A deed is a legal instrument, in writing, duly executed and delivered, whereby the owner of real property, otherwise referred to as the grantor, conveys to another, referred to as the grantee, some right, title, or interest in or to the subject of real estate.
GENERAL WARRANTY DEED
In a general warranty deed, the grantor guarantees the title to the real property against any defects existing before the grantor acquired title as well as during the time of the grantor's ownership.
A general warranty deed conveys both present and after-acquired interest of the grantor.
The operative language in a general warranty deed is usually the expanded version, "grants, bargains, sells and conveys"; however only the phrase "sells and conveys" is required by statute. In addition, a general warranty deed will include the phrase "and warrants title to the same" that is short hand for the following covenants:
It is important to note that the above covenants of title, run not only to the benefit of grantee but to all persons down the chain of title from grantee, so that breach of covenants of warranty may be enforced not only by the direct grantee from grantor but also by grantee's successors and heirs. Also, liability of the grantor may be imposed against either the grantor and/or the grantor's heirs.
SPECIAL WARRANTY DEED
A special warranty deed differs from a general warranty deed in that where a general warranty deed guarantees title against interests predating the grantor's ownership of the property, a special warranty deed merely guarantees title only against defects arising during the time the grantor owned the real property. That is to say, a special warranty deed warrants title as against anyone whose interest has arisen from grantor, but not from others.. Like a general warranty deed a special warranty deed includes after-acquired title.
The operative language in a general warranty deed is usually the expanded version, "grants, bargains, sells and conveys"; however only the phrase "sells and conveys" is required by statute.
In addition, a special warranty deed will include the phrase "and warrant the title against all persons claiming under me," or an expanded phrase with the same meaning "and warrants title against all claiming by, through, or under me."
Using a special warranty deed should be considered when the grantor is willing to warrant against any adverse interest or defect in title which the grantor, herself, created but not against interests of or defects occurring before the grantor was the owner. In essence this deed says, I, as grantor of this property will be responsible and liable for anything I did to the title of the property but not for what others may have done.
A quitclaim deed is one in which the grantor warrants nothing. This deed conveys whatever interest the grantor has in the property, if any at all. To be clear, a quitclaim deed does not even represent that the grantor has any interest, whatsoever.
Unlike both a general warranty deed and a special warranty deed, a quitclaim deed does not convey any after-acquired title.
A quitclaim deed uses the operative language "sells and quitclaims." Of note is the absence of the word "conveys' which is present in both a general warranty deed and special warranty deed.
A quitclaim deed is generally used where the grantor may or may not have an interest in the property or where the grantor is unwilling to warrant title. Typical types of uses for a quitclaim deed can be to clear title from an interest otherwise affecting marketable title such as interest the grantor may possess through some prescriptive easement in adjacent property.
Investors who have commercial properties they wish to acquire or dispose, landlords seeking tenants to lease space in the commercial properties they own, and tenants seeking to lease space in a commercial property, all hire a commercial real estate Broker.
So, how does a commercial real estate Broker get paid…and who pays them?
Commercial Real Estate Brokers Get Paid on Commission. All commercial real estate brokers get paid on commission based on the representation of the two parties in a transaction. In a sale transaction this would be the buyer and seller, and in a lease transaction this would be the landlord/owner and the tenant.
The amount a commercial real estate Broker receives on a commission is calculated as a percentage of the total commercial property sale price or lease value. While it’s illegal due to anti-trust laws to set a market- or industry-wide standard for commission percentages, most Brokers earn anywhere from 4% to 8%.
The manner in which a CRE Broker is paid, and who is responsible for the payment, depends on whether the commercial transaction is a sale or a lease.
Commission on Commercial Real Estate Sales: Commercial real estate Brokers receive a commission on the sale of a commercial property by representing an owner, a buyer, or both. The amount of the commission is calculated as a percentage of the final sale amount. If there are two different Agents involved in the transaction they will split the commission 50/50.
For example, say the negotiated commission rate on a commercial property is 6% and it sells for $600,000, that is $36,000 is commission. The full $36,000 will go to the listing Broker (representing the owner) if they are the one who procured the buyer. If another commercial real estate Broker brought the buyer, then the two Brokers would split the commission 50/50 each earning $18,000 on the deal.
In most commercial real estate sale transactions it is the responsibility of the property owner to pay all commissions upon closing.
Commission on Commercial Real Estate Leases: Commercial real estate Brokers receive a commission on lease transaction by representing a landlord/owner, a tenant, or both. The amount of the commission is calculated as a percentage of the total lease value, also called total consideration. If there are two different Brokers involved in the transaction they will typically split the commission 50/50. This is, unless otherwise noted in the lease agreement.
