the USPTO that simplifies how to protect parties
from legal disputes over intellectual property rights issues:
https://www.youtube.com/watch?v=AQpaKJjEQR8

Intellectual Property Rights:

Example
A high percentage of intellectual property rights legal cases are
likely to be handled out-of-state in federal courts. Let’s review
a court decision involving a nationally recognized real estate
firm named RE/MAX International, Inc. and their legal dispute
involving their trademarked logo design. The court decision is
as follows: RE/MAX International Inc. v. Trend Setter LLC U.S.
District Court for the Southern District of Texas.
The highlights of this case involved the trademarked red,
white, and blue rectangular design logo used by the various
RE/MAX offices across the United States and abroad. Another
Texas-based real estate firm named Trend Setter Realty used a
color scheme and design deemed “too similar” to RE/MAX’s
trademark international symbol. In addition, Trend Setter
Realty attempted to offer similar services to its clients and
agents.
The court ruled that the Trend Setter Realty brokerage firm
violated or infringed upon RE/MAX’s trademark protected
symbols and color schemes. Concurrent with the case ruling
that sided with RE/MAX International, Inc., the court ordered
the immediate dissolution of Trend Setter Realty’s logo.
Think About This
 Should brokerages seek legal advice before selecting
styles for their sign?
  Would a patent attorney be helpful with reducing
copyright infringement risks for agents who are planning
to select a new brokerage name?
 Was RE/MAX justified with making a legal complaint?
 What would have been a better plan to select a logo and
color style?

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Minimizing Infringement on
Intellectual Rights
One of the easiest ways for a licensed agent or an unlicensed real
estate professional to reduce the potential risks associated with the
violation of another person’s third-party intellectual rights is to
obtain written approval from the party who provided the listing, a
portion of the written content, photos or videos, and other types of third-
party reports.
The Digital Millennium Copyright Act (DMCA) of 1998
This law was written to protect the copyrights of owners whose property
is shown on the Internet without permission.
Real estate is a busy business where many salespeople and brokers
may hire or direct an individual to perform certain duties while selling or
leasing property. Putting together ads, creating websites, updating
blogs and Internet chatter about a property, and even hiring a
photographer to photograph properties.
Who Do These Projects Belong to?
The DMCA protects the owners of intellectual material and the
Copyright office can invoke fines from $500,000 and jail time for a first-
time offender.
A broker or salesperson (whoever is advertising online) can protect
themselves from lawsuits with a “safe harbor” registration on the U.S.
Copyright site.
If the U.S. TM Office is notified that your website or online
advertisements contain an object that they have ownership of, the
registration of an individual with the copyright office and a point of
contact will allow for contact with the individual with the authority to
have the information or object removed from the Internet.
Using information and photos (especially those on the world wide web)
without the site owner’s permission could be an infringement on the
Digital Millennial Copyright Act and subject to fines. Every Internet site
has a spider (search tool) that tracks every photo and piece of
information that is stored on the web.
Do NOT scrape or borrow photos or any other online data without the
permission of the owner of the material.
Websites should include a disclaimer such as:
[Insert your name or brokerage name] has made every effort to obtain
the information regarding these listings from sources deemed reliable.
We, however, cannot warrant that the listings displayed are accurate
nor that their source is permitted by the Digital Millennial Copyright Act.
Further, we cannot warrant the complete accuracy of this information
from errors, omissions, change of price, rental or other conditions, prior
sale, lease or financing, or withdrawal without notice. Please contact
one of our sales specialists for more timely information.
Adding this information to any website page that provides downloaded
Internet data exchange (IDX) listings from an MLS or outside vendor
protects the broker and the salesperson. If the broker is registered on
the DMCA site and provides the information in their policy manual, then
if a salesperson breaks the law and is not registered, the broker is
protected from punishment. This is known as “Safe Harbor.”
Registration by brokers should be an immediate step whenever a
new website is created, and re-compliance every 3 years is
required. Go to https://www.copyright.gov/dmca-directory/

Third-Party Inspection Reports

Detailed and lengthy inspection reports for residential and commercial
real estate properties will most likely have the words “copyright
protected” throughout their reports. Office development transactions,
land development deals, and/or individual home sales transactions will
likely have several third-party inspection reports such as land surveys,
environmental risk assessments, appraisals, home inspection reports,
and natural hazard reports.
Licensees who choose to hand out these reports to third-party
prospects or to post publicly online may be at risk of violating copyright
and intellectual property rights (state and federal) if they have not
received written permission from the persons who originally wrote the
reports.

Protecting an Agent’s Content

From Third Parties
Real estate professionals who wish to protect their written content
should include public notices such as “copyright protected information,”
“trademark protected brands or names,” “copyright and trademarks
pending,” and “written preapproval required from licensee prior to
distributing this information to others.”

