Purchasing Property

1. Purchasing Property Unit 3: Agribusiness Planning and Analysis Lesson: AP9

2. Objectives Lesson Objective: • After completing the lesson on purchasing property, students will demonstrate their ability to apply the concept in real-world situations by obtaining a minimum score of 80% on a Property Owner Interview Evaluation. Enabling Objectives: • Recall three considerations to make when considering a parcel of land, describe two ways to determine property value, and determine the legal land description of a parcel of land. • Explain the four steps in purchasing real estate, identify three things to include in a contract, and contrast the three types of deeds. • Describe four basic elements of a real estate transaction.

3. Key Terms • Township • Section • Abstract • Deed • Collateral

4. I’m a property owner!

5. Selecting Land Considerations • Size of business, farm, or home • Amount of land needed or desired • Soil conditions • Adequacy for potential enterprises or uses • Improvements • Condition and usefulness of buildings • Possible hazards • Soil limitations, erosion potential, etc. • Neighbors, schools, churches, community • Location • Ease of access • Ease of traffic movement • Distances from schools, town or city, customers

6. Determining Value of Property Capitalization Approach Comparative Advantage Approach Find a fair selling price of comparable land in the area Add or subtract values for factors that may influence property value • Annual profit to be earned Rate of interest on loan • Add or subtract values for factors that may influence the property value

7. Legal Land Description – Metes and Bounds • Natural landmarks such as trees, lakes, rivers, or mountains • Artificial markers like government survey markers are used to form the boundary to a parcel of land • Problems • Natural landmarks may change over time • Rivers will change courses • Trees will die • Lakes may dry up or shift boundaries • Artificial markers can be destroyed by people or nature

8. Legal Land Description – Rectangular Survey • Land divided by grid lines spanning across the county • Principal Meridian • Line running north and south through meridian point • Base Line • Line running east and west through the meridian point • Set by government surveys on basis of established longitude lines for north and south and latitude lines for east and west • Most land in Missouri surveyed using Fifth Principal Meridian Point

9. Legal Land Description – Rectangular Survey • Lines run north and south every 6 miles east or west of the principal meridian • Lines run east and west every 6 miles north or south of the base line • Lines intersect every 6 miles • Townships • Squares of land created by intersections • Each row of townships running north and south is given a range number according to how many rows away it is from the principal meridian • Each row of townships running east and west is given a tier number according to how many rows away it is from the base line

10. Legal Land Description – Rectangular Survey • Townships contain 36 square miles of land • Each square mile, or 640 acres, is called a section • Township is composed of 36 sections, totaling 23,040 acres of land

11. Legal Land Description – Rectangular Survey • Sections can be subdivided into fractions

12. What is the legal land description for the shaded area and how many acres does it contain? Assume: Section 1 of tier 3 north, range 3 east of the fifth principal meridian Northeast quarter of the southeast quarter of section one of tier three north, range three east of the fifth principal meridian NE ¼, SE ¼, S1, T3N, R3E of the 5th P.M. Asectioncontains 640 acres SE ¼ = contains ¼ of 640 = 160 acres Shaded area is ¼ of SE ¼ = ¼ of 160 = 40 acres

13. 160 acres NW ¼ of S10, T4N, R3W of 5th P.M. • 40 acres SW ¼, SE ¼ of S10, T4N, R3W of 5th P.M. • 20 acres W ½, SE ¼, SE ¼ of S10, T4N, R3W of 5th P.M. • 10 acres SE ¼, SE ¼, SE ¼ of S10, T4N, R3W of 5th P.M. • 20 acres S ½, NW ¼, SE ¼ of S10, T4N, R3W of 5th P.M. • 10 acres NW ¼, NW ¼, SE ¼ of S10, T4N, R3W of 5th P.M. • 5 acres N ½, SE ¼, SW ¼, NE ¼ of S10, T4N, R3W of 5th P.M. • 10 acres NW ¼, SW ¼, NE ¼ of S10, T4N, R3W of 5th P.M. • 40 acres S ½, N ½, NE ¼ of S10, T4N, R3W of 5th P.M. • 20 acres N ½, NW ¼, NE ¼ of S10, T4N, R3W of 5th P.M.

14. Steps in Purchasing Real Estate

15. Points of a Contract • Legal description of land • Price to be paid • Time and place of payment • Collateral • Used to provide security for unpaid balance • Transfer of possession • Estimated time to move in • Taxes due on the property • Assignment • Abstract of title or title insurance • Abstract is a listing of all events or actions that affect the title • Deed • Quit-claim, warranty, or deed of trust • Offer and acceptance • Terms of sale • Sufficient payment • Promise to fulfill contract

16. Types of Deeds

17. The Market Buyer’s Market Seller’s Market When homes are selling fast, there are few homes on the market, and the local economy is good • When home sales are slow

18. Real Estate Agent • Listing agent and agent who shows prospective buyers the property • Both agents work on behalf of the seller • May not disclose negative information to buyer • Hire a buyer’s agent • Required to disclose all relevant information • Assist with negotiations on buyer’s behalf

19. Attorneys and Real Estate • Buyers involve attorney when ready to make an offer and before any papers are signed • Sellers involve attorney before signing a listing agreement

20. Appraisals and Surveys Appraisal Survey Look at property lines, improvements, changes, etc. Some lenders require registered survey Title insurance company may also require survey • Fair market value of a home • Should be close to selling price • Lenders order an appraisal prior to approving a loan

21. Taxes • Transfer Tax • Tax paid for transferring ownership of property • Property Tax • Yearly tax based on assessed value of property • Seller should reveal this amount • Find at local tax assessor’s office

22. Conclusion • Purchasing property will be the biggest investment most people will ever make. To protect this investment, it is a good idea to know how to select land, to know what it is worth, to be able to finance it, and to understand the legal concerns involved. • A prospective buyer should understand legal descriptions as well as parts of a contract and the different types of deeds. • It would also be beneficial to have a lawyer examine the contract and the deed to protect the investment further.

23. Exit Cards • What did you learn today about purchasing property? • What questions do you still have about purchasing property?