For example, say a tenant signs a 5-year lease for a 3,500 square foot suite at $10 per square foot.
5 years x (3,500 SF x $10) = $175,000 Total Lease Value
If the negotiated rate is 6%, the total commission on this lease will be $10,500 ($175,000 x 6%). If there were two commercial real estate Brokers on the deal (one representing the landlord/owner and one representing the tenant) then each broker will earn $5,250 ($10,500./ 2).
In leasing transactions the landlord/owner of the commercial property is the one who pays the commission fee. Typically, half at lease signing and the remaining half upon tenant occupancy.
Seeking a Commercial Real Estate Broker? Whether seeking to invest in properties, dispose of current assets, lease up your building, or find space to lease, the brokerage experts at First and Main RE have the transactional experience and market knowledge to get you the best deal possible. Contact us today to see how we can help you see the highest return on your investment.
Posted by: Jennifer Mussato
Jennifer Mussato is president at Denver-based First and Main RE powered by Keller Williams, a real estate group that specializes in commercial leasing, acquisitions, dispositions and investment strategies.
Multiple studies have confirmed the medicinal benefits of marijuana, but what about its impact on the health of the housing market? Does medical and recreational legalization lead to growth in home values or is the pot industry just blowing smoke?
This past year, voters in California, Massachusetts, Maine, and Nevada all legalized recreational use while Florida, Arkansas, North Dakota, and Montana voted to legalize or expand medical use in those states.
One thing is clear, pot entrepreneurs are contributing to real estate booms in commercial and residential markets in states that have legalized the drug for medical recreational use.
Impact on Commercial Sales: Previously vacant warehouses and factories are now home to growers while long-abandoned strip malls have become the storefront for pot shops. The pot industry has created a huge demand for commercial operations. As a result, states like Colorado and Washington are seeing premium prices for building leases and purchases within the proper zoning.
Buying real estate is an attractive asset to marijuana growers and retailers because it provides a safe haven for their profits that many banks are still reluctant to manage due to federal regulations and give them more freedom to create specialized spaces for their business. Landlords also notoriously price gouge marijuana tenants, so buying makes good business sense over renting.
Successful owners of marijuana businesses quickly turn to real estate and become landlords themselves. In Colorado, Polk and Stone rents properties to marijuana businesses with the agreement that rent will increase only 3 percent a year. In an industry where rent can increase by 50 percent from year to year, this business model is enticing to marijuana entrepreneurs.
Impact on residential sales: Colorado's state law allows for counties to determine if they and how they want to legalize and regulate the drug. Areas where it’s legal attract more homebuyers, including marijuana users as well as entrepreneurs and job seekers. As more growers and retailers open up shop in these municipalities, the demand for workers rise. The influx of new residents inevitably leads to more home sales and higher rents. There are also plenty of people moving to pot-friendly states without intent to work for the industry, but rather to enjoy the bud of its labor.
Impact on home values: Realtor.com reports the four states with at least a year of experience with recreational marijuana sales showed a marked increase in home prices — well above the national median price.
The data from Colorado provides some of the best insights on what happens to the housing market after recreational use is legalized because it has permitted its use the longest. Since the first shops started operations on January 1st, 2014, the median home sale price in the state has risen from $248,000 in the first half of 2014 to $298,000 in the first half of 2016 according to the realtor.com analysis. In jurisdictions where the drug can be purchased, the median sales price of homes in the second quarter of 2016 were a hit $305,200 while homes in areas where it is banned only went for $267,200. Of course, there are other industry sectors that have been experiencing rapid growth in Colorado, so it’s difficult to contribute the rise in home prices strictly to the rising business of pot, but it's an obvious leading contributor.
Unfortunately, not every homeowner in states with legalized weed is getting a good deal. On the flip side, Colorado neighborhoods harboring grow houses lose value. The pungent odor the plant emits turns off home seekers.
Concern for criminal activity: One of the greatest concerns of detractors of legalization is the claim it will encourage more crime and further reduce home values of those living near grower, manufacturers, and retailers. Looking to Colorado again, in Denver, the crime has grown by 44% as reported to the National Incident Based Reporting System since legalization. But police argue that the system potentially over counts crimes and prefer to cite the FBI's Uniform Crime Report which indicates only a 3.5% increase over the same time. It's important to note, however, the city began tracking marijuana-related crimes as well, which make up less than 1% of all offenses. Experts conclude that the rise in crime is tempered when taking population growth into account, and not directly tied to the sale or use of the drug.