Steps in the Market Analysis

The most important task a broker needs to perform with the seller-client
is to give a market analysis of what the property is worth. Many times, a
seller has an inflated idea of what their property should sell for.
Occasionally, the seller will have a lower price in mind than what the
market will actually bring. It is the job of the broker to make sure that
the owner understands how much can be obtained in the sale of the
property.
A market analysis falls under the category of opinion. Brokers train their
licensees on how to create a market analysis so that the client can
make a more informed decision about what to offer or what to accept
for a property. If brokers and their affiliated licensees are members of
the MLS, there is usually a training class on how to use that information
to know what similar properties are selling for.
The market analysis should be shared with a seller during the listing
meeting. However, it should NOT be left with the seller, unless the
seller has decided to go ahead with the listing and has signed the
listing agreement.
The CMA should not be given to a buyer until there is an agency
agreement between the buyer and the broker. This will work to the
advantage of the licensee. Buyer-customers will ask for a market
analysis. The licensee with the buyer should let the buyer know that
CMAs can only be given to clients and then suggest that the buyer
could become a client. Of course, there would be no need to create a
CMA for every property the buyer sees. Buyers only need one done on
the property that they are considering purchasing. Buyers could then
make better decisions about what to offer for the property.
Note. We'll talk more about working with buyers in the upcoming
chapters of this course.

How Much Profit?

To answer the sellers' foremost question about how much profit they
will get from a sale, the sellers need to determine the listing price–with
the licensee's help.
In order to lay the groundwork for determining a realistic listing price,
the licensee should share the CMA with the seller. Often, a seller's
reaction is surprise–thinking that the homes shown on the CMA sold at
prices that were too low.
The licensee needs to explain to the sellers that those homes listed
with a price above the market value are the ones that have been on the
market for a considerable length of time. Conversely, those homes that
were listed close to their actual selling price or market value sold
quickly.
The seller certainly has the right to establish the listing price for the
property. However, an unrealistic inflated price will make it difficult for
the brokerage to market the property. In some cases, the broker may
even refuse to accept the listing at all.
It is critical for a property to be priced accurately. The most
common reason a property fails to sell is because it was overpriced.
The practice of listing a property a little higher than the determined
market value to allow room for negotiation is perfectly acceptable and a
common real estate practice.
When comparing the sellers' property to the CMA properties, factors
such as proximity, physical similarity, and date of sale need to weigh
into the discussion.
Licensees do nobody any favors when they knowingly list a property
much higher than what the market value indicates. Even though
technically a property can be listed at any price, deliberately misleading
a client as to the market value of the property to guarantee a listing is
a license law violation. This practice is commonly referred to as
"buying" a listing.
If a seller is looking for a quick sale to be concluded within a 60-day
time period, this heightens the necessity of pricing the property
accurately.

Estimating a Seller's Net

As we said, sellers are very anxious to know what they might net from
the sale of their home. Doing a careful estimate will keep them from
having any unexpected surprises.
In most cases (because the licensee is counseling the sellers toward an
accurate and realistic listing price), the licensee should prepare the
estimate using the listing price as the estimated selling price. Then the
licensee would estimate all the costs the owners are apt to incur.
Remember, it's better to overestimate the costs just a bit so that if
there are any surprises, they will be pleasant ones.
Seller's Net Example
 Note. We'll discuss the closing costs typically paid by the sellers in
more detail in a later chapter of this course. So, for purposes of
this example, we'll just give you some figures to work with.
Jim and Karen Grand have listed their home at $240,000.
Figures:

Title Insurance Policy $600

Transfer Taxes $250

Inspections $450

Brokerage Fee (6%) $14,400

Current Loan Balance $75,000

Calculation:

Title Insurance Policy $600

Transfer Taxes $250

Inspections $450

Brokerage Fee (6%) $14,400

Total Estimated Costs $15,700

Current Loan Balance $75,000

 Total Loan Repayment $75,000

Estimated Selling Price $240,000

Less Total Estimated Costs - $15,700

Less Loan Repayment - $75,000

Estimate Seller's Net $149,300

Financing
Most sellers know that one of the most critical aspects of the sale of
their property is the buyer's ability to get financing. Having buyers
preapproved for a loan is certainly a plus, but sellers need to realize
that nothing is set in stone until the sale is closed and the check is in
hand.
With that in mind, it is a wise idea to discuss other possible alternative
financing arrangements with the sellers–if only to make the sellers
aware that such alternatives exist. Whether or not alternative financing
arrangements can or will work may be based on how much equity a
seller has in the property or what their own financial capability may be,
but these options are worth discussing and could be worth further
exploration down the road.
Alternative forms of financing worth bringing to the sellers' attention are
as follows:
 Installment sales contract
 Lease purchase
 Option to buy

