Real estate is a business, not a profession. Real estate is sometimes inaccurately spoken of as a profession, but it is essentially a business. A profession applies science, art or learning to the use of others, the profit to the professor or person applying it being incidental; whereas a business is engaged in primarily for profit, and the profit is to the one engaging in the business.
A profession implies professed attainment in special knowledge. A person may engage in business with or without special knowledge and no one else is concerned with the question whether he has any knowledge of the business, because no one else is affected by the result. If he is successful the rewards are his; if he fails he bears the loss. But let him attempt to practice a profession and, if he be unskillful, others are directly affected, and the fact that his reward is diminished thereby is merely incidental to the fact that others suffer. Ethics of the business.—But whether real estate be a business or a profession has no connection at all with the body of ethics governing it.
Divisions of the business.—The principal divisions of the real estate business are investment, operation and agency. These differ from one another according to the aims of the persons engaging in them and the methods by which those persons expect to make their gains. To conduct either of the first two divisions of the business, investment or operation, actual money capital is required. The most important capital in the agency business is the good will of its customers, and that can be husbanded, increased and made very valuable.
Investment is the employment of capital in the acquisition of real estate or interests therein for permanent ownership or actual use of the person acquiring it.
Operation is the employment of capital in the acquisition or improvement of real estate or interests therein for commercial operations.
Agency is dealing in or with real estate on behalf of others.
Investment in real estate is generally made for either of two purposes :
(a) to derive an income,
(b) to hold for resale in expectancy of an increase in value.
Investment for income may be for one of two purposes,
(1) the derivation of rental—that is, the direct return for the use of real property for definite periods, or
(2) the obtaining of income through others upon money lent on the security of real property.
Operation.—Real estate operation may be carried on
(a) for the purchase and sale of land,
(b) for the purpose of building,
(c) for the purpose of lending money upon mortgages.
The purchase and sale of land is that branch of operation which concerns itself with dealing in land as a thing to be bought and sold for profit and loss. It may be divided into two parts :
(1) Speculation, pure and simple, by which land is bought in the hope of a rise in value and resold when that hope is either realized or known to be unfounded.
(2) Development of land, the most conspicuous part of which is the development of vacant tracts by buying them wholesale in their wild condition, making them marketable by bringing them to such a state of development as is implied by putting streets through them, pre-paring them for use and then selling them in small parcels. This is a most important and useful part of the commercial side of the real estate business, and has resulted in the development and settlement of many parts of the country.
That portion of real estate operation which concerns itself in building may be similarly divided into,
(a) Speculative building which consists in building structures primarily for sale, and not necessarily for the use of the constructor, and
(b) Building for investment which consists of the erection of structures for rental or primarily for the use of the person conducting the operation.
That form of operation which is concerned with the lending of money upon real estate security is divided into two parts,
(a) the making of permanent loans,
(b) the making of building or temporary loans.
Permanent loans are moneys lent upon mortgages at current rates of interest, the security being deemed by the lender sufficient to afford an ample margin between the amount of the loan and the actual value of the property, the sum being loaned usually for a definite time.
Building and temporary loans are moneys lent for investment in property, to aid either in putting structures upon it, repairing structures or in the development of wild tracts, the intention being that the money be repaid when the development or reconstruction is finished. Because of the greater risks in the operation and the greater necessity for supervision by the lender, there is compensation in an increased rate of interest over and above the fair value of the loan of the money. For that reason it is to the interest of the borrower that the loan be made permanent and not temporary as soon as may be.
Agency.—Agency is that branch of the real estate business which engages the attention of the greatest number of persons who are concerned with the business, and in that respect it is of prime importance. It is divided into two parts, brokerage and management.
A broker is a person who for compensation, usually proportioned to the value of the subject-matter, brings about transactions between principals. Brokerage has two divisions according to the kinds of business which usually engage the attention of the broker.
The sales broker is a broker who devotes his time and attention to the bringing about of the sale or exchange of real property.
A loan broker is one who gives his attention to the obtaining of loans upon the security of real property. One man may practice both branches of the business, or a specialist may devote himself to either of these branches.
Management, the second branch of agency, is the operation of deriving income and caring physically for real estate structures. It concerns itself not only with the deriving of income, but with the keeping down of expenses and the care in making expenditures. It is popularly known as "Agency."
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