Dealing with real estate transactions: From a real estate professional perspective, a lingering question is how to deal with money that comes from an industry that is still federally prohibited under the Controlled Substance Act. There is a serious lack of banking services for commercial operations in the medical and recreational marijuana business. Although many title companies will help close on a cannabis deal, they will not facilitate the exchange of funds. That's because banks refuse to work even indirectly with marijuana business owners. As a result, title companies have formal policies against serving as escrow, especially when the land is designated for pot-related use, but will issue limited title insurance policies on the land that won't cover federal governmental actions such as civil and criminal forfeiture.
As more states pass legalization, this will provide opportunities for agile and creative real estate brokers to provide much needed professional guidance for marijuana business owners.
Written by Amanda Farrell, Proplogix
Amenities: Check the potential neighborhood for current or projected parks, malls, gyms, movie theaters, public transport hubs and all the other perks that attract renters. Cities, and sometimes even particular areas of a city, have loads of promotional literature that will give you an idea of where the best blend of public amenities and private property can be found.
Building Permits and Future Development: The municipal planning department will have information on all the new development that is coming or has been zoned into the area. If there are many new condos, business parks or malls going up in your area, it is probably a good growth area. However, watch out for new developments that could hurt the price of surrounding properties by, for example, causing the loss of an activity-friendly green space. The additional condos and/or new housing could also provide competition for your renters, so be aware of that possibility.
Number of Listings and Vacancies: If there is an unusually high number of listings for one particular neighborhood, this can either signal a seasonal cycle or a neighborhood that has "gone bad." Make sure you figure out which it is before you buy in. You should also determine whether you can cover for any seasonal fluctuations in vacancies. Similar to listings, the vacancy rates will give you an idea of how successful you will be at attracting tenants. High vacancy rates force landlords to lower rents in order to snap up tenants. Low vacancy rates allow landlords to raise rental rates.
Rents: Rental income will be the bread and butter of your rental property, so you need to know what the average rent in the area is. If charging the average rent is not going to be enough to cover your mortgage payment, taxes and other expenses, then you have to keep looking. Be sure to research the area well enough to gauge where the area will be headed in the next five years. If you can afford the area now, but major improvements are in store and property taxes are expected to increase, then what could be affordable now may mean bankruptcy later.
Natural Disasters: Insurance is another expense that you will have to subtract from your returns, so it is good to know just how much you will need to carry. If an area is prone to earthquakes or flooding, paying for the extra insurance can eat away at your rental income.
The team at First and Main have helped many new and veteran landlords find their new profitable real estate investment. Call us today!
Rental properties, whether single family or multi-family can be an amazing and profitable investment. But for the best returns, do your research going in.
Neighborhood: The quality of the neighborhood in which you buy will influence both the types of tenants you attract and how often you face vacancies. For example, if you buy in a neighborhood near a university, the chances are that your pool of potential tenants will be mainly made up of students and that you will face vacancies on a fairly regular basis (during summer, when students tend to return back home).
Property Taxes: Property taxes are not standard across the board and, as an investor planning to make money from rent, you want to be aware of how much you will be losing to taxes. High property taxes may not always be a bad thing if the neighborhood is an excellent place for long-term tenants, but the two do not necessarily go hand in hand. The town's assessment office will have all the tax information on file or you can talk to homeowners within the community.
Schools: Your tenants may have or be planning to have children, so they will need a place near a decent school. When you have found a good property near a school, you will want to check the quality of the school as this can affect the value of your investment. If the school has a poor reputation, prices will reflect your property's value poorly. Although you will be mostly concerned about the monthly cash flow, the overall value of your rental property comes in to play when you eventually sell it.
Crime: No one wants to live next door to a hot spot for criminal activity. Go to the police or the public library for accurate crime statistics for various neighborhoods, rather than asking the homeowner who is hoping to sell the house to you. Items to look for are vandalism rates, serious crimes, petty crimes and recent activity (growth or slow down). You might also want to ask about the frequency of police presence in your neighborhood.
Job Market: Locations with growing employment opportunities tend to attract more people – meaning more tenants. To find out how a particular area rates, go directly to the U.S. Bureau of Labor Statistics or to your local library. If you notice an announcement for a new major company moving to the area, you can rest assured that workers will flock to the area. However, this may cause house prices to react (either negatively or positively) depending on the corporation moving in. The fallback point here is that if you would like the new corporation in your backyard, your renters probably will too.