Principles and Practices Archives - Demetree School of Real Estate

You Can’t Do That – It’s Illegal

I came across a contract recently that said, “earnest money deposit to be turned over to the seller immediately and on top of price.” I had never seen this before, but it seemed plain as day what it meant. It meant the earnest money was not to be escrowed. It was to be delivered directly to the seller, put in the seller’s bank account for their own use, and was an additional fee on top of the price.

In a discussion with other agents, many agents said things like, “The earnest money is required to be put in an escrow account.”

Or, “The earnest money deposit is required to count toward the purchase price.”

Or, “The seller can’t do that. It’s illegal. The earnest money deposit must ALWAYS go immediately to the title company.”

There are certain things that are law and cannot be negotiated. For example, there are certain disclosures that are required to be delivered to the buyer. The buyer cannot waive their right to see those. The buyer doesn’t have to read them. He can throw them in the trash as soon as the seller hands them over, but the seller has to give the disclosures.

But that vast majority of the contract is 100% negotiable. One of those negotiable items is the amount of earnest money deposit, and whether it is placed in escrow. In Florida, if a broker accepts the deposit, they have to put it in escrow, either in their own escrow account, an attorney’s escrow account, or a title company’s escrow account. But if it is given directly to the seller, he can do whatever he wants to with it. For example, when I bought my house, I didn’t pay any escrow. I showed up with all the money at closing. I was OK with that. The seller was OK with that. It all worked out. If I hadn’t shown up at closing, the seller wouldn’t have as much recourse. But in this case, he wasn’t worried about that. I have heard of others doing this occasionally as well. It’s a little unconventional, and not something I would recommend in most cases. But in some cases, it’s perfect.

Too often, agents think that the standard preprinted contract is the contract, and it cannot be changed. If someone wanted to put a condition in the contract that all parties have to show up to closing wearing pink shirts or the contract is terminated, they could. Is that stupid? Yes. Is it legal and enforceable? Also, yes.

The point is there are few things in real estate that are non-negotiable. People add or delete things from contracts that sometimes only make sense to them. The Realtor who succeeds is the Realtor who can be flexible, even when someone wants to change the preprinted contract.

If you want to learn more about contract and everything else you need to know to get your Florida real estate license, check out Demetree School of Real Estate.

Please note that Karen Climer has no affiliation with Climer School of Real Estate. Her father, Ron Climer, sold Climer School of Real Estate in 2014. It has since been involved in several mergers and acquisitions and is owned by a large investment company. Karen owns Demetree School of Real Estate in Orlando, Florida.

By Karen Climer|2025-05-26T11:04:52-04:00May 26th, 2025|

What Are Air Rights?

At first appearance the 2010 movie, Burlesque, featuring Cher and Christina Aguilera, seems to be about a struggling burlesque club. It’s actually about real estate.

In the movie, the club is on the ocean. A real estate investor offers to buy the club because he wants to build a skyscraper but the owner won’t sell. However, the owner is about to lose the club to foreclosure. The club owner goes to the luxury condos across the street to offer to them the air rights above the club. Currently, the condos have a view of the ocean. If the skyscraper is built there, the condos will lose their view.

If there is a small building on the beach and a tall condo across the street, the tall condo can buy the air rights above the small building. This will ensure that the condo always has a view of the beach.

The club owner sells the air rights above the club to the condo. This ensures that the club will never become a tall building. The condos can guarantee their view forever. The club stays in business, and it’s a happy ending.

This is exactly how air rights work in real life. There is a short building with a great view. The tall building across the street also has the view. In order to ensure that the short building always remains short, the tall building buys the air rights above the short building.

Occasionally, air rights are also used to create a walking path above the street. Let’s say the hospital is on one side of the street and the parking garage is on the other side. They have a corridor that goes above the road to attach them. The hospital would have had to obtain the air rights above the road in order to do this.

In most cases, when you buy property, you buy the surface rights, subsurface rights, and air rights. But it is possible to separate them.

On the Florida real estate state exam, you need to know the difference between subsurface rights, surface rights, and air rights. If you are studying for the state exam, and need some help, check out the state exam review classes at Demetree School of Real Estate.

Please note that Karen Climer has no affiliation with Climer School of Real Estate. Her father, Ron Climer, sold Climer School of Real Estate in 2014. It has since been involved in several mergers and acquisitions and is owned by a large investment company. Karen owns Demetree School of Real Estate in Orlando, Florida.

By Karen Climer|2025-04-08T10:24:32-04:00April 8th, 2025|

What You Need To Know For The Florida Real Estate Exam – Blanket Mortgage and Partial Release Clause

Let’s say a developer buys some acreage and develops it into 50 lots. Mr. Developer has a mortgage for the entire property. You come along and buy lot 36. You are making your mortgage payments to your bank. But unfortunately, Mr. Developer can’t afford his mortgage. His bank forecloses on the entire acreage because that what was put up as collateral. That mortgage blankets the entire development. You’re out – now the bank owns your property. Wow – that would be a bad day.