Installment Sales Contract

An installment sales contract is also called a contract for deed, a land
contract, a conditional sales contract, and an agreement for deed . It is a
bilateral agreement between a seller, the vendor, and a buyer,
the vendee, in which the vendor defers receipt of some or the entire
purchase price of a property over a specified period of time.
When Deed Is Delivered
During the period, the seller retains legal title, and the buyer acquires
equitable title. The buyer takes possession of the property, makes
stipulated payments of principal and interest to the seller, and otherwise
fulfills obligations as the contract requires. The buyer also agrees to
pay real estate taxes and insurance premiums and to maintain the
repairs and upkeep of the property. At the end of the period, the
buyer pays the seller the full purchase price, and the seller deeds
legal title to the buyer.
Benefits to Buyer
A contract for deed offers a means for a marginally qualified buyer to
acquire property. In essence, the seller acts as the lender, allowing the
buyer to take possession and pay off the purchase price over time. A
buyer may thus avoid conventional down payment and income
requirements required by institutional lenders. During the contract
period, the buyer can work to raise the necessary cash to complete the
purchase or to qualify for a conventional mortgage.
Benefits to Seller
A contract for deed serves two primary purposes for a seller. First, it
facilitates a sale that might otherwise be impossible. Second, it may
give the seller certain tax benefits. The seller is not liable for capital
gains tax until the purchase price is received; therefore, the installment
sale lowers the seller's tax liability in the year of the sale.
In addition, many installment contracts contain a provision that allows
the seller to cancel the contract, keep all payments, and evict the buyer
if the buyer defaults. However, many states require the seller to refund
at least a part of the buyer's payments in that situation.

Lease Purchase: Lease Option

Lease Purchase
In a lease purchase arrangement, a tenant enters into two agreements
simultaneously–an agreement to purchase and a lease.
The tenant agrees to purchase the property but operates under the
lease until the terms of the purchase agreement are fully satisfied.
Often a part of the lease payment is applied to the purchase price until
one of the following happens.
 The price is reduced enough for the tenant to obtain financing to
complete the purchase.
 Over time the total of all payments has met the prearranged
purchase price.

Option to Buy
An option to buy is an enforceable contract in which a potential seller
grants a potential buyer the right to purchase a property before a stated
time for a stated price and terms. In exchange for the right of option,
the buyer pays the seller valuable consideration.
An option to buy places the buyer under no obligation to purchase the
property. However, the seller must perform under the terms of the
contract if the buyer exercises the option. An option is thus
a unilateral agreement. Exercise of the option creates a bilateral sale
contract where both parties are bound to perform. An unused option
terminates at the expiration date.
A renter with a lease with option to buy can accumulate down
payment funds while paying rent to the landlord. For example, an owner
may lease a condominium to a tenant with an option to buy. If the
tenant takes the option, the landlord agrees to apply $100 of the
monthly rent paid prior to the option date toward the purchase price.
The tenant pays the landlord the nominal sum of $200 for the option.

Check Your Understanding

Answers
1. Why is a market analysis important?

It enables the client to make a more informed

decision about what to offer or what to accept for
the property.
 2. What is typically the foremost question on the mind of a
potential seller at the listing presentation and how should
a licensee answer the question?

The question most sellers have from the outset is,

"How much profit will I get from the sale?" The
licensee can answer this question by estimating the
seller's net using the proposed listing price as the
basis for the calculation.
3. What are the two primary purposes/benefits to the seller
of a contract for deed?

First, it facilitates a sale that might otherwise be

impossible. Second, it may give the seller certain
tax benefits.
4. What is a lease purchase?

In a lease purchase arrangement, a tenant enters

into two agreements simultaneously – an
agreement to purchase and a lease. The tenant
agrees to purchase the property but operates under
the lease until the terms of the purchase agreement
are fully satisfied.

CHAPTER START

Chapter Summary
This concludes Chapter 21. Below is a brief summary that you can
review before taking your quiz.
Probably the single most important factor to decide when listing a home
for sale is the listing price.
The two common methods that can help determine a reasonable asking
price for a property are an appraisal and a comparative market analysis
(CMA).
A property's fair market value is the most probable price a property
should bring in an open and competitive market.
The market value of a property is an opinion of the value of a property
based on analyzing data collected about the property.
The accuracy of listings is quite important for both listing agents and
sellers. Any inaccurate data posted online or in printed advertisements
such as a big mistake on the square footage estimate for the subject
property being listed can be financially devastating to agents and
sellers should they later end up in court.
Copyright and trademark laws must be closely followed by agents
and principals, or they may end up in costly legal disputes over matters
such as copyright protected logos, trademarks, symbols, or color
schemes on signs.
The selling price of a property is the actual sales price.
The most important task a broker needs to perform with the seller-client
is to give a market analysis of what the property is worth since it is
critical for a property to be priced accurately.
Sellers are very anxious to know what they might net from the sale of
their home. Therefore, doing a careful estimate using the potential
listing price as the basis will keep them from having any unexpected
surprises.
Alternative forms of financing worth bringing to the sellers' attention are
as follows:
 Installment sales contract
 Lease purchase
 Option to buy

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you can then print or save to your device: Chapter 21 Summary