How Does Real Estate Work?


Real estate is property made up of land and anything that is attached to it, including

buildings and natural resources. It’s a major component of the economy and is used

in many different ways, from providing people with a place to live to allowing

businesses to operate on commercial property. People in the real estate industry like

brokers, agents and developers make money by buying, selling or exchanging


Real property consists of four main types: residential, commercial, industrial and raw

land. Residential real estate includes single-family homes, multifamily rental

properties (with four or more units), condos and townhouses. Commercial real estate

includes office buildings, shopping centers, strip malls and more. Industrial real

estate includes sites like farms, mines and land containing factories. Raw land can

be bought and sold for many purposes, but it’s usually purchased to turn it into

something useful, such as a new home or business.


The real estate process starts when an interested buyer makes an offer on a piece of

property. This is often accompanied by a deposit, called an earnest money deposit,

that shows the buyer’s seriousness about the offer and helps ensure that they’ll be

able to get financing on the home or business. Once the seller accepts the offer, it

goes into escrow. Escrow is an arrangement where a neutral third party holds the

funds associated with a real estate transaction until the sale is finalized.


When a property is purchased, the buyers and sellers will sign a purchase

agreement. This document sets out the terms of the sale and typically includes

information like the purchase price, closing date and any contingencies. It also

specifies whether or not the property is hooked up to water and sewerage, and any

property taxes that must be paid. Also read


Investors buy and sell property as an investment. This is sometimes done for short term

gains, such as during a hot housing market or when a property’s value is

expected to rise quickly. It can also be a long-term strategy, such as purchasing a

multifamily rental property and renting it out to tenants.

Almost everyone knows someone who rents out their home or a room in their house

to generate income. This form of investing is known as passive income, and it’s

becoming more popular with the rise of rental apps like Airbnb.


The real estate industry has a wide range of career opportunities, from home

improvement and development to mortgage banking, insurance and appraisal. If

you’re interested in entering the field, it’s important to understand how real estate

works so that you can make smart choices about your career path.