Once that happened a few times, buyers started to say, “Wait a minute. This isn’t fair. I don’t want your mortgage to cover my property.” So we came up with a new system. Now, when the buyer buys lot 36, Mr. Developer takes that money and uses it to payoff enough of the mortgage so that lot 36 can be released from the mortgage. The buyer of lot 36 might have his own mortgage but lot 36 is no longer encumbered by the larger mortgage. The clause that allows that to happen is called the partial release clause.

When Mr. Developer gets his mortgage, there is a partial release clause in the mortgage that says when he sells the lots, those lots will be released from the mortgage.

There are a few questions about blanket mortgage and partial release clause on the Florida real estate state exam. Be sure you understand these concepts. If you need more help preparing for the Florida real estate exam, join me for a class.

By Karen Climer|2021-08-23T10:59:41-04:00January 1st, 2020|

Purchase Money Mortgage on the Florida Real Estate State Exam

Who takes back mortgage in a purchase money mortgage (PMM)?

Seller
Buyer
FHA
Fannie Mae

A few weeks ago, a student told me this was on the Florida real estate sales associate state exam. A purchase money mortgage is when the seller holds the mortgage, or when the seller takes back the mortgage, so the answer is A.

This concept is pretty foreign to a lot of people. Back in the good old days, this was how people always bought property. It still happens today, but it’s not as common.

Let’s say you own a house free and clear. I come along and want to buy it for $100,000. I don’t have that much money, but I do have $30,000. I ask you to hold the mortgage. You deed the property to me, so I now own the property. But you are holding the mortgage. You are acting as the bank. I send you a payment every month. If I don’t make the payments, you can have the house foreclosed on. You do everything the bank would do. That’s called a purchase money mortgage – when the vendor is the lender.

Real life application: Let’s say your buyer finds the home of her dreams for $150,000. The bank is going to give her $100,000. She has $30,000 cash. So she’s $20,000 short. Ask the seller to hold a $20,000 purchase money mortgage.

By Karen Climer|2019-09-06T14:25:07-04:00September 6th, 2019|

What’s the Difference Between Fannie Mae, Freddie Mac, and Ginnie Mae?

Let’s talk about Fannie Mae, Freddie Mac, and Ginnie Mae. What are they and what’s the difference between them?

The secondary mortgage market helps provide a constant source of cash to lenders.

First, the similarities – all three of them deal with the secondary mortgage market. What does that mean? Well, let’s say you go into the Tiny National Bank and get a loan for $1 million. This is a tiny bank, so that was all the money that bank had to lend out. Tiny National Bank takes that I.O.U. you gave them and sells it to an investor on the secondary market. Now, an investor has the I.O.U. piece of paper, and the bank has another million dollars in cash they can lend out. This ensures that there is constant flow of cash that the bank can lend out. That’s an oversimplification, but that’s the gist of it.

So what’s the difference between Fannie Mae, Freddie Mac, and Ginnie Mae?

First off, Fannie Mae and Freddie Mac are private enterprise – they are in the business of making money. These two entities are heavily regulated by the government, but they are not the government. Ginnie Mae, on the other hand, is the government. Ginnie Mae is part of the Department of Housing and Urban Development (HUD). You can remember that Ginnie and government both start with G.

As I said, Fannie Mae and Freddie Mac are both private enterprise, but they each have their focus. Fannie Mae sells loans that originate with large commercial banks. Freddie Mac deals with the smaller savings associations and credit unions. Both of them deal with conventional mortgages.

Ginnie Mae serves the same function but focuses on government-backed loans, such as FHA and VA.

Why are the names so weird?

The names are derived from initials because there is one thing our government loves and that is initials. (Even our country is called USA!) The Federal National Mortgage Association or FNMA became Fannie Mae. The Federal Home Loan Mortgage Corporation or FHLMC became Freddie Mac. And the Government National Mortgage Association became Ginnie Mae.

Be sure you know this for the Florida real estate sales associate exam. I hear people say, “There was a question about Freddie, but not Fannie or Ginnie.”

Then another person say, “I was asked about Fannie, but not Freddie and Ginnie.”

You get the idea – different people get different test versions with different questions. But the one commonality is that you need to know what these three entities are if you want to do well on the Florida real estate state exam.

Please note that I, Karen Climer, have no affiliation with Climer School of Real Estate. My father, Ron Climer, sold that school in 2014. Since that time, I have had no affiliation with that school. If you are looking for me, you will find me at Demetree School of Real Estate.

By Karen Climer|2021-08-24T15:06:14-04:00July 18th, 